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This is a revised excerpt from White (2015), and the first item in our “What You Should Know” series offering essential background information on various alternative money themes.

Historical monetary systems that are properly classified as free banking systems, in Kevin Dowd’s (1992, p. 2) words, have involved “at least a certain amount of bank freedom, multiple note issuers, and the absence of any government-sponsored ‘lender of last resort.” There were 60-plus episodes around the world of plural private currency issue in the 19th century (Schuler 1992). Dowd (1992) has compiled studies of 9 of these episodes, and Ignacio Briones and Hugh Rockoff (2005) have surveyed economists’ assessments of 6 relatively well-studied episodes: Scotland, the United States, Canada, Sweden, Switzerland, and Chile. Because none of the six systems they review enjoyed complete freedom from legal restrictions, they suggest that “lightly regulated banking” is a more accurate label than “free banking.” All these nineteenth-century episodes had another feature worth mentioning: banknotes and deposits were denominated in and redeemable for silver or gold coins.

When we look into these episodes, we find a record of innovation, improvement, and success at serving money-users. As in other goods and services, competition provided the public with improved products at better prices. The least regulated systems were not only the most competitive but also by and large the least crisis-prone.

Case Studies

Scotland. The Scottish free-banking system of 1716 to 1845 combined remarkable stability with competitive performance. To quote my own earlier work on it (White 1995, p. 32), there were “many competing banks, most of them were well capitalized,” while in its heyday after 1810 “none were disproportionately large, all but a few were extensively branched,” and “all offered a narrow spread between deposit and discount rates of interest.” Briones and Rockoff (2005, pp. 295–96) find “considerable agreement that lightly regulated banking was a success in Scotland.” They note that some writers have given at least partial credit to “unlimited liability, or the presence of large privileged banks acting as quasi-central banks.” After 1810, however, the three chartered banks (the only banks with limited liability) were no larger than the nonchartered banks (which had unlimited liability) and did not play any special supervisory roles, while the system continued to perform successfully. Scottish banking exhibited economies of scale but not natural monopoly. The banks mutually accepted one another’s notes at par. A few writers have expressed doubt that Scotland was a good example of free banking on the grounds that the Bank of England backstopped the system, but such claims are mistaken (White 1995, ch. 3).

United States. Banking restrictions differed dramatically among states in the antebellum United States. The least restricted, most openly competitive, and best-behaved system was in the New England states, where the Suffolk Bank of Boston, succeeded by the Bank for Mutual Redemption, operated a banknote clearinghouse that kept most notes at par throughout the region. Many other states, led by New York, enacted what were called “free banking” laws. These acts opened up entry to all qualifying comers (in contrast to chartering systems that required a special act of the state legislature), but also imposed collateral restrictions on note issue (banks had to buy and hold state government bonds or other approved assets to provide a redemption fund for their notes) and maintained geographical branching restrictions. Briones and Rockoff (2005, p. 302) reiterate a point that Rockoff emphasized in his own pioneering work on the state free-banking systems, namely that these legal restrictions were fairly heavy. The less successful experiences in some states “appear to have been the result of restrictions imposed on the American free banks—restrictions on branch banking and the peculiar bond security system—rather than the result of freedom of entry.” On the positive side, freer entry enhanced competition, and the “stories about wildcat banking” that some historians took to be the natural consequence “although not baseless, were exaggerated.” In New York and some other early-adopting states, the system “worked well,” which explains why it spread to more and more states.

Canada. The Canadian system, Briones and Rockoff (2005, p. 304) note, “like the Scottish system and parts of the American system, was clearly a successful case of lightly regulated banking.” Canada did not suffer the financial panics that the United States did in the late 19th century. Its banks did not even fail in the Great Depression. The Canadian banking system “did so well that a central bank was not established until 1935,” and even then the reason was not dissatisfaction with the existing banking system but some combination of nationalism and wishful thinking about what a central bank could do to end the Great Depression (see Bordo and Redish 1987).

Sweden. Sweden had a system of competitive private note issue by “Enskilda” banks while at the same time having the official Riksbank as banker to the state. The Enskilda banks’ record for safety was remarkable. Briones and Rockoff (2005, pp. 306-7) report that, “Although one could debate the relative contributions of the Riksbank and the Enskilda banks, it is clear that the combination of the two maintained convertibility and provided an efficient means of payment for the Swedish economy.”

Switzerland. Switzerland’s system ended in a crisis, but Briones and Rockoff (2005, p. 310) doubt that this reflects poorly on lightly regulated banking because, “at least after the federal banking law of 1881, the Swiss experience seems to have been less free than other experiences in many important dimensions such as the existence of privileged cantonal banks and restrictive collateral requirements for private banks.” Moreover, the law diminished “the capacity of the public for differentiating notes,” which created a common-pool problem, weakening the effectiveness of the clearing system against overissue. (For a harsher assessment of Swiss free banking, see Neldner (1998); for a rebuttal to Neldner see Fink (2014).)

Chile. Briones and Rockoff (2005, p. 314) also consider Chile’s experience a poor test because the system was skewed by government favoritism, “With a small ruling elite and concentrated economic power, Chile had great difficulty creating note-issuing banks that were completely independent of the government.” Nonetheless a free-banking law was “successful in developing the financial and banking industry.” A new volume of studies on Chile’s free-banking experience is under way by economic historians at the Universidad del Desarrollo in Santiago (Couyoumdjian forthcoming).

Australia. Operating with few restrictions, Australian banks were large, widely branched, and competitive, and they practiced mutual par acceptance, making the system resemble Scotland’s. The Australian episode is of special interest for suffering the worst financial crisis known under a free-banking system. After a decade-long real estate boom came to an end in 1891, some building societies and land banks failed, after which 13 of 26 trading banks suspended payments in early 1893. George Selgin (1992a) finds that the banks’ reserve ratios do not indicate any overexpansion of bank liabilities during the boom, though some banks clearly made bad loans. The boom was rather financed by British capital inflows, which suddenly stopped after the Baring crisis of 1890. Kevin Dowd (1992) adds that the banks were not undercapitalized. He argues that “misguided government intervention” in the first failed institutions “needlessly undermined public confidence” in other banks, while other interventions boosted the number of suspensions (all but one of the suspended banks soon reopened) by providing favorable reorganization terms for banks in suspension. (For a different view, see Turner and Hickson (2002).

Colombia. The free-banking era in Colombia lasted only 15 years, from 1871 to 1886, during the period of a classical liberal constitution. Thirty-nine banks were created, two of which did about half the business. The system survived a civil war in 1875 with only a few months’ suspension and appears to have been otherwise free of trouble. It ended when the government created its own bank and gave it a monopoly of note issue for seigniorage purposes (Meisel 1992).

Foochow, China. George Selgin (1992b) reports that the banking system in the city of Foochow (or Fuzhao) in southeastern China operated under complete laissez faire in the 19th and early 20th centuries, being left alone by the national ruling dynasty. The successful results resembled those of free banking in Scotland or Sweden. Banknotes were widely used and circulated at par, bank failures were rare, and the system provided efficient intermediation of loanable funds.

Postrevolutionary France. The end of the French Revolution, the economist Jean-Gustave Courcelle-Seneuil later wrote, “left France under the regime of freedom for banks.” New banks began issuing redeemable banknotes in 1796. In Courcelle-Seneuil’s evaluation, the banks operated “freely, smoothly and to the high satisfaction of the public.” After only seven years, in 1803, Napoleon Bonaparte took power and created the Bank of France with a monopoly of note issue to help finance his government (Nataf 1992).

Ireland. In 1824, after poor results with plural note issues by undersized banks, the British Parliament deliberately switched Ireland from the English set of banking restrictions (the limitation of banks to six or fewer partners) to the Scottish free-banking model (joint-stock banks with an unlimited number shareholders, each with unlimited liability) and thereafter enjoyed results like Scotland’s. Howard Bodenhorn (1992) considers it “not surprising” that “free banking in Ireland should rival the success of the Scottish. After 1824, restrictions on banking were repealed, except unlimited liability, and joint-stock banks were formed based on the Scottish mould. Failures were infrequent, losses were minimal … and the country was allowed to develop a system of nationally branched banks.”

Why then did central banking triumph over free banking?

As Kevin Dowd (1992, pp. 3-6) fairly summarizes the record of these historical free banking systems, “most if not all can be considered as reasonably successful, sometimes quite remarkably so.” In particular, he notes that they “were not prone to inflation,” did not show signs of natural monopoly, and boosted economic growth by delivering efficiency in payment practices and in intermediation between savers and borrowers. Those systems of plural note issue that were panic prone, like those of pre-1913 United States and pre-1832 England, were not so because of competition but because of legal restrictions that significantly weakened banks.

Where free banking was given a reasonable trial, for example in Scotland and Canada, it functioned well for the typical user of money and banking services. Why then did national governments adopt central banking? Free banking often ended because the imposition of heavy legal restrictions or creation of a privileged central bank offered revenue advantages to politically influential interests. The legislature or the Treasury can tap a central bank for cheap credit, or (under a fiat standard) simply have the cental bank pay the government’s bills by issuing new money. Economic historian Charles Kindleberger has referred to a “strong revealed preference in history for a sole issuer.” As George Selgin and I have noted (Selgin and White 1999), the preference that history reveals is that of the fiscal authorities, not of money users. In some places (e.g., London) free banking never received a trial for the same reason. Central banks primarily arose, directly or indirectly, from legislation that created privileges to promote the fiscal interests of the state or the rent-seeking interests of privileged bankers, not from market forces.


Bordo, Michael D., and Angela Redish. 1987. “Why did the Bank of Canada Emerge in 1935?,” Journal of Economic History 47 (June 1987), 405-417.

Briones, Ignacio, and Hugh Rockoff. 2005. “Do Economists Reach a Conclusion on Free-Banking Episodes?,” Econ Journal Watch 2 (August), 279-324.

Couyoumdjian, Juan Pable. Forthcoming. Editor, Instituciones Económicas en Chile: La banca libre durante el siglo XIX.

Dowd, Kevin. 1992a. Editor, The Experience of Free Banking. London: Routledge.

Dowd, Kevin. 1992b. “Introduction” to Dowd 1992a.

Dowd, Kevin. 1992c. “Free Banking in Australia,” in Dowd 1992a.

Fink, Alexander. 2014. “Free Banking as an Evolving System: The Case of Switzerland Reconsidered,” Review of Austrian Economics 27 (March), 57-69.

Hickson, Charles R., and Turner, John D. 2002. “Free banking Gone Awry: The Australian Banking Crisis of 1893.Financial History Review 9 (October), 147–67.

Meisel, Adolfo. 1992. “Free Banking in Colombia,” in Dowd 1992a.

Nataf, Phillipe. 1992. “Free Banking in France (1796–1803),” in Dowd 1992a.

Neldner, Manfred. 1998. “Lessons from the Free Banking Era in Switzerland: The Law of Adverse Clearings and the Role of Non-issuing Credit Banks,” European Review of Economic History 2 (Dec.), 289–308.

Selgin, George. 1992b. “Bank Lending ‘Manias’ in Theory and History,” Journal of Financial Services Research 6 (Aug.), 169-86.

Schuler, Kurt. 1992. “The World History of Free Banking,” in Dowd 1992a.

Selgin, George A., and Lawrence H. White. 1999. “A Fiscal Theory of Government’s Role in Money,” Economic Inquiry 37 (Jan.), 154–65.

White, Lawrence H. 1995. Free Banking in Britain, 2nd ed. London: Institute of Economic Affairs. Available online at

White, Lawrence H. 2015. “Free Banking in Theory and History,” in Lawrence H. White, Viktor Vanberg, and Ekkehard Köhler, eds., Renewing the Search for a Monetary Constitution. Washington, DC: Cato Institute.

[Cross-posted from]

Vindicating conventional wisdom, today’s argument suggested that the Supreme Court will find that states must both recognize and license same sex marriage. That’s remarkable in and of itself considering that a little over a decade ago, we were still debating whether states could criminalize gay sex. But it’s not surprising, given that it represents the most rapid transformation in public opinion on any political issue.

What’s more noteworthy is the reason why the Court is poised to rule this way. While it’s certainly possible that Justice Kennedy will wax metaphysical about the “sweet mystery of marriage,” the majority opinion is more likely to rest on the technical requirements of the Equal Protection Clause. Given that provision’s enforcement of “equality under the law,” states simply cannot devise a reason to draw their marriage licensing regimes in a way that distinguishes between heterosexual and homosexual couples.

Solicitor General Don Verrilli said it best – that’s possibly the only time I will use those words – when he asked the Court to secure “equal participation in a state-conferred status.” Moreover, the federal government was wise here – again unprecedented words coming from me – in focusing on the narrow point of equality in the application of state laws.

In sum, the Supreme Court should – and likely will – stay away from pontificating about marriage or philosophizing on the nature of rights. The Fourteenth Amendment is silent as to marriage, as it is regarding all other possible objects of state regulation. What it speaks to instead is the equal protection of the laws. Accordingly, as Cato said in our amicus brief, states must give marriage licenses to gays and lesbians only if they give them to everyone else.

“This is not justice. This is just people finding a way to steal stuff,” Carron Morgan, cousin of Freddie Gray, told Kevin Rector of the Baltimore Sun yesterday.  That’s one of the most clear-headed interpretations of yesterday’s mob violence in Maryland’s largest city, which followed the convergence of hundreds of youths at 3 p.m. outside Mondawmin Mall, a shopping center on the city’s west side that also serves as a hub for bus service. In the resulting tumult, groups of rioters burned police vehicles, looted stores and restaurants, and injured more than a dozen Baltimore police officers with flying missiles. 

More than twenty years ago in the Cato Journal, distinguished law and economics scholars David Haddock and Daniel Polsby published a paper entitled “Understanding Riots” that’s still highly relevant in making sense of events like these. Employing familiar economic concepts such as opportunity cost, coordination problems, and free-rider issues, Haddock and Polsby help explain why riots cluster around sports wins as well as assassinations, funerals, and jury verdicts; the group psychology of rioting, and why most crowds never turn riotous; the important role of focal points (often lightly policed commercial areas) and rock-throwing “entrepreneurs” of disorder; the tenuous relationship between riots and root causes or contemporary grievances; and why when a riot occurs the police (at least those in places like the United States and United Kingdom) seldom manage to be in enough places at once, more or less by definition.

The H&P paper helps explain why so many of the memes of the past 24 hours are off base: the “protests turn violent” headlines (yesterday’s riots broke out in different places from where there had been demonstrations), the “Freddie Gray’s family is horrified” stories (irrelevant since this riot, like most, had little to do with sending any message of protest), and, of course, the “what about sports riots?” meme (yes, the riots yesterday have a lot in common with English soccer riots, and it’s important to understand why.) “Authorities looking for ways to explain why trouble has broken out on their watch sometimes ascribe exaggerated organizational powers to ‘outside agitators,’” Haddock and Polsby write. (Check.) 

In reaction to yesterday’s events, pundits have tended to bark up a number of wrong trees, such as the supposed permission-giving remarks of the city’s Mayor, Stephanie Rawlings-Blake. (Not really, as Dave Weigel explains.) Others imagine that the technical advances of recent years – whether the availability of social media by which rioters can share intentions, or the ubiquity of surveillance cameras in public places – will fundamentally alter the balance between the riotous impulse and public order. Before you make up your mind on such questions, go read Haddock and Polsby.

This is from a Wall Street Journal article about President Obama’s push for the Trans Pacific Partnership (TPP):   Mr. Obama also warned of rising anti-globalization sentiment in Washington, reflected in Democratic opposition to the trade agreement [TPP], Republican efforts to kill the Export-Import Bank, and congressional unwillingness to approve new rules for operation of the International Monetary Fund. I agree that opposition to the TPP often, although not always, reflects anti-globalization sentiment; I’m not familiar with the IMF issue here.  But on the Ex-Im Bank issue, I think the President has it backwards. His logic, I assume, is that subsidies from the Ex-Im Bank promote exports, and are therefore pro-globalization.  But this logic is flawed.  The reality is that all export subsidies are a form of economic nationalism, in the sense that they try to give an advantage to domestic products over their foreign competition.  This leads to escalating trade wars and international economic tension.  The pro-globalization approach would be negotiate an end to the subsidies provided by export credit agencies, and let all products compete in the global marketplace without government support for domestic industry. 

Since treaties in the 19th century, the federal government has provided educational aid to American Indians. These days, the Bureau of Indian Education (BIE) owns about 180 Indian schools, which have about 41,000 students in Arizona, New Mexico, South Dakota, North Dakota, and other states.

I examined Indian schools in this study at Downsizing Government. The schools have long failed Indian children and seem to waste a great deal of money.

The Washington Post reported similar findings:

The U.S. Bureau of Indian Education spends nearly 56 percent more money than American public schools on each student, but many Native Americans learn in facilities that are languishing in poor condition, according to federal auditors.

A report this week from the Government Accountability Office said the agency has struggled to staff, manage and repair its schools, largely because of a broken bureaucracy.

… The bureau also suffers from high leadership turnover, inconsistent accountability, poor communication between offices, a lack of strategic planning and a dearth of financial experts to manage spending, auditors said. The “systemic management challenges,” as the report described them, have hindered the agency’s efforts to improve student achievement and sustain key initiatives, according to the report.

The problems have persisted for years, despite the bureau spending significantly more than U.S. public schools in general. A 2014 GAO analysis found that the agency spends an estimated $15,000 per pupil on average, while public schools nationwide spend an estimated average of about $9,900.

… Indian Education spokeswoman Nedra Darling said Thursday that the bureau is “deep into the process of fixing the problems that the GAO highlighted.”

… “The president has asked Congress for significant increases in the budget to accomplish many of these goals and to increase staff available to serve tribal schools and BIE-run schools,” Darling said.

The last two sentences are classic: Agency leaders using their own failings as an excuse to demand more taxpayer money.

A better reform would be for Congress to advance Indian self-determination by ending the federal ownership and operation of schools and converting BIE funding to block grants. Tribal governments could then use the block grants to either competitively source school management or to pass through the funds to Indian parents in the form of school vouchers.

The important thing is to get Washington out of the business of running schools because decades of experience reveal that it is not very good at it.

Today, the five-member civilian Board of Police Commissioners will consider the LAPD’s body camera video (BMV) proposals outlined by Chief Charlie Beck, which leave much to be desired. If implemented as drafted, the proposals will allow officers to view body camera footage before being interviewed after a use-of-force incident and do not outline under what circumstances the public  can access body camera footage. Such policies will not provide the transparency and accountability Los Angeles residents deserve from their public servants.

At first glance, the policy recommendations look relatively innocuous. The document rightly requires that officers have their body camera on “prior to initiating any investigative or enforcement activity involving a member of the public.” It also outlines when officers should not have their body cameras on (such as when talking to informants, undercover officers, or when in hospitals or rape treatment centers). These requirements mean that the majority of police interactions with members of the public will be caught on camera and that investigations and the privacy of crime victims will be protected.                                

Yet other policy recommendations ought to worry civil libertarians and law enforcement accountability advocates. Section 19 of the document reads in part as follows (bolding is mine):                     

If an officer is involved in a Categorical Use of Force (CUOF), such as an officer-involved shooting, an officer shall not review his or her BWV until authorized by the assigned Force Investigation Division (FID) investigator. Once authorized, the officer shall review his or her BWV recording, and any other relevant BWV footage as deemed necessary and appropriate by the assigned FID supervisor, prior to being interviewed by investigators. An officer may have an employee representative present during the review of the BWV recordings without the FID investigator or supervisor present.

This proposal would provide officers with an opportunity that is not afforded to citizens accused of crimes: to view evidence against them prior to being interviewed by investigators. Police officers involved in a use-of-force incident should not be allowed to view their own body camera footage or the footage captured by colleagues’ body cameras before speaking to investigators. An officer involved in a use-of-force incident should give comments to investigators that have not been influenced by police body camera footage.

Allowing officers to view body camera footage before speaking to investigators not only means that their statements will not necessarily be an accurate reflection of what they thought during the incident, it also allows officers the opportunity to look for evidence that may exonerate them before a statement is made.

In addition, the policy recommendations do not state if body camera footage will be released to the public. Indeed, the document states:                                                                           

…officers are not required to play back BWV recordings to allow members of the public to review the video footage.

This policy recommendation and the rest of the document are consistent with Beck’s previous comments on the release of body camera footage. Last February, the Los Angeles Timeswrote that Beck didn’t intend to release body camera footage unless required to do so “by a criminal or civil court proceeding.” According to the LA Times, Beck considers police body camera footage evidence and therefore exempt from public record requests.

Preventing the public from viewing police body camera footage and allowing officers involved in controversial incidents to view body camera footage before filing a report will do little to improve police relationships with citizens or provide increased accountability. Indeed, such policies make it look as if the LAPD is more interested in using body cameras as a means to protect its officers involved in critical incidents than it is in improving transparency and accountability.

There are undoubtedly privacy concerns associated with the release of police body camera footage. Body camera policies ought to protect the privacy of citizens while also ensuring that citizens can access footage which is in the public interest. A policy that adequately balances privacy and increased law enforcement accountability cannot be one that prohibits citizens from requesting body camera footage and allows police officers to view such footage before making a statement.

In section one of this recommendation report, Beck says that the LAPD “has adapted to the use of BWV” in order to “promote accountability.” But accountability can only be promoted in the right policy framework, which Beck’s proposals fail to provide.

Read the recommendations in full below:

BPC_15-0115 (2)


Over at National Review, David French has a chilling article about politicized ‘John Doe’ investigations and police raids directed against persons and organizations who are suspected of challenging union power and/or supporting Scott Walker.

Here is an excerpt:

[After the early morning police raid came] the warnings. Don’t call your lawyer. Don’t talk to anyone about this. Don’t tell your friends. The kids watched — alarmed — as the school bus drove by, with the students inside watching the spectacle of uniformed police surrounding the house, carrying out the family’s belongings. Yet they were told they couldn’t tell anyone at school. They, too, had to remain silent. The mom watched as her entire life was laid open before the police. Her professional files, her personal files, everything. She knew this was all politics. She knew a rogue prosecutor was targeting her for her political beliefs. And she realized, “Every aspect of my life is in their hands. And they hate me.”

For dozens of conservatives, the years since Scott Walker’s first election as governor of Wisconsin transformed the state — known for pro-football championships, good cheese, and a population with a reputation for being unfailingly polite — into a place where conservatives have faced early-morning raids, multi-year secretive criminal investigations, slanderous and selective leaks to sympathetic media, and intrusive electronic snooping.

Yes, Wisconsin, the cradle of the progressive movement and home of the “Wisconsin idea” — the marriage of state governments and state universities to govern through technocratic reform — was giving birth to a new progressive idea, the use of law enforcement as a political instrument, as a weapon to attempt to undo election results, shame opponents, and ruin lives.

Read the whole thing.

Eric O’Keefe related his experience in this matter at a Cato event a few months ago.  And Cato has filed an amicus brief is support of O’Keefe’s petition to the Supreme Court to hear his case and to rein in Wisconsin’s politicized “investigations.”

As scandals continue to swirl around Hillary Clinton, former Maryland Governor Martin O’Malley is positioning himself for a run for the Democratic nomination. He is relatively young, telegenic, and well-spoken. However, O’Malley has a record that includes tax hikes so large that they turned off even Democratic-dominated Maryland.  

As I discuss in the Daily Caller today, O’Malley:

  • Raised the top personal income tax rate from 4.75 to 5.75 percent. With local taxes on top, Maryland’s top rate is 8.95 percent.
  • Raised the corporate tax rate from 7.0 to 8.25 percent.
  • Raised the sales tax rate from 5 to 6 percent and expanded the sales tax base.
  • Raised the sales tax rate on beer, wine, and spirits by 50 percent.
  • Raised the gas tax by 20 cents over four years, almost doubling the rate from 23.5 cents.
  • Doubled the cigarette tax from $1 to $2 per pack.
  • Imposed higher taxes on vehicle registration.
  • Imposed a stormwater mitigation fee on property owners, or a “rain tax.”

O’Malley raised taxes on everybody, and by 2014 Marylanders had finally had enough. In the gubernatorial election, Republican Larry Hogan pulled off a stunning upset over Democrat Anthony Brown based on his promise to roll back some of O’Malley’s tax increases.

The choice then for Democrats is whether unpopular tax increases are the type of “hope and change” they want to run on in 2016.

Just when you thought the long-running “John Doe” prosecution/persecutions in Wisconsin couldn’t get any worse—SWAT teams conducting pre-dawn raids on family homes, gag orders on the victims, and the prosecutor’s recusal motion directed against no fewer than four state supreme court justices, all over politically driven campaign finance allegations—Milwaukee County District Attorney John Chisholm suggested over the weekend that Gov. Scott Walker could be criminally charged for lying. Walker’s “crime”? In Iowa on Saturday, he questioned whether the prosecution’s tactics were constitutional.

As so often happens in litigation over often inscrutable campaign finance law, this case is a tangle of legal complexities, many of which are outlined in Cato’s amicus brief, urging the U.S. Supreme Court to hear the appeal of the “John Does,” their lives on hold as they suffer in silence. At its conference last Friday, the Court considered their cert petition, but it was not included in the Court’s list of denials this morning, indicating a “hold” and hence an increased likelihood that the Court will hear the appeal.

Only two weeks ago, in her first campaign stop in Iowa, Hillary Clinton took a shot at the Roberts Court, calling for a constitutional amendment to overturn the Court’s Citizens United decision. That would amount to nothing less than an assault on the First Amendment’s protection of political speech. With that speech so threatened, no better illustrated than in the appalling Wisconsin prosecutions, it’s time for the Court to bring an end to this tyranny.

Alzheimer’s robbed Ronald Reagan of his memory. Now Republican neocons are trying to steal his foreign policy legacy. Reagan likely would have been appalled by the aggressive posturing of most of the Republicans currently seeking the White House.

Ronald Reagan’s mantra was “peace through strength.” Peace was the end, strength the means. He focused on the Soviet Union and its advanced outposts, especially in the Western Hemisphere.

Restraining the hegemonic threat posed by an aggressive, ideological Soviet Union led to Reagan’s tough policy. Still, Reagan avoided military confrontation with Moscow. Indeed, he routinely employed what neocons today deride as “appeasement.”

For instance, Reagan dropped the Carter grain embargo against Moscow. Reagan said he desired to encourage “meaningful and constructive dialogue.”

Lech Walesa and the Solidarity movement were a global inspiration but the Polish military, fearing Soviet intervention, imposed martial law in 1981. No American bombers flew, no invasion threatened, no soldiers marched. Reagan waited for the Evil Empire to further deteriorate from within.

However, Reagan wanted to negotiate—from a position of strength, but he still wanted to negotiate.

Moreover, as my late White House boss, Martin Anderson, and his wife, Annelise, documented, Reagan was horrified by the prospect of nuclear war, which drove him to propose creation of missile defense and abolition of nuclear weapons.

In their book on foreign policy analysts Stefan Halper and Jonathan Clarke observed: “from 1983 onward, Reagan devoted more of his foreign policy time to arms control than to any other subject.” Norman Podhoretz, the neocon godfather, denounced Reagan for “appeasement by any other name.”

Reagan was willing to switch rhetoric and policy when circumstances changed. He recognized that Mikhail Gorbachev was different from previous Soviet leaders. Gorbachev later wrote that Reagan “was looking for negotiations and cooperation.” Or, in a word, appeasement.

Of course, Reagan was not a pacifist. But he was cautious in using the military. He usually intervened through proxies to counter Soviet or allied Communist influence—an agenda which disappeared along with the Cold War.

Reagan used the military in combat only three times. The first instance was Grenada, after murderous Communists ousted their slightly less hardline colleagues. Reagan defenestrated the new regime, simultaneously protecting American medical students and eliminating a nearby Soviet outpost. When the job was done Reagan brought home the U.S. forces.

The second case was against Libya in response to evidence that Tripoli had staged the bombing of Berlin nightclub favored by Americans. There was no regime change and nation-building.

The third, and sadly disastrous, intervention was Lebanon. The U.S. had few measurable interests at stake in that tragic nation’s civil war, but Reagan sought to strengthen the nominal national government. Washington trained the Lebanese military and took an active role in the fighting. U.S. intervention triggered attacks on both the U.S. embassy and Marine Corps barracks.

Reagan recognized that he’d erred. He “redeployed” existing troops to naval vessels which then sailed home. Because he had the courage to back down thousands of Americans did not die fighting in another meaningless Mideast war.

Yet neoconservatives denounced him for refusing to occupy Lebanon. Podhoretz charged Reagan with “having cut and run.” President George W. Bush argued that Reagan’s withdrawal was one reason terrorists “concluded that we lacked the courage and character to defend ourselves.”

Lebanon was a terrible mistake, but Reagan learned from his errors. More important, he was no global social engineer.

No one knows what Reagan would think today. But he likely would be angry at use of his legacy to justify a failed foreign policy.

As I point out in National Interest online:  “When Ronald Reagan left office the U.S. truly stood tall. George W. Bush more than any of Reagan’s other successors squandered the Reagan legacy with a recklessly aggressive policy that ran counter to Ronald Reagan’s far more nuanced approach in a far more difficult time. Similarly, most of today’s leading Republicans, in contrast to Reagan, appear to want strength but not peace.”

John Adams left his state a conflicted legacy. As a young man in 1765, Adams took to the Boston Gazette to protest censorship, reminding his readers that “liberty cannot be preserved without a general knowledge among the people,” and for that reason “none of the means of information are more sacred, or have been cherished with more tenderness and care by the settlers of America, than the press. Care has been taken that the art of printing should be encouraged, and that it should be easy and cheap and safe for any person to communicate his thoughts to the public.” Fifteen years later, Adams was called upon to write a constitution for the Commonwealth of Massachusetts, which provided that as “[t]he liberty of the press is essential to the security of freedom in a State; it ought not, therefore, to be restrained in this commonwealth.”

Wise words from a wise man. But two decades hence later, Adams was no longer a young man, and no longer so wise.

In 1798, Adams was an embattled and unpopular president, under constant fire from the nation’s papers. In response, he pushed through a law that made it a crime to “write, print, utter or publish … any false, scandalous and malicious writing or writings against the government of the United States.”

Reviled as an unconstitutional affront to liberty, the Sedition Act was so unpopular that it cost Adams a second term, and has served for over 200 years as a symbol of tyrannical overreach. Adams also gave his name to the courthouse where the Supreme Judicial Court of Massachusetts meets; that Court will now have to decide which version of Adam’s legacy it will embrace.

For almost 100 years, Massachusetts has had its own version of the Sedition Act, a law making it crime to publish “any false statement in relation to any candidate for nomination or election to public office, which is designed or tends to aid or to injure or defeat such candidate.” Cato has filed a brief pointing out just how absurd and unconstitutional this law is.

No, not that brief, but if the law sounds familiar it should: Ohio had a similar law—until a trip up from the federal district court to the U.S. Supreme Court and back resulted it in being struck down. Statutes in Minnesota and Washington have suffered the same fate. These laws are a direct and indefensible attack on the freedoms protected by the First Amendment, and because John Adams was right when he described censorship as the “jaws of power … always opened to devour, if possible, to destroy the freedom of thinking, speaking, and writing,” it’s time for Massachusetts to follow suit.

As a more modern president from the Commonwealth once said, the government cannot be “afraid to entrust the American people with unpleasant facts, foreign ideas, alien philosophies, and competitive values. For a nation that is afraid to let its people judge the truth and falsehood in an open market is a nation that is afraid of its people.”

The Massachusetts Supreme Judicial Court hears argument in Commonwealth v. Lucas on May 7.

Did the Fed’s set its policy interest rate below the market-clearing or ‘natural’ interest rate level in the early-to-mid 2000s? Or did it simply lower its policy interest rate down to a depressed natural interest rate level during this time? The answers to these questions determine whether U.S. monetary policy was loose during the housing boom.

John Taylor believes the Fed pushed interest rates below their natural interest rate level. He views this departure from a neutral stance as a key contributor to the housing boom. Ben Bernanke and Larry Summers believe otherwise. They see the Fed simply doing its job back then by adjusting its policy rate down to a low natural interest rate level. Bernanke believes the natural interest rate level was low because of a saving glut while Summers holds that its was depressed because of secular stagnation. Either way, both individuals do not blame the Fed for any role the low interest rates played in fostering the housing boom. The Fed’s lowering of interest rates was simply an endogenous response.

George Selgin, Berrak Bahadir, and I recently published an article that lends support to John Taylor’s view of Fed policy during this time. It received some pushback from Scott Sumner who is sympathetic to both the saving glut and secular stagnation views. At the same time, Tony Yates provided a critique of John Taylor’s argument on the financial crisis that was heartily endorsed by Paul Krugman. So the debate over the Fed policy during this period continues.

What I want to do here is to step back from this debate and review what I see as the key economic developments that affected U.S. interest rates at this time. Then, given these considerations, I will jump back into the debate and ask whether Fed policy pushed interest rates in the same direction as that implied by these developments.

The key developments as I see them are threefold: a falling term premiums, a spate of large positive supply shocks, and the emergence of a monetary superpower. Let us consider each one in turn.

I. Falling Term Premiums on Long-Term Treasuries

The term premium is the extra compensations investors require for the risk of holding a long-term treasury bond versus a sequence of short-term treasury bills over the same period. The term premium had been declining since the early 1980s and therefore put downward pressure on long-term interest rates. This development can be seen in the figure below which is created using the Adrian, Crump, and Moench (2013) data. (For more on this data see here.)

The decline has been attributed to several factors. First, there was a decline in inflation volatility and an overall improvement in macroeconomic stability during this time that made investors less risk averse to holding long-term bonds. They therefore demanded less compensation. Second, regulatory and accounting changes for certain firms increased their demand for treasury securities relative to their supply. This further reduced the term premium. Third, globalization was taking off, but without a concurrent deepening of financial markets in many of the affected countries. That meant that global income was growing faster than the world’s ability to produce safe assets. Consequently, many developing countries started turning to the United States for safe assets. This further depressed the term premium and is the basis for Bernanke’s saving glut theory.

A close look at the above figure shows this term premium decline intensified in 2003, falling about 1.4 percentage points over the next two years. This happened right during the time the Fed pushed its policy rate to record-low levels. This, then, appears to support the endogenous view of the low policy rates argued by Bernanke and Summers.

However, this conclusion needs to be tempered. For the next two developments discussed below suggest that a sizable portion of the declining term premium at this time may have been an endogenous response to the Fed’s low interest rates policy during that time.

II. A Spate of Large Positive Supply Shocks

The second important development is that the global economy got buffeted with a series of large positive supply shocks from the opening up of Asia–especially China and India–and the rapid technology innovations that reached a crescendo in the early-to-mid 2000s. Global growth accelerated because of these developments as seen in the figure below:

The opening up of Asia significantly increased the world’s labor supply while the technology gains increased productivity growth. The uptick in productivity growth, which peaked between 2002 and 2004, was widely discussed in the early 2000s and raised long-run expected productivity growth at the time. This can be seen in the figure below which shows a consensus forecast of annual average productivity growth over a ten year horizon:

Note that the rise in the labor force and productivity growth rates both raised the expected return to capital. The faster productivity growth also implied higher expected household incomes. These developments, in turn, should have lead to less saving and more borrowing by firms and households and put upward pressure on the natural interest rate. Interest rates, in short, should have been rising given these large positive supply shocks during this time.

III. Emergence of a Muscle-Flexing Monetary Superpower

The third development is that in the decade leading up to the financial crisis that the Fed became a monetary superpower that could flex its muscles. It controlled the world’s main reserve currency and many emerging markets were formally or informally pegged to dollar. Thus, its monetary policy got exported across much of the globe, a point acknowledged by Fed chair Janet Yellen. This meant that the other two monetary powers, the ECB and the Bank of Japan, were mindful of U.S. monetary policy lest their currencies became too expensive relative to the dollar and all the other currencies pegged to the dollar. As as result, the Fed’s monetary policy got exported to some degree to Japan and the Euro area as well. Chris Crowe and I provide formal evidence for this view here as does Colin Gray here.

Now let’s tie all these points together and see what it says about the Fed’s role in the housing boom. Let’s begin by noting that when the large positive supply shocks buffeted the global economy they created disinflationary pressures that bothered Fed officials. They did not like the falling inflation. So Fed officials responded by easing monetary policy. Recall, though, that the supply shocks were raising the return to capital and expected income growth and therefore putting upward pressure on the natural interest rate. The Fed, consequently, was pushing down its policy rate at the very time the natural interest rate was rising. Monetary policy was inadvertently being loosened.

This error was compounded by the fact that the Fed was a monetary superpower. The Fed’s easing in the early-to-mid 2000s meant the dollar-pegging countries were forced to buy more dollars. These economies then used the dollars to buy up U.S. treasuries and GSE securities. This increased the demand for safe assets and ostensibly reinforced the push to transform risky private assets into AAA assets. To the extent the ECB and the Bank of Japan also responded to U.S. monetary policy, they too were acquiring foreign reserves and channeling credit back to the U.S. economy. Thus, the easier U.S. monetary policy became the greater the demand for safe assets and the greater the amount of recycled credit coming back to the U.S. economy. The 2003-2005 decline in the term premium, in other words, was to some extent an endogenous response to the easing of Fed policy during this time.

The figure below highlights this relationship for the period 1997-2006. It comes from my work with Chris Crowe and shows that almost 50% of the foreign reserve buildup was tied to deviations of the federal funds rate from the Taylor Rule. Colin Gray estimates several regression models on this relationship and finds that for every 1% point deviation of the federal funds rate below the Taylor Rule, foreign reserves grew by $11.5 billion. The Fed, therefore, was putting downward pressure on interest rates not only directly via the setting of its federal funds rate target, but also by raising the amount of credit channeled into the long-term U.S. securities.

Given these points, I think it is reasonable to conclude the Fed contributed to the housing boom. I hope they give Scott, Tony, and Paul something to think about.

Let me be clear about my views. Even though the Fed kept its policy rate below the natural rate for a good part of the housing boom period, the opposite happened after the crash due to the ZLB. This is a point Ramesh Ponnuru and I made in a recent National Review article. So unlike some observers who see the Fed as being eternally loose, I take a different view: the Fed was too loose during the boom and too tight during the bust.

Update: There are multiple measures of the output gap that show the U.S. economy overheating during this time. Below is a figure from this article that compares the real-time and final measures of the U.S. output gap. Everyone shows ex-post an overheating economy during the housing boom:

[Cross posted from Macro and Other Market Musings]

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger. While this section will feature all the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  ere we post a few of the best in recent days, along with our color commentary.

Since the Earth Day coverage this year seemed rather meager—a sign, perhaps, that everyone is growing tired of the pessimistic drone that defines the current environmental movement—it is possible that you may have overlooked a few stories out there that shine a more positive light on the human condition and the way forward.

You ought to take a few minutes and take Alex Epstein’s short course from Prager University. It is presented in the form of a 5-minute video titled “Why You Should Love Fossil Fuel.” Here’s course description:

Every year on Earth Day we learn how bad humanity’s economic development is for the health of the planet. But maybe this is the wrong message. Maybe we should instead reflect on how human progress, even use of fossil fuels, has made our environment cleaner and healthier. Alex Epstein of the Center for Industrial Progress explains.

We hope you like this, because you’ll undoubtedly be hearing much more from Alex in the future as we are happy that he has joined us at the Center for Study of Science as one of Cato’s newest adjunct scholars.

Also trying to bring a positive light to our future and change the course of modern environmentalism are Michael Schellenberger and Ted Nordhaus from the Breakthrough Institute. These guys are co-authors of the Ecomodernist Manifesto that we highlighted in these pages last issue. For Earth Day, they wrote a piece for USA Today titled “Want to Save the Planet? Say Bye-bye to Nature.” They mean “bye-bye” not in the sense of nature going away, but that we (humans) should bid it farewell as we exit. Here is the lead:

Since before the first Earth Day in 1970, environmentalists have argued that solving environmental problems required humans to get closer to nature. The “back to the land” movement urged people to leave cities, which were viewed as crowded and polluted. Renewable energy was recommended because it integrates human civilization into natural energy flows, such as water, biofuels and the sun. Similarly, organic agriculture was better because it integrated farmers and consumers into the natural rhythms of nature.

In recent years, though, a growing number of environmental scientists and activists are saying that the best way to protect nature is not by returning to it, but rather by leaving it alone.

This fits closely with the idea that technology and advanced society leads to better environmental protection—an opinion that we share. You ought have a look.

And also, be sure not to miss the Wall Street Journal op-ed penned by Rep. Lamar Smith (R-TX), who chairs the House Committee on Science, Space and Technology. Last week, Smith’s committee held a hearing on the justification and feasibility of the Obama administration’s recently announced  “UN Climate Pledge.” Rep. Smith’s op-ed was in response to President Obama fossil-fuel-burning Earth Day foray into the Florida Everglades to tell us that we need to take action to restrict the burning of fossil fuels in the name of mitigating climate change. While we have a good suggestion for the President as to some fossil-fuel saving measures that immediately come to mind, we’ll bite our tongue because they wouldn’t have any impact on the climate anyway. In fact, this is true for all emissions-limiting actions that come from the United States—a point that Rep. Lamar stresses in his WSJ piece (with help from information originating from our work and conveyed to him via last week’s testimony of Dr. Judy Curry).

In the end, Rep. Smith astutely concludes:

When assessing climate change, we should focus on good science, not politically correct science.

Hear! Hear!

Back in February, I speculated that 2015 might be the “Year of Educational Choice” in the same way that the Wall Street Journal declared 2011 the “Year of School Choice” after 13 states enacted new or expanded school choice laws.

This year, in addition to a slew of more traditional school choice proposals, about a dozen legislatures considered new or expanded education savings accounts (ESAs). As I explained previously:

ESAs represent a move from school choice to educational choice because families can use ESA funds to pay for a lot more than just private school tuition. Parents can use the ESA funds for tutors, textbooks, homeschool curricula, online classes, educational therapy, and more. They can also save unused funds for future educational expenses, including college.

Currently, two states have ESA laws: Arizona and Florida. Both states redirect 90% of the funds that they would have spent on a student at her assigned district school into her education savings account. The major difference between the two laws is that Arizona’s ESA is managed by the Arizona Department of Education while Florida’s is privately managed by Step Up For Students and AAA Scholarships, the nonprofit scholarship organizations that also issue scholarships through the Sunshine State’s tax credit law.

Both Arizona and Florida expanded their ESA programs this year. Earlier this month, Arizona expanded eligibility for the ESA to students living on Native American reservations. And just today, the Florida House of Representatives voted unanimously to expand its ESA. Travis Pillow of the RedefinED Online blog explains:

The legislation would allow children with muscular dystrophy and a broader range of students with autism to use Personal Learning Scholarship Accounts, a cutting-edge program created last year.

The legislation would also open the program to three- and four-year-olds, expand the services that can be paid for with the accounts, increase oversight for the nonprofit organizations that administer the program, and allow them to collect administrative fees.

The entire Florida Senate cosponsored the legislation and passed it earlier this month. The bill now returns to the Senate where the only major difference is the level of funding.

Three other states also passed ESA bills. Last month, Mississippi adopted an ESA for students with special needs, followed by Tennessee and Montana this month. The Montana legislature also passed a scholarship tax credit law. Both Montana bills are pending action by the governor.

In addition, Nevada passed a new scholarship tax credit law in April, and Arkansas enacted school vouchers for students with special needs.

So far, 2015 has seen state legislatures in seven states adopt eight new or expanded educational choice programs–and the legislative season isn’t over yet. Legislators in Missouri and Nevada are still considering education savings accounts, Gov. Scott Walker is pushing to expand Wisconsin’s school voucher program, and the Texas state senate recently passed a scholarship tax credit bill. (Alabama legislators are also contemplating expanding their scholarship tax credit law, but the legislation desperately needs improvement.)

Whether or not 2015 tops 2011 in the number of new and expanded educational choice programs, this year has seen a lot of progress toward educational freedom.

Live Free and Learn: Scholarship Tax Credits in New Hampshire

This week, two federal court decisions here in D.C. reiterated the importance of the Fourth Amendment in police encounters.

In the U.S. Supreme Court, Justice Ruth Bader Ginsburg wrote the Court’s opinion in Rodriguez v. United States, declaring that prolonging a traffic stop to initiate a K-9 sniff of a vehicle was unconstitutional. It’s not a revolutionary decision or a watershed moment in the Court’s Fourth Amendment jurisprudence, but it’s always good to see the Court recognize that there are limits on the police during traffic stops. (Such recognition is not usually the case.) That said, police will still try to find ways to get you to surrender your rights during stops.

Down the street at the U.S. Court of Appeals for the D.C. Circuit, Judge Janice Rogers Brown wrote a concurrence in a case that gets to the heart of the problem in Fourth Amendment law today. Because lower courts are not allowed to ignore Supreme Court holdings even when judges think SCOTUS is wrong, Judge Brown had to vote in favor of the government. But in United States v. Gross, concerning D.C.’s roving patrols for illegal firearms in high crime areas, Judge Brown was quite clear when she wrote:

Despite lacking any semblance of particularized suspicion when the initial contact is made, the police subject these individuals to intrusive searches unless they can prove their innocence. Our case law considers such a policy consistent with the Fourth Amendment. I continue to think this is error. Our jurisprudence perpetuates a fiction of voluntary consent where none exists and validates a policy that subverts the framework of Terry v. Ohio, 392 U.S. 1 (1968).

In the absence of any particularized reports, evidence, or suspicions, patrolling officers simply question every likely person they encounter. They “employ[] a simple technique: they ask[] any individual they encounter[] if he or she ha[s] a gun and then watch[] to see if that individual engage[s] in what the officers perceive[] to be suspicious behavior.” If consent to question or search is refused, officers frequently construe citizens’ varied reactions to their probes as rationalizing a Terry stop.

As a thought experiment, try to imagine this scene in Georgetown. Would residents of that neighborhood maintain there was no pressure to comply, if the District’s police officers patrolled Prospect Street in tactical gear, questioning each person they encountered about whether they were carrying an illegal firearm? Nothing about the Gun Recovery Unit’s modus operandi is designed to convey a message that compliance is not required. While viewing such an encounter as consensual is roughly equivalent to finding the latest Sasquatch sighting credible, I submit to the prevailing orthodoxy, but I continue to reject its counterintuitive premise.

With the guise of voluntary consent stripped away, the reality of the District’s regime is revealed. It is a rolling roadblock that sweeps citizens up at random and subjects them to undesired police interactions culminating in a search of their persons and effects. If the Fourth Amendment is intended to offer meaningful protection in the context of Terry stops, the voluntary consent exemption cannot be used to engage with members of the public en masse and at random to fabricate articulable suspicions for virtually every citizen officers encounter on patrol. (Internal citations omitted.)

The state of Fourth Amendment jurisprudence is not good, but cases like these provide a glimmer of hope that the Supremes will come around one of these days. You should read Judge Brown’s full concurrence here.

The Obama administration is part of Saudi Arabia’s 10-member “coalition” fighting against Houthi rebels and in support of the now-deposed Yemeni government that is in exile in Riyadh. This was recently underscored by U.S. Secretary of State John Kerry, who said of the Saudis, “We’re not going to step away from our alliances and our friendships.”

Alas, the entire Yemen campaign is built on a lie. Contrary to Riyadh’s claims, the Houthis are not directed by, and seem only barely supported by, Iran, whose supposed involvement is the ostensible reason for U.S. involvement. Instead, the rebels have been fighting against the former Yemeni government for years.

America’s one-time ally, then-Yemeni president Ali Abdullah Saleh, battled the Houthis a decade ago. But after Saleh was ousted in 2012, he allied with the Houthis against his successor, President Abd Rabbo Mansour Hadi. The newly empowered rebels, supported by the official security forces who remained loyal to Saleh, ousted Hadi last fall.

Those familiar with Yemeni politics agree that none of this had anything to do with Iran or Saudi Arabia. The Saudi government claims that it wants to restore Hadi to power. But his followers largely abandoned him after he fled into exile and endorsed Saudi airstrikes on his fellow citizens.

As I point out in American Spectator online: “Yemen’s political turbulence is largely irrelevant to the U.S. America’s only serious security concern is the al-Qaeda affiliate, al-Qaeda in the Arabian Peninsula (AQAP). But AQAP has gained from Saudi Arabia’s attacks.”

By any normal measure Riyadh is far more inimical to American interests than Iran. Saudi Arabia is a totalitarian theocratic gerontocracy.

In contrast to Kuwait and even Iran, there are no elections, political opposition, or dissenting viewpoints in Saudi Arabia. Anyone who voices criticism is treated as if he was in the Soviet Union.

The U.S. State Department’s latest human rights assessment noted that Saudi “citizens lack the right and legal means to change their government; pervasive restrictions on universal rights such as freedom of expression, including on the internet, and freedom of assembly, association, movement, and religion; and a lack of equal rights for women, children, and noncitizen workers.” The report went on to cite “torture and other abuses.”

The Kingdom of Saudi Arabia is even more restrictive when it comes to religious liberty. For instance, the Saudis long have underwritten the intolerant Wahhabist theology around the world, including in America.

Spiritual oppression is complete. Not one church, synagogue, temple, or other house of worship operates in the Kingdom. Gathering together privately in a home is enough for arrest.

The Kingdom’s international policies are equally bad. Saudi Arabia was one of just three governments to recognize the Afghan Taliban. Saudis generously funded al-Qaeda prior to the September 11, 2001 attacks.

The Kingdom’s malign role continues. A 2009 Wikileaks document indicated that then-U.S. Secretary of State Hillary Clinton acknowledged, “Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.”

In Syria, the Saudi government has financed and supplied extremist Syrian rebels. In neighboring Bahrain, Riyadh sent in troops to back the repressive Sunni monarchy.

Yet President Obama is holding the Saudi royals’ coats as they intervene in the Yemeni civil war.

U.S. policymakers have sold American values for a pittance, largely because of Saudi oil. However, the Saudi royals always needed to sell their oil to fund their brutal repression and lavish lifestyles. Moreover, U.S. reliance on foreign supplies, in what always has been a global market, is down dramatically.

Yet the one-way relationship continues. President Obama praised the late Saudi King Abdullah’s “steadfast and passionate belief in the importance of the U.S.-Saudi relationship as a force for stability and security in the Middle East.” Of course the royals believe in the “alliance.” It’s cheaper to borrow U.S. forces than hire bodyguards.

The royal system’s vulnerabilities are only likely to grow. The danger of making a pact with the devil, as America has done with Riyadh, is that you risk being locked in the devil’s embrace, like in Yemen.

The problems of the teacher tenure system, especially in big cities where powerful unions defend members against dismissal, are familiar enough. Less well known is the newer, parallel–and arguably more alarming–rise of police and prison-guard tenure under what are known as Law Enforcement Officers Bill of Rights (LEOBR or LEOBOR) laws. 

Baltimore Mayor Stephanie Rawlings-Blake, for example, has blamed Maryland’s LEOBR law for frustrating the investigation into the death of Freddie Gray while in police custody. Maryland’s law provides that after an incident superiors cannot question an officer without the presence of a lawyer of the officer’s choosing, and that officers have 10 days to line up such representation. Critics say that by the time those suspected of misbehavior have to commit to a story, they will have had ample opportunity to consult with others about what to say. Most of the officers present have cooperated with the investigation of Gray’s death, the city says, but at least one has not. 

While the details of LEOBR laws vary from state to state, Mike Riggs’s 2012 account in Reason (“Why Firing a Bad Cop Is Damn Near Impossible”) cites these features as typical: 

Unlike a member of the public, the officer gets a “cooling off” period before he has to respond to any questions. Unlike a member of the public, the officer under investigation is privy to the names of his complainants and their testimony against him before he is ever interrogated. Unlike a member of the public, the officer under investigation is to be interrogated “at a reasonable hour,” with a union member present. Unlike a member of the public, the officer can only be questioned by one person during his interrogation. Unlike a member of the public, the officer can be interrogated only “for reasonable periods,” which “shall be timed to allow for such personal necessities and rest periods as are reasonably necessary.” Unlike a member of the public, the officer under investigation cannot be “threatened with disciplinary action” at any point during his interrogation. If he is threatened with punishment, whatever he says following the threat cannot be used against him.

What happens after the interrogation again varies from state to state. But under nearly every law enforcement bill of rights, the following additional privileges are granted to officers: Their departments cannot publicly acknowledge that the officer is under investigation; if the officer is cleared of wrongdoing or the charges are dropped, the department may not publicly acknowledge that the investigation ever took place, or reveal the nature of the complaint. The officer cannot be questioned or investigated by “non-government agents,” which means no civilian review boards. If the officer is suspended as a result of the investigation, he must continue to receive full pay and benefits until his case is resolved. In most states, the charging department must subsidize the accused officer’s legal defense.

A violation of any of the above rights can result in dismissal—not of the officer, but of the charges against him.

Maryland was the first state to pass a LEOBR, in 1972, and by now many states have followed, invariably after lobbying from police unions and associations. Often the bills are sponsored by Republicans, who seem to forget their normal skepticism of public employees as an interest group when uniformed services are involved.

Prison and jail guards are often covered by these laws as well, and scandals of corrections administration (the state-run Baltimore jail had a huge one in which the Maryland LEOBR was implicated) are often hard to investigate because of the law’s barriers. Union contracts often add further layers of insulation from discipline. In its coverage of abuse allegations at New York’s notorious Attica prison, for example, the New York Times reported, “Under their union contract, corrections officers are obligated to answer questions only from their employers and have the right to refuse to talk to outside police agencies. State Police investigators attempted to interview 15 guards; 11 declined to cooperate.”

Aware of Baltimore’s long (and still-unfolding) history of police misconduct, Mayor Rawlings-Blake and the state ACLU and other groups have called for a partial rollback of Maryland’s LEOBR. Yet its defenders are well organized, and reform bills never made it out of committee in the now-concluded state legislative session.

Meanwhile, Pennsylvania’s House unanimously voted last year to enact a “Correctional Officers’ Bill of Rights”–as if this all were completely uncontroversial. It shouldn’t be.

A century ago this week, one of the most important battles in the Great War began. Allied forces landed in what is typically called the Gallipoli or Dardanelles Campaign. The campaign went badly almost from the start, with heavy casualties on both sides. Ultimately London admitted defeat and withdrew its forces eight and a half months later.

The fight offered another horrid highlight to the insane paroxysm of violence eventually known as World War I.

More than 30 cemeteries fill the Gallipoli Peninsula. As many Turkish and allied troops died in this one extended battle–perhaps 120,000(though Turkish figures are incomplete and probably low)–as did Americans in the entire conflict.

For reasons that seem sadly frivolous today, all of Europe’s major powers, including the Ottoman Empire—the tottering “Sick Man of Europe”—went to war in 1914. No conflict is pretty, but World War I was particularly dreadful.

The Entente forces decided to attempt to force the Dardanelles, seize Istanbul, and open the Bosphorus Straits into the Black Sea. The battle commenced in February 1915. The British fleet first tried to push through the Straits but was halted by shore batteries and mines.

The allies then commenced an amphibious operation. Although soldiers from Britain, France, and India (a British colony at the time) were involved, men from Australia and New Zealand, grouped in the Australian and New Zealand Army Corps, played a leading role.

By January 9, 1916 the allied forces had been withdrawn. In a war noted for bloody futility, Gallipoli stood out as an example of purposeless killing.

The battle was the Ottomans’ greatest victory in a losing war. Only a sideshow for Britain and France, Gallipoli was a searing experience for Australia and New Zealand.

Gallipoli’s Anzac memorial displays the words of Mustafa Kemal, a 34-year-old divisional commander and later founder of modern Turkey (when he added the name Ataturk): “You are now lying in the soil of a friendly country. Therefore rest in peace. There is no difference between the Johnnies and the Mehmets to us where they lie side by side here in this country of ours.”

As I wrote in Forbes, “For an American, Gallipoli provides the same haunting feeling as visiting Antietam or Gettysburg, or Arlington Cemetery. It is the scene of heroism and tragedy, the formative experience in the destruction of one nation and creation of another.”

The cemeteries, big and small, give Gallipoli its majesty and tragedy. For instance, the Beach Cemetery is the final resting place to 379 allied soldiers. Most of the dead were in their early 20s, cut down with most of their lives before them.

Turkish mothers and fathers lost children too. Among Alcitepe’s dead was a 15-year-old, Hasanoglu Ahmet, from nearby Canakkale.

The battle settled nothing militarily. After the allied withdrawal the conflict went on for almost another three years.

First Lord of the Admiralty Winston Churchill lost his job as a result of the ill-fated campaign, and departed to command a battalion on the Western Front, where the war eventually was decided with American aid. Britain went on to spur an Arab revolt against the Ottoman Empire. Out of the wreckage emerged a new Turkish state headed by Ataturk, as well as a gaggle of artificial nations, some of which are dissolving before our eyes today.

Not only was the Gallipoli campaign futile, so was the entire conflict. The entry of the United States was particularly mad, a reckless act by an arrogant President Woodrow Wilson, who believed that he had been anointed from above to reorder the globe.

As a result, tens of thousands of Americans died to enable the Europeans to plunder the defeated, including the Ottomans. The Versailles Treaty became but an armistice for a generation, leading to the far more destructive World War II.

Today Gallipoli is peaceful, a place for study, reflection, even reverence. The momentous events of the Dardanelles remain alive even though a century has passed.

After one of the longest confirmation processes in the history of the Attorney General’s office, Loretta Lynch was confirmed by the Senate today as Eric Holder’s successor.

From a criminal justice perspective, whether Lynch will embrace or abandon Holder’s position on state-level drug legalization and his announced commitment to reforming civil asset forfeiture are two questions that spring immediately to mind.

Loretta Lynch zealously defended civil asset forfeiture during her confirmation hearings, and was a devoted practitioner of it as a U.S. Attorney in New York.  One of her seizure cases, that of the Hirsch brothers [$], garnered widespread attention and condemnation, and helped spur the nationwide calls for reform to which Eric Holder responded.

As previously discussed here:

In May of 2012 the Hirsch brothers, joint owners of Bi-County Distributors in Long Island, had their entire bank account drained by the Internal Revenue Service working in conjunction with Lynch’s office. Many of Bi-County’s customers paid in cash, and when the brothers made several deposits under $10,000, federal agents accused them of “structuring” their deposits in order to avoid the reporting requirements of the Bank Secrecy Act. Without so much as a criminal charge, the federal government emptied the account, totaling $446,651.11.

For more than two years, and in defiance of the 60-day deadline for the initiation of proceedings included in the Civil Asset Forfeiture Reform Act of 2000, Lynch’s office simply sat on the money while the Hirsch brothers survived off the goodwill their business had engendered with its vendors over the decades.

That case, which was handled by the Institute for Justice, finally ended […] when Lynch’s office quietly returned the money, having found no evidence of any wrongdoing. The Hirsch brothers and their business survived, but just how many law-abiding small businesses can afford to give the government a 33-month, interest-free loan of nearly half a million dollars?

 Indeed, Holder’s recent policy memo on structuring offenses explicitly forbids precisely the behavior exhibited by Lynch’s office during that case.  

There have been positive reforms to civil asset forfeiture at the state and federal levels over the last several months. Lynch’s tenure comes at a pivotal time in the national debate over forfeiture laws. Whether Lynch embraces those reforms or attempts to stem the tide in favor of more expansive government power remains to be seen.

Meanwhile, perhaps Holder’s most important decision as Attorney General was his order to “de-prioritize” marijuana prohibition enforcement in states that have voted to legalize recreational or medical marijuana.  While Holder’s commitment to that policy has occasionally been questioned, the potential impact of the decision by the federal government to allow states to create their own drug policies cannot be overstated.

Loretta Lynch is a staunch opponent of marijuana legalization and spoke against President Obama’s position on marijuana.  But when pressed, Lynch gave answers during her confirmation hearings that implied that she would not upset current policy (even if some might bicker with her description of current policy): 

“I can tell you that not only do I not support the legalization of marijuana, it is not the position of the Department of Justice currently to support the legalization. Nor would it be the position should I become confirmed as attorney general.” 

Attorney General nominee Loretta Lynch rebuffs Obama’s opinion on marijuana

So, what will her policy on state-level drug legalization look like? Technically speaking, those participating in state-legal drug markets in states like Colorado and Washington are in plain violation of federal law.  Their ability to operate thus far has been solely due to the grace of the Obama Administration.  Will Lynch’s confirmation threaten that executive grace?  Anti-prohibition advocates are confident that Lynch will maintain Holder’s priorities, but Lynch has thus far refused to tip her hand from a policy perspective.

America has a new Attorney General, but precisely what that means for federal criminal justice reform remains an open question.

The U.S. Constitution vests the legislative, executive, and judicial powers in separate branches of the government that are supposed to police each other. But what if one of those branches violates the law in a manner that personally benefits the members of another branch? That’s what has been happening since the day ObamaCare became law in 2010. For more than five years, the executive branch has been issuing illegal subsidies that personally benefit the most powerful interest group in the nation’s capital: members of Congress and their staffs. A decision today by the Senate Small Business & Entrepreneurship Committee not to investigate those illegal subsidies shows just how difficult it can be to prevent one branch of the government from corrupting members of another branch.  

It is no secret that executive-branch agencies have broken the law, over and over, to protect ObamaCare. King v. Burwell challenges the IRS’s decision to offer illegal premium subsidies in states with federally established health-insurance Exchanges. University of Iowa law professor Andy Grewal recently revealed the IRS is illegally offering Exchange subsidies to at least two other ineligible groups: certain undocumented immigrants and people who incorrectly project their income to be above the poverty line. Treasury, Health and Human Services, and other executive-branch agencies have unilaterally modified or suspended so many parts of the ACA, it’s hard to keep count – and even harder to know what the law will look like tomorrow. Even some of the administration’s supporters acknowledge its actions have gone too far

The longest-running and perhaps most significant way the administration has broken the law to protect ObamaCare is by issuing illegal subsidies to members of Congress.

When congressional Democrats passed the Patient Protection and Affordable Care Act (ACA), they were so desperate to pass a health care law that the ACA did not receive the scrutiny most bills do. Many members of Congress and their staffs were therefore surprised to learn that, as of the moment the president signed the ACA, that very law threw them out of their health plans. The ACA prohibits members of Congress and their staffs from receiving health coverage through the Federal Employees’ Health Benefits Program. They remained free to purchase health insurance on their own, but they would have to do so without the $10,000 or so the federal government “contributed” to their FEHBP premiums. In effect, the ACA gave members of Congress a pay cut of around $10,000.


Big deal, you say. ObamaCare made lots of people take a pay cut and threw millions out of their health plans. Ah, yes, my friends. But those were little people. This is Congress. 

Rather than risk Congress reopening the ACA to restore their lost health coverage – because who knows what other changes Congress might make in the process – the administration simply pretended that that part of the law didn’t exist. The Office of Personnel Management announced that members of Congress and their staffs could remain in the FEHBP until the ACA’s Exchanges launched in 2014. The president thus stuck to his promise, if you like your health plan, and you’re a member of Congress, you can keep your health plan

That still didn’t solve the president’s problems, however. The ACA says that as of 2014, the only coverage the federal government can offer members of Congress in connection with their employment is coverage created under the Act. In effect, that means Exchange coverage. But the law still cut off that $10,000 “employer contribution” to their health benefits. According to Politico, “OPM initially ruled that lawmakers and staffers couldn’t receive the subsidies once they went into the exchanges.” After the president intervened, OPM just ignored that part of the law and started issuing (illegal) subsidies on the order of $10,000 to hundreds of individual members of Congress and thousands of individual congressional staffers.

Note that I label these illegal payments to members of Congress subsidies, rather than compensation. When an employer pays part of a worker’s health premiums as a condition of that worker’s employment, that’s compensation. But these payments are not a condition of employment. In fact, under the ACA, a condition of their employment is that they not receive these payments.

Note too the eerie parallel to King v. Burwell: an executive-branch agency ignores the clear language of the ACA to issue health-insurance subsidies to people that just happen to have the effect of preventing Congress from reopening the law. The OPM’s illegal subsidies are thus indistinguishable from personal bribes to members of Congress.

Offering these subsidies to members of Congress violates the ACA in at least one other way as well. The ACA prohibits employers from making contributions to their employees’ coverage through the Exchanges that serve individuals. (The law’s technical term for them is “American Health Benefits Exchanges.”) So the administration let members of Congress enroll through the ACA’s Small Business Health Options Program Exchanges, or “SHOP Exchanges,” where employers can make contributions to coverage their workers’ premiums. The problem here is that the “S” in “SHOP” stands for small business – i.e., firms with fewer than 50 employees. Yet the OPM and the D.C. SHOP Exchange, where thousands of members of Congress, their staffs and their dependents have purchased coverage, are pretending that Congress is a small business with fewer than 50 employees

Which brings us back to the Senate Small Business & Entrepreneurship Committee. Committee chairman David Vitter (R-LA) has been waging a lonely battle to end these bribes. After suffering numerous setbacks, Vitter now seeks to shine sunlight on how these bribes happened. He wants to subpoena documents relating to OPM’s claim that Congress is a small business. You would think Republicans, who outnumber Democrats on the committee 10-9, would gladly join Vitter in exposing the administration’s malfeasance. Ending Congress’ special ObamaCare exemption – i.e., the bribes individual members of Congress and their staffs are receiving not to reopen ObamaCare – polls off the charts. More than 90 percent of voters believe this exemption is unfair. I mean, c’mon. The rap against congressional Republicans is that they are hyper-partisans who will do anything to take down President Obama and/or ObamaCare. You would think this would be too good an opportunity for those rabid partisans to miss.

You would be wrong.

Today, five committee Republicans voted with all nine Democrats to quash Vitter’s subpoena effort. Someone should ask the 14 senators who voted to keep the truth hidden whether they are personally receiving one of those illegal subsidies, and if so, the precise dollar amount.

I was not all that surprised by the result. I have spoken to many GOP staffers, including leadership staff, about how these illegal subsidies are immoral and standing in the way of ObamaCare repeal. Their faces freeze the moment I raise the subject. Often, they don’t say another word and leave the room as quickly as they can. I understand their fear. They have families. Mortgages. Illnesses. To them, ending these illegal subsidies seems like a $10,000 hit to their annual income.

Fortunately for them, they are mistaken. If those subsidies disappeared, Congress would reinstate them so quickly your head would spin. Congress would even provide back pay that would make members and staff completely whole. The absolute certitude of that outcome is exactly why the administration chose not to enforce this part of the ACA in the first place. They knew that members of Congress – Republicans and Democrats alike – would be so desperate to serve their own interests by reinstating that employee benefit that Republicans could insert important changes to ObamaCare and possibly still have enough support to override a veto. 

But more important, members of Congress and their staff should suffer that pay cut because that’s the law. The ACA has caused millions of Americans to lose their health plans and take pay cuts of similar magnitude. Why should people who work in Congress get a special exemption while people who work in auto repair do not? Is there a class of Americans who are above the law?

For all the talk in Washington about the corrupting influence of money in politics, remarkably few people seem to care that the executive branch is promiscuously issuing illegal taxpayer subsidies that not only personally benefit members of Congress but that also directly affect how members of Congress vote. Vitter deserves credit for taking the lead in trying to expose and put an end to those bribes. The framers of the Constitution did an admirable job, but sometimes the checks and balances they created are not enough to prevent the corruption of one branch of government by another.