Policy Institutes

If you think that the Fed isn’t involved in the Greek mess, you may want to think again. Paul-Martin Foss, our good friend at the Carl Menger Center, wrote a very nice post a few days ago concerning how the Fed may be getting itself tangled-up in an impending Greek default, through its swap lines with the ECB.

According to the Federal Reserve Board of Governors, those swap lines were first established in December 2007 “to improve liquidity conditions in U.S. and foreign financial markets by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions during times of market stress.”

Those original swap facilities, never meant to be permanent, were shut-down in February 2010. But — wouldn’t you know it? — similar facilities were announced in May 2010 in response to “the re-emergence of strains in short term funding markets in Europe.” Those facilities were also supposed to be temporary, but then, in October 2013 — what do you know! — they were made permanent. According to the Fed, that step

further supports financial stability by reducing uncertainties among market participants as to whether and when these arrangements would be renewed. This action results from the ongoing cooperation among these central banks to help maintain financial stability and confidence in global funding markets.

What has all this got to do with Greece? Here is Paul-Martin:

If you want to get a sense of the Fed’s involvement in Europe, watch the swap lines. Swap line data is published every Thursday afternoon on the Fed’s balance sheet, the H.4.1 release. If you look at the St. Louis Fed’s charts and data on swap lines, you’ll see the huge amount of swaps during the financial crisis, and then a smaller but still significant increase in swap lines during the first iteration of the Greek financial crisis back in 2012. While swaps have been relatively non-existent this year, there was a small blip back in April, likely Greek-related, and more importantly, another blip this week. While the amount, $114 million, is a drop in the bucket compared to what it has been in the past, this number needs to be watched. It could very well be an indicator of the Fed getting involved in Europe again. And if the doomsday scenario ends up taking place next week, expect that $114 million figure to skyrocket. The Fed seems to want the conversation to revolve around a possible upcoming interest rate hike, so it’s been relatively silent on the topic of Greece and its involvement in bailing out Europe. But even if the Fed doesn’t say anything about Greece, its money-printing to pump up the swap lines will do plenty of talking.

That was on June 19th. Well, the CMFA’s champion Fed watcher, Walker Todd (who you will be hearing from shortly on these pages) has been keeping a sharp eye on those swap lines. On June 11th — a week before the transaction showed up on the Fed’s own H.4.1 release — Walker reported that “Someone in Europe drew a small amount on a dollar swap with FRBNY”:

ECB website today has details below on a swap line drawing this week against the US dollar swap line with FRBNY. It says that there was one bidder; one wonders whom. Amount is $113 million. There has been no swap line activity for several months now. These numbers should show up on FRBNY next week (due to timing of swap drawings and time zone differences, there usually is a one-week lag between a drawing in Europe and the FRBNY report of the same drawing).

(The $1 million difference between the numbers mentioned by Paul-Martin and Walker reflects a Bank of Japan draw of that amount.)

The day after Paul-Martin’s post came out, Walker alerted us to another transaction that had not yet been reported by the Fed:

It won’t show up until next week in Fed statistics, but ECB statistics show that an unnamed entity (one suspects the same one as last week) borrowed again for a week under the dollar swap line for $115 million. The drawing was $113 million the last time I checked. As a purely hypothetical example, a Greek bank could be borrowing dollars under the swap line. Other than a token $1 million to $2 million that Bank of Japan borrows from time to time to reassure itself, this is the only borrowing outstanding under the Fed’s swap line, according to FRBNY statistics. The notable thing is that it is still there and growing.

Today the swap was rolled over yet again.

Stay tuned…

[Cross-posted from Alt-M.org]

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

The long process featured hyperbole, demagoguery, fallacy, posturing, horse trading, unexpected tactics, strange political alliances, and several reversals of momentum.  But congressional passage of the Trade Promotion Authority bill was only the warm-up act.  The Trans-Pacific Partnership (TPP) is the headliner, and the process of concluding, ratifying, and implementing it promises more drama.

The TPP is a prospective trade agreement between the United States and 11 other nations, which has been under negotiation for 6 years. The Obama administration made the TPP the economic centerpiece of its “pivot to Asia,” encouraged the participation of other countries, and expanded the scope of the negotiations.  Beyond reducing tariffs and other border barriers, the TPP will include rules governing labor and environmental standards, government procurement, intellectual property protection, investment, supply chains, state-owned enterprises, and much more. The scope of the deal is so broad that the final agreement will likely include 29 separate chapters.

For the better part of a year, the word from TPP negotiators has been that a deal was close and that the main obstacle to its completion was the absence of TPA.  Logically, U.S. trade negotiating partners would be unwilling to put their best offers on the table unless the president could guarantee them that the deal was final and would not be picked apart and amended by Congress.  With TPA now secure, that impediment is gone – and the credibility of those “TPP-near-completion” claims is about to be tested. Just last week, Australia’s Trade Minister Andrew Robb said the TPP was “literally one week of negotiation away from completing.” In about 8 days, that will be proven too rosy a promise.

For starters, a 29-chapter trade agreement negotiated between 12 countries over several years, where final offers have yet to be presented, is a venue ripe for discord.  The “end game” of trade negotiations often reveals distance between parties where none had been assumed. It features unexpected demands – Hail Marys and otherwise – that can reverse progress and unravel other commitments. And it is typically the case with trade agreements that the most difficult issues are left until the end.  So there’s that.

Now consider that over the course of the past 6 years, negotiators identified numerous sticking points between parties that struck trade policy observers as difficult to resolve.  In many of those cases, it’s not apparent that resolution has been achieved. 

For example, will the TPP include a “tobacco carve-out” and, if so, what will it entail? A few years ago the United States floated the idea of entirely excluding tobacco products from the agreement.  Then the Obama administration backed away from that position at the urging of tobacco state policymakers – including the Senate Majority Leader – as well as those who argued that excluding products was a slippery slope that would lead to certain junk food exemptions, then alcohol exemptions, and so on. 

So, the administration retreated and proposed that the agreement include language specifying that governments are free to regulate tobacco, as they see fit, for the purpose of protecting public health and safety.  While that effort was dismissed as toothless by anti-tobacco crusaders, it was criticized by trade lawyers because, well, governments’ authorities to regulate for the purpose of protecting public health and safety is already sacrosanct under global trading rules and is clearly articulated in Article XX of the General Agreement on Tariffs and Trade. Including specific language in TPP to affirm that governments can regulate tobacco would call into question the force of GATT Article XX, which already grants that authority.  Meanwhile, at about this point, Malaysia announced its support for the original U.S. proposal, which was the total exemption of tobacco from the TPP.

It is unclear whether and how this issue has been resolved among TPP negotiators.  The most recent position associated with U.S. negotiators – although not the official position, reportedly – is that tobacco-related claims should be excluded from access to the Investor-State Dispute Settlement (ISDS) process.

But will ISDS even be a part of the final deal? At the outset of negotiations, Australia was dead set against including an ISDS provision in the agreement.  The current government seems to have reversed course, but there is a great deal of antipathy toward ISDS in the parliament and among the public in Australia, where Phillip Morris is suing the government under the ISDS provisions of a Hong Kong-Australia bilateral investment treaty for depriving it of the benefits of its intellectual property (use of its logos, etc.) by way of Australia’s plain (cigarette) packaging law.

What about imports of clothing from Vietnam?  Will garments made from textiles produced in non-TPP member countries be accorded the preferential duty rates of the agreement?  Vietnam is a large apparel producer that relies heavily on Chinese fabric.  Restricting duty preferences to clothing made from TPP-originating textiles would increase the cost of inputs and the cost of paperwork and compliance for Vietnamese clothing producers, which could render the “preferential access” too expensive to even bother obtaining.  As is the case with textile provisions in many U.S. trade agreements, the cost of complying with the onerous rules of qualification often doesn’t justify the effort, so the full duty is paid and the “on-paper” benefits of the agreement go unrealized.  Resolution is complicated further by the fact that Mexico – another TPP party – is a large apparel producer and exporter to the United States that sees Vietnam as a major competitor and threat.

How will Malaysia’s government procurement project set-asides for its ethnic Malay population affect the effort to open bidding on government projects to firms in all TPP countries?  And for that matter, how will U.S. negotiators agree to open U.S. government procurement projects to firms in TPP countries without broaching the “Buy American” provisions identified as red lines by many members of Congress?

Numerous other issues seem to remain unresolved.

Will the agreement provide for a single set of tariffs and rules of origin for all countries, or will it amount to a less liberalizing series of bilateral agreements?

Will the United States insist on, and other countries submit to, the U.S. process of certification, which conditions entry-into-force of the agreement on the U.S. president’s certification that the trade partner’s laws are in compliance with the terms of the agreement?

Will Japan, Canada, and the United States open their various agricultural markets to the satisfaction of one another and other agricultural product exporters, such as Australia, New Zealand, and Mexico?

Will improved dairy, beef, and sugar export market access be enough to compel New Zealand and Australia to accommodate U.S. pharmaceutical access and intellectual property protection demands? And will those U.S. intellectual property demands accommodate terms of compliance that aren’t too onerous for developing countries and that don’t impede access to medicines?

It’s good that U.S. negotiators can return to the table with Trade Promotion Authority in hand because now the TPP “end game” can begin.  But there is a lot of heavy lifting ahead.  The issues above and many others will have to be resolved before TPP can conclude.  And once it does conclude, the real scrutiny of its provisions will begin. 

Most provisions will be trade liberalizing.  Some will be protectionist.  Where the congressional battle lines are drawn on the implementing legislation of TPP remains to be seen.  But the whole process is likely to unfold in the midst of primary election season, ensuring TPP (and trade policy, in general) is a boisterous 2016 campaign issue. 

In his new encyclical, Laudato Si, Pope Francis challenges people to adopt a new “ecological spirituality.” But his economic and policy prescriptions are more controversial than his theological convictions.

The Pope’s commitment to the poor and our shared world is obvious. Yet when he addresses policy, his grasp is less sure.

The Pontiff ignores the flawed nature of government. He is disappointed with its present failings, but appears to assume that politics, unlike humanity, is perfectible.

Most environmental problems result from the absence of markets and property rights. For instance, since no one owns the great common pools of air and water, “externalities” abound.

When possible, government should create quasi-markets or apply market incentives. In contrast, where government acts as property manager, it typically performs badly. For example, at the behest of business interests, Washington subsidizes grazing and timbering on its lands, opening up areas which otherwise would not be developed.

Politics does no better in caring for future generations. Politicians have a short time horizon, usually to the next election.

There’s even a more basic point. The Pope notes how hard it is “to find adequate ways of solving the more complex problems of today’s world,” which “cannot be dealt with from a single perspective or from a single set of interests.” He goes on to complain how hard it is “to take into account the data generated by other fields of knowledge.”

However, officials often come from “a single perspective” and cannot consider the mass of knowledge available in the world beyond. In contrast, markets act–imperfectly to be sure–with the widest number of participants, arrays of information, and variety of perspectives.

While Laudato Si largely ignores government’s woeful record as environmental steward, it does express frustration at politicians’ failure to pass the kind of program the Holy Father advocates. Public choice economists long ago explained how interest groups with concentrated benefits so often defeat a disinterested public bearing diffuse costs.

As I point out for the Acton Institute: “Apparently unrecognized by the encyclical, not everyone claiming to speak for the common good does so. Many ecological interest groups seek to impose their visions and policies on others, rather than achieve a responsible balance, in this case of ecological values, human liberty, and economic prosperity.”

Moreover, it is not enough to blame special interests for influencing government. Politicians are no more virtuous than the people they represent.

In spite of all this, the Pontiff pushes for not just more government, but more global government. He does so despite recognizing that this approach has failed in the past. While universal problems may require global solutions, international bureaucracies are least accountable to the poor and dispossessed.

Despite the many well-documented reasons for questioning both the severity of environmental problems and wisdom of entrusting government with new powers, Laudato Si appears to doubt the legitimacy of opposing views. The document complains that “Obstructionist attitudes, even on the part of believers, can range from denial of the problem to indifference, nonchalant resignation or blind confidence in technical solutions.” This lack of openness to dissenting viewpoints is evident in the encyclical’s brief discussion of climate change.

The Pope offers a detailed policy agenda and then insists that his proposed program should not be subject to electoral change or oversight, since “continuity is essential.” This undermines the democratic principles so important for those without economic and social influence.

True, the Pontiff hopes for a new kind of politics and politician, but that runs against thousands of years of experience. There is no guarantee increasing the power of parliaments, officials, and agencies will solve problems.

Despite his failings as a policy analyst, Pope Francis is right to ask, “How much is enough?” But expanding government power will not fill the empty hearts that he sees.

A fun thing about making predictions is ultimately finding out how wrong you were, and why. The chart below depicts the actual growth in charter school enrollment from 2000 to 2011, presented in Richard Buddin’s paper “The Impact of Charter Schools on Public and Private School Enrollments.” Now, as the old investment adds exhorted “past performance is no guarantee of future results.” But such a definitive pattern cried out for a regression fit. The dashed blue line in the chart below represents the “predicted” growth of Charter schools since 2011 (which I calculated three years ago from the 2000-to-2011 data). But how good was the prediction? As a test, I have plotted the actual data for 2012 to 2015 as red dots, using this and this as sources.

Well. Not bad. The accelerating growth in charter school enrollment could be excellent news for children and families–expanding the breadth of their educational options. Or (in the long term) it might reduce the variety of educational choices if charters become re-regulated (and thus homogenized) after having “eaten” a substantial number of diverse and much freer private schools. As Richard Buddin showed, charter schools are drawing students away from the freer independent school sector. And as the news routinely informs us, there are regular efforts to pile regulations onto charters to make them behave more like conventional state-run schools. In 2011, I raised the concern that this cycle could reduce educational liberty.

Two things are likely to happen over time: more private schools will be forced by economic expediency to convert to charter status as the number of competing charter schools grows, and the charter law is very likely to accrete regulation as charters enroll a larger share of the total student population. After all, the conventional U.S. public schools of the mid-to-late 1800s generally had more parental power and more autonomy than do typical charter schools today, but they have succumb to ever more extensive and more centralized regulation. If charter public schools follow the pattern set by conventional public schools, and if private schools continue to convert to charter status, what will be the end result? We could well see a heavily regulated state education monopoly that enjoys not a 90 percent market share, as it does now, but a 95 or even 99 percent market share. The end point would be worse than the situation we have today. While it is possible that charter schools will not accrete regulation like other public schools have as they begin to enroll a larger share of students, there is no reason to be hopeful in that regard.

With attempts to regulate charter schools more like state-run district schools continuing to this day, reasons for hopefulness remain scarce.

This, admittedly is a long-run concern. And as Keynes observed, “In the long-run, we’re all dead.” While that is literally true of any given generation, policy must be made with a view to functioning well not simply for us, now, but also for subsequent generations, decades hence. Having spent years studying the history of education systems, it’s hard not to be concerned with the long-run.

Following the protests and riots in Ferguson last year, President Obama created a Task Force on 21st Century Policing to examine policing problems and make recommendations.  The Task Force issued its final report last month.  In this post, I want to highlight the numerous ways in which the report would expand the role of the federal government.

By way of background, policing is supposed to be the near-exclusive province of state and local government under the U.S. Constitution.  The federal government is nevertheless constantly seeking to expand its jurisdiction.  The number of federal crimes and the number of federal law enforcement agents keeps rising.  Members of Congress also like to throw millions and millions of dollars at local police departments.  Of course, having accepted the money, local policymakers are now swamped with myriad federal conditions and mandates.  On top of that, the feds have entwined themselves with local police with the creation of hundreds of permanent joint federal-state police units that operate to enforce narcotics, guns, and immigration offenses.

President Obama’s Task Force is now recommending a host of actions to expand the role of the federal government even further.  Here is an excerpt from the final report (pdf):

The President should support and provide funding for the creation of a National Crime and Justice Task Force to review and evaluate all components of the criminal justice system for the purpose of making recommendations to the country on comprehensive criminal justice reform.

The President should promote programs that take a comprehensive and inclusive look at community-based initiatives that address the core issues of poverty, education, health, and safety.

The Federal Government should develop survey tools and instructions for use of such a model to prevent local departments from incurring the expense and to allow for consistency across jurisdictions.

The Federal Government should create a Law Enforcement Diversity Initiative designed to help communities diversify law enforcement departments to reflect the demographics of the community.

Discretionary federal funding for law enforcement programs could be influenced by that department’s efforts to improve their diversity and cultural and linguistic responsiveness.

The Federal Government should incentivize this collaboration through a variety of programs that focus on public health, education, mental health, and other programs not traditionally part of the criminal justice system.

Policies on use of force should also require agencies to collect, maintain, and report data to the Federal Government on all officer-involved shootings, whether fatal or nonfatal, as well as any in-custody death.

The Federal Government could further incentivize universities and other organizations to partner with police departments to collect data and develop knowledge about analysis and benchmarks as well as to develop tools and templates that help departments manage data collection and analysis.

The Federal Government should create a mechanism for investigating complaints and issuing sanctions regarding the inappropriate use of equipment and tactics during mass demonstrations.

The Federal Government should support the development and delivery of training to help law enforcement agencies learn, acquire, and implement technology tools and tactics that are consistent with the best practices of 21st century policing.

The Federal Government should support the development of new “less than lethal” technology to help control combative suspects.

The Federal Government should make the development and building of segregated radio and increased bandwidth by FirstNet for exclusive use by local, state, tribal, and federal public safety agencies a top priority.

The Federal Government should assess and evaluate zero tolerance strategies and examine the role of reasonable discretion when dealing with adolescents in consideration of their stages of maturation or development.

The Federal Government should support the development of partnerships with training facilities across the country to promote consistent standards for high quality training and establish training innovation hubs.

The Federal Government should encourage and support partnerships between law enforcement and academic institutions to support a culture that values ongoing education and the integration of current research into the development of training, policies, and practices.

The Federal Government, as well as state and local agencies, should encourage and incentivize higher education for law enforcement officers.

The Federal Government should create a loan repayment and forgiveness incentive program specifically for policing.

The Federal Government should support research into the development of technology that enhances scenario-based training, social interaction skills, and enables the dissemination of interactive distance learning for law enforcement.

The Federal Government should support the continuing research into the efficacy of an annual mental health check for officers, as well as fitness, resilience, and nutrition.

This litany fits right into Mr. Obama’s big government philosophy.  Congressional Republicans, for their part, seem dazed and confused.  Instead of trying to scale back the role of the federal government, they seem to focus on steering federal funds to their districts.

It is true that the report only makes recommendations, but you get the drift of it.  The next concrete legislative bill to expand the federal role will likely be federal funding for police body cameras.  It is expected to attract strong bipartisan support. 

For related Cato work, go here, here, and here.

Great Britain long reigned as the globe’s greatest maritime power, determined to maintain a navy as strong as those of its next two competitors combined. However, by the end of the 19th century, America and Germany had ended London’s economic primacy.

Britain chose to accommodate the United States and confront Germany. The result was an enduring alliance during the first and two world wars before the global order was settled after the second.

Washington faces a similar choice in dealing with the People’s Republic of China. There are many differences in circumstances, of course, but again the globe’s dominant force, accustomed to premier status, faces a serious challenge from a new power mixing rapid economic growth, nationalistic exuberance, and powerful grievances. Increasingly the United States faces a choice between accommodation and confrontation.

Into this imbroglio steps Lyle Goldstein, a professor at the National War College. In his new book, Meeting China Halfway: How to Defuse the Emerging US-China Rivalry (Georgetown University Press) he offers a strategy of cooperation for the two nations, which includes recognizing natural but much-reviled “spheres of influence.”

Goldstein encourages both nations to reward reach other’s good behavior. Forging a successful relationship requires Americans to honestly confront the past, which continues to color Chinese attitudes. From there, Goldstein discusses several difficult issues between the two nations and proposes policies which would encourage “cooperation spirals.”

Some matters, such as economics and environment, are politically contentious but not so freighted with emotion. Others reflect America’s and China’s roles in the world.

Goldstein begins with Taiwan. In a series of reciprocating steps, he urges the PRC to reduce military threats and allow expansion of Taipei’s international presence. In turn, he pushes the United States to end arms sales and encourage final status negotiations. His proposals are painful to both sides but would reduce tensions between the United States and the PRC.

In Southeast Asia, Goldstein suggests that Washington encourage greater Chinese naval participation, recognize the legitimacy of Beijing’s territorial claims, and reduce American military activities. China should offer greater naval cooperation and transparency, moderate promotion of its territorial claims, and scale back military activities.

The toughest suggestion concerns relations with Japan. He notes that “the capabilities and preparedness of the US-Japan Alliance have been ratcheted up to such an extent that the alliance itself is now triggering … acute security anxiety” in Beijing, thereby “feeding China’s vast appetite for new and more capable military systems.”

That still doesn’t make his ideas easy to accept. He advocates that the United States reduce troop levels, push for joint Chinese-Japanese naval patrols, urge a Japanese visit to Nanking, press for joint administration of the Senkaku/Diaoyu Islands, and turn the bilateral alliance into a more normal relationship.

For China, he proposes accepting trilateral negotiations, guaranteeing supplies of rare earths minerals, settling East China Sea disputes, accepting Japanese constitutional reform regarding the military, and backing Japanese membership on the UN Security Council. American policy changes should come easily since it reduces a military role that no longer serves American interests. In contrast, Beijing would have to confront deep nationalist antagonisms toward Tokyo.

The many difficulties in making such a cooperative approach work are obvious. But Goldstein creatively challenges the confrontation ethos which appears to be taking over Washington.

As I explain in National Interest: “Compromise and cooperation are the only realistic choice. And they are fully consistent with American security. The U.S. is the world’s strongest military power, allied with or friendly to most industrialized states worldwide and most of the growing nations in Asia. The path forward should help Beijing feel similarly secure.”

Today American foreign policy is dominated by a bipartisan consensus that what Washington says should go. There’s no way such an approach will work against a rising nation like China. As Goldstein ends his remarkable book, “for America, there is no viable alternative to meeting China halfway.” He’s right.

In Monday’s Financial Times, columnist Gideon Rachman presented a grim outlook for Greece and the European Union. He argues there are no good outcomes. There are three options. First, the EU can make concessions to Greece. Second, the EU can stand firm and allow Greece to leave the Euro. Third, the Greek government can accept the EU’s terms.

The first option represents a near-term victory for the Greek government. It also creates moral hazard within the broader EU. Governments in other countries implementing austerity measures would come under pressure. Populist parties would make further electoral gains across Europe. Consensus rule within the EU would become impossible.

It is feared the second route would put pressure on other countries, e.g., Spain and Italy, viewed as being vulnerable to the economic woes besetting the Greeks. That is an argument for “contagion.”

The third outcome may offer no long-term solution. Even were the Greek government largely to accept what the EU, the ECB and the IMF want to impose on it, that would likely not solve the Greek problem in the long run. Greece’s debt level would still likely be unsustainable. It is not clear that any government can implement the far-reaching economic reforms needed to put the Greek economy on a sustainable growth trajectory.

Richman’s analysis is cogent, if bleak.

The IMF, and its partners in the troika, first proposed its standard nostrum for a highly indebted sovereign: incur more debt. Existing debt may be restructured, and payment terms extended, but always new loans are made. The cure for drinking is more drinking, the cure for over-eating is more food, and the cure for excessive debt is more debt. It all makes sense in the Alice-in-Wonderland world of the IMF.

True, later some debt-relief was offered to Greece when the utter unsustainability of its existing debt could not be overlooked. But the relief was too little, too late. More recently, in a rare moment of humility for the organization, the IMF appears to have accepted that still more debt relief is needed.

Unsustainable debt cannot be repaid.

The unstated reason for policy intransigence in the face of reality is that much of the Greek sovereign debt was owed to important financial institutions, including major banks. Other global banks were also exposed because of interbank lending. The rational thing for individual governments to have done was to bail out their own banks and write down the Greek debt. That was politically unpalatable, however, because it would have involved acknowledging the shaky finances of European banks. Politicians would have had to acknowledge the bad practices of its banks. That would have been messy and unpleasant. Far better to offload the problem on the Greeks.

I will close by offering one possible optimistic scenario. Contrary to received wisdom, Greece may be better off out of the Euro. Left to their own devices, including the need to finance sovereign debt, the Greek people and their political leaders might be forced to make the needed economic reforms and to implement fiscal discipline. The good outcome is not guaranteed, but Grexit from the Euro may be the only feasible way of achieving it.

Alas, it is more likely that the EU and Greek government will muddle through until the next crisis. Perhaps, the next crisis will break out first in another EU country. Take your pick.

[Cross-posted from Alt-M.org]

Bobby Jindal, Governor of Louisiana, will officially announce his run for the White House this afternoon, joining the ever-growing Republican field. Jindal hopes his experience cutting state spending and shrinking the state’s workforce will help propel him to the presidency. However, like the other governors whose records we have highlighted, Jindal’s fiscal record is not without faults.

Jindal took office in January of 2008, and 2015 will be his last year in office. He has scored well on the Cato Fiscal Policy Report Card on America’s Governors earning an “A” in 2010, and a “B” in both 2012 and 2014. All three report cards commend Jindal’s resolve to cut Louisiana state spending.

Since fiscal year 2009, the first full fiscal year of Jindal’s term, state general fund spending has decreased by 7 percent. Per capita state spending has fallen from $2,089 in 2009 to $1,883 in 2015, a decrease of 10 percent. This spending restraint is quite remarkable. For comparison, per capita state spending grew nationally by 8.5 percent during the same time period.

Total state spending, which includes money from the federal government for programs like Medicaid, stayed constant while Jindal was in office. It was $28.9 billion in 2008 compared to $29.1 billion in 2014.   

One way that Jindal reduced spending was cutting the state’s workforce. State government employment has decreased 26 percent since he’s been governor, according to data from the Bureau of Labor Statistics. Additionally, he passed broad pension reforms. All state employees hired after July 2013 receive a cash-balance retirement plan, similar to a 401(k) plan, instead of a traditional defined-benefit pension.

Jindal has also cut state higher education spending. State higher education spending fell from $1.1 billion a year in 2009 to $535 million in 2015. His 2016 budget includes further cuts to the state higher education system, but the cuts were avoided in a last-minute budget deal under a complicated financing structure.

Jindal’s strong fiscal record is partly undercut by Louisiana’s generous economic development programs, i.e., corporate welfare. Jindal helped expand the state’s wasteful film tax credit program. In 2013, the state wasted $250 million on the program, which is one of the largest film giveaways in the nation. The state offsets 30 percent of the cost of film production expenses. An episode of Duck Dynasty, the popular television show, represents $330,000 in tax credits to its production company. His administration also gave $36.5 million to the New Orleans Hornets, the professional basketball franchise, to encourage them to stay in New Orleans through the 2024 season. According to research from the Commonwealth Foundation in Pennsylvania, Louisiana was fourth in state economic development spending from 2007 to 2014.

Louisiana general fund spending has fallen during Bobby Jindal’s tenure as governor. At a time when states were increasing spending, Jindal instituted reforms that cut the state workforce and lowered per capita spending. This feat makes Jindal unique among Republican contenders for the presidency.

 

A ruling for the challengers in King v. Burwell would have benefits that swamp other effects of the ruling, including:

  • More than 67 million Americans would be freed from illegal taxes in the form of ObamaCare’s employer mandate.
  • More than 11 million Americans would be freed from an illegal tax averaging $1,200 (i.e., ObamaCare’s individual mandate).
  • Affected workers could receive a pay raise of around $900 per year.
  • The ruling could create an estimated 237,000 new jobs.
  • It could add an estimated 1.3 million workers added to the labor force.
  • It could result in more hours and higher incomes for 3.3 million part-time workers.

The number of people who could benefit from a ruling for the challengers is, therefore, more than ten times the number who would lose an illegal subsidy. And, as discussed here, the pool of people who need such subsidies may be as small as one-tenth the number receiving them.

Click here for state-by-state data on the number of employers and taxpayers who would benefit from King v. Burwell.

Europe is at risk from Russia, we are told. But no one in Europe seems to care. Even the countries supposedly in Vladimir Putin’s gun sites aren’t much concerned.

Even if Russia threatens the continent, the Europeans don’t plan on defending themselves. Instead, virtually everyone expects America to save them, if necessary. Washington is being played for a sucker as usual.

Defense Secretary Ashton Carter recently announced that the United States. will contribute aircraft, weapons, and personnel to the “Very High Readiness Joint Task Force.” That’s not all. Separately, the Obama administration plans to pre-position tanks and other equipment for a combat brigade in Eastern Europe.

Carter explained that Washington was acting “because the United States is deeply committed to the defense of Europe, as we have for decades.” America is more committed to Europe than are Europeans.

The Europeans scrimp on the military while funding their generous welfare state. They promise Washington whatever it desires—and then go back to doing what they do best, depending on America.

NATO always stood for North America and the Others. During the Cold War, the allied states shamelessly took a very cheap ride on the United States.

The problem has gotten worse in recent years. The United States accounts for three-quarters of NATO outlays even though Europe has a larger GDP than America. Of 28 members, only the United States, Great Britain, and Greece typically broke the officially recommended level of two percent of GDP. Estonia has become a member of that exclusive club. After frenetically demanding that the United States do more, Poland only hit that mark this year. But several members have been cutting outlays.

Of the five largest European defense budgets, only France’s will increase. Those of Canada, Germany, Great Britain, and Italy will continue to decline. None of these countries will hit the recommended two percent of GDP level in 2015. Cooperation is poor even among those most at risk.

Never mind the events of the last year. “It is much more business as usual,” said British defense analyst Ian Kearns. As of 2013, the Europeans devoted just 3.6 percent of their governments’ budgets to the military, compared to a fifth of U.S. government spending. America’s per capita military outlays are five times that of the alliance’s Cold War members and eight times that of those states which joined later.

The issue is more than just money.

“Make no mistake: we will defend our allies,” declared Carter. But will the Europeans defend anyone, even themselves? A new poll suggests not.

The Pew Foundation recently surveyed eight leading NATO countries: If Russia got into a conflict with another member of NATO, should your country use military force in the victim’s defense? A majority of French, Germans, and Italians said no. Only pluralities said yes in Poland, Spain, and the United Kingdom. (Yet Poland is insisting that everyone else defend it!) Only in America, naturally, and Canada did a majority say yes.

Yet why should the Europeans take action as long as they believe they can count on Washington to save them? According to Pew, two-thirds of Europeans were convinced the Americans would come rushing over to do what they would not do for themselves.

It’s time to change that. The Cold War is over. Moscow is an unpleasant actor, not a global threat.

Europe has a much larger GDP and population than Russia and even with its current anemic level of military outlays devotes more to defense. The U.S. government is essentially bankrupt, with far greater unfunded liabilities than the Europeans, despite Greece’s travails.

As I argue in Forbes: “Instead of pouring more resources into NATO, Washington should disengage militarily, turning leadership of the alliance and responsibility for defending the continent over to Europe. Americans shouldn’t protect their rich cousins even if the latter were devoted to protecting each other. That the Europeans expect the U.S. to do their job is yet another reason for Americans to say no more.”

Over the last couple weeks, the Thomas B. Fordham Institute has been holding its second annual Wonk-a-thon. In the wake of Nevada enacting a groundbreaking, nearly universal education savings account (ESA) law, Fordham asked practitioners, scholars, and policy analysts what Nevada must “get right in order to provide positive outcomes for kids and taxpayers.”

Readers can vote for the wonk who offered the wisest analysis here. For a summary of the various recommendations, see here.

ESAs have the potential to radically remake the education landscape. Rather than choose just a single school, parents can use ESA funds for a variety of educational goods and services. Students may spend part of a day in a classroom, part on a computer, and part with personal tutors. Someday, students may even learn in “education malls” where they will choose from among numerous education providers for each subject, each with a different approach or focus. Or perhaps there will be explosive growth in full or partial homeschooling or blended learning. Frankly, we cannot predict with any certainty how education will change over the next few decades in a robust market.

In another sense, though, ESAs aren’t radical at all. They only appear so because the K-12 education system is so radically at odds with the rest of American life—a fact that escapes notice only because we are so accustomed to the status quo. No other good or service in American life is so widely subsidized by the government and assigned to citizens based on the location of their homes. The very presence of publicly subsidized schools crowds out the vast majority of providers who would exist in a market system, leaving only niches like religious schools or schools for the elite. ESAs would merely create space for the market that the government has crowded out.

But what should the government’s role be in that market? As I detail at Jay P. Greene’s blog, the Wonk-a-thon participants differ considerably on this question.

Some (myself included) argue the state government should ensure that the taxpayer money is being spent only for eligible expenses, but should refrain from trying to assess the quality of different education providers. There is a legitimate difference of opinion about what should be taught and how it should be taught, so assessing educational quality should be left to private organizations.

Others have argued the state should take a more active role in assessing and even mandating quality. One wonk went so far as to recommend that the state “set a high bar for the quality of services offered by providers” and “eliminate providers who consistently fail to meet the mark.” Another claimed that “no one but the purest Friedmanites think that the magic hand of the market will automatically lead to better outcomes.” Of course, there’s nothing “magic” about the “invisible hand” of the market – it’s just a metaphor Adam Smith used to describe the process of spontaneous order, by which the voluntary actions of disparate individuals organically form a system that is the result of human action, but not human design.

So how does the market “magically” provide quality? Imagine you’re looking for a new dishwasher. As an average consumer, you know nothing about the mechanics involved in making a dishwasher, so the dishwasher manufacturers and retailers have a great advantage over you. Fortunately for you, without any government mandate, numerous organizations took it upon themselves to help you overcome this information asymmetry and ensure product quality. Some, like Underwriters Laboratories, provide private certification for dishwashers that meet their standards. Others, like Consumer Reports, provide expert reviews of hundreds of dishwashers and rate them on five criteria. And still others, like Amazon, offer a platform for consumers to rate and provide feedback about dishwashers based on their personal experience.

In these ways, the market spontaneously channels expert knowledge and user experience to provide would-be consumers with needed information. It’s a messy process but, as scholars from the Mercatus Center at George Mason University show in a recent paper, it works better than having a Ministry of Dishwasher Quality define what makes a “quality” dishwasher and force all manufacturers into compliance: 

Regulatory measures such as food labels or product safety warnings may seem like fail-safe mechanisms to correct information-based uncertainty. Regulations, however, are not as effective as market solutions, and may harm consumers instead of helping them. Regulators can be influenced by regulated industries, erecting barriers to keep out new competition, stifling innovation, and imposing higher prices and reduced quality on consumers. By making it more difficult to do business, regulations can have the unintended consequence of entrenching already-established businesses while closing the market to entrepreneurs with innovative ideas.

Still, one might object that just because the market can overcome the information asymmetry problem doesn’t mean it will. Why should we have any confidence that these solutions will emerge? In short, as economist Steve Horwitz explains, overcoming the information asymmetry barrier is in the interest of both buyers and sellers:

Consumers want a way of knowing that they are getting products that won’t explode, mechanics who know their stuff, and scuba instructors who won’t get them killed (not to mention gear that won’t leak). Sellers want to be able to signal to potential buyers that their products and services are of high quality. Solving this problem requires an independent intermediary such as these certification organizations, and sellers are glad to pay to acquire the signal of certification. The certifiers are happy to provide it, and most (though not all) are run as private nonprofits to alleviate any concern about conflicts of interest.

What is also important here is that there is genuine competition via freedom of entry into the certification business. Certification organizations cannot afford to make mistakes since there’s nothing preventing either an existing competitor or new entrant from offering a higher quality alternative. Even if there is no actual competitor at any given time, the threat of competition via new entrants, and consumers’ and sellers’ option to “exit” and use that new firm, keep established certifiers on their toes.

Parents want a way of knowing that their children will receive a high-quality education. Likewise, schools and other education providers want to be able to signal to parents that they are offering a high-quality education. What has been missing until now is robust competition because the fully subsidized government schools have crowded out most would-be competitors. Education savings accounts have the potential to rectify that, if bureaucrats stay out of the way.

This cheerfully drawn comic from the Daily Signal does an excellent job highlighting the insanity of civil asset forfeiture.  It begins with a quintessentially American premise: a young person setting out on his own, all wordly possessions in hand, to start a new life as an adult.  Far be it from me to spoil the rest:

 

 

If such stories seem unbelievable (it is a cartoon after all), be sure and check out the recent all-too-real stories of Joseph Rivers and Charles Clarke, for whom this cartoon surely hits too close to home.  Even they are only the tip of the iceberg.

New Mexico has taken the initiative to end this inherently abusive practice once and for all, and there are active reform efforts underway in California, Michigan, Montana, Oklahoma, Maryland, and others. But until every other state and the federal government join in, these incredible tales of legalized theft and policing for profit will continue.

FreedomWorks recently released a handy map accompanying their report on state forfeiture laws. How does your state stack up?  

 

 

The Dodd-Frank Act creates the Financial Stability Oversight Council (FSOC).  One of the primary responsibilities of the FSOC is to designate non-banks as “systemically important” and hence requiring of additional oversight by the Federal Reserve.  Setting aside the Fed’s at best mixed record on prudential regulation, the intention is that additional scrutiny will minimize any adverse impacts on the economy from the failure of a large non-bank.  The requirements and procedures of FSOC have been relatively vague.  We have, however, gained some insight into the process since MetLife has chosen to contest FSOC’s designation of MetLife as systemically important.

One of the benefits of MetLife’s resistance has been to shed additional light on some of the rationales used by FSOC.  While FSOC pretty much throws everything in the kitchen sink at MetLife, one of the more interesting (and bizarre) claims is that MetLife is a risk to financial stability because of the potential behavior of state insurance regulators.  After raising the specter of a run by policy-holders (yes, the old bank-run spin), FSOC then worries that state insurance regulators might actually use their authorities to “impose stays on policyholder withdrawals and surrenders.”  You’d think this would be a good thing, but no FSOC worries that “Surrenders and policy loan rates could increase if MetLife’s policyholders feared that stays were likely to be imposed either by MetLife’s insurance company subsidiaries or by their state insurance regulators.”  So yes, FSOC is serious here.  The ability of state regulators to stop “runs” could be the very cause of those runs, and hence MetLife must be regulated by the Federal Reserve.

Such an argument would be bad enough on its face, but it also ignores that the “orderly liquidation authority” of Dodd-Frank allows the FDIC, when resolving a non-bank, to also impose stays.  The FDIC can also void payments made up to 90 days before the beginning of a receivership.  So under FSOC’s logic, the fact that (federal or state) governments can reduce the confidence of counter-parties in a company is grounds for additional regulation of said company.  This kind of spin basically allows FSOC, and by extension the Fed, to pretty much regulate anyone they want, if the government is the very source of the potential instability. 

Pope Francis’ new encyclical, Laudato Si, advocates a new “ecological spirituality.” Yet this challenging call is diminished by the document’s tendency to devolve into leftish policy positions. The encyclical underestimates the power of market forces to promote environmental ends.

There are serious environmental problems but Laudato Si presumes rather than proves crisis is the norm. Moreover, nothing in Scripture or nature tells us how much to spend to clean up the air.

Drawing environmental lines requires balancing such interests as ecology, liberty, and prosperity. One cannot merely assume that the correct outcome in every case is more of the first.

Indeed, the Pontiff’s own goals conflict. He speaks movingly of the dignity of work and its importance for the poor. But the more expensive and extensive the government controls, the fewer and less remunerative the jobs.

Perhaps most disappointing is how the Pope seemingly views capitalism, and especially property rights, as enemies of a better, cleaner world. Yet most environmental problems reflect the absence of markets and property rights, the “externalities,” in economist-speak, which impact others.

The best solution is to either create or mimic markets and property rights. For instance, public control rarely ends well.

Garrett Hardin famously wrote about the “tragedy of the commons,” in which land open to everyone typically is misused by everyone. Federal range and forest land is badly managed, not because government officials are malign, but because the incentives they face are perverse.

In contrast, a private owner bears both costs and benefits, and suffers when he misuses a resource. The owner may make a mistake, but his power to do harm is sharply limited.

Pollution taxes and tradeable permits attempt to apply market forces to the great common areas, such as air and water. Yet Laudato Si launches a perplexing attack on the use of emission credits to limit pollution. Properly designed they create an incentive for those who can control emissions at the least cost to control them the most.

Although the Pope acknowledges “that honest debate must be encouraged among experts, while respecting divergent views,” Laudato Si ignores the most sophisticated critiques of climate alarmists. For instance, many critics dispute the likelihood of catastrophic change and the best means to deal with the likely impact of any temperature increases.

For years models failed to match climatic behavior. Peer-reviewed research increasingly suggests that warming will be modest. Moreover, any prediction today as to conditions decades in the future is a wild guess.

These argue in favor of addressing specific problems rather than imposing arbitrary, draconian, and costly cuts in energy consumption. Economic analysis confirms that adaptation can achieve similar environmental ends at less expense.

Laudato Si criticizes wasteful, unnecessary consumption and worries about “the depletion of natural resources.” The Pope rightly asks, how should we use the resources entrusted to us by God?

However, the encyclical offers no evidence for its sharp attack on consumption in developed countries, which of course produce more than they use. In fact, unowned or underpriced resources are vulnerable to abuse in any society.

Where markets operate, resource depletion is largely a myth because prices signal consumers and producers to adapt. There now is more recoverable oil than ever.

Markets typically are better than governments in protecting “future generations.” An individual landowner who misuses his property loses its value. The typical political time horizon is until the next election.

As I point out for the Acton Institute: “Economic progress eases the impact of environmental problems on the poor. It also provides resources to enhance the environment, efficiencies to produce more using less, and technologies to better preserve ecological values.”

Of course, markets are not perfect or enough. Perhaps the encyclical’s most important message is that “the emptier a person’s heart is, the more he or she needs things to buy, own and consume.” That is something no government program can fill.

Trade Promotion Authority—legislation that sets out negotiating objectives and ensures an up-or-down vote on future trade agreements—survived a Senate cloture vote today 60-37 and will likely become law.  The Senate already passed TPA last month as part of a different trade package by a vote of 62-37.  One of the Senators that switched his vote was Ted Cruz (R-TX).

The switch was a pretty big surprise considering that Cruz had been a prominent and vocal defender of TPA just a few weeks ago.  He co-authored an op-ed in the Wall Street Journal in May praising the bill and noting how important it was to furthering free trade.  He went on record explaining at length how TPA was not only constitutional but represented an appropriate Congressional check on the power of the President.

Here’s what he says to explain his decision to vote against it now:

Since the Senate first voted on TPA, there have been two material changes.

First, WikiLeaks subsequently revealed new troubling information regarding the Trade in Services Agreement, or TiSA, one of the trade deals being negotiated by Obama.

Despite the administration’s public assurances that it was not negotiating on immigration, several chapters of the TiSA draft posted online explicitly contained potential changes in federal immigration law. TPA would cover TiSA, and therefore these changes would presumably be subject to fast-track.

Second, TPA’s progress through the House and Senate appears to have been made possible by secret deals between Republican Leadership and the Democrats.

When TPA first came up for a vote in the Senate, it was blocked by a group of senators, led by Sen. Maria Cantwell (D-WA) and Sen. Lindsey Graham (R-SC), both of whom were conditioning their support on the unrelated objective of reauthorizing the Export-Import Bank.

The Ex-Im Bank is a classic example of corporate welfare. It is cronyism at its worst, with U.S. taxpayers guaranteeing billions of dollars in loans for sketchy buyers in foreign nations. Ex-Im is scheduled to wind down on June 30. But powerful lobbyists in Washington want to keep the money flowing.

Enough is enough. I cannot vote for TPA unless McConnell and Boehner both commit publicly to allow the Ex-Im Bank to expire—and stay expired. And, Congress must also pass the Cruz-Sessions amendments to TPA to ensure that no trade agreement can try to back-door changes to our immigration laws. Otherwise, I will have no choice but to vote no.

Senator Cruz is just wrong about TiSA, and he would know that if he asked any trade policy expert.  There is approximately zero chance the TiSA will do anything to liberalize America’s byzantine and protectionist immigration laws.  That’s because even though temporary immigration is a common component of global services negotiations for other countries, the United States never makes any commitments on immigration—for the obvious reason that it is politically toxic to do so. 

On the other hand, there is approximately a 100% chance that TiSA will reduce barriers to trade in services in the United States and around the world.  So, even if you only support free trade as long as no one is allowed to move across national boundaries, you should support TiSA.

More importantly, Ted Cruz himself already rebutted his own concern over secret changes to immigration law.  As he explained in his Wall Street Journal piece in May:

Before anything becomes law, Congress gets the final say. The Constitution vests all legislative power in Congress. So TPA makes it clear that Congress—and only Congress—can change U.S. law. If the administration meets all the requirements, Congress will give the agreement an up-or-down vote. But if the administration fails, Congress can hit the brakes, cancel the vote and stop the agreement.

Trade-promotion authority will hold the administration accountable both to Congress and to the American people.  Under TPA, any member of Congress will be able to read the negotiating text. Any member will be able to get a briefing from the U.S. trade representative’s office on the status of the negotiations—at any time. Any member will get to be a part of negotiating rounds. And most important, TPA will require the administration to post the full text of the agreement at least 60 days before completing the deal, so the American people can read it themselves.

Cruz was right.  TPA means there will be no secrecy; no shenanigans.  Support for TPA is not about whether you trust President Obama.  Did Senator Cruz just forget this?

On the second issue, I sympathize with Cruz’s concern that GOP leadership may be overly willing to make a deal to extend the charter of the Export-Import Bank.  But I can’t understand how that could at all justify voting no on a clean TPA bill.  It seems that Cruz is opposing a policy he supports just to send a message to leadership that he’s upset with their lack of principles.

It’s worth noting that Cruz made his latest announcement in an “Exclusive” op-ed at Breitbart.com the morning of the vote.  He manages to fit his decision into two narratives familiar to Breitbart’s readers: GOP leadership can’t be trusted, and Obama wants to secretly open the borders.  Neither of these issues is actually relevant to TPA.

Unfortunately, the debate over TPA has aptly demonstrated the willingness of some Republicans, particularly those running for President, to awkwardly twist trade policy into familiar partisan tropes at the expense of genuine policy debate and progress

Cruz’s new rhetoric may be an indicator that even with TPA in place, the Trans-Pacific Partnership will face a fierce and frustrating debate if it ever comes before Congress.  Will election year politics push “free traders” like Rand Paul and Ted Cruz to find excuses to oppose the TPP as well?

Two years ago tomorrow, the Transportation Security Administration stopped accepting comments on its proposal to use “Advanced Imaging Technology” for primary screening at airports. The end of the comment period on nude body scanning would ordinarily promise the issuance of a final rule that incorporates knowledge gained by hearing from the public. But this is no ordinary rulemaking. This is an agency that does not follow the law.

It was almost four years ago that the U.S. Court of Appeals for the D.C. Circuit ordered TSA to do a notice-and-comment rulemaking on its nude body scanning policy. Few rules “impose [as] directly and significantly upon so many members of the public,” the court said in ordering the agency to “promptly” publish its policy, take comments, and consider them in formalizing its rules.

Over the next 20 months, the TSA produced a short, vague paragraph that did nothing to detail the rights of the public and what travelers can expect when they go to the airport. At the time, I called the proposed rule “contemptuous,” because the agency flouted the spirit of the court’s order. In our comment, Cato senior fellow John Mueller, Mark G. Stewart from the University of Newcastle in Australia, and I took the TSA to task a number of ways.

Having grudgingly issued a hopelessly insufficient proposed rule, the TSA is now stalling further by failing to finalize its rule. This is in part because final rules are subject to legal challenge. The TSA can be shown in court to have utterly failed to follow the law, much less to have produced a policy that addresses genuine threats in a cost-effective way. The TSA is gaming the regulatory process and skirting the law so that it can continue to act arbitrarily and capriciously toward air travelers and their safety.

Time heals all wounds, so perhaps the D.C. Circuit accepts that the TSA has de facto power to overrule its decisions. The offense to American travelers is renewed every day, though, when we are subjected to a transportation security system that is both highly invasive and that failed 95% of the time in recent tests.

After yesterday’s colorful opinion day – involving raisins, motels, and Spiderman – the Supreme Court announced that it would be handing down more rulings on Thursday and Friday, with Monday also currently indicated as a decision day. So what’s left to decide? (Not to be confused with “why are Court decisions moving left? – a remarkably premature assessment given the cases remaining, not to mention coding issues regarding liberal/conservative.)

There are seven cases outstanding and none of them are duds. Cato has filed in five of them and the other two involve the hot topics of redistricting and the death penalty, so strap yourselves in for the next week. Here’s my best guess at what will happen and when, sorted arbitrarily by rough order of (my) curiosity and with links to case background and Cato’s brief: 

  • King v. Burwell: This is the Obamacare case regarding the illegal IRS rule that provides tax credits (and attendant mandates/penalties) in states that didn’t set up exchanges. There are clearly four votes for the government and three for the plaintiffs, with Chief Justice Roberts and Justice Kennedy as the swing votes – and based on oral argument, they’re complete toss-ups. This case will come on Friday or Monday and the only outcome I feel confident predicting is that Roberts or Kennedy will write the opinion and it’ll be 5-4.
  • Obergefell v. Hodges: This is the marriage case. The conventional wisdom is that it’ll come on the last day of term and that it’ll be a 5-4 ruling striking down the state laws that don’t extend marriage license to same-sex couples. I agree with the conventional wisdom, though wonder whether the chief justice will at least vote that states have to recognize out-of-state same-sex marriages without necessarily issuing marriage licenses to same-sex couples themselves. Also, if King comes down the same day and the government loses there, it’ll be fun watching both the media and politicos scrambling to both praise and condemn the Court at the same time.
  • Texas Dept. of Housing v. Inclusive Communities Project: You may have forgotten about this case because it was argued much earlier than the others, but it very likely will be the third-most-noted case from this term. At issue is the application of “disparate impact” claims under the Fair Housing Act. That sounds like a snooze until you realize that what’s at stake is suing mortgage brokers for racial discrimination simply because they deny loans (or offer higher interest rates) more to members of one racial group than another – regardless of credit scores or other completely race-neutral considerations. Justice Kennedy is likely writing this opinion because he’s the only one who hasn’t authored a January case, which is a good sign for the opponents of disparate-impact theory because it seemed at oral argument that Justice Scalia was actually the swing vote. One other possibility, based on Scalia’s expressed concern, is that the Court will set this case for re-argument on the question of whether disparate-impact claims, regardless of statutory basis, are constitutional. 
  • Michigan v. EPA: This is a hard case to understand but it boils down another example of an executive agency’s ignoring the law it purports to enforce. In technical terms, the issue is whether the EPA “unreasonably refused to consider costs in determining whether it is appropriate to regulate hazardous air pollutants emitted by electric utilities.” This decision will have a huge impact on electricity costs, stock prices, and energy development. It will also, in conjunction with King, speak volumes about the power of administrative agencies. The smart bet is that Justice Scalia is writing the opinion here, against the government, but these complicated administrative-law cases often end up with multiple concurring opinions – particularly regarding remedy – and no clear winner. We could see this opinion on Thursday, but it could also be the “undercard” to gay-marriage day.
  • Johnson v. United States: The Supreme Court will probably strike down part of a federal law here, the one enhancing the criminal penalties for “career criminals” convicted of a firearms offense. What could possibly be the problem with that? Well, the “residual clause” applies its sentencing enhancements to crimes that “otherwise involve conduct that presents a serious potential risk of physical injury to another.” The justices have previously thrown up their hands at what that could possibly mean – plus this case was argued twice this term – and now they’ll hold the residual clause unconstitutionally vague.

And here are the two cases that’ll get plenty of media attention even though you won’t find my name on a relevant brief: 

  • Arizona State Legislature v. Arizona Independent Redistricting Commission: Both sides plausibly pitched me on this one, which means both that it’s a close call as a matter of law and there’s no clear libertarian or originalist position. The case involves redistricting via independent commission rather than legislature – a commission put in place by a popular initiative – and whether such a process violates Article I’s Elections Clause. California is only other state that would be directly affected by the opinion here, which will probably be written by either Roberts or Kennedy (whichever doesn’t write King) in favor of the AZ legislature.
  • Glossip v. Gross: This is a death-penalty case, but one that hasn’t garnered the high passions that such cases typically do. The issue isn’t the constitutionality of capital punishment or whether some class of defendant should be eligible for it, but whether a specific type of lethal injection – a three-drug cocktail that may or may not mitigate pain during the execution – violates the Eighth Amendment’s proscription of “cruel and unusual punishment.” I imagine that there are five votes here to turn back the “death penalty resistance” and ok the procedure.

In sum, all the remaining cases are big and all except Johnson are likely to be 5-4. And if the Court strikes down both the IRS-Obamacare rule and hetero-only marriage laws, Cato will be the only group to have filed on both winning sides.

The United States’ immigration system favors family reunification – even in the so-called employment-based categories.  The family members of immigrant workers must use employment based green cards to enter the United States.  Instead of a separate green card category for spouses and children, they get a green card that would otherwise go to a worker. 

In 2013, 53 percent of all supposed employment-based green cards went to the family members of workers.  The other 47 percent went to the workers themselves.  Some of those family members are workers, but they should have a separate green card category or be exempted from the employment green card quota altogether. 

Source: 2013 Yearbook of Immigration Statistics, Author’s Calculations

If family members were exempted from the quota or there was a separate green card category for them, an additional 85,232 highly skilled immigrant workers could have entered in 2013 without increasing the quota.

139,757 green card beneficiaries, 87 percent of those who gained an employment-based green card in 2013, were already legally living in the United States.  They were able to adjust their immigration status from another type of visa, like an H-1B or F visa, to an employment-based green card. 

Source: 2013 Yearbook of Immigration Statistics, Author’s Calculations

 

Exempting some or all of the adjustments of status from the green card cap would almost double the number of highly skilled workers who could enter.  Here are some other exemption options:

  • Workers could be exempted from the cap if they have a higher level of education, like a graduate degree or a PhD.
  • A certain number of workers who adjust their status could be exempted in the way the H-1B visa exempts 20,000 graduates of American universities from the cap.
  • Workers could be exempted if they show five or more years of legal employment in the United States prior to obtaining their green card.
  • Workers could be exempted based on the occupation they intend to enter.  This is a problem because in involves the government choosing which occupations are deserving, but so long as it leads to a general increase in the potential numbers of skilled immigrant workers without decreasing them elsewhere, the benefits will outweigh the harms.

 

2013 Employment Based   Green Cards

  EB 1 EB 2 EB 3^ EB 4^ EB 5~   All EB Percent Workers`

16,225

31,130

20,034

4,673

3,102

 

75,164

46.86%

Workers Adjusted`

15,616

30,484

17,318

4,247

592

 

68,257

  Workers New Arrivals`

609

646

2,716

426

2,510

 

6,907

  Family

22,753

31,896

22,931

2,246

5,406

 

85,232

53.14%

Family Adjusted

21,667

30,472

17,403

1,349

609

 

71,500

  Family New Arrival

1,086

1,424

5,528

897

4,797

 

13,732

  Adjustment of Status

37,283

60,956

34,721

5,596

1,201

 

139,757

87.13%

New Arrival

1,695

2,070

8,244

1,323

7,307

 

20,639

12.87%

                  Total

38,978

63,026

42,965

6,919

8,508

 

160,396

                      EB 1 EB 2 EB 3^ EB 4^ EB 5~       Workers Adjusted

96.25%

97.92%

86.44%

90.88%

19.08%

      Worker New Arrivals

3.75%

2.08%

13.56%

9.12%

80.92%

                        Family Adjusted

95.23%

95.54%

75.89%

60.06%

11.27%

      Family New Arival

4.77%

4.46%

24.11%

39.94%

88.73%

      *Some data on spouses and children withheld.           ^Some data on spouses, children, and workers withheld.         `Investors for the EB-5.               ~Some data on spouses, children, and investors withheld.         Source: 2013 Yearbook of Immigration Statistics                  

 

 

Last week I happened to be contemplating a post having to do with driverless cars when, wouldn’t you know it, I received word that the Bank of England had just started a new blog called Bank Underground, the first substantive post on which had to do with — you guessed it — driverless cars.

As it turned out, I needn’t have worried that Bank Underground had stolen my fire. The post, you see, was written by some employees in the Bank of England’s General Insurance Supervision Division, whose concern was that driverless cars might be bad news for the insurance industry. The problem, as the Bank of England’s experts see it, is that cars like the ones that Google plans to introduce in 2020 are much better drivers than we humans happen to be — so much better, according to research cited in the post, that “the entire basis of motor insurance, which mainly exists because people crash, could … be upended.” Driverless cars therefore threaten to “wipe out traditional motor insurance.”

It is of course a great relief to know that the Bank of England’s experts are keeping a sharp eye out for such threats to the insurance industry. (I suppose they must be working as we speak on some plan for addressing the dire possibility — let us hope it never comes to this — that cancer and other diseases will eventually be eradicated.) But my own interest in driverless cars is rather different. So far as I’m concerned, the advent of such cars should have us all wondering, not about the future of the insurance industry, but about the future of…the Bank of England, or rather of it and all other central banks. If driverless cars can upend “the entire basis of motor insurance,” then surely, I should think, an automatic or “driverless” monetary system ought to be capable of upending “the entire basis of monetary policy” as such policy is presently conducted.

And that, so far as I’m concerned, would be a jolly good thing.

Am I drifting into science fiction? Let’s put matters in perspective. Although experiments involving driverless or “autonomous” cars have been going on for decades, until as recently as one decade ago the suggestion that such cars would soon be, not only safe enough to replace conventional ones, but far safer, would have struck many people as fantastic. Consider for a moment the vast array of contingencies such a vehicle must be capable of taking into account in order to avoid accidents and get passengers to some desired destination. Besides having to determine correct routes, follow their many twists and turns, obey traffic signals, and parallel park, they have to be capable of evading all sorts of unpredictable hazards, including other errant vehicles, not to mention jaywalkers and such. The relevant variables are, in fact, innumerable. Yet using a combination of devices tech wizards have managed to overcome almost every hurdle, and will soon have overcome the few that remain.

All of this would be impressive enough even if human beings were excellent drivers. In fact they are often very poor drivers indeed, which means that driverless cars are capable, not only of being just as good, but of being far better–90 percent better, to be precise, since that’s the percentage of all car accidents attributable to human error.

Human beings are bad drivers for all sorts of reasons. They have to perform other tasks that take their mind off the road; their vision is sometimes impaired; they misjudge their own driving capabilities or the workings of their machines; some are sometimes inclined to show off, while others are dangerously timid. Occasionally, instead of relying on their wits, they drive “under the influence.”

Central bankers, being human, suffer from similar human foibles. They are distracted by the back-seat ululations of commercial bankers, exporters, finance ministers, and union leaders, among others. Their vision is at the same time both cloudy and subject to myopia. Finally, few if any are able to escape altogether the disorienting influence of politics. The history of central banking is, by and large, a history of accidents, if not of tragic accidents, stemming from these and other sorts of human error.

It should not be so difficult, then, to imagine that a “driverless” monetary system might spare humanity such accidents, by guiding monetary policy more responsibly than human beings are capable of doing. How complicated a challenge is this? Is it really more complicated than that involved in, say, driving from San Francisco to New York? Central bankers themselves like to think so, of course — just as most of us still like to believe that we are better drivers than any computer. But let’s be reasonable. At bottom central bankers, in their monetary policy deliberations, have to make a decision concerning one thing, and one thing only: should they acquire or sell assets, and how many, or should they do neither? Unlike a car, which has numerous controls — a steering wheel, signal lights, brakes, and an accelerator — a central bank has basically one, consisting of the instrument with which it adjusts the rate at which assets flow into or out of its balance sheet. Pretty simple.

And the flow itself? Here, to be sure, things get more complicated. What “target” should the central bank have in mind in determining the flow? Should it consist of a single variable, like the inflation rate, or of two or more variables, like inflation and unemployment? But the apparent complexity is, IMHO, a result of confusion on monetary economists’ part, rather than of any genuine trade-offs central bankers face. As Scott Sumner has been indefatigably arguing for some years now (and as I myself have long maintained), sound monetary policy isn’t a matter of having either a constant rate of inflation or any particular level of either employment or real output. It’s a matter of securing a stable flow of spending, or Nominal GNP, while leaving it to the marketplace to determine how that flow breaks down into separate real output and inflation-rate components. Scott would have NGDP grow at an annual rate of 4-5 percent; I would be more comfortable with a rate of 2-3 percent. But this number is far less important to the achievement of macroeconomic stability than a commitment to keeping the rate — whatever it happens to be — stable and, therefore, predictable.

So: one goal, and one control. That’s much simpler than driving from San Francisco to New York. Heck, it’s simpler than managing the twists and turns of San Franscisco’s Lombard Street.

And the technology? In principle one could program a computer to manage the necessary asset purchases or sales. That idea itself is an old one, Milton Friedman having contemplated it almost forty years ago, when computers were still relatively rare. What Friedman could not have imagined then was a protocol like the one that controls the supply of bitcoins, which has the distinct advantage of being, not only automatic, but tamper-proof: once set going, no-one can easily alter it. The advantage of a bitcoin-style driverless monetary system is that it is, not only capable of steering itself, but incapable of being hijacked.

The bitcoin protocol itself allows the stock of bitcoins to grow at a predetermined and ever-diminishing rate, so that the stock of bitcoins will cease to grow as it approaches a limit of 21 million coins. But all sorts of protocols may be possible, including ones that would adjust a currency’s supply growth according to its velocity — that is, the rate at which the currency is being spent — so as to maintain a steady flow of spending, à la Sumner. The growth rate could even be made to depend on market-based indicators of the likely future value of NGDP.

This isn’t to say that there aren’t any challenges yet to be overcome in designing a reliable “driverless money.” For one thing, the monetary system as a whole has to be functioning properly: just as a driverless car won’t work if the steering linkage is broken, a driverless monetary system won’t work if it’s so badly tuned that banks end up just sitting on any fresh reserves that come their way. My point is rather that there’s no good reason for supposing that such challenges are any more insuperable than those against which the designers of driverless cars have prevailed. If driverless car technology has managed to take on San Francisco’s Lombard Street, I see no reason why driverless money technology couldn’t eventually tackle London’s.

What’s more, there is every reason to believe that driverless money would, if given a chance, prove to be far more beneficial to mankind than driverless cars ever will. For although bad drivers cause plenty of accidents, none has yet managed to wreck an entire economy, as reckless central bankers have sometimes done. If driverless monetary systems merely served to avoid the worst macroeconomic pileups, that alone would be reason enough to favor them.

But they can surely do much better than that. Who knows: perhaps the day will come when, thanks to improvements in driverless monetary technology, central bankers will find themselves with nothing better to do than worry about the future of the hedge fund industry.

[Cross-posted from Alt-M.org]

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