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In its “Free Exchange” column, the Economist recently took up the issue of monetary rules. Provocatively titled “Rule It Out,” the column announced that “setting interest rates according to a fixed formula is a bad idea.”

Reading the column one quickly learns the author doesn’t understand what constitutes a rule, and what the argument for a rule is. The column moves from a general consideration of monetary rules to considering specifically the Taylor Rule. I leave it to Professor Taylor to defend his rule, which he did on his blog. I, however, consider the general case for monetary rules.

“Free Exchange” links the case for rules to the 1977 article by Finn Kydland and Edward Prescott, “Rules Rather than Discretion: The Inconsistency of Optimal Plans.” The title is not cited nor is the article’s central argument addressed: Discretionary economic policy cannot be optimal. Their article undermines the case for discretion over rules that “Free Exchange” attempts to make. “Free Exchange” lamely says that Kydland and Prescott’s argument “helps to explain the high inflation of the 1970s.” It did far more than that. It explains why policymakers cannot credibly commit to future policies. That is known as the time inconsistency problem.

The argument for rules versus discretion in monetary policy goes back at least to Henry C. Simons’ 1936 article, “Rules versus Authorities in Monetary Policy.” The case for a monetary rule was re-argued by Milton Friedman in the 1960s and he anticipated the dynamics developed in Kydland and Prescott.

“Free Exchange” states that “monetary policy based on rules has one major advantage: transparency.” Certainly a rule will likely be more transparent than policy discretion. But it has never been the central argument for a monetary rule. The central argument for a monetary rule is what is known as the knowledge problem in economics and social affairs.

Policymakers cannot in principle possess the knowledge required to devise an optimal (or time consistent) monetary policy. The information required for centralized policymaking is dispersed among the millions of actors in society. It cannot be aggregated or concentrated in one mind. No expert or set of experts can ever know as much as the totality of individuals in society.

Rules are a response to the knowledge problem. Uncertainty generates reliance on rules. Rules are constructed or evolved based on accumulated experience over long periods of time. Rules encapsulate the totality of knowledge and experience not only of all alive today, but also of those who preceded them.

Rules can be formal or informal, and could – but need not – be a formula. (Most rules are not a formula.) When people do not possess the information required to optimize, they rely on rules.

The knowledge problem arises in any attempt to set centralized policy or planning. Even before Simons, F. A. Hayek articulated the knowledge problem in monetary policy and in the debate over centralized economic planning.

“Free Exchange” turns the knowledge problem upside down: “Until the day the economy is fully understood, human judgment has a crucial role to play.” No, actually, it is just the opposite. There would be no need for reliance on a rule if the economy were fully understood. The less we know about the specifics of a situation, the more we must rely on rules. A good rule incorporates the general features of a class of situations, in which the specific features vary unpredictably. If we possess full information, why would we want to rely on a rule?

In a paper that I will present at Cato’s annual monetary conference on November 12th, I develop in more depth the case for rules in monetary policy. I attribute the central argument to Hayek. But I note that Friedman also adduced an argument based on the knowledge problem in support of his monetary rule.

Monetary rules and policy rules more generally are a subset of behavioral rules. The case for a monetary rule is ultimately the same as the case for the rule of law in society. For those would like to see that argument in print, along with the philosophical tradition undergirding it, see my recent article in the Journal of Private Enterprise, “Hayek and the Scots on Liberty.”

[Cross-posted from Alt-M.org}

Our hyperactive, grasping federal government has inserted its wasteful, probing fingers into just about everything these days.

I hadn’t been to an eye doctor in a while, and so when I went recently I was surprised to be presented with these two forms:

The first form claims that electronic transmission of prescriptions “helps protect the privacy of your personal information.” That strikes me as plainly false—an old-fashioned piece of paper with my eye information couldn’t get hacked on the Internet or wouldn’t be sent to the government. The form lists the supposed benefits of e-prescribing to the patient. On net, the benefits may indeed outweigh the costs—but then we wouldn’t need a federal mandate to bring it about.

Like many Americans, I find the second form regarding race rather offensive. It would be one thing if university researchers were surveying a sample of patients for such information in order to study eye diseases that may vary by personal characteristics. But reading between the lines on this form, the government appears to be collecting the information not for medical research, but essentially for socialist planning purposes.

Obamacare imposes a requirement that employers provide insurance that covers “preventive care” for women, but does not specify what that entails. The Department of Health & Human Services (HHS) determined that “preventive care” includes all FDA-approved contraceptives, from condoms to the morning-after pill.

While houses of worship were exempted outright from the mandate, other religious orders were not. (And, as we know from the Hobby Lobby case, for-profit employers who object to certain forms of contraceptive don’t have to pay to cover them.) Instead, under an “accommodation” created by HHS and the Departments of Labor and Treasury, an objecting religious organization isn’t required to pay for the offending contraceptives, but they do have to notify HHS, which then modifies their insurance contracts so their insurers cover the objected-to items.

Even though the religious organizations are not paying for the contraceptives, groups like the Little Sisters of the Poor—an order of nuns who provide various kinds of social services—still feel complicit in sin and claim that their free exercise of religion has been burdened.

Cato and law professor Josh Blackman (who recently became a Cato adjunct scholar) have filed an amicus brief supporting the Little Sisters’ request that the Supreme Court hear their case. The Little Sisters raise claims under the First Amendment and the Religious Freedom Restoration Act. Our brief asks the Court to consider a supplemental question: Whether the Departments have the interpretive authority and “expertise” to resolve this “major question” of profound social, “economic and political significance”—to quote Chief Justice Roberts’s majority opinion in King v. Burwell (where he said that courts couldn’t simply defer to the IRS on the important question presented there).

Congress gave absolutely no indication that it delegated to federal agencies the authority to decide which religious groups would be exempted and which could have their religious liberty burdened under an accommodation, or for that matter, how agencies were to design any accommodations. To quote another recent case where the Court refused to defer to an administrative agency, UARG v. EPA (2014), here the agencies are “laying claim to an extravagant statutory power” affecting fundamental religious liberty interests—a power that the ACA “is not designed to grant.”

If the Departments lack the interpretive authority to craft accommodations, then Hobby Lobby provides the rule of decision and the Little Sisters must be exempted from the mandate. Accordingly, the Supreme Court should consider this additional question and conclude that the Departments’ regulatory incompetence prevents them from forcing the Little Sisters to be complicit in what they view as sin.

Each year, since 1978, the Federal Reserve Bank of Kansas City hosts central bankers from around the globe at Jackson Hole, Wyoming, to assess monetary policy.  The conference is closed to the public and the Kansas City Fed does not make its program available to the public until the day of the event.  Here’s what one can find when going to their website:

“The 2015 Economic Symposium, “Inflation Dynamics and Monetary Policy,” will take place Aug. 27-29, 2015. (The program will be available at 6 p.m., MT, Aug. 27, 2015).”

This information is treated as if it’s “top secret.”

But it’s not a top secret that the Federal Reserve lacks transparency, is not bound by any monetary rule, has more power than ever before (as a result of the unconventional monetary policies pursued since the 2008 financial crisis), and opposes a congressional audit—even though the Constitution gives Congress the power to regulate the value of money. 

Luckily, the American Principles Project will be holding a parallel conference near the Fed’s site in Jackson Hole to evaluate the Fed’s performance after more than 100 years and offer alternatives to a regime of pure discretionary government fiat money.

The topic of the APP conference—“Is Central Banking the Problem or the Solution?”—will give participants the opportunity to offer advice on how to improve the monetary regime, not just monetary policy. (On the same topic, see the Spring/Summer 2015 issue of the Cato Journal: “Alternatives to Central Banking: Toward Free-Market Money”)

Mark Calabria, director of Cato’s Financial Regulation Studies, within Cato’s newly established Center for Monetary and Financial Alternatives, will be speaking at the APP conference on Friday, August 28. His topic is “Regulatory Failure at the Fed.” Tune in.

According to Gallup, more Americans think of themselves as “have-nots” today than at any point since Gallup began posing the question almost thirty years ago, while fewer Americans see themselves as “haves.” (Please see Emily Ekins’s earlier post for an in-depth analysis from a different angle). But do Americans actually have less in 2015 than in 1988? Let’s dig into the data to see whether Americans might have more than they realize.

2015 is the first year when Americans spent more money dining out than they spent on groceries. Let’s examine why that might be. In 2015, U.S. GDP per person (adjusted for inflation) reached an all-time high. At the same time that average personal wealth is rising, many necessities like food are going down in price. As a result, spending on the basics takes up a smaller and smaller share of an American’s personal disposable income—dropping from 39% in 1988 to 32% in 2013. This means that Americans have more money left at the end of the day, which they can then choose to save, invest, or spend on luxuries like dining out.

Not only are Americans wealthier on average, but they are also working less. The average American worker in 2015 works 30 fewer hours in a year than her counterpart in 1988, and yet is almost $18,000 dollars richer in real terms.

HumanProgress.org advisory board member Mark Perry recently pointed out that today’s young Americans may actually be the luckiest generation in history, based on what they can buy with earnings from a summer job. And increases in real wealth do not capture technological advances, which also contribute to rising living standards. The quality and variety of available goods is improving across the board. Almost no one had a cell phone in the United States back in 1990, but today they’re ubiquitous—and more useful, with an app for just about everything.

In many ways, Americans have more today than ever before: more leisure time away from work, more disposable income left after basic expenses,  more choice in what they buy, and more advanced technologies at their fingertips.  Of course, there are still people who live in genuine need. The Great Recession and various growth-retarding policy decisions have done great harm, especially to the poor. Still, if the many positive trends that we are seeing continue, then hopefully more Americans will come to count themselves among the haves instead of the have-nots. To learn more about improving living standards in the United States and beyond, pay a visit to HumanProgress.org.

Last week I dissected the annual Education Next poll a bit, and today the newest Phil Delta Kappa/Gallup poll on the state of education is out. Let’s take a look at several of the same topics we examined in the EdNext poll, shall we?

Common Core

Last week’s survey featured questions with several different wordings about Core backing, and while they all showed the Core hemorrhaging support over the last few years, percentages approving ranged from 49 percent to 39 percent. PDK/Gallup asked just one question about Core support, and it had very different wording from any used by EdNext, focusing not on the intention of the Core – “accountability” – or describing the Core as “standards for reading and math that are the same across states,” but asking if respondents approve of “having the teachers in your community use the Common Core State Standards to guide what they teach.” In response, 54 percent appeared to oppose the Core and only 24 percent supported it. It’s an odd way to ask about Core support – how about just ask if people “support or oppose the Common Core” – but it is unquestionably true both that an intended effect of the Core is to guide what is taught, and that this is more bad news for the Core.

Federal Role

EdNext found what I thought was unexpectedly (and discouragingly) high support for having Washington in charge of “setting educational standards for what children should know,” but still very low approval of federal direction over labeling schools as “failing” and dictating how to fix such schools. PDK/Gallup did not ask directly about setting standards, but did ask which level of government should be “holding schools accountable” and “determining the right amount of testing.” What they found was in line with what EdNext found: Only about 1 in 5 respondents want Washington in charge, with most wanting states and districts in control. Maybe the Constitution does still count.

Opting Out

Constant standardized testing, the Common Core, federal strong-arming, and possibly numerous other irritants have seemingly spurred a revolt against standardized testing, most visibly seen in the “opt-out” movement in New York and elsewhere. Both the EdNext and PDK/Gallup polls suggest this movement comprises a minority – though a pretty large and vocal one – with around a third of parents in the PDK-Gallup poll saying they would “excuse” their child from “one or more standardized tests,” and almost the exact same percentage of EdNext parents saying they support allowing parents to opt their kids out of standardized math and reading tests. Obviously these are somewhat different questions – would you exempt your kids, versus allowing other parents to exempt theirs – but I’m guessing the one-third in both polls are basically the same group of people.   

School Choice

Interestingly, the PDK/Gallup pollsters prominently conclude that “Americans endorse choice,” but the only question they ask about private school choice is the one they love to use that consistently gets the most negative response: “Do you favor or oppose allowing students and parents to choose a private school to attend at public expense?” This and a somewhat similarly worded question used by EdNext found about 58 percent of people in opposition and about 30 percent in support. But EdNext asked several other questions, including some stating a goal to provide people with “a wider choice” which polled much better. And PDK/Gallup didn’t ask at all about the reigning choice champ, scholarship tax credits, which are quite popular, perhaps because they are about providing wider choice and, unlike the connotation of “at public expense,” taxpayers get to choose whether or not they fund them. PDK/Gallup found higher support for charter schools than did EdNext, with question wording again likely heavily at play, but both found robust approval, from 51 percent to 64 percent of respondents.

Much More

In addition to these topics, the PDK/Gallup poll delves into school grades, approval of President Obama’s “support” for public schools, and more. So just as I asked for Education Next, why are you still here? Go read the PDK/Gallup poll!

When most Americans learn about the Thirteenth Amendment in high school, the teacher will cursorily remark that “the Thirteenth Amendment ended slavery in the United States,” and move on to the Fourteenth Amendment. This oversimplification is a fiction. Slavery is still legal in the United States, so long as it is pursuant to a criminal conviction and if it is limited to compulsory uncompensated labor—and indeed that is precisely the system America maintains today.

The Thirteenth Amendment, as enacted, reads “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” Slavery is neither a cruel nor unusual punishment according to the Supreme Law of the Land, nor historically has it been considered that. In the 1700s and early 1800s, Americans viewed compulsory labor was viewed as a way to fight vagrancy and to rehabilitate such idleness.

However, the states began to understand the potential for revenue generation from prisons in the 1800s—compulsory labor and the sale of prison products became a means to offset state costs. To be sure, the Virginia Supreme Court in Ruffin v. Commonwealth (1871) declared that prisoners were the “slaves of the State” within a compulsory labor system.

This “Punishments” Clause allowed for the birth of the “convict-lease” system in the South after the War. Many southern states passed anti-vagrancy “black codes,” criminalizing the status of being unemployed. Citing cost reasons, states would then lease out their prisoners to private persons to work under slave-like conditions. As Frederick Douglass noted, “companies assume charge of the convicts, work them as cheap labor and pay the states a handsome revenue for their labor. Nine[-]tenths of these convicts are Negroes.”

Since the 1860s, courts have interpreted the Thirteenth Amendment as it plainly reads. “Once individuals have been duly tried, convicted, sentenced, and imprisoned, courts will not find Thirteenth Amendment violations where prison rules require inmates to work.” For example, in Mikeska v. Collins (1990), the Fifth Circuit Court of Appeals held that “Any unjustified refusal to follow the established work regime is an invitation to sanctions.”

The compensation of prison labor today reflects this history. In Georgia and Texas, the maximum wage in dollars per day is $0. In Nevada, prisoners make $0.13 an hour. The average wage is between $0.93 a day and $4.93 a day—less than an hour of work at minimum wage. Conservative estimates put the value of output from prison labor at $2 billion annually.

Indeed, much like the southern states claimed after the Civil War, “States facing growing budget deficits are increasingly turning to inmate labor to produce additional revenue, or at a minimum, offset the cost of imprisonment.” “At least 37 states have legalized the contracting of prison labor by private corporations that mount their operations inside state prisons.”

While amending the Constitution to fix a $2 billion a year compulsory labor industry is politically unlikely, Congress may take measures to ensure that rehabilitative compulsory labor is not uncompensated, like compelling the payment of a federal minimum wage. State legislatures also could apply minimum wage rules to prisoners.

Prisoners are often indigent upon release; allowing them to save money for their transition back to society seems only logical if the goal is the reduce recidivism. Paying prisoners fair wages allows them to afford housing and sustenance while transitioning back to being a productive member of society. Additionally, the availability of compulsory, cheap labor to private companies undercuts domestic industry itself.

America must change its practice of not compensating prisoners for their labor. While work has rehabilitative benefits, rehabilitation of the wards of the state should not convert them to the “slaves of the State.” Fair wages should follow compelled work.

Recent Gallup polling finds that 58% of Americans view themselves as “haves” while 38% say they are “have nots.” Nevertheless, most Americans (54%) reject the premise that the United States is a rigid economic hierarchy, while 45% say it’s a fair depiction.

When asked to choose, 58% of Americans view themselves as “haves,” a share fairly constant since 2003, and similar to 59% found in 1989. (There was a blip in the late 1990s when 60-67% said they were “haves.”) However, the share who say they are “have nots” has more than doubled from 17% in 1989 to 38% in 2015, as fewer Americans say they “don’t know.” In line with this trend, more Americans view the United States as a society divided into “haves” and “have nots” increasing from 39% in 1998 to 45% in 2015.* Similarly the share who say the US is not divided has declined rom 59% in 1998 to 54% today.

These data suggest that Americans have begun to focus more on economic status with increasing debate over rising income inequality.

Interestingly, while Hispanics are more likely (51%) to say they are a “have not” when pressed, a fully 60% reject the premise that America is “divided into haves and have nots.” This suggests that Hispanic Americans believe in upward income mobility. While some may not view themselves as a “have” today they or their children could be eventually.

While African-Americans are about equally likely as Hispanics to say they personally are a “have not” (48%), 69% view the country as divided between “haves” and “have nots,” 32 points higher than Hispanics.

White Americans tend to agree (57%) with Hispanics that America is not a divided land of “have” and “have nots,” however, they are about 20 points less likely to say, when pressed, they personally are a “have not.”

The share of Americans who think they are winners of the economic system has remained fairly constant over the past decade. However, more Americans are beginning to think the overall system is rigged in favor of economic division, but this view is not necessarily a product of their own experience. Instead, passionate public discourse over income inequality has likely played a key role in changing Americans’ perceptions about how the system works for others.

Read the full Gallup post here.

For more public opinion analysis sign up here for Cato’s weekly digest of Public Opinion Insights.

* Note: Gallup found in 1998 that 71% of Americans rejected the idea that America is divided into two economic groups while 26% accepted the premise. However by 1998 59% rejected and 39% accepted the idea. It’s unclear if the decline between 1988 to 1998 is a a trend, or if 1988 registered an unusual response.

According to a report circulating this week “Indiana is not the only state facing a teacher shortage. It is a national and global issue.” This is said to be proven by a Google search returning blog posts and news stories in which some people claim there is a teacher shortage. But is that true? The claimants could be uninformed, misinformed, or could even have incentives to cry “shortage!” when there isn’t one. For instance, consider this U.S. government program for cancelling teachers’ loans:

34 CFR 674.53(c) enables Federal Perkins Loan borrowers who are full-time teachers of mathematics, science, foreign languages, bilingual education or any other field of expertise where the State educational agency determined there is a shortage of qualified teachers to qualify for cancellation of up to 100 percent of their loan repayment.

Hmm. But let’s not speculate. The federal government’s National Center for Education Statistics compiles data on public school enrollment and teacher employment. To verify the claims of teacher shortages in Indiana and nationally, I charted those data in the figure below.

For the United States as a whole, we see that there are fewer pupils per teacher today than at almost any time in the past 50 years. Put the other way, we currently have more teachers per pupil that we’ve had in the past—with the exception of a brief period last decade.

In the case of Indiana, the pupil/teacher ratio is about the same as it was in 1982. The difference between Indiana’s ratio and that of the nation as a whole is currently less than one student/teacher.

Clearly, the nation has been on a very long teacher-hiring binge. Since 1970, the number of teachers has grown six times faster than the number of students. Enrollment grew about 8 percent from 1970 to 2010, but the teaching workforce grew 50 percent. There are a LOT more public school teachers per child today, so how can districts and states still claim to be facing “teacher shortages?”

In some areas, the shortages are said to be restricted to teachers of certain subjects or grade levels. But if that is so, it only begs the question: why did the system hire so many teachers in the other subjects where there were not shortages—decade after decade? Wouldn’t it have been wiser not to hire so many new teachers over the last 50 years in the other subjects that were not facing shortages? Had the nation not gone on what seems to be an across-the-board teacher hiring binge since 1970, districts would have more money at their disposal today to offer teachers in truly hard-to-fill positions.

As my erstwhile colleague Marie Gryphon noted there are:

large differences among teachers in their impacts on achievement and … high quality instruction throughout primary school could substantially offset disadvantages associated with low socioeconomic background [….] The group noted that good teachers matter more than smaller class sizes. Rivkin and his colleagues found that raising teacher quality by one standard deviation would improve student achievement more than a very expensive class-size reduction of 10 students per class.

 And not only have U.S. public schools favored quantity over quality in their long-term hiring behavior, they have been found to make systematically poor choices among the available candidates:

Ballou found that administrators were no more likely to hire high-ability teaching candidates than candidates of lower tested ability. He writes: “Applicants from better colleges do not fare better in the [public school teacher] job market. Indeed, remarkably, they do somewhat worse.” That was the case despite substantial evidence that higher tested ability of teachers is one of the most reliable indicators of superior classroom performance. [Gryphon 2006, italics added]

Research shows that the brighter candidates are likely to become better teachers, but that they are less likely to be hired by public school districts in the first place.

Another respect in which the nation’s public school systems invite teacher shortages upon themselves in high-demand subjects is their erection of barriers to entering the teaching profession. States generally require candidate teachers to obtain a 4-year degree from a state-accredited teachers’ college. These credentials tend not to be portable between states. Nor, as Gryphon reported, have state teacher credentials been shown to confer a meaningful benefit on students.

The desire to drive up teacher quality is worthy, but there are more empirically supported ways of doing so. One is competition. Gryphon writes that “schools subjected to competition hire more teachers who have the specific qualities that have been tied to performance by past research: high tested ability and experience with math and science.”

Of course, that sort experience is concentrated in students and professionals in math, science, and engineering fields, not among students in teachers’ colleges. With that in mind, many states adopted so-called “alternative certification” programs, in an effort to be more welcoming of non-ed-school graduates. But a Fordham Foundation report reveals that “alternative certification programs have come to mimic standard-issue pre-service college-of-education programs.” Which is perhaps explained by the fact that about two-thirds of “alternate” route programs are run by the very education schools to which they are meant to be alternatives.   

So does America have a “teacher shortage” writ large? No. We had 22.3 pupils/teacher in 1970 and 16 p/t in 2012. Compared to the past, we are rolling in teachers. If we have too few in some fields and too many in others, it is for the reasons described above–mistakes in policy and/or execution. In Indiana, the ratio went from 17.5 to 17.4 over the past 30 years. If there are subject-specific shortages they are the result, again, of policy and execution.

In 1980, heated water from a nuclear power plant in Forsmark, Sweden (60.42°N, 18.17°E) began to be discharged into Biotest Lake, an artificial semi-enclosed lake in the Baltic Sea created in 1977 that is adjacent to the power plant and covers an area of 0.9 km2 with a mean depth of 2.5 m. The heated water has raised the temperature of the lake by 6-10°C compared to the surrounding Baltic Sea, but aside from this temperature difference, the physical conditions between the lake and the sea are very similar.

A few years after the power plant began operation, scientists conducted a study to determine the effect of the lake’s increased temperatures on the host-parasite dynamics between a fish parasite, the eyefluke (Diplostomum baeri), and its intermediate host, European perch (Perca fluviatilis). That analysis, performed in 1986 and 1987, revealed that perch in Biotest Lake experienced a higher degree of parasite infection compared to perch living in the cooler confines of the surrounding Baltic Sea (Höglund and Thulin, 1990), which finding is consistent with climate alarmist concerns that rising temperatures may lead to an increase in infectious diseases.

Fast forward to the present, however, and a much different ending to the story is observed.

Nearly three decades later, Mateos-Gonzales et al. (2015) returned to Biotest Lake and reexamined the very same host-parasite dynamic to learn what, if anything, had changed in the intervening time period. According to the team of researchers, Biotest Lake “provides an excellent opportunity to study the effect of a drastically changed environmental factor, water temperature, on the evolution of host-parasite interactions, in a single population recently split into two.” Specifically, it was their aim “to examine if the altered conditions have produced a change in prevalence and/or intensity of infection, and if these potential variations in infection have led to (or might have been caused by) a difference in parasite resistance.”

To accomplish their objective, Mateos-Gonzales et al. compared the prevalence and intensity of parasitic infection in perch populations growing in warmer Biotest Lake versus the natural population from the surrounding cooler Baltic Sea in 2013 and 2014. They also conducted a controlled laboratory experiment in which they exposed perch from both locations to D. baeri, comparing their infection rates.

The field results indicated that fish from the warmed Biotest Lake had a much lower parasite infection rate than fish from the Baltic Sea. In fact, the authors report that the “intensity of infection in Baltic fish was on average 7.2 times higher than in the corresponding Biotest fish” (italics added, see figure below). In addition, Baltic fish were found to acquire “slightly more parasites as they age,” whereas Biotest fish did not.

With respect to the laboratory tests, Mateos-Gonzales et al. report that exposure to parasites “did not have an effect in fish from the Biotest Lake, but it did in fish from the Baltic Sea,” increasing their intensity of infection by nearly 40 percent.

Infection intensity of the parasite D. baeri in juvenile perch from the Baltic Sea (left panel) and Biotest Lake (right panel). The line indicates best-fit and the shaded area represents the 95% confidence interval. Adapted from Mateos-Gonzales et al. (2015).

In discussing their findings, Mateos-Gonzales et al. write they present “a dramatic contrast” to those reported nearly three decades earlier when Biotest fish were infected at a rate of “almost twice” that of Baltic fish. Compared to 1986/87, the intensity of parasitic infection in Biotest fish has fallen almost 80%, whereas it has decreased only slightly in Baltic fish. Consequently, the authors conclude their results illustrate “how an increased temperature has potentially aided a dramatic change in host-parasite dynamics,” and that change, it might be added, has clearly been for the better. Furthermore, Mateos-Gonzales et al. note this rapid and surprising reversal of fortunes has “direct implications for consequences of global climate change, as they show that fast environmental changes can lead to equally rapid evolutionary responses.” Indeed they can; and such responses need to be included in predictive models that “highlight the importance of empirical research in order to validate future projections” of host-parasite interactions in a world of rising temperatures. Clearly, the future outlook on host-parasite interactions has the potential to be much more favorable than climate alarmists often make it out to be.

References Höglund, J. and Thulin, J. 1990. The epidemiology of the metacercariae of Diplostomum baeri and D. spathaceum in perch (Perca fluviatilis) from the warm water effluent of a nuclear power station. J Helminthol. 64: 139-150.

Mateos-Gonzalez, F., Sundström, L.F., Schmid, M. and Björklund, M. 2015. Rapid evolution of parasite resistance in a warmer environment: Insights from a large scale field experiment. PLOS ONE 10: e0128860, doi:10.1371/journal.pone.0128860.

Several recent news stories report information that was hardly surprising to anyone who has studied economics or read Cato at Liberty. We talk a lot about unintended or unanticipated consequences around here, but in these cases the consequences were anticipated and even predicted by a lot of people.

First, consider this front-page story from the Washington Post on Monday:

The [fast-food] industry could be ready for another jolt as a ballot initiative to raise the minimum wage to $15 an hour nears in the District and as other campaigns to boost wages gain traction around the country. About 30 percent of the restaurant industry’s costs come from salaries, so burger-flipping robots — or at least super-fast ovens that expedite the process — become that much more cost-competitive if the current federal minimum wage of $7.25 an hour is doubled….

Many chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation’s 3.3 million cashiers….

The labor-saving technology that has so far been rolled out most extensively — kiosk and ­tablet-based ordering — could be used to replace cashiers and the part of the wait staff’s job that involves taking orders and bringing checks. 

Who could have predicted that? Well, Cato vice president Jim Dorn in his 2014 testimony to the Maryland legislature. Or Bill Gates around the same time.

Then there’s this all-too-typical AP story out of California:

California lawmakers from both parties are calling for more stringent oversight of a clean jobs initiative after an Associated Press report found that a fraction of the promised jobs have been created. 

The report also found that the state has no comprehensive list to show much work has been done or energy saved, three years after voters approved a ballot measure to raise taxes on corporations and generate clean-energy jobs….

The AP reported that three years after voters passed Proposition 39, money is trickling in at a slower-than-anticipated rate, and more than half of the $297 million given to schools so far has gone to consultants and energy auditors. 

Well, you might have seen that coming if you’d read Cato’s 2011 book The False Promise of Green EnergyOr Thomas Hemphill and Mark Perry in 2012. Or Dan Mitchell in 2008 on government job creation. Or indeed Henry Hazlitt in 1946.

And finally this recent study from the Federal Reserve finding, as reported by Bloomberg:

The surging cost of U.S. college tuition has an unlikely culprit: the generosity of the government’s student-aid program, a report by the Federal Reserve Bank of New York said.

Increases in federal loans, meant to help students cope with rising costs, are quickly eaten up by schools in higher prices, wrote David O. Lucca, Karen Shen and Taylor Nadauld.

Private colleges raise their tuition 65 cents for every dollar increase in federal subsidized loans and 55 cents for Pell grants given to low-income students, according to the report. College tuition has outstripped U.S. inflation for decades.

Who would have guessed? Certainly not Hillary Clinton. But Gary Wolfram, author of this 2005 Cato study, understood what was going on. So did Neal McCluskey in 2009 and Jason Bedrick in 2012 and Steven Pearlstein in 2004. Clinton and other political leaders may not read the Cato website diligently. But you’d think they’d have seen Pearlstein’s article in the, um, widely read Washington Post.

Understanding basic economics can make it fairly easy to predict the results of price floors, price ceilings, subsidies, job creation schemes, and other efforts in economic discoordination. It’s too bad that the widespread availability of economic knowledge doesn’t seem to do much to improve public policy.

A Michigan-based supermarket trying to expand into Wisconsin has come up against an absurd law against selling products at “unfairly low” prices.  As reported by MLive, the Meijer grocery store chain is facing complaints that its grand opening sales violated Wisconsin law for offering products at prices below cost. Why is that bad?

The official rationale behind Wisconsin’s Unfair Sales Act of 1939 is revealing:

The practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce. Such practice causes commercial dislocations, misleads the consumer, works back against the farmer, directly burdens and obstructs commerce, and diverts business from dealers who maintain a fair price policy. Bankruptcies among merchants who fail because of the competition of those who use such methods result in unemployment, disruption of leases, and nonpayment of taxes and loans, and contribute to an inevitable train of undesirable consequences, including economic depression.

Some of these are simply a consequence of any market competition, a process that inevitably results in some companies failing.  But the idea that there is something uniquely harmful called “unfair competition” that occurs once a product is sold below cost is just false.  There are many reasons companies sell certain products at certain times for less than the cost of production.  For example, grand opening sales and seasonal sales are ordinary forms of competition.  It’s common in many retail sectors to use a low-priced “loss leader” product to draw customers into your store hoping they will buy other high-priced items as well.  

In short, the existence of regular below-cost sales is in fact a sign of a healthy, competitive market that serves consumers and suppliers. 

It’s tempting to see Wisconsin’s law as a relic of the New Deal era’s now widely discredited interventionist economics.  But this sort of rhetoric is still quite common among people who want the government to prevent their competitors from being too competitive. 

The head of the Wisconsin Grocer’s Association warns that without the law, competition would (paradoxically) lead to monopoly.

“You would have massive, massive disruption in the marketplace… . You would have competitors trying to meet those prices and you would have others who simply could not do it.”

While state laws like Wisconsin’s Unfair Sales Act are relatively rare, the federal government relies on the same bad economics to justify the U.S. antidumping law, which imposes punitive tariffs on imports sold below “fair value.”  And just like the Wisconsin Grocer’s Association, the beneficiaries of antidumping tariffs claim such protections are needed to ensure a competitive market.

The entire institution of antidumping is based on bad economies and crony politics.  It keeps prices high for consumers and businesses while frustrating U.S. foreign relations.  I urge you to take a look at some of the extensive work Cato scholars have done and continue to do to address the myths that keep the protectionist U.S. antidumping law alive.

I don’t think anyone likes the idea of responding to all of the various statements that Donald Trump makes, but when he says something vaguely – emphasis on vaguely – substantive on an issue, a short response might be of value. In a recent interview with Chris Cuomo, Trump talked about trade policy, and had this to say (starting around the 7:00 mark) about Ford doing some of its manufacturing in Mexico:

Trump: … Ford is building a $2.5 billion … manufacturing plant for cars, trucks, and parts in Mexico.

Cuomo: How do you keep them?

Trump: Uh you keep them by…

Cuomo: … ‘cause the labor’s cheap that’s why they go.

Trump: For one thing, you keep them by talking to them. But I would say you keep them … if they go there, you know… they’ll make cars, and they’ll sell them to the United States no tax, no nothing. Just come right across the border. …

Cuomo: …and they say the labor’s cheaper over there.

Trump: And you know what, then we’ll say that’s fine. If the labor’s cheaper over there that’s good, but you know what, you’re gonna have to pay a tax to get those cars back in. You’re gonna have to pay a penalty. And if you put a… a penalty on, a tariff or whatever you call it … 

My sense is that Trump’s conception of Ford as a company is rooted in the 1950s, or maybe even the 1920s. In his mind, Ford is owned by Americans, produces in America, and sells to Americans. In reality, though, Ford has long been a global company. Here’s something I wrote about Ford a while back in the context of a paper on international investment:

Total U.S. employment for Ford in the manufacturing sector is about 43,000, but Ford employs 123,000 people worldwide in 51 different production facilities. Ford has factories in North America, Africa, South America, Australia, Europe, and Asia. In South America (26,000 employees), production is centered in Brazil and Argentina. Within Europe (38,000 employees), production is concentrated in Belgium, Germany, Romania, and Spain. And in Asia (45,000 employees), Ford plants are located in China, India, Thailand, and Turkey.

Thus, the truth is, Ford makes (and sells) cars all around the world. And it’s not just Ford, it’s most of the major car companies. Here’s what I said about Toyota:

While there are 16 Japanese production facilities and about 70,000 Japanese employees, Toyota has overseas employment of about 166,000. It has factories in North America, Latin America, Europe, Africa, Asia, Australia, and the Middle East. Within the United States, manufacturing employment is concentrated in Kentucky, Indiana, and Texas. In Europe, manufacturing employment is in the Czech Republic, France, Turkey, and the United Kingdom. And in Asia, manufacturing is concentrated in China, Taiwan, India, Indonesia, and Thailand. 

That’s how much of large-scale manufacturing works these days, and it’s good that it does, because it improves quality and lowers costs. Globalized production is more efficient in many ways, and actually helps companies like Ford stay competitive.

That’s a general point. There is also a more specific point related to how production in Mexico and the United States operate together: “A full 40% of the content in U.S. imports from Mexico is actually produced in the United States … . This means that forty cents of every dollar spent on imports from Mexico comes back to the U.S. …”  So, if you are taxing “Mexican” imports, you are also taxing the substantial value added by Americans earlier in the production process. Integrated value chains such as this make life difficult for economic nationalists, but that’s the world we live in, and they are going to need to adjust.

Trump is right that we need companies to invest in America. But the answer is not to threaten trade wars when companies act in ways that are both profit maximizing and make consumers better off. Rather, the way to attract investment is, as my colleague Dan Ikenson has written, to adopt good domestic policies that investors find attractive.

U.S. leaders routinely emphasize that America’s foreign policy is based on support for the expansion of freedom around the world.  But as I point out in a recent article in the National Interest Online, Washington’s behavior frequently does not match the idealistic rhetoric.  Too often, U.S. policymakers seem to favor even brutal and corrupt authoritarian allies over boisterous, unpredictable democratic regimes.

During the Cold War, U.S. administrations enthusiastically embraced “friendly” autocratic governments in such places as South Korea and the Philippines—even when there were viable democratic alternatives.  Because it was uncertain whether democratic governments would be as cooperative with U.S. foreign policy aims, officials preferred dealing with more compliant autocrats.  Worse, U.S. leaders repeatedly misrepresented such allies to the American people as noble members of the “free world.”

The tendency was especially pronounced in the Middle East, and that cynical policy has persisted longer there than in other regions.  It began early, as the U.S. Central Intelligence Agency helped overthrow Iran’s elected prime minister, Mohammed Mossadegh, in 1953 and restore the Shah to power as an unconstrained monarch.  The Shah became America’s chosen Persian Gulf gendarme for the next quarter century, despite the regime’s appalling human rights record and pervasive corruption.  Elsewhere in the region, Washington developed a cozy relationship with Egyptian leader Hosni Mubarak that lasted three decades, even as he and his military cronies looted and brutalized that unhappy country. 

Unfortunately, the Obama administration seems just as hypocritical as its predecessors when it comes to relations with Egypt and other Middle East countries.  U.S. leaders were reluctant to cut Mubarak loose even as pro-democracy demonstrations surged throughout Egypt in 2011.   In a PBS interview, Vice President Joe Biden even objected to describing Mubarak as a dictator and rejected calls for him to step down.

Similar sentiments were evident after General Abdel Fattah el-Sisi led a coup against Egypt’s first elected president, Mohammed Morsi.  Obama administration officials steadfastly refused even to describe the action as a coup. Not only has Washington continued to lavish weaponry on Egypt’s military, it has ignored mounting evidence of egregious human rights abuses by the Sisi regime.  And as with respect to Mubarak, U.S. officials pretend that Sisi is not a dictator, even though he became “president” through a blatantly rigged election that gave him more than 96 percent of the vote.  American leaders used to scorn the results of such phony elections in communist countries, but they chose to view the farce in Egypt as progress toward a mature democratic system.

Hatred of hypocrisy is an emotion that tends to occur throughout very different cultures.   U.S. leaders do not help America’s reputation when they profess a commitment to freedom and democracy while they fawn over such allies as thuggish Egyptian dictators and the odious Saudi royal family.  Victims of oppression were unlikely to take Washington’s alleged dedication to liberty seriously when they saw President George W. Bush strolling through the fields of his Texas ranch hand in hand with Saudi Crown Prince Abdullah as though they were intimate friends.  

Washington needs to walk the walk as well as talk the talk when it comes to supporting freedom as a key component of its foreign policy.  It should at least stop undermining balky democratic regimes and embracing thuggish autocracies.

The Spin Cycle is a reoccurring feature based upon just how much the latest weather or climate story, policy pronouncement, or simply poo-bah blather spins the truth. Statements are given a rating between 1-5 spin cycles, with less cycles meaning less spin. For a more in-depth description, visit the inaugural edition.

Well, well, well. The EPA has finally gone and done it. They have actually calculated the climate change impacts projected to result of one of their climate change regulations—in this case, the proposed rules for the efficiency standards for medium and heavy duty vehicles.

What they found was hardly surprising—the climate impacts from the proposed regulations will be vanishingly small.

The EPA calculates that the amount of global temperature rise averted by the end of the 21st century from the proposed regulations to be… wait, this is too good to paraphrase. From the EPA:

The results of the analysis demonstrate that relative to the reference case, by 2100 projected atmospheric CO2 concentrations are estimated to be reduced by 1.1 to 1.2 part per million by volume (ppmv), global mean temperature is estimated to be reduced by 0.0026 to 0.0065 °C, and sea-level rise is projected to be reduced by approximately 0.023 to 0.057 cm.

Did you catch that? According to the EPA’s own calculations, their regulation mandating the fuel economy of medium and light duty trucks avoids somewhere between twenty-six thousandths and sixty-five thousandths of a degree of future global warming. In other words, it is a useless measure when it comes to influencing the future course of global temperature. If the EPA wants to regulate the fuel efficiency of trucks, it needs to justify it for reasons that don’t relate to climate change.

Of course, if you’ve followed anything that we’ve ever had to say on EPA efforts seeking to mitigate future climate change by limiting carbon dioxide emissions, you know that we have been stressing this for years (basically, since EPA started issuing such regulations). Over and over again, and for each newly-proposed action, we show that the resulting temperature savings will be measured in hundredths to thousandths of a degree.  It is nice to finally see that the EPA completely agrees with us (we’ve known they have all along, but they are just very reluctant to admit it).

When describing the impact of these minuscule changes, we use terms like  “trifling,” “impressively tiny,” “meaningless,” “scientifically undetectable,” and “environmentally inconsequential.”

Here’s how the EPA describes them:

“EPA determines that the projected reductions in atmospheric CO2, global mean temperature, sea level rise, and ocean pH are meaningful in the context of this action.”

“Although these effects are small, they occur on a global scale and are long lasting; therefore, they can make an important contribution to reducing the risks associated with climate change.”

Not only do they talk in glowing terms about the climate significance of the regulations (“an important contribution to reducing risks associated with climate change”), but they simply love the economic ones as well.

Through the magic of the social cost of carbon, the EPA transforms 0.003°C of avoided global warming into $100 billion of economic benefit, and raves:

“[We] estimate net economic benefits exceeding $100billion making this a highly beneficial rule.”

We’ve got to hand it to government bureaucrats, they can be extremely imaginative when it comes to justifying their existence.

But sadly, imagination doesn’t trump reality.

So, while we commend the EPA for actually calculating the climate impacts of their regulation (or should we say, making the results of their calculations publically available), for their overly optimistic view of the import of the (virtually non-existent) impacts, we rate the EPA’s level of spin as “Heavy Duty” and award them four Spin Cycles.

 

Heavy Duty. Government regulations or treaties claiming to save the planet from certain destruction, but which actually accomplish nothing. Can also apply to important UN climate confabs, such as Copenhagen 2009 (or, quite likely, the upcoming 2015 Paris Summit), that are predicted to result in a massive, sweeping, and world-saving new treaty, followed by self-congratulatory back-patting. Four spin cycles.

I’ve got a new piece in City Journal analyzing the record of New York’s powerful, very left-wing Attorney General Eric Schneiderman. It ranges over topics that include his close ties to labor unions, his campaigns against AirBnB, Craigslist sellers, and herbal-supplement retailers, his role in overturning already-negotiated mortgage and banking settlements, and much more, including the unique role of state AGs in American politics. Very few businesses can resist the pressure a New York attorney general can bring to bear on them, with the sorts of troublesome results I explain in a sidebar

When New York attorney general Eric Schneiderman filed charges of unlawful redlining against two banks in the Rochester and Buffalo areas — they had concentrated their lending in the suburbs — he drew an unusual rebuke from Frank H. Hamlin III, CEO of another small upstate bank, Canandaigua National Bank and Trust, which had not been charged. In a letter to shareholders, Hamlin reassured them that his own bank’s relations with its regulators “are healthy. I am, however, extremely suspicious of the arbitrary and capricious manner in which various agencies (prosecutors) are abusing the legal system in order to further their own political and economic interests.” And he noted a foundational problem: “The regulations are vague in explaining what conduct is actually prohibited.” That gives enforcers plenty of discretion as to when to file complaints and against whom.

Hamlin went on to explain that one of the two banks that Schneiderman targeted “has chosen to merely fold while the other has chosen to fight. I can understand the decision to fold. The potential sanctions are severe on both corporate and personal fronts. One must decide whether to put the livelihood of their employees and potentially their own personal liberty on the line or merely cry ‘uncle’ and give the ‘people’ its pound of flesh and go on with life.

“Those who choose to fight are forced to depend upon a legal system that has mutated its focus from time-honored legal principle and justice to efficiency and political expediency,” he wrote. “I can assure you, there is no such thing as ‘efficient justice.’ ”

Finally, Hamlin warned against assuming that any decision to fold was an indicator of ultimate guilt. “The reason that 98 percent of prosecutions are settled instead of taken to trial is not the result of defendants saying, ‘Aw shucks, you caught me.’ It has to do with a fundamental and reasonable lack of faith that our legal system is working properly.”

When the letter began to attract press notice, the bank declined further comment, saying that the letter spoke for itself. Speaking out is all well and good, but in New York, it’s important not to rile up the authorities by doing so too loudly.

Read the whole thing here.

Lord help me if I have to write about anything else Donald Trump says, but I do have a few thoughts on the birthright citizenship debate he’s launched. I’ll set aside the policy aspects, which have been covered in previous years in the Cato Journal, at a Cato Hill briefing, on this blog, by my colleague Alex Nowrasteh in a pithy oped, and I’m sure many other places on our website. (Alex also posted this week an extended analysis of Trump’s new position paper on immigration.) My main take-away on the policy side is that we don’t want to create a permanent state-less underclass like what exists in many countries.

Now, on the law – on the question of whether you would need a constitutional amendment to end birthright citizenship or could just do it by amending the relevant immigration statutes – the picture is actually less clear. The first thing that the Fourteenth Amendment says, before we get to privileges or immunities, due process, and equal protection, is the following: “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.” It’s that italicized “subject to the jurisdiction thereof” that’s at the heart of the debate.

Here’s the basic history: The common law at the time of the Founding gave birthright citizenship to all except slaves and Indians. The Supreme Court’s infamous ruling in Dred Scott (1857) confirmed the denial of citizenship to slaves, even if they were freed. The Fourteenth Amendment overturned Dred Scott with respect to blacks (and other non-white races), though Indians were still denied citizenship because they owed allegiance to their tribes, not to the United States. (Native Americans were granted citizenship by statute in 1924, though that allegiance/dual-loyalty paradox still clouds much of Indian law.) 

The proponents of the Fourteenth Amendment added “subject to the jurisdiction” to the Fourteenth Amendment in order to exclude from citizenship two groups beside Indians: the children of (1) foreign diplomats and (2) enemy forces engaged in hostile occupation. That understanding was affirmed by the Supreme Court in United States v. Wong Kim Ark (1898), when it recognized the U.S. citizenship of a man who was born in San Francisco to Chinese parents. Wong’s parents weren’t citizens, although they were legal residents. 

But what about illegal immigrants? Illegal aliens and their children are subject to our laws and can be prosecuted and convicted of violations – unlike diplomats, who enjoy certain immunities, and unlike foreign invaders, who are generally subject to the laws of war rather than domestic civil law. The illegal immigrants’ countries of origin can hardly make a “jurisidictional” claim on kids born in America (at least while they’re here). Thus, a natural reading of “subject to the jurisdiction” suggests that the children of illegals are citizens if born here.

On the other hand, the Fourteenth Amendment’s enactors probably didn’t intend birthright citizenship for illegal immigrants. At ratification in 1868, there were no illegal immigrants and no law had ever restricted immigration. “Subject to the jurisdiction” probably meant primary allegiance to the United States as a sovereign.

My sense of the constitutional question – again setting aside my policy view that more liberal immigration laws (accompanied by vigorous border control to prevent crime, terrorism, and public-health issues) would resolve much of the illegal-alien problem – is as follows.  

When the original public meaning of a legal text is unambiguous, you have to adopt that meaning unless it leads to absurd consequences. Here, the consequences may well be irrational and self-defeating: We have a legal rule that criminalizes unauthorized entry while offering an inducement to unauthorized entry, giving citizenship to the children of those who violate the law. So if Congress were to deny citizenship to children of illegal aliens, the Supreme Court might not declare that law unconstitutional. It’s a close call (read the strong arguments pro and con constitutional birthright citizenship by my friends Jim Ho and John Eastman, respectively).

Would the Court consider the consequences of a textual meaning that gives birthright citizenship to illegal immigrants to be absurd?  If so, the intent or purpose of the Fourteenth Amendment’s enactors might trump the text. On the other hand, and being realistic, if Chief Justice John Roberts can find that a mandate is a tax and that a federal exchange was established by a state, there’s no way that the current Supreme Court would eliminate birthright citizenship for anyone.

So really, let’s debate some serious policy issues. It’s just not classy or luxurious to keep pressing this birthright-citizenship stuff.

Some influential developers of the software that runs Bitcoin have proposed an important amendment to the functioning of the leading cryptocurrency. It’s a development as important to Bitcoin as a constitutional amendment aimed at the Fed would be to the dollar.

The debate has been characterized in some headlines as “existential,” and one write-up called it a “constitutional crisis.” Both are probably overstating the situation. But it’s worthwhile to dig in and see what we should make of the debate. Doing so can tell us how things might go for lots of things in the world of cryptocurrency, including potential future proposals to alter Bitcoin’s embedded monetary policy.

I’ll begin with some basics about the protocol that are essential for understanding what this amendment does, then I’ll discuss the nature and tenor of the debate, which is important for at least the debaters to have in mind.

Much like email is a system for sending “mail” around the globe digitally via the Internet, the Bitcoin protocol is a system for maintaining a global public record book, or ledger. The ledger is optimized for recording transfers of value in the form of digital units called bitcoins.

When one person seeks to send bitcoins to another, he or she broadcasts a message to the Internet, where it is shared among a global web of Bitcoin “nodes.” The nodes confirm the validity of each new transaction by checking the authority of the sender to transfer bitcoins from a given address.

Another group of actors called “miners” gather validated transactions from the nodes and, about every ten minutes, add a new page to the ledger by broadcasting new ledger pages back to the nodes. (They’re rewarded for the service with a pre-set payout of new bitcoins, which is what causes the total stock of bitcoins to increase over time.) If the nodes validate the new page, they add it to the consensus ledger and continue validating the latest transactions, while miners begin work on the next page.

This brief description passes over much in the process. And in Bitcon jargon, ledger pages are known as “blocks”; the ledger is called the “blockchain.”

One of the potential challenges for the Bitcoin protocol, and thus for Bitcoin, is its capacity to handle the kind of transaction volumes one would expect of a global, digital currency. The current maximum size of a ledger page, or block, is 1 megabyte, which equates to about seven transactions per second. The Visa network, by comparison, has a capacity of about 22,000 transactions per second.

It is not a given that Bitcoin should be able to handle every payment around the world, of course. It would still be a happy result for Bitcoin if a significant subset of the world’s bazillion daily payments occurred through “off chain” services using bitcoins, with the blockchain serving as a global settlement network.

But the group of Bitcoin developers advocating for the software change believe that the network will begin to bump up against the 1 megabyte block limit next year. Significant numbers of transactions could be dropped, resulting in badly delayed validations and re-sent transactions that clog and degrade the network. They have been arguing for an increase in the blocksize, and last weekend they introduced a new version of Bitcoin software called Bitcoin XT.

The new software switches to 8 megabyte blocks after January 2016 if 75% or more of mined blocks indicate that they were produced by miners who support the change. If the switch occurs, the maximum block size limit would then double every two years. (You can follow along, seeing XT and non-XT nodes and blocks here.)

Seventy-five percent is an interesting choice. Proposals to amend the U.S. Constitution are validated and become part of the Constitution if they are ratified by legislatures or conventions in 75% of U.S. states. I don’t know if the authors of Bitcoin XT were thinking of that cherished U.S. document when they set their 75% threshold, but they are doing something very much like a Bitcoin constitutional amendment.

(Full disclosure: I know Gavin Andresen and Mike Hearn better than I know most other developers, and I’ve had very brief communications with each about this debate. I’m doing my best to write this post down the middle, and I’m open to correcting it if others think I’m skewing things — and of course if I’ve gotten technical details flat wrong.)

At its essence, the choice whether to run Bitcoin XT is a simple plebiscite. Miners will “vote” with their feet. If they adopt it, the amendment passes. If they don’t, it doesn’t, and nothing changes.

If the 75% threshold is reached, it is a near certainty that the remaining miners will switch to Bitcoin XT, as well. The coins they would produce using the old software would be incompatible with the majority’s coins, and there is far less value to cryptocurrency that is incompatible with the majority currency. There is no permanent Bitcoin schism in the offing.

But that doesn’t mean that all is sweetness and light. As in debates about constitutional amendments, things are starting to run a little hot. A technical change like this reallocates power and profitability to some degree. Larger blocks propagate slightly less quickly, which may disadvantage miners with weaker Internet connectivity. Higher transaction volumes will consume more storage, raising the cost of operating nodes and potentially reducing their numbers, which threatens Bitcoin’s decentralization and resistance to control. A software change like this always risks producing unforeseen security flaws, which is not pattycake on a network that currently stores about US$3.5 billion-worth of value. So the debate is, and will be, intense.

Cato Institute alumnus and friend Timothy B. Lee wrote a helpful Vox piece on the controversy earlier this week. It was entitled, “Bitcoin is on the Verge of a Constitutional Crisis.” I don’t think “crisis” is quite right, though, for a number of reasons.

For one, the paths forward are clear. There are only two of them: adoption or non-adoption of the amendment. A “constitutional crisis” implies unpredictable behavior of contested legality. That can’t happen here, as control of the use of the software is firmly in the hands of its users, the nodes and miners — not developers.

There is an argument that the software’s users are collectively being duped, but it doesn’t seem strong. This debate is occuring in an environment that is susceptible to testing and rigor. Valid theses about how nodes and miners will be affected have been discussed and modeled — a thing that can’t be done with legal rules. Miners in particular are keenly focused on their interests, and the effects of the amendment on those interests seem pretty well understood.

Given the visibility of behavior in the Bitcoin ecosystem and the threat of exit (which I discuss below), mistaken amendments are more likely to be reversed than a “bad” amendment to a legal-world constitution. The dynamics that lock in bad laws and regulations are not in play — or at least they’re much weaker — with the Bitcoin protocol. Someone seeking economic rents through manipulation of the software’s functioning is very likely to end up drinking their own blood, and pretty much everyone knows that. We are in an environment of virtuous incentives.

The key difference between the Bitcoin protocol and a paper constitution, though, is jurisdiction. The rules that govern Bitcoin are not as important as the rules that govern a country.

Bitcoin is but the most popular of numerous cryptocurrencies, and — putting aside some poorly worded regulatory proposals — anyone with the technical skills can create a new one. Different cryptocurrencies can function differently in ways that optimize them for different uses and needs. And it is very easy to switch among cryptocurrencies.

If the Bitcoin XT proposal is adopted, if its demerits prove greater than its merits, and if switching back doesn’t or can’t occur, developers and users have a relatively easy exit to another cryptocurrency. It is not costless, but some lost Bitcoin wealth and a move to a new cryptocurrency is not as hard as uprooting oneself from a physical place and moving to a different location on Planet Earth. Bitcoin is important, exciting, and precious, but the stakes in the Bitcoin XT debate are somewhat lower than in a true constitutional debate.

Without testable propositions to hold them to account, legal-world politicians spin the most favorable evidence for their positions nearly from whole cloth. They often portray their opponents as animated by venal, fully hidden motives. The stakes are very high because everyone has to live under one rule, so they permit themselves to seek victory at all costs. Government politicians play to the hilt for a largely uninformed audience of voters who happen to respond better to ad hominem attacks than the merits. (Then they adjourn together to the bar — ah, the ruling class….)

This kind of debate is not like that kind of debate. As hot as the debate feels in the Bitcoin developer community — and it does: you can see some developers speaking carelessly to and about each other — it is relatively genteel. And it should stay that way.

The reason why developers should stay moderate with their arguments and language is because perceptions of instability in the Bitcoin ecosystem are bad for adoption, and everyone needs adoption. Were it possible to “win” the Bitcoin XT debate with bombast and exaggeration, such a victory would be Pyrrhic.

As I write this post, the Bitcoin price has seen a sharp drop (and recovery) against the dollar. Coincidental or not, and lasting or not, it’s the kind of thing that reporters who don’t pay much attention to Bitcoin — or who actively dislike it — will join to the Bitcoin XT debate. They’ll use the simple tale of developer angst and price volatility to sow doubts about cryptocurrency among the public at large.

Rancor in the Bitcoin developer community gives succor to the opponents of monetary alternatives. The debate about amending the Bitcoin software should be fascinating to watch, and it should be kept on a high plane.

[Cross-posted from Alt-M.org]

Media outlets ranging from Newsweek and Time, to National Geographic and even the Weather Channel, all recently ran articles on the so-called “Overshoot Day,” which is defined by its official website as the day of the year

when humanity’s annual demand for the goods and services that our land and seas can provide—fruits and vegetables, meat, fish, wood, cotton for clothing, andcarbon dioxide absorption—exceeds what Earth’s ecosystems can renew in a year.

This year, the world allegedly reached the Overshoot Day on August 13th. Overshoot Day’s proponents claim that, having used up our ecological “budget” for the year and entered into “deficit spending,” all consumption after August 13th is unsustainable. Let’s look at the data concerning resources that, according to Overshoot Day’s definition, we are consuming unsustainably. (We’ll leave aside carbon dioxide absorption—as that issue is more complex—and focus on all the other resources).

Fruits and vegetables

Since millions of people rose from extreme poverty and starvation over the past few decades, the world is consuming more fruits and vegetables than before. We are also producing more fruits and vegetables per person than before. That is, partly, because of increasing yields, which allow us to extract more food from less land. Consider vegetable yields:

Meat and fish

As people in developing countries grow richer, they consume more protein (i.e., meat). The supply of meat and fish per person is rising to meet the increased demand, just as with fruits and vegetables. Overall dietary supply adequacy is, therefore, increasing.

Wood

It is true that the world is losing forest area, but there is cause for optimism. The United States has more forest area today than it did in 1990. As Ronald Bailey says in his new book The End of Doom, “In fact, except in the cases of India and Brazil, globally the forests of the world have increased by about 2 percent since 1990.” As the people of India and Brazil grow wealthier and as new forest-sparing technologies spread, those countries will likely follow suit. To quote Jesse H. Ausubel, Director of the Program for the Human Environment at The Rockefeller University and HumanProgress.org Advisory Board member:

Fortunately, the twentieth century witnessed the start of a “Great Restoration” of the world’s forests. Efficient farmers and foresters are learning to spare forestland by growing more food and fiber in ever-smaller areas. Meanwhile, increased use of metals, plastics, and electricity has eased the need for timber. And recycling has cut the amount of virgin wood pulped into paper. Although the size and wealth of the human population has shot up, the area of farm and forestland that must be dedicated to feed, heat, and house this population is shrinking. Slowly, trees can return to the liberated land.

Cotton

Cotton yields are also increasing—as is the case with so many other crops. Not only does this mean that we will not “run out” of cotton (as the Overshoot Day proponents might have you believe), but it also means consumers can buy cheaper clothing. Please consider the graph below, showing U.S. cotton yields rising and cotton prices falling.

While it is true that humankind is consuming more, innovations such as GMOs and synthetic fertilizers are also allowing us to produce more. Predictions of natural resource depletion are not new. Consider the famous bet between the environmentalist Paul Ehrlich and economist Julian Simon: Ehrlich bet that the prices of five essential metals would rise as the metals became scarcer, exhausted by the needs of a growing population. Simon bet that human ingenuity would rise to the challenge of growing demand, and that the metals would decrease in price over time. Simon and human ingenuity won in the end. (Later, the prices of many metals and minerals did increase, as rapidly developing countries drove up demand, but those prices are starting to come back down again). To date, humankind has never exhausted a single natural resource. To learn more about why predictions of doom are often exaggerated, consider watching Cato’s recent book forum, The End of Doom.

The short answer is: Yes, Donald Trump likely has greater appeal among less educated Americans.

While we should keep in mind that the margins of error are wider for subsets of national polls—Trump consistently performs better among Americans who have not graduated from college than among college graduates.

For instance, Rasmussen finds that among Republicans who have not finished college, 25 percent support Trump for president compared to 11 percent among Republican college grads.

No other Republican candidate comes within 16 points of Trump among GOP non-college grads. However, among Republicans with college degrees, Trump is just one of many favored candidates: Scott Walker (13 percent), and Carly Fiorina (12 percent) score slightly better, and Marco Rubio (11 percent) ties Trump. All of these are within the margin of error.

Similarly, an August CNN/ORC poll finds that in a hypothetical match-up, Hillary Clinton leads Trump by 15 points among college graduates nationally, but only leads by two points among non-college graduates. Moreover, another CNN/ORC poll found that among all Americans, Trump’s favorables were underwater: -32 points among college grads but only by -8 points among non-college grads.

These August polls line up with July polls finding Trump performing better among less educated voters, as I detail in this piece at Federalist.

Does this mean that Trump’s appeal is any less genuine or meaningful? Definitely not. But his candidacy has the capacity to divide the more educated from the less educated.

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