The Fed Is Overestimating Economic Growth

In her speech yesterday at the Federal Reserve’s annual conference in Jackson Hole, Wyoming, Fed Chair Janet Yellen stated that “the case for an increase in the federal funds rate has strengthened in recent months.” She based that view on “the continued solid performance in the labor market” and “our outlook for economic output and inflation.”

As documented by Jon Hilsenrath in yesterday’s Wall Street Journal,the Fed has consistently overestimated economic growth since 2004. The Fed’s economic model is wrong and there is no reason to believe it will suddenly produce reliable predictions. The model also does poorly in predicting inflation, though it does not show such a bias one way or another. Continuing to rely on the Fed’s flawed model to determine policy would be foolish.

Characterizing the labor market as “solid” is misleading in the extreme. Much of the decline in the unemployment rate to which Yellen directs our attention has been due to the decline in the civilian labor market participation rate. If people give up on the labor market, they are not counted as unemployed. Far from being a sign of strength, a fall in the unemployment rate for that reason is arguably a sign of weakness in labor markets. Since the unemployment rate is no longer a reliable indicator of labor market conditions, it should be dropped as a policy gauge.

For these and other reasons, I stand by my post of August 9th that the Fed will not be able to raise rates. My only hedge on that prediction is that Yellen is putting the Fed’s credibility on the line with her continued predictions of raising interest rates. Loss of face is a poor justification for raising interest rates, but the human factor cannot be dismissed in policy making.

The European Commission’s War against Pro-Growth Corporate Tax Policy

I have a love-hate relationship with corporations.

On the plus side, I admire corporations that efficiently and effectively compete by producing valuable goods and services for consumers, and I aggressively defend those firms from politicians who want to impose harmful and destructive forms of taxes, regulation, and intervention.

On the minus side, I am disgusted by corporations that get in bed with politicians to push policies that undermine competition and free markets, and I strongly oppose all forms of cronyism and coercion that give big firms unearned and undeserved wealth.

With this in mind, let’s look at two controversies from the field of corporate taxation, both involving the European Commission (the EC is the Brussels-based bureaucracy that is akin to an executive branch for the European Union).

First, there’s a big fight going on between the U.S. Treasury Department and the EC. As reported by Bloomberg, it’s a battle over whether European governments should be able to impose higher tax burdens on American-domiciled multinationals.

The U.S. is stepping up its effort to convince the European Commission to refrain from hitting Apple Inc. and other companies with demands for possibly billions of euros… In a white paper released Wednesday, the Treasury Department in Washington said the Brussels-based commission is taking on the role of a “supra-national tax authority” that has the scope to threaten global tax reform deals. …The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.” The commission’s spokesman said Wednesday that EU law “applies to all companies operating in Europe – there is no bias against U.S. companies.”

Red Tape and Volunteer Rescuers in Louisiana

In the wake of the devastating floods in Louisiana, many people have been stranded in places that are difficult to access, some needing rescue and others running dangerously low on basic supplies. 

The federal response has gotten mixed reviews so far, but some residents in Louisiana saw the real need for help and decided to step up and do what they could for their friends and neighbors.

“All of a sudden before the feds could react, we got thousands of boats in the water, with locals helping each other,” said Kevin Dietz.

The “Cajun Navy” as it has been called, consists of dozens of people with boats and coordinators who work together to deliver supplies or rescue people from flooded areas. 

These volunteers are not just some disorganized rag-tag group, many of them might know how to navigate their neighborhoods better than the government officials, and they are utilizing new technologies to share their GPS locations with each other and organize their communications onto dedicated channels.

State Senator Jonathan Perry is now in the middle of a maelstrom after a report came out that he was working on a proposal that could require these would-be rescuers to undergo training or get a permit in order to help.

To be fair to Senator Perry, he contends that he is trying to figure out a way to remove the layers of red tape that prohibit volunteers from helping with the rescue efforts, as under current law it is illegal for them to  cross the barriers set up by law enforcement and many of them are prevented from doing so.

In the current framework these volunteers are being turned away and prevented from doing what they can at the same time that people are stranded and waiting for help.

This dynamic is not unique to situations like the flooding in Louisiana. Dozens of cities have passed bans making it illegal for private citizens and charities to feed the homeless, which leads to situations like this 90-year-old man and two being charged in Florida for violating the ban. Occupational licensing makes it much more difficult for medical professionals to volunteer their medical and dental services at free clinics through organizations like Remote Area Medical.

The University of Chicago Has No Room for Crybullies

I’m delighted to join the many people spreading the news today that the University of Chicago, my graduate alma mater, is bucking the trend at colleges and universities across the country by refusing to pander to the delicate but demanding “snowflakes” and “crybullies” who’ve tyrannized American campuses over the past few years. As the Daily Beast reports, Dean of Students John Ellison told the incoming class of 2020 “something they wouldn’t hear on most other liberal-arts campuses: ‘We do not support so called “trigger warnings”… and we do not condone the creation of intellectual “safe spaces.”’” At Chicago, students are expected to live “the life of the mind.”

Just yesterday Nick Rosenkranz posted in this space about the efforts he and colleagues over at Heterodox Academy are taking to encourage greater ideological diversity in academia. On both of these closely connected issues I’ve spoken at some length and in detail—it’s not a pretty picture out there. But this silliness could not go on forever—not at these prices. Let’s hope that these are signs of changes in the offing.

Incarcerating US

Would you like a break from the presidential campaign and be interested in catching a movie?  The pickings are pretty slim–unless you can’t get enough of the Obamas.  Here’s a tip: Check out the new documentary film, Incarcerating US, which is coming to theaters next month. 

Sneak preview:

For more information about the film, go here.

For related Cato work, go here here, and here.

The Religious Opinions of Muslim Americans

This is a follow-up to my post yesterday about Muslim American assimilation that focuses on religious differences between Muslims in the United States, between them and their co-religionists in their countries of origin, and their differences with other Americans.    

There are many different sects of Islam and most are represented in the United States.  Sunni Islam is the largest followed by Shia Islam at roughly 89 percent and 11 percent, respectively, which is similar to the global division.  African American membership in the Nation of Islam adds another wrinkle.  There are further sub-sects such as the Sufi, Druze, Ahmadiyya, Alevism, and others that disagree on virtually everything from doctrine to modes of practice.  In addition to those differences, there are five main schools of Islamic jurisprudence (four Sunni and one Shia) that reveal further differences to say nothing of how local cultures have altered practice and doctrine.  Islam is not a monolithic and uniform religion.  It is highly fractured and lacks a central religious authority. 

Based on a 100 point index pooling the responses from religious questions in the World Values Survey, Muslim immigrants in the West had a religiosity of 76 compared to 83 in their countries of origin and 60 in their destination societies.  According to Gallup, 80 percent of Muslim Americans say that religion plays a key role in life, which is more than the 65 percent of the general population but still less than the 85 percent reported by Mormons who agree with that statement.  Those figures are slightly lower for younger Muslim and non-Muslim respondents aged 18 to 29.  Pew also found that religion is about as important to U.S. Muslims as it is to Christians while both valued it more than the general population. 

Gallup and Pew found that compared to Muslims in Islamic countries, U.S. Muslims are the least likely to say religion is important to them.  Gallup found that Muslim weekly attendance at religious services in the United States is only just above that of the general population, 41 percent to 34 percent, and is 22 percentage points below Mormon attendance.  Among Muslims who said that “religion is important,” only 49 percent attend religious services once a week – lower than the U.S. general population and all other religious groups except Judaism.  For respondents aged 18 to 29, 41 percent of Muslims attend mosque at least once a week, the same percentage as Protestants, 27 points behind Mormons, and 14 points ahead of the general population.  Pew found that weekly attendance for Muslims and Christians was about the same and both were higher than the general population. 

The Government Shouldn’t Get to Do Unconstitutional Things by Only Doing Them for Short Periods of Time

When people want to join together to spend money in an election campaign, federal law requires them to form a “political action committee” or PAC. Most PACs are allowed to donate up to $5,000 to any candidate in an election. If a PAC has been registered for less than six months, however, this maximum donation is inexplicably lowered to $2,700 per candidate.

Since the 1974 case of Buckley v. Valeo, the Supreme Court has consistently held that limitations on campaign contributions “implicate fundamental First Amendment interests.” And only two years ago, in McCutcheon v. FEC, the Court reiterated that such limits could only be justified if they reduce quid pro quo corruption (or its appearance). By that standard, the $2,700 limit on new PACs is clearly unconstitutional: If a $5,000 donation from a seven-month-old PAC does not run the risk of corruption, it’s hard to see how a $2,701 donation from a five-month-old PAC does. Making just this argument, a new PAC – the colorfully titled Stop Reckless Economic Instability Caused by Democrats (Stop REID) – sued the Federal Election Commission.

There was just one problem: Although this plaintiff PAC was less than six months old when the case was filed, it was more than six months old when the district court ruled. For that reason, the U.S. Court of Appeals for the Fourth Circuit held that it could not rule on the constitutionality of the $2,700 limit because the question had become “moot”; the limit no longer applied to the particular PAC that had brought the case.

Reconciling mootness doctrine with the realities of our lengthy judicial process is not a new problem. Courts have long recognized that some laws would be impossible to challenge under the normally strict rules of mootness, because the harm caused by the law happens faster than it takes a case to wend its way through the legal system. That’s why courts developed the sensible “capable of repetition, yet evading review” exception to mootness: If a law is likely to repeatedly affect people, but always for short periods at a time, then courts will decide the merits of a challenge to that law no matter how long the litigation takes.

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