Red Coats: A Different Look at the Battle of Waterloo

Thursday will mark 200 years since the Battle of Waterloo and the British press is, understandably, eager to remind the world of the singular service the Anglo-Prussian alliance provided to humanity by finally ending the bloody career of the French megalomaniac dictator, Napoleon Bonaparte. Tucked in one of the articles was a sentence that caught my attention. Following the battle in which 55,000 men were either killed or wounded, the “dead… were hastily stripped and buried.”

 Why would anyone bother stripping the dead, when every hour increased the danger of putrefaction and disease?

The most likely reason was that prior to Industrial Revolution, clothing was extremely expensive. As such, the uniforms were, presumably, washed, patched up and reused. Consider that in 1760, Britain imported only 2.5 million pounds of raw cotton. By the 1830s, it imported 366 million pounds of cotton and the price of yarn fell to one-twentieth of what it had been. This was revolutionary!

The Economic Consequences of the ACA Notch

There is great interest in how the labor market will respond to the Affordable Care Act (ACA). Much of the popular discussion focuses on the implications of the newly-implemented and widely-anticipated employer mandate, which requires firms with 50 or more workers to provide health insurance for full-time employees (defined as workers with 30 or more hours per week). The employer mandate, unsurprisingly, creates strong incentives for companies to scale back employee hours (“29 hour work weeks”) and lay off workers or consolidate part-time jobs into full-time jobs in order to get under the 50 employee threshold.

There is comparatively less discussion of the incentives faced by workers. Although the Congressional Budget Office has provided estimates and discussion of the pertinent labor market effects, one issue that tends to get lost in all of this is how increasing a household’s income creates certain “notches” in a household’s budget constraint. By “notches”, economists mean very large changes in the subsidy (known as the “Premium Tax Credit”) received by a household for extremely small changes in income. These notches are well known in other transfer programs, particularly the “Medicaid notch” and the “public housing notch”. The ACA notch occurs in both states that expanded their Medicaid program, as well as those that didn’t.

To illustrate the sheer magnitude of the ACA notch, it is helpful to examine ACA subsidies for different individuals. First, consider a person who is expensive to insure – a 64-year-old – in a locality that generally has high insurance premiums. A good example is Clay County, Georgia (where Georgia also didn’t expand its Medicaid program). As the “Plan Preview and Price Estimator” from the federal government’s exchange shows, the premium tax credit goes up dramatically for this individual at an income of $11,671 and falls dramatically at an income of $46,679.

Deconstructing Magna Carta

On the day we celebrate the 800th anniversary of Magna Carta, leave it to the New York Times to feature a boxed op-ed on its editorial pages entitled “Stop Revering Magna Carta.” As the only bow to the occasion on those pages, one imagines that the editors could not be bothered even to write a house editorial on the subject

The piece is written by one Tom Ginsburg, professor of international law and political science at the University of Chicago, an institution with which I have some acquaintance.  As suggested by its title, this is a work of deconstruction. The Charter’s fame, you see, “rests on several myths.” Indeed, “like the Holy Grail,” Ginsburg concludes, “the myth of Magna Carta seems to matter more than the reality.” And well it should. After all, history rarely springs forth in principled perfection. At best it grows one fractured event at a time, each event gradually becoming the narrative mythology of a people.

Ginsburg begins his deconstruction by claiming that Magna Carta “wasn’t effective. In fact, it was a failure.” How so? Because King John repudiated the Charter shortly after he’d signed it, whereupon the barons sought to replace him, which he avoided by dying. But the next year, we’re told, John’s young son reissued the document. Far from a failure, then, it was reissued several more times over the 13th century, culminating in the important 1297 version. Indeed, it was at that time, as the famed legal historian Edward S. Corwin wrote, well before the era of deconstruction, that the king was forced to call Parliament into existence to relieve his financial necessities. But Parliament’s subventions “were not to be had for the asking,” Corwin noted, “but were conditioned on the monarch’s pledge to maintain Magna Carta.” A failure? Hardly.

Yet another myth, Ginsburg writes, “is that the document was a ringing endorsement of liberty.” As evidence, he cites three of the Charter’s 61 chapters, each concerning matters peculiar to the time—for example, the removal of fish traps from the Thames. Yet as shown by Ginsburg’s colleague at the law school across the Midway, Professor Richard Helmholz, even that provision served in time to afford a basis for free navigation.

And therein lies the major fault of this piece. It’s a textbook example of missing the forest for the trees. To be sure, as Ginsburg writes, “Magna Carta was a result of an intra-elite struggle, in which the nobles were chiefly concerned with their own privileges.” But again, that’s how history often begins, sowing the seeds for future advances. As Corwin observed nearly a century ago, many of the Charter’s clauses were drawn in ways that did not confine their application to issues immediately at hand. Moreover, the barons realized early on that to maintain the Charter against the king, they had to get the cooperation of all classes and so too the participation of all classes in its benefits. Thus did the scope of its protections expand, much as with our own Constitution. And that’s why so many revere Magna Carta today.


Senate Testimony on Wasteful Spending

Federal debt is piling up and spending is expected to soar in coming years. Projections show rivers of red ink unless federal policymakers enact reforms. They should cut spending in every department. A great place to start would be cutting aid-to-state programs, which cost more than $600 billion a year.

That was my message at a Senate hearing last week to a committee chaired by Senator Rand Paul. Kudos to Paul for holding the hearing and inviting an interesting array of witnesses. In the photo, that’s Romina Boccia, me, Steve Ellis, and Tom Schatz. Don Kettl also testified. We all gave the committee good ideas, now it is their job to cut.

Our testimony is here.


Could Mercenaries Take on ISIS?

In the aftermath of 9/11, the U.S. government urged counter-terrorism experts to think “outside of the box.” What we got instead of innovative thinking was a rather conventional response to the 9/11 atrocities - invasions of Afghanistan and Iraq, followed by thousands of dead American soldiers and trillions of dollars in military spending and foreign aid. Today Iraq is, yet again, in the midst of a civil war, with large parts of Iraqi territory overrun by homicidal maniacs from ISIS. Afghanistan, if its present government is to survive, would likely require decades of American presence – something I along with millions of other Americans oppose.

Whether or not ISIS poses a threat to our homeland (and there are many doubters), the U.S. political establishment is united in believing that ISIS needs to be taken on. But, what is to be done? On the one hand, the aerial campaign does not appear to be achieving desired ends. On the other hand, the American public is understandably opposed to another ground invasion.

The rise of the nation-state has led many people to look to their governments for solutions to problems big and small. The nation-state, in turn, has crowded out other actors. When it comes to the application of violence, for example, why not try the time-honored alternative to national armies - the use of mercenaries?

This morning, The Telegraph ran an interesting story  about an Eton-educated former Scots Guard and SAS man, Simon Mann. Mann became famous for partaking in an attempted coup d’état against the tyrannical ruler of the oil-rich African country of Equatorial Guinea,Teodoro Obiang Nguema Mbasogo. The coup failed, and Mann was caught and thrown in prison. Having miraculously survived 5 years in one of Obiang’s jails, he returned to Britain. Today, Mann advocates for a mercenary approach to defeat ISIS. Should he be given a serious hearing?

Court Finds Government Actions in AIG Bailout Were Illegal

Ask any first year law student “what did you learn in school today” and you’ll probably get some version of the answer: “duty-breach-causation-harm.”  While this applies specifically to tort claims, it seems axiomatic, even for non-lawyers, that you can’t sue someone who hasn’t hurt you.  Or can you?

Former AIG CEO Hank Greenberg caused a ripple of shock in late 2011 when he filed suit against the U.S. government, alleging that the government’s 2008 bailout and subsequent take-over of AIG was unlawful, and claiming $40 billion in damages.  Despite skepticism throughout the legal community, the case not only survived dismissal, but went on to a full trial, during which such heavyweights as Tim Geithner, Hank Paulson, and Ben Bernanke took the stand. 

Throughout the trial, Judge Thomas Wheeler seemed sympathetic to the claims that Greenberg brought on behalf of Starr International Company, an AIG shareholder.  Few believed that AIG had any alternative to the government’s money, except bankruptcy.  In bankruptcy, shareholders (like Starr) are paid last out of whatever remains after all the company’s debts are paid.  Which typically (and most likely in AIG’s case) means not paid at all.  Would the judge really grant Starr a $40 billion judgment – against the U.S. government – when the alternative was bankruptcy?

No.  But that doesn’t mean the government got off scot free either.  Judge Wheeler found that the federal government committed an illegal exaction.  That is, it took something it had no right to take.  (This, the judge carefully notes, is not the same as a “takings” under the Fifth Amendment.  When there is a takings, the government lawfully uses its authority to take private property for public use and then must pay the owner “just compensation” for that property.  An illegal exaction means the government took properly unlawfully.) 

Why the IMF Is Playing Hardball with Greece

Under normal conditions, the IMF is supposed to be limited to lending up to 200% of a country’s quota (each country’s capital contribution made to the IMF) in a single year and 600% in cumulative total. However, under the IMF’s “exceptional access” policy there are, in principle, virtually no limits on lending. The exceptional access policy, which was introduced in 2003, opened the door for Greece to talk its way into IMF credits worth an astounding 1,860% of Greece’s quota – a number worthy of an entry in the Guinness Book of World Records.

The IMF’s over-the-top largesse towards Greece explains why the IMF has been forced to play hardball with Greece’s left-wing Syriza government. The IMF’s imprudent over-commitment of funds to Greece leaves it no choice but to pull the plug on Athens. That is why the IMF’s negotiators packed their bags last week and returned to Washington, and that is why it will probably remain uncharacteristically immovable.