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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.

A popular media story of the week was that sea level rise was accelerating and that this was worse than we thought. The stories were based on a new paper published in the journal Nature Climate Change by an author team led by the University of Tasmania’s Christopher Watson.

Watson and colleagues re-examined the satellite-based observations of sea level rise (available since the early 1990s) using a new methodology that supposedly better accounts for changes in the orbital altitude of the satellites—obviously a key factor when assessing sea levels by determining the height difference between the ocean’s surface and the satellites, the basic idea behind altimetry-based sea level measurements.

So far so good.

Their research produced two major findings, 1) their new adjusted measurements produced a lower rate of sea level rise than the old measurements (for the period 1993 to mid-2014), but 2) the rate of sea level rise was accelerating.

It was the latter that got all of the press.

But, it turns out, that in neither case, were the findings statistically significant at even the most basic levels used in scientific studies. Generally speaking, scientists report a findings as being “significant” if there is a less than 1-in-20 chance that the same result could have been produced by random (i.e., unexplained) processes. In some fields, the bar is set even higher (like 1 in 3.5 million). We can’t think of any scientific field that accepts a lower than a 1-in-20 threshold (although occasional individual papers do try to get away with applying a slightly lower standard).

But in the sea level rise paper that is getting all the attention, the author’s team push a result—an acceleration in sea level rise—that has about a 1-in-4 chance of being zero or below—i.e., that no acceleration in actuality is taking place. That’s like betting the farm that you won’t get two heads in a row when flipping a coin. No one outside of someone who is extremely desperate would make such a bet.

Given such a result—a finding that grossly failed the standard test of statistical significance—the  authors of the paper should have concluded that over the past 22+ years, there has been no reliably detectable change in the rate of sea level rise in the satellite-observed dataset.

Instead, the lead authors wrote in their paper’s abstract that:

“[I]n contrast to the previously reported slowing in the rate during the past two decades, our corrected [global mean sea level] data set indicates an acceleration in sea-level rise…which is of opposite sign to previous estimates.”

Further down in the details of the paper (where no reporter dares to go), the authors do admit that the acceleration was in fact statistically insignificant. But that’s not the impression left to the press.

And the press, always eager for a paper predicting doom and gloom from human-caused climate change was more than happy to run with headlines like:

“Sea Level Rise Accelerating Faster Than Thought” (from Science magazine)

“Sea levels are rising at faster clip as polar melt accelerates, new study shows” (from the Washington Post)

“Sea level rise accelerated over the past two decades, research finds” (from The Guardian)

“Study: Sea level rise accelerating worldwide” (from USA Today)

For the misleading claims, and the cascade of misinformation that flowed from them, we determine that the Spin Cycle setting of this story is Permanent Press.

 

 

Venezuela’s bolivar is collapsing. And as night follows day, Venezuela’s annual implied inflation rate is soaring. Last week, the annual inflation rate broke through the 500% level. It now stands at 510%.

When inflation rates are elevated, standard economic theory and reliable empirical techniques allow us to produce accurate inflation estimates. With free market exchange-rate data (usually black-market data), the inflation rate can be calculated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

To calculate the inflation rate in Venezuela, all that is required is a rather straightforward application of a standard, time-tested economic theory (read: PPP). Using black-market exchange rate data that The Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Venezuela’s current annual implied inflation rate to be 510%. This is the highest rate in the world. It’s well above the second-highest rate: Syria’s, which stands at 84%.

Venezuela has not always experienced punishing inflation rates. From 1950 through 1979, Venezuela’s average annual inflation rate remained in the single digits. It was not until the 1980s that Venezuela witnessed a double-digit average. And it was not until the 1990s that Venezuela’s average inflation rate exceeded that of the Latin American region. Today, Venezuela’s inflation rate is over the top (see the accompanying table).

Benjamin Franklin said, “There never was a good war or a bad peace.” Given Franklin’s leadership in the struggle for American independence, we can infer that he did not think that there never was a war that was necessary, or a war that was worth its cost. But he reminds us that even necessary wars have terrible costs.

I thought about Franklin when I read an eloquent column on the meaning of Memorial Day by the novelist Mark Helprin, who is also a senior fellow at the Claremont Institute. He lamented:

Though if by and large we ignore the debt we owe to those who fell at Saratoga, Antietam, the Marne, the Pointe du Hoc, and a thousand other places and more, our lives and everything we value are the ledger in which it is indelibly recorded.

It’s a worthy sentiment, one heard frequently in Memorial Day addresses, and we do indeed owe our lives and our pursuit of happiness to the freedom that America’s soldiers have sometimes had to defend.

But I can’t help wondering: Have all of America’s wars have been necessary to American freedom? Helprin mentioned the Second Battle of the Marne, the great turning point of World War I and the first battle in which Americans started experiencing the enormous casualties that Europeans had been facing for nearly four years. The problem is that World War I was a catastrophe, a foolish and unnecessary war, a war of European potentates that both England and the United States could have stayed out of but that became indeed a World War, the Great War. In our own country, the war gave us economic planning, conscription, nationalization of the railroads, a sedition act, confiscatory income tax rates, and prohibition. Internationally, World War I and its conclusion led directly to the Bolshevik revolution, the rise of National Socialism, World War II, and the Cold War. World War I was the worst mistake of the 20th century, the mistake that set in motion all the tragedies of the century. The deaths of those who fell at the Marne are all the more tragic when we reflect that they did not in fact serve to protect our lives and all that we value.

Did the wars in Vietnam and Iraq protect American lives and liberties? Two weeks ago, Republican presidential contender Jeb Bush said that discussing whether the Iraq war was a mistake “does a disservice to a lot of people who sacrificed a lot.” It’s understandable that an aspiring commander-in-chief would want to spare the feelings of those who lost a loved one in Iraq. But surely it’s more important that a commander-in-chief ask tough questions about when it’s advisable to go to war.

In my book The Libertarian Mind, I wrote about the effects of war: not just death on a large scale but the destruction of families, businesses, and civil society. And thus:

War cannot be avoided at all costs, but it should be avoided wherever possible. Proposals to involve the United States—or any government—in foreign conflict should be treated with great skepticism….We should understand the consequences of war for our entire social order and thus go to war only when absolutely necessary.

On this weekend we should mourn those who went to war, such as my father, who planned and participated in the liberation of Europe, and his brother who was lost off the coast of Normandy, and we should resolve not to risk American lives in the future except when our vital national interests are at stake.

In about 30 seconds this morning on Fox News Sunday, George Will laid out the prudential case for proceeding very cautiously when contemplating a war:

WALLACE: So George, with that as trailer, what’s the lesson that we should take from Iraq, and particularly as it comes to future U.S. policy?

WILL: Four lessons, I think.

First, the government has to choose always on the basis of imperfect information. I agree with Bob [Woodward]. There were no lies here [in the Bush administration’s incorrect claims about WMD]. It was a colossal failure to know what we didn’t know.

Second, the failure to ask Admiral Yamamoto’s question. When he was asked by the government of Japan could he take a fleet stealthily across the Pacific and strike Pearl Harbor, he said yeah, but then what? He knew they would have on their hands an enormous problem in the United States.

Third, Colin Powell’s Pottery Barn rule: if you break it, you own it. Just as when the Kennedy administration in November 1963 was complicit in the coup against Diem, in South Vietnam, we owned South Vietnam ever after.

But fourth and most important, the phrase nation-building is as absurd as the phrase orchid building. Orchids are complex, organic things. So are nations. And we do not know how to build nations any more than we know how to fix English-speaking home grown Detroit. 

That’s more-or-less the question that Bankrate.com asked Dean Baker, co-founder of the Center for Economic and Policy Research, and me after last month’s FOMC press release. Dean said yep. I said…uh, not really. Our full answers appeared recently in the online publication’s “Wealth of Opinions” column. There’s even a little poll at the end, allowing you to pick your favorite answer. Of course you don’t have to vote. It’s really entirely up to you. I mean, I’m not trying to pressure you or anything like that.

Honest.

No, really!

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 of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary.

In this issue of You Ought to Have a Look, we focus on what we think is an extremely important article, written by Richard Horton, long-time editor of The Lancet—a British medical journal considered to be one of the world’s most prestigious.

Horton addresses what is increasingly becoming recognized as the biggest problem in modern science: an incentive system that promotes style (i.e., “attention grabbing”) over substance. The headlong pursuit of headlines is leading not only to sloppy science, but selective science. The result is that the course of human knowledge is being perturbed, and not for the better.

Horton’s comments are particularly salient as this week witnessed the retraction of another headline-grabbing paper in a prestigious journal.

Here, we reproduce the bulk of Horton’s essay in which he addresses “the idea that something has gone fundamentally wrong with one of our greatest human creations”:

The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness. As one participant put it, “poor methods get results”.The Academy of Medical Sciences, Medical Research Council, and Biotechnology and Biological Sciences Research Council have now put their reputational weight behind an investigation into these questionable research practices.The apparent endemicity of bad research behaviour is alarming. In their quest for telling a compelling story, scientists too often sculpt data to fit their preferred theory of the world. Or they retrofit hypotheses to fit their data.Journal editors deserve their fair share of criticism too. We aid and abet the worst behaviours. Our acquiescence to the impact factor fuels an unhealthy competition to win a place in a select few journals. Our love of “significance” pollutes the literature with many a statistical fairy-tale. We reject important confirmations. Journals are not the only miscreants. Universities are in a perpetual struggle for money and talent, endpoints that foster reductive metrics, such as high-impact publication. National assessment procedures, such as the Research Excellence Framework, incentivize bad practices. And individual scientists, including their most senior leaders, do little to alter a research culture that occasionally veers close to misconduct.

Can bad scientific practices be fixed? Part of the problem is that no-one is incentivised to be right. Instead, scientists are incentivised to be productive and innovative. Would a Hippocratic Oath for science help? Certainly don’t add more layers of research redtape. Instead of changing incentives, perhaps one could remove incentives altogether. Or insist on replicability statements in grant applications and research papers. Or emphasise collaboration, not competition. Or insist on preregistration of protocols. Or reward better pre- and post-publication peer review. Or improve research training and mentorship. Or implement the recommendations from our Series on increasing research value, published last year.One of the most convincing proposals came from outside the biomedical community. Tony Weidberg is a Professor of Particle Physics at Oxford. Following several high-profile errors, the particle physics community now invests great effort into intensive checking and rechecking of data prior to publication. By filtering results through independent working groups, physicists are encouraged to criticise. Good criticism is rewarded. The goal is a reliable result, and the incentives for scientists are aligned around this goal. Weidberg worried we set the bar for results in biomedicine far too low. In particle physics, significance is set at 5 sigma—a p value of 3 × 10–7 or 1 in 3.5 million (if the result is not true, this is the probability that the data would have been as extreme as they are). The conclusion of the symposium was that something must be done. Indeed, all seemed to agree that it was within our power to do that something. But as to precisely what to do or how to do it, there were no firm answers. Those who have the power to act seem to think somebody else should act first. And every positive action (eg, funding well-powered replications) has a counterargument (science will become less creative). The good news is that science is beginning to take some of its worst failings very seriously. The bad news is that nobody is ready to take the first step to clean up the system.

This issue is especially near and dear to our hearts at the Center for the Study of Science. For those interested in more on this topic (and we hope that is most of you), please see our recent Working Paper and various other writings and presentations.

This is an extremely important issue that is far from receiving the level of attention that it deserves.

Most central banks do one thing well: they produce monetary mischief. Indeed, for most emerging market countries, a central bank is a recipe for disaster.

The solution: replace domestic currencies with sound foreign currencies. Panama is a prime example of this type of switch. Panama adopted the U.S. dollar as its official currency in 1904. It is one of the best-performing countries in Latin America (see the accompanying table). In 2014, economic growth in Latin America and the Caribbean was a measly 0.8 percent. In contrast, Panama’s growth rate was 6.2 percent. Not surprisingly, it was the only country in Latin America to have realized an increase in the number of greenfield FDI projects

My misery index indicates just how well Panama stacks up against other Latin American countries. The misery index is a simple sum of inflation, bank lending rates, and unemployment, minus year-over-year per-capita GDP growth. The table below shows the misery index readings for the Latin American countries in which data were available in 2014.

Thanks to their central banks, Venezuela and Argentina top the list as the most miserable countries in the region. Panama, El Salvador, and Ecuador score very well on the misery index. All three are dollarized.

Gallup’s latest report of American ideology shows the public is becoming increasingly socially liberal but not more economically liberal. Putting these trends together, you have an increasing number of Americans who are both socially liberal and fiscally conservative. This is probably why pundits are talking about a libertarian impulse trending in the United States. America is not becoming more liberal across the board, we are becoming more libertarian on social issues. In sum, the country is more libertarian today in 2015 than it was 10 years ago.

Social Liberalism on the Rise

Since the late 1990s Gallup has tracked the share of Americans who say their views on social issues are “liberal” or “very liberal.” In 1999 Americans were nearly twice as likely to say they were socially conservative as socially liberal (39 to 21 percent). However, throughout the 2000s the share of Americans who viewed themselves as liberal on social issues has steadily increased. In Gallup’s latest poll, Americans are equally likely to say they are socially liberal as socially conservative (31 percent each).

The rise in social liberalism is largely due to Democrats’ embracing the term rather than Republicans becoming more liberal. In 2015 fully 53 percent of Democrats say they are social liberals, up from only 38 percent 10 years ago. Among Republicans there has been no significant change in the share who say they are social liberals. Compared to 10 years ago, almost the same share of Republicans say they are social conservatives. However, there was a surge in social conservatism on the right between 2007 and 2012, reaching 67 percent in 2009. From that, there has been a marked decline to 53 percent. Only 11 percent of Republicans say they are social liberals, while 8 percent used the label 10 years ago.

Fiscal Conservatism Maintains Strong Advantage

Nevertheless, despite the 2008 Financial Crisis and Great Recession, talk of who built what and who’s paying their fair share, Americans continue to see themselves as fiscal conservatives by a wide margin. Gallup found that 39 percent of Americans self identify as fiscal conservatives compared to 19 percent who say they are fiscal liberals—a 20-point advantage.

Since 1999, there has been no significant change in the share of Americans who view themselves as “liberal” on economic issues—16 percent in 1999 and 19 percent in 2015. There has been a slight decline in the share who view themselves as economically conservative from 44 percent in 1999 to 39 percent in 2015. However, there was a marked increase in self-identified fiscal conservatives between 2009 and 2012, when more than half identified as such. However, this share has since declined to 39 percent. There appears to be a reversion to the mean in American fiscal attitudes.

On economic issues, Republicans and Democrats have further diverged. Republicans are slightly more likely in 2015 to identify as fiscal conservatives (64 percent) compared to 2001 (60 percent). However, there was a surge in Republicans’ fiscal conservatism in the middle of the decade that has since begun to subside. Self-identified fiscal conservatives among Republicans surged from 58 percent in 2005 to 76 percent in 2010 at the height of the tea party wave in the aftermath of TARP, the stimulus, and passage of the Affordable Care Act. Since 2012, economic conservatism has begun to recede back to pre-Recession levels among Republicans.

Democrats are becoming more economically liberal. In 2001 30 percent of Democrats said they were fiscal conservatives, compared to only 18 percent in 2015. While the share of fiscally moderate Democrats has remained steady, the share of fiscally liberal Democrats has increased from 22 percent 10 years ago to 33 percent in 2015.

Election 2016

The American electorate is more libertarian in 2015 than it was a decade ago. Candidates seeking the presidency in 2016 will face voters more open to the rhetoric of inclusivity, legalizing same-sex marriage, and marijuana legalization, but about where they were 10 years ago on economic issues.

There has not been a clear shift to the left on all issues, but primarily on social and cultural issues. Consequently, Republican candidates may find themselves rewarded by toning down the harsh rhetoric on social matters and immigration and promoting fiscal responsibility and free markets. However, while Democrats may benefit from trending social liberalism, they should be careful to avoid staking economic positions that are perceived as too liberal.

In sum, while this is certainly not always the case, candidates leaning in a more libertarian direction will likely be benefited at the polls.

In New Hampshire yesterday, Jeb Bush found something to disagree with his brother’s presidency—sort of:

“I think that, in Washington during my brother’s time, Republicans spent too much money,” Mr. Bush said Thursday when asked to describe where there was a “big space” between himself and his brother George W. Bush. “I think he could have used the veto power. He didn’t have line-item veto power, but he could have brought budget discipline to Washington, D.C.”

As Peter Suderman noted in Reason, there’s some weaseling in there—it’s “Republicans” who spent too much, not specifically the Republican president. And Jeb quickly went on to say that such criticism “seems kind of quaint right now given the fact that after he left, the budget and deficits and spending went up astronomically.” Suderman notes that George W. Bush in fact

presided over the most significant increase in federal spending since Lyndon B. Johnson was president in the 1960s… Federal spending under Obama has increased at a far slower rate than under President Bush. Obama took Bush’s baseline and built on it, but George W. Bush’s spending increases were a big part of what made Obama’s spending possible.

Jeb had said this before—in fact, during his brother’s presidency. At CPAC in 2007, he said, “If the promise of pork and more programs is the way Republicans think they’ll regain the majority, then they’ve got a problem.” He said then that he was talking about the Republicans in Congress. And I noted then

But who’s he kidding? President Bush sponsored most of those “more programs,” and in six years he hasn’t vetoed a single piece of pork or a bloated entitlement bill or a new spending program. And if Jeb thinks “we lost … because we rejected the conservative philosophy in this country,” he must realize that his brother has set the agenda for Republicans over the past six years almost as firmly as Putin has set Russia’s agenda. If Republicans turned their back on limited-government conservatism, it’s because the White House told them to. Not that congressional leaders were blameless—and on Social Security reform, they did decide to resist Bush’s one good idea—but it was President Bush and his White House staff who inspired, enticed, threatened, bullied, and bully-pulpited Republicans into passing the No Child Left Behind Act, the biggest expansion of entitlements in 40 years, and other big-government schemes.

I also pointed out then, as Peter Suderman does today:

Although Jeb seems to have convinced conservatives that he’s much more committed to spending restraint than W—and he did veto some $2 billion in spending over eight years [as Florida governor]—his real record is much more like his brother’s. According to the Cato Institute’s Fiscal Policy Report Card on America’s Governors (pdf), he presided over “explosive growth in state spending.” Indeed, in the latest report card, only 10 governors had worse ratings on spending restraint, though—again like his brother—Jeb scored much higher on tax cutting. Federal spending is up 50 percent in six years; Florida’s spending was up 52 percent in eight years, and Jeb wasn’t fighting two foreign wars.

Republicans like to promise spending restraint, to deplore past profligacy, and then to deliver more of the same. That’s what George W. did, and it looks like Jeb is starting down the same path.

On May 19, I testified at a hearing titled “Trade Promotion Agencies and U.S. Foreign Policy,” which was held by the House Foreign Affairs Subcommitee on Terrorism, Nonproliferation, and Trade. The subject agencies were the Export-Import Bank (Ex-Im), the Overseas Private Investment Corporation (OPIC), and the U.S. Trade and Development Agency (USTDA). The focus of my remarks, which follow, was on Ex-Im and the myth that exports are the benefits of trade.

Good morning, Chairman Poe, Ranking Member Keating, and members of the subcommittee. I am Dan Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. Thank you for the invitation to share my views with you today concerning “Trade Promotion Agencies and U.S. Foreign Policy.” The views I express are my own and should not be construed as representing any official positions of the Cato Institute.

To the extent that today’s hearing will help clarify some of these issues and prompt a serious effort to reform and retire some of the redundant, distortionary, and, frankly, scandal-prone agencies among the panoply of federal offerings, I am pleased to be of assistance.

U.S. trade promotion agencies are in the business of promoting exports, not trade in the more inclusive sense. That is worth noting because despite some of the wrongheaded mercantilist assumptions undergirding U.S. trade policy—that exports are good and imports are bad—the fact is that the real benefits of trade are transmitted through imports, not through exports.

In keeping with the conventional wisdom, in January 2010 President Obama set a national goal of doubling U.S. exports in five years. Prominent in the plan was a larger role for government in promoting exports, including expanded nonmarket lending programs to finance export activity, an increase in the number of the Commerce Department’s foreign outposts to promote U.S. business, and an increase in federal agency-chaperoned marketing trips.

But the NEI neglected a broad swath of worthy reforms by ignoring the domestic laws, regulations, taxes, and other policies that handicap U.S. businesses in their competition for sales in the U.S. market and abroad. For example, nearly 60 percent of the value of U.S. imports in 2014 consisted of intermediate goods, capital goods, and other raw materials—the purchases of U.S. businesses, not consumers. Yet, many of those imports are subject to customs duties, which raise the cost of production for the U.S.-based companies that need them, making them less competitive at home and abroad. U.S. duties on products like sugar, steel, magnesium, polyvinyl chloride, and other crucial manufacturing inputs have chased companies to foreign shores—where those inputs are less expensive—and deterred foreign companies from setting up shop stateside.

Policymakers should stop conflating the interests of exporters with the national interest and commit to policies that reduce frictions throughout the supply chain—from product conception to consumption. Why should U.S. taxpayers underwrite—and U.S. policymakers promote—the interests of exporters, anyway, when the benefits of those efforts accrue, primarily, to the shareholders of the companies enjoying the subsidized marketing or matchmaking? There is no national ownership of private export revenues.

If policymakers seek a more appropriate target for economic policy, it should be to attract and retain direct investment, which is the seed of all economic activity, including exporting.

Given the exalted status of exports in Washington’s economic policy narrative, it is understandable why agencies would want to portray themselves as indispensable to U.S. export success. But on that metric, none of the subject agencies is scarcely relevant: Ex-Im supported $27.4 billion in exports in 2014; USTDA supported approximately $2.5 billion annually; and, OPIC supports less than $2 billion. In aggregate, these three agencies “support” less than 2 percent of all U.S. exports.

But the relevant economic question concerns the costs and benefits of these agencies to the U.S. economy. Let me focus now on Ex-Im.

Ex-Im financing helps two sets of companies: U.S. firms whose exports are subsidized through direct loans or loan guarantees and the foreign firms who purchase those subsidized exports.

But those same transactions impose costs on two different sets of companies: competing U.S. firms in the same industry who do not get Ex-Im backing, and U.S. firms in downstream industries, whose foreign competition is now benefitting from reduced capital costs courtesy of U.S. government subsidies.

Ex-Im financing reduces the cost of doing business for the lucky U.S. exporter and reduces the cost of capital for his foreign customer, but it hurts U.S. competitors of the U.S. exporter (what I call intra-industry costs), as well as U.S. competitors of his foreign customer (what I call downstream industry costs) by putting them at relative cost disadvantages. According to the findings in a recent Cato Institute study, the downstream costs alone amount to a tax of approximately $2.8 billion every year and the victims include companies in each of the 21 broad U.S. manufacturing sectors.

The notion that because Beijing, Brasilia, and Brussels subsidize their exporters, Washington must, too, sweeps under the rug the fact that the United States is a major export credit subsidizer that has been engaged in doling out such largesse since 1934, well before the founding of the People’s Republic of China. To say that U.S. exporters need assistance with financing to “level the playing field” suggests that they lack advantages among the multitude of considerations that inform the purchasing decision. Moreover, the fact that less than 2 percent of U.S. export value goes through export promotion agencies suggests this rationale for Ex-Im is bogus.

Congress should allow Ex-Im to expire at the end of next month and the administration should announce plans to bring cases to the World Trade Organization against governments operating their export credit agencies in violation of agreed-upon limits under the Agreement on Subsidies and Countervailing Measures. The combination of the carrot of U.S. withdrawal from the business of export credit financing and the stick of WTO litigation would likely incent other governments to reduce, and possibly eliminate, their own subsidy programs.

For better or worse, at different times and for different purposes over the years, U.S. trade policy has been a tool of U.S. foreign policy. Trade preference programs, trade agreements, the Trans-Pacific Partnership, investment treaties, trade sanctions, infrastructure funding, and trade financing have all been pursued or deployed for reasons not entirely economic in nature. Pursuing strategic objectives through trade policy has a long history.

The State Department’s mission is “to shape and sustain a peaceful, prosperous, just, and democratic world and foster conditions for stability and progress for the benefit of the American people and people everywhere.” That broad mission may justify one or two export promotion agencies.  But according to the Congressional Research Service, there are at least 20 such agencies within the U.S. government with overlapping responsibilities and, in some cases, working at cross purposes.

Ex-Im’s inspector general is currently investigating 31 cases of fraud and abuse and last year the House Oversight and Government Reform Committee held a hearing with a former bank employee who was subsequently indicted on charges of fraud. It would be difficult to argue that this is the kind of behavior we encourage foreign governments to emulate.

Despite the rhetoric of U.S. decline, the United States maintains enormous commercial advantages over other countries.  We have the world’s largest market; strong institutions, including respect for private property and the rule of law; relatively free markets; a highly educated and productive workforce; the world’s best research institutions; a society that encourages innovation and produces deep and broad capital markets to fund it.  From these commercial advantages comes security and strength, so it is important that we maintain and build on those advantages. They underlie the strength of the U.S. economy, which is crucial to reaching U.S. security and foreign policy goals going forward.

Today, the Fort Worth Star-Telegram published my op-ed addressing the claims of a group called Pastors for Texas Children. For the last month, the pastors have been flooding the pages of Texas newspapers with op-eds opposing school choice. Although they raise some legitimate concerns about school vouchers, their charges against scholarship tax credits—and school choice laws generally—range from lacking substance to being demonstrably false. 

There wasn’t enough space to address all of their claims in a single op-ed, but fortunately, here at Cato@Liberty we buy megapixels by the barrel (or whatever they come in). 

The claims made by six Fort Worth pastors in this op-ed were typical. I’ll address their major claims point by point:

The Texas Senate recently passed Senate Bill 4, providing tuition tax credits to donors giving scholarships to private schools. These are plainly private school vouchers.

Actually, the scholarships plainly are not vouchers. Voucher programs are government-funded and administered. Tax-credit scholarships are privately funded and administered by nonprofit scholarship organizations. As I wrote in the Star-Telegram, it’s like the difference between government-issued food stamps and nonprofit food banks. Donors to both scholarship organizations and food banks have their tax burden lowered as a result, but in neither case do the donated funds transmogrify into government property.

Our state Legislature has repeatedly rejected private school vouchers because they divert public money to religious schools in violation of the First Amendment of the U.S. Constitution, which prohibits any establishment of religion.

First, the U.S. Supreme Court ruled in Zelman v. Simmons-Harris that school vouchers are constitutional because they serve a secular purpose, are neutral with respect to religion, and the funds are given to parents who can choose among religious or secular options. This is no more offensive to the First Amendment than holding a Bible study in a Section-8 subsidized apartment or using Medicaid at a Catholic hospital with a crucifix in every room and chaplains on the payroll.

Second, as noted previously, tax-credit scholarships are private funds. In ACSTO v. Winn, SCOTUS held that private funds do not become government property until they “come into the tax collector’s hands.”

Nevertheless, whoever runs the Pastors for Children Twitter account argued that “Tuition tax credits reduce the public treasury in diverting money for [a] religious cause.” But if that’s all it takes to turn private donations into government money, then the churches to which the pastors belong are entirely government-funded. After all, donors to those churches receive tax deductions and the churches themselves receive 100 percent property-tax exemptions. Fortunately for the pastors, no one really believes that.

Moreover, unlike the tax benefits that churches receive, well-designed education tax credits reduce the overall tax burden by reducing state expenditures more than they reduce state tax revenue. Whenever a child leaves her assigned district school to accept a tax-credit scholarship, the state no longer has to fund that child. In 2010, Florida’s Office of Program Policy Analysis and Government Accountability calculated that the Sunshine State’s scholarship tax credit produced $1.44 in savings for every $1 of reduced tax revenue, saving Florida taxpayers more than $36 million in a single year.

Religious liberty is at stake. The separation of church and state is intended not to protect the state from the church, but to protect the church from the state.

With Thomas Jefferson, we believe it is sinful and tyrannical for government to compel people to pay taxes for the propagation of religious opinions with which they disagree, or even with which they agree. Authentic religion must be wholly uncoerced. [emphasis in the original]

Indeed! Of course, the pastors don’t extend that logic to its conclusion: public schools regularly propagate opinions with which many citizens disagree. If the pastors truly held that principle sacred, if they truly believed that such compulsion is “sinful and tyrannical,” then they would seek to end government-run schooling altogether.

Moreover, even school vouchers have an advantage over the government’s near-monopoly in K-12 education because they allow parents to enroll their children in schools that reflect their views and values, rather than forcing parents into social conflict. And, of course, tax-credit scholarships achieve that end through voluntary contributions. In any case, given the pastors’ rhetoric, they should support school choice.

As a practical matter, vouchers channel public monies to private schools with no public accountability.

Actually, vouchers and tax-credit scholarships enhance accountability by making schools directly responsible to parents. This is especially true in low-income communities where parents have no financially viable options besides their assigned district school.

Private schools could use public money to discriminate on race, gender, religion and special needs.

There are four claims here. The first is patently false; as Patrick Gibbons noted at RedefinED, all schools—public and private—are forbidden by law to discriminate based on race. The U.S. Supreme Court settled the issue in its 1976 decision in Runyon v. McCrary. The pastors should issue a retraction.

The second and third claims are red herrings. Of course, in a free and pluralistic society that treasures freedom of association, a private school can be single-sex or have a particular religious affiliation. Do the pastors object to Wellesley College or Notre Dame accepting students on Pell Grants?

The fourth claim is more complicated. Not all private schools are equipped to handle particular special needs, but any school that accepts federal funding must comply with the Americans with Disabilities Act (ADA). Moreover, there are numerous private schools that cater to students with special needs. Indeed, more than a dozen states have school choice programs that specifically benefit students with special needs, such as the child in this video:

https://youtu.be/iVbMrfTta_g

Returning to the pastors’ op-ed:

Texas benefits from a robust economy, yet hovers near the nation’s bottom in per-pupil spending. We feast at bounty’s table while some children subsist on crumbs.

The underlying but unstated assumption here is that more money means higher performance. However, there is no good evidence to suggest that’s the case. Texas public schools already spend north of $10,500 per pupil on average–how much do the pastors think should they should spend?

Education is a core component of democracy.

Indeed it is! Yet as Neal McCluskey noted recently, the best evidence shows that private schools do a better job instilling civic knowledge and values.

In a second op-ed, a Pastors for Texas Children member takes a different approach:

As tempting as it may be for private, religious schools to pluck the low-hanging fruit of “free” public money, the cost is too great. … Vouchers come with government strings attached.

Here the pastor raises a good point. Vouchers do tend to come with strings attached—but tax-credit scholarships do not. For that matter, the government could impose regulations on private schools even in the absence of vouchers. School choice or not, the price of liberty is eternal vigilance.

These government payouts seek to fill in for faith. They whisper from the shadows that they are the answer to the problems of funding a Christian school. God does not need vouchers.

Frankly, I’m not even sure what to make of that. Does that mean that there are no religious schools with a waiting list? And does God also not need public schools?

Whether or not God needs vouchers (whatever that means), there are low-income families who need financial assistance to send their kids to a decent school. Ideally, those funds would come through private charity, but we don’t live in an ideal world. Instead, we live in a world in which the government provides “free” education that crowds out most alternatives. Tax-credit scholarships would reduce that crowd-out by encouraging private giving to empower low-income families to choose private schools.

At one point, the pastor strays into darker territory:

There however, are some faith-based schools ready to receive the funds. I don’t want tax dollars diverted to them anymore than I want them diverted to my school. In North Carolina’s voucher program, 8 percent of the public money is diverted to a single school, the Greensboro Islamic Academy. Louisiana’s voucher system only passed the state legislature when an Islamic school’s request for funds was withdrawn. Where public funds are diverted to faith-based schools, all faiths will have access to the funds.

Why raise the specter of Islamic education if not to appeal to the assumed bigotry of the reader? We should expect better from a man of the cloth.

In short, none of the pastors’ central claims withstand scrutiny. Let us hope that after prayerful reflection on the evidence, they will—like the Texas Catholic diocese—come to support education for all students.

In the news this morning, Sen. Orrin Hatch (R–UT), author of the Trade Promotion Authority bill, makes the usual case for trade agreements and TPA:

We need to get this bill passed. We need to pass it for the American workers who want good, high-paying jobs. We need to pass it for our farmers, ranchers, manufacturers, and entrepreneurs who need access to foreign markets in order to compete. We need to pass it to maintain our standing in the world.

It’s certainly good that the chairman of the Senate Finance Committee supports freer trade. But I fear he’s as confused as most Washingtonians about the actual case for free trade.

This whole “exports and jobs” framework is misguided. Thirty years ago in the Cato Journal, the economist Ronald Krieger explained the difference between the economist’s and the non-economist’s views of trade. The economist believes that “The purpose of economic activity is to enhance the wellbeing of individual consumers and households.” And, therefore, “Imports are the benefit for which exports are the cost.” Imports are the things we want—clothing, televisions, cars, software, ideas—and exports are what we have to trade in order to get them.

And thus, Krieger continues, point by point:

Cheap foreign goods are thus an unambiguous benefit to the importing country.

The objective of foreign trade is therefore to get goods on advantageous terms.

That is why we want free—or at least freer—trade: to remove the impediments that prevent people from finding the best ways to satisfy their wants. Free trade allows us to benefit from the division of labor, specialization, comparative advantage, and economies of scale.

I write about this in The Libertarian Mind (buy it now!):

Politicians just don’t seem to get this. President Obama’s official statement on “Promoting U.S. Jobs by Increasing Trade and Exports” mentions exports more than forty times; imports, not once. His Republican critics agree: Senator Rob Portman says that a trade agreement “is vital to increasing American exports.” More colorfully, during his 1996 presidential campaign, Pat Buchanan stood at the Port of Baltimore and said, “This harbor in Baltimore is one of the biggest and busiest in the nation. There needs to be more American goods going out.”

That’s fundamentally mistaken. We don’t want to send any more of our wealth overseas than we have to in order to acquire goods from overseas. If Saudi Arabia would give us oil for free, or if South Korea would give us televisions for free, Americans would be better off. The people and capital that used to produce televisions—or used to produce things that were traded for televisions—could then shift to producing other goods. Unfortunately for us, we don’t get those goods from other countries for free. But if we can get them cheaper than it would cost us to produce them ourselves, we’re better off.

Sometimes international trade is seen in terms of competition between nations. We should view it, instead, like domestic trade, as a form of cooperation. By trading, people in both countries can prosper. And we should remember that goods are produced by individuals and businesses, not by nation-states. “South Korea” doesn’t produce televisions; “the United States” doesn’t produce the world’s most popular entertainment. Individuals, organized into partnerships and corporations in each country, produce and exchange. In any case, today’s economy is so globally integrated that it’s not clear even what a “Japanese” or “Dutch” company is. If Apple Inc. produces iPads in China and sells them in Europe, which “country” is racking up points on the international scoreboard? The immediate winners would seem to be investors and engineers in the United States, workers in China, and consumers in Europe; but of course the broader benefits of international trade will accrue to investors, workers, and consumers in all those areas.

The benefit of international trade to consumers is clear: We can buy goods produced in other countries if we find them better or cheaper. There are other benefits as well. First, it allows the division of labor to work on a broader scale, enabling the people in each country to produce the goods at which they have a comparative advantage. As Mises put it, “The inhabitants of [Switzerland] prefer to manufacture watches instead of growing wheat. Watchmaking is for them the cheapest way to acquire wheat. On the other hand the growing of wheat is the cheapest way for the Canadian farmer to acquire watches.”

The Senate Commerce Committee held a fascinating hearing on Wednesday regarding air traffic control (ATC). The hearing showcased the momentum to proceed with ATC restructuring. Because aviation is crucial to the economy, such a reform would create wide-ranging benefits.

At this point, industry experts are ahead of Congress in thinking about ATC reform. At the hearing, some of the senators seemed short-sighted and parochial. They had not done their homework and they nit-picked instead of considering the big-picture benefits.

However, the witness testimony was powerful and so it hopefully helped sway the skeptics. America’s ATC needs a big upgrade to meet rising passenger demand. Airspace is getting crowded and our antiquated ATC is causing delays and wasting fuel. Other countries have improved performance by separating ATC from their governments. That is the reform that America needs.

The testimonies of former Democratic senator Byron Dorgan (here), Paul Rinaldi of the National Air Traffic Controllers Association (here), and Jeff Smisek of United Airlines (here) were impressive. Kudos to them all for embracing change.

Dorgan heads an ATC reform group, and he clearly had done his homework. If he were still a sitting senator, he might be skeptical of ATC changes, but he now favors restructuring. He argued that separating ATC finances from the federal budget is a crucial step to take. His testimony illustrates that when politicians take the time to learn about policy issues in detail, they are more likely to embrace reform.

Rinaldi is carving out a thoughtful pro-reform position as head of the controller’s union. Unions are often resistant to change. But to Rinaldi and his union’s credit, they have researched international ATC reforms and they seem to be open to major U.S. restructuring.

Smisek is chairman of United Airlines and heads Airlines for America (A4A). Corporations often resist reforms that reduce their subsidies. Currently, ATC is partly funded by general tax revenues, and those aviation subsidies might end if ATC were separated from the government. So bravo to United and A4A for putting the long-term interests of aviation first.

The skunk at the picnic was Ed Bolen, who heads the trade group for general aviation, the National Business Aviation Association. Bolen fears that separating ATC from the government might result in higher fees. His mistake is to believe that the current bureaucratic ATC will miraculously start working better in the future and that Congress will deliver billions of dollars for new ATC investment. That seems unlikely. As other witnesses observed, the current ATC system still uses World War II–era technology. Bolen is being short-sighted. His members would be better off if America had a more efficient privatized ATC that reduced delays and saved fuel costs. ATC is a high-tech industry, so embracing stasis over dynamism makes no sense.  

The model for American ATC reforms is the Canadian reforms of the 1990s. Under a Liberal government, Canada moved its ATC to a stand-alone nonprofit corporation, Nav Canada. The company has won “three IATA Eagle Awards since 2001 as [the] world’s best air navigation services provider.”

Witnesses at the hearing discussed advantages of the Canadian system. One is that an independent ATC company has a strong incentive to make technological advances and to export them around the world. In the Q&A, Rinaldi explained:

I was up last week visiting [Nav Canada] in Ottawa, and looking at their technical center. And the unique thing they do is that they have a true collaboration from the position of developing their next-gen technology. They have the air traffic controller, the engineer, and the manufacturer working together from conceptual stage all the way through to training, implementation, and deployment within their facilities. And what that does is it saves time and money. And they actually are developing probably the best equipment out there, and they are selling it around the world. And they are doing it in a 30-month to three-year time frame, when we have to look much longer down the road because of our procurement process in this country.

This is a long-time controller and industry expert telling Congress that there are major advantages to setting up ATC as an independent organization. Nav Canada collaborates, innovates, and it generates revenues from exporting technology. It has won numerous awards for its high-quality services, such as this recent one.

The bottom line: Canadian-style ATC reform is a no-brainer for the United States. If President Obama wants to add a bipartisan pro-growth reform to his legacy, he should get on board with overhauling our antiquated air traffic control system.

OK, I’m being melodramatic. But the question actually posed by the PanAm Post, “Will Bitcoin’s Fixed Money Supply Be Its Downfall?”, was only slightly less so. They had me take the “yes” position. But as my doubts about Bitcoin’s future are far from certain, I was delighted to see that they got Konrad Graf, a Bitcoin fan who has done some very good work on that cybercurrency’s early development, to oppose me.

The crucial questions, I believe, are whether any exchange medium can become widely adopted without also serving as an economy’s medium of account–that is, the medium to which prices and other payment contracts refer–and whether a new unit is likely to displace an established one unless it’s purchasing power is considered to be relatively stable and predictable. Think about your own employment contract, and of the alternative of having a contract written in Bitcoin, and you have some idea of the challenge. Of course, Bitcoin’s value is bound to be less predictable now than it would be were bitcoins more widely employed in making payments. But its popularity must remain limited unless it can somehow be perceived as offering a relatively stable unit of account.

In this regard it is worth considering Leland Yeager’s plea, in several of his writings, for “separating” the medium of exchange from the unit of account. (Here is a good summary by Bill Woolsey, comparing Yeager’s ideas to those of Market Monetarists.) Although Yeager’s perspective, which argues that it’s better to have a medium of exchange that isn’t also an economy’s medium of account, superficially appears to hold out more promise for Bitcoin than my own arguments, the appearance is deceiving. For what Yeager has in mind is a system in which the unit of account is a stable-value unit, with the value of actual exchange media fluctuating relative to the fixed nominal value of that unit. So while Yeager’s argument does suggest the desirability of a “separated” system, it is only for the sake of being able to have a more stable unit of account that he favors such an arrangement. Otherwise separation doesn’t achieve much, for macroeconomic problems can still arise in consequence of unanticipated changes in the value of the medium of account, and the consequent disruption of contracts that such changes will entail, regardless of the media actually employed in making payments and in settling accounts due. That’s one reason why I, for one, look forward to seeing further experimentation and innovation in the cybercurrency world.

Cross-posted from PoliceMisconduct.net:

So today marks our three year anniversary here at PoliceMisconduct.net!  One of our prime objectives has been to draw more attention to the problem of police misconduct across the country.  Long time readers must be amazed (as are we!) at the attention this subject has been receiving the past few months.  The President himself has acknowledged the “slow-rolling” crisis has been on-going for many years and also that some “soul searching” is in order.   Yes, it’s long overdue.  Better late than never.

The victims of police misconduct are too often without a voice and the extent of the problem was (is) unknown because few seemed interested enough to study it.  We at Cato thought it important to lend some institutional support to this critical area.  And, increasingly, the media (and others) have found this site to be a valuable resource.  Over the past year, we’ve been cited by the Washington Post, Wall Street Journal, the Economist, ABC News, the Atlantic, and Frontline.  If the first step toward addressing a problem is recognizing that a problem exists, then we’re there.

Of course, there’s much more to do.  Just wanted to mark this occasion and provide our friends with an update on our work.  One easy way you can help us is by spreading the word by taking a moment to blast a note to all your contacts via twitter and Facebook.  Thanks for your consideration and support!

In discussions of the Trans Pacific Partnership (TPP), there are often very specific figures put out there as the estimated economic gains of this trade deal.  $78 billion of annual income gains for the U.S. is a commony cited number.

It is important to keep in mind, however, that these gains are based on assumptions about what might be in the TPP, not what is actually in the TPP.  That’s because there is no TPP yet.  

The estimates come from this study, and a more detailed previous study, by a group of trade economists.  But if you read the fine print, for example on p. 23 of the second link, they make clear that they are simply estimating the TPP benefits based on the liberalization coverage of past agreements among the same parties.

The extent of the liberalization that will be in the TPP is not clear because that’s what the parties are negotiating about right now: How much to liberalize each sector.  If trade policy were run by free market economists, everyone would liberalize on their own right now.  But trade policy is influenced heavily by special interest groups.  As a result, some import restrictions remain even after a trade negotiation.

Many commentators have come out for or against the TPP already, based on assumptions about what will be in it.  I’m waiting to see the full scope of what’s in the TPP (if the negotiations are ever concluded) before making a decision.  Any liberalization needs to be balanced out against “governance” parts, such as intellectual property protection, where the impact on GDP and welfare more generally are more uncertain.  We can’t really make that calculation until we see the final deal.

Yesterday, Attorney General Loretta Lynch made the unprecedented announcement that five of the world’s largest banks – JP Morgan, Citi, Barclay’s, RBS, and UBS – would be pleading guilty to criminal charges.  According to the allegations, traders and executives working at the banks’ foreign exchange (FOREX) desks colluded through the use of chat rooms to fix currency prices on a daily basis.   The fines are in the hundreds of millions, with Barclay’s total penalty (including those levied by US and UK authorities) at $2.4 billion topping the charts and Citigroup’s $925 million following behind.  According to Assistant Attorney General Leslie Caldwell, these guilty pleas “communicate loud and clear that we will hold financial institutions accountable for criminal misconduct.”

But do they?  Can they?  In the world of “too big to fail,” JP MorganChase and Citigroup are whales among whales.  Dodd-Frank, with its “living will” provision, was supposed to end too big to fail by requiring that systemically important financial institutions (SIFIs) create a plan for an orderly unwinding in the case of failure.  But this provision contains the seeds of its own destruction.  By designating firms as SIFIs, the government has made the too big to fail designation explicit when it was previously only implicit.

If a SIFI behaves badly, even very very badly (and there is no doubt that, if the allegations are true, the FOREX traders at these banks behaved badly indeed), how much can it be punished?  While corporations can be held criminally liable, you obviously cannot imprison a corporation.  Instead, criminal penalties for companies mean two things: (1) public censure and (2) fines.  The big banks are not very popular these days and it’s unlikely the taint of public censure will cause much additional pain. 

So that leaves the government with fines.  For a fine to be a punishment, it must be large enough to hurt.  These fines are not small.  Even for a bank as large as Citi, $925 million is a chunk of change.   But in imposing these fines, the government must walk a fine line.  If Citi is a SIFI, can the government risk imposing a fine large enough that it risks destabilizing the entire company?  Almost certainly not. 

Complicating the government’s position is the fact that three of the banks – RBS, Barclay’s, and UBS – are foreign (RBS and Barclay’s are British, and UBS is Swiss).  These banks have large footprints in the U.S. markets but, even if they were to falter, the government would be hard-pressed to offer a bailout even if it wanted to.  Consider what happened during the financial crisis.  Several large foreign banks were put at risk when AIG failed.  Because the U.S. government could not, for political reasons if for no other, directly bail out these banks (even though their failure would impact U.S. markets), it instead engineered the so-called “back door bailout” by which TARP funds injected into AIG wound up in the hands of foreign banks.  If the Department of Justice were to impose a heavy enough fine on RBS, Barclay’s, and UBS today that it really hurt those banks, that is, that it put any significant part of their business at risk, it could harm U.S. markets.

Secret price-fixing is bad.  It distorts markets and prevents them from performing one of their most essential functions: price discovery.  But having doubled-down on the too big to fail designation, the government has put itself into an impossible situation when it comes to reining in SIFIs’ bad behavior.

Ben Lawsky is resigning as superintendent of financial services in New York. The New York Times says he plans to open his own firm and lecture at Stanford University. The Post reports that he will consult on digital currencies such as Bitcoin.

The move West suggests that Lawsky may want a piece of the action in Silicon Valley. If he does, it’s worth noting that the action is not in New York.

Lawsky was a leading Bitcoin antagonist. Bitcoin has not particularly flourished in New York, and Lawsky’s work makes it unlikely that New York will be a Bitcoin-friendly jurisdiction.

Ben Lawsky welcomed Bitcoin in August 2013 by sending out subpoenas to everyone in the Bitcoin world. He went on television talking about the “real dangers” of Bitcoin, including use by “narco-terrorists.” (Asked for evidence of Bitcoin misuse, he cited a centralized digital currency called Liberty Reserve, which is not Bitcoin.)

Around the same time, Lawsky precipitously announced a plan for a special “BitLicense.” Shortly after producing it, his office violated New York’s Freedom of Information Law by refusing to release the research and analysis that it claimed to have done to validate the regulation. The NYDFS found that the BitLicense would have no impact on employment in the state, after which investors poured hundreds of millions of dollars into Bitcoin companies outside of New York. (See my comments to the NYDFS for more.)

Though widely panned, Lawsky’s “BitLicense” framed the regulatory discussion in a way that other regulators have felt obliged to copy. Rather than examining how Bitcoin could be integrated into existing regulation (trimmed, perhaps, so that financial innovation can flourish), the Conference of State Bank Supervisors issued its own, more careful proposal for a Bitcoin-specific regulatory framework. The Uniform Law Commission seems to be getting pulled along in the same draft. Coin Center, a conspicuously moderate Bitcoin research and advocacy group, put out a framework for regulators that appears designed to help others avoid doing what New York did.

But if history is any guide, Ben Lawsky will be able to use the name he made attacking Bitcoin to wend his way into the Bitcoin business world. Because of the contacts he made as a regulator, he can hire himself out to Bitcoin companies wanting to signal to other regulators that they have the approval of the regulatory establishment. (Bitcoin companies didn’t hire former SEC chairman Arthur Levitt because of his crypto chops!) In all likelihood—if this is indeed what he plans—Ben Lawsky will be able to profit from thwarting financial innovation. He’ll skirt New York state’s post-employment restrictions in doing so, no doubt.

History does not have to guide developments in the revolutionary Bitcoin world, of course. The Bitcoin community may find the hypocrisy of an anti-Bitcoin regulator profiting from Bitcoin too great. They would express this by refusing to do business with firms that hire Lawsky as a consultant or advisor.

If dogged watchers in the Bitcoin community report faithfully to the Bitcoin subreddit, for example, Bitcoin companies may recognize that hiring an anti-Bitcoin former regulator is a business liability. To the extent that this kind of consumer action diminishes Lawsky’s profile in the Bitcoin consulting world, this would send virtuous signals to today’s regulators: Do not lash out against Bitcoin expecting to make a name for yourself that you can cash in on later.

How much much profit is available to regulators who thwart financial innovation? That depends on how aggressively the Bitcoin community holds regulators to account even after they’ve left office.

In my ultimate fantasy world, Washington wouldn’t need any sort of broad-based tax because we succeeded in shrinking the federal government back to the very limited size and scope envisioned by our Founding Fathers.

In my more realistic fantasy world, we might not be able to restore constitutional limits on Washington, but at least we could reform the tax code so that revenues were generated in a less destructive fashion.

That’s why I’m a big advocate of a simple and fair flat tax, which has several desirable features.

  • The rate is as low as possible, to minimize penalties on productive behavior.
  • There’s no double taxation, so no more bias against saving and investment.
  • And there are no distorting loopholes that bribe people into inefficient choices.

But not everyone is on board, The class-warfare crowd will never like a flat tax. And Washington insiders hate tax reform because it undermines their power.

But there are also sensible people who are hesitant to back fundamental reform.

Consider what Reihan Salam just wrote for National Review. He starts with a reasonably fair description of the proposal.

The original flat tax, championed by the economists Robert Hall and Alvin Rabushka, which formed the basis of Steve Forbes’s flat-tax proposal in 1996, is a single-rate tax on consumption, with a substantial exemption to make the tax progressive at the low end of the household-income distribution.

Though if I want to nit-pick, I could point out that the flat tax has effective progressivity across all incomes because the family-based exemption is available to everyone. As such, a poor household pays nothing. A middle-income household might have an effective tax rate of 12 percent. And the tax rate for Bill Gates would be asymptotically approaching 17 percent (or whatever the statutory rate is).

My far greater concerns arise when Reihan delves into economic analysis.

…the Hall-Rabushka tax would be highly regressive, in part because high-income households tend to consume less of their income than lower-income households and because investment income would not be taxed (or rather double-taxed).

This is a very schizophrenic passage since he makes a claim of regressivity even though he acknowledged that the flat tax has effective progressivity just a few sentences earlier.

And since he admits that the flat tax actually does tax income that is saved and invested (but only one time rather than over and over again, as can happen in the current system), it’s puzzling why he says the system is “highly regressive.”

If he simply said the flat tax was far less progressive (i.e., less discriminatory) than the current system, that would have been fine.

Here’s the next passage that rubbed me the wrong way.

…there is some dispute over whether ending the double taxation of savings would yield significant growth dividends. Chris William Sanchirico of Penn Law School takes a skeptical view in a review of the academic research on the subject, in part because cutting capital-income taxation as part of a revenue-neutral reform would require offsetting increases in labor-income taxation, which would dampen long-term economic growth in their own right.

I’m not even sure where to start. First, Reihan seems to dismiss the role of dynamic scoring in enabling low tax rates on labor. Second, he cites just one professor about growth effects and overlooks the overwhelming evidence from other perspectives. And third, he says the flat tax would be revenue neutral, when virtually every plan that’s been proposed combines tax reform with a tax cut.

On a somewhat more positive note, Reihan then suggests that lawmakers instead embrace “universal savings accounts” as an alternative to sweeping tax reform.

Instead of campaigning for a flat tax, GOP candidates ought to consider backing Universal Savings Accounts (USAs)… The main difference between USAs and Roth IRAs is that “withdrawals could be made at any time for any reason,” a change that would make the accounts far more attractive to far more people. …Unlike a wholesale shift to consumption taxation, USAs with a contribution limit are a modest step in the same general direction, which future reformers can build on.

I have no objection to incremental reform to reduce double taxation, and I’ve previously written about the attractiveness of USAs, so it sounds like we’re on the same page. And if you get rid of all double taxation and keep rates about where they are now, you get the Rubio-Lee tax plan, which I’ve also argued is a positive reform.

But then he closes with an endorsement of more redistribution through the tax code.

Republicans should put Earned Income Tax Credit expansion and other measures to improve work incentives for low-income households at the heart of their tax-reform agenda.

I want to improve work incentives, but it’s important to realize that the EIC is “refundable,” which is simply an inside-the-beltway term for spending that is laundered through the tax code. In other words, the government isn’t refunding taxes to people. It’s giving money to people who don’t owe taxes.

As an economist, I definitely think it’s better to pay people to work instead of subsidizing them for not working. But we also need to understand that this additional spending has two negative tax implications.

  1. When politicians spend more money, that either increases pressure for tax increases or it makes tax cuts more difficult to achieve.
  2. The EIC is supposed to boost labor force participation, but the evidence is mixed on this point, and any possible benefit with regards to the number of people working may be offset by reductions in actual hours worked because the phase out of the EIC’s wage subsidy is akin to a steep increase in marginal tax rates on additional labor supply.

In any event, I don’t want the federal government in the business of redistributing income. We’ll get much better results, both for poor people and taxpayers, if state and local government compete and innovate to figure out the best ways of ending dependency.

The rest of Reihan’s column is more focused on political obstacles to the flat tax. Since I’ve expressed pessimism on getting a flat tax in my lifetime, I can’t really argue too strenuously with those points.

In closing, I used “friendly fight” in the title of this post for a reason. I don’t get the sense that Mr. Salam is opposed to good policy. Indeed, I would be very surprised if he preferred the current convoluted system over the flat tax.

But if there was a spectrum with “prudence” and “caution” on one side and “bold” and “aggressive” on the other side, I suspect we wouldn’t be on the same side. And since it’s good for there to be both types of people in any movement, that’s a good thing.

A peculiar tic of contemporary American nationalism is the notion that the American state, particularly if helmed by a Republican president, makes no errors of commission in its conduct of military affairs. No American war was ill-founded, or aimed at a threat that didn’t exist or didn’t warrant the effort. This logic never applies in the domestic sphere for Republicans, where government programs are at best naïve and bound to make problems worse or at worst, venal and Machiavellian.

This tic is the only reason I can think of that we’re actually sustaining a debate in 2015 about whether, with the benefit of hindsight, it was a good idea to invade Iraq. Jim Fallows at the Atlantic argues that nobody should again ask a politician the question, since

the only people who might say Yes on the Iraq question would be those with family ties (poor Jeb Bush); those who are inept or out of practice in handling potentially tricky questions (surprisingly, again poor Bush); or those who are such Cheney-Bolton-Wolfowitz-style bitter enders that they survey the landscape of “what we know now”—the cost and death and damage, the generation’s worth of chaos unleashed in the Middle East, and of course the absence of WMDs—and still say, Heck of a job.

I actually think this makes the case why the question should be—or at least should have been—asked, since at least one fortunate Republican son, Marco Rubio, belongs in Fallows’ bitter-ender camp. To the extent voters—and donors—care about competent foreign policy, they deserve to know that Rubio strongly opposes it, even with the benefit of hindsight.

But beyond the politics, a weird narrative has begun to emerge on the right that asking about the Iraq war is a “gotcha question.” Keep in mind: we are discussing a policy that was dreamed up by the Bush administration, marketed by the Bush administration, and purchased by the vast majority of our legislators, including the likely Democratic nominee in 2016.

For example, conservative message man Rush Limbaugh whined on his radio show that this is nothing more than a “gotcha question” designed to tarnish Republicans. Iraq War monger Eliot Cohen would later echo this argument, lamenting “gotcha journalism” and calling the question a “silly hypothetical, and the people who ask it should know better.”

Pardon me. Nearly 5,000 Americans are dead, tens of thousands grievously wounded, and more than a hundred thousand Iraqis were killed, two of whom were this little girl’s parents. We spent trillions of tax dollars. We destroyed the political order that existed in Iraq, and a new one has yet to emerge. (To the partisans: Yes! President Obama, too, has failed to produce order in Iraq.)

The conservative movement used to harp on personal responsibility (at least for poor single mothers in inner cities). Today’s conservative foreign policy elite seems to revile that same value. Fortunately for our purposes, Anatol Lieven had all the necessary words for the Eliot Cohens of the world back in 2007:

by contributing… to a hasty, poorly-planned military operation, it must be repeated that Dr. Cohen took on himself a measure of the moral, intellectual and political responsibility for precisely those U.S. administration mistakes in Iraq which he now denounces, and which have cost so many American lives. It is disappointing-though not surprising-that Dr. Cohen himself does not realize that this record demands from him, as an honorable man, a lengthy period of quiet, private reflection on his mistakes and the reasons for them.

If no personal price at all is to be paid in terms of careers for errors on this scale, which contributed to the deaths of thousands of Americans, then the long-term consequences for U.S. government and U.S. democracy could be dire. If being proved obviously, dreadfully wrong brings no long-term consequences, and being proved right brings no long-term rewards, then why in the future should any U.S. analyst, adviser, commentator or public figure ever take a public stand in favor of what he or she believes to be right and correct, if this is going to lead to short-term unpopularity and career damage?

He or she shouldn’t. He or she should go along, and get along… and maybe even run for president.

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