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The eighth round of negotiations on the North American Free Trade Agreement (NAFTA) are expected to take place sometime next month. While progress has been made, the thorniest issues have yet to be addressed. One of the most contentious issues is dispute settlement. There are three main types, and all are controversial. The most fundamental dispute provision is Chapter 20, the Agreement’s state-to-state dispute settlement mechanism, which allows the government of any NAFTA country to file a complaint when it believes another government is violating the Agreement. The future of Chapter 20 is particularly uncertain. In October last year, the U.S. pushed a proposal that would make Chapter 20 “non-binding” by allowing parties to a dispute to ignore the findings of an independent body of jurists (referred to as a panel). This change would take Chapter 20 in the wrong direction, as it would make NAFTA less useful as an instrument to promote and enforce trade liberalization.

In a recent paper, my colleague Simon Lester and I examine the history of NAFTA Chapter 20, showing that the mechanism has not been used all that much. While there have been twenty-one disputes initiated since 1994, only three have gone to a panel and had decisions rendered. Strikingly, no panel has been composed since 2000. Why? We argue that NAFTA’s state-to-state dispute settlement chapter has a fundamental flaw in its provisions, which effectively allow the responding party to the dispute (the country being complained against) to block the formation of a panel.

In the late 1990s, Mexico initiated a dispute against the United States related to restrictions on sugar imports, and soon discovered the glitch in the system.  Basically, in order for a panel to be composed, there has to be a list of individuals to choose from. This list, or roster, as it’s referred to, is supposed to be established by the parties when the agreement enters into force (to be updated over the years). However, a problem arises when there is no roster.  In that situation, the responding party can block any of the complainant’s proposals for panelists. Thus, if one of the parties fails to appoint people to the roster, the panel process breaks down and the dispute settlement mechanism cannot function.

To find a remedy to this problem, we look at recent developments in state-to-state dispute settlement chapters in other trade agreements, notably, the Trans-Pacific Partnership (TPP) (now the recently signed CPTPP), the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), and the draft of the Japan-European Union Economic Partnership Agreement (JEEPA), which is still being negotiated. These modern trade agreements have all attempted to address the problem of lapsed rosters and panelists appointments, in their own way. Some have provisions that give the complaining party the authority to appoint panelists when the responding party refuses to cooperate, while others give this authority to an independent third party, or the co-chairs of a joint committee, who are high-ranking government officials of each party, and must arrive at a decision together.

We conclude that much of the problems with state-to-state dispute settlement in the NAFTA could have been resolved if the U.S. had stayed in the TPP, as that agreement, on the whole, appears to address the problem of panel composition. However, since there is no indication that the U.S. will rejoin the TPP anytime soon, we note some key principles that could help guide the NAFTA renegotiation of Chapter 20:

[T]he roster should not be a hurdle to appointing panelists; an independent third party can act as a facilitator in the panel appointments; and, without an independent third party, the complainant should have the power itself to appoint, in order to prevent the respondent from delaying panel formation (p. 15).

Ultimately, a functioning state-to-state dispute mechanism is an essential feature of any trade agreement, because if the obligations cannot be enforced, then the cost of noncompliance would be low. This undermines the impact of trade agreements, and is why making Chapter 20 non-binding would seriously weaken any benefits that can be accrued from a modernized NAFTA. We hope that the NAFTA negotiators take these considerations into account.

The Fight Online Sex Trafficking Act (FOSTA), an anti-sex trafficking bill with grave implications for an open internet, has passed in the House and will likely receive a Senate vote later this week. Senator Ron Wyden has proposed an amendment that would blunt the worst of its harms.

At present, FOSTA holds hosts of user-generated content liable for “knowingly assisting, supporting, or facilitating” prostitution or the promotion thereof. Attempts to police illegal content posted on a platform could render moderators aware of its existence. If they do not eliminate all of it, they could find themselves for legal purposes “knowingly facilitating” whatever illegal activity continues. This standard might criminalize good-faith moderation efforts and foster removing innocent content along with the guilty.

Wyden’s well-crafted amendment reduces the risk of removing, by explicitly distinguishing moderation from facilitating criminal activity.

The fact that a provider or user of an interactive computer service has undertaken any efforts (including monitoring and filtering) to identify, restrict access to, or remove material the provider or user considers objectionable shall not be considered in determining the criminal or civil liability of the provider or user for any material that the provider or user has not removed or restricted access to.

This bill raises other issues. FOSTA might give established tech companies an unwarranted advantage in the future by imposing previously unknown moderation and legal compliance costs on their upstart competitors. On this point Wyden’s amendment says its protections are not contingent upon a service provider’s decision to moderate, or to use any “particular content moderation practices,” thereby preventing a passing understanding of “best practices” from crowding out other forms of moderation. 

Wyden’s amendment falls in line with the Department of Justice recommendation concerning FOSTA, which states that “the Department believes that any revision to 18 U.S.C § 1591 to define ‘participation in a venture’ is unnecessary” and would create additional barriers to the successful prosecution of actual sex traffickers. FOSTA’s expansion of grounds for criminal or civil action also increases the number of facts which prosecutors must prove in court, facilitating punitive fishing expeditions and frivolous lawsuits without making it any easier to put traffickers behind bars.

Senator Wyden’s amendment would go a long way toward reducing the risk FOSTA currently poses to an open internet.

In 1984, George Orwell famously defined “doublethink” as “holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.” But even Orwell would blush at claims made by the Internal Revenue Service that one can somehow both follow the law and violate it with the same activity. Amazingly, this seems to be the exact argument employed against Duquesne Light Holdings and subsequently upheld by the U.S. Court of Appeals for the Third Circuit.

In the early 2000s, Duquesne filed a series of consolidated tax returns along with its wholly owned subsidiary AquaSource. Despite initially declining to challenge the company’s deductions in a 2004 audit, the IRS later determined that the losses claimed constituted a double deduction. Even though the company painstakingly followed the tax code and regulations to the letter, the IRS relied on a strained interpretation of an 80-year-old case, Charles Ilfeld Co. v. Hernandez (1934), to disallow $199 million in losses, demanding a $36.9 million payment.

The Third Circuit’s endorsement of this odd use of Ilfeld creates a broad new view of federal agency power. Rather than understanding Ilfeld as a background presumption for evaluating ambiguous agency rules, this new doctrine allows agencies to override their own regulations to penalize those who violate some unarticulated, uncodified policy principle. Duquesne followed the rules, which did not prohibit the deductions it claimed. But rather than allowing deductions that were legally authorized, the court imposed a “triple-authorization requirement” mandating an additional okay, specifically stating that the deductions may be taken together. In other words, the court said that it isn’t enough for the law to say “you may take deduction A” and elsewhere “you may take deduction B”; the law must then also explicitly say “you may take deduction A and deduction B at the same time.”

The court’s decision continues the long march toward unrestrained administrative power via judicial abdication. First came Chevron deference, whereby courts must defer to the statutory interpretation of the agency that enforces the relevant statute. Then came Auer deference, requiring that courts defer to an agency’s interpretation of its own ambiguous regulations. But the Third Circuit has now gone a step further, ruling that an agency can reinterpret its own unambiguous regulations to mean whatever it wants. If Auer deference is a jurisprudential black eye, then the Third Court’s decision here is an ocular enucleation.

The ruling against Duquesne amplifies three particular concerns that are endemic to Auer deference. First, both Auer deference and this case implicate separation-of-powers concerns. While Auer deference allows an agency to interpret the regulations that the agency itself promulgated, this new “Duquesne deference” would enable an agency to create, enforce, and adjudicate while at the same time completely ignoring the rules it previously created in its legislative capacity.

Second, both Auer and would-be Duquesne deference undermine the Administrative Procedure Act. By requiring that courts only give deference to agency interpretations of ambiguous regulations, Auer creates the perverse incentive to avoid APA rulemaking procedures by intentionally drafting vague, open-ended regulations that can later be interpreted as the agency sees fit. But this new deference would allow agencies to invoke policy concerns as an easy means of overriding even unambiguous regulations. Under that view, APA rulemaking is not just subject to potential agency abuse, it’s irrelevant.

Third, all this deference deprives regulated entities of fair notice of the rules they must follow. Auer deference at least allows those being regulated to attempt an educated guess about the meaning of an ambiguous regulation, but its expansion to covering even unambiguous regulations would allow agencies to convert regulatory certainty into unpredictability without any warning at all.

Because violations of unwritten rules are not legally punishable and the current deference given to administrative agencies is already bad enough, Cato has filed a brief asking the Supreme Court to review Duquesne Light Holdings v. Commissioner of Internal Revenue. The Court should clarify that no agency may use presumptions to penalize actions that are authorized by the express terms of that agency’s own regulations.

Yi Gang, an American-trained economist who taught at the University of Indiana, will take over as governor of the People’s Bank of China. Since 2008, he has been deputy governor under Zhou Xiaochuan, who became head of the bank in 2002. The unexpected appointment of Mr. Yi will provide continuity at the PBOC and lend credibility to the pledge for financial liberalization.

Following his appointment, Yi Gang declared: “The main task is that we should implement prudent monetary policy, push forward the reform and opening-up of the financial sector, and maintain the stability of the entire financial sector.”

In November 2007, Yi Gang spoke at Cato’s Annual Monetary Conference, and his speech, “Renminbi Exchange Rates and Relevant Institutional Factors,” was published in the Spring/Summer 2008 Cato Journal, which also included an article by Fed Chairman Ben Bernanke. That special issue of the CJ raised important questions about the types of monetary regimes that best protect the value and stability of money while promoting economic freedom.


Yi Gang speaking at Cato’s Annual Monetary Conference in 2007

In his article, Yi Gang, then deputy governor of the PBOC, gave a detailed view of the evolution of China’s exchange rate regime and argued that real reform takes time, so the West should be patient. He concluded:

The RMB exchange rate is an economic issue. The best way to bring about an equilibrium exchange rate is further reform. Constructive dialogue will help speed up the reform process and make the convergence to a new equilibrium smoother. However, it should be noted that it takes time to establish an efficient market… .

To move toward equilibrium, coordinated policy measures are needed for structural adjustment. To resolve China’s large trade surplus and restore external balance, measures are required for promoting domestic demand, increasing imports, investing abroad, and accelerating urbanization—in addition to currency appreciation. In fact, many measures can generate impacts similar to currency appreciation, such as imposing environment protection requirements, enhancing labor standards, strengthening labor protection, and upgrading the judiciary system. All these measures mean higher costs, lower competitiveness, and a reduced trade surplus, which will move the economy toward equilibrium. Also, it is important to recognize that it will take time for these measures to bring about structural changes. Policymakers in Washington and elsewhere should therefore be patient as China makes its way toward a full-pledged foreign exchange market [Yi Gang 2008: 195–96].

As governor, Yi Gang will work closely with Liu He, the newly appointed “economic czar” and vice premier, who is also in favor of economic reform.  By making these appointments, President Xi Jinping is signaling that he intends to address structural problems in China’s economic system. The question is whether he can do so while maintaining an iron grip on political power and preventing a free market in ideas.

Cracking down on dissent will be the job of Yang Xiaodu, who has been appointed to head the new National Supervisory Commission (a super “anti-corruption” body), designed to ensure that officials and public-sector workers adhere to the Chinese Communist Party line.   

President Trump and his advisors should listen carefully to the PBOC’s new governor and Mr. Liu and work with them to help move China toward a more liberal trading regime, including a larger scope for trade in ideas as well as in goods and services.

Meanwhile, President Xi, who now has absolute power for life, should remember the words of Lao Tzu:  “The more restrictions and limitations there are, the more impoverished men will be… . The more rules and precepts are enforced, the more bandits and crooks will be produced. Hence, we have the words of the wise [sage or ruler]: Through my non-action, men are spontaneously transformed. Through my quiescence, men spontaneously become tranquil. Through my non-interfering, men spontaneously increase their wealth” [Chap. 57, Tao Te Ching, translated by Chang Chung-yuan].


It’s often been noted that regulations can impose larger relative costs on small businesses and can serve to protect incumbent firms from new competitors. Goldman Sachs CEO Lloyd Blankfein noted that new regulations created a “moat” around his firm:

That all industries are being disrupted to some extent by new entrants coming in from technology. We, again, being, you know, technology-oriented ourselves, try to disrupt ourselves and try to figure out what’s the new thing, and come up with new platforms, new forms of distribution, new products. But in some ways, and there are some parts of our business, where it’s very hard for outside entrants to come in, disrupt our business, simply because we’re so regulated. You’ll hear people in our industry talk about the regulation. And they talk about it, you know, with a sigh: Look at the burdens of regulation. But in some cases, the burdensome regulation acts as a bit of a moat around our business.

The Washington Post reports on a new example: the legalized marijuana market in California. Libertarians have long urged the legalization of marijuana and other drugs. Certainly I expect better results from a legal regime where people are not arrested for buying, selling, or using marijuana. But governments can’t just repeal laws and stop arresting people; instead, they prefer to set up a regime of taxes and regulation. And that’s having an effect on the small marijuana growers in the state’s “Emerald Triangle.” As Scott Wilson reports in the Post:

Humboldt County, traditionally shorthand for outlaw culture and the great dope it produces, is facing a harsh reckoning. Every trait that made this strip along California’s wild northwest coast the best place in the world to grow pot is now working against its future as a producer in the state’s $7 billion-a-year marijuana market.

A massive industry never before regulated is being tamed by laws and taxation, characteristically extensive in this state. Nowhere is this process upending a culture and economy more than here in Humboldt, where tens of thousands of people who have been breaking the law for years are being asked to hire accountants, tax lawyers and declare themselves to a government they have famously distrusted. 

Wilson estimates that “Fewer than 1 in 10 of the county’s estimated 12,500 marijuana farmers are likely to make it in the legal trade….Less than 1 percent of the estimated 69,000 growers statewide have received a permit to farm marijuana since the beginning of the year.”   As many experts on drug prohibition predicted, prices are dropping in the legalized market. But for Humboldt and neighboring counties, the price drop is happening

at a time when small growers most need the money to begin complying with California’s stiff regulatory demands. At the same time, the state’s licensing of retail shops has been slow, leaving a lot of legal product without a legal place to be sold.

Marijuana from Humboldt that used to sell for $1,200 a pound three years ago is now selling at a 75 percent discount. State officials and many growers predict the vast overproduction will be curtailed by the new rules, likely by consolidating cultivation among large agriculture companies that can afford the regulations.

Humboldt countians feared this sort of effect. Wilson notes the history:

The population grew and changed in the 1970s, when disaffected hippies migrated north, a “back to the land” exodus from the Bay Area that brought a contempt for government ethos here. Marijuana emerged as the county’s next-generation commodity.

There is no reason people chose Humboldt to grow marijuana other than that Humboldt, as a society, allowed it to be grown. The same was true for neighboring Trinity and Mendocino counties. Collectively, the three are known as the “Emerald Triangle,” a globally renowned pot paradise.

And so in 2014 a lot of Emerald Triangle growers opposed Proposition 64, the legalization initiative, because they foresaw that it would lead to bigger companies squeezing out small growers.

It’s definitely a good thing to stop arresting people for marijuana. But once again regulations are going to serve to concentrate an industry and thus concentrate wealth. Chances are, a few people are going to get rich in the California marijuana industry, and fewer small growers are going to earn a modest but comfortable income. Just one of the many ways that regulation contributes to inequality.



A recent story by Pauline Bartolone in the Los Angeles Times draws attention to some under-reported civilian casualties in the government’s war on opioids: hospitalized patients in severe pain, in need of painkillers. Hospitals across the country are facing shortages of injectable morphine, fentanyl, and Dilaudid (hydromorphone). As a result, trauma patients, post-surgical patients, and hospitalized cancer patients frequently go undertreated for excruciating pain.

Hospitals, including the ones in which I practice general surgery, are working hard to ameliorate the situation by asking medical staff to use prescription opioid pills such as oxycodone and OxyContin instead of injectables, when possible. But many patients are unable to take oral medication due to their acute illness or post-operative condition. In those cases, we are often asked to use injectable acetaminophen, muscle relaxants, or non-steroidal anti-inflammatory agents. But many times those drugs fail to give adequate relief to these patients—which is why they are not the first line of drugs we use.

The shortage is uneven across the country. Some hospitals are feeling the shortage worse than others. According to the American Society of Anesthesiologists, the shortage is so severe in some hospitals that elective surgeries—such as gallbladder and hernia operations—have been postponed.

Some hospitals have resorted to asking nursing staff to manually combine smaller-dose vials of morphine or other injectable opioids that remain in-stock as a replacement for the out-of-stock larger dose vials. Dose-equivalents of different IV opioids vary and are difficult to accurately calculate. This increases the risk of human error and places patients at risk for overdose, as was explained in a letter to the U.S. Drug Enforcement Administration by representatives of the American Hospital Association, American Society of Anesthesiologists, American Society of Clinical Oncology, American Society of Health-System Pharmacists, and the Institute for Safe Medication Practices. The letter asked the DEA to adjust its quota on the manufacture of opioids to help mitigate the shortage.

As part of the effort to address the opioid overdose crisis—which is really a fentanyl and heroin overdose crisis—the DEA, which sets national manufacturing quotas for opioids, ordered a 25 percent reduction in 2017 and another 20 percent reduction this year.

National shortages of drugs are not confined to injectable opioids. Over the years, various drugs in common use have gone on national “back-order” and health care practitioners have had to develop workarounds. The causes of these recurring shortages, not unique to the US, are complex and multifactorial.

For example, regulations and market forces have led to consolidation in the pharmaceutical industry and, for some drugs, have reduced the number of manufacturers to just one or two. Reimbursements to manufacturers of generics by Medicare and other third parties have reduced profit margins to levels that, in some cases, have caused manufacturers to leave the market.

The Food and Drug Administration also plays a major role. FDA regulations of manufacturing facilities add to costs and sometimes lead to temporary plant closures in order remediate the findings of FDA inspections. According to testimony given to Congress in 2011 by Scott Gottlieb (now the FDA Commissioner), many of the FDA’s drug production safety policies are outdated and inflexible: “…The FDA and the manufacturers often don’t understand the drug-production processes well enough to detect the root cause of problems. Instead of calling for targeted fixes of troubled plants, the agency has often required manufacturers to undertake costly, general upgrades to facilities. As a result, in 2010, product quality issues – and the subsequent regulatory actions taken by FDA to address these problems – were involved in 42% of the drug shortages.”

In February 2017, an FDA inspection found significant violations in Pfizer’s McPherson, KS manufacturing facility, where injectable opioids are manufactured, which was followed by a cutback in production at that plant in June 2017. Pfizer controls roughly 60 percent of the injectable opioid market. This production cutback has played a major role in the current injectable opioid shortage.

Another factor is the FDA’s generic drug approval process. While Commissioner Gottlieb is committed to streamlining the process, it has been historically slow with large backlogs in applications. The median time to approval in 2016 was 47 months.

Also, disruption in the production supply chain—sometimes by natural disasters such as Hurricane Maria in Puerto Rico—can lead to temporary shortages, although this has not been a factor in the present opioid shortage.

But the above elements already existed before the DEA decided to help “fix” the opioid overdose problem. The DEA’s decision to make deep cuts in the national quota for opioid production only exacerbates the situation. The DEA made the quota determinations based upon the fatal conceit (an attribute of all central planning) that the agency can know how many opioids will satisfy the needs of this nation of 325 million people. Ms. Bartolone quotes the agency as saying, “DEA must balance the production of what is needed for legitimate use against the production of an excessive amount of these potentially harmful substances.”

Non-US injectable opioid manufacturers have received numerous requests to relieve the shortage but importing heavily regulated narcotics from other countries is complicated and difficult, requiring federal approval.

To address the alarming and steadily rising rate of overdose deaths, policymakers seem intent on reducing the prescription and supply of opioids by doctors to patients. Failing to recognize that the deaths are the result of nonmedical users accessing dangerous and potentially tainted drugs in a black market caused by drug prohibition, they charge full speed ahead, blinders tightly fastened. Patients in pain—and the doctors who want to help them—are the collateral damage in this futile war.


In a new study, economist Mickey Levy included a chart illustrating the inaccuracies of Federal Reserve economic forecasts. Levy is with Berenberg Capital Markets and a member of the Shadow Open Market Committee.

The chart shows the Fed’s year-ahead projections for real GDP (gray bars) and actual GDP (red bars). The projections are often way off, which is remarkable since the Fed has hundreds of skilled economists and access to unparalleled statistical and anecdotal economic data. The Fed generally overestimated growth until 2016, but for 2017 it underestimated.


Levy’s study concludes:

“The clear pattern of the Fed’s forecasting errors reflects the Fed’s tendency through 2016 to over-estimate the stimulative impact of extending its unprecedented monetary ease well after the recovery was self-sustaining, and tendency to under-estimate the economic impacts of the government’s fiscal and regulatory policies and other nonmonetary factors.” By the latter items, Levy means “the government’s tax and regulatory policies that increased business operating costs, raised uncertainties and dampened business confidence.” 

More recently, “There has been a marked change in regulatory and tax policies that have changed the economic landscape, and the Fed’s perspective on the economy seems to be lagging behind. The Fed’s forecasts understated the dampening impacts of tax policy and growing web of burdensome regulations through 2016, and those policy thrusts have now reversed. The pickup in economic growth—both business investment and consumption—beginning in 2017 has been supported by the shift toward deregulation and the associated sharp rise in confidence.”

I have noted that CBO economic projections are also pretty bad. The agency missed the onset of the last recession, and over a recent 15-year period its projections of real growth for the following year were 1.7 percentage points off, on average. That indicates huge errors given that the average growth rate during the period was 2.1 percent. (Discussed here.)

If the government cannot predict the future, it won’t be able to successfully micromanage the future through interventionist monetary and fiscal policies. That is especially true because government is such an inflexible institution and has trouble changing course. I discuss these themes in this study on government failure.

What then should policymakers do? Economist Adam Smith advised them to adopt the “simple system of natural liberty.” By removing government interventions “the sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.”

Levy penned a recent study for Cato Journal here.

At the Washington Post, Rachel Chason reports on how the Washington, D.C. suburb of Seat Pleasant, Md. has just levied an eight-fold tax hike on five local businesses, with one seeing its $5,991 tax bill jump to $55,019. Several of the owners are suing, but the town says it went through the proper procedures needed to adopt a special tax, which is supposed to be predicated on the provision of amenities such as sidewalk improvements that are of special benefit to the taxed properties. One business owner says he and others didn’t learn about a hearing on the measure until it was too late.

Whoever wins in the court challenge, the episode symbolizes a wider problem. Specialists in local and state government policy are full of ideas for business-by-business and location-by-location tinkering with tax rates, both downward (as part of incentive packages to lure relocating businesses) and upward (to finance special public services provided in some zones, such as downtown revitalization). But there is a distinct value in terms of both public legitimacy and the rule of law in having uniform and consistent taxation that does not depend on whether a property owner or business is on the ins or on the outs with the tax-setting authorities. It is not necessarily wrong for your tax bill to vary based on services rendered—but it should not vary based on political clout.

On March 11, China’s National People’s Congress made official what had been rumored for more than two weeks, voting to abolish the two-term limit on the presidency. Current president Xi Jinping is now able to serve in that post indefinitely. That decision is merely the latest in a series of ominous developments that have occurred since Xi took office in 2013. 

Ending term limits significantly alters China’s political system. Deng Xiaoping, the architect of the country’s radical economic reforms beginning in the late 1970s, also implemented that crucial political reform. He and his followers did so to guard against a repeat of the horrid abuses committed during the long, tyrannical rule of Mao Zedong. And the restriction did achieve a limited success. China hardly became a democratic state, but within the context of a one-party system, Deng’s successors served more like chief executive officers, with other members of the party elite acting as a board of directors that could, and did, serve as a check on the president’s power. Removing the limit on presidential terms means that an incumbent now has abundant time to accumulate more and more personal power. The threat of strongman rule, with all its potential abuses, has returned.

As I point out in a recent article in Aspenia Online, Xi was exhibiting troubling behavior even before pushing through the legislation ending term limits. Under the guise of combatting corruption (admittedly a very real problem in China), he systematically purged officials who showed signs of independent views. There has been a troubling hardline ideological aspect to his rule as well. Xi initiated a campaign to revitalize the Party, aiming at achieving a renewed commitment to Maoist principles. Even pro-market academics felt the chill of the new political environment, with crackdowns directed against several prominent reformers, including economist Mao Yushi, the 2012 recipient of the Cato Institute’s Milton Friedman Prize for Advancing Liberty. 

Internet censorship has steadily intensified in the past three years. Such intolerance of dissent culminated during the weeks leading up to the National People’s Congress vote on term limits. Authorities quickly silenced domestic critics of the planned constitutional revision—and there were a surprising number of them in the blogosphere and beyond

The consolidation of Xi’s personal power, especially if it continues to exhibit neo-Maoist characteristics, not only has ominous domestic implications, it has worrisome implications for China’s external behavior. Indeed, the hardening of Beijing’s stance on several international issues has tracked closely with Xi’s inexorable moves toward strongman rule. 

China has accelerated its land-reclamation efforts on several partially submerged reefs in the South China Sea. Some of the projects have become so extensive that Beijing has installed military installations on the expanded surfaces, and in a few cases, built military airstrips. The Xi government also has engaged in complete defiance of a 2016 international tribunal ruling rejecting most of China’s expansive territorial claims in that body of water. Finally, Beijing’s warnings to the United States about U.S. “freedom of navigation patrols” in the South China Sea have become increasingly strident.

China’s growing assertiveness toward Japan regarding disputed islands in the East China Sea (called the Senkakus in Japan and Diaoyus in China) is evident as well. In July 2017, Beijing escalated bilateral tensions dramatically when it sent six nuclear-capable bombers over the islands, and responded to Tokyo’s protests by telling Japanese leaders to “get used to” more flights of that nature. A few months earlier, Beijing warned the new Trump administration not to back Japan in the territorial dispute, despite established U.S. policy to support the claim of its longstanding ally.

It is the Taiwan issue, though, where Xi’s government has shown the most worrisome signs of uncompromising behavior. Over the past two years, the PRC has intensified its efforts to lure the small number of nations that still maintain diplomatic relations with Taipei to switch ties to Beijing. Warnings that China will use force if necessary to prevent any “separatist” initiatives by Taiwan have become more insistent, if not downright threatening. The sharp increase in the number and scope of provocative Chinese military exercises in the Taiwan Strait and other nearby waters suggests that Xi’s government is not bluffing. 

Any one of the above domestic or foreign policy developments would be cause for concern. Taken together, they suggest that China might be reverting to a virulently authoritarian country determined to pursue an abrasive, perhaps even an aggressively revisionist, foreign policy. Granted, China potentially would have much to lose economically by engaging in such behavior, and that factor might be enough to deter Xi from embarking on such a course.

But the mounting evidence that Xi Jinping intends to be an unconstrained strongman instead of merely being the head of a collective leadership should cause U.S. officials to conduct a comprehensive policy reassessment. Since the onset of China’s market-oriented economic reforms in the late 1970s, U.S policy has been based on two assumptions. One was economic reforms would lead to a more open, tolerant political system, perhaps ultimately culminating in China evolving into a full-fledged democracy. The other belief was that a less autocratic China, fully integrated into the global economy, would become, in the words of former Deputy Secretary of State Robert Zoellick, a “responsible stakeholder” in the international diplomatic and economic systems. Both of those assumptions now are very much in doubt.

My UK Telegraph column today is on the likely impact of the country’s sugary drinks tax. The levy, as ever, is being justified on the basis it will internalize the “social costs” of obesity.

There’s a ton of obvious problems. Sugary drinks make up less than 2.5 percent of overall adult calorie consumption in the UK—a drop in the dietary ocean. For young kids, fruit juice is a bigger source of sugar. Obesity, of course, is not simply determined by sugar intake, or even diet either. And it’s not even clear what the social costs of obesity are (above and beyond the private costs—such as lost productivity and worse health), though the UK’s socialized healthcare system complicates matters here.

That all to one side, beneath the line comes a great comment from Tim Hammond highlighting a general under-appreciated problem of using Pigouvian taxes to deal with externalities:

The basic premise of the tax is wrong – externalities should only be taxed if they cause external costs at all levels. Otherwise they should be taxed only at the levels when they start to be damaging. It is obvious (to all except the zealots) that drinking one can of Coke a year is not remotely harmful, either to me or to the NHS (even with the most dodgy claims). So why tax that?

Unit taxes are a blunt instrument to deal with the actual social costs politicians purport to care about.

Think of another example: alcohol taxes are designed in part to ameliorate the social costs associated with alcohol-related crime or driving under the influence. But it might be that some consumers generate these kinds of externalities every time they drink, while others who merely enjoy a glass of wine with their dinner never do. Yet both would face the alcohol taxes designed to mitigate the social problems.

Of course, it may be that taxes are the only practical way of at least trying to account for the externalities. Assessing people for driving under the influence or whether they smoke around young children might be much more costly, both for the government and the regulated. But one can imagine in many instances more targeted ways of dealing with the externalities, such as revoking licenses of drunk drivers.

Tim’s central point though is right: Pigouvian taxes are not clean ways of dealing with external effects of activities. Markets are not perfect in the traditional “perfect competition model” sense. But nor are they “perfectable” by governments.


Cross-posted from

By any objective measure, the degree and nature of U.S. reliance on imports of steel and aluminum do not threaten national security. President Trump’s claiming so was a smokescreen. The president wanted the domestic authority to impose tariffs, and invoking Section 232 of the Trade Expansion Act of 1962 was a foolproof way to get it.

The statute gives the president the broadest possible discretion to define and mitigate a “national security threat.” Because he can modify the tariffs or exempt countries from its reach practically on a whim, Trump has amassed the leverage he wants to bend U.S. trade partners to his will: Buy more U.S. products and I’ll drop the tariffs! Curtail your exports and I’ll modify the scope! Ramp up your NATO spending and I’ll call off the dogs!

Those who share Trump’s worldview might call this strategy ingenious. It is certainly unconventional, provocative, and possibly unhinged. Whatever you call it, Trump’s gunboat diplomacy is a major departure from the policy continuity of the last 13 U.S. administrations, and it presents a grave threat to the international trading system and the global economy.

Not since Herbert Hoover has a U.S. president been so cavalier about the consequences of protectionism. Never has a president been more dismissive of the importance of trade to our prosperity and security. Never has a president been so impervious to the lessons of history.

On trade, Trump is one-dimensional. He sees deficits as proof that the United States is losing at trade (and losing because the foreigners cheat). A winning policy, he believes, would produce trade surpluses. But, if that’s true for the United States, it’s true for all countries and since all countries can’t run surpluses, trade can’t possibly be an exercise in cooperation and mutually beneficial exchange. To Trump, trade is a survival-of-the-fittest, winner-take-all, Hobbesian struggle.

Animating this zero-sum fallacy is a sense of resentment that permeates the American nationalist narrative. Donald Trump, Robert Lighthizer, John Bolton, Peter Navarro, and others advising the president see the United States as a benevolent giant, having selflessly provided the resources, security, and generosity of spirit to rebuild Western Europe, East Asia and the rest of the free world after the war. Under the U.S. security umbrella, our allies took advantage of our kindness, short-changed the till, flaunted the rules, became economic rivals, and adopted policies that advanced their own interests at the expense of America’s industrial base. Or so goes the story.

This variant of American exceptionalism demands tribute in the form of our allies’ unquestioning support for U.S. positions on matters of foreign and economic policy, and reparations in the form of excusing U.S. policy transgressions and acquiescing in other U.S. claims to entitlement or special consideration. That the United States isn’t treated exceptionally by the World Trade Organization’s Dispute Settlement Body—which is to say with extra helpings of deference or even turning a blind eye to U.S. infractions—as recognition for America’s selfless leadership in establishing the rules and institutions of the trading system helps explain Trump’s reckless trade policy tack today.

Trump’s trade policy is all about asserting U.S. sovereignty over the presumed constraints of international law and using the leverage that comes from threatening to impede access to the world’s largest market to compel foreign governments to take certain actions. Trump reckons that countries running surpluses with the United States have more to lose from a trade war, hence his assertion that trade wars are “good” and “winnable.” While it may be true that the United States would be less weakened than other countries by a trade war (as the U.S. is much less dependent on trade than almost every other country—imports plus exports account for 27% of U.S. GDP as compared to a world average of 53%), the damage to the U.S. economy would be considerable nonetheless. But the very notion of feeling confident to threaten a trade war because U.S. “casualties” would be lighter than say China’s or Europe’s is anathema to any proper understanding of how trade and the global economy really work. Trade is not a zero-sum game, but a win-win, lose-lose proposition. Hurting our trade partners unequivocally hurts ourselves. Trump’s predecessors understood this.

U.S. importers and trading partners are all well aware of the flimsiness of Trump’s national security argument for steel and aluminum tariffs, and domestic legal actions and WTO challenges are likely to materialize. But that will take time and, in light of the so-called National Security Exception (Article XXI of the General Agreement on Tariffs and Trade) that would seem to permit governments to raise tariffs to protect national security, a successful outcome is very uncertain.

Meanwhile, foreign retaliation is no panacea. Smart governments get no pleasure from raising trade barriers because smart governments know that those barriers impose the greatest burdens on their own countries’ businesses and consumers. Even though the EU has published a retaliation list, which targets U.S. exports from states of important members of Congress, European restaurants, hotels, and households don’t want to bear the burden of paying more for their bourbon and cheese. Moreover, imposing direct retaliation instead of pursuing resolution through the WTO dispute settlement system could very well find those who retaliate in violation of the rules before the United States is ever held to account.

If there is going to be retaliation, expect it to come via copycat invocation of some bogus national security rationale. That would at least provide a similar level of insulation from WTO rebuke that probably shields the U.S. steel and aluminum actions. One could imagine the EU going after Google, Amazon, and the other U.S. internet giants, which have been in Brussels’ cross-hairs for years. Restrictions on the kinds of information that can cross borders, data localization requirements, and other onerous rules to “protect national security,” which also happen to burden the U.S. business models, could be imposed.

Likewise, Beijing already considers China’s reliance on western technology to be a national security threat. In fact, China already has a National Security Law and a Cybersecurity Law, both of which extend unspecified and unpredictable authorities to the Chinese government to inspect U.S. information and communications technology products, and to compel U.S. companies to “share” their technology. Those practices are among the subjects of the Trump administration’s highly provocative Section 301 investigation. If China was previously on the defensive about those allegations, any inclination toward changing those policies it may have had has probably waned as a result of the U.S. precedent to invoke national security to rationalize protectionism. Now, Beijing has another option.

Of course, the significance of these national security tariffs to the future of the trading system will pale in comparison to any U.S. measures imposed unilaterally pursuant to the Section 301 investigation of China. As a WTO member, the United States cannot be judge, jury, and executioner. The United States can bring its evidence of Chinese violations to the WTO and ask for a ruling as to whether China is, in fact, in violation. If China is found to be in violation and it fails to bring its policies or practices into conformity with the WTO agreements it is violating, then the United States can pursue retaliation.

But Trump is said to be seeking a list of retaliation targets totaling somewhere between $30 and $60 billion worth of Chinese imports and is reportedly intent on pulling the trigger. Such a blatant violation of WTO rules perpetrated by the United States would signal the world that Trump is not interested in the rule of international trade law, but in asserting U.S. sovereignty at all costs. And the costs will be huge, as other governments follow suit and the once predictable global trading system descends into a wild west of anything goes lawlessness.

With all the media coverage of President Trump’s steel/aluminum tariffs, it would be easy to assume they are in effect already, but they don’t actually start until next Friday, March 23. This is from the Presidential proclamation relating to steel:

Except as otherwise provided in this proclamation, or in notices published pursuant to clause 3 of this proclamation, all steel articles imports specified in the Annex shall be subject to an additional 25 percent ad valorem rate of duty with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on March 23, 2018.

The “except as otherwise provided” qualifier is important here. There is still time to narrow the scope of the tariffs significantly, both through specific product exclusions and broader country exemptions. Canadian and Mexican steel has already been exempted. And President Trump had a tweet suggesting Australia would be exempt: “Working very quickly on a security agreement so we don’t have to impose steel or aluminum tariffs on our ally, the great nation of Australia!” But what about other U.S. trading partners? The EU, Brazil, South Korea, and Japan, among others, are all going to be making their case to the U.S. Trade Representative, who is running these negotiations.

The criteria for exemptions for these countries is as follows: “Any country with which we have a security relationship is welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country.” That’s obviously pretty vague. What exactly is the U.S. looking for in these negotiations? Maybe it is looking for increased military spending by our allies. Maybe it is looking for support for the U.S. position on addressing global steel overcapacity and other trade issues. Maybe it is looking to convince these countries to “voluntarily” reduce their steel and aluminum exports to the U.S., which is an arrangement used in the 1980s, when current U.S. Trade Representative Robert Lighthizer last worked for USTR. But today’s trade world is very different from the 1980s, and it’s not clear that any of our trading partners are going to be willing to cave in to U.S. pressure.

Perhaps the best outcome we can expect here is some face-saving deals, in which other countries agree to do things they were already going to do, the U.S. grants the exemptions, and everyone can declare victory. All of this is far from ideal, but having gotten ourselves into this, it may be the best way out. Otherwise, if these tariffs are actually imposed on all of these countries, there will be significant harm to the domestic economy and the very real prospect of retaliation (by the EU in particular, but possibly others as well). 

The next week will be a mad dash of diplomacy to try to salvage something out of this mess.

I am saddened to report that Professor Ronald D. Rotunda died unexpectedly yesterday of pneumonia after a brief hospital stay. He was 73. A distinguished professor of law, Ron, as he was known to his friends, was a visiting senior fellow in constitutional studies at Cato during the 2000 calendar year. He remained a Cato senior fellow in constitutional studies until 2008 and served on the editorial board of the Cato Supreme Court Review from its inception in 2001 until 2008. After leaving Cato in 2000 he joined the faculty of the George Mason University School of Law. In 2008 he joined the faculty of Chapman University’s Dale E. Fowler School of Law where he was the Doy and Dee Henley Chair and Distinguished Professor of Jurisprudence at the time of his death.

A graduate of Harvard College and the Harvard Law School, Ron was for much of his career the Albert E. Jenner, Jr. Professor of Law at the University of Illinois College of Law. I first met him in the early 1990s when the college’s Federalist Society chapter invited me to speak there. Ron was the chapter’s faculty advisor. He picked me up from the airport in his vintage Rolls Royce. Ever the showman, he was famous for his colorful collection of bow ties, matching his colorful character. But beneath the show was a serious scholar of immense erudition. He is perhaps best known for his five-volume Treatise on Constitutional Law: Substance and Procedure, co-authored with John E. Nowak, but his scholarship covered many legal fields. His popular writings have appeared in the Wall Street Journal, the Washington Post, and beyond, and many of those works have been translated into several languages. His c.v., detailing his many appointments and honors, runs some 55 pages.

During his brief year with us at Cato, Ron was a valued member of our small Center for Constitutional Studies team and a mentor for all. We were in the early stages then of developing our now highly-regarded amicus brief program. I recall in particular a brief we filed with the Supreme Court on January 1, 2001, in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers, where we offered the Court a reading of the Commerce Clause that the Framers would have recognized. While moving in that direction, the Court did not go that far, but we were pleased at least that we had shown the flag and that we emerged on the winning side. Well before that, however, Ron had contributed a chapter to the book that Ed Crane and I edited in 1994, The Politics and Law of Term Limits. And Ron contributed another chapter to my edited collection, The Rule of Law in the Wake of Clinton, which Cato published in 2000. At our website, you will find more of Ron’s contributions to Cato’s work. We will miss him. May he rest in peace.

Scientific American, which is quite reliably alarmed by the prospects of climate change, showed signs of moderation this week in an article highlighting the work of the ecomodernists. The ecomodernists acknowledge that man-made climate change is occurring, but believe humans are already (and will continue) decoupling their well-being from environmental destruction—meaning every day that passes, human flourishing requires less pollution and resources. Though not libertarians, they are spot-on in regards to climate change being a minor overlay in a world increasingly insulated from the vagaries of nature due to market forces. The piece, titled Should We Chill Out about Global Warming?, is answered with an unqualified YES! from those of us at the Center for the Study of Science.

One of their ecomodernist peers, journalist Will Boisvert, recently pondered in a piece, “How bad will climate change be?” He has a voluminous response that’s worth a read, which he quickly summarizes as “Not very.” He went on to note what many of us have been saying for years—as long as there has been capital for innovation and civil order, we’ve been adapting to climate change, and will continue to do so. Boisvert neatly skewers horseman after horseman of the apocalypse—drought, hunger and heat, and notes our increasingly clean and efficient energy technology.

In a similar vein, Nature Communications published an article by Yousuke Sato (and coauthors) from Nagoya University, showing the controversial “indirect cooling effect” of particulates that often go in the air along with carbon dioxide is much smaller than what’s in the climate models. The models are generally tuned with these aerosols to match the climate history of the 20th century, where a large warming occurs before much carbon dioxide is emitted, followed by a slight cooling for several decades as emissions ramped up. Because the aerosol cooling is large, the warming they counter must be huge—which is why in recent decades the models predict so much more warming in the lower atmosphere than is being observed.

The largest projections of future warming are driven by an emissions scenario we recently debunked, known as RCP 8.5. We noted that researchers at the University of British Columbia recently found there is simply not enough coal (recoverable or otherwise) to make these outcomes physically possible. In the Wall Street Journal, the Manhattan Institute’s Oren Cass takes a similar look at the failure of worst-case scenarios to account for human ingenuity and adaptation—calling them “laughably bad economics.” It’s based on a detailed report you can download here.

With these recent developments in science, economics, and popular perception of climate outcomes, we’re hoping the Trump Administration will take the reins of the Fourth National Climate Assessment—which was largely written in the last administration—and steer it back onto a realistic course. It’s getting ready for publication, and we submitted extensive suggestions on how to make it more accurately represent the best and newest science.

San Francisco bans signage advertising “off-premises” activity, but not “on-premises” advertising. That is, if you own a liquor store, you can advertise the beers you have for sale, but not the upcoming beer festival you’re sponsoring across town.

But advertising is a form of speech protected by the First Amendment, and if the government wants to places limits on that speech, it must adhere to the constitutional limits on its own power. A company called Contest Promotions has challenged this law. The U.S. Court of Appeals for the Ninth Circuit ruled in the city’s favor, so now the company asks the Supreme Court to take its case.

At the core of the First Amendment is a principle of non-discrimination. That is, the government can place certain limits on speech in public places, but it may not preference some speakers over others based on the speech’s content or viewpoint. The content-based distinction San Francisco makes is precisely the sort of discrimination the constitution doesn’t abide. Unfortunately, the Supreme Court has made something of a muddle in this area. In Central Hudson v. Public Service Commission (1980), it set forth a special test for what is “commercial” speech, such as advertising, which it deemed less protected than other speech. It did this presumably to be able to better police fraud—which isn’t protected regardless—but that led to an unworkable standard and a litigation mess that lower courts have been unable to clean up.

Cato has now joined the Pacific Legal Foundation to file a brief in support of Contest Promotions, urging the Court to take up the case and reconsider its blunder in Central Hudson. The Court should dispense with a bifurcated First Amendment and treat commercial speech as on par with all other forms of expression. Moreover, it should clarify the boundaries of what does and doesn’t pass muster as a content-based restriction. Such distinctions require the most rigorous review (what lawyers call “strict scrutiny”), and the government should not be able to dodge the constitutional limits on their power by appealing to vague distinctions like “commercial” versus “noncommercial” speech.

The Supreme Court should put Contest Promotions v. San Francisco front an center on its docket in big, neon letters, and put an end to the jurisprudential murkiness in this area once and for all.

Britain First is a far-right ultranationalist group” hostile to Muslim immigrants in the United Kingdom. They are active online with significant consequences for their leaders if not for British elections. The leaders of Britain First, Paul Golding and Jayda Fransen, were incarcerated recently for distributing leaflets and posting online videos that reflected their extreme antipathy to Muslims. Fransen received a 36 week sentence, Golding 18 weeks. Britain First was banned from Twitter in late 2017. Now Facebook has taken down both the official Facebook page of the group and those of its two leaders.

Like many European nations, Great Britain has much more narrow protections for freedom of speech than the United States. The United States does not recognize a “hate speech” exception to the First Amendment. Great Britain criminalizes and sanctions such speech. This case is much more interesting, however, than this familiar distinction. The Britain First takedown offers a glimpse of the future of speech everywhere.

The leaders of Facebook did not just wake up on the wrong side of the bed and decide to take down Britain First’s page. Its official statement about the ban says from the start: “we are very careful not to remove posts or Pages just because some people don’t like them.” In this case, the page violated Facebook’s Community Standards against speech “designed to stir up hatred against groups in our society.” The statement does not say which posts led to the ban but The Guardian reports they “included one comparing Muslim immigrants to animals, another labelling the group’s leaders ‘Islamophobic and proud,’ and videos created to incite hateful comments against Muslims.” I understand also that Facebook gave due notice to the group of their infractions. That seems plausible. Almost three months have passed since Twitter banned Britain First. Perhaps Facebook eventually concluded Britain First had no intention of complying with their rules.

You might think Facebook has violated the freedom of speech. But that’s not the case. The First Amendment states that Congress (and by extension, government at all levels) “…shall make no law abridging the freedom of speech.” If the United States government had banned an America First! website, the First Amendment would be relevant. But Facebook is not the government even though they must govern a platform for free speech. But that platform is owned by Facebook. They can govern it as they wish. Most likely they will govern it to maximize shareholder value.

Imagine public officials applied the First Amendment to Facebook. They would be required to offer their service to groups like Britain First regardless of its effects on other customers or returns to shareholders. In this hypothetical case, wouldn’t “free speech” lead to a taking of private property under the Fifth Amendment? Most, if not all, libertarians would agree that Facebook is well within its rights in this matter.

Some conservatives and Republicans are complaining that Facebook and Google enjoy monopolies that have given them control over online speech. They believe that these companies are imposing the views of their employees and excluding critics of the left from their platforms. Some conservatives say the tech companies should be taken over and governed as public utilities. They are calling for something like a Fairness Doctrine for online speech. That’s a bad idea, but the question remains whether Britain First has alternatives to Facebook.

They do. You need only search for Britain First and Gab to find the links. Indeed, Facebook appears to have a new Britain First official page.

Facebook faces some challenges here. They have values and rules that reflect both the commitments of their leaders and their business model. However, if their interpretation of acceptable speech becomes as narrow as the definitions now dominant at some universities, political (and perhaps business) troubles will follow. No one should welcome such troubles for such a successful enterprise. But such troubles can best be avoided by being “very careful not to remove posts or Pages just because some people don’t like them” and taking steps to maximize the perceived legitimacy of their moderation decisions.

Everything I have said to this point assumes Facebook decided to ban Britain First for business or other reasons. But British Members of Parliament severely criticized Facebook late in 2017 for hosting extreme speech. Perhaps British officials successfully bullied Facebook into taking down the Britain First page. If so, we are getting a glimpse at an ugly future in which government cracks down on speech through private intermediaries thereby (in the United States) bypassing the protections offered by the First Amendment. This danger is the thorn in the rose of Internet speech.

In this case, I am skeptical that Facebook has given in to government threats. As noted, the takedown came three months after the official criticism. By waiting this long to act, Facebook appears to have withstood criticism from both the British government and private citizens.

Facebook’s actions suggest how to keep government out of political speech. Set and publicize clear standards for your platform and then enforce them fairly. When they are applied, state your reasoning publicly, so high profile cases can illustrate the precise contours of more general standards. To that I might add: engage your most persuasive critics thereafter and seek precedential coherence for your common law of content moderation.

Of course, none of this will matter unless the leadership of Facebook (and other tech companies) are willing to stand up to government bullies who seek a way around the First Amendment. Nothing is going to be more important in the days to come than making sure the governance of online speech is truly private.

February is a short month, so March caught me by surprise. Hence the late Dispatch. But if February had 31 days, it would be like this came out on March 11. Not that bad, right? Anyway, on with the February battles, which are heavy on books, slavery lessons, and…dances.

  • Books: February saw three new book challenges: Both The Adventures of Huckleberry Finn and To Kill a Mockingbird were removed from required reading lists in Duluth, MN; Stick was removed from all classrooms and libraries below the high school level in Beaverton, OR; and The Hate U Give was pulled as an assignment in Springfield, MO. Three of these books are not newly contested territory in our public schools’ constant values and identity-based battles. Huckleberry Finn and To Kill a Mockingbird have been flashpoints for decades—and the latter, several times in the last few months—while we saw a battle over The Hate U Give in Texas in 2017.
  • Slavery illustrations: A teacher in Leander, TX, assigned students to draw pictures of themselves as slaves for homework and to “write one sentence that describes your surroundings using each of the 5 senses.” A New York City teacher made her African-American students lie down on the floor and then she stepped on their backs to try to give them a sense for how slavery felt. Needless to say these things disturbed many parents. But they aren’t the first concerning “immersion” assignments—which seem largely intended to help kids get a better feeling for historical events—we’ve tracked. In just the last few months we’ve also seen two in Georgia and one in Massachusetts.
  • Dances: Conflicts over dress codes at school dances are common—the Map has almost 10 such incidents—but in February we saw two dance-related battles that are much less familiar. Unprecedented, at least as far as the Map indicates, was a conflict in Weber, UT, over a policy prohibiting girls from saying “no” to boys who asked them to dance at a Valentine’s Day event. At issue was disempowering girls versus protecting the feelings of potentially rejected boys. The second battle was in Staten Island, New York, where the annual father-daughter dance was cancelled in an effort to end potentially discriminatory “gender-based” activities. There is only one similar dispute I could find on the Map, a 2012 conflict in Cranston, RI.

Of course there were more battles to check out, including over an offensive science project, the National Anthem, and Cool Runnings. Meanwhile, we have continued to post polls on the Battle Map Facebook page, and utterly dwarfed old voting records with a question, in the wake of the horrific Parkland, FL, school shooting, whether teachers should be able to bring guns to work. Around 5,500 people voted, with 85 percent saying “yes” in answer to “Should a teacher’s right to bear arms extend to the classroom?” 15 percent said “no.” Of course this is unscientific, but it certainly suggests that like so many things, non-negligible percentages of the population can have differing, mutually exclusive views on crucial issues. Which is, of course, why school choice is the only system of education consistent with diversity and liberty.

Can the government convict you of a crime without showing you had any understanding of the wrongdoing? Mark Ellison was convicted without any such showing and is asking the Supreme Court to take his case.

The case arises out of the tumult of 2008. A real estate company called DBSI went under during the Great Recession, like many other real estate companies at the time. But while for many this unhappy moment meant solely financial losses, for Ellison and his codefendants it meant criminal charges. Section 10(b) of the federal securities law outlaws “any manipulative or deceptive device” used to sell securities. Combined with SEC Rule 10(b)-5, this provides the primary avenue by which the government punishes securities fraud.

The government claims that Ellison and his coworkers defrauded DBSI’s customers in selling them the real-estate investment vehicles that ultimately went bust. But the jury found each innocent on most of the charges, convicting only under the “catch-all” provision of Rule 10(b)-5(c), which outlaws any fraud done “willfully”—but according to the Ninth Circuit ‘willfully’ in this context “does not require that the defendant know that the conduct was unlawful.”

This runs contrary to traditional principles of criminal law. Normally crimes require not just a bad act but also a culpable mental state, what lawyers call mens rea. The difference between murder and manslaughter, for example, is typically whether the perpetrator intended to cause the death or not. But too often these days the government has dispensed with or watered down this traditional requirement, exposing more and more citizens to criminal liability for conduct it is less and less clear should be criminalized.

In addition to watering down the mens rea requirement, the court of appeals determined that the threshold for what did or did not rise to the level of fraud depended on an open-ended test of whether a hypothetical reasonable investor might consider the information “important” in making an investment decision. The Supreme Court and most other circuits, however, have maintained that courts must consider whether, after considering the “total mix” of all the information provided in a case-specific context, the piece of information at issue was “material” to an actual investor’s actual investment decision. Following a test of materiality based on whether some theorized investor might possibly sorta-kinda-coulda thought the information was maybe material expands criminal liability past the horizon.

This case represents yet another example of the overcriminalization that has run rampant throughout our legal system. Defense lawyer and Cato adjunct scholar Harvey Silverglate has estimated that each of us unwittingly commits three felonies a day. When criminality is that capricious, the government can exploit it at its whim, punishing those who displease it through selective prosecution. This is an arrangement more befitting a banana republic than the land of the free.

Cato, joined by the Reason Foundation and law professors Julie Rose O’Sullivan, Ira P. Robbins, Jeffrey S. Parker, and Gideon Yaffe, has filed a brief authored by Paul Kamenar supporting Ellison’s petition. The Supreme Court should take Ellison v. United States and begin to roll back the rising tide of overcriminalization that threatens the liberty of every citizen.

In today’s Dallas Morning News, I have an op-ed that discusses a riddle of American immigration policy right now:

The economy is roaring, and wages are rising, yet 2017 was another year of virtually no illegal border crossings. On average, each Border Patrol agent apprehended just 16 people all year—one every three weeks, tied for the lowest rate since World War II. This is down from when Border Patrol agents apprehended an average of 261 crossers per agent in 1996.

How is this possible?

Newly released statistics from the Department of State give a plausible answer. They haven’t disappeared: they’ve become legal… . From 1996 to 2017, the number of temporary visas issued to seasonal workers on farms and other industries increased tenfold, from 23,204 to 236,695.

The figure below graphs these trends. As you can see, the housing bubble bursting briefly resulted in a crash in both legal entries and illegal entries, but as the economy has come back, the legal entries have soared, while the illegal ones have remained low.

Guest Workers and Apprehensions of Illegal Border Crossers Per Border Patrol Agent, 1996 to 2017

Sources: Border Patrol, State Department (2013–2017)

Congress should consider expanding and improving these guest worker programs. One proposal by Rep. Dan Newhouse (R-WA) would allow more H-2A guest workers to enter as farm workers, even if the job was year-round. This would benefit dairies, livestock, and other farms that currently have access to no temporary worker program. This proposal has already been included in the Department of Homeland Security appropriations bill in the House, which means that, if GOP leadership follows normal process, it should be included in the spending bill set to be voted on this month.

Another idea, which was included in last year’s spending bill, would allow H-2B workers for non-agricultural industries not to be counted against the H-2B quota if they had entered legally and returned home in the prior three years. Rep. Andy Harris (R-MD) is reportedly negotiating with House GOP leadership to have it inserted into the spending package. His idea makes sense. Congress should reward workers and employers that follow the rules, and more guest workers would be a huge benefit to both the economy and American security.

You can read my entire op-ed here.

Remember the old joke about two economists in a room, but with three opinions?

The quip is designed to highlight an important truth: that most areas of empirical and theoretical economics are contested, to a greater or lesser extent.

In most surveys you can rely on at least some conflicting opinions stemming from putting different weight on economic efficiency compared with distributional or other concerns.

In that light, the IGM Economic Experts’ Panel question on President Trump’s steel and aluminum tariffs is remarkable. Economists unanimously disagree that the tariffs will improve the economic welfare of Americans.