Regulatory Competition between States and Feds Should Be Expanded, not Curtailed

The Washington Post has a fairly lengthy report on the the competing system of bank charters. But rather than analyze how this system of federal and state charters forces regulators to be less onerous, the story presupposes that there somehow is a gap in the regulatory structure that requires attention. This would be a mistake. Indeed, rather than force banks into one national system, the same model should be extended to insurance. Governments — including regulators — are much more likely to act in a responsible fashion when they know their “clients” have a choice:

At least 30 banks since 2000 have escaped federal regulatory action by walking away from their federal regulators and moving under state supervision, taking advantage of a long-standing system that allows banks to choose between federal and state oversight, according to a Washington Post review of government records. The moves, known as charter conversions, highlight the tremendous leverage that banks hold in their relationships with government supervisors. …Some regulatory experts say that eliminating the opportunity to switch regulators is critical to strengthening oversight. …Since 2000, about 240 banks have converted from federal to state charters. Regulators and bank executives say many of those institutions simply wanted to save money. …But the pursuit of leniency is an important undercurrent. …The roughly 1,550 banks with national charters are regulated by the Office of the Comptroller of the Currency. The 5,600 state-chartered banks are regulated under 50 sets of state rules. In a parallel system, the federal Office of Thrift Supervision competes with state regulators to charter savings-and-loans. While every bank and thrift requires a charter to operate, they all have at least two choices. …Critics have long complained that the system allows banks to play regulators against one another, creating what former Federal Reserve Chairman Arthur Burns memorably described as a “competition in laxity.” …A smaller number of banks, about 90, have converted from state to federal charters since 2000.

Terrorism Hysteria Watch

One aim of the conference we held last week at Cato (watch it here) was to encourage the country to adopt a more grown-up approach to combating terrorism — less fear-mongering, more confidence, or as James Fallows put it, “reclaiming Gary Cooper, not Chicken Little, as our national icon.” Chicken-littleism has political causes that we can’t change. But pointing out threat inflation should at least make its authors think twice.

To that end, here are three recent examples of officials or the media hyping terrorist capability.

1. Senator Kit Bond, at Dennis Blair’s confirmation hearing as Director of National Intelligence, said the following:

Our entire way of life is just a few moments away from annihilation if terrorists succeed in obtaining a weapon of mass destruction.

Nonsense. Our way of life survived various wars, the virtual destruction of a large swath of New Orleans, and other disasters. It would survive even nuclear terrorism. Incidents of chemical or biological terrorism are unlikely to cause mass casualties, although they could, and will not collapse our institutions. The danger to American values comes more from our reaction to terrorism than the thing itself. What’s more, these sorts of incidents are not nearly as likely as you generally hear.

Many national security experts and politicians believe that our society is brittle, that even a well-timed cyber attack could cripple our economy and institutions. This idea is akin to strategic airpower theory, which argues that the destruction of a few pressure points can halt a nation’s industrial output and cause its surrender. History proves this theory wrong. Industrial societies are resilient. The transition to a more information-based economy makes this doubly true. Information is hard to destroy, for one, living as it does in dispersed networks and brains. Second, lowered communications and transport costs make us less dependent on any particular supplier or region, making recovery from supply disruptions easier. And our wealth provides further insurance against disaster.

2. The Washington Times and the British tabloid The Sun credulously report on a rumor that bubonic plague struck al Qaeda in the Land of the Maghreb, a jihadist outfit in Algeria, after a biological weapons experiment went wrong. What they fail to point out is that, if an outbreak did occur, it was probably a natural occurrence. For more on the factual problems with these articles, see the Armchair Generalist blog (which has been on its own terrorism hysteria watch for the last couple weeks).

3. This story from Government Executive claims that

Terrorists could seize medical equipment that use radioactive isotopes and build dirty bombs that could blanket an area the size of Manhattan, warned a new report from the Defense Science Board.

The article dwells on this possibility without giving any space to plausibility. Dispersing radioactive material (here cesium-137) in a plume that engulfs an area the size of Manhattan would be quite difficult. Nor is it clear that the long-term increase in background radiation would have adverse health consequences in more than a few square blocks. We should certainly worry about such things, particularly given people’s reaction to words like “radiation,” but articles ought to provide caveats about their scary claims. Sure, it’s tough to do so on deadline, but the author could have simply called someone like Henry Kelly.

Not Just Cato Economists Oppose Stimulus

Chicago Tribune editorial on the $800 billion “stimulus” plan noted that not all economists support such a scheme, as many stories in the media are suggesting:

John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is ‘taught only for its fallacies.’

New York University economist Thomas Sargent agrees: ‘The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research.’

That’s what I remember from my BA and MA in economics, so I’ve been surprised by the dominance of Keynesian voices quoted in news stories.

Here are some more stimulus skeptics on a panel at the University of Chicago.

Upcoming Book Forum: Jefferson’s Moose

You wouldn’t think that a book called In Search of Jefferson’s Moose could be about the Internet, but it is.

In his book, In Search of Jefferson’s Moose: Notes on the State of Cyberspace, Temple University Law Professor David Post draws remarkable and entertaining parallels between the Internet and the natural and intellectual landscape that Thomas Jefferson explored, documented, and shaped.

Post will be at the Cato Institute for a lunch-hour book forum on Wednesday, February 4th. Clive Crook and Jeffrey Rosen will comment.

Register here to see just how nicely Thomas Jefferson, cyberspace, and a rather large moose fit between the covers of Post’s new book.

Close Guantanamo Bay

In today’s Cato Daily Podcast, Legal Policy Analyst David H. Rittgers explains why President Obama’s order to close the Guantanamo Bay detention center will serve the fight against terrorism. Rittgers, who served three tours of service in Afghanistan as a special forces officer, says the move to close Gitmo couldn’t come at a better time.

In his own words:

Using closed courts to try suspected terrorists plays the propaganda game in exactly the way our enemies want, and cheapens American justice on the world stage. Terrorism and insurgency constitute violence with a message. To effectively counter terrorists, we must provide a message of our own that denies a propaganda victory to their cause. Meting sound and irreproachable justice is an important way to do that.

While serving as a Special Forces officer in Afghanistan, I took into account the Taliban’s propaganda purposes when planning operations. They didn’t need to kill us to win a small victory. They needed to shoot at us and run away to tell the tale, where fishing stories of exaggerated casualties could encourage ever larger groups of radicalized fighters to attack the Afghans and their American allies.

Solving the Evolution Question

The Texas state board of education is currently engaged in a debate over science standards and how to teach evolution in public schools, the Associated Press reports.

In a recent Cato policy analysis, Why We Fight: How Public Schools Cause Social Conflict [pdf], Associate Director of Education Policy Studies Neal McCluskey examines the root cause of the debate, and how to fix it.

McCluskey writes:

Ultimately, the problem in Texas isn’t whether or not the theory of evolution has weaknesses, or whether pointing to such weakness is religiously or scientifically motivated. The problem is that the public schooling system requires everyone in the state to fund schools that take a single view, resulting in divisive conflict in the short-term and erosion of liberty in the long. Add to this that government-mandated orthodoxy is inherently incompatible with free inquiry, and it is clear that what Texas needs isn’t to decide what everyone will learn, but how to give everyone the ability to choose where and how their children will be educated.

For more on solutions to America’s troubled education system, check out McCluskey’s book, Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.