Topic: Political Philosophy

Uncertainty and Economic Fluctuations

Economist Nicholas Bloom (Stanford) has produced a nice summary of his work on uncertainty and economic fluctuations:

This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.

The crucial unanswered question is why uncertainty increased in 2008.

One possibility is that consumers and firms could not readily judge the severity of the financial crisis.

A different possibility is that consumers and firms were confused by the federal government’s aggressive new policies (e.g., bailouts) and uncertain about whether the incoming Obama administration would emphasize fiscal responsibility (e.g., scaling back entitlements) or expanded redistribution (e.g., Obamacare and higher tax rates).

The two possibilities are not mutually exclusive. But it matters a great deal which is quantitatively more important.  With luck, Bloom’s future work will address this issue.

Freedom of Thought Under Siege Around the Globe: When You are Not Free to Not Believe

Much of the world has just celebrated the most sacred Christian holiday, yet persecution of Christians has never been fiercer, especially in the Middle East.  Other faiths also suffer varying degrees of persecution. 

Nonbelievers also often are mistreated.  The lack of religious belief is less likely to be punished by communist and former communist regimes.  But such systems penalize almost all independent thought. 

Moreover, atheists and other freethinkers are at special risk in theocratic and especially aggressively Muslim states.  The International Humanist and Ethical Union recently published its second annual report, Freedom of Thought 2013: A Global Report on the Rights, Legal Status, and Discrimination Against Humanists, Atheists, and the Non-religious.

America’s Founders enshrined religious liberty in the U.S. Constitution because they understood the imperative of freedom of conscience and thought.  If a state is unwilling to respect a person’s most fundamental and intimate views, it is unlikely to leave them free to act.  Argued IHEU, “when thought is a crime, no other freedom can long survive.”

Freedom of Thought 2013 addresses the status of the non-religious.  Unfortunately, governments routinely violate the liberty not to believe. 

Concluded IHEU:  “the overwhelming majority of countries fail to respect the rights of atheists and freethinkers.  There are laws that deny atheists’ right to exist, revoke their right to citizenship, restrict their right to marry, obstruct their access to public education, prohibit them from holding public office, prevent them from working for the state, criminalize their criticism of religion, and execute them for leaving the religion of their parents.” 

Restrictions are many. IHEU figured that “in effect you can be put to death for expressing atheism in 13 countries,” all Muslim.

Persecution often fades into less virulent but still offensive discrimination.  Noted IHEU:  “Other laws that severely affect those who reject religion include bans on atheists holding public office, and some governments require citizens to identify their religion—for example on state ID cards or passports—but make it illegal, or do not allow, for them to identify as an atheist or as non-religious.” 

Moreover, “Religious privilege is one of the most common forms of discrimination against atheists.”  More controversially the organization includes “religious discrimination, or religious privilege, in this report even when its supporters claim it is merely ceremonial or symbolic.”  The latter is common in the U.S.

Not all persecution emanates from government.  Extra-legal violence is common and governments often do little or nothing in response. 

As I point out in my latest column for Forbes online:

Some religiously faithful may be inclined to dismiss the freedom not to believe.  However, Matt Cherry, the report’s lead author, emphasizes that “the fight for the rights of the non-religious [are] inextricable from the fight for the rights of the religious.”  All possess a fundamental right of belief and conscience, and an equally fundamental right to act on belief and conscience.

Obviously, one can disagree over details, including IHEU’s individual assessments.  Nevertheless, Freedom of Thought 2013 addresses a genuine and very serious threat to liberty.  Governments the world limit the most basic freedoms of belief, thought, and expression.  Moreover, it is easy to ignore the impact on individual lives if one shares the majority’s religious or other worldviews. 

IHEU judges 46 countries (counting the Palestinian territories) as involving “severe discrimination.”  The greatest problems come from the 29 nations categorized as guilty of “grave violations”:  Afghanistan, Bangladesh, Brunei, China, Comoros, Egypt, Eritrea, Gambia, Indonesia, Iran, Iraq, Jordan, Kuwait, Libya, Malaysia, Maldives, Mauritania, Morocco, Nigeria, North Korea, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Swaziland, United Arab Emirates, and Yemen.

Americans should review their practices at home.  Moreover, U.S. officials should include the liberty of non-believers in Washington’s human rights dialogue with other nations.

The rest of us also should promote freedom of conscience abroad.  Not by coercing and invading other countries, but by convincing, encouraging, pestering, pushing, pressuring, and embarrassing.  Everyone, from citizens to policymakers, has a stake in expanding liberty for those around us. 

China Grapples with Mao Zedong’s Legacy at His 120th Birthday

December 26 is the 120th anniversary of Mao Zedong’s birth, typically a date of great celebration in China. But this year the Chinese government seems somewhat ambivalent about celebrating Mao’s disastrous achievements. It’s about time. 

Many countries have a founding myth that inspires and sustains a national culture. We’ve just seen South Africa and the world celebrate the accomplishments of Nelson Mandela, the founder of that nation’s modern, multi-racial democracy. In the United States we look to the American Revolution and especially to the ideas in the Declaration of Independence of July 4, 1776. 

The Declaration of Independence, written by Thomas Jefferson, is the most eloquent libertarian essay in history, especially its philosophical core:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The ideas of the Declaration, given legal form in the Constitution, took the United States of America from a small frontier outpost on the edge of the developed world to the richest country in the world in scarcely a century. The country failed in many ways to live up to the vision of the Declaration, notably in the institution of chattel slavery. But over the next two centuries that vision inspired Americans to extend the promises of the Declaration—life, liberty, and the pursuit of happiness—to more and more people.

China of course followed a different vision, the vision of Mao Zedong. Take Mao’s speech on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness”  in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

Congress Fakes Fiscal Responsibility as Uncle Sam Heads toward Bankruptcy

The new budget bill has passed, hiking spending and taxes.  Capitol Hill is back to the bipartisan business of mulcting taxpayers.

Unfortunately, Washington can’t afford to wait for fiscal reform.  The Congressional Budget Office’s most optimistic estimate, the so-called “baseline,” is that Uncle Sam will add $6.3 trillion more in red ink over the next decade.  Annual deficits are expected to begin moving up again in 2016.   

More realistic is CBO’s “alternative” scenario, given how politicians usually behave.  In this case Uncle Sam would run up $8.8 trillion more in red ink. 

These estimates presume good economic times ahead and a minimum of new bail-outs.  Unfortunately, that seems over-optimistic.  Even the Postal Service continues to lose money.

Moreover, the entitlement tsunami—Social Security, Medicare, Medicaid, and now health insurance subsidies—will not have fully developed by 2023.  As a result, warned CBO, without substantial policy changes “debt will rise sharply relative to GDP after.”  Put everything together and economist Laurence Kotlikoff figures that unfunded federal liabilities currently exceed $220 trillion. 

There’s more.  Because federal debt crowds out private investment, CBO estimates that every additional dollar of government debt reduces national saving by 57 cents.  As a result, the GDP likely will drop between four and seven percent, or perhaps even more, by 2038. 

As I observe in my new column in American Spectator online:

In short, borrowing more causes us to owe more and pay more in interest.  At the same time, we will be saving, producing, and earning less.  It’s a prescription for economic and budget disaster.

Unwilling to cut spending, Uncle Sam instead would have to raise taxes or borrow ever more.  Under the alternative scenario the official (exclusive of Social Security-Treasury transfers) debt to GDP ratio would run around 190 percent by 2038, greater than Greece at its worst.  In a paper for the U.S. Monetary Policy Forum earlier this year, economists David Greenlaw, James D. Hamilton, Peter Hooper, and Frederick S. Mishkin posited one scenario under which “The debt/GDP ratio would rise much more rapidly, hitting 304 % of GDP by 2037.”

Moreover, explained CBO, “Growing federal debt would increase the probability of a fiscal crisis, when … the government would thereby lose its ability to borrow at affordable rates.”  Based on international experience, David Greenlaw and his colleagues warned “that countries with debt above 80 percent of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics.”  In that case federal liabilities likely would explode, as they did in the 2008 financial crisis. 

The feedback loop would continue to worsen.  Noted Greenlaw, et al., “If U.S. government finances are not put on a sustainable path, … then the public might expect the Federal Reserve to be forced to monetize this debt.  What would then unhinge inflation expectations would be the fear of fiscal dominance, which could then drive up inflation quickly.”

Amazingly, observed David Greenlaw, et al., “As recently as the 1990s, the United State government was running budget surpluses and there was serious discussion of what would happen if the federal government was able to retire its debt.”  That world is long gone, probably forever. 

Still, Washington is celebrating Good News!  For the first time in five years, the annual federal deficit has dropped below $1 trillion. 

Alas, the cheery interlude will be brief.  Soon the red ink again will be growing, and the more government spends and taxes, the worse will be the economic impact.  No wonder CBO warned of “the unsustainable nature of the federal government’s current tax and spending policies.” 

Washington only faces “difficult choices,” in CBO’s words.  America’s political leaders should be choosing among them instead of passing another dishonest feel-good budget agreement.

North Korea’s Kim Dynasty Consumes Its Own: No Love in this Family

North Korea’s “Dear Leader” Kim Jong-il has been dead not quite two years, but his son, Kim Jong-un, appears to have taken control.  And in a much bloodier fashion than predicted, with the execution of his uncle and one-time mentor Jang Song-taek.  However, no one knows whether the regime is stabilizing or destabilizing.

The ascension of Kim fils never seemed certain.  Not yet 30 when his father passed, Kim had had little time to secure the levers of power.  Moreover, Pyongyang is a political snake-pit. 

Over the last two years hundreds of officials, many in the military, have been removed from office.  Until Jang the most dramatic defenestration was of army chief of staff Ri Yong-ho.  His departure in July 2012, alleged for reasons of health, was dramatic and sudden. 

Of greater concern to the West was North Korean policy.  The country had established a reputation for brinkmanship and confrontation.  The new government reinforced this approach. 

For instance, rhetorical attacks on and threats against South Korea and the U.S. rose to unprecedented heights.  The Democratic People’s Republic of Korea recently detained an 84-year-old American Korean War veteran and tourist for six weeks on bizarre charges.

Equally important, there is no evidence of reform, either economic or political.  Observed Bruce Klingner of the Heritage Foundation:  Kim Jong-un “has increased public executions, expanded the gulags for political prisoners, and increased government punishment for anyone caught with information from the outside world.” 

Now comes Jang’s ouster.  There is no reason for the West to mourn his passing.  But previously family members only disappeared. 

Jang’s execution could demonstrate that Kim Jong-un is solidifying his rule.  Removing another minder appointed by his father would seem to leave Kim more securely in charge.  Moreover, a willingness to execute likely deters anyone but the most determined or desperate from challenging the leadership. 

Nevertheless, the DPRK could be heading for further instability.  The episode is unprecedented, which suggests that something is amiss in paradise.  Jang could have been the casualty of a messy power struggle likely to grow worse.  If he can be taken down, no one is safe.  Fear may widen leadership divisions, spur internal resistance, and draw in the military. 

As I point out in my latest article in National Interest online:

Political uncertainty in Pyongyang almost certainly will reduce the already minimal likelihood of domestic reform and foreign engagement.  If Kim truly has consolidated power, he might feel freer to act.  However, even then orchestrating a wider purge would absorb time and effort.  And if he fears continuing opposition to his reign he probably will put off any potentially controversial policies, especially if they conflict with the interests of the military, which still potentially wields ultimate power.

Further, Jang was associated with economic reform and China relations.  After his death Jang was criticized for his economic activities.  It is hard to imagine economic reform speeding up in a government sundered by a power struggle in which a top economic official was just executed.

The greatest danger is that Kim Jong-un’s apparent ruthlessness may be less constrained internationally than that of his father and grandfather.  If the younger Kim is taking on full dictatorial power, he might misperceive domestic authority as translating into international strength.  Or if his authority is under challenge at home, he might be tempted to provoke a foreign crisis. 

The DPRK long has been the land of no good options, the geopolitical problem with no good answers.  Even if Jang’s execution changes nothing, it reminds us that North Korea remains a threatening yet mysterious presence in Northeast Asia.  And the ongoing leadership transition—whether solidified or unsettled—isn’t likely to bring peace or stability to the region.

Happy Bill of Rights Day!

The Bill of Rights, or the first ten amendments to the U.S. Constitution, were ratified on December 15, 1791, 222 years ago today. However, it wasn’t until 1941, on the 150th anniversary of the ratification of the Bill of Rights, that Bill of Rights Day was recognized as a national holiday.

This Bill of Rights Day, the Cato Institute invites you to share what the Bill of Rights means to you. 

Tweet your response using the hashtag #CatoForRights any time today. We’ll be sending a very special gift to the author of our favorite tweet. Make sure you’re following @CatoInstitute on Twitter to qualify.

Antidiscrimination Law Can’t Trump the Freedom of Speech

While Cato supports marriage equality, a commitment to equality under the law can’t justify the restriction of constitutionally protected fundamental rights like freedom of speech or association. Yet increasingly, legislation and judicial rulings sacrifice individual liberties at the altar of antidiscrimination law. Perhaps the most prominent current example of that trend is the case of the New Mexico wedding photographer.

Elane Photography, a Christian-identified business in Albuquerque, declined to photograph Vanessa Willock’s same-sex commitment ceremony based on the business owners’ personal opposition to gay marriage. New Mexico law prohibits any refusal to render business services because of sexual orientation, however, so Willock filed a claim with the New Mexico Human Rights Commission. She argued that Elane Photography is a “public accommodation,” akin to a hotel or restaurant, that is subject to the state’s anti-discrimination law. The commission found against Elane and ordered it to pay $6,600 in attorney fees. The state trial and appellate courts affirmed that order.

The case then went before the New Mexico Supreme Court, where Cato, along with same-sex-marriage-supporting law professors Eugene Volokh and Dale Carpenter, filed an amicus brief urging the court to reverse the court of appeals. Our brief explained that photography, unlike many other wedding-related businesses (e.g., caterers, hotels, limousine drivers), is an art form protected by the First Amendment—even if it’s not political and even if the photos are taken for commercial purposes. 

The U.S. Supreme Court ruled in Wooley v. Maynard—the 1977 “Live Free or Die” license plate case out of New Hampshire—that forcing people to speak is just as unconstitutional as preventing or censoring speech. The First Amendment “includes both the right to speak freely and the right to refrain from speaking at all.” Moreover, unlike true cases of public accommodation, there are abundant opportunities to choose other photographers in the same area.

Alas, the New Mexico Supreme Court also ruled against Elane Photography, holding that the First Amendment only prohibits compelling an individual to speak the government’s message, and that even if the state law did infringe on Elane Photography’s speech rights, those rights could not be vindicated because they conflicted with Willock’s right to equal access to public accommodations. Cato, again joined by professors Volokh and Carpenter, has again filed a brief, this time urging the U.S. Supreme Court to hear the case, because the New Mexico court’s reasoning is incorrect and incompatible with Wooley. 

The Supreme Court has never held that the compelled speech doctrine is only applicable when an individual is forced to serve as a courier for the message of another. Instead, the Court has said repeatedly that what the First Amendment protects is a “freedom of the individual mind,” which the government violates whenever it tells a person what she must or must not say. Forcing a photographer to create a unique piece of art violates that freedom of the mind.

Our brief also argues that the New Mexico Supreme Court was wrong to hold that the First Amendment can be abridged if a state law creates a “new right” that the constitutionally protected expression allegedly violates. The U.S. Supreme Court has never allowed such operation of state law, and allowing the New Mexico court’s reasoning to stand would send a dangerous message to state legislators and courts that the Bill of Rights is merely a suggestion, not a rule.

Vanessa Willock has until February 11 to file her opposing brief, and soon thereafter the Court will decide whether to take the case. If it does, Elane Photography v. Willock would likely be argued at the beginning of next term, in October, with an ultimate decision by June 2015.