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A major issue in the summit meeting between President Trump and Chinese President Xi Jinping will be the growing U.S. insistence that Beijing do much more to rein-in its disruptive North Korean ally. “If China is not going to solve North Korea, we will,” Trump told the Financial Times on Sunday. His blunt comment is only the latest in a series of escalating warnings from Washington. Administration officials have indicated that all options, including unilateral military force, are on the table.

Unfortunately, the administration’s approach to inducing Beijing to take action against North Korea consists of all sticks and no carrots. The fear that the United States might launch airstrikes against North Korea, with all the possible adverse ramifications of such a move for China’s interests, is apparently deemed sufficient to cause a change in Xi’s policy.

Like its predecessors, the Trump foreign policy team overestimates China’s normal influence over Pyongyang and is oblivious to the reasons for Beijing’s reluctance to apply maximum pressure on Kim Jong-un’s regime. China undoubtedly has more leverage over North Korea than does any other country, but it is still limited. Pyongyang has defied the Chinese government’s repeated requests and warnings to cease both its nuclear tests and its ballistic missile launches.

True, since China supplies so much of North Korea’s food and energy supplies, it could probably bring Kim’s regime to its knees if it severed such assistance. But as I point out in a new article in China-U.S. Focus, Chinese leaders have several reasons for refraining from adopting that option. There is the worry that intense pressure might cause Kim’s volatile regime to engage in even more risky military provocations, thereby triggering the very war that the United States and all East Asian nations want to prevent. Even if that nightmare did not occur, cutting off food and energy aid might cause the North Korean state to unravel. Among many other potential problems, that development would lead to massive refugee flows into China.

Beyond those immediate dangers, Chinese officials are concerned that if North Korea imploded, Washington would exploit that situation to Beijing’s geostrategic disadvantage. A united Korea allied with the United States would mean the loss of the geographic buffer between China and the rest of Northeast Asia dominated by America and its allies. Chinese leaders would wonder further if someday Washington might seek to have military bases in what is now North Korea. Given the recent U.S. behavior in deploying military forces in what was formerly Moscow’s East European satellite empire, despite promises to the contrary, such Chinese worries are not unfounded.

There is no indication that the Trump administration has moved to address any of these concerns, much less all of them. So far, the administration’s diplomatic approach appears to be comprised entirely of demands that China take more vigorous action against its troublesome ally or the United States will, despite the potential catastrophic consequences. Concessions to either China or North Korea do not appear to be on the table. I have discussed elsewhere the possible concessions Washington could offer to China, both with respect to the Korean Peninsula and other areas, to increase the incentives for Beijing to adopt more decisive measures toward Pyongyang. But expecting China to incur great risks to implement a hardline policy that would primarily benefit the United States and its allies is inherently unrealistic. Foreign policy is rarely a charitable enterprise, and Chinese foreign policy is never such an enterprise. If the Trump administration wants China to get tough with North Korea, it will need to make it worthwhile for Beijing to do so.

Since his election to Congress in 2012, Beto O’Rourke (D-TX) has been one of the federal legislature’s most outspoken critics of the failed drug war. Rep. O’Rourke is in the news again this week following his announcement that he plans to run against sitting Senator Ted Cruz in 2018.

In November of 2011, O’Rourke spoke at Cato’s “Ending the Global War on Drugs” conference regarding his experiences as an El Paso native and the costs of drug prohibition on both sides of the border.

Rep. O’Rourke also spoke with Cato regarding his support for immigration reform in March of last year.

Last week The Washington Post reported that D.C. will be “among [the] first in [the] nation to require child-care workers to get college degrees.” This jumps on a bandwagon gathering pace in recent years: that child care should be seen as formal pre-school education rather than whatever parents decide is best for their children.

The logic behind the move is simple. Development gaps between poor and middle-class kids arise early, in part due to the failure for many children to experience an environment imbued with the knowledge of how best to deliver early learning. By setting the requirement for “lead teachers” to have an associate degree, child care directors to obtain a “bachelor’s degree” and for home carers to have the Child Development Associate (CDA) Credential, it is believed a better-educated workforce will raise the “quality” of care when children do experience it, in turn improving child outcomes.

Yet the push for professionalization and “improvements in quality” has led to child care becoming increasingly expensive in other countries, such as the U.K., with little evidence of the development objectives being achieved.

Regulatory restrictions such as these, which make becoming a child carer more expensive and time-consuming, will (other things equal) reduce the number of people opting for this type of job. Even though there is evidence it may raise some measure of the “quality of care”, this reduces the number of child care options available to parents overall and increases its price. Mercatus Research estimates requiring “lead teachers to have at least a high school diploma [note: a much lower standard] is associated with an increase in child care costs for infants of between 25 and 46 percent, or between $2,370 and $4,350 per year, per child.”

Given D.C. already has the highest cost of care in the country (the average annual cost of infant care in D.C. is $22,631, taking up close to 36% of a typical family’s income), reducing accessibility to care for low-income families seems a particularly dumb idea. It may reduce the payoff to returning to work for many individuals, or else result in substantial reductions in post-care disposable incomes, which could be used for other positive purposes.

The policy will likely ratchet up too. This is a classic example of how governments restrict the supply of a service, resulting later in demands to subsidize it given the high price. This has certainly been the case in the U.K., where regulations on qualifications and staff-child ratios have been buttressed with provision of so-called “free child care” for 3 and 4-year-olds. The result? There has been some evidence that the provision has a very small average beneficial impact to educational attainment at age 5. Yet this effect weakens by age 7 and has completely disappeared by age 11.

Even if it does improve the average quality of child care then, this type of policy will make child care more expensive and is likely to be completely overshadowed in the longer term by other factors which affect development (not least parenting). Given we do not force parents to take degrees in child development, or else put children in educational centers from birth, it is unclear what the robust explanation is for the government determining what constitutes quality, and restricting the availability of child care. Parents should be free to make judgments about their own wants and needs.  

You Ought to Have a Look is a regular feature from the Center for the Study of Science. 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.

This time around You Ought to Have a Look at a brilliant analysis of the profound illogic of “climate catastrophizing” appearing, in all places, in Foreign Affairs, arguably the most important international contributor to precisely just that.

Written by the Manhattan Institute’s Oren Cass (“he’s just like you and me, only smarter”), who often finds himself YOTHALed in these writings, it’s a logical tour-de-force that skewers the exaggerated bathos of the apocalyptics with simple economic logic and hard numbers. Along the way, the usual purveyors of gloom-and-doom, like Stanford’s Paul Ehrlich and The Club of Rome, as well as some more modern-day would-be autocrats like Harvard’s Daniel Schrag, fall victim. The intellectual carnage wrought by Cass is truly breathtaking. And it’s all in Foreign Affairs.

Cass starts off with a bang:

Climate change may or may not bear responsibility for the flood on last night’s news, but without question it has created a flood of despair. Climate researchers and activists, according to a 2015 Esquire feature, “When the End of Human Civilization is Your Day Job,” suffer from depression and PTSD-like symptoms. In a poll on his Twitter feed, meteorologist and writer Eric Holthaus found that nearly half of 416 respondents felt “emotionally overwhelmed, at least occasionally, because of news about climate change.” 

For just such feelings, a Salt Lake City support group provides “a safe space for confronting” what it calls “climate grief.”

Panicked thoughts often turn to the next generation. “Does Climate Change Make It Immoral to Have Kids?” pondered columnist Dave Bry in The Guardian in 2016. “[I] think about my son,” he wrote, “growing up in a gray, dying world—walking towards Kansas on potholed highways.” Over the summer, National Public Radio tackled the same topic in “Should We Be Having Kids In The Age Of Climate Change?” an interview with Travis Rieder, a philosopher at Johns Hopkins University, who offers “a provocative thought: Maybe we should protect our kids by not having them.” And Holthaus himself once responded to a worrying scientific report by announcing that he would never fly again and might also get a vasectomy

Cass then notes that this fear is stoked at the highest levels, with gaudy statements by President Obama (as long as there’s no chance of an audience question, he notes), Hillary Clinton, Bernie Sanders, and Bill di Blasio (the last made at the Vatican, which has also been fanning the flames).

The problem, according to Cass, is that all of this just isn’t warranted. Worst-case scenarios based upon business-as-usual give, according to the UN, a warming of three-to-four degrees (C) from 2015 to 2100 (the earth may be telling us these numbers are way high, see here for a summary of recent findings). Using even the high end of that, integrated economic/climate models (don’t laugh at the concept, please) project a worldwide increase in GDP from $76 trillion today to $490 trillion. That’s with climate change. Without it, the 2100 figure is $520 trillion. Small beer.

How small? Cass cites the model output:

In the [economic/climate model, moreover, the climate-change-afflicted world of 2105 is already more prosperous than the climate-change-free world of 2100. And because the impacts and costs of climate change emerge gradually over the century—0.3 percent of GDP in 2020, 1.0 percent in 2050—in no year does the model foresee a reduction in economic growth of even one-tenth of a percentage point. Average annual growth over the 2015–2100 period declines from 2.27 percent to 2.22 percent. 

The reason catastrophizing is wrong is its proponent’s inability to comprehend the huge degree that affluence immunizes society against catastrophe. In 1970, a severe tropical cyclone (“hurricane” in American) killed 500,000 in Bangladesh. In 2007, a similar storm took out 4,000. That’s 4,000 tragedies to be sure, but 496,000 less than there would have been with 1970 infrastructure and technology there.

Cass notes that the lurid future scenarios are often based upon some very hokey “science.” Our EPA, for example, says that in 2100, the heat-related death rate in New York City will be 50 times that of Phoenix—even though today’s Phoenix is a lot hotter than 2100’s New York. Here—and we have written scientific papers on this—EPA ignores the fact that as heat waves become more frequent, heat-related mortality drops. It’s this thing called “adaptation,” something catastrophists tend to ignore.

In one of the better turns of phrase in the climate/economic literature, Cass notes that “The costs of climate adaptation can also appear deceptively large if the alternative of maintaining the status quo is imagined to be free.” That’s because all along we are adapting to climate, changing or not.

Cass closes back-to-bathos:

As for Bry, the newspaper columnist; Rieder, the philosophy professor; and Holthaus, the meteorologist? They each decided to have kids after all.

Speaking of which, YOTHAL at the testimony before the House Science Committee hearing on Climate Science: Assumptions, Policy Implications, and the Scientific Method on March 29 by Judith Curry, John Christy, and Roger Pielke, Jr. Penn State’s Michael Mann also testified, and one-half hour after the hearing sent out a fundraising letter for 314 Action, a nonprofit group lobbying for, among other things, the defeat of Science Committee Chairman Lamar Smith. Talk about chutzpah! And his letter certainly didn’t tell the truth:

But today when I appeared before the House Science Committee, I was seated with three witnesses, all of whom deny climate science or its implications.

For field notes on this trainwreck, you also ought to have a look at witness Judith Curry’s report on her blog, Climate Etc.

On Thursday, the Supreme Court ruled in Expressions Hair Design v. Schneiderman that imposing restrictions on how merchants inform buyers about the prices they charge triggers First Amendment scrutiny. This would seem to be an obvious conclusion, but the decision is an important, although limited, victory for those who want to convey honest information to their customers, and for those who have a right to receive that information.

The case dealt with New York Business Law § 518, which prohibits merchants from imposing a “surcharge” on customers who use credit cards, but allows for a “cash discount.” To put it simply: the law allows stores to advertise “discounts” for paying cash, but makes it a crime to advertise an economically equivalent “surcharge” for paying with plastic.

Expressions Hair Design, along with several other merchants, sued the state, arguing that the law was vague and a violation of their First Amendment right to convey information to their customers. The federal district court agreed, but the U.S. Court of Appeals for the Second Circuit reversed that decision. The circuit court’s ruling held that the First Amendment wasn’t implicated because the law didn’t regulate speech but merely regulated prices. The Supreme Court granted review to determine two issues: The threshold question of whether the law regulated speech rather than conduct and, if so, whether the law violated the First Amendment.

Chief Justice John Roberts, writing for a majority of the Court, held that the New York law was not only a price regulation dealing with conduct, but also a speech regulation: “What the law does regulate is how sellers may communicate their prices.” As he explained:

A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say “$10, with a 3% credit card surcharge” or “$10, plus $0.30 for credit” because both of those displays identify a single sticker price—$10—that is less than the amount credit card users will be charged. Instead, if the merchant wishes to post a single sticker price, he must display $10.30 as his sticker price. Accordingly, while we agree with the Court of Appeals that §518 regulates a relationship between a sticker price and the price charged to credit card users, we cannot accept its conclusion that §518 is nothing more than a mine-run price regulation.  In regulating the communication of prices rather than prices themselves, Section 518 regulates speech.

While this part of the Court’s decision is an important victory for free speech, the Court also held that the law was not vague and did not decide whether the speech restriction amounted to a First Amendment violation under the commercial speech doctrine. In what has become a theme, the Court made a point of ruling as narrowly as possible and remanded the case to the Second Circuit to make that hard balls-and-strikes call that John Roberts discussed at his confirmation hearing. This means the merchants will have to continue to fight for their rights in the lower court.

Although the judgment remanding the case to the circuit court was unanimous, Justices Stephen Breyer and Sonia Sotomayor (joined by Justice Samuel Alito) wrote separate concurring opinions. Justice Breyer continued his disheartening plea for the Court to adopt a rational-basis-type test when dealing with certain commercial speech (meaning the government wins). As Cato pointed out in our amicus brief, however, this approach has no foundation in First Amendment law. All restrictions based on content of speech should be subject to exacting scrutiny. Justice Sotomayor wrote a longer concurrence, arguing that because of the complexity of the case, the Court should have sought the input of the New York Court of Appeals (New York’s highest state court) to get a clearer picture of what the statute actually does.

Ultimately, while the victory was small, the Court chose to recognize the law for what it was—a restriction of the merchants’ ability to tell their customers the truth. Only time will tell whether the Second Circuit will now do the right thing and rule that the restriction violates the First Amendment.

Once again, a court has refused to recognize any meaningful limit to Congress’s authority to regulate Americans’ private lives through the Commerce Clause. On Wednesday, after a long delay in considering the case, the U.S. Court of Appeals for the Tenth Circuit reversed a district court order that had declared the U.S. Fish and Wildlife Service (FWS)’s regulations prohibiting the “taking” of the Utah prairie dog (effectively, anything that may disrupt its habitat) unconstitutional. (This is a case in which Cato had filed a brief nearly two years ago.)

The court held that, since Congress had a rational basis to believe that protecting the prairie dog “constituted an essential part of a comprehensive regulatory scheme that, in the aggregate, substantially affects interstate commerce,” the FWS regulations are authorized under Article I, section 8. This, despite acknowledging that “taking” the prairie dogs—which exist solely within the borders of Utah and have no economic value—is a “noncommercial, purely intrastate activity.”

The case was brought by People for the Ethical Treatment of Property Owners (PETPO), a nonprofit organization formed by Utah residents and property owners to protect their interests in the face of FWS’s burdensome regulations. Its members have been prevented from building homes, starting small businesses, and even from protecting local parks and cemetery grounds. Finally, enough was enough and PETPO brought suit against the FWS on the grounds that neither the Commerce Clause nor the Necessary and Proper Clause authorizes Congress to regulate this rodent on nonfederal land. Such is the bizarre dreamscape in which the Tenth Circuit exists: where the power to regulate interstate commerce somehow covers activities that are neither interstate nor commercial.

But how did we get here? The Commerce Clause, while always a fairly broad source of authority—at least since Chief Justice Marshall’s landmark decision in Gibbons v. Ogden (1824)—wasn’t always read as a congressional blank check.  It wasn’t until 1942, when the post-New Deal Supreme Court held in Wickard v. Filburn that even wholly interstate, noncommercial activity can be regulated by Congress, as long as, looked at in the aggregate, the activity could theoretically impact interstate commerce if enough people engaged in it. And while the Court has made some effortsto place outer limits on Congress’s commerce power—most notably in United States v. Lopez (1995), United States v. Morrison (2000), and NFIB v. Sebelius (2012)—these opinions seem to have done little to actually rein in federal overreach. The medical-marijuana case of Gonzales v. Raich (2005), which held that an activity may be regulated if it’s plausible that Congress thought doing so would be an “essential part of a comprehensive regulatory scheme that, in the aggregate, substantially affects interstate commerce,” is the precedent most relied on here. The Tenth Circuit, uncritically following a line of much-maligned cases holding only the most tenuous connections to actual constitutional text, has managed to chip away at the limits on federal power even more than the Supreme Court has already done.

The Constitution’s Commerce Clause affords Congress the power to regulate only items, channels, or instrumentalities of interstate commerce. If Congress wants to regulate activities that “substantially affect” interstate commerce, that power rests in the Necessary and Proper Clause, which gives Congress the means to regulate interstate commerce—provided those means are both necessary and proper. But the activities prohibited by the FWS regulation don’t substantially affect interstate commerce. Moreover, the “take” rule isn’t necessary: Congress can regulate interstate commerce without interfering with residents’ use of their property. Nor is it proper: the power to regulate uses of property that don’t affect interstate commerce belongs to the states.

Hopefully PETPO will now appeal to the Supreme Court, which, newly invigorated by the words and ideas of an energetic textualist like Neil Gorsuch (who, by the by, wasn’t on this Tenth Circuit panel), will see this as another opportunity to place meaningful limits on federal authority. Until then, it appears that the good citizens of Utah will have to continue bearing burdens caused not by the critters at issue – this isn’t Bill Murray in Caddyshack – but by federal regulators’ use of powers that simply aren’t theirs to assert.

The economist Herbert Stein, chairman of the Council of Economic Advisors under Richard Nixon, once quipped,

Most of the economics that is usable for advising is at about the level of the introductory undergraduate course.

One lesson from such courses is that minimum wage laws reduce employment, so this is reassuring:

I critically review the recent findings regarding the effects of minimum wages on employment. Contrary to often asserted statements, the preponderance of the evidence still points toward a negative impact of permanently high minimum wages.

From Jesus Fernandez-Villaverde at the University of Pennsylvana.

In a recent Wall Street Journal column defending Obamacare 3.8% surtax on investment income on joint returns above $250,000, Peggy Noonan ends by quoting Tucker Carlson’s Fox News interview with Paul Ryan which questioned the now-suspended health plan’s elimination of that surtax:

“Looking at the last election, was the message of that election really, ‘We need to help investors?’ I mean, the Dow is over 20,000. Are they really the group that needs the help?…“The overview here is that all the wealth, basically, in the last 10 years, has stuck to the top end. That’s one of the reasons we’ve had all the political turmoil, as you know. And so, kind of a hard sell to say ‘Yeah, we’re gonna repeal Obamacare, but we’re gonna send more money to the people who’ve already gotten the richest over the last 10 years.’ I mean, that’s what this does, no? I’m not a leftist, it’s just—that’s true.”

Mr. Carlson used the word “wealth” rather than income. He said, “all the wealth …  in the last 10 years, has stuck to the top end.”  He surely meant income, however, since the latest wealth estimate from the Survey of Consumer Finance was in 2013, and wealth of the top 1%, like income of the top 1%, clearly fell from 2007 to 2013. Despite “shared prosperity” Clinton campaign chatter, there were no gains to share. John Weicher at the Hudson Institute notes that, “Between 2007 and 2013, the poor became poorer, but so did the rich and the people in between.”

Tucker Carlson is not a leftist and neither is Peggy Noonan. Yet to define what is “true” about income growth over 10 years, they are relying wholeheartedly on the socialist team of French economists Thomas Piketty and Emmanuel Saez.  

When media celebrities disparage the “top end” they do not mean Fox News anchors (who earn millions); they mean the “Top 1%” who earned more than $442,900 in 2015 according to Piketty and Saez.  When claiming all the gains over the last 10 years have “stuck to” the top 1%, Carlson appears to have accepted the same source Hillary Clinton abused when she claimed “more than 90 percent of [income] gains have gone to the top 1 percent.”   

What “stuck to the top end,” to use Tucker Carlson’s phrase, is the Top 1% share of gains since 2009.  Prior losses are forgotten.  The “last 10 years” is simply redefined as starting with 2009, not 2007.

In the latest version of this ruse, Saez says, “Top 1% families … capture[d] 52% of total real income growth per family from 2009-2015.”  Of the many deceptions the Piketty-Saez team has inflicted on us over the years, this one may well be the most politically popular and most economically ridiculous. It has fooled many fools. 

What goes unmentioned, is that the Top 1% first “captured” 49% of the losses from 2007 to 2009.  Students of New Math might imagine the 52% gain from 2009 to 2015 compensated for the 49% loss from 2007 to 2009, but that deserves an “F” grade (because the 52% gain is calculated from a much smaller base).

The graph shows what actually happened to average pretax incomes of the Top 1%, as estimated by Piketty and Saez.

From 2007 to 2015, average real incomes of the Top 1% fell by 11.9%, even before taxes. 

Top incomes fell much more after taxes because top tax rates were increased from 35% to 39.6% in 2013, the arbitrary and discriminatory 1990 PEP/Pease limits on exemptions and deductions were restored, and an extra 3.8% Obamacare surtax was inflicted on those supposedly privileged stockholders.  

When conservative media commentators rely on deceptive leftist statistics to make their points, they might as well be leftists.

The simplistic notion that organisms are “dumb” when it comes to changing environments goes like this: Species X lives in a relatively stable environment and with a certain defined range of temperature. So, if the temperature changes enough, species X will go extinct.

In resuming our series on biological adaptation to environmental change, we are going to be looking in depth at the evolutionary and environmental nuances that—with some limits—invalidate the simple point of view. And, in doing so, we will discover important implications for environmental and climate-related policies.

We begin with revolutionary classic in evolutionary biology published in 1984 by Peter Hochachka and George Somero called “Biochemical Adaptation.” It summarized and expanded on much of their earlier work on what they called “phenotypic plasticity”.

Pre-Hochachka thinking had it that our DNA codes for specific proteins, which do their thing (often serving as catalysts for complex biochemical syntheses) and are pretty much static, which would lead automatically to the “dumb” organism when it comes to environmental change. But, among other things, Hochachka and Somero can show that, depending upon temperature, many critical proteins actually change their shape as temperature rises (or falls), greatly broadening the environmental range of many species.

A wonderful example of this concerns marine fish living in tropical waters, which tend to experience much smaller seasonal variations in temperature than fish inhabiting other latitudes. Without phenotypic plasticity, there are concerns that tropical fish maintain narrow temperature tolerance and that they might presently be close to their optimal temperature limit. If temperatures were to therefore rise in the future in response to CO2-induced global warming, many tropical fish species might experience widespread decline and possible extinction.

Given plasticity, does this hypothesis hold any water?

A five-member Portuguese research team of Madeira et al. (2016) examined the cellular stress response of a tropical clownfish species (Amphiprion ocellaris) exposed to elevated temperatures over a period of one month. Their experiment was conducted in a controlled laboratory setting in which they subjected juvenile A. ocellaris to either ambient (26°C) or elevated (30°C) temperatures, while examining several biomarkers (e.g., stress proteins and antioxidants) in several tissue types (brain, gills, liver, intestine and muscle) at 0, 7, 14, 21 and 28 days of temperature treatment. What did their measurements reveal?

Amphiprion ocellaris

According to Madeira et al., “results showed that exposure time significantly interacted with temperature responses and tissue-type, so in fact time influenced the organisms’ reaction to elevated temperature.” First, at day 7 they observed significantly higher levels of biomarkers in fish in the high temperature environment that was indicative of a typical thermal stress response. Thereafter, however, they report that biomarker levels stabilized, showing either “a significant decrease in comparison with controls or no significant differences from the control” through the end of the experiment, which observations they suggest are indicative of temperature acclimation.

The fact that temperatures outside the “normal” range elicited clear biochemical changes (after a period of initial stress) is clear evidence for the much more nuanced view of organismal response to change.

Commenting on their findings, Madeira et al. write that “A. ocellaris probably lives far from its upper thermal limit and is capable of adjusting the protein quality control system and enzymes’ activities to protect cell functions under elevated temperature, adding that “these results suggest that this coral reef fish species presents a significant acclimation potential under ocean warming scenarios of +4°C.”

This is very good news for those concerned about the impact of global warming on tropical reef fish, and therefore for reefs themselves, as fish are an integral part of complex reef ecology.

One could speculate that—because most species alive today evolved on a warmer (pre-ice age) planet, that the genetic material that responds to heat is maintained, only to be expressed when they go back to their future, which is what is happening as we speak.

 

References

Hochachka, P., and S. Somero, 1984 (republished in 2016). Biochemical Adaptation. Princeton Legacy Library, Princeton. 520pp.

Madeira, C., Madeira, D., Diniz, M.S., Cabral, H.N. and Vinagre, C. 2016. Thermal acclimation in clownfish: An integrated biomarker response and multi-tissue experimental approach. Ecological Indicators 71: 280-292.

At least in Serbia, people know that politicians’ promises are ridiculous. NPR reports on a satirical candidate named Ljubisa Beli Preletacevic, or just Beli for short:

A new politician is here to save you. I’m pure and clean. Whatever the other politicians promise you, I will promise you three times more.

I’ll give jobs to everyone and big pensions to everyone. I’m going to move the sea here because we need a beach.

Satire it may be, but his new party won 12 council seats in his home town, and most of his party’s candidates are seriously seeking election. Reporter Joanna Kakissis continues:

There will be no corruption, excluding my own of course, he declares to one crowd. Please send all money directly to my pockets. Drama student Danka Svetilova laughs and asks for a selfie. She says mainstream politicians have lied to Serbs for years….

So that’s why she and her schoolteacher mom are voting for Beli in this Sunday’s presidential election. Better a fake candidate who tells the truth about lying, she says, than a real one who lies about telling the truth.

The Cato Institute recently released Monetary Alternatives: Rethinking Government Fiat Money, a collection of essays 30 years in the making. As George Selgin explains in the foreword,

The complacency wrought by the Great Moderation, not to mention the limited interest in fundamental monetary reform before then, resulted in a dearth of serious inquiries into potentially superior arrangements….Cato kept the subject alive, offering a safe haven, in the shape of its Annual Monetary Conference, for the minority of experts that continued to stress the need for fundamental monetary reform. Although fundamental reform has been a consistent theme of Cato’s monetary conferences, those conferences have never been dominated by one approach to reform. The articles in this book present a variety of ideas for improving the monetary regime — including proposals for a formal “monetary constitution,” various monetary rules, competing currencies, and establishing a new gold standard.

In sum, Monetary Alternatives explores fundamental and controversial ideas that would move our monetary system and economy beyond repeated crises to sustainable stability and prosperity. The contributors to the volume energetically question the status quo and provide compelling arguments for moving to a monetary system based on freedom and the rule of law.

A limited constitutional government calls for a rules-based, free-market monetary system, not the topsy-turvy fiat dollar that now exists under central banking. When the Federal Reserve was created in 1913, its powers were strictly limited and the United States was still on the gold standard. Today the Fed has virtually unlimited power and the dollar is a pure fiat money.

Central banking, like any sort of central planning, is not a panacea.  Concentrating monetary power in the hands of a few individuals within a government bureaucracy, even if those individuals are well intentioned and well educated, does not guarantee sound money. The world’s most important central bank, the Federal Reserve, is not bound by any strict rules, although Congress requires that it achieve maximum employment and price stability. The failure of the Fed to prevent the Great Recession of 2009, the stagflation of the late 1970s and early 1980s, and the Great Depression of the 1930s, raises the question, can we do better?

In questioning the status quo and widening the scope of debate over monetary reform, the fundamental issue is to contrast a monetary regime that is self-regulating, spontaneous, and independent of government meddling versus one that is centralized, discretionary, politicized, and has a monopoly on fiat money. Free-market money within a trusted network of private contracts differs fundamentally from an inconvertible fiat money supplied by a discretionary central bank that has the power to create money out of thin air and to regulate both banks and nonbank financial institutions.

There are many types of monetary regimes and many monetary rules. The classical gold standard was a rules-based monetary system, in which the supply of money was determined by market demand — not by central bankers. Cryptocurrencies, like bitcoin, offer the possibility of a private non-commodity monetary base and the potential to realize F. A. Hayek’s vision of competitive free-market currencies. Ongoing experimentation and technological advances may pave the way for the end of central banking — or at least the emergence of new parallel currencies.

In making the case for monetary reform and thinking about rules versus discretion in the conduct of monetary policy, it is important to take a constitutional perspective. As early as 1988, James M. Buchanan argued, at an international monetary conference hosted by the Progress Foundation in Lugano, Switzerland:

The dollar has absolutely no basis in any commodity base, no convertibility. What we have now is a monetary authority [the Fed] that essentially has a monopoly on the issue of fiat money, with no guidelines that amount to anything; an authority that never would have been legislatively approved, that never would have been constitutionally approved, on any kind of rational calculus [“Comment by Dr. Buchanan,” Economic Education Bulletin 28, no. 6: 32–35].

In 1980, just after Ronald Reagan’s election, Buchanan recommended that a presidential commission be established to discuss the Fed’s legitimacy. There was some support within the Reagan camp, but Arthur Burns, a former chairman of the Federal Reserve Board, nixed it. As Buchanan explained at the Lugano conference, Burns “would not have anything to do with any proposal that would challenge the authority of the central banking structure.”

Buchanan’s aim was “to get a dialogue going … about the basic fundamental rules of the game, the constitutional structure.”  There is, he said, “a moral obligation to think that we can improve things.” That is the spirit of this volume and Cato’s recently established Center for Monetary and Financial Alternatives.

This year marks Cato’s 40th anniversary and the 35th anniversary of the Annual Monetary Conference, making it an appropriate time to bring out this collection of articles devoted to rethinking government fiat money and to offer alternatives consistent with limited government, the rule of law, and free markets.

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Contributors to Monetary Alternatives include: Claudio Borio, Jeffrey Lacker, John Allison, Bennett McCallum, James Buchanan, George Selgin, Peter Bernholz, Charles Plosser, Leland Yeager, John Taylor, Scott Sumner, James Dorn, Edwin Vieira, Lawrence White, Richard Timberlake, Roland Vaubel, and Kevin Dowd.

[Cross-posted from Alt-M.org]

The North Carolina legislature has passed and sent to Democratic Gov. Roy Cooper H.B. 142, unveiled last night as a compromise intended to end the state’s acrimonious year-long battle over discrimination laws and transgender persons’ access to bathrooms and changing rooms. From what I can see, it’s a basically sound measure that gives both sides much of what they legitimately asked.

HB2, the bill passed last March, was a response to a successful push in the city of Charlotte to enact anti-discrimination laws going well beyond state law in numerous areas, including making LGBT persons a protected class and regulating private actors in various ways (including bathroom policies) through employment and public accommodations laws. Opponents went to the state legislature and – as has happened in other states lately as well – proposed yanking back those portions of home rule that allowed for local ordinances to go beyond state law. (How you feel about yanking back home rule powers probably has a lot to do with how you feel about the substantive laws involved, since neither libertarians nor most other thinkers hold to a rigid always-or-never view of municipal home rule powers. Should towns in your state have the power to jail people for using alcohol or medical marijuana? Enact rent control? Ban the construction of any residence worth less than $1 million?)  

One part of HB2, then, eliminated towns’ and cities’ power to go beyond state law in some areas of employment and public accommodations law. But HB2 went a fateful step further by enacting into law the idea of some organized social conservatives that transgender persons should use the bathroom of their sex at birth, unless they succeed in jumping over the legal hurdles needed to get a changed certificate. There are all sorts of things wrong with that approach, and I said some of them in a Wall Street Journal letter last year

[The relevant section] of the bill imposes affirmative, uniform new duties of exclusion on North Carolina government entities such as schools, town halls, courthouses, state agencies and the state university system, taking away what had generally been local discretion. This not only will inflict needless burdens on a small and vulnerable sector of the public, but presumes to micromanage local governments and districts in an area where they had not been shown to be misusing their discretion. Whatever the merits of the rest of the bill, the provisions on state-furnished bathrooms are a good example of how legislation in haste from the top down can create new problems of its own.

The new HB142 compromise retreats, and rightly so, from this worst portion of HB2, but it does not retreat (or at least not very much) from the other elements, including those that are not so bad. By repealing HB2, it abandons the wretched aim of trying to prohibit transgender-friendly bathrooms. But it also takes away, for a time, local governments’ power to mandate them in the private sector. It provides that “State agencies, boards, offices, departments, institutions, branches of government, including The University of North Carolina and the North Carolina Community College System, and political subdivisions of the State, including local boards of education, are preempted from regulation of access to multiple occupancy restrooms, showers, or changing facilities, except in accordance with an act of the General Assembly.” (The pre-emption expires in 2020.)

“Regulation of access to” is not an entirely clear phrase in this context. Clearly, cities like Charlotte need to go on carrying on the “regulation of access to” their own city-run facilities. The debate in the legislature today, according to several sources, emphasized sound local discretion – Charlotte can run bathrooms in municipal buildings the way it sees fit. 

The new compromise is being met with peals of outrage from some of the predictable ultras on both sides. But it looks to me like a more careful attempt to respect the legitimate rights of both sides than we’ve seen in this controversy up to now.

I sometimes feel like a broken record about entitlement programs. How many times, after all, can I point out that America is on a path to become a decrepit European-style welfare state because of a combination of demographic changes and poorly designed entitlement programs?

But I can’t help myself. I feel like I’m watching a surreal version of Titanic where the captain and crew know in advance that the ship will hit the iceberg, yet they’re still allowing passengers to board and still planning the same route. And in this dystopian version of the movie, the tickets actually warn the passengers that tragedy will strike, but most of them don’t bother to read the fine print because they are distracted by the promise of fancy buffets and free drinks.

We now have the book version of this grim movie. It’s called The 2017 Long-Term Budget Outlook and it was just released today by the Congressional Budget Office.

If you’re a fiscal policy wonk, it’s an exciting publication. If you’re a normal human being, it’s a turgid collection of depressing data.

But maybe, just maybe, the data is so depressing that both the electorate and politicians will wake up and realize something needs to change.

I’ve selected six charts and images from the new CBO report, all of which highlight America’s grim fiscal future.

The first chart simply shows where we are right now and where we will be in 30 years if policy is left on autopilot. The most important takeaway is that the burden of government spending is going to increase significantly.

Interestingly, even CBO openly acknowledges that rising levels of red ink are caused solely by the fact that spending is projected to increase faster than revenue.

And it’s also worth noting that revenues are going up, even without any additional tax increases.

The bottom part of this chart shows that revenues from the income tax will climb by about 2 percent of GDP. In other words, more than 100 percent of our long-run fiscal mess is due to higher levels of government spending. So it’s absurd to think the solution should involve higher taxes.

This next image digs into the details. We can see that the spending burden is rising because of Social Security and the health entitlements. By the way, the top middle column on “other noninterest spending” shows one thing that is real, which is that defense spending has fallen as a share of GDP since the mid-1960s, and one thing that may not be real, which is that politicians somehow will limit domestic discretionary spending over the next three decades.

This bottom left part of the image also gives the details on built-in growth in revenues from the income tax, further underscoring that we don’t have a problem of inadequate revenue.

Here’s a chart that shows that our main problem is Medicare, Medicaid, and Obamacare.

Last but not least, here’s a graphic that shows the amount of fiscal policy changes that would be needed to either reduce or stabilize government debt.

I think that’s the wrong goal, and that instead the focus should be on reducing or stabilizing the burden of government spending, but I’m sharing this chart because it shows that spending would have to be lowered by 3.1 percent of GDP to put the nation on a good fiscal path.

Some folks think that might be impossible, but I’ll simply point out that the five-year de facto spending freeze that we achieved from 2009-2014 actually reduced the burden of government spending by a greater amount. In other words, the payoff from genuine spending restraint is enormous.

The bottom line is very simple.

We need to invoke my Golden Rule so that government grows slower than the private sector. In the long run, that will require genuine entitlement reform.

Or we can let America become Greece.

The Wall Street Journal reports: “Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits. ‘In some cases, the rules don’t seem to be working as well as others,’ Robert Lighthizer said. Critics say the deal has led to a flood of South Korean cars, auto parts, memory chips, motors and pumps into the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact… doubled the U.S. trade deficit in goods with South Korea.”

National Trade Council boss Peter Navarro has likewise claimed “We lost 100,000 jobs because of that South Korean deal. Our trade deficit has doubled, and, more importantly, 75 percent of the damage that has been caused by that deal has been to the auto industry itself, which, of course, is based in Michigan.”

Navarro, Lighthizer and the Journal’s unnamed critics are entirely wrong about the March 15, 2012 Korea/U.S. Free Trade Agreement (KORUS).  

KORUS could not possibly have “led to a flood of South Korean… memory chips, motors and pumps into the U.S.” because memory chips were already duty-free before that FTA, and so were motors (HS code 8501) and pumps (8413).

KORUS could not possibly explain the post-recession 2010-2015 rise in U.S. imports from South Korea because most U.S. tariffs were scheduled to be reduced from 2016 to 2021not from 2010 to 2015. 

KORUS had precisely zero effect on U.S. imports of Hyundai and Kia vehicles before 2016 because the U.S. tariff on Korean cars (HS code 8703) was 2.5% before KORUS and remained at 2.5% through 2015.  Ironically, when U.S. tariffs on autos and other products finally did come down in 2016, total U.S. imports from South Korea fell 2.6% (by $1.9 billion).

 The Korean tariff on imports of U.S. cars was cut from 8% in 2012 to 4% in 2015 and zero in 2016 and a 10% Korean tariff on U.S. trucks was eliminated.  Even before Korea cut its tariff on U.S. cars to zero in 2016, U.S. exports of cars to So. Korea tripled from $418 million in 2011 to $1.3 billion in 2015, according to the USTR.  Incidentally the USTR also notes that “Korea is currently our fifth-largest market for agricultural exports thanks to KORUS,” with farm exports up 208% from 2011 to 2015.

What has been most changed about the auto industry since KORUS is that South Korea exported a sizable share of its auto industry to the United States, displacing previous Korean imports and adding to U.S. auto exports. More than half the Hyundais sold in the U.S. are now assembled in Alabama, and more than 40% of Kias in Georgia (contrary to Peter Navarro,  82.5% of U.S. auto industry jobs are not in Michigan). The Hyundai Santa Fe and Kia Sorento have 67% domestic content. Hyundai has invested $2.8 billion in the U.S. and plans to add $3.1 billion more. 

As the Graph shows, U.S. routinely ran sizable trade deficits with South Korea long before the FTA (and the U.S. routinely runs surpluses with other FTA countries, Australia and Singapore).  The U.S. trade deficit with South Korea and other countries came way down in 2009-2011 because deep recessions always slash U.S. imports, particularly industrial imports.

The graph includes services which, like farm products, were an important part of the deal.  The U.S. trade surplus in services with Korea rose from $6.9 billion in 2011 to $10.7 billion in 2016.  With services included, U.S. imports from South Korea did not rise at all from 2014 to 2016 ($81.4 billion in both years), and goods imports fell in 2016.

South Korea’s imports of goods from the U.S. rose from $29.7 billion in 2009 to $46.3 billion by 2014 before falling 8.4%to $42.4 billion in 2016.  Even with services included, South Korea’s imports from the U.S. fell from $66.5 billion to $63.9 billion since 2014.

KORUS could not possibly have had anything to do with the 2014-2016 drop in Korean imports from the U.S. because that agreement lowered rather than raised Korean tariffs.

South Korea’s demand for imports weakened because annual growth of industrial GDP fell to 2.5% from 2012 to 2015 – down sharply from a 6% pace from 2000 to 2011. One reason for Korea’s post-2014 import slump is that China’s imports from South Korea fell from more than $20 billion in October 2014 to $10-12 billion recently.  

The Trump Administration’s top trade advisers are entirely wrong about what happened when with respect to trade between the U.S. and South Korea.  KORUS had no effect at all on U.S. imports of auto, chips, motors or pumps between 2009 and 2015, because the U.S. auto tariff was unchanged until 2016 (when overall U.S. imports fell) and most other industrial products were already tariff-free before KORUS.

The Korea-U.S. trade deficit in goods did not rise from 2011 to 2015 (or fall in 2016) because of U.S. auto tariff cuts in 2016, but because the U.S. economy strengthened after 2010 and the Korean economy weakened after 2014.  

In numerous states and cities, taxi interests – notably unions representing taxi drivers – have come up with creative legislation to hobble the rise of ridesharing apps like Lyft and Uber. In Nevada, the taxi union recently proposed a package of measures to slam the apps good and hard, of which perhaps the most startling was this: drivers getting a rideshare booking would be required by law to wait to ensure that their fare was not picked up in less than ten minutes.  

What a great idea – all must be brought down to the level of the least able! Echoing Vonnegut’s funny-dystopian short story Harrison Bergeron, the speediest would have to sit out in artificial penalty time to ensure that they did not arrive before the poky. “In a brief interview, [union president T. Ruthie] Jones said the union only wanted a level playing field,” reports the Nevada Independent.

And it gets even better. When legislators got a look at the union’s wish list of requests, whoever was in charge of drafting apparently decided that a 10 minute wait time didn’t go far enough. So Senate Bill 485, introduced on Monday, instead upped the handicap delay to 15 minutes. Per the Nevada Independent, “Taxi companies — long an influential Nevada industry — gave to 50 legislators throughout the 2016 campaign cycle for a total of $476,200.” 

But the bill’s introduction stirred immediate and searching news coverage Tuesday. An Uber representative termed the 15 minute obligatory wait time “really absurd, frankly, on its face,” and said the service would pull out of the state if it were enacted. (That was the idea, right?) And by yesterday, Sen. Kelvin Atkinson (D-North Las Vegas), who chairs the committee on Commerce, Labor and Energy, said the bill was “bad policy,” dead and wouldn’t get a hearing. One of his opposite numbers had already commented critically:

Republican Assembly Leader Paul Anderson said in an earlier interview that the proposed restrictions were “atrocious” and said the measure was a blatant attempt to kneecap the industry.

“All it does is stifle an industry that is significantly providing a better service,” he said in a Tuesday interview.

My favorite comment came on Twitter: “I dunno, maybe the lawmakers should be forced to wait a while before they can drop this proposal…”

Imagine how many proposals of this sort would quietly slip through were it not for the vigilant, independent, and free press we are used to having in America.

The NAFTA renegotiation Donald Trump promised during his campaign may finally be getting started.  The specialty trade publication Inside US Trade (subscribers only) has a draft of the administration’s notice to Congress “that the President intends to initiate negotiations related to the North American Free Trade Agreement (NAFTA) and its architecture,” in which the administration sets out “specific objectives for negotiation.”  

At first glance, the administration’s plan looks like more than just a tweak to NAFTA, but will not come close to blowing up the system (as it sometimes sounded like during the campaign).  Things may change before the final notice is sent out, but for now a lot of what’s in there seems like an attempt to upgrade NAFTA to reflect provisions that have been developed in U.S. trade agreements over the last 15 years, including in the TPP.  In a sense, this NAFTA renegotiation is an attempt to make NAFTA more like the TPP.  Some examples are:  

  • adding rules on digital trade and cross-border data flows
  • adding enforceable provisions on labor, the environment, and state-owned enterprises
  • revising the provisions on investor-state dispute settlement
  • strengthening intellectual property rights

To the extent that the NAFTA renegotiation just incorporates TPP provisions, it is not too worrying.  That’s not to say that we in Cato’s trade policy center like all of the TPP provisions, but it would indicate that the Trump administration is not looking to do anything too radical on trade.

On the other hand, there are some proposals that could take NAFTA in a more protectionist direction.  Some examples of that are proposals to:

  • Eliminate a special procedure to have an international panel review U.S. anti-dumping/countervailing duties
  • Address the perceived unfairness of foreign border adjustment taxes (“level the playing field on tax treatment”)
  • Make sure NAFTA allows Buy America provisions (“establish rules that require government procurement to be conducted in a manner that is consistent with U.S. law and the Administration’s policy on domestic procurement preferences”)
  • Tighten up rules of origin, that is, restrict who can benefit from low NAFTA tariffs
  • Add new procedures that allow special tariffs when there are increased imports (“a safeguard mechanism to allow a temporary revocation of tariff preferences, if increased imports from NAFTA countries are a substantial cause of serious injury or threat of serious injury to the domestic industry”)

Keep in mind that this is just the draft, so the objectives stated here may change a bit.  Also, note that this is simply what the U.S. will ask for, and not necessarily what it will get after sitting down with Canada and Mexico.

All in all, it is somewhat of a relief to see that the proposed changes do not completely undermine NAFTA.  However, there will be some aspects of these proposals that we will be pushing back on, once the specifics of the proposals become more clear.

When it comes to foreign policy, the Trump administration has been engulfed in scandal and intrigue from day one. From the resignation of Michael Flynn, to a botched Yemen raid, to a U.S. bombing campaign in Mosul, Iraq that killed up to 200 civilians, to unrelenting controversy over Russian meddling in our election, it’s difficult to even keep up.

With all these distractions, it is easy to forget that there are important issues that demand thoughtful attention. High among these is the Iran nuclear deal. Not only must the Iran deal compete for attention with other controversies swirling around the White House, it has to withstand antagonism from hawks who refuse to acknowledge its success.

At the annual American Israel Public Affairs Committee conference this week, Senate Majority Leader Mitch McConnell criticized the Joint Comprehensive Plan of Action (JCPOA) for “bestow[ing] a windfall of billions for the Iranian regime to distribute to its proxies.” At the same conference, House Speaker Paul Ryan described the deal as “an unmitigated disaster” that is “dangerous for the United States and for the world.”

Actually, most of the tangible benefits in sanctions relief have gone to improving the economy for every day Iranians. And far from being a “dangerous” and “unmitigated disaster,” the deal has been successful in rolling back Iran’s nuclear program and in easing regional tensions.

The rhetorical abuse visited upon the JCPOA doesn’t bode well for the survival of the deal. And even the relative moderates in the Trump administration – people like Secretary of Defense James Mattis and Secretary of State Rex Tillerson, frequently described as the “grown-ups,” in contrast with the opposing bloc of “ideologues” – seem more hawkish than pragmatic on Iran.

In other words, the Trump White House exists in an echo chamber of negativity toward the JCPOA. The deal’s survival depends on deliberate administration support and a measured understanding of its benefits.

Sanction relief is an important part of this. The Trump administration needs to work hard to ensure that Iran sees the full benefits of sanctions relief in exchange for Iran rolling back its nuclear program, as it has done.

Unfortunately, both the Senate and the House are working to impose additional sanctions on Iran. The legislation would target people involved in Iran’s ballistic missile program and foreign entities who do business with them, while also applying terrorism sanctions to the Iranian Revolutionary Guards Corps (IRGC).

But concerns about Iran’s missile program and support for terrorism are distinct from the JCPOA. The nuclear deal was narrowly conceived as a non-proliferation agreement. Iran’s recent ballistic missile tests, which have drawn so much fire from critics of the deal, did not violate the agreement.

More to the point, Iran’s missiles aren’t a serious security threat. Iran is militarily weak compared to all of its neighboring rivals and is easily deterred from attacking its adversaries with these missiles.

As for applying terrorism sanctions to the Revolutionary Guards, this amounts to a pointless redundancy that will not yield positive results, but may make things much worse. The IRGC is “already one of the most sanctioned entities in the world” and these additional measures will have negligible impact on its activities. New sanctions could even undermine anti-ISIS operations, as the IRGC and Iranian Shiite militias are battling ISIS in Iraq and Syria. Indeed, American military and intelligence officials have warned such sanctions “could endanger U.S. troops in Iraq and the overall fight against the Islamic State, and would be an unprecedented use of a law that was not designed to sanction government institutions.”

Imposing new sanctions on Iran that are unrelated to the JCPOA and have almost zero chance of producing the desired results is needlessly antagonistic. In fact, Iran’s cheeky response this week to new U.S. sanctions was to impose “its own sanctions regime on U.S. military companies involved in supporting Israeli settlements.” This tit-for-tat dynamic risks eroding trust between Iran, the United States, and the other signatories to the deal (the U.K., France, Russia, China, and Germany), creating a disincentive for Iran to comply with the deal’s restrictions.

Most worryingly, this may even be the intention of those who oppose the deal. They recognize that pulling out of the JCPOA unilaterally would be too costly for America diplomatically, but if they can provoke violations on Iran’s part, they can destroy the deal and avoid blame.

Both the White House and Congress need to understand that the future of the Iran nuclear deal is a matter of choice. The United States can choose to uphold the deal and ensure promised sanctions relief for Iran. Or it can choose to undermine the agreement by inflating the threat from Iran and provoking tension over peripheral issues. The first choice holds back nuclear proliferation in the Middle East. The second risks disastrous conflict between the United States and Iran. 

For an economist, it’s rare that events occur enabling us to directly test our economic theories and assess them against outcomes. Britain’s Brexit vote last year was one such moment. As the formal Article 50 process for EU withdrawal begins today, it’s worth re-examining the consensus view on what a “Leave” vote would mean. Those warning of impending doom today are many of the same people who predicted a decision to exit would bring immediate economic slowdown.

The Economists for Brexit group of which I was a founding member was busy refuting anti-Brexit reports pre-referendum. Britain’s Treasury led the way, claiming GDP would be 6.2 per cent smaller after 15 years if Britain exited the EU and single market (replaced with an EU-UK bilateral trade deal, as Prime Minister Theresa May now desires). Importantly, they forecast the mere act of voting to leave would trigger an immediate 4-quarter recession with 500,000 people losing jobs, higher inflation and lower house prices. There would be a “profound economic shock.” The IMF warned that a path towards leaving the single market would mean a recession in 2017. The OECD predicted a “major negative shock.” An Economists for Remain letter signed by 12 Nobel Laureates likewise said “a recession causing job losses will become significantly more likely.”

Yet the UK economy has proven robust. Immediate financial market turbulence following the unexpected vote quickly subsided. Far from contracting at the Treasury’s forecast 0.4 per cent annualized rate, the economy is currently growing at 2.8 per cent per year. The employment rate for 16 to 64 year olds is at its highest ever level, 74.6 percent, with unemployment at just 4.7 percent. House prices are currently increasing at 6.2 per cent per year. Annual broad money growth was 6.6 percent in January – suggesting robust nominal GDP growth through 2017. Even after Theresa May pledged to leave the single market and customs union, forecasters were revising growth estimates upwards for 2017.

The economic consensus did forecast correctly the pound’s fall on a trade-weighted index (around 13 percent decline), as did the Economists for Brexit analysis. This will raise the UK inflation rate. But even the recent uptick in inflation to 2.3 percent is in part driven by increasing commodity prices affecting U.S. and German inflation rates too. The flipside has been strong export order books, highlighted by the Confederation of British Industry’s buoyant survey last week. What happens to the pound in the longer term of course depends on the economic fundamentals, but what is clear is that so far the doom-mongers have been wrong on the macroeconomic impact overall.

Some disingenuously claim they called it wrong because Article 50 was not triggered straight away, or because the Bank of England took action after the vote. But this makes little economic sense given the forward-looking nature of consumers and investors, and the lags with which monetary policy operates.

No, the faulty forecast really came about because forecasters made a host of negative political assumptions in their modelling. They implied that many of the positive pro-market policies that have taken place since the 1970s alongside EU membership would be reversed. They assumed Britain would choose to maintain EU-level tariffs on the rest of the world and fail to agree any new trade deals. They assumed an independent Britain would change no EU regulations. They assumed that Britain’s gross contribution to the EU budget, and other powers in everything from agriculture to clinical trials, would be no better used domestically.

On every major issue, they looked solely at the potential downsides of Brexit and not the opportunities. Britain in the EU was considered the peak of economic dynamism. Thinking they’d be worse off after Brexit, the British Treasury and others believed consumers and investors would tighten their belts now. The faulty forecast of an “immediate recession” stemmed directly from the assumptions the Treasury made. 

Most consumers and investors have so far shrugged off the vote though, suggesting the public believe Brexit will have little long-term economic impact. Theresa May has made strong commitments to pursue free trade (despite the lazy comparisons between Brexit and Trump) and the British Chancellor has floated the idea of moving to a Singapore-like economic model if no deal with the EU is reached. If the UK were to pursue free trade unilaterally, my Economists for Brexit colleague Professor Patrick Minford estimates GDP gains of as much as 4 percent in the long-term. Incidentally, his near-term forecast, deriving from this assumption, was much closer to outturns than the pessimistic consensus.

Even the EU Commission itself seems to think that the single market adds just 2.1 percent to EU-wide GDP overall, and you’d think that this figure would be lower for the UK given the market in services is less complete and Britain’s instincts on regulation tend to be on the liberal end. Factor in the ability to review damaging regulations on clinical trials, agricultural and financial services, and there is room for optimism for a post-EU Britain.

As Article 50 is triggered, it is time for economists to remember that there are many more options stemming from policy freeoms than many of them considered during the campaign. Brexit is a supply-side shock to the economy. Whether it is a positive or negative one depends on how Britain uses the trade, regulatory and spending powers it repatriates from the EU in the long-term. All agree that a country more open to trade and investment will, other things given, be more prosperous. The fact that some economists are so sure Brexit will be damaging reflects their own priors rather than economics.  

Yesterday morning the Supreme Court heard oral arguments in Lee v. United States, which concerns the right to counsel and the right to trial by jury.  Here is an excerpt from a piece I had published in The Hill:

Jae Lee came to the United States from South Korea in 1982. At the time, he was just a boy in the care of his parents. Now 48 years old, Lee has lived in the U.S. as a lawful permanent resident for decades. He went to school in New York, but eventually moved to Memphis and got into the restaurant business. According to federal prosecutors, Lee also became a small time drug dealer and, after his arrest, he was facing serious criminal charges.

Like many persons who are accused of a crime, the prosecution offered Lee some leniency in prison time if he would agree to surrender his constitutional right to trial by jury. Naturally, Lee wanted to know all of the legal consequences of accepting the government’s plea offer — so he asked his attorney whether he would be subject to deportation to South Korea. Lee’s attorney assured him that deportation would not be a problem and advised him to accept the plea bargain.

On that recommendation, Lee pled guilty.

As it turned out, Lee received bad legal advice. His conviction meant he was now subject to deportation under federal law. After serving several years in prison, he would eventually be deported to South Korea and essentially banished from the U.S.

On appeal, Lee argues that he only pled guilty because of the recommendation from his lawyer. He wants to take his case before a jury.

Federal prosecutors say there’s no need for a trial because the evidence against Lee is strong.  That’s a curious argument to make.  Our constitutional right to trial by jury doesn’t depend on the government’s assessment of its own case.  And, really, what kind of government would burden us with trillions of dollars of debt and then turn around and, in effect, say “Yes, this person was given incorrect legal advice, and yes, the Bill of Rights says we’re supposed to respect the accused’s right to trial by jury, but this is a situation in which we have to be mindful of the costs related to trials.  Let’s deny a trial to Mr. Lee because it would just be a waste of time and money. He should be grateful for the way his case was handled, for his prison food, and that we’re sending him to South Korea instead of North Korea.”

Here’s a link to the Cato amicus brief in the case.  And if you’d rather listen than read, here’s a link to a Cato podcast interview with Caleb Brown.

Craig Keefe was expelled from his state-funded nursing college in Minnesota because something he said was deemed unprofessional. He didn’t break any laws with what he said—there were no threats or anything like that—and wasn’t even on campus at the time. He just made a handful of rude comments on his personal Facebook page, unrelated to any curricular project.

Nevertheless, the school had adopted the American Nurses Association’s code of professional ethics, which forbids behavior “unbecoming of the profession” or that “transgresses personal boundaries,” into its student handbook, so the federal district court rejected Keefe’s challenge to his expulsion. The U.S. Court of Appeals for the Eighth Circuit affirmed that ruling, effectively holding that that any punishment of speech under the nursing code is effectively free from First Amendment review.

So now Mr. Keefe, represented by Cato adjunct scholar Robert Corn-Revere, is asking the Supreme Court to take his case. Cato, joined by the Electronic Frontier Foundation, National Coalition Against Censorship, and Student Press Law Center, and with the help of Prof. Eugene Volokh and the UCLA First Amendment Clinic, has filed a brief supporting that request.

First Amendment protection is critical at universities, where complicated and controversial ideas are supposed to be formulated and debated. If uncorrected, the Eighth Circuit opinion permitting Keefe’s expulsion will set a dangerous precedent: Colleges will be able to punish students for expressing their views, based simply on administrators’ judgments that certain speech is inconsistent with their subjective understanding of professionalism.

Many professional-ethics codes—including the one at issue here—embody specific ideological commitments that might not be shared by large numbers of students, while also containing vague requirements that members uphold those values in their daily lives. The Eighth Circuit has opened the door for professional schools, including law and business schools, to enforce ideological litmus tests under the guise of ensuring adherence to professional ethics. Indeed, we have already seen—in cases the lower court cites to defend its position—students being targeted for their beliefs (for example, Keeton v. Anderson-Wiley (11th Cir. 2011), where a student was disciplined for statements disapproving of homosexuality).

Allowing viewpoint discrimination by way of professional codes of conduct opens up a gigantic loophole in the First Amendment’s freedom of speech, and in constitutional protections for conscience rights more broadly.

The Supreme Court will decide before it breaks for the summer at the end of June whether to take Keefe v. Adams.

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