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The Telegraph ran a fascinating collection of photos from different statges of development of the Asian city state of Singapore. The first photo is from 1900, the second is from the 1970s and the last photo is contemporary. The incredible transformation of Singapore from a sleepy outpost of the British Empire to a global commercial and technological hub was partly facilitated by a very high degree of economic freedom. In 1970, the first year for which data is available, Singapore had the third freest economy in the world (behind Hong Kong and Canada). Singapore maintained a high degree of economic freedom over the next 45 years and ranks as the second freest economy in the world today (behind Hong Kong). As late as 1970, per person income in Singapore was 54 percent of the global average. Today it is 321 percent of the global average.

For 122 years, the California Labor Code has said that employees in all industries are “entitled” to a day of rest “one day therefrom in seven.” The statute also provides that “No employer shall cause his employees to work more than six days in seven.” Mendoza, a former Nordstrom employee, is arguing to the California Supreme Court that the Labor Code should be construed as flatly prohibiting employers from allowing an employee to work on the seventh day of a workweek. To make that argument work he must also convince the Court that the Labor Code prohibits employees from voluntarily choosing to work on a day otherwise scheduled for rest. This radically paternalistic argument not only flies in the face of the plain language of the statute, but it would hurt employees who may wish work on the seventh day of a workweek for innumerable reasons. In a brief filed in support of Nordstrom, Cato, joined by the National Federation of Independent Business, the Reason Foundation, and a handful of California employees, argues that there are many legitimate reasons why an employee might want to work on the seventh day of a workweek: to meet financial goals, to accommodate personal schedules, or simply to maintain flexibility to work when he wants.

Mendoza also argues that employers must require written waiver from employees before allowing them to work on the seventh day of a workweek. But nothing in the Labor Code suggests that there is any requirement for a waiver to be in writing, or for employers to maintain records whenever an employee should elect to work on a day otherwise scheduled for rest. We argue that it would be improper to read language into the statute that would impose such burdensome requirements on employers—both because it would violate first principles of statutory construction and because it would open unwitting businesses up to lawsuits. Moreover, such a paperwork requirement would be wholly impracticable when, for example, an exempt employee might choose to check a few emails on a Sunday evening, something that could be construed to violate the day of rest law.

Finally, we argue that the plaintiff advocates a theory that would hold his employer liable for conduct that California state regulators had long permitted in official agency guidance. Just as there would be significant due process concerns with Congress passing a statute to retroactively hold businesses liable for conduct that was permissible at the time, there would be serious constitutional problems with giving a statute a retroactive interpretation that would impose ruinous penalties on individuals or businesses that acted in good faith reliance on best available guidance at the time. The California Supreme Court should not heed Mendoza’s paternalistic arguments and upset 122 years of treating California’s workers like responsible adults.

Whenever North Korea heads to the negotiating table one remembers the traditional description of a second marriage: the triumph of hope over experience. We’ve been here before. Or, more accurately, the two Koreas have.

Still, as Winston Churchill famously said, better to jaw-jaw than war-war. The last Korean conflict left millions of casualties and refugees. Even a minor league war could be catastrophic.

Nevertheless, the Republic of Korea should have no illusions about the latest negotiations, scheduled for America’s Thanksgiving. Nothing much is likely to emerge from that gathering. And nothing that emerges is likely to survive very long.

Diplomatic dialogue requires two parties. The Democratic People’s Republic of Korea prefers a monologue. Kim Jong-un is most concerned about preserving his rule.

To the good, he evinces no suicidal impulses. The Kims always have preferred their virgins in this world. And despite the regime’s consistent rhetoric about destroying enemies near and far, nothing suggests Pyongyang’s leadership actually believes the DPRK to be capable of defeating Seoul backed by America.

However, Kim suffers no liberal sentimentality. Over the last four years his government has executed some 400 officials, including his uncle.

In any talks with the ROK humanitarian concerns will never be more than a gloss for the DPRK. Thus, Seoul’s objectives also should be eminently practical.

Like last August. The South restarted propaganda broadcasts along the DMZ after two of its soldiers were injured by land mines. This triggered a surprisingly ferocious response from the North. The two stepped back from confrontation and agreed in principle to further discussions to reduce tensions. The latest meeting is supposed to help set such talks in motion.

The North almost certainly hopes to persuade the ROK to restart economic aid and investment suspended in 2010 after the sinking of a South Korean warship and bombardment of a South Korean island. While there’s nothing in principle wrong with Seoul attempting to buy good behavior, so far the DPRK never seems to stay bought.

The ROK must decide what it most desires out of Pyongyang. One goal should be continuing dialogue, even if largely inconsequential. In general, North Korea has proved less likely to provoke militarily while engaged diplomatically.

A more substantive objective for South Korea should be to lessen the North’s conventional threat. North Korea’s military is unsophisticated, but its advanced positioning puts Seoul at risk. ROK aid and trade should only follow reduction in the military threat to the South’s industrial, political, and population heart.

To test Pyongyang’s interest, the Park government should indicate that North Korean flexibility would open up topics heretofore off-limits. For instance, reduce the security threat to the ROK and Seoul would consider limiting or eliminating joint military exercises with the U.S., and even America’s troop presence. The U.S. should offer its full endorsement for the talks and indicate its readiness to step forward diplomatically and back militarily.

While little that Pyongyang says can be accepted at face value even paranoids have enemies. America’s propensity for regime change likely unsettles the North. Reducing the threat environment facing the DPRK would offer a good test of the latter’s intentions.

Moreover, Seoul should use the prospect of talks with the North to intensify its dialogue with China. Beijing appears to be increasingly unsettled over the misbegotten behavior of its erstwhile ally.

Nevertheless, the People’s Republic of China has resisted applying more pressure, instead urging the U.S. to engage the North and reduce the North’s insecurities. Following the Chinese script would allow the ROK to request an extra push from Beijing, asking what would be necessary to involve China more directly in resolving the “North Korea problem.”

As I point out in National Interest: “All of this goes well beyond the working-level discussions planned for Thursday. But Seoul should attempt to turn the negotiations into something more substantive and meaningful. That would be something for which all of us could give thanks.”

Back in October, I debated ObamaCare with former Secretary of the U.S. Department of Health and Human Services Kathleen Sebelius. Kansas City Public Television recently aired a package featuring the debate.

Week in Review: Health Care Status Report

Complete footage of the debate is available here: Part 1Part 2Part 3Part 4Part 5, and Part 6.

One memorable moment came after I told the story of Deamonte Driver, a boy from Prince George’s County, Maryland, who died at age 12 because his mother was unable to find a dentist who would accept their Medicaid coverage. An infection that began in an abscessed tooth spread to Deamonte’s brain and ultimately killed him. A dentist could have prevented Deamonte’s death with a simple $80 extraction. But Medicaid pays dentists so little, that only one in six Maryland dentists accepts Medicaid patients. Deamonte’s mother and employees at a local non-profit called dozens of dentists to no avail.

Sebelius responded that Deamonte would have died with or without Medicaid, and besides there is no alternative because “I don’t know any dentists who take uninsured people at all.” This from, as KCPT describes her, “the woman once charged with leading the nation’s health care system.”

Also on the panel were Tarren Bragdon of the Foundation for Government Accountability and Daniel Landon of the Missouri Hospital Association.

In 2011, the Fullerton, California police violently beat Kelly Thomas, a 37-year-old mentally ill homeless man, who later died from his injuries. The arrest was recorded, and Thomas could be heard calling for his father as the officers relentlessly beat him into a coma.

Two officers were fired for the incident but ultimately acquitted of criminal charges in the case. As opening arguments were set to begin in the wrongful death suit, the City of Fullerton agreed to pay the Thomas family $4.9 million as a settlement.

Ron Thomas said at a news conference that while the city acknowledged no wrongdoing in the settlement, it was a clear indication to him of its liability and guilt in the death of his 37-year-old son Kelly Thomas. Thomas said he feels vindicated by the settlement.

It is not uncommon for municipalities to disavow any culpability in settlements like this. But lawsuits are important nonetheless because they bring some measure of closure to the families who do not find justice in the criminal courts and incentivize governments to prevent such incidents from happening in the future.

Over at PoliceMisconduct.net, we track and catalog news stories like this one that take years to make their way through the administrative, criminal, and civil systems. It is vitally important that police officers and municipalities are held accountable for their actions.

On Tuesday, December 1, Cato will host “Policing in America,” an all-day conference dedicated to discussing the policies and impacts of law enforcement around the country. The event will be live-streamed on the Cato website. 

A version of this is cross-posted at PoliceMisconduct.net

Earlier today, Turkey, a NATO ally, shot down a Russian jet, killing at least one pilot, and leaving the other in the hands of insurgents on the ground (and possibly also dead). The Turks claim that the Russian jet was operating in Turkish airspace, and was warned away on numerous occasions. Thus, when its F-16 fighter jet attacked the Russian SU-24 bomber, it was a legitimate act of self defense. The Turks have called for a NATO meeting later today to explain their side of the story, and, presumably, game out next steps.

Russia claims that its plane was operating over Syrian airspace. It initially reported that it was downed by ground fire, but has since changed its story. Putin is calling it “a stab in the back,” but may stop short of using it as a pretext for substantially widening a conflict he may already regret having been dragged into. There are conflicting reports about whether Russian Foreign Minister Sergey Lavrov has canceled a planned meeting in Turkey tomorrow.

This story bears watching, and I’m reluctant to spin out the historical analogies too far. Very few brush fire wars become world wars, and not all allies behave as the allied and entente powers did in July 1914. Plus, technological changes go a long way to explain why the world today is very different from 100 years ago. I have reason to doubt, for example, that a nuclear-armed Germany would have risked war with a nuclear-armed Russia over Austria-Hungary’s ultimatum to Serbia.

But I nervously tweeted this morning that we might soon appreciate the difference between fighting wars against terrorists and wars against nation-states. We’ve avoided having to think seriously about such things for many years, which may explain the apparent enthusiasm for a no-fly zone over Syria (favored by at least 8 of 11 major presidential candidates). The possibility of Russian jets being shot down, and Russian pilots killed, was dismissed as a hypothetical (Though not by everyone).

It isn’t hypothetical any longer.

Among the types of speech that the First Amendment protects is commercial speech, such as advertising. But commercial speech that’s false or misleading isn’t constitutionally protected: you may be liable for defrauding someone through various communications. But what is “false” or “misleading,” and who decides?

The Federal Trade Commission brought claims against POM Wonderful—you may know them as the producer of various pomegranate beverages in distinctive curved bottles—for consumer deceptive advertising. The agency determined that some of POM’s health-supplement ads were misleading. But this decision was appealable only to the FTC itself, which becomes judge, prosecutor, and jury in an arrangement blessed by the U.S. Court of Appeals for the D.C. Circuit. That court declined to second-guess the FTC’s rulings on the ground that the agency should be given broad deference in its adjudicative factual and legal findings.

But when the standard of review for First Amendment claims varies between courts and administrative agencies, constitutional protections become vulnerable to inconsistencies. And even more concerning than inconsistencies are the conflicts of interest inherent in the FTC’s internal hearings, which lack substantial judicial review.

This situation leaves businesses subject to FTC actions with no viable means to check their accuser’s determination that its speech is misleading or fraudulent. It’s no coincidence that over the past two decades, the FTC hasn’t lost a single deceptive-advertising case it has administratively initiated.

To correct this state of affairs, Cato has joined the Alliance for Natural Health-USA on an amicus brief urging the Supreme Court to take POM’s case. The Supreme Court has repeatedly held that determining whether the Constitution protects particular speech is the quintessential function of Article III courts, not federal agencies. Yet this directive has become increasingly observed in the breach with respect to commercial speech, ever since the Supreme Court’s unsatisfying ruling in Bose Corp. v. Consumers Union (1984).

The POM predicament presents an optimal opportunity for the Court to address the question left open in Bose and wrest decisions regarding First Amendment doctrine away from the executive branch. 

The Supreme Court will decide whether to take POM Wonderful v. Federal Trade Commission early in the new year.

Most of the headlines about the large new Pew Research Center survey (6,000 interviews) have focused on the continuing decline in Americans’ trust in government, as depicted in the chart below.

But the survey also asks one of my favorite questions:

If you had to choose, would you rather have a smaller government providing fewer services, or a bigger government providing more services?

As shown in the chart below, the number preferring smaller government rose to its highest point during the 1990s, then reached a low point as President Obama was elected in 2008, and has been rising since then. In the latest survey 53 percent of Americans say they prefer a smaller government, while only 38 percent would rather have a bigger government with more services.

But as I’ve written before, I’ve always thought the “smaller government” question is incomplete. It offers respondents a benefit of bigger government–”more services”–but it doesn’t mention that the cost of “bigger government providing more services” is higher taxes. The question ought to give both the cost and the benefit for each option. The Rasmussen poll does often ask the question that way. In one poll about a decade ago, Rasmussen found that 64 percent of voters said that they prefer smaller government with fewer services and lower taxes, while only 22 percent would rather see a more active government with more services and higher taxes. A similar poll around the same time, without the information on taxes, found a margin of 59 to 26 percent. So it’s reasonable to conclude that if you remind respondents that “more services” means higher taxes, the margin by which people prefer smaller government rises by about 9 points. So maybe the margin in this poll would have been something like 58 to 34 if both sides of the question had been presented.

For now, when voters are given only the benefits and not the costs of bigger government, Pew and other pollsters find these results:

The election of Mauricio Macri as the new president of Argentina brings to a close 12 years of populist, interventionist and increasingly authoritarian Peronist rule by Cristina Fernández and her late husband Néstor Kirchner. Here are some observations of what’s ahead for Macri’s Argentina:

The meaning of “change”: Argentines were adamant ahead of the election that they wanted change. However, polls reflected that voters were tired of the confrontational governing style of President Fernández de Kirchner and her cadre, but not necessarily of her economic policies. The government successfully sold its so-called “narrative” regarding the wisdom of many of its interventionist policies, such as the nationalization of industries, the implementation of subsidies, prices freezes on public services, etc. This forced Mauricio Macri to either downplay the need for reforms in some areas or to outright discard them (such as reversing nationalizations). The new president will have to implement some painful measures (like scaling back subsidies that amount to 6% of GDP) that he didn’t explicitly explain to voters during the campaign.

The one area of economic policy that Argentines most rejected was the high inflation rate (around 26% now but it reached nearly 40% a year ago) and the related exchange controls. This is where Macri’s proposals were bolder: he promised to stop the doctoring of the inflation statistics and to lift exchange controls on his first day of office. He also said that the official exchange rate will reflect the reality of the market, although he didn’t specify how long it will take for the official rate and the black market rate to converge.

Macri’s mandate: Argentina’s new president will come to office with a relatively weak mandate. His margin of victory was smaller than predicted by most polls (51.4% versus 48.6% for Daniel Scioli, the ruling party’s candidate). He won’t have a majority in Congress and most of the provinces’ governors belong to other parties. Moreover, as I wrote over a month ago, the Kirchner administration has been busy approving legislation limiting the powers of the incoming president.

In Macri’s favor is the fact that his party PRO will control the presidency, the governorship of the province of Buenos Aires (where 37% of Argentines live) and the mayorship of the capital Buenos Aires. This should give him some breathing room for governing.

Confidence shock: Macri’s room for maneuver passing legislation will thus be quite limited, but he can still inject a much-needed confidence shock in the economy and the country’s institutions. Macri already signaled that he would give more independence to the Central Bank and INDEC, the statistics office. If he fulfills his promise to lift exchange controls on his first day in office, it would certainly send a strong message about his commitment to reform. All eyes will also be on how and when he approaches the holdout creditors for negotiations –a necessary step to restore Argentina’s international credibility. He is also likely to build a more constructive relationship with the media. Finally, Macri can end years of increasing protectionism by lifting the many trade barriers that have been created in the last 12 years and indicating that Argentina will play a new role within Mercosur aimed at embracing freer trade.

Tellingly, Argentina’s country risk rating –according to JP Morgan– fell 16 points upon the news of Macri’s election, to the level it had in early 2011, the year Cristina Fernández was reelected. This shows how much room for improvement there is if Macri kick-starts his government with decisive announcements.

Rebuilding republican institutions: The last days of the campaign showed promising signs for Argentina’s future as a republic. One week ago the two contenders for the presidency debated for the first time in Argentina’s democratic history. By the end of that debate, both Macri and Scioli embraced each other despite the sharp attacks they exchanged. Last night, even though Macri’s advantage in the tally was narrowing, Scioli conceded defeat and called him to congratulate him. Even President Fernandez de Kirchner called Macri and offered to meet him to work on the transition. This would sound normal to many Western observers, but Argentina isn’t a normal democracy.

Argentina sorely needs to rebuild its republican institutions. Perhaps this is where President Macri can leave his greatest mark.

A positive influence in Latin America: It’s not the first time that a right-of-center candidate is elected in the region in the last decade. However, unlike other conservative presidents that cowardly remained silent regarding the erosion of democracy in Venezuela (such as Sebastián Piñera in Chile or Felipe Calderón in Mexico), Macri has stated that he would call on Mercosur to suspend Venezuela’s membership for violating the bloc’s democratic charter. This will certainly be a major shift in the political dynamics of Latin America.

The challenges are certainly formidable for Mauricio Macri. Fortunately, there are reasons to be hopeful about what his election means for Argentina and the region.

The explosion in criminal statutes is only a part of the problem of overcriminalization. The other side of the coin is prosecutorial discretion: a prosecutor’s official authority to charge certain offenses and not to charge others. The growth of criminal codes, state and federal, gives prosecutors more tools, which allows them to both “stack” charges and expand the reach of criminal code provisions to new, non-criminal facts.

Take for example several recent prosecutions under New Jersey’s official misconduct statute, a felony provision with a mandatory five-year, no-parole sentence.

On its face, the law simply prevents government officials from abusing their offices for personal gain. “Official misconduct” under the statute means an official’s act or omission “relating to his office but constituting an unauthorized exercise of his official functions, knowing that such act is unauthorized or he is committing such act in an unauthorized manner.” Prosecutors have used this broadly worded language in highly creative ways.

In one recent case, New Jersey Superior Court Judge Carlia M. Brady was charged with official misconduct and harboring a fugitive. Judge Brady went to the police on June 10, 2013 to report that her car was stolen and that her then-boyfriend, Jason Prontnicki, was likely involved. As it turned out, Prontnicki was wanted on an outstanding warrant for robbery. The police informed Judge Brady that she was obliged as an “officer of the court” to inform the police as to Prontnicki’s whereabouts. When Prontnicki showed up at her house for brief periods of time on June 10 and 11, Judge Brady informed Prontnicki that he could not stay with her and Prontnicki made clear his intentions to turn himself in with the help of counsel. After both incidents, Judge Brady called the police and left unreturned voicemails. On June 11, police arrested Prontnicki and Brady at her home.

Clearly Judge Brady had violated her duty to report the whereabouts of a wanted criminal suspect, right? The only problem is that such a duty doesn’t exist, either for citizens generally or for judges specifically.

In New Jersey, like most places, the enforcement of arrest warrants is the job of law enforcement officials, such as police. Indeed, the very idea of a judge enforcing the warrants she or her colleagues issue conjures up the ridiculous image of a robe-clad jurist chasing a fleeing suspect while wielding a wooden gavel. The state supreme court has even made clear that judges don’t have an official duty to effectuate arrest warrants.

Yet the prosecutor decided to charge Brady not only with harboring Prontnicki—a dubious move given her clear instructions for him to stay away, the absence of any assistance, and their understanding that he would turn himself in—but with official misconduct. In the prosecutor’s eyes, Brady’s judicial role created a special duty to report and her failure to do so constituted official misconduct—despite clear case law to the contrary and the fact that Judge Brady was on vacation from her official duties when the relevant acts occurred.

The misuse of New Jersey’s official misconduct statute isn’t limited to judges or even executive-branch officials, but reaches teachers.

In two cases, those of Adrian McConney and Nicole McDonough, high school teachers who had sex with adult students were charged with official misconduct. Neither had been accused of promising grade bumps or using their authority to control or initiate the sexual relationship. Because of this absence of the abuse of official power for some sort of quid pro quo, prosecutors in both cases looked to the administrative codes governing teacher conduct to invent a legal duty that was allegedly violated by consensual sexual relationships.

The administrative codes governing educators were not intended to provide the basis for criminal prosecution, and say as much expressly. In other words, these teachers’ extra-curricular activities may be firing offenses (and maybe not – we don’t want to get into employment law and union regulations) but they’re not crimes.

If the prosecutors’ logic were carried to its conclusion, these codes—which require such innocuous things as teachers’ maintaining professional appearance at all times—could result in five-year mandatory no-parole sentences. Every municipal bureaucrat would now have the power to write criminal law via civil guidance; any principal who has a personal conflict with a teacher could threaten prosecution with a savvy interpretation of administrative rules.

Moreover, words in official government guidance would lose all meaning: if the state says that a particular civil code will not be the basis for criminal prosecution, that should be a good indicator to a reasonable person that he or she will not run afoul of criminal laws by violating that code. Due process of law demands sufficient notice of what is criminal before a statue is applied against a defendant.

In both the federal and state criminal-justice systems, prosecutors are quite properly entrusted with discretion to charge appropriate offenses in appropriate cases—but that discretion is abused when the law is made to stretch to cover obviously licit conduct. Whatever one thinks of a judge who fraternizes with shady characters or teachers who have sex with adult students, New Jersey has not seen fit to criminalize either of these behaviors. It’s not the job of prosecutors to gap-fill the criminal code by dubiously extending the reach of criminal provisions such that anything that hints of social impropriety must be criminal.

It’s bad enough when legislatures pass laws to criminalize behavior of which they morally disapprove—as Bill Buckley said, not everything that’s bad should be illegal—but when prosecutors effectively write their own criminal codes, it’s the antithesis of the rule of law.

The latest Paris attacks rightly horrify us, but they should surprise no one, least of all the French. After all, France started bombing Islamic State forces 14 months ago. The targeting of civilians is morally monstrous. However, it is sadly predictable, an almost common practice by weaker powers.

A century ago ethnic Serbs and Russian anarchists employed this hideous tactic. More recently Sri Lankan Tamils and Iraqi Sunnis used it. Now the Islamic State is perfecting a weapon it had heretofore left to al-Qaeda.

The Paris killings weren’t an attempt “to destroy our values, the values shared by the U.S. and France,” as claimed by Frederic Lefebvre of the National Assembly. Rather, admitted French academic Dominique Moisi, the Islamic State’s message was clear: “You attack us, so we will kill you.” As America learned on September 11, 2001, intervening in other nations’ political and military struggles inevitably creates enemies and blowback.

Explanation is not justification. But any government that attacks the Islamic State should realize retaliation against people innocently going about their lives, as in Paris, is likely.

This kind of terrorism simply is another weapon of war. If the Islamic State was a normal nation ISIL planes might have retaliated by striking Paris.

The Islamic State undoubtedly had the desire but not the capability to strike directly. So it turned to terrorism.

Of course, those killed did not deserve to die. But said one of the killers, “It’s the fault of your president, he should not have intervened in Syria” and Iraq.

Western governments which let loose the dogs of war should stop pretending that their nations enjoy immunity from attack. There are no certainties even for America, which has done surprisingly well since 9/11.

Which brings up the obvious question, why is the U.S. (and its European allies) involved “over there”?

The Islamic State is evil, but the bloodshed it has unleashed is substantially less than that resulting from more conventional conflicts elsewhere. Indeed, the Islamic State isn’t even the most murderous terrorist organization. Nigeria’s Boko Haram holds that record.

During its rise the Islamic State didn’t attack America. After all, it’s hard to build a caliphate, or quasi-state, if the U.S. is against you. And running a caliphate establishes a return address for retaliation.

Of course, if successful, the Islamic State ultimately might have struck at America. But such a possibility would be best met by responding to any threat as it developed, rather than joining yet another interminable sectarian war in the Middle East.

Anyway, ISIL is unlikely to succeed in establishing a durable state. If nations such as Saudi Arabia and Turkey got serious about destroying the Islamic State, the caliphate would quickly disappear. They won’t act, however, so long as Washington insists on doing the job for them.

There is much foolish talk of the U.S. being involved in World War III or IV over “our values.” Which raises the question why ISIL killed 43 Lebanese in a Hezbollah neighborhood in Beirut and 224 Russian passengers bound for Moscow. France, Russia, and Hezbollah were united not by liberalism but combat against the Islamic State.

Moreover, even at its worst terrorism does not pose an existential threat to America. Nearly 3,000 dead from 9/11 was an awful toll. But World War II consumed at least 50 million, and as many as 80 million, lives. Treating terrorism as an equivalent threat is simple nonsense.

Perhaps the greater outrage of the Paris attacks is that after turning his nation into a target President Hollande used the new attacks to justify more intervention. Worse, the Paris attacks encouraged Republican presidential candidates to irresponsibly call for more war against more people. Yet none of the Republicans explained how deeper involvement in another burgeoning sectarian conflict would protect U.S. security.

Terrorism is evil and awful. But as I wrote for Forbes online: “the best tactic against it is to stay out of other people’s conflicts. Until then Americans are doomed to fight more unnecessary wars and risk more unnecessary terrorist attacks.”

This week, we’ve heard calls from all quarters to close our doors to the modest number of Syrian refugees President Obama proposed welcoming to the United States. Thirty governors have vowed to bar Syrian refugees from entering their states; the House of Representatives voted 289-137 to place impossibly tight restrictions on admission of refugees from Iraq and Syria;  and 2016 presidential candidates disingenuously decried the possible influx of “100,000,” “200,000” or even “250,000” refugees that no one has proposed — remember Obama only called for letting in 10,000 Syrians next year.

But after the Paris terrorist attacks of a week ago, not only should we not give in to this paranoia, we should offer entry to as many Syrian refugees as we can — it’s more important than ever to demonstrate to both our allies and our adversaries that America will live up to the values of sheltering innocents and constructively intervening to end civil war.

Not only that, in the long run, it’ll make us safer.

Last month, I called for the United States to end military intervention in Syria and take a more proactive role in developing a plan for the world to resettle all the refugees fleeing the that country’s civil war. On the surface, Paris looks like an argument to abandon such a strategy. A closer look, however, reveals that, fundamentally, nothing in my argument has changed — indeed, Paris makes the need for a change in direction of de-escalation, compassion and forward thinking all the more clear.

First, clearly, barring refugees would not prevent the Islamic State from conducting further attacks against Western targets. Those who argue that Paris proves taking in refugees is too great a risk are confusing refugees with terrorists. They point to reports that one of the suspected Paris terrorists came to Europe as a refugee. But refugees themselves are not a threat; the millions of Syrian refugees are fleeing from President Bashar al-Assad, the Islamic State and other terrorist groups, not sticking around to fight with them or branching out to carry the violence overseas.

Seven of the eight known terrorists suspected in the Paris attacks were citizens of European countries. None of the 9/11 attackers was a refugee, nor had any of them posed as refugees. In other words, some of the most heinous terrorist attacks in history were carried out by individuals who were in the countries they attacked under completely different circumstances. They didn’t flee war zones under false pretenses. Think of it in this context: as my Cato Institute colleague Alex Nowratesh writes, “Of the 859,629 refugees admitted from 2001 onwards, only three have been convicted of planning terrorist attacks on targets outside of the United States, and none was successfully carried out.  That is one terrorism-planning conviction for every 286,543 refugees that have been admitted.” By contrast, he notes, “about 1 in every 22,541 Americans committed murder in 2014.”

Moreover, contrary to claims by Senator Marco Rubio (R-FL) that “we can’t background check them”, the process of screening refugees is lengthy and arduous. Refugees must first pass through a security check and screening process run by the office of the United Nations High Commissioner for Refugees to determine whether they are unable to return to their homes due to “serious and indiscriminate threats to life, physical integrity or freedom resulting from generalized violence…” Then those seeking entry to the U.S. must meet with a host of agencies, with final approval granted only if they survive a background check carried out by the Department of Homeland Security. The process can take between one and upward of two years — hardly a shortcut for a would-be terrorist. When we hear calls to shut down borders and turn away refugees, we are not hearing proposals that will actually make us safer. We are hearing knee-jerk reactions to a horrifying attack and political theater designed to win votes instead of solve problems.

Second, there’s no risk-free solution to confronting the problems posed by the Islamic State. We have to weigh the potential harm suffered from a terrorist attack against the harm caused by continued military intervention in Syria, which is not only likely to cost more American lives if we become mired down in Syria militarily, but in turn is almost certain to exacerbate the refugee problem by prolonging the Syrian civil war.

Indeed, those who use the prospect of potential terrorist attacks to criticize refugee resettlement — many of whom simultaneously call for an increased military commitment — must account for the fact we lost almost 7,000 lives to military intervention in the Afghanistan and Iraq. More aggressive intervention to engage the Islamic State would only drive that figure higher. Worse, based on our experience since 9/11, those additional casualties would do nothing to reduce the probability of future terrorist attacks.

Finally, a resettlement strategy will make Americans safer. Opponents of refugee resettlement underestimate both the backlash from military intervention and the impact that a dramatic change in policy could have on Middle Eastern hearts and minds. As Foreign Policy’s Steven M. Walt notes, “the Islamic State hopes to provoke responses that will reinforce its narrative of irreconcilable religious conflict and attract even more sympathizers to its bloodstained banner,” drawing France and its allies (a/k/a, us) further into conflict. Ill-conceived calls from presidential candidates like Sen. Ted Cruz (R-TX) and Jeb Bush to take in only Christian refugees exacerbate this dynamic.

Accepting all refugees while disengaging militarily, on the other hand, would flip the script, robbing Islamic State leaders and other extremists of a key plank in their calls to arms. Large-scale refugee resettlement demonstrates that Americans and Europeans value the lives of Middle Eastern people, not just Middle East oil or maintaining the geopolitical balance of power. Ending our current campaign of airstrikes and focusing on the well-being of Syrians would send a completely different message, one that would prove far more damaging to the Islamic State in the long run than bombs.

As Paris recovers, our hearts go out to the families of the victims. But no single attack, no matter how cold-blooded should cause us to abandon a noble and necessary course of action. Millions of refugees desperately need help. And our government has to find a way to balance its primary responsibility to protect Americans from harm while also fulfilling the role of a constructive global power by extending help to Syrians fleeing years of carnage — not to mention that doing this will ultimately make Americans more secure. A policy of resettling refugees presents its own obstacles, but unlike a military response it offers concrete long-term benefits while undermining one of the root causes of terrorist attacks.

As a proud Princeton alum, I’ve been experiencing a fair bit of schadenfreude over the safe-space shenanigans at Yale and Dartmouth. No way could such tomfoolery happen at Ol’ Nassau, I thought. (Trigger warning: The Ol’ Nassau nickname refers to the House of Orange-Nassau, which engaged in “speech acts” that weren’t politically correct, among other foibles.)

But alas, it was not to be. Students with nothing better to do than occupy the president’s office in protest of… malaise or something (Jimmy Carter, call your office)… ended up eking out a pledge from the administration that the Board of Trustees would “initiate conversations concerning the present legacy of Woodrow Wilson on this campus,” as well as a commitment “to working toward greater ethnic diversity of memorialized artwork on campus.”

Well, I can’t help with the art, but as a classical liberal whose undergraduate degree is from the Woodrow Wilson School of Public and International Affairs (aka “Woody Woo”), I have some sympathy for those to whom the very thought of our 28th president – who was also president of the university – is a micro-aggression. So here’s my suggestion: If the criteria for acceptable memorialization are not being a racist while making a positive contribution to international affairs, then rename the policy school after Ronald Reagan. I’d love to say that I attended “Ronny Roo.”

One reason to avoid the creation of a national ID system in the United States is that it would facilitate direct regulation of Americans from Washington, D.C. If you want to see why we should minimize regulation of the states and people from Washington, look no further than the Department of Homeland Security’s administration of of the U.S. national ID program itself.

Congress is at fault for the passage of the REAL ID Act, of course. It didn’t even hold a hearing to assess the merits or difficulties of coercing states into implementing a national ID. But the Department of Homeland Security has made a continuing hash of the national ID program since then.

Passed in May 2005, the REAL ID Act called for states to begin issuing national IDs in three years. DHS took until January 2008—four months before the deadline—to issue final regulations telling states what they were expected to do.

Needless to say, the DHS had to issue deadline extensions, as it has done repeatedly and en masse ever since. When states learned the costs and consequences of producing a national ID, more than half objected or barred themselves from complying. DHS has given every state extensions for the last eight years, whether it wanted to or not, and every state is operating under an extension right now.

You wouldn’t believe that from the representations DHS has made to the public, which suggest that only a few hold-out states are resisting the national ID program. DHS’s “REAL ID Enforcement in Brief” web page currently lists only two jurisdictions as non-compliant: Minnesota and American Samoa. The truth is that not one state or territory is in compliance—not one.

How does DHS claim all this compliance? When it granted the first round of deadline extensions—there have been several—it came up with a thing it calls the “material compliance checklist.” The checklist is not compliance with the law, but with a pared-back version of the law’s requirements. You might consider it DHS’s in-house version of the REAL ID Act.

DHS uses the standards of its “material compliance checklist” to say that some states are in compliance even though they are not. In fact, some states whose legislatures have barred themselves from complying are compliant with REAL ID according to DHS. Bureaucratic double-speak thrives in Washington.

Another example of double-speak, though, is in the mixed messages DHS has been sending states about its most recent claimed compliance deadline. DHS has sought to both manufacture a national ID crisis and quell that crisis. Left hand, meet right hand.

Here, from a Minneapolis Star Tribune report, is Ted Sobel, director of DHS’s Office of State-Issued Identification Support, telling Minnesota legislators that their state’s licenses will soon be refused at all the nation’s airports: “We essentially have 43 boxes we have to check, and currently Minnesota does not check all those boxes. We do not have the discretion to say ‘Well, the law has 43 things, but we can just give a waiver to 10 of them.’”

(He’s not being truthful. REAL ID has more than 100 requirements. DHS has used its discretion to pare them back to forty-three.)

In New Mexico, DHS’s scare tactics have worked too well, and people are flocking to get passports, thinking that they’ll need them to travel. One report has it that appointments for passports are booked until February. So another DHS bureaucrat has stepped in to say that DHS is at leisure to delay enforcement as long as it wants.

Last week, Philip A. Mcnamara, Assistant Secretary For Intergovernmental Affairs at DHS, wrote in the Albuquerque (NM) Journal, saying, “Right now, no one needs to adjust travel plans, rush out [sic] to get a new driver’s license or a passport for domestic air travel. And when you do, we will make sure you have plenty of notice.”

One hand tells state legislators that enforcement is coming, and it’s out of the DHS’s hands. Another hand says relax. DHS can decide the time and terms of REAL ID enforcement.

More than a few editorial boards, goosed by DHS’s manufactured urgency, have adopted what appears to them the reasonable position, arguing that their states should implement REAL ID. But doing so will subject their state’s residents evermore to licensing and ID policies driven by federal agencies that produce this kind of prevarication and double-speak.

What matters, of course, is whether having a U.S. national ID would produce cost-effective security. It wouldn’t. The costs—in dollars, privacy, and security of personal information—are greater than any plausible security benefits. The practical state response to REAL ID is continued state refusal.

Property-rights and housing-affordability advocates were surprised and elated that the chair of President Obama’s Council of Economic Advisors, Jason Furman, gave a speech blaming housing affordability problems on zoning and land-use regulation. They shouldn’t be: while Furman is correct in general, he is wrong about the details and the prescriptions he offers could make the problems worse than ever.

There is no doubt, as Furman documents in his speech, that land-use regulation is the cause of growing housing affordability problems. Yet Furman fails to note the fact that these problems are only found in some parts of the country. This is a crucial observation, and those who fail to understand it are almost certain to misdiagnose the cause and propose the wrong remedies.

Citing Jane Jacobs (who was wrong at least as often as she was right), Forman blames affordability problems on zoning that “limits density and mixed-use development.” Such zoning is found in almost every city in the country except Houston, yet most cities don’t have housing affordability problems. Thus, such zoning alone cannot be the cause of rising rents and home prices.

Based on this erroneous assumption, Furman endorses what he calls the administration’s agenda, which is its Affirmatively Furthering Fair Housing program. Rather than making housing more affordable, this program is aimed at ending racial segregation of middle-class suburbs by requiring the construction of multifamily housing in suburbs that are not racially balanced relative to their urban areas. It assumes that multifamily housing is less costly (and thus more affordable to low-income minorities) than single family, but that is only true because units are smaller: on a dollar-per-square-foot basis, multifamily costs more than single family, especially for mid-rise and high-rise apartments. Multifamily also uses more energy per square foot than single family, which means heating bills will be higher.

In other words, the fundamental assumption of Affirmatively Furthering Fair Housing is that it is “fair” to put low-income minorities in cramped apartments with little privacy so long as those apartments are in the same suburbs as single-family homes with large private yards occupied by the middle class. It also assumes that the solution to problems created by zoning is even more government interference in the market, either through regulations mandating certain housing types or subsidies to that housing (another part of the administration’s agenda). It is worth noting further that nothing in the program would insure that the people in those apartments are, in fact, racial minorities.

In any case, even when accompanied by housing subsidies, building expensive apartments in middle-class suburbs does little or nothing to make housing more affordable, mainly because even the most aggressive subsidy programs will build too little housing to have much of an effect on the market. This is especially true since this prescription will be diluted by applying it as much to regions like Dallas or Raleigh, which don’t have housing affordability problems but may have suburbs that are not racially balanced, as to places with real housing affordability issues such as the San Francisco Bay Area, Seattle, and Boston.

Once we recognize that housing affordability is a crisis only in some urban areas and not others, we have to ask what it is about those urban areas that makes housing expensive. It is not zoning that limits density or mixed-use, which is found almost everywhere; it is growth-management planning that limits development at the urban fringe, which is found mainly in coastal states (CA, FL, HI, MA, MD, OR, VA, WA, and most New England states)–not coincidentally, the very places where housing affordability is a major issue.

Without land-use regulation outside of the cities, all the city zoning in the world won’t stop developers from meeting demands for affordable high- or low-density housing outside city limits. On the other hand, if growth management, whether through urban-growth boundaries, urban-service boundaries, large-lot zoning, greenbelts, or other means, limits expansion of the urban area, then housing will become both more expensive and more volatile.

Personally, I would be willing to give up all city zoning restricting density and mixed-use development provided we also give up all zoning and land-use regulation outside of city limits. This will allow developers to meet whatever demand there is for high-density housing as well as for traditional suburbs. Neighborhoods could continue to protect themselves from unwanted intrusions and nuisances using deed restrictions, as is done in much of Houston, one of the nation’s most affordable cities and urban areas.

One of the major points of my 2012 book, American Nightmare, is that zoning was originally developed to keep not just racial minorities but the working class in general out of middle-class neighborhoods (a point more recently made in Sonia Hirt’s 2014 book, Zoned in the USA). When that failed to work due to rising working-class incomes, middle-class planners supplemented zoning with growth management. That policy appears to be working as blacks and other working-class populations are fleeing many of the urban areas that have applied it, urban areas that celebrate themselves as havens for the “creative class,” which is simply another name for the middle class.

In short, Furman’s and the administration’s focus on zoning is wrong and will fail to make housing more affordable. Instead, they should look at growth management as the cause of housing affordability problems and at eliminating such growth management as the solution.

The dozens of different programs that form our tangled welfare system often impose high effective marginal tax rates that make it harder for low-income people to transition out of these programs and lift of those programs and into the middle class. As the people in these programs enter the workforce, get a promotion, or work more hours, they can lose a significant portion of those earnings through reduced benefits and increased taxes. A new report from the Congressional Budget Office (CBO) illustrates this predicament: many households hovering around the poverty level face steeper effective marginal tax rates than even the highest earners. These prohibitively high tax rates can discourage work and limit their prospects, ultimately making them less likely to escape poverty.

Marginal Tax Rates at the Median and 90th Percentiles by Earnings Group, 2016


Source: Congressional Budget Office, “Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016,” November 19, 2015.

Note: Figure created using Tableau. 

CBO’s analysis looks at the range of effective marginal tax rates households face at different levels of income. The median marginal tax rate for households just above the poverty level is almost 34 percent, the highest for any income level. Some households that receive larger benefits or higher state taxes have even higher effective rates: 10 percent of households just above the poverty line face a marginal rate higher than 65 percent. For each additional dollar earned in this range, these households would lose almost two-thirds to taxes or lost benefits. The comparable rate for the highest earners, households above 400 percent of the poverty level, is only 43.4 percent. If anything this analysis might understate how steep the effective marginal rates are for some households. CBO only considers the combined effect of income taxes, payroll taxes, SNAP and ACA exchange subsidies, so households that participate in other programs like TANF or housing assistance could face even higher rates. These results mirror some of Cato’s past work investigating the issues and trade-offs involved with these welfare programs.

The nature of the welfare system contributes to the prevalence of these poverty traps. A House and Ways Human Resources Subcommittee recently held a hearing on issue and released a chart illustrating the complex, labyrinthine nature of the welfare system.


New programs were grafted onto the existing system over time, each intended to address a perceived problem afflicting people in poverty, but they can interact in ways that can deter people from striving to create a better life for their families. That’s part of the reason the status quo system, which the Government Accountability Office estimates spends $742 billion at the federal level each year, has achieved such lackluster results to date.

While these shortcomings would seem to indicate that the welfare system is in need of reform, this tangled web has proved resistant to change. One of the last major reforms happened in 1996, when Temporary Assistance for Needy Families (TANF) replaced Aid to Families with Dependent Children (AFDC). Even that reform only addressed one strand of the dozens that make up our tangled system, so while it might have improved that one aspect the larger flaws with the welfare system as a whole have to some extent continued unabated. Even within this one strand there has been little discussion of reform in the past two decades, TANF hasn’t even been properly reauthorized since the Deficit Reduction Act of 2005, it is usually thrown into short-term continuing resolutions or broader omnibus appropriations acts that do not incorporate any meaningful attempts to address the program’s problems. Absent comprehensive, the flawed current system will continue to fall short even as the government funnels hundreds of billions of dollars into it each year.

If the federal government is going to finance a welfare system, it should foster an environment that encourages work and makes it easier for participants to transition out of these programs as they strive to create a better life. The current system falls far short in that regard and needs comprehensive reforms.

If you are an advocate for school choice, you must risk being called “anti-teacher” by the political left.  But did you know there is a similar phenomenon on right side of the political spectrum?  If you are an advocate for reforming police practices, you must risk being called “anti-police.”  I experienced this last week when I spoke at the National Convention of the Federalist Society.  In this post, I will briefly describe what happened.

I was invited to speak on a panel titled, “Ferguson, Baltimore, and Criminal Justice Reform.”  By way of background, I have spoken at Federalist Society events many times and the Fed Soc folks have always been professional and courteous.  The panels typically consist of speakers with a variety of viewpoints.  Last week, when it was my turn to speak, my goal was to highlight many reforms that I thought were worthwhile and to explain why.  Among the topics were civil asset forfeiture reform, municipal court reform, getting an accurate annual tally of persons who die in police custody, and a tally of persons shot by the police. 

Robert Woodson, formerly with the American Enterprise Institute, was the final speaker on our panel.  He was mad.  He immediately complained about what we had “heard so far.”  That was a weird complaint.  Four panelists had just delivered their presentations.  Two defended the police against what they said were unfair criticisms.  And two offered ideas for police and criminal justice reform.  Woodson seemed upset that all of the of the preceding talks were not to his liking.

Instead of simply offering his own thoughts on Ferguson and Baltimore, Woodson made it clear that something was amiss with the panel itself.  His main point was that crime levels in black city neighborhoods are at atrocious levels–“we are experiencing a 9/11 every few months,” he said.  Few would disagree that that’s a very serious problem.  Yet, the tenor of Woodson’s remarks were not to say something like, “In my opinion, the most pressing issue today is black-on-black violence.”  He seemed angry the other panelists were not focused on that.  Again, that’s just odd.  Ferguson and Baltimore raise many issues, but they’re primarily about police power and whether it has been abusive to minority persons–especially young men.  In that regard, Woodson could have denounced any of the other panel discussions going on at the conference (e.g. “Why are you academic types talking about administrative law and separation powers?  I wonder what the folks in poor neighborhoods would think about that–when they’re experiencing a 9/11 every few months!!  This panel’s priorities are messed up!”). 

Woodson is not alone.  Many on the right do not want to talk about reforming police departments and addressing the problem of police misconduct.  So they change the subject: ‘Why talk about that? The bigger problem is black-on-black violence!’  Another common response, as noted above, is to denounce any discussion of police misconduct as “anti-police.”  Woodson repeatedly says that my remarks “vilified” police.  Not true. And I’m glad C-Span was there to record what I said.  Watch my 12 minute talk and decide for yourself. 

Whether you agree or disagree with my arguments, it is worrisome that many on the right cannot (or will not) distinguish between constructive criticism of police and vilification.  I say that because the Federalist audience cheered Woodson’s fiery rhetoric.  The entire panel discussion can be viewed here.

For related Cato work, go here and here.

This week I hosted a debate between two federal appellate judges on the question, “Does the American Criminal Justice System Need an Overhaul?”  Judge Alex Kozinski says it does; Judge Jay Harvey Wilkinson says it does not.  Watch it here and decide for yourself.

By way of background, Kozinski authored a much discussed article titled, “Criminal Law 2.0.”  One problem he identifies (among many others), is that federal prosecutors too often shirk their legal and ethical obligations.  The Department of Justice tried ignoring his criticism, but is now responding.  Here is a snippet from an article in the National Law Journal (November 16 – sorry, pay wall for this one).

Justice Department Rebuts Judge Kozinski’s Criticism of Prosecutors

In a rare public war of words, top officials at the U.S. Department of Justice are pushing back against recent criticism about prosecutors’ ethics from Judge Alex Kozinski of the U.S. Court of Appeals for the Ninth Circuit.

The thrust of the DOJ argument is the familiar, “Trust us – we’ll do the right thing.”  Kozinski rightly insists upon a “trust, but verify” posture as it relates to government promises.

Related items here & here.


More than two hundred people gathered at the Cato Institute last Thursday for our 33rd Annual Monetary Conference.  Over the course of three addresses and four panel discussions, a distinguished cast of speakers — including St. Louis Fed president James Bullard, Richmond Fed president Jeffrey Lacker, and Stanford economist John Taylor — covered topics ranging from the rights and wrongs of monetary rules, to the ins and outs of the Fed’s long-awaited “exit strategy” from quantitative easing and near-zero interest rates.  If you didn’t make the event, here’s a synopsis.

Opening Keynote

Bullard kicked things off with the keynote address, noting that while he favors policy normalization — that is, a return to the kind of monetary policy (and Fed balance sheet) that prevailed between 1984 and 2007 — there is a risk that we’ll get stuck at “Permazero” if the economy fails to take off, or suffers new negative shocks.  He speculated that inflation would stay persistently below target in such a scenario, while monetary policy would lose its power to stimulate or stabilize.  Long-run growth would continue to be driven by real factors, but asset prices could become very volatile.  Bullard stressed that this was just one possible interpretation, and that it didn’t change his view that the Fed should begin raising rates and shrinking its balance sheet.  Nevertheless, he said, we should be prepared for the possibility that things do not go according to plan.

Panel 1: What Monetary Policy Can and Can’t Do

The day’s first panel, moderated by Wall Street Journal chief economics correspondent Jon Hilsenrath, focused on what monetary policy can and cannot do.  There was a broad consensus among the panelists — the Richmond Fed’s Jeffrey Lacker, the Bank of Mexico’s Manuel Sanchez, and George Tavlas of the Bank of Greece — that monetary policy should focus on price stability, while steering clear of objectives it is less suited to, like boosting growth, guaranteeing financial stability, or pricking asset bubbles.  Within that discussion, Tavlas made the case for monetary rules over “constrained discretion,” suggesting that Milton Friedman might be sympathetic to the Taylor rule if he were around today.

Panel 2: Inflation, Deflation, and Monetary Rules

Monetary rules were the focus of the next panel, which featured John Taylor (he of the eponymous rule), former Philadelphia Fed president Charles Plosser, the Mercatus Center’s Scott Sumner, and our very own George Selgin.  Although all four panelists favored a shift towards rule-based monetary policy, each took a different approach.

Plosser noted that the Fed already runs five different monetary rules through its model of the economy when preparing for Federal Open Market Committee meetings.  So why not release the results of that analysis, and use it to explain how policy decisions are made?  Sumner advocated a similarly incremental approach, suggesting the Fed could be “nudged” towards his favored paradigm — NGDP targeting — with requirements that it clearly define the “stance of monetary policy” in its communications, regularly review its past policy decisions, and set “guardrails” for the maximum permissible fluctuations in aggregate demand.  Selgin drew a distinction between rules and “pseudo-rules,” arguing that the former must be strictly enforced, hard to “innocently” break, and possible to stick to during a crisis.  Taylor, meanwhile, argued that capricious monetary policy was promoting massive capital flows between emerging and developed economies, stoking exchange rate volatility, and giving rise to widespread capital controls and currency manipulation.  Rule-based monetary policy, he suggested, is a necessary complement to open capital markets and floating exchange rates — and legislation in the U.S. would set a great example for the rest of the world.

Luncheon Address

Claudio Borio, the head of the monetary and economic department at the Bank for International Settlements (BIS), delivered the conference’s luncheon address, arguing that we need to reassess “three pillars” of received monetary policy wisdom — first, that the natural rate of interest is best defined in terms of output and inflation; second, that money is neutral; and third, that deflation is always and everywhere a disaster.  Borio rejected all three premises.  He preferred to think of the “natural rate” as one which is consistent with good, sustainable macroeconomic performance.  According to this view, financial imbalances (such as asset price bubbles) are the key signifier of disequilibrium.  Borio also questioned the idea of monetary neutrality, arguing that credit-induced resource misallocation is central to an accurate understanding of the economic cycle.  This means that easy money can’t always solve our problems; you need structural and balance sheet reform after a crisis.  Finally, on deflation, Borio highlighted BIS research suggesting that there is only a weak association between deflation and economic contraction.  What link there is derives largely from the Great Depression and is more aptly attributed, in that case, to a collapse in asset prices.  In reality, said Borio, garden-variety falls in the prices of goods and services do not always portend doom — and shouldn’t always spur offsetting policy actions.

Panel 3: Monetary Policy and the Knowledge Problem

The monetary conference’s third panel discussion focused on Hayek’s knowledge problem in the context of monetary policy.  Cato senior fellow Gerald O’Driscoll suggested that the knowledge problem explains why rule-based monetary policy is superior to central bank discretion — we don’t know enough to design an optimal monetary policy, so we’re better off using rules to create a monetary order and anchor expectations.  The American Enterprise Institute’s Alex Pollock took a similar approach, asking, “Does the Federal Reserve Know What It’s Doing?”  His answer was a resounding “no” — but it’s not their fault, said Pollock; it’s fundamental uncertainty, not incompetence, that dooms the Fed to recurring failure.  Speaking last, David Malpass of Encima Global LLC added his voice to calls for monetary policy normalization, arguing that the Fed’s zero-interest rate policy is actually weighing down economic growth.

Panel 4: The Fed’s Exit Strategy vs. Fundamental Reform

The prospect of monetary policy normalization provided the backdrop to the day’s final panel discussion: “The Fed’s Exit Strategy vs. Fundamental Reform.”  Alt-M contributor and George Mason University economics professor Larry White tackled the first half of that title.  He argued that quantitative easing (QE) wasn’t really a monetary policy at all: by deciding to pay interest on bank reserves held at the Fed, policymakers effectively “sterilized” QE, which meant it barely affected the broad-money (M2) aggregates.  What sterilized QE did do, however, was to preferentially allocate credit towards housing over other uses.  In this context, an “exit strategy” worthy of the name must put an end to this discretionary credit allocation — but, alas, there’s little indication that the Fed has any intention of doing that.  Jerry Jordan, former president of the Cleveland Fed, was similarly gloomy about the prospects for a meaningful exit strategy, arguing that monetary policy has lost its potency now that banks are no longer reserve-constrained, and questioning the Fed’s ability to normalize policy even if it wants to.  Kevin Dowd, an adjunct scholar at Cato’s Center for Monetary and Financial Alternatives, brought the session to a close by outlining a bold agenda for fundamental monetary and financial reform, eschewing incremental steps in favor of a re-commoditized dollar, an entirely new bank capital regime, radically reformed bank governance, and a thoroughgoing roll-back of government intervention in the United States’ monetary and financial system.

Closing Address

The closing address of the 33rd Annual Monetary Conference was delivered by Rep. Bill Huizenga (R-Mich.), who chairs the House Financial Services Subcommittee on Monetary Policy and Trade.  His remarks focused on the draft legislation he unveiled earlier this year, which would require the Fed to adopt an explicit policy rule, and grant greater auditing power to the Government Accountability Office, among other reforms.

If you missed the conference, video footage of all the sessions is available here, on Cato’s website.  The papers submitted to the conference will also be published in next year’s Spring/Summer issue of the Cato Journal.

Overcriminalization is not a myth. Labyrinthine regulations often produce absurd outcomes, including prison sentences for individuals who do everything in their power, including consulting multiple attorneys, to comply with the law before acting.

A recent op-ed in The Washington Times illustrates the point, using a recent Medicaid fraud case that is currently in front of a federal appeals court:

Here’s a quiz: Which of the following is a federal crime: (a) A hamster dealer needlessly tilting a hamster’s cage while in transit; (b) subliminally advertising wine; or (c) selling a fresh steak with paprika on it?

Give up? The answer: all of the above.

Right now, there are approximately 4,500 federal criminal statutes and 300,000 administrative regulations that can be punished with imprisonment — and the list keeps growing. This is an invitation for our government to over-prosecute. Too often, federal prosecutors are accepting that invitation and rejecting more measured and effective administrative and civil remedies.


In a case that was recently argued before a federal appeals court, executives at WellCare, a managed health care company in Florida, were prosecuted based on their reasonable interpretation of a Florida statute. Federal prosecutors, however, disagreed with the company’s interpretation, even though Florida never issued any regulations contradicting the executives’ reading of the law.

The legal framework WellCare operated in was complex. In a nutshell, Florida’s Medicaid program required managed care companies to report expenses they paid for providing behavioral health care — like mental health services. If the company did not spend at least 80 percent of the premiums they received, they had to return some of the premium dollars to the state. The executives at WellCare read Florida’s requirements as allowing them to classify as expenses the money that WellCare paid to its subsidiary that actually provided all the services.

Florida never clarified the law to say whether this was allowed or not, so WellCare did what businesses do — it consulted a lawyer. And WellCare’s lawyers — both in-house and independent outside counsel — said that the way they were reading the law was reasonable. Other companies providing these services under Florida’s Medicaid program read the law in a similar way. Admittedly, WellCare’s interpretation made the company more money, but, of course, making money is what a corporation ought to do.

Federal prosecutors disagreed and brought criminal charges against its executives. The prosecutors argued that WellCare lied when it sent in expense forms reflecting its reading of the law. At trial, even the government’s witnesses agreed that WellCare’s interpretation of the law made sense. And because this complicated question of how to read a technical Florida health care law was improperly left to the jury instead of the judge, the executives were convicted after a month of stalled deliberations. The company’s reasonable interpretation of a complex law — which was vetted by lawyers — was no sanctuary from a conviction for the company’s executives.

The executives were sentenced to prison up to three years. Yet another company that used the same accounting method was only sued for breach of contract and didn’t even have to pay back any money to Florida.

A federal appeals court has a chance to correct this and uphold a firmly established principle of criminal law: Where a citizen reasonably interprets complex regulatory law, a judge — not a jury — should throw out the case.

Whether prosecutors accuse you of violating Honduran lobster-packing laws even when the Honduran courts insist you didn’t, or prosecute you for assuming that a gun license from one state would be valid in a neighboring state, far too many non-dangerous people end up in prison simply because their reasonable interpretation of the law differs with that of the government.