Cato Op-Eds

Individual Liberty, Free Markets, and Peace
Subscribe to Cato Op-Eds feed

The Department of Veterans Affairs (VA) spends $60 billion a year providing health care benefits to service veterans. Its mismanagement is well-known and widespread. A recent letter provided to the Washington Post and Congress suggests that as much as 10 percent of the VA’s annual spending is in violation of federal contracting rules, representing billions of taxpayer dollars.

Employees of a New York VA facility used their government purchase cards to buy prosthetics for patients in a manner that violates standard operating procedures. Per the VA’s rules, purchasing cards are available to buy supplies costing less than $3,000. Items costing more require a contract and invoice.  The facility purchased at least 2,000 prosthetics for $24,999, well above the $3,000 limit and only $1 less than the card limit of $25,000. All told, $54 million was spent by this facility in violation of policy.

When congressional investigators heard about the questionable purchases at the Bronx facility, investigators asked for the accompanying contracts to prove the purchases were legitimate. VA employees tried to cover their missteps and blame the missing documents on Superstorm Sandy, according to the Washington Post.

VA officials had received an inquiry from Congress in September 2012 about the Bronx payments, but a letter signed by former secretary Eric Shinseki did not go out until July 2013. The agency had prepared to say that the records had been transferred to VA’s medical center in Manhattan, where they were destroyed in Hurricane Sandy, documents obtained by The Post show.

But in reviewing the claim that the records had been destroyed, a senior adviser in Shinseki’s office was skeptical. “Gemma — this isn’t going to work,” the adviser wrote in an e-mail obtained by The Post.

“The [congressman’s] letter was dated 26 Sept and the storm was 28 October. Yet we talk about visits in December 2012 and again in January. Not clear why we didn’t figure out in December that we lost the records and had to go back in January,” he wrote in April 2013.

“This is not cleared.”

Rice said in a statement Monday, “The damage caused by Superstorm Sandy was devastating and far-reaching, but the claim that all of these documents were destroyed strikes me as all too convenient and must be substantiated. We need to know exactly what happened to the documents, how and why this money was spent without written contracts, and who is accountable.”

This is just one instance of malfeasance. Jan R. Frye, VA’s deputy assistant secretary for acquisition and logistics, and now a VA whistleblower, found the actions at the NY facility were not an isolated event. Frye found a total of $1.2 billion in prosthetics purchases without a contract over an 18 month period in 2013 and 2014. Frye sent a 35 page memo to the VA Secretary, Robert McDonald arguing that laziness is the motivating factor behind the VA’s mismanagement. Purchasing cards are much easier than using the contract process.

Frye is not the first to criticize purchasing card usage by the VA. The Washington Post says:

Some of his [Frye’s] concerns were previously flagged by VA’s inspector general, who has reported for years that weak contracting systems put the agency at risk of waste and abuse. Thousands of pharmaceutical purchases were made without competition or contracts in fiscal years 2012 and 2013, often by unqualified employees, investigators found. And according to documents that have not been made public, the inspector general’s office has warned VA repeatedly that its use of purchase cards needs better oversight.

As much as $6 billion of VA’s annual spending violates federal contracting rules. Internal stakeholders have raised the issue in the past, now it is time for the VA to finally tackle the issue.

This is the fourth post in a series covering the advance of educational choice legislation across the country this year. As I noted in my last entry in May:

[At the beginning of the year,] the stars appeared to be aligned for a “Year of Educational Choice.” By late April, state legislatures were halfway toward beating the record of 13 states adopting new or expanded school choice laws in 2011, which the Wall Street Journal dubbed the “Year of School Choice.” The major difference in the types of legislative proposals under consideration this year is that more than a dozen states considered education savings account (ESA) laws that allow parents to purchase a wide variety of educational products and services and save for future education expenses, including college.

Since the end of May, five more states enacted new or expanded educational choice programs, bringing the total to 13 new or expanded programs in 10 states so far this year. Of these, the most exciting new choice program is Nevada’s education savings account, the fifth ESA in the nation and the first to offer nearly universal eligibility.

In addition, at least eight states are still seriously deliberating educational choice legislation. Here’s the tally so far:

New Educational Choice Programs

  • Arkansas: vouchers for students with special needs.
  • Mississippi: ESAs for students with special needs.
  • Montana: universal tax-credit scholarship law.
  • Nevada: tax-credit scholarships for low- and middle-income students.
  • Nevada: nearly universal ESA for students who previously attended a public school.
  • Tennessee: ESAs for students with special needs.

Expanded Educational Choice Programs

  • Alabama: Raised the annual scholarship tax credit cap from $25 million to $30 million and raised the contribution cap from $7,500 to $50,000. However, the expansion came at a price: the legislation lowered income eligibility threshold from 275 percent of the federal poverty level to 185 percent (from about $67,000 to about $45,000 for a family of four). Current scholarship recipients are grandfathered in.
  • Arizona: Expanded ESA eligibility to include students living in Native American tribal lands.
  • Arizona: Expanded the types of businesses that can receive tax credits for donations to scholarship organizations.
  • Indiana: Increased amount of tax credits available for donations to scholarship organizations ($2 million over two years).
  • Indiana: Eliminated cap on the number of vouchers available for elementary school students.
  • Louisiana: Expanded school voucher program (funding roughly 600 additional vouchers).
  • Oklahoma: Expanded eligibility for its special-needs tax-credit scholarships and raised the tax credit value from 50 percent–tied with Indiana for the lowest in the nation–to 75 percent. 

Pending Legislation 

  • Delaware: Considering ESA legislation.
  • Florida: Earlier this year, both the FL House and FL Senate unanimously passed slightly different versions of legislation to expand the state’s ESA program. However, due to a legislative standoff over unrelated matters, the legislature failed to reach an agreement before adjourning for the summer and the legislation appeared to be dead. Nevertheless, on Monday legislative leaders reached an agreement to include a significant expansion of the ESA program in the budget, more than doubling the funding and expanding the eligibility requirements to additional categories of students with special needs. 
  • North Carolina: Both the NC House and NC Senate passed budgets that expanded funding for the state’s voucher program and increased the size of vouchers for students with special needs.
  • Ohio: Considering an expansion to the state’s school voucher program.
  • Pennsylvania: Considering an expansion to the state’s Opportunity Scholarship Tax Credit.
  • Rhode Island: Considering ESA legislation.
  • South Carolina: The legislature is considering a new “refundable” scholarship tax credit that blurs the line between tax credits and vouchers. A wiser path would be expanding the state’s existing scholarship tax credit to include all students and provide enough tax credits to meet demand for scholarships.
  • Wisconsin: The WI Legislature’s Joint Finance Committee approved an expansion to the statewide school voucher program that eliminates the restrictive and arbitrary 1,000-student enrollment cap. The proposal would also make students with special needs eligible.

Education reformers also experienced two major disappointments this year. The state senates in both Texas and New York passed tax-credit scholarship legislation with the support of their respective governors, only to see the proposals blocked by the legislatures’ lower chambers.

Educational Choice Lawsuits

With educational choice policies ascendant in the state legislatures, defenders of the status quo are fighting to block them in court. Fortunately for students, the courts are increasingly rejecting such challenges.

Earlier this year, the Alabama Supreme Court ruled that the state’s tax-credit scholarship law is constitutional. Two months later, a circuit court judge in Florida threw out a challenge to the state’s 13-year-old tax-credit scholarship law. In the wake of the judge’s decision, the Florida School Board Association dropped out of the lawsuit, though the state’s main teachers union said it will appeal the decision.

Meanwhile, the education establishment is also challenging the constitutionality of educational choice laws in Colorado, Georgia, and North Carolina. Despite being in legal limbo for two years, the North Carolina Supreme Court has not yet ruled on the constitutionality of school vouchers in the Tar Heel state. Unfortunately, the legal uncertainty is worrying parents of voucher students, and likely scaring some would-be voucher parents away.

In a similar situation in New Hampshire, parents who could not afford private school tuition without a scholarship were reluctant to apply for one knowing that the program might be ruled unconstitutional. In that case, they would be forced to pull their kids out of their chosen school and away from their new friends and send them to their assigned district school. Fortunately, New Hampshire’s choice law ultimately prevailed. The educational choice laws in Colorado, Florida, Georgia, and North Carolina should prevail as well.

Live Free and Learn: Scholarship Tax Credits in New Hampshire

Two hundred years ago today, on June 18, 1815, the forces of the self-proclaimed Emperor Napoleon were defeated near Waterloo by a multinational European army. The battle ended years of war in Europe and allowed the rising tide of liberalism to produce a century of relative peace and unprecedented economic and technological progress. As I wrote in The Libertarian Mind (do you have your copy?)

In both the United States and Europe, the century after the American Revolution was marked by the spread of liberalism. Written constitutions and bills of rights protected liberty and guaranteed the rule of law. Guilds and monopolies were largely eliminated, with all trades thrown open to competition on the basis of merit. Freedom of the press and of religion was greatly expanded, property rights were made more secure, international trade was freed….

After the turmoil of the French Revolution and the final defeat of Napoleon in 1815, and with the exception of the Crimean War and the wars of national unification, most of the people of Europe enjoyed a century of relative peace and progress….

This liberation of human creativity unleashed astounding scientific and material progress. The Nation magazine, which was then a truly liberal journal, looking back in 1900, wrote, “Freed from the vexatious meddling of governments, men devoted themselves to their natural task, the bettering of their condition, with the wonderful results which surround us.” The technological advances of the liberal nineteenth century are innumerable: the steam engine, the railroad, the telegraph, the telephone, electricity, the internal combustion engine. Thanks to the accumulation of capital and “the miracle of compound interest,” in Europe and America the great masses of people began to be liberated from the backbreaking toil that had been the natural condition of mankind since time immemorial. Infant mortality fell and life expectancy began to rise to unprecedented levels. A person looking back from 1800 would see a world that for most people had changed little in thousands of years; by 1900, the world was unrecognizable….

Toward the end of the nineteenth century, classical liberalism began to give way to new forms of collectivism and state power….

By the turn of the century the remaining liberals despaired of the future. The Nation editorialized that “material comfort has blinded the eyes of the present generation to the cause which made it possible” and worried that “before [statism] is again repudiated there must be international struggles on a terrific scale.” Herbert Spencer published The Coming Slavery and mourned at his death in 1903 that the world was returning to war and barbarism.

Indeed, as the liberals had feared, the century of European peace that began in 1815 came crashing down in 1914, with the First World War. The replacement of liberalism by statism and nationalism was in large part to blame, and the war itself may have delivered the death blow to liberalism. In the United States and Europe, governments enlarged their scope and power in response to the war. Exorbitant taxation, conscription, censorship, nationalization, and central planning—not to mention the 10 million deaths at Flanders fields and Verdun and elsewhere—signaled that the era of liberalism, which had so recently supplanted the old order, was now itself supplanted by the era of the megastate.

More on libertarian history in The Libertarian Mind. More on the peaceful 19th century from Jim Powell.

Today, our friends at the Institute for Justice launched a new challenge to yet another instance of egregious civil asset forfeiture abuse.

Charles Clarke is a 24-year-old college student who found out the hard way that government officials can confiscate property on the mere suspicion that it has a “substantial connection” to a crime or is the proceeds of a crime. No underlying conviction is required. Functionally, this means that officers can claim that “something was a little off” about your behavior, or that “something smells a little like drugs” and then have carte blanche to take whatever cash you have on you. After that, your cash is presumptively guilty, and it is up to you to prove its innocence.

In the winter of 2013, Charles was stopped at the Cincinnati/Northern Kentucky airport based on the officers’ assertion that his bag smelled like marijuana. Actually, it was based off of a drug dog’s “signal” that his bag smelled like marijuana. By claiming that a dog “alerted” an officer can obtain probable cause, but in reality the dogs are about as reliable as Clever Hans.

After searching his bag, the officers found no drugs or other illegal substances. They then asked him if he was carrying any cash. Charles volunteered that he was carrying $11,000–clearly thinking, not unreasonably, that in a just world there is no way the officers could just take his money. Charles’s mistake, however, was thinking that he lives in a just world, and the officers walked away with his life savings.

Charles had saved the $11,000 over the previous five years, from work, financial aid, educational benefits, and gifts from family. Now he must overcome the officers’ hunches by proving that his money came from legal sources.

By now, hopefully you’re familiar with civil asset forfeiture. Thanks in part to the excellent work of the Institute for Justice, as well as biting commentary from John Oliver and dogged investigative journalism from the Washington Post and the New Yorker (as well as Cato’s own work), civil asset forfeiture no longer exists in the shadows, where the perpetrators would have prefered it to remain. In a time of sharp political divides, there’s one thing we all should agree on: police and other law enforcement officials should not be allowed to take assets based only on the suspicion of criminal activity and then be permitted to use those assets to purchase needed things for the department, like margarita machines.

Charles–who admittedly smoked marijuana on the way to the airport–lost his life savings to what amounts to legalized piracy. It seems Mancur Olson was on to something when he described the government as “stationary bandits.”

Thankfully, Charles has the saintly lawyers at the Institute for Justice on his side, who use the money from IJ’s generous donors to defend people like him from the most powerful organization in human history–the United States government. Otherwise, Charles would be out of luck. His confiscated $11,000 is just small enough to make it almost not worth it to pay thousands in attorney’s fees in order to possibly get some of it back. It’s almost as if the officers who confiscated his money thought that Charles would be unlikely to have the resources to fight the seizure.

Last year, the officers at Cincinnati/Northern Kentucky airport had a “good” year taking things from people who haven’t been convicted of a crime, raking in $530,000 from travelers similar to Charles. Under the federal “equitable sharing” program, the departments of the deputized airport police are allowed to keep up to 80 percent of that money.

The Institute for Justice is not only seeking to recover Charles’s money, they are challenging the constitutional deficencies of the civil asset forfeiture program in general. 

For more on Charles’s case, see Vox’s story.

For more on civil asset forfeiture, see our episode of “Free Thoughts” featuring Scott Bullock from the Institute for Justice.

According to the California Labor Commission, a San Francisco-based Uber driver who filed a claim against the rideshare company is an employee and not, as Uber argued, an independent contractor. The ruling orders Uber to pay the driver about $4,000 for expenses.

The non-binding ruling could potentially have devastating implications for Uber in California. If similar rulings are issued regarding other rideshare companies like Lyft or sharing economy players such as Airbnb, Instacart, and TaskRabbit, we could see the growth of these popular and innovative companies stifled as they cope with the costs associated with having providers classified as employees.

The California Labor Commission ruling states that Uber is “involved in every aspect of the operation.” It is true that Uber provides a technology and that it carries out background checks on drivers. But Uber does not provide vehicles or set any hours or for its rideshare drivers. In fact, according to research on Uber wages conducted by Princeton economist Alan Krueger and Uber’s Jonathan Hall, only 38 percent of Uber drivers rely on Uber as their sole source of income.

Regulators and lawmakers ought to realize that Uber drivers, who are often driving for Uber part-time while using their own vehicles on their own schedule, shouldn’t be treated the same as traditional workers.

Uber might seem like something relatively new given that it relies on users hailing rides with smartphones, but fundamentally it is making a very familiar experience easier. People were offering car rides in exchange for money long before the rise of the Internet, let alone smartphones. What makes Uber and other rideshare companies like Lyft so popular is that if someone wants a ride, they no longer have to find a friend ready and willing to give a ride at a particular time or stand on a street corner waving their hands in the hope of hailing a taxi. Rather, they can simply open an app and find a driver who is ready and willing to give a ride in exchange for a fare in a matter of minutes.

Uber and the sharing economy more broadly fit awkwardly into existing regulatory frameworks, but this should be welcomed as an opportunity to revise outdated regulations and laws, not an opportunity to regulate popular new companies as if they are the older incumbents they are competing with.

As the commission itself noted, Uber would not exist without drivers like the one who filed the claim. Certainly, Uber as we know it will become a very different company if its drivers in California are classified as employees. It will begin to look more like its traditional competitors rather than an innovative technology company, which would be a great shame.

The Obama administration’s Food and Drug Administration today announced a near-ban, in the making since 2013, on the use of partially hydrogenated vegetable fats (“trans fats”) in American food manufacturing. Specifically, the FDA is knocking trans fats off the Generally Recognized as Safe (GRAS) list. This is a big deal and here are some reasons why: 

* It’s frank paternalism. Like high-calorie foods or alcoholic beverages, trans fats have marked risks when consumed in quantity over long periods, smaller risks in moderate and occasional use, and tiny risks when used in tiny quantities. The FDA intends to forbid the taking of even tiny risks, no matter how well disclosed. 

* The public doesn’t agree. A 2013 Reason-RUPE poll found majorities of all political groups felt consumers should be left free to choose on trans fats.  Even in heavily governed places like New York City and California, where the political class bulldozed through restaurant bans some years back, there was plenty of resentment

* The public is also perfectly capable of recognizing and acting on nutritional advances on its own. Trans fats have gone out of style and consumption has dropped by 85 percent as consumers have shunned them. But while many products have been reformulated to omit trans fats, their versatile qualities still give them an edge in such specialty applications as frozen pizza crusts, microwave popcorn, and the sprinkles used atop cupcakes and ice cream. Food companies tried to negotiate to keep some of these uses available, especially in small quantities, but apparently mostly failed. 

* Government doesn’t always know best, nor do its friends in “public health.” The story has often been told of how dietary reformers touted trans fats from the 1950s onward as a safer alternative to animal fats and butter. Public health activists and various levels of government hectored consumers and restaurants to embrace the new substitutes. We now know this was a bad idea: trans fats appear worse for cardiovascular health than what they replaced. And the ingredients that will replace minor uses of trans fats – tropical palm oil is one – have problems of their own. 

 * Even if you never plan to consume a smidgen of trans fat ever again, note well: many public health advocates are itching for the FDA to limit allowable amounts of salt, sugar, caffeine, and so forth in food products. Many see this as their big pilot project and test case. But when it winds up in court, don’t be surprised if some courtroom spectators show up wearing buttons with the old Sixties slogan: Keep Your Laws Off My Body. 

The lackluster defense spending of U.S. allies is again in the news. At the G7 Summit in Germany earlier this month, President Obama implored British Prime Minister David Cameron to reverse the decline in the UK’s defense spending, which is widely expected to fall below NATO’s 2 percent of GDP mandate next year.

This is not the first time in recent months that the topic has come up. During a private meeting in Washington in February, Obama reportedly told the Prime Minister: “if Britain doesn’t spend 2 percent on defense, then no one in Europe will.”

In fact, hardly any of America’s NATO allies meet their NATO commitments. In 2014, only Greece, Estonia, the U.S. and the U.K. spent as much as 2 percent of GDP on defense. Excepting NATO member Iceland, which is exempted from the spending mandates, the 23 other NATO members failed to spend even two cents of every dollar to defend themselves from foreign threats. And Greece only met the 2 percent threshold because their economy is falling faster than their military spending.

But the problem of inadequate defense spending by America’s allies goes even deeper. The U.S. and the U.K. are the only two NATO member states that met both the 2 percent of GDP floor, and the mandate that at least 20 percent of military spending be “dedicated to research, development and acquisition of major defence equipment” in 2014. If current trends continue, the United States will be the only NATO member to meet both mandates starting next year.

Of course, this is hardly a new phenomenon. U.S. taxpayers have been subsidizing European defense for decades. Indeed, many pundits like it that way. They fret that U.S. allies might go their own way, or simply botch the job of defending themselves. The Wall Street Journal’s Bret Stephens explains, “America is better served by a world of supposed freeloaders than by a world of foreign policy freelancers.”

Most Americans disagree. They are tired of being forever on the hook to pay to defend wealthy allies that are certainly capable of defending themselves. And their anger and resentment would surely grow if they understood how their tax dollars are, in effect, funding Europe’s bloated welfare states. Freed from the obligation to spend on defense, the one core function expected of any government, European governments have chosen to divert their resources into other nice-to-have things. In 2013, the United States, for example, allocated over 20 percent of government spending to its military; NATO’s other members spent, on average, 3.6 percent.

This Cato infographic, painstakingly assembled by my colleague Travis Evans, attempts to put all of these facts into perspective.


As you can see, in 2013 – the last year for which NATO provides detailed spending breakdowns – the United States spent an estimated $735 billion, or 4.4 percent of its GDP, on defense (based on the NATO definition). That amounts to $2,305 spent by every man, woman and child in America, 5 times more than in NATO founding states, and 8 times more than was spent in those member states that have joined NATO since the end of the Cold War. U.S. taxpayers contributed nearly 72 percent of all NATO defense spending, even though the economies of the other NATO members states collectively exceeded U.S. output by nearly 11 percent. And the free riding problem has only been getting worse. Total military spending by NATO’s European members was less in real terms in 2014 than in 1997 – and there are 12 more member states in NATO today.

In fairness, one can hardly blame NATO’s other members for failing to spend more on defense. And one shouldn’t expect that they will willingly change course, despite faint signs that some European members are finally getting serious about their security. After all, why pay for something that someone else is willing to provide for you, for free? America’s allies consistently underprovide for their own security, and that has been the case all along. (Mancur Olson and Richard Zeckhauser explained this dynamic in the late 1960s; and John R. Oneal revisited the theory in 1990).

The free ride could come to an end if Washington wants it to. The modest spending restraint imposed on the Pentagon’s budget by the bipartisan Budget Control Act of 2011 has already forced the military services to make some difficult choices. The really hard choices may soon fall on the Pentagon’s civilian masters, who so far have refused to prioritize roles and missions. They should stop deploying the U.S. military in ways that discourage other countries from doing more, and stop expecting U.S. taxpayers to foot the bill.


Infographic Sources:

NATO: Public Diplomacy Division.Financial and Economic Data Relating to NATO Defence.” Brussels, Belgium, 2014.

Central Intelligence Agency. “The World Factbook 2013.” Washington, D.C., 2013.

The International Institute for Strategic Studies. The Military Balance 2015. Edited by James Hackett. London: Routledge, 2015.

What do Slobodan Milosevic, Robert Mugabe, and Nicolás Maduro have in common? The Communist Manifesto and inflation.

At 480% per annum, Venezuela’s inflation is currently the world’s highest. The Bolivarian Revolution is pushing prices up at a rate of 36% per month. Will these punishing inflation numbers spell the end of President Nicolás Maduro’s reign? Maybe not. Milosevic’s Yugoslavia and Mugabe’s Zimbabwe witnessed much higher inflation rates, and both hung on for many years.

Slobodan Milosevic was in the saddle when inflation gutted the rump Yugoslavia. Milosevic’s inflationary madness reached its peak in January 1994, when the monthly inflation rate hit 313,000,000% – almost nine million times greater than Venezuela’s current monthly rate. Nonetheless, Milosevic retained his grip on what was left of Yugoslavia for another six years.

In 2008, Zimbabwe out-did Yugoslavia when Zimbabwe recorded the second-highest hyperinflation in history. With Robert Mugabe at the helm, hyperinflation peaked at a staggering 79,600,000,000% per month, or a daily rate of 98%. Despite this astronomical figure, Mugabe remains in office to this day – over seven years since the hyperinflation ended.

While hyperinflation is not a recipe for building a politician’s popular support, it is not a certain death knell, either. Don’t count Maduro out, yet. As long as he retains popular support and “controls” the ballot boxes, he will stay in the saddle.

The House GOP leadership’s hostility to reforming the U.S. Intelligence Community is on full display this week. The House Rules Committee (which is controlled by House Speaker John Boehner) blocked several key reform amendments to the annual Intelligence Authorization bill from even reaching the House floor for consideration.

Furious over an op-ed by Privacy and Civil Liberties Board chairman David Medine that called for an independent review of the executive branch’s “assassination-by-drone” policy, House Intelligence Committee chairman Devin Nunes (R-CA) included language in the annual Intelligence Authorization bill banning the PCLOB from examining the “covert” drone program. A bipartisan amendment (led by Rep. Jim Himes of Connecticut) that would have struck that language was barred from consideration.

Last week, the House passed a bipartisan amendment to the annual Defense Department spending bill baring the federal government from using taxpayer dollars to search the stored communications of Americans collected by NSA. That same amendment would also prevent the federal government from mandating that American tech companies build encryption-defeating “back doors” into their products. The authors of that amendment, Democrat Zoe Lofgren of California and Republican Thomas Massie of Kentucky, wanted to make those provisions permanent, but their amendment was also blocked.

An amendment by Florida Democrat Alan Grayson would’ve banned the federal government from undermining encryption standards promulgated by the National Institutes of Standards and Technology, which has been under fire for its relationship with NSA. That amendment was also disallowed.

Republican Justin Amash offered an amendment to strike language in last year’s Intelligence Authorization bill that permits “the acquisition, retention and dissemination” nonpublic telephone or electronic communications of United States persons without the consent of the person or proper legal process. It was also ruled out of order.

And of course, the bill continues to bar the processing and release of prisoners at Guantanamo who have long been cleared for departure and repatriation.

So just as it has for years, the House Permanent Select Committee on Intelligence is taking zero action to deal with clear violations of Americans’ Fourth Amendment rights revealed by Edward Snowden, as well as long-standing “war on terror” policies that are clearly harming, not helping, defeat the likes of ISIS.

However, the bill expands the U.S. Intelligence Community by creating a new bureaucracy: the National Cyber Threat Intelligence Integration Center. How the NCTIIC’s operations will be reconciled with the already existing U.S. Cyber Command is not at all clear. And Cyber Command will continue to dwarf NCTIIC in both personnel (3000+ vs. 50) and budget—which means Cyber Command (and thus NSA) will continue to be the driving force behind U.S. cybersecurity policies. One former senior DHS official resigned because of the implications of NSA’s dominance in cybersecurity issues, concerns that persist but that the committee has ignored.

All of the expertise of the military and intelligence community in cyber defense has clearly not translated into better cyber “hygiene” by other federal departments and agencies, as we’ve seen with the recent, massive hack into the Office of Personnel Management’s database. Yesterday, I got my own “You may have been hacked” letter from OPM, as did my wife (we are both former CIA analysts). It brought back memories of the last time my family got such a letter, in the wake of a hack of Department of Energy systems which involved more than just DoE employees.

That self-proclaimed “small government, fiscal conservatives” continue place faith in a nearly-porous federal IT infrastructure is just one more example of how badly Washington is broken.

Yesterday marked 200 years since the Battle of Waterloo and the British press was, understandably, eager to remind the world of the singular service the Anglo-Prussian alliance provided to humanity by finally ending the bloody career of the French megalomaniac dictator, Napoleon Bonaparte. Tucked in one of the articles was a sentence that caught my attention. Following the battle in which 55,000 men were either killed or wounded, the “dead… were hastily stripped and buried.” 

Why would anyone bother stripping the dead, when every hour increased the danger of putrefaction and disease?

The most likely reason was that prior to Industrial Revolution, clothing was extremely expensive. As such, the uniforms were, presumably, washed, patched up and reused. Consider that in 1760, Britain imported only 2.5 million pounds of raw cotton. By the 1830s, it imported 366 million pounds of cotton and the price of yarn fell to one-twentieth of what it had been. This was revolutionary!

As Carlo Cipolla observed in Before the Industrial Revolution: European Society and Economy, 1000-1700 “In preindustrial Europe, the purchase of a garment or the cloth for a garment remained a luxury the common people could only afford a few times in their lives. One of the main preoccupations of hospital administration was to ensure that the clothes of the deceased should not be usurped but should be given to lawful inheritors. During epidemics of plague, the town authorities had to struggle to confiscate the clothes of the dead and to burn them: people waited for others to die so as to take over their clothes – which generally had the effect of spreading the epidemic.”

Last but not least, why on earth did the British wear red coats? After all, red is conspicuous and easy to target. Again, economics suggests an answer. As Cato’s Connor Ryan reminded me, “Red coat [was] issued …[to Oliver Cromwell’s] New Model Army. The NMA was the first to try and standardize equipment and equip its soldiers with a standard coat. Red was the cheapest dye you could get, apart from natural grey which the Scots army had already adopted.”

Thankfully, today we can provide anyone with cheap clothing and our soldiers with sophisticated camouflage.

There is great interest in how the labor market will respond to the Affordable Care Act (ACA). Much of the popular discussion focuses on the implications of the newly-implemented and widely-anticipated employer mandate, which requires firms with 50 or more workers to provide health insurance for full-time employees (defined as workers with 30 or more hours per week). The employer mandate, unsurprisingly, creates strong incentives for companies to scale back employee hours (“29 hour work weeks”) and lay off workers or consolidate part-time jobs into full-time jobs in order to get under the 50 employee threshold.

There is comparatively less discussion of the incentives faced by workers. Although the Congressional Budget Office has provided estimates and discussion of the pertinent labor market effects, one issue that tends to get lost in all of this is how increasing a household’s income creates certain “notches” in a household’s budget constraint. By “notches”, economists mean very large changes in the subsidy (known as the “Premium Tax Credit”) received by a household for extremely small changes in income. These notches are well known in other transfer programs, particularly the “Medicaid notch” and the “public housing notch”. The ACA notch occurs in both states that expanded their Medicaid program, as well as those that didn’t.

To illustrate the sheer magnitude of the ACA notch, it is helpful to examine ACA subsidies for different individuals. First, consider a person who is expensive to insure – a 64-year-old – in a locality that generally has high insurance premiums. A good example is Clay County, Georgia (where Georgia also didn’t expand its Medicaid program). As the “Plan Preview and Price Estimator” from the federal government’s exchange shows, the premium tax credit goes up dramatically for this individual at an income of $11,671 and falls dramatically at an income of $46,679.

What’s going on? Subsides – discounts off the premiums for health plans offered on the exchange (known as the premium tax credit or “PTC”) – are related to household income as well as cost factors (namely an individual’s age and price of health plans in the local marketplace). Subsidies kick in at 100% of the Federal poverty line – or $11,671 for a one-person household – and turn off at 400% of the Federal poverty line – or $46,679. Thus, small changes in income lead can lead to very large changes in the subsidy.

Before discussing the labor market consequences, it is important to note that such ACA notches are more important for expensive-to-insure individuals and couples, and the size of the ACA notch also varies by location. The following table shows a high-cost individual (the 64-year-old) and a low-cost individual (a 30-year-old) in a high-cost location (Clay County, GA) and a lower-cost location (Andersen County, TN).

Sources: and (Accessed 6/11/2015).

There are several things to take away from this table. First, Georgia and Tennessee are among the 21 states that have not expanded their Medicaid program. The ACA only provides subsidies for individuals at or above 100% of the Federal poverty line; in states that expanded Medicaid, individuals below 138% of the Federal poverty line would qualify for Medicaid. Second, for the 64-year-old, the first ACA notch – in states without a Medicaid expansion – creates dramatic subsidies once income reaches 100% of the Federal poverty line, or $11,671. Earning the extra $1 after $11,670 raises the subsidy by $10,849 per year in Clay County, GA, but only $5,910 in Andersen County, TN. Both of these ACA notches – which wouldn’t be present in the Medicaid expansion states – create strong incentives to increase work effort to reach this threshold. As can also be seen, the ACA notches are present but less dramatic for the younger person. Third, there are “mini ACA notches” as income exceeds certain multiples of the Federal poverty line. As the 64-year-old individual earns the extra $1 in Georgia that raises income from $15,521 to $15,522 (133% of the Federal poverty line), the subsidy falls by $157. Fourth, once income exceeds 400% of the Federal poverty line, the subsidy disappears entirely. For this individual, that entails a loss of subsidy of $6,621 from earning the extra $1 that takes income from $46,679 to $46,680. This notch is also present in Tennessee, but to a smaller extent. Finally, in all cases we can see the subsidy typically erodes quite smoothly as income goes up – this is known as a benefit reduction rate or tax rate. As income increases by $33,000 from $12,000 to $45,000, the PTC falls by $4,061, resulting in an average tax rate of 12.3% just from the ACA. For the younger individual, the subsidy erodes to $0 before income reaches 400% of the Federal poverty line in both Georgia and Tennessee.

How do things look for married couples? Much like single individuals, the subsidies kick in and turn off at multiples of the Federal poverty line. Although the unsubsidized cost of a health insurance plan for two 64-year-olds is twice that of one 64-year-old, the dollar amounts for the poverty thresholds are quite different. The dollar amounts go up less than proportionally with family size. As a consequence, the notches look quite different – and in some cases are jaw-dropping – for a married couple. Consider the two areas we just considered, and assume that two individuals of the same age are married to each other. The first column in the next table shows that the ACA notch when reaching 100% of the Federal poverty line (of $15,731) is an incredible $21,850! That is, earning the extra $1 that brings income from $15,730 to $15,731 leads to a dramatic increase in the premium tax credit. The magnitudes are clearly different, but present, for all family types illustrated. As family income goes from $15,731 to $62,919 (or 100% to 400% of the Federal poverty line), for all couples, the subsidy more-or-less is smoothly taxed away (and in, fact, the young couple in the inexpensive market loses its subsidy before 400% of the Federal poverty line). For the first couple, as income goes from $18,000 to $60,000, the PTC falls by $5,374, resulting in an average tax rate from the ACA alone of 12.8%. The notch for older couples is dramatic at 400% of the Federal poverty line; in Clay County, GA, earning the extra $1 that takes income from $62,919 to $62,920 results in a loss of subsidy of $16,152! The results in Tennessee are also large, but not nearly as large as Georgia. In Tennessee, the older couple only loses $6,275 for earning the extra $1. Younger couples don’t completely escape this punitive tax. For younger couples, the ACA notch exists in Georgia, but the PTC is eroded completely in Tennessee before income reaches 400% of the Federal poverty line, so there is no ACA notch.

Sources: and (Accessed 6/11/2015).

How would such incentives affect the labor market? Abstracting away from other taxes and transfers, these notches create incentives in all cases to reach the earnings threshold of 100% of the Federal poverty line in order to qualify for subsidized health insurance. Moreover, there are very strong incentives to not exceed 400% of the Federal poverty line, especially because you must repay all of the premium tax credit. In states that did not expand Medicaid, the first effect – the incentive to raise earnings above 100% of the Federal poverty line – is present, but isn’t in states that expanded Medicaid. In all 50 states and DC, the second ACA notch at 400% of the Federal poverty line will be present, to larger or smaller degrees depending on health premiums and age. The larger the ACA notch, the greater the incentive to constrain earnings under the second threshold.

It is also the case that this structure creates unusual marriage taxes and bonuses, an incentive that has been examined in the context of Medicaid expansions from an earlier era. To illustrate, imagine that two unmarried, 64-year-olds in Clay County, GA each had annual income of $10,500. The first table illustrates that neither would be eligible for the PTC. By marrying, household income is $21,000, resulting in a premium tax credit of $21,526. However, not all couples look so good. Consider these same two individuals, each earning $33,000. As single individuals, they each receive a premium tax credit of $8,094, or a cumulative amount of $16,188. By marrying, their credit would fall to $0, because household income would exceed the limit of 400% of the Federal poverty line. Evidence from the ACA mandate to cover young adults shows that marriage taxes and bonuses are an important factor.

Graphical Summary 

Cited Work:
Wall Street Journal, “Unemployed by Obamacare,” August 21, 2014, Accessed from:

Congressional Budget Office, “The Labor Market Effects of the Affordable Care Act,” February 2014, Accessed from:…

Internal Revenue Service, Publication 974: The Premium Tax Credit, March 2015, Accessed from:

Yelowitz, A., “The Medicaid Notch, Labor Supply and Welfare Participation: Evidence from Eligibility Expansions,” The Quarterly Journal of Economics, November 1995, 110(4): 909-939.

Yelowitz, A., “Public Housing and Labor Supply,” Mimeo, University of Kentucky, November 2001.

Kaiser Family Foundation, “Status of State Action on the Medicaid Expansion Decision,” Accessed from:…

Yelowitz, A., “Will Extending Medicaid to Two Parent Families Encourage Marriage?” The Journal of Human Resources, Fall 1998, 33(4): 833-865.

Abramowitz, J., “Saying ‘I Don’t’: The Effect of the Affordable Care Act Young Adult Provision on Marriage,” Accessed from:

On the day we celebrate the 800th anniversary of Magna Carta, leave it to the New York Times to feature a boxed op-ed on its editorial pages entitled “Stop Revering Magna Carta.” As the only bow to the occasion on those pages, one imagines that the editors could not be bothered even to write a house editorial on the subject

The piece is written by one Tom Ginsburg, professor of international law and political science at the University of Chicago, an institution with which I have some acquaintance.  As suggested by its title, this is a work of deconstruction. The Charter’s fame, you see, “rests on several myths.” Indeed, “like the Holy Grail,” Ginsburg concludes, “the myth of Magna Carta seems to matter more than the reality.” And well it should. After all, history rarely springs forth in principled perfection. At best it grows one fractured event at a time, each event gradually becoming the narrative mythology of a people.

Ginsburg begins his deconstruction by claiming that Magna Carta “wasn’t effective. In fact, it was a failure.” How so? Because King John repudiated the Charter shortly after he’d signed it, whereupon the barons sought to replace him, which he avoided by dying. But the next year, we’re told, John’s young son reissued the document. Far from a failure, then, it was reissued several more times over the 13th century, culminating in the important 1297 version. Indeed, it was at that time, as the famed legal historian Edward S. Corwin wrote, well before the era of deconstruction, that the king was forced to call Parliament into existence to relieve his financial necessities. But Parliament’s subventions “were not to be had for the asking,” Corwin noted, “but were conditioned on the monarch’s pledge to maintain Magna Carta.” A failure? Hardly.

Yet another myth, Ginsburg writes, “is that the document was a ringing endorsement of liberty.” As evidence, he cites three of the Charter’s 61 chapters, each concerning matters peculiar to the time—for example, the removal of fish traps from the Thames. Yet as shown by Ginsburg’s colleague at the law school across the Midway, Professor Richard Helmholz, even that provision served in time to afford a basis for free navigation.

And therein lies that major fault of this piece. It’s a textbook example of missing the forest for the trees. To be sure, as Ginsburg writes, “Magna Carta was a result of an intra-elite struggle, in which the nobles were chiefly concerned with their own privileges.” But again, that’s how history often begins, sowing the seeds for future advances. As Corwin observed nearly a century ago, many of the Charter’s clauses were drawn in ways that did not confine their application to issues immediately at hand. Moreover, the barons realized early on that to maintain the Charter against the king, they had to get the cooperation of all classes and so too the participation of all classes in its benefits. Thus did the scope of its protections expand, much as with our own Constitution. And that’s why so many revere Magna Carta today.


Federal debt is piling up and spending is expected to soar in coming years. Projections show rivers of red ink unless federal policymakers enact reforms. They should cut spending in every department. A great place to start would be cutting aid-to-state programs, which cost more than $600 billion a year.

That was my message at a Senate hearing last week to a committee chaired by Senator Rand Paul. Kudos to Paul for holding the hearing and inviting an interesting array of witnesses. In the photo, that’s Romina Boccia, me, Steve Ellis, and Tom Schatz. Don Kettl also testified. We all gave the committee good ideas, now it is their job to cut.

Our testimony is here.


In the aftermath of 9/11, the U.S. government urged counter-terrorism experts to think “outside of the box.” What we got instead of innovative thinking was a rather conventional response to the 9/11 atrocities - invasions of Afghanistan and Iraq, followed by thousands of dead American soldiers and trillions of dollars in military spending and foreign aid. Today Iraq is, yet again, in the midst of a civil war, with large parts of Iraqi territory overrun by homicidal maniacs from ISIS. Afghanistan, if its present government is to survive, would likely require decades of American presence – something I along with millions of other Americans oppose.

Whether or not ISIS poses a threat to our homeland (and there are many doubters), the U.S. political establishment is united in believing that ISIS needs to be taken on. But, what is to be done? On the one hand, the aerial campaign does not appear to be achieving desired ends. On the other hand, the American public is understandably opposed to another ground invasion.

The rise of the nation-state has led many people to look to their governments for solutions to problems big and small. The nation-state, in turn, has crowded out other actors. When it comes to the application of violence, for example, why not try the time-honored alternative to national armies - the use of mercenaries?

This morning, The Telegraph ran an interesting story  about an Eton-educated former Scots Guard and SAS man, Simon Mann. Mann became famous for partaking in an attempted coup d’état against the tyrannical ruler of the oil-rich African country of Equatorial Guinea,Teodoro Obiang Nguema Mbasogo. The coup failed, and Mann was caught and thrown in prison. Having miraculously survived 5 years in one of Obiang’s jails, he returned to Britain. Today, Mann advocates for a mercenary approach to defeat ISIS. Should he be given a serious hearing?

To start, it is important to note that mercenary activity is more common and more beneficial than most people realize. Mann’s “previous firm, Executive Outcomes,” writes the Telegraph, “halted rebel movements in their tracks in both Angola in 1993 and Sierra Leone in 1995, the latter against the drug-crazed, limb-chopping rebels of the Revolutionary United Front. On both occasions it was in support of legitimate governments, and while some may have questioned the millions they were paid, nobody ever doubted their effectiveness…. [E]arlier this year, one of …[Mann’s] old South African partners, Colonel Eeben Barlow, was back in action, this time fielding a force of fighters to help Nigeria defeat the Islamists of Boko Haram… [T]he group spent three months fighting alongside the Nigerian military, bringing with them years of hard-won experience in South Africa’s apartheid-era bush wars. They had only around 100 men on the ground, but even in that brief time, they turned a demoralized and badly-led army into a fighting machine that finally pushed Boko Haram from its north-eastern strongholds…. With many of their men recruited from South Africa apartheid-era security forces, neither Nigeria nor the wider world has been keen to fete this achievement. But the fact remains that a group of mercenaries - or, to give them their polite name, a private military company - has succeeded in defeating one of the world’s bloodthirsty insurgent groups, partly through sheer dint of being willing to put boots on the ground.”

This is not to say mercenaries would be a panacea. America’s recent experience in Iraq and Afghanistan with private contractors like Blackwater is a case in point. Blackwater employees were roundly criticized for reckless and unrestrained behavior, including wantonly killing civilians and bribing officials of foreign governments. Classified State Department cables, according to the New York Times, reported that the use of contractors “added to the war’s chaos in Iraq.”

Furthermore, it’s not clear that private mercenaries could overcome the internal political problems in Iraq and Syria, which ultimately is what gives rise to problems like ISIS.

But is a private-sector approach to battling ISIS qualitatively better than a U.S. reinvasion of Iraq? Possibly. Let’s outline some positives:

  1. No U.S. casualties, except for those Americans who chose to join the mercenary outfit willingly. By the way, some Americans have already gone to fight ISIS as part of the Kurdish peshmerga. 
  2. No need to spend years and billions of dollars in a futile task of building up the Iraqi military. A mercenary outfit could be maintained relatively cheaply. All it would need is access to a bank account into which anyone interested in destroying ISIS could deposit money.
  3. Anyone could join the anti-ISIS mercenaries: Arabs or Americans, blacks or whites, feminists and gay rights advocates. Hopefully, the multi-national and multi-religious nature of the mercenary force would dilute anti-Americanism in the region (i.e., the U.S. would no longer be seen as one of the chief participants in the region’s conflicts).  

On the downside, a successful push against ISIS would require U.S. aerial support and, presumably, intelligence sharing. But, the U.S. is doing that already - to very limited effect.

In the abstract, I do not see any principled libertarian objection to a multi-national and multi-religious mercenary force, which would be financed by anyone interested in the demise of ISIS. Heck, I would give them money.   

Ask any first year law student “what did you learn in school today” and you’ll probably get some version of the answer: “duty-breech-causation-harm.”  While this applies specifically to tort claims, it seems axiomatic, even for non-lawyers, that you can’t sue someone who hasn’t hurt you.  Or can you?

Former AIG CEO Hank Greenburg caused a ripple of shock in late 2011 when he filed suit against the U.S. government, alleging that the government’s 2008 bailout and subsequent take-over of AIG was unlawful, and claiming $40 billion in damages.  Despite skepticism throughout the legal community, the case not only survived dismissal, but went on to a full trial, during which such heavyweights as Tim Geithner, Hank Paulson, and Ben Bernanke took the stand. 

Throughout the trial, Judge Thomas Wheeler seemed sympathetic to the claims that Greenburg brought on behalf of Starr International Company, an AIG shareholder.  Few believed that AIG had any alternative to the government’s money, except bankruptcy.  In bankruptcy, shareholders (like Starr) are paid last out of whatever remains after all the company’s debts are paid.  Which typically (and most likely in AIG’s case) means not paid at all.  Would the judge really grant Starr a $40 billion judgment – against the U.S. government – when the alternative was bankruptcy?

No.  But that doesn’t mean the government got off scot free either.  Judge Wheeler found that the federal government committed an illegal exaction.  That is, it took something it had no right to take.  (This, the judge carefully notes, is not the same as a “takings” under the Fifth Amendment.  When there is a takings, the government lawfully uses its authority to take private property for public use and then must pay the owner “just compensation” for that property.  An illegal exaction means the government took properly unlawfully.) 

In bailing out AIG, the Federal Reserve Bank of New York (FRBNY) issued the company a loan for $85 billion.  In exchange, the FRBNY took an 80 percent equity stake.  This stock was not posted as collateral for the loan, but would remain in the government’s hands even after the loan was repaid.

The FRBNY claimed it acted under a provision in the Federal Reserve Act that gives the bank the authority to act as a lender of last resort in “unusual and exigent circumstances” and to establish an interest rate for the loan.  But, the court noted, this does not allow the bank to do anything it wants in “exigent circumstances;” it can do only those things it is authorized elsewhere in the Act to do.  And taking equity stakes in companies is not one of those things.  “[T]here is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner,” found the court.  “A Federal Reserve Bank has no right to control and run a company to whom it has made a sizeable loan.”

Judge Wheeler’s opinion is peppered with zingers, calling the government’s terms for AIG’s bailout “punitive,” “draconian,” “harsh,” and “unprecedented.”  Ultimately, however, he admits his hands are tied.  “In the end,” he writes, “the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy.  In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value.”  The result is that there is no economic harm to Starr and therefore no damages can be awarded.   The court noted “a troubling feature of this outcome is that the Government is able to avoid any damages notwithstanding its plain violations of the Federal Reserve Act…Simply put, the Government often may ignore the conditions and restrictions of [the Act] knowing that it will never be ordered to pay damages.”

So Hank Greenburg won without winning.  And yet, in the midst of a crisis, the government overstepped its bounds and was subsequently called to account.  Although Judge Wheeler seems to believe that the government may act with impunity in this arena because it won’t be ordered to pay damages, there is now a case on the books that calls the FRBNY’s actions illegal.  Its lawyers will be hard-pressed to justify this type of action in the future.  And may be more careful about coloring outside the lines in general.   

Under normal conditions, the IMF is supposed to be limited to lending up to 200% of a country’s quota (each country’s capital contribution made to the IMF) in a single year and 600% in cumulative total. However, under the IMF’s “exceptional access” policy there are, in principle, virtually no limits on lending. The exceptional access policy, which was introduced in 2003, opened the door for Greece to talk its way into IMF credits worth an astounding 1,860% of Greece’s quota – a number worthy of an entry in the Guinness Book of World Records.

The IMF’s over-the-top largesse towards Greece explains why the IMF has been forced to play hardball with Greece’s left-wing Syriza government. The IMF’s imprudent over-commitment of funds to Greece leaves it no choice but to pull the plug on Athens. That is why the IMF’s negotiators packed their bags last week and returned to Washington, and that is why it will probably remain uncharacteristically immovable.

Some weeks ago, I made some critical observations concerning the Fed’s contribution to  the recovery.  In particular, I complained that, despite the decidedly mixed and ambiguous results of empirical assessments thus far, the view that Quantitative Easing has been a smashing success seemed well on its way to becoming official dogma, if not a more generally-held article of faith.

Even so, I was taken aback by the off-hand manner in which Fed Vice Chairman Stanley Fischer declared a QE victory, in the course of a speech given two weeks ago at the International Monetary Conference in Toronto.   Did the Fed’s policies work?  According to Fischer, “The econometric evidence says yes.  So does the evidence of one’s eyes” (my emphasis).

In fact, as I’ve already noted, the econometric evidence concerning the effectiveness of QE is hardly decisive.  For one thing, most studies have looked only at the interest-rate effects of the Fed’s purchases, without troubling to ask whether those effects translated into any definite changes in spending, output, and employment.  For another, the interest-rate effect estimates are themselves not to be trusted.   A fairly recent IMF study on “Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies,” for example, notes — en passant as it were — that, controlling for such flows, the Fed’s large-scale asset purchases resulted, not in the 90-200 basis point decline in long-term rates reported in various other studies, but in a decline of just thirty basis points, which is peanuts.  Other studies may, in other words, have conflated the effects of the Fed’s asset purchases with those of concurrent “flights” from lower-quality Eurozone securities to higher-quality Treasuries.

But why bother with fancy econometrics when one can simply refer, as Vice Chairman Fischer did, to the “evidence of one’s eyes”?   Fischer, apparently, found in that evidence compelling proof that QE worked wonders.  Fischer actually mentions only one piece of evidence, to wit: the fact that “the recent inauguration of the ECB’s QE policy seemed to have an immediate effect not only on European interest rates, but also on longer-term rates in the United States.”  But here, as with other inferences drawn by looking at interest-rate movements, connecting the dots isn’t nearly as easy as Fischer supposes.

Evidence that some good has come from the ECB ‘s belated easing is, in any event, not evidence that the Fed’s easing did any good.  Try as I might, I just can’t seem to get my eyes to focus on any clear and unambiguous evidence that it did.  Has Fischer, I wonder, been looking at the same things I’ve looked at?  If so, is he perhaps looking through rose-colored glasses, or is it my own vision or prescription that’s faulty?

With such questions in mind, I decided to put the matter to a test.  Call it Doc Selgin’s QE Eye Test, or Eye QE Test, or whatever else you wish to call it.  The instructions are simple: eyeball the following charts, gathered from various internet sources, recording all sorts of basic information pertaining to Quantitative Easing on one hand and the post-2008 recovery on the other.  Then decide for yourself whether the evidence of your eyes agrees with Mr. Fischer’s relatively sunny impression, or with my own much gloomier one.

Please don’t misunderstand me: I am not saying that my QE Eye Test, or any eye test at all, is a good way to evaluate the effectiveness of the Fed’s post-crisis policies.  On the contrary: I only wish to cast doubt upon Vice-Chairman Fischer’s suggestion that one’s eyes are all one needs to determine that those policies worked.  My own belief, FWIW, is that it’s going to take a lot more fancy econometric footwork to arrive at convincing answers.  I just hope it doesn’t take as long to come to a proper understanding of the Fed’s role as it took following that other “Great” calamity.


Doc Selgin’s QE Eye Test 1) Fed Assets and Bank Excess Reserve Holdings.

Source: Gold, Stocks, and Forex, November 12, 2014,

2) Growth in Monetary Base, M2, and NGDP.

Source: Ed Dolan, EconMonitor,…

3) Nominal GDP Gap.

Source: Michael Robert’s Blog,

4) QE and Treasury Yields.

Source: Calafia Beach Pundit, October 29, 2014,

5) Unemployment and Labor Force Participation Rates.

Source: Conversible Economist (Timothy Taylor), December 11, 2013,…

6) Unemployment Using June 2009 Participation Rate.

Source: Sean Davis, The Federalist, January 10, 2014,…

7) Employment as Percent of Population.

Source: Infinite Unknown, March 8, 2015,…

8) Employment as Percent of Population, Comparison with Great Depression.

Source: Rise Up, the System is Broken,…

9) Real GDP: Actual and Pre-CrisisTrend.

Source: Cecchetti and Schoenholz, The Blog (Huffington Post),

10) Economic Output as Percent of Potential Output.

Source: Andrew Fieldhouse, The Blog (Huffington Post), June 26, 2014,…

11) Comparison with Other Postwar Recoveries.

Source: Planet Money, March 7, 2013,…


That’s it.  If these pictures make you feel all warm and fuzzy about the great job the Fed has done, then so far as your concerned, Vice Chairman Fischer’s beliefs are vindicated.  If, on the other hand, you find yourself doubting that all those trillions of new dollars have accomplished anything, then you can either count yourself among the pessimists, or have Doc Selgin write you a prescription for some rose-colored lenses.

A widespread criticism of Trade Promotion Authority (TPA), which remains in limbo after a surprising legislative mess last Friday, has come from conservative skeptics who believe that TPA will permit President Obama to change US immigration laws unilaterally.  Originally a fringe argument, it gained momentum earlier this month when WikiLeaks published the confidential draft negotiating texts on the Trade in Services Agreement (TiSA), which is currently under negotiation.  Among those texts was an Annex on “Movement of Natural Persons” – one of the standard “modes” of supply (Mode 4) negotiated in trade agreements that cover services.  The leaked annex, TPA critics claimed, was “smoking gun” proof that President Obama was, in fact, secretly negotiating with foreign governments to liberalize US immigration restrictions without congressional input, and that TPA would grant him the power to lift such restrictions in the very near future.  The facts surrounding TPA, TiSA and global services trade, however, effectively rebut such claims.


Before getting to these facts, it’s important to understand just what TiSA is.  The TiSA is a plurilateral free trade agreement on services being negotiated among 27 participants (including the US and EU).  TiSA began in 2012 but only picked up momentum over the last year or so, as the World Trade Organization’s (WTO) Doha Round, which also included services, faded.

If signed and implemented, TiSA would likely represent a major economic win for the United States, given that (i) the vast majority of the US economy is services; (ii) the United States has a large comparative advantage in global services; and (iii) unlike goods, global trade in services remains relatively restricted.  TiSA’s basic goals include that each participant offer to all other parties, at a minimum, the best commitments that it has made in preferential FTAs, and, importantly, the eventual “multilateralization” of the agreement into the WTO such that it is open for accession by all WTO Members.  As such, the architecture and principles of the TiSA reflect those of WTO’s General Agreement on Trade in Services (GATS), which was finalized in 1995 and covers all WTO Members including the United States.  Any final, multilateralized TiSA deal would be a very good thing for those who support free markets and, of course, the US global economies.

Despite these benefits, the leaked TiSA has caused an uproar among skeptical (and in many cases, anti-immigration) conservatives.  (It’s also upset anti-trade liberals who see the deal as “global deregulation,” but that’s a canard for another time.)  As mentioned, however, there are a lot facts that undermine the argument that the TiSA represents an immigration “smoking gun.”


The most basic reason for skepticism is the history of Mode 4 negotiations.  First, the TiSA is far from the first international trade agreement to address Mode 4, which is one of the four basic “Modes of Supply” covered by the GATS:

  • Mode 1: Cross border trade (delivery of a service from the territory of one country into the territory of other country);
  • Mode 2: Consumption abroad (supply of a service of one country to the service consumer of any other country);
  • Mode 3: Commercial presence (services provided by a service supplier of one country in the territory of any other country); and
  • Mode 4: Presence of natural persons (services provided by a service supplier of one country through the temporary presence of natural persons in the territory of any other country).

The leaked TiSA Annex – despite being unfinished and heavily bracketed – is quite similar to the original GATS Annex completed over two decades ago.  These facts belie the idea that the TiSA represents some sort of pathbreaking global agreement on immigration – these issues have been with us for decades.

Second, US involvement on Mode 4 has been relatively minimal.  Despite providing major economic benefits, Mode 4 liberalization has been controversial in the United States and, as a result, no US FTA negotiated after those with Chile and Singapore includes provisions on Mode 4 (See: Congressional Research Service).  In a letter to Senate Finance Chair Orrin Hatch, US Trade Representative Froman confirmed that “the United States is not negotiating and will not agree to anything in TPP [Trans-Pacific Partnership] that would require any modification to U.S. immigration law or policy or any changes to the US visa system.”  Also, past Mode 4 commitments have been very limited.  For example, in the WTO’s Uruguay Round, “commitments scheduled under Mode 4 were largely limited to two categories: intra-company transferees regarded as ‘essential personnel’, such as managers and technical staff linked with a commercial presence in the host country; and business visitors, i.e. short-term visitors not in general gainfully employed in the host country.”  Hardly the massive immigration overhaul that some TPA critics now claim.

Third, the leaked TiSA text was not nearly as big a revelation as the TPA opponents claim: public readouts of the TiSA negotiations have long made clear that Mode 4 was under discussion.  The leak simply added details to basic concepts that were already easily Googleable.  Hysteria nevertheless has ensued, to the surprise of many who have actually been paying attention to these things for the last few years.

Fourth, even though many trade agreements to which the US is a party (e.g., the GATS) contain provisions on Mode 4, none of these agreements – even those with actual US commitments – has (i) led to a significant, unregulated increase in legal immigration (even temporary); (ii) provided US presidents, including President Obama, with a “backdoor” means of liberalizing US immigration restrictions without the full consent of Congress; or (iii) forced the US government, against its will, to change its immigration laws.  No US trading partner has used these Mode 4 provisions (e.g., through dispute settlement) to push the United States to further open its labor market – India did once yell about a proposed doubling of certain US visa fees, but never actually did anything about it.  Anyway, even if a trading partner did try to challenge the United States under Mode 4, global services agreements contain broad exceptions – including for national security (e.g., GATS Art. XIV bis) – that permit the US to derogate from these commitments (e.g., by banning temporary workers from one trading partner) for a host of reasons.  And finally, as noted below, the United States could simply refuse to comply if none of the exceptions applied.  Because the TiSA is based on, and intended to be folded into, the GATS, it will unquestionably contain similar rules and exceptions.


US law provides other reasons for skepticism of the idea that the leaked TiSA text will cause a significant and near-term erosion of US immigration law.  As discussed in my recent analysis of TPA and the TPP, the law provides significant checks on the ability of a US president or a US trading partner to force changes to US law (including on immigration) without the full consent of Congress.  Two of these checks bear repeating:

  • First, because TiSA is a US trade agreement, it must be approved by Congress before any of its provisions may be implemented.  As such, even assuming TiSA included actual US commitments on Mode 4 (and this is far from clear), and even assuming the TiSA were completed any time soon (and this is far from certain), those provisions could not affect US immigration policy until approved by Congress and passed into law. 
  • Second, even assuming TiSA contained US commitments on Mode 4, and that Congress agreed to implement the TiSA with these commitments (again, highly unlikely), no foreign country could compel the United States to adhere to these commitments.  The United States would retain absolute authority to refuse to implement the commitments, and future US presidents or Congresses could change US law. There is nothing a TiSA party could do the United States for such a violation, other than to litigate the claim at the WTO and, possibly, eliminate certain benefits for US services exports under the TiSA.

It’s also worth reiterating that TPA would subject any agreement, including the TiSA, to ample transparency requirements – including publication long before Congress voted on the deal.  Thus, the US public would have months, if not longer, to review any trade agreement and register objections prior to any congressional vote.  As the recent furor over President Obama’s executive actions on immigration makes clear, the public objections to a global agreement broadly liberalizing US immigration law would be substantial (to put it mildly!).

Finally, according to reports, Rep. Paul Ryan has included new language in TPA that would ensure that would remove an FTA from “fast track” consideration if it contemplates changes to US immigration law.


Outside of US law and the checks on presidential power under TPA, several other issues undermine the idea of President Obama using TiSA to liberalize US immigration restrictions.  Thus, even if you don’t trust the US congress to act as a check on President Obama’s actions under the TiSA, there are still plenty of other reasons to doubt the “smoking gun.”

 Timing.  First, there is almost no chance that TiSA will be completed while President Obama is in office.  The most ambitious timeline for completing the TiSA is December 2016.  This deadline, however, is very likely unrealistic.  (FTA negotiations are notorious for setting, and missing, deadlines for completion; TPP, for example, was originally supposed to be completed in 2012.)  Instead, it is far more likely that completion of the TiSA will fall to the next US President, because it will require:

  • Completion of the basic agreement, which includes 17 texts, none of which is reportedly completed. (Hence all the brackets in the leaked texts.)
  • Agreement among all members on all other members’ services offers, which are detailed “schedules” of specific, line-by-line commitments (or lack thereof) in listed services sectors across all 4 modes of supply.  These schedules are highly technical and involve intensive, time-consuming negotiations, offers and counter-offers.
  • Agreement among members as to membership and “multilateralization” of the agreement – i.e., folding it into the WTO GATS structure and extending TiSA commitments to all WTO Members on a “most favored nation” (MFN) basis.  The big problem here is that China wants to participate in the TiSA, but adding China and other important developing countries would greatly delay the process.  On the other hand, multilateralizing the TiSA would be politically difficult, if not impossible, if important trading countries like China remained outside as “free riders.”  It’s thus accepted that there must be a “critical mass” of TiSA participants, including large developing countries like China, before the agreement could be multilateralized.  This takes time.  Lots of it.

Text.  Second, the actual text of the leaked TiSA Annex on Mode 4 plainly establishes other major limitations on the agreement’s near-term impact on US immigration policy.  These include—

  • The text contains no actual commitments from the USA or any other TiSA party to liberalize trade in services under Mode 4.  The annex is merely the basic disciplines (transparency, non-discrimination, etc.) that would govern any agreement among TiSA parties on Mode 4 and any eventual specific liberalization commitments by TiSA members in their service schedules.  Parties to services agreements like the GATS and TiSA can, and often do, provide no such commitments in sensitive sectors/modes.  There is nothing here to suggest that the United States has made any such commitments, and, in fact, there are very few US proposals at all, even on the basic Annex disciplines.
  • It’s unfinished.  The vast majority of the Annex text (and all other leaked texts) is bracketed, thus indicating no agreement among the TiSA parties on those provisions.  Indeed, many of the bracketed proposals are explicitly opposed by other TiSA parties.  Thus, it’s literally impossible to determine from the Annex what its final text will look like.  And, as already noted, it’s far from clear when final agreement will be achieved.
  • Finished/agreed provisions establish there is no requirement to liberalize immigration.  Any such liberalization would be at a party’s discretion as set forth in its Schedule (which we haven’t seen).  The most obvious provisions are on the Annex’s first page:
    • Article 1, Paragraph 2 states: “The Agreement shall not apply to measures affecting natural persons seeking access to the employment market of a Party, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis.”  Some countries have proposed (bracketed) language in para. 3 on specific commitments (liberalization) on these measures; the United States is not one of them.
    • Article 1, Paragraph 4 states: “The Agreement shall not prevent a Party from applying measures to regulate the entry of natural persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits accruing to any Party under [the Agreement].”
    • Small scope.  Finally, other provisions make clear that any Mode 4 disciplines would relate to only temporary workers (e.g., one year or less) – they would not apply to residency, naturalization, citizenship or border security.

In conclusion, it’s impossible to change the minds of TPA skeptics who are convinced that President Obama and the GOP-controlled Congress are secretly working together, against the will of the American people and contrary to decades of precedent, to change US immigration or other laws through TPA and the trade agreements it’s intended to cover.  However, the above facts, history and law hopefully will help everyone else feel more confident that the leaked TiSA Annex, empowered by TPA, is not a “smoking gun” that proves the US government’s intention to substantially change and liberalize domestic immigration law.  I, and many others here at Cato, would welcome a more modern and open US immigration system (done in an orderly and lawful fashion, of course), but there’s simply no credible evidence that it’s happening here.

All religious faiths are victims of persecution somewhere. Over the last year “a horrified world has watched the results of what some have aptly called violence masquerading as religious devotion” in several nations, observed the U.S. Commission on International Religious Freedom in its latest annual report.

The Commission highlighted 27 countries for particularly vicious treatment of religious minorities. Nine states make the first tier, “Countries of Particular Concern,” in State Department parlance.

Burma. Despite recent reforms, noted the Commission, “these steps have not yet improved conditions for religious freedom and related human rights in the country, nor spurred the Burmese government to curtail those perpetrating abuses.”

China. President Xi Jinping’s attempt to tighten the state’s control over all dissent has impacted believers, who “continue to face arrests, fines, denials of justice, lengthy prison sentences, and in some cases, the closing or bulldozing of places of worship.”

Eritrea. Everyone suffers under a repressive, fanatical, and isolationist regime: “The government regularly tortures and beats political and religious prisoners; however, religious prisoners are sent to the harshest prisons and receive some of the cruelest punishments.”

Iran. Persecution has increased since the ascension of President Hassan Rouhani as president: “The government of Iran continues to engage in systematic, ongoing, and egregious violations of religious freedom, including prolonged detention, torture, and executions based primarily or entirely upon the religion of the accused.”

North Korea. Despite a handful of official churches, “Genuine freedom of religion or belief is non-existent. Individuals secretly engaging in religious activities are subject to arrest, torture, imprisonment, and sometimes execution.”

Saudi Arabia. Not one church, synagogue, or other house of worship is allowed to operate. The monarchy “continues to prosecute and imprison individuals for dissent, apostasy, blasphemy, and sorcery.”

Sudan. The small Christian community suffers from the government’s “policies of Islamization and Arabization.” Moreover, apostasy and conversion are punished.

Turkmenistan. In this former Soviet republic religious liberty remains highly restricted: “Police raids and harassment of registered and unregistered religious groups continued.”

 Uzbekistan. The most populous Central Asian state is determined “to enforce a highly restrictive religion law and to impose severe restrictions on all independent religious activity.”

The USCIRF also recommended that another eight nations join the forgoing as CPCs.

Central African Republic. CAR has been rent by violence between antagonistic militias. For much of last year it “was engulfed in a religious conflict.”

Egypt. Although President Abdel Fattah al-Sisi has attempted to use Coptic Christians for his political advantage, “the Egyptian government has not adequately protected religious minorities” from discrimination, prosecution, and violence.

Iraq. The situation greatly deteriorated last year. While the Islamic State was the worst perpetrator, “the Iraqi government also contributed to the deterioration in religious freedom conditions.”

Nigeria. Today the greatest threat to religious liberty is the radical Islamist group Boko Haram, which attacks Christians and moderate Muslims.

Pakistan. This U.S. ally tolerates “chronic sectarian violence” against religious minorities and the promiscuous misuse of the infamous “blasphemy” law.

Syria. Unfortunately, members of most religions now suffer at the hands of one faction or another in the multi-sided civil war.

Tajikistan. The government “suppresses and punishes all religious activity independent of state control, particularly the activities of Muslims, Protestants, and Jehovah’s Witnesses.”

Vietnam. Despite a number of economic reforms, this communist state “continues to control all religious activities through law and administrative oversight, restrict severely independent religious practice, and repress individuals and religious groups.”

Further, the Commission cited ten so-called tier 2 nations, where violations are severe, but a notch below those of the CPCs: Afghanistan, Azerbaijan, Cuba, India, Indonesia, Kazakhstan, Laos, Malaysia, Russia, and Turkey.

As I pointed out in Forbes online: “Religious liberty is the first freedom, the bedrock liberty of conscience upon which civil and political freedoms rest. With religious liberty under siege around the world, people of goodwill should stand for the rights of believers everywhere.”

America continues to protect religious liberty, but the foundation is cracking. Americans should learn the lessons overseas and redouble their efforts to prevent similar fates at home.

I estimate the current annual implied inflation rate in Ukraine to be 92%. This is the world’s second-highest inflation rate, far lower than Venezuela’s 480% but slightly higher than Syria’s 75%.

I regularly estimate the annual inflation rates for Ukraine. To calculate those inflation rates, I use dynamic purchasing power parity (PPP) theory. I computed the 92% rate by using black-market exchange rate data that the Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year.

A recent front-page feature article in the New York Times attests to the severity of Ukraine’s inflation problem. Danny Hakim’s reportage contains many anecdotes that are consistent with my inflation estimates based on PPP. For example, chocolate that used to cost 80 Ukrainian hryvnian per kilogram has dramatically increased to 203 Ukrainian hryvnia per kilogram over the past 17 months – a 154% increase. On an annualized basis, this amounts to an inflation rate of 93% – almost exactly the same number I obtained when applying the scientific PPP methodology.

As evidence of the Alice in Wonderland nature of Ukraine’s current state of affairs, President Petro Poroshenko penned an op-ed in the Wall Street Journal on June 11. The title of his unguarded, gushing piece perfectly reflects the sentiments contained in his article: We’re Making Steady Progress in Ukraine, Despite Putin.

The President failed to even allude to Ukraine’s inflation problem. He is apparently unaware of the harsh realities facing the citizens of his country. He is also apparently unaware that his finance minister, Natalie Jaresko, whom he praises to high heaven, was recently in Washington, D.C., where she used a new Ukrainian law as cover to threaten a sovereign debt default. The reportage on these threats appeared in London’s Financial Times on June 11, the same day the Wall Street Journal published President Poroshenko’s op-ed.

It is time for Ukraine to get real.