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To some of its advocates, the cause of gun control is precious enough to be worth jettisoning not just the rights protected by the Second Amendment but many other individual liberties, including – as recent New York controversies suggest – First Amendment rights of speech and association and Fourth Amendment rights against search and seizure. Now, if a New York Times article is any indication, comes the turn of financial privacy.

In an advocacy piece imperfectly dressed up as a news story, New York Times financial reporter Andrew Ross Sorkin observes that some perpetrators of mass public shootings have bought guns and ammo using credit cards, and asks why credit card companies and banks should not be made to stop this. How? Well, they could “create systems to track gun purchases that would allow them to report suspicious patterns” and “prevent [customers] from buying multiple guns in a short period of time.” Invoking the Patriot Act – you knew that was coming, didn’t you? – the piece goes on to ask why the sweeping financial-snooping powers bestowed on the feds by that act should not be deployed against everyday civilians who purchase more guns than would seem fit for them to buy.

The piece notes with apparent approval that “several payment systems — including PayPal, Square and Apple Pay — already [have] established rules that ban the sale of guns and gun-related items using their systems” but says no banks have done so. (Following an earlier Sorkin report, Bank of America and Citibank announced that they would discontinue relationships with gun companies – all part of the burgeoning movement that has been called financial no-platforming, in which payments providers like Patreon and PayPal, following pressure groups’ demands, refuse to serve lawful but disapproved clients and causes.)

While credit card companies have developed sophisticated real-time measures to prevent fraud, Sorkin notes, they have shown little interest in preventing customers from purchasing lawful products or reporting them to law enforcers for doing so. I feel I can speak confidently for millions of customers in saying that’s exactly how I would like them to handle things.

Sorkin’s report leans heavily on such sources as Kevin Sullivan, “a former New York Police fraud investigator who consults with banks as president of the Anti-Money Laundering Training Academy” – not exactly what I would deem a disinterested source, since the higher the stack of suspicious activity reports mounts toward the skies, the more business for him.

The piece mentions one reason gun dealers are reluctant to pass on to banks information about what products their customers buy: someone else might come into possession of the list and know to pitch guns to those names. It doesn’t spell out nearly as clearly what might seem a bigger fear about a who-bought-guns data file, namely that it would go a long way toward identifying owners once confiscation of existing weaponry gets on the table as a proposal. The ACLU may not care about gun rights, but as Sorkin concedes, one of its policy analysts gets to much the same point by a different route: “The implication of expecting the government to detect and prevent every mass shooting is believing the government should play an enormously intrusive role in American life.”

David French at National Review has gone deeper into the problems with the proposal, and rather than duplicate his points I will instead close by adding one more. Besides working directly on the willingness of some big companies to bend to progressive opinion, and inspiring new laws and regulations, there is a third mechanism: trial lawyers, who already sue multiple parties after mass shooting events, might pursue legal claims against credit card providers for facilitating the atrocities. Through the magic of confidential litigation settlement, image-sensitive big companies might then make big policy concessions to get out from under the resulting litigation risk and bad publicity – without anyone having had to enact a new law or regulation.

Arm-twisting payments handlers into monitoring and reporting on private citizens’ gun purchases? The time to say no is now.

In the Washington Post, Josh Rogin warns us that “Rand Paul is quietly steering U.S. foreign policy in a new direction.” Indeed, the Post’s overwrought headline is 

Welcome to the world of President Rand Paul

Rogin goes on:

Several U.S. officials and people who have spoken directly to Trump since his Syria decision tell me they believe that Paul’s frequent phone conversations with Trump, wholly outside the policy process, are having an outsize influence on the president’s recent foreign policy decisions. The two golf buddies certainly are sounding a lot alike recently….

Paul told CNN on Dec. 23 that he had talked to Trump about Syria and was “very proud of the president.” That night on Twitter, Trump quoted Paul as saying, “It should not be the job of America to replace regimes around the world… The generals still don’t get the mistake.”

If Paul did in fact persuade the president to withdraw U.S. troops from one of the seven military conflicts we’re currently engaged in, Bravo. He tried to keep us out of the Syrian conflict back in 2013. That’s not Rogin’s view, though. He grumbles:

Of course, there’s nothing wrong with a senator advising the president on foreign policy. Hawks such as Sen. Tom Cotton (R-Ark.) and Lindsey O. Graham (R-S.C.) do it all the time. But the Trump-Paul bromance is troubling because Trump may be taking Paul’s word over that of his own advisers. 

Well, presidents are allowed to choose their own advisers. But how is it “troubling” that Trump might take advice from Senator Paul, but it’s fine to take advice from Senators Cotton and Graham? And by the way, check the quote above: how is a president’s conversation with a member of the Senate Foreign Relations Committee “wholly outside the policy process”?

Of course, Paul isn’t responsible for the fact that Trump is unable or unwilling to set a clear policy, implement it in an orderly manner, articulate a defense of it without using “alternative facts” and words like “suckers,” and make an inspirational, presidential speech to troops in a combat zone. It’s better to withdraw from unnecessary wars inarticulately than to stay in them with a 500-page report.

Rogin concludes by bemoaning “dangerous … isolationism [and] retreat.” “Isolationism” is a term that the foreign policy establishment throws around any time anyone questions whether all seven wars are actually wise. The New York Times also uses the term, reporting that the Syrian withdrawal “has been condemned across the ideological spectrum,” “with the exception of a few vocal isolationists like Senator Rand Paul.” And a few realists and noninterventionists like my colleagues John Glaser and Christopher Preble. And about half the American people.

In the wake of Massachusetts’ recent marijuana legalization, 

State Senator Jason Lewis plans to introduce legislation next month that would prevent workers from losing their jobs solely for consuming marijuana on their own time.

Despite supporting marijuana legalization, libertarians should oppose this legislation.

First, employers should be free to fire employees for any reason, subject only to any contractual relation between the two.

In addition, leaving employers free to fire workers for off-hours use will enhance public support of legalization. A common concern is that employee marijuana use might generate work accidents or other unproductive behavior.  Employers can address this concern, in part, by testing for at-work use.

But the line between off-hours and at-work use is murky, so creating a legal distinction will be messy. This implies on-going concern that some employees use at-work, weakening support for legalization.

Market dynamics, moreover, will discourage employers from testing for off-hours use unless such testing truly predicts employee productivity. Testing is costly, and if many employees find it annoying, employers who use it will face higher wage costs.

The right policy is therefore freedom for marijuana users and freedom for employers who, for whatever reason, prefer employees who do not use marijuana off-hours.

 

 

Trying to stay positive in this season of rising trade tensions and plunging stock markets, I return to a Washington Post story from a few weeks ago by Jenna Johnson from Ohio, where a General Motors plant is likely to close in 2019. That’s obviously not positive news for workers, suppliers, and others affected by the plant closing. What was encouraging was the attitudes Johnson found when she interviewed people at an auto-parts store:

Eight miles northwest of the General Motors assembly plant expected to close next year, two workers and a customer at an auto-parts store pointed fingers: Americans just don’t want to drive small cars like those produced at the plant. Gas prices are low, making big vehicles even more attractive. And GM can get cheaper labor elsewhere.

But none of the three men pointed a finger at President Trump, who had promised residents here and throughout the industrial Midwest that he would stop the closure of factories. At one political rally in the area last year, he even urged residents to stay put and not sell their homes.

“It’s a company. Why should the president of the United States be allowed to tell a company what to do?” said Michael Hayda, 64, a former factory worker and a driver at the store who is registered as a Democrat and voted for Trump in 2016.

We sometimes forget that many Americans retain that old American regard for free enterprise and limited government. Others in the store had the same attitude:

His co-worker Bill McKlveen, another Democrat who voted for Trump, agreed and noted that auto-industry workers have been getting pink slips for decades, long before Trump took office.

And even a customer who would like to see Trump impeached said he doesn’t fully fault the president.

“There’s only one law we all obey, and that’s the law of supply and demand,” said Paul Niemi, 68, who fixes wood pallets for a living and was motivated by Trump to vote for the first time earlier this month, selecting a straight Democratic ticket in the midterm election.

Not everybody agreed. Factory worker Tara Gress complained, “It’s a big company. They don’t care. . . . It’s a business. We’re numbers. It doesn’t matter. All of the begs and pleads for this community, it’s not going to make a difference.” Still, those attitudes – plants are closing because of supply and demand, and it isn’t the president’s business to tell companies what to do – are part of what has given us the world’s most dynamic economy for most of the past two centuries. 

For all the talk about socialism, Americans still prefer free enterprise. It’s not good that 37 percent of Americans told Gallup they had a positive image of socialism, but 79 percent had a positive view of free enterprise and 86 percent of entrepreneurs.

In 2017 Gallup found that 67 percent of Americans believed big government was a bigger threat to the future than big business was. Only 26 percent picked big business, and 5 percent said big labor. And when it comes to presidents telling companies what to do, well, almost no one in the new Gallup poll thinks the federal government has too little power: just 8 percent, about where it’s been since 2002.

The men the Post interviewed in Warren, Ohio, display an American sense of life – an attitude of individualism, self-reliance, economic opportunity, and skepticism toward power and government. Something to appreciate in this season.

Hours after I published Why Conservatives Shouldn’t Support Federal Paid Parental Leave, Ramesh Ponnuru criticized it and the work of other Cato scholars on the same topic.

Ramesh takes exception with my use of the new Cato paid leave poll that tested the conservative response to paid leave costs, estimated using the Democrat’s plan for paid leave (the only formalized Republican proposal for publicly-provided paid leave is Rubio’s plan, which is not popular).

Yet the context was former Senator Santorum’s article, which argued for reaching across the aisle to find agreement with Democrats on a federal paid family leave policy. Santorum leaves the ultimate design of the policy open-ended.

As Ramesh must know, the Republican plan for paid leave is not an appealing compromise for congressional Democrats. In fact, senator Rubio’s proposal has zero co-sponsors. On the other hand, the Democrat’s FAMILY Act has 34 co-sponsors in the Senate and 160 in the House. 

You can find just about any kind of restaurant imaginable in our nation’s capital, but what you won’t find, no matter how hard you look, is a gun store. D.C. residents who want to buy guns, like Tracey and Andrew Hanson, have to leave the district to get them. D.C. law specifically allows residents to buy firearms from outside the District.

So the Hansons visited Frederic Mance, a federally licensed gun dealer in Texas. D.C. law had no problem with the Hansons buying a gun from Mance, and the law of Texas allowed Mance to sell to the Hansons. The Hansons agreed to buy handguns from Mance in what would be an otherwise entirely lawful transaction, but there was a problem: the federal government (of course).

Federal law categorically forbids firearms dealers from selling handguns to anyone not a resident of the state in which the dealer does business. The purported justification for this restriction is that the government doesn’t believe licensed dealers can handle complying with the laws of the purchaser’s state—even though they are required to do just that should the customer want something like a bolt-action rifle, shotgun, or even (heavily restricted) machine guns.

Mance, the Hansons, and several others sued the federal government in Texas, arguing that the interstate handgun-transfer ban violated their Second Amendment right to bear arms and Fifth Amendment right to equal protection. The district court agreed that the law was unconstitutional, but when the case came to the U.S. Court of Appeals for the Fifth Circuit, a closely divided court found for the government, over strong dissent. The plaintiffs now appeal their case to the Supreme Court, hoping our nation’s highest court will finally step in and clarify how laws are to be evaluated under the Second Amendment—something the justices have avoided doing since declaring in D.C. v. Heller (2008) that there is indeed an individual right to keep and bear arms.

Federal law has put the national firearms market into an irrational state. Dealers are trusted to follow the law of multiple states when selling long guns, but are categorically forbidden from doing the same with the most common arms in the country. It regulates the interstate arms trade as if the Founders hadn’t been driven to war by embargoes on trading guns, and exclusively targets the arms which Americans—and the Supreme Court—have indicated are the most crucial for self-defense.

Because the right to armed self-defense is fundamental and should not be given “second class” treatment, Cato has filed an amicus brief urging the Supreme Court to hear the Mances’ case. In an area of the law where the circuits diverge substantially on how to treat an important civil right, the Court needs to step in and help set the course. This case is an ideal vehicle in which to do it, as its resolution would not directly disrupt the nation’s diverse tapestry of gun laws, but instead help equip lower courts with the tools they need to properly map the metes and bounds of the Second Amendment.

The Supreme Court will decide whether to take up Mance v. Whitaker later this winter.

A month ago the novelist Jay Seliger asked “Is there an actual Facebook crisis, or media narrative about Facebook crisis?” After two years of criticism of the company, he noted, its users are still on board. Indeed, you might have to pay them a $1,000 to give up Facebook for one year. Seliger remarks that an earlier New York Times story “reads a lot like a media narrative that has very little to do with users’ actual lives.”

Seliger asserts that Facebook is “a Girardian scapegoat for a media ecosystem that is unable or unwilling to consider its own role” in the election of Donald Trump. (On Rene Girard see this). I don’t know about the culpability of the “media ecosystem,” but the ferocity of the campaign against Facebook suggests something more at work than a concern about privacy and the use of online data.

Many people were horrified and surprised by Trump’s election. But Trump himself, his campaign, and those who voted for him bear responsibility for his election; to be more accurate those who voted for him in a small number of states like Michigan and Wisconsin put him in the White House.

It is difficult to believe that Facebook’s managers were dumb enough to take sides in a presidential campaign, least of all the side of Donald Trump. Brad Parscale, Trump’s campaign manager in 2016, says plausibly that Facebook gave the campaign as much assistance as it would any multi-million dollar advertising customer. The company sent a person to be a “living manual” to the platform and to fix it quickly when it did not work.

But maybe Facebook’s “sins” were more passive than active. After all, Facebook might have prevented Trump’s victory by refusing to sell advertising to his campaign and by suppressing a significant part of advocacy for his election on the platform. Technically I imagine both could be done. Both might well be legal; they would without doubt be constitutional. Facebook has no obligation to protect speech on its platform. Perhaps more than a few people believe Facebook helped elect Donald Trump not because of what it did but because of what it did not do.

In this light, some, though not all, of the criticisms of Facebook may be a way of posing a question to Mark Zuckerberg: “This campaign against you and your company must be unpleasant and costly. The bad publicity and even government investigations might go away if Facebook refuses to sell ads to Trump’s re-election campaign and suppresses at least the worst speech of his supporters. Also, no Facebook personnel to help them. How about it?” Zuckerberg might be rational, if not wise, to take that deal.

But, of course, that would not be the end of it. Trump supporters and the Right generally think Silicon Valley have it in for them. Facebook would go from scapegoat for the left to a major target of Trump’s re-election effort. A Trump victory would mean an administration bent on revenge against Facebook. A Trump defeat would turn Facebook into a scapegoat for the other half of a polarized America. In this latter case, Republicans too might end up asking Mark Zuckerberg what he’s willing to do to make the pain end.

In both cases, we will end up with what few want: regulation of social media determined by fear of a president or a party in power, now or in the future. Another limit on government and politics would have fallen by the way.

Facebook may moderate (and suppress) content on its platform. But if that moderation is done under credible threats by government officials, any suppression of speech looks a lot like censorship.  We may be on a road where permitted private policies are in service to forbidden government goals. It’s not a road we want to follow to its end.

Fifty years ago today, NASA’s Apollo 8 mission sent three astronauts to orbit the moon and return safely to earth. This first manned mission to the moon was planned rapidly and executed flawlessly. The Saturn V rocket was the most powerful engine ever built, yet was new and not fully tested. The computers available at the time were primitive, yet everything about the timing of burns and entry angles had to be precise. It was a stunning achievement. An American triumph. Hats off to astronauts Frank Borman, James Lovell, and William Anders who showed unbelievable courage.

If the mission were pursued today, the president would tweet the astronauts halfway to the moon telling them to abort. The computers would jam during launch like during the Obamacare launch. Political operatives would create a dossier claiming that NASA was in cahoots with the Russians. Planning would take four years, not four months. Environmental lawsuits would threaten to shutdown the Saturn V launchpad. Labor regulations would slow astronaut training. NASA executives would be indicted for giving contracts to relatives. Federal budget squabbling would shutdown mission control, leaving the astronauts to find their own way home from the far side of the moon. It would be a mess.

Liberals and socialists want big things from the government, but Washington today is running trillion-dollar deficits and is far too dysfunctional. Paul Light here and Peter Schuck here discuss reasons why the government fails so much these days, and I discuss the core reasons for federal failure here.

Since the early Republic, the federal government has suffered from corruption, cost overruns, pork barrel spending, and vicious partisan battles. But the situation today is worse because the government has grown so huge it is impossible to manage and oversee properly. The federal government budget is 100 times larger than the budget of the average state government. Milton Friedman observed, “because government is doing so many things it ought not to be doing, it performs the functions it ought to be performing badly.”

The 1968 moonshot remains awe-inspiring, as Joel Achenbach discusses here and Robert Kurson discusses here. But looking ahead, we would get more out of government if it did less, and we would be better off putting faith in entrepreneurs for the next breakthroughs in space and much else.

The timing of James Mattis’s resignation as Secretary of Defense may be as significant as the particulars cited in his letter announcing it. It came on the heels of President Donald Trump’s announcement that U.S. troops would be swiftly removed from Syria, and amidst rumors that a similar withdrawal was in the offing for Afghanistan. Trump’s Syria decision alone might have proved the last straw, but there have been countless other occasions since January 2017 when Mattis might have taken a stand on principle. Why this decision? And why now?

Mattis’s resignation letter mentions neither Afghanistan nor Syria, but hints indirectly at both: “the 29 democracies…fighting alongside us following the 9-11 attack on America” and the “the Defeat ISIS coalition” that supposedly includes 74 countries. A “core belief,” Mattis explained, “is that our strength as a nation is inextricably linked to the strength of our unique and comprehensive system of alliances and partnerships.” 

One could be forgiven for questioning Mattis’s claim that he shares President Trump’s view that “the United States should not be the policeman of the world.” The Defense Department that he presides over, and the National Defense Strategy that he issued, is clearly oriented around the defense of others. It reflects a belief, widespread among the U.S. foreign policy establishment, that the U.S. military exists not merely to defend “these States” named in the Constitution, but the plethora of allies, both formal and informal, who have grown dependent upon American military power. It is a subtle, but critical, point of difference between the Founders’ intentions and U.S. foreign policy as it is practiced today.  

And Mattis clearly sees U.S. military power as the bedrock of America’s global influence, more important even than our dynamic economy or our vibrant political culture. Don’t be fooled by his comment, oft repeated in the media, that a failure to properly fund the instruments of diplomacy would result in him having to “buy more ammunition.” The U.S. military bought many more bullets, and ships, and planes, under Mattis’s tenure. If he felt so strongly that the nation’s priorities were out of whack, he would have spent more time challenging the premises that have U.S. forces deployed in over 800 military facilities over the world, fighting wars in at least seven different theaters, and under dubious authority. Instead, he has boasted of securing for the Pentagon enormous spending increases. He even prevailed on the president to endorse a $750 billion Pentagon budget for the next fiscal year, mere weeks after Trump had said $700 billion was much too high (“crazy” even). 

The U.S. military is expensive because the U.S. military is busy. Very busy. It isn’t obvious that this high level of activity advances U.S. security and prosperity. And U.S. promises to defend others allows them to underspend on their militaries. Indeed, that was always the object. It is incumbent upon Mattis – and all those who so loudly lament his departure – to spell out how the U.S. military would be more busy if it wasn’t mostly in the business of defending others from threats that they can and should address themselves.

It is hard to imagine how that is possible. Rep. Ro Khanna (D-CA) recently tweeted, citing evidence compiled by Stanford’s David Kennedy, “that from 1945-1973 the U.S. had 19 overseas deployments. Since then we have had over 144.” This tracks with evidence that the Congressional Research Service compiled in October 2017. According to the CRS study, explains Cato’s John Glaser, “the United States has engaged in more military interventions in the past 28 years than it had in the previous 190 years of its existence.” Glaser’s back-of-the-envelope calculations count 199 interventions from 1798 to January 1989 and 213 from 1989 to today. He continues: “About 46 percent of Americans have lived the majority of their lives with the United States at war. Twenty-one percent have lived their entire lives in a state of war.”

There may have been occasions when Jim Mattis successfully fended off President Trump’s inclination to use the U.S. military even more often than he did. Reports of attacks thwarted or shelved, including against North Korea and Venezuela, remind that Mattis certainly doesn’t hold the title as the Trump administration’s most bellicose player. But his decision to walk away from the administration on the occasion of the president’s decision to draw down U.S. involvement in two protracted conflicts speaks volumes.  

 

 

Today’s enactment of the First Step Act constitutes the most significant reform of the federal criminal justice system in a generation. The new law includes many laudable features, such as reducing mandatory minimum sentences for non-violent drug offenses, making retroactive the provisions of the Fair Sentencing Act of 2010 that reduced the crack-to-cocaine sentencing disparity, expanding the “safety valve” that allows certain non-violent drug offenders to avoid the harshness and rigidity of mandatory minimum prison sentences, and requiring the placement of prisoners near the families to whom they’ll one day return.

Policymakers, stakeholders, and activists have been pushing for many of these reforms for half a decade, and for those closest to the effort, the experience has been a roller coaster of advances and setbacks. Just weeks ago, despite growing support throughout much of the year, it seemed as though the door would close yet again on this bipartisan and cross-ideological effort. Then, in the immediate aftermath of a supportive tweet from President Trump, newfound support from Senator Ted Cruz, and needling from fellow Kentucky Senator Rand Paul, Senate Majority Leader Mitch McConnell reversed course and committed to bringing the First Step Act to the Senate floor for a vote. The bill passed the Senate on December 18, 2018, by a vote of 87-12, and then quickly moved to the House—which had passed a similar but less robust bill earlier this year—where it passed 358-36. The bill became law with the president’s signature earlier today.

In typical Washington fashion, the drama surrounding this effort has caused a flurry of media attention, perhaps leading some to the conclusion that this package of reforms will fix most, if not all, of what is wrong with our criminal justice system. But as even the staunchest advocates of the new law acknowledge, there is much more that needs to be done. As implied by the title of the bill—the First Step Act—there are additional reforms that must be instituted before Americans will have the criminal justice system they deserve and that justice demands.

Scholars with Cato’s Project on Criminal Justice have identified coercive plea bargaining as among the most perverse practices in America’s criminal justice system, both because it produces an alarming number of false convictions and because it has resulted in the near-elimination of the criminal jury trial. Today, more than 95 percent of convictions are obtained through plea bargains, rendering the constitutionally prescribed method for adjudicating criminal cases—the jury trial—practically extinct.

In its idealized form, plea bargaining is the process by which prosecutors and the criminal defendant negotiate a mutually acceptable resolution whereby the defendant avoids trial by pleading guilty to the alleged crime or crimes before a judge. The defendant typically gets the benefit of a modest reduction in prison time and/or financial penalties, while the prosecution gets to avoid the expense of a trial and the inevitable unpredictability of juries.

But the plea-bargaining process can easily become coercive when, for example, prosecutors stack charges in order to expose the defendant to greater prison time if they insist on going to trial, a well-documented phenomenon known as the trial penalty. Other coercive levers available to prosecutors include pretrial detention, the use of civil forfeiture that can deprive the accused of the resources needed to defend themselves, and threats to investigate friends and family members. The result is a system in which the government can convict and incarcerate people without the explicit approval of ordinary citizens, and without having to prove its case against the accused in a public and adversarial proceeding.

As part of its effort to raise public awareness of coercive plea bargaining and challenge its legitimacy, the Cato Institute’s Project on Criminal Justice hosted two events earlier this year—one in July titled Plea Bargaining: Good Policy or Good Riddance? and a second in October titled Coercive Plea Bargaining.

Cato has also begun a strategic amicus initiative designed to restore the Founding-era practice of ensuring that jurors have the information they need to perform not only their fact-finding function, but also their time-honored role of limiting government power by refusing to convict factually guilty defendants when it would be unjust to do so—a practice often referred to as “jury nullification,” but perhaps more accurately described as “conscientious acquittal.” To properly discharge the latter role of limiting government power, jurors should be advised of the likely consequences for the defendant if they are convicted, the substance of any plea offer(s) made to the defendant by the prosecution, and basic information about the history and importance of conscientious acquittal in the Anglo-American legal system.

And to set the stage for possible legislative responses to coercive plea bargaining, Cato will endeavor to educate policymakers in the coming months on the myriad problems associated with this unjust, unseemly, and extra-constitutional feature of our criminal justice system. If there is an appetite for a “Second Step Act” in 2019 or beyond, Congress would do well to include provisions that squarely confront the epidemic of coercive plea bargaining.

“This will be a wall with a big, very beautiful door because we want the legals to come back into the country.” -Donald J. Trump, August 23, 2015

“I want people to come into our country legally. I want to have a big, fat, beautiful open door.” -Donald J. Trump, September 3, 2015

“I want tremendous numbers of people to come in, and we are going to have that big beautiful door in the wall.” -Donald J. Trump, November 2, 2016

“We’re going to have a big, fat beautiful door right in the middle of the wall. We’re going to have people come in, but they’re coming in legally.” -Donald J. Trump, October 28, 2015

The House Freedom Caucus—a coalition of Republicans—were reportedly the “driving force” behind talking President Trump into a government shutdown over the border wall. Freedom Caucus leaders Jim Jordan (R-OH) and Mark Meadows (R-NC) “led a revolt” on the House floor against the bill that would have kept the government open without more money for Trump’s wall. Rep. Jordan justified their position this way:

Let’s do what we said. Let’s build the border security wall …It’s pretty simple. What did you tell the voters you were going to do? What did they elect you to do? Go do that.

That’s a fair point. Trump did center his campaign in 2016 around a border wall along the southern border. Of course, he also told voters repeatedly that Mexico—not U.S. taxpayers—would pay for it. But setting that issue aside, President Trump also vociferously promised that the border wall would contain a “big beautiful door” that would let in “tremendous numbers of people.” So why are Republicans not demanding a shutdown if the door isn’t built? Isn’t that what Americans were promised too?

Of course, they have no intention of keeping this promise. The Trump administration is closing down legal ports of entry for asylum seekers to prevent them from entering legally. It has championed bills to cut legal immigration by 50 percent, and its regulations are already making legal immigration much more difficult. Don’t expect any shutdowns for the “big beautiful door” any time soon.

The Census Bureau has released new data on state population growth between July 2017 and July 2018. Domestic migration between the states is one portion of annual population change. The Census data show that Americans are continuing to move from high-tax to low-tax states.

This Cato study examined interstate migration using IRS data for 2016. The new Census data confirms that people are moving from tax-punishing places such as California, Connecticut, Illinois, New York, and New Jersey to tax-friendly places such as Florida, Idaho, Nevada, Tennessee, and South Carolina.

In the chart, each blue dot is a state. The vertical axis shows the one-year Census net interstate migration figure as a percentage of 2017 state population. The horizontal axis shows state and local household taxes as a percentage of personal income in 2015. Household taxes include individual income, sales, and property taxes.

On the right, most of the high-tax states have net out-migration. The blue dot on the far right is New York with a tax burden of 13 percent and a net migration loss of nearly 1 percent (0.92) over the past year.

On the left, nearly all the net in-migration states have tax loads of less than 8.5 percent. The outlier on the bottom left is Alaska. If policymakers want their states to be people magnets, they should get their household tax burdens down to 8.5 percent of personal income or lower.

The red line is fitted from a simple regression that was highly statistically significant.

Earlier this year in Masterpiece Cakeshop, the Supreme Court contended with the issue of whether cake-baking is protected speech under the First Amendment, and thus whether a Christian baker could refuse to design a wedding cake for a same-sex ceremony. The Court ended up punting on the case’s major questions, but now the Arizona Supreme Court is facing a similar issue, this time with calligraphers instead of bakers.

Artists Joanna Duka and Breanna Koski are practicing Christians who own and operate Brush & Nib, an art studio in Phoenix, Arizona. In addition to designing wedding invitations using calligraphy, they produce recreations of wedding vows and other custom artistic works. Phoenix’s public accommodation law would require them to design invitations and vows for every ceremony—even those that conflict with their sincerely held faith. The city imposes draconian punishments for failing to comply with this law; Joanna and Breanna could face fines of $2,500 per day, or up to six months in jail. It seems that in Phoenix, Christian artists who oppose same-sex marriage must choose between practicing their faith and running a business if they want to avoid both bankruptcy and jail time.

Cato of course has a long history of supporting both gay rights and the First Amendment. We were the only organization in the entire country to have filed briefs supporting the petitioners in both Masterpiece Cakeshop and the marriage cases that ended in Obergefell v. Hodges (2015). Now, joined by professors Dale Carpenter and Eugene Volokh—who differed on Masterpiece Cakeshop because they consider cakemaking not sufficiently expressive for the First Amendment to apply—Cato has filed an amicus brief arguing that expressive small businesses (including calligraphers) are indeed protected from speech compulsions.

The First Amendment, in stark contrast to Phoenix’s public accommodation law, protects people from government-compelled expression. The Supreme Court in Wooley v. Maynard (1977) established that even forcing a driver to display a license plate with the motto “Live Free or Die” violated that person’s “individual freedom of mind.” It would surely violate someone’s conscience far more to be forced to design art or otherwise convey messages for a ceremony with which they disagree.

Besides, the Arizona Supreme Court previously held that tattoo design is art, and that both the design and sale of such art is protected by the First Amendment. According to the Arizona Court of Appeals in this case, however, calligraphy—unlike tattoo design—is not “inherently expressive.”

The lower court ignored all historical evidence proving that calligraphy is art. Not only is calligraphy considered a fine art in Chinese tradition, but it also has had a profound effect on American history. After all, our own Declaration of Independence is a masterpiece of calligraphy, designed by Timothy Matlack. If Matlack were forced to design royal proclamations declaring the colonists traitors, his freedom of conscience would have been severely violated—and the same applies to the Brush & Nib artists.

Wooley also provides an important limiting principle for protecting individual freedom of mind: it does not apply to all conduct, only First Amendment-protected expression. Far from the blanket discrimination that hoteliers and restauranteurs often leveled at African-Americans in the Jim Crow era, refusing to create a wedding invitation is simply refusing to speak in a way that would betray one’s faith or compromise one’s conscience. Just as the government cannot force a patriot like Timothy Matlack to denounce his fellows, or an atheist to endorse Scientology, the government cannot force orthodox Christians, Jews, and Muslims to design art for same-sex weddings.

President Trump’s Syria announcement yesterday has sent the foreign policy community into orbit. The distress is mostly bipartisan, although the real vitriol seems to be coming more from Republicans than Democrats. See, for example, the stories of Vice President Pence’s meeting with GOP senators, and Rep. Adam Kinzinger’s meltdown on CNN.

A few, however, appreciated the president’s decision. See especially, Cato’s John Glaser (here and here), Defense Priorities’ Benjamin Friedman, Win without War’s Stephen Miles, and timely tweets from Democrat Ted Lieu and Republicans Rand Paul and Justin Amash.

Rather than simply rehash these statements, here are a few brief observations related to the president’s decision:

  • It should not be a surprise to anyone. Donald Trump has been railing against U.S. entanglement in Middle Eastern civil wars for years – as he noted this morning on Twitter. The only real surprise is that it took so long for him to overrule his foreign policy advisers who were dead set against withdrawal. (It does raise the question: Does he have the right foreign policy advisers?) As recently as this September, John Bolton explained publicly that U.S. forces would remain in Syria as long as Iranian forces were there – effectively signaling a willingness to leave U.S troops there forever. Wednesday’s announcement is merely the latest reminder that the president sets policy.
  • I’m particularly interested – and moderately concerned – by an apparent meeting of the minds (and possible quid pro quo?) between President Trump and Turkey’s President Recep Tayyip Erdogan. Aside from the troublesome atmospherics of the U.S. government drawing closer to an authoritarian thug, there are also grounds for asking what this means for the Kurds. Initial signs aren’t promising – Erdogan hinted that an offensive was imminent even before Trump’s announcement. If the decision to remove U.S. forces from Syria is part of a larger project that will tie the United States even more closely to the Turkish president, then President Trump almost certainly made the right decision for the wrong reason.
  • I have zero tolerance for those who bemoan the lack of congressional oversight of this decision, or who complain that the president opted for a troop withdrawal on his own, an apparent case of executive overreach. Where was this same outrage when a progression of U.S. presidents, up to and including Donald J. Trump, undertook military operations either without any congressional authorization, or only under the dubious cover of the 2001 and/or 2002 AUMFs? We should have had a proper debate over the post-9/11 AUMFs, and the appropriate recourse is to repeal rather than replace them. But those who didn’t want such a debate when U.S. forces were actively engaged in acts of war in multiple theaters, but who want one now that they’re leaving just one of those warzones, don’t have a leg to stand on.
  • The execution of this policy is almost certain to be chaotic. That is both unfortunate and unforgivable. The Pentagon, as it often does, will try to make it seem well-thought-out, but the mixed messages and general confusion emanating from the Trump administration over the last 24 hours are apparent to everyone. I understand that President Trump was new to the policymaking process when he was elected  – and, indeed, that likely worked in his favor electorally, as millions of Americans appeared to value his fresh perspective over Hillary Clinton’s experience. But his administration is now nearly two years old, and there simply is no excuse for a chaotic roll-out of an important foreign policy decision, one that certainly affects the lives of officially 2,000 American servicemen and women (the actual number could be twice that), plus potentially millions living in Syria. In my writing, I often stress how the impulse to do something (anything!) often ignores the unintended consequences of our actions. The other side is more concerned about sins of omission than sins of commission, claiming that these, too, have unintended consequences. Fair enough. In this instance, President Trump initiated a significant change in U.S. force posture in an active war zone, believing that the decision serves U.S. strategic interests. He has an obligation to take every possible step to ensure that it actually does advance our interests. An approach that amounts to “Tweet and hope for the best” doesn’t cut it.

Finally, the statements and tweets noted at the top reflect the major foreign policy debates going on within both parties. My colleagues Emma Ashford and Trevor Thrall broke this down in a recent piece for War on the Rocks, and in two episodes of the “Power Problems” podcast (with Bryan McGrath on the right and Jake Sullivan on the left). A key area of disagreement among foreign policy thinkers of all stripes revolves around the efficacy of military force, and the utility of other foreign policy tools, including diplomacy, economic carrots and sticks – and, yes, moral suasion. Leading by example, and calling on others to behave in ways that serve the cause of peace, was the touchstone of U.S. foreign policy for at least the first half of this country’s history. Some people have never forgotten that the nation’s Founders generally abhorred warfare, and were extremely reluctant to become embroiled in others’ disputes. It is significant, I think, that Rep. Ro Khanna frequently invokes John Quincy Adams in his speeches.

There is an alternative to the bipartisan foreign policy consensus that views the United States as the indispensable nation, and U.S. military power as the essential element of that indispensability. The responses to Trump’s Syria decision remind us that the particulars of that alternative will continue to be hammered out over at least the next two years.

President Trump recently backed off his demand for $5 billion in funding for his border wall, likely averting a government shutdown around Christmas.  However, the political debate over funding for border wall will merely reemerge in the New Year.  Besides new court decisions regarding DACA, there is little to break this deadlock.  Some of the suggestions below offer additional avenues on which to negotiate.  

One of President Trump’s persistent claims is that the wall will secure the border and he recently implied that Border Patrol agents are substitutes for such a barrier.  In that case, I have a suggestion for Congressional Democrats who will be negotiating with the President over the wall in the next several years:  If you must fund the wall in exchange for the DREAM Act or DACA, have Border Patrol pay for it.

This idea is simple in concept – just fire Border Patrol agents and use their saved salaries to fund the construction of the border wall.  As of the middle of 2018, the 19,338 Border Patrol agents had an average annual salary of $61,064.  Altogether, they were paid about $1.18 billion in 2018.  The savings from firing all of them in one year wouldn’t come close to funding the $25 billion or so to build the entire border wall and would only go a small portion of the way toward President Trump’s more modest $5 billion request, but it’s a start.

Of course, the government should not fire all the Border Patrol agents.  Some are necessary to patrol the border even if Congress liberalizes the immigration system.  But this is Washington, DC, and politics being what it is, we all must compromise.  If Congress instead fired half of all Border Patrol agents and instituted a policy of no new net hiring, that would free up $590.4 million per year for the construction of a border wall.  In 8 years and 5 months, about $5 billion in savings could be diverted to the wall.

Firing half of all Border Patrol agents might be too drastic for Congress, even though that would only reduce the number of agents down to about the level it was in 2000.  Another solution would be to cut Border Patrol pay by a quarter, cap their salaries, keep the same number of Border Patrol agents, and use the saved salaries to pay for the wall.  Enough money would be accumulated to pay for the $5 billion portion of the wall over the next 16 years and 11 months.     

There is yet another way to partially pay for the wall by shrinking Border Patrol.  Each mile of the wall will cost about $17,280,000 to construct according to recent DHS estimates and about $864,353 per mile in annual maintenance afterward.  At about 8.5 agents per mile along the Mexican border, on average, the salaries or wages of Border Patrol would have to be reduced by more than 100 percent to even maintain the new wall.  That’s obviously a non-starter … besides being impossible.  So how about Border Patrol pay for 1 percent of the construction costs and 10 percent of the annual maintenance costs by reducing their staff? 

Paying for 1 percent of the border wall construction by firing Border Patrol agents could be accomplished by reducing their numbers by 1,637 initially for only 3 years.  For the second and third years after the wall was constructed and maintenance costs were incurred, the Border Patrol would have about 3,954 fewer agents or be 20 percent smaller.  To fund maintenance after year threes, the permanent staff reduction would be about 2,317 Border Patrol agents or about 12 percent of their total current numbers.  If the cuts are entirely concentrated along the Mexican border, that would be a 14 percent cut in the numbers patrolling that border.    

If the above-proposed deals are still too complicated or extreme, here is my final compromise suggestion: Fire one Border Patrol agent for each mile of the wall that is built.  The $5 billion that Trump wanted for the wall would only pay for about 289 miles out of the current 1,637 unfenced border miles.  Firing 289 Border Patrol agents and preventing the hiring of replacements would only pay for about 0.4 percent of the cost of constructing the border wall and 7 percent of the annual maintenance afterward, but it’s a start.  It’s also easy to understand and explain.  Such a reduction might also motivate the administration and Border Patrol to only support building a wall in areas where they think it will most reduce unlawful crossings.    

President Trump has argued that the border wall will secure the border.  I doubt that is true, but I’m willing to take him at his word if he’s willing to shrink Border Patrol in exchange for funding the wall.  Since the wall will secure the border, that means we would need fewer Border Patrol agents.  Reducing the number of Border Patrol agents by one for each additional mile of the wall built would drop their numbers by about 1.5 percent and reduce the number of agents per mile along the Mexican border from about 8.5 today to 8.4 after the 289 miles are built. 

Throughout the entire Anglo-American legal tradition, the independence of citizen juries has been understood to be an indispensable structural check on executive and legislative power. This independence has traditionally implied that jurors would both understand the consequences of a conviction, and that they would possess the power of conscientious acquittal, or “jury nullification”—that is, the inherent prerogative to decline to convict a defendant, even if factual guilt is shown beyond a reasonable doubt, when convicting would work a manifest injustice. Nevertheless, modern courts generally do not protect a defendant’s right to make such arguments directly to a jury, nor even to inform a jury about the consequences of conviction. A fascinating case now pending before the Second Circuit illustrates the tensions in modern case law on the subject, and raises the crucial question of whether district courts may, at the very least, permit such arguments in appropriate cases.

Yehudi Manzano, a 31-year-old man, made the regrettable decision to get involved in a romantic relationship with a 15-year-old girl. While their sexual relationship was impermissible under Connecticut age-of-consent laws, there was no indication that any instance of sex was coerced. On one occasion, Mr. Manzano took a video on his cell phone of the two of them having sex, which he then deleted. But the video was uploaded to the cloud, federal prosecutors ultimately became aware of the recording, and they charged Mr. Manzano with both production and distribution of child pornography, which respectively carry mandatory minimum sentences of fifteen and five years.

Mr. Manzano exercised extraordinarily poor judgment, and he is independently facing state charges for second-degree sexual assault. But the federal charges against him — a threatened minimum of 15 years, all for taking and deleting a private video, in a non-coerced context, that no one but government investigators ever saw — are grossly disproportionate, and they exemplify the problems with mandatory minimum sentences in general. As such, Mr. Manzano’s attorney sought to introduce evidence of the mandatory minimum sentence and to argue for conscientious acquittal. The District Court judge did not conclusively resolve these motions, but it did indicate openness to letting Manzano’s counsel ask a government witness about the mandatory minimum, and said that if the evidence came in, he would allow argument on it. This is therefore the extraordinarily rare case where a district court showed even tentative willingness to permit arguments sounding in conscientious acquittal.

But even those conditional, preliminary rulings were too much for the prosecutor to accept. The government stayed the trial, and is now seeking the extraordinary remedy of a writ of mandamus from the Second Circuit, asking the appellate court to prohibit the District Court from permitting any evidence or argument about conscientious acquittal. In other words, according to the United States, keeping a jury in the dark about the actual consequences of conviction is so vital that it warrants stopping a trial and overriding the traditional discretion of district court judges to rule on evidentiary questions as they arise.

The Cato Institute, joined by FAMM and the NACDL, has therefore filed an amicus brief, urging the Second Circuit to deny the government’s petition. Not only is the District Court’s preliminary ruling well within its discretion, but the judge’s approach is also eminently reasonable, as it thoughtfully harmonizes many tensions in the modern case law of conscientious acquittal. Our brief argues that, throughout the Anglo-American legal tradition, pre-dating even Magna Carta, juries have always possessed the inherent authority to acquit defendants in the face of manifestly unjust prosecutions. This power was well-established in the Founding Era, in which juries were regularly aware of — and tailored their verdicts to — the consequences of conviction. And while modern cases (perhaps erroneously) do not generally afford defendants the right to argue for conscientious acquittal, no controlling cases preclude a district court from permitting such arguments.

Protecting the discretion of district court judges in this regard is all the more important today, in light of the vanishingly small role jury trials play in our criminal justice system. Today, jury trials have been all but replaced by plea bargaining as the baseline for criminal adjudication, and severe mandatory minimums, like the one at issue here, are a major driver of this trend. Preserving the possibility that juries may, in appropriate cases, be informed about the consequences of conviction is a small but vital safeguard against the wholesale erosion of the jury trial itself.

The U.S. House is expected to vote on the FIRST STEP Act today after the legislation passed the Senate late Tuesday.

For today’s Cato Daily Podcast, I spoke with Shon Hopwood of the Georgetown University Law Center about what the act does and why he views the legislation as both historic and modest reform.

 

Hopwood spoke at the Cato Institute’s Cato Club 200 event this year where he detailed his own experiences as a federal inmate and why sweeping criminal justice reform remains necessary.

This week marks the 40th anniversary of China’s opening to the outside world, announced at the Third Plenum of the Eleventh Party Congress in1978. After Mao Zedong’s disastrous Cultural Revolution and the failure of central planning, the nation was ready to embark on a new path of development. Individuals were to be given greater economic and political freedom under the leadership of Deng Xiaoping.   

How successful was that new path in the long run? Today, China’s paramount leader Xi Jinping expresses his desire for a “socialist rule of law” and supports the “principle of letting a hundred flowers bloom and a hundred schools of thought contend.” Yet what we see is increasing constraints on freedom of thought.

Xi and Deng had similar backgrounds, as both were at one point victimized and elevated by the Communist Party. During the Cultural Revolution, Deng was labelled a “capitalist roader” and his son was crippled by the Red Guards. Those events left an indelible mark and opened Deng’s mind to new thinking about how best to organize the economy and allow people to prosper. He thought that China’s leaders “ought to study the successful experiences of capitalist countries and bring them back to China.” That view contrasted sharply with Chairman Mao’s condemnation of private enterprise and his view of capitalists as criminals.

Deng announced a change of tone at the Third Plenum, two years after Mao’s death. Although he paid lip service to Mao, he rejected the idea of “class struggle” and made economic development the chief goal of the Chinese Communist Party (CCP).

In his speech, Deng argued that “the primary task is to emancipate our minds.”  He criticized the rigid thinking of many Party members, which he blamed on “historical conditions.” He was reluctant to openly blame Mao, so he pointed to Lin Biao, whom Mao had appointed vice chairman in 1966, and the Gang of Four, which included Mao’s wife Jiang Qing. Under the masquerade of “Party interests,” people were subject to Party control and oppressed. “Many important issues were often decided by one or two persons,” said Deng. Consequently, “there wasn’t much point in thinking things out for yourself.” He went on to say that “no clear distinction was made between right and wrong,” and that “people were naturally reluctant to use their brains.”  The simply adjusted “their words and actions according to whichever way the wind [was] blowing.”

In closing, Deng warned: “When everything has to be done by the book, when thinking turns rigid and blind faith is the fashion, it is impossible for a party or a nation to make progress. Its life will cease, and that party or nation will perish.” 

After the Third Plenum, Deng advocated greater freedom of thought and supported the “Democracy (Xidan) Wall,” which served as a place to post criticism of Maoist thought, including the “Two Whatevers”: whatever Mao said should be taken as the truth, and whatever examples he set should be adhered to. Nevertheless, as China’s paramount leader, Deng was unwilling to accept large protests that could threaten the power of the CCP. The infamous Tiananmen Square incident occurred under his leadership.

Yet, despite the contradiction, Deng led China to a significantly freer path than the one Mao had set it upon. Can we say the same of Xi Jinping?

Since he came to power in 2013, Xi has cracked down on officials who deviate from CCP dogma, institutionalized “Xi Jinping Thought”— a 14-point manifesto to ensure CCP “leadership over all forms of work”—in the PRC Constitution, ended Deng’s collectivist governance by being “elected” president for life, launched a “social credit system” that could seriously erode personal freedom, and silenced leading liberal intellectuals such as Mao Yushi, whose Unirule Institute has seen its website shutdown and its office shuttered. Academic freedom suffers from the presence of propaganda departments at all universities, and there is a strong feeling that “the door to a free market in ideas is nearly shut.”

Although China has accomplished much in its 40 years of reform and opening to the outside world, it has a long way to go in terms of both economic and political freedom. At this point, it needs a Deng—someone who actually advances liberal ideas—rather than a Xi—someone who pays lip service, at best.

Most important, China needs a free market for ideas, as well as a free market for goods and services. Silencing the voices of Chinese liberals—and blocking the transmission of Western ideas of limited government, separation of powers, and freedom under a just rule of law—will not “emancipate the mind” or create a harmonious society.  

Among many other advantages it enjoys when it comes to influencing the course of monetary reform, the Fed has that of being able to shift the constraints that determine whether a proposed reform is or isn’t possible. If existing constraints don’t stand in the way of some reform Fed officials would rather not see happen, they can always put up a new one, tailor-made for the purpose.

The Fed seems prepared to do just that as part of its campaign to keep the “floor” system of monetary control it set-up in October 2008 around for good. Considering the floor system’s many disadvantages compared to a “corridor” system, should the plan work we may all live to regret it. Those disadvantages include:

  1. A considerable increase in the share of financial-institution intermediated credit that gets shunted into the Fed’s coffers;
  2. A moribund interbank fed-funds market, with correspondingly reduced incentives for interbank risk monitoring;
  3. A less-reliable monetary control mechanism, as evidenced by the failure of changes in the IOER rate to result in like changes in market-determined interest rates; and
  4. A Fed balance sheet made ripe for political abuse by the fact that it’s size is no longer a determinant of the stance of monetary policy.[1]

For the most part, Fed officials have tried to justify the floor operating system by ignoring its shortcomings whilst harping on its supposed advantages, including the fact that it enhances banks’ liquidity by encouraging them to stockpile reserves, and the fact that the new arrangement dispenses with the need for routine open-market operations.[2] Those officials are also inclined to avoid any public discussions of the topic, which, according to some press reports at least, is not to be among those addressed during the next summer’s Fed outreach program aimed at gaining public input concerning the “strategies, tools, and communication practices it uses to pursue its mandate of maximum employment and price stability.”[3]

But just in case these means for assuring the survival of the Fed’s floor system should prove inadequate, Fed officials have an ace up their sleeve: if hard-pressed on the matter, they can insist that switching from the current system to a corridor system is, not just undesirable, but impossible.

How so? The argument has to do with Basel’s LCR (Liquidity Coverage Ratio) requirements, first applied to U.S. banks in 2015. Those requirements call for banks to keep a substantial amount of  “High Quality Liquid Assets” (HQLAs) on hand at all times, with the precise proportion depending on the extent and volatility of banks’ nonoperating wholesale deposits.[4] Because excess reserves qualify as HQLAs, banks have been able to use them to meet the LCR requirements. In contrast, the floor system’s champions point out, switching to a corridor system would mean not having enough excess reserves in the system with which to meet those requirements.

The wrinkle is that, although excess reserves qualify as HQLAs, so do Treasury securities, Ginnie-Mae mortgage-backed securities, other non-MBS agency securities, and deposits at the Fed’s Term Deposit Facility. Because the same Fed asset sales that serve to reduce the stock of excess reserves increase the outstanding supply of Treasury securities by a like amount, even an unwind complete enough to force a switch to a corridor system would leave the banks with all the HQLAs they need to meet their LCR requirements. And though banks would rather meet their LCR requirements with excess reserves than with Treasuries so long as excess reserves earn higher returns, as they did until recently, under a corridor system excess reserves would yield less then even the shortest-term Treasuries, so that banks would prefer Treasuries. In short, contrary to what some experts have claimed, Basel’s LCR requirements don’t in themselves mean that we’re stuck with a floor system.

It’s here that the Fed’s special powers come into play. For although the published LCR requirements don’t themselves make it necessary for banks to stock-up on excess reserves, the Fed has been bending the rules to change that. In a Bank Policy Institute Research Note published in late November, BPIs Bill Nelson explains how:

In principle…banks could hold Treasury securities rather than excess reserves to satisfy their LCR. However, while the LCR regulation treats reserves and Treasury securities the same, Fed supervisors have reportedly instructed banks through the examination process that they must hold a certain, not publicly known, fraction of their HQLA as excess reserves. The Fed’s “LCR Reserve Requirement” creates an added function that only excess reserves will be able to satisfy.

Bill goes on to note how, when directly asked about this after a panel discussion at the Hoover Institution’s May 4th, 2018 Policy Conference on “Currencies, Capital, And Central Bank Balances,” Fed Vice Chair Randal Quarles “acknowledged that [Fed] supervisors have indicated to banks that there is an expectation that some HQLA be held in the form of excess reserves.”[5] And if you think there’s any difference between what Fed supervisors “expect” banks they supervise to do, and what those banks are bound to do to avoid getting in hot water, you don’t know how bank regulation really works in this country![6]

If the Fed’s extra-legal maneuvers somehow made either banks subjected to them or the general public better off, those maneuvers might perhaps be justifiable. But there’s no good reason to think so. On the contrary: the written rules are more than capable of keeping banks adequately stocked with reserves, and would remain just as capable were the Fed to switch to a corridor system. Indeed, the U.S. is now among a small minority of advanced economies that combine LCR requirements with minimum statutory reserve requirements particularly aimed at guarding against reserve shortages. Relatively modest IOER payments, such as would be consistent with a corridor system, would suffice to keep banks from using “sweep” accounts to evade those reserve requirements, as banks tended to do when reserves bore no interest at all. Also, in a corridor system a revived fed funds market would usually be a reliable source of extra reserves to any subset of sound banks that needed them. Finally, because Treasuries can serve as collateral for secured overnight and term borrowing, solvent banks that used them to meet their LCR requirements could also turn to secured lending markets, or to the Fed’s discount window, to make up for reserve deficiencies. In short, in treating Treasuries as equivalent to reserves for meeting banks’ liquidity needs, the Gnomes of Basel have (for once) gotten things right.

Make no mistake, if Fed supervisors are prepared to stick their thumbs on the HQLA scale to compel banks to meet some of their LCR requirements using reserves rather than Treasuries, it’s for one reason only: to allow Fed officials to claim, with implicit reference to their self-imposed constraint, that a floor system is the only monetary control game in town. Some people may call this clever strategizing. I call it abusing the Fed’s supervisory powers for the sake of thwarting worthwhile monetary reform.

___________________________

[1] For more on these and other disadvantages of the floor system see my recent Cato book, Floored!: How a Misguided Fed Experiment Deepened and Prolonged the Great Recession.

[2] While it’s pleasant for the New York Fed staff not to have to expend effort on managing routine open-market operations, whether the economies that this change is supposed to achieve will be realized through either a reduction in that staff or a corresponding increase in the quality or quantity of other Fed services remains to be seen. I, for one, am not holding my breath.

[3] According to a November 15th Bloomberg report, although “Virtually everything the Fed does in pursuit of its congressionally mandated goals will be on the table” during its summer policy review, which includes a June 2-4 “research” conference to be held at the Chicago Fed, “the review is not expected to include a look at how the Fed mechanically controls short-term interest rates, which is being discussed internally.”

[4] Nonoperating wholesale deposits include any such deposits apart from those held for clearing, custody, or cash management purposes.

[5] The published version of Quarles conference remarks is here. The full transcript, including the referred to question and answer, is, unfortunately, only available on the gated WSJ Pro site.

[6] I refer here particularly to how regulation works for all save the big Wall Street banks. For them, the situation is often reversed, with the bankers intimidating their supervisors rather than the other way around.

[Cross-posted from Alt-M.org]

President Trump has ordered a withdrawal of U.S. troops from Syria. This is the right decision. The U.S. military presence in Syria has not been authorized by Congress, is illegal under international law, lacks a coherent strategy, and carries significant risks of entangling America in a broader quagmire in yet another Middle Eastern country.

As I wrote in Axios:

The Obama administration first deployed U.S. troops to Syria to complement its aerial bombing campaign against ISIS with special operations forces and coordinate with local anti-ISIS militias on the ground, gradually expanding from hundreds of troops to roughly 4,000.

The mission expanded, too, from merely defeating ISIS (substantially accomplished some time ago) to ushering Syrian President Bashar al-Assad out of power, expelling Iranian forces, and edging out Russia.

The bottom line: Absent achievable goals and a strong national security imperative backed up by congressional authorization, the U.S. presence in Syria is illegitimate and better off wound down.

One prominent criticism of Trump’s decision is that it lacks a clear public explanation and evades the carefully planned and coordinated inter-agency process that enables such a withdrawal to be executed safely and responsibly. This is a fair criticism. Indeed, Trump seems not to have consulted the Defense Department, State Department, or really any of the national security principles in his administration before making this announcement.

But the fault for evading process may lie more with the president’s hawkish advisors than with Trump himself. Trump has long expressed disapproval for the U.S. military presence in Syria, but his own officials – including National Security Advisor John Bolton, Secretary of State Mike Pompeo, Secretary of Defense James Mattis, and the current Special Representative for Syria Engagement James Jeffrey – either resisted or ignored the Commander in Chief’s clearly stated preferences on an ongoing military mission. That may have made the president feel he had no choice but to circumvent process and issue the order to withdraw on his own, via Twitter. 

That said, I do worry about an administration that is too deferential to Trump’s every whim. I was heartened, for example, that cabinet officials spent months pushing back on Trump’s call to withdraw from the Iran nuclear deal. Likewise with the president’s request for military options against North Korea, which the Pentagon reportedly slow-walked in the months before Trump shifted from maximum pressure to diplomatic negotiations with Kim Jong-un. And when Trump reportedly asked Mattis to assassinate Assad, it was probably a good thing that the Secretary of Defense chose not to take the suggestion seriously. 

That withdrawal is the right decision does not mean Syria will flourish in peace and security. Several undesirable contingencies may occur in the aftermath of our exit. The Turks may engage in operations against the Kurds in Syria’s northeast. ISIS may make some gains here and there. But if these things materialize, they should not be cited as proof that withdrawal was unwise. That’s exactly the flawed argument hawks employed to criticize the 2011 withdrawal from Iraq. Sure, it left a vacuum in which ISIS emerged. But ISIS itself is a product of the US invasion of Iraq. And our presence in Syria could very well be creating comparable unintended consequences, instead of preventing them.

It can’t be America’s purpose to indefinitely forestall every plausible misfortune that may or may not bedevil this troubled region. In the near term, we can engage in diplomacy to try to curb Turkish plans to target the Kurds. And with regard to ISIS, it’s not at all clear that their permanent defeat depends on maintaining a U.S. ground presence in Syria. The extremist group is already decimated, and even without an indefinite U.S. presence, it is surrounded by enemies to whom we can pass the buck (should resurgence even occur, which is not a given).

Anyone who favors a U.S. military presence in Syria should be calling for Congress to formally authorize it. That process will require making a strong public case that deployment is required to preempt an immediate threat to U.S. security and that the mission have coherent, achievable goals that clearly define what victory looks like. Otherwise, our presence in Syria is illegitimate.

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