Ukraine Hyperinflates

Since the New Year, Ukraine’s currency – the hryvnia – has collapsed, losing 51 percent of its value against the U.S. dollar. To put this rout into perspective, consider that the Russian ruble has only lost 8 percent against the greenback during the same period.

Like night follows day, the hryvnia’s meltdown has resulted in a surge of inflation. The last official Ukrainian year-over-year inflation rate is 28.5 percent. This rate was reported for January and is out of date. That said, the official inflation rate has consistently and massively understated Ukraine’s brutal inflation. At present, Ukraine’s implied annual inflation rate is 272 percent. This is the world’s highest inflation rate, well above Venezuela’s 127 percent rate (see the accompanying chart).

When inflation rates are elevated, standard economic theory and reliable empirical techniques allow us to produce accurate inflation estimates. With free market exchange-rate data (usually black-market data), the inflation rate can be calculated. Indeed, the principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

To calculate the inflation rate in Ukraine, all that is required is a rather straightforward application of a standard, time-tested economic theory (read: PPP). At present, the black-market UAH/USD exchange rate sits at 33.78. Using this figure and black-market exchange rate data that the Johns Hopkins-Cato Institute for Troubled Currencies Project has collected over the past year, I estimate Ukraine’s current annual inflation rate to be 272 percent – and its monthly inflation rate to be 64.5 percent. This rate exceeds the 50 percent per month threshold required to qualify for hyperinflation. So, if Ukraine sustains its current monthly rate of inflation for several more months, it will enter the record books as the world’s 57th hyperinflation episode. 

DHS Shutdown

Policymakers are battling over a funding bill for the Department of Homeland Security (DHS) and its agencies, including the Federal Emergency Management Agency (FEMA). The disagreement over the bill involves the funding of President Obama’s recent immigration actions.

If a DHS funding bill is not approved, the department will partially shut down. The administration has been highlighting the negative effects of that possibility, but the battle illustrates how the government has grown far too large. Federal shutdowns may cause disruption, but that is because the government has extended its tentacles into activities that should be left to state and local governments and the private sector.

To the extent possible, we should move the most important activities in society out of Washington because the federal government has become such a screwed-up institution. Air traffic control, for example, is too crucial to allow it to get caught in D.C. budget squabbles, as it did in 2013. Air traffic control should be privatized.

CEQ: Talk about Climate Change, Just Don’t Talk about Climate Change

The White House Council for Environmental Quality (CEQ) has released a draft of revised guidance that “describes how Federal departments and agencies should consider the effects of greenhouse gas emissions and climate change” under reviews governed by the National Environmental Policy Act (NEPA)—an act which basically requires some sort of assessment as to the environmental impacts of all proposed federal actions.

Under the revised guidance, the CEQ makes it clear that they want federal agencies now to include the impact on climate change in their environmental assessments.

But here’s the kicker, the CEQ doesn’t want the climate change impacts to be described using measures of climate—like temperature, precipitation, storm intensity or frequency, etc.— but rather by using the measure of greenhouse gas emissions.

Basically, the CEQ guidance is a roadmap for how to circumvent the NEPA requirements.

“Black Sites” of Silence?

Those who follow police misconduct closely know that patterns of abuse can become normalized when tolerated or unchecked by police supervisors. Abuses that went unreported or were unsubstantiated in years past have been exposed by the growing presence of camera phones and other technologies that record police-public interactions. But they can’t catch them all.

The Guardian’s Spencer Ackerman has reported a truly disturbing practice in Chicago. The police have established a “black site” area where Americans are held incommunicado to be interrogated. Prisoners are held without charge and in violation of their constitutional rights and without access to legal counsel:

The facility, a nondescript warehouse on Chicago’s west side known as Homan Square, has long been the scene of secretive work by special police units. Interviews with local attorneys and one protester who spent the better part of a day shackled in Homan Square describe operations that deny access to basic constitutional rights.

Alleged police practices at Homan Square, according to those familiar with the facility who spoke out to the Guardian after its investigation into Chicago police abuse, include:

  • Keeping arrestees out of official booking databases.
  • Beating by police, resulting in head wounds.
  • Shackling for prolonged periods.
  • Denying attorneys access to the “secure” facility.
  • Holding people without legal counsel for between 12 and 24 hours, including people as young as 15.

At least one man was found unresponsive in a Homan Square “interview room” and later pronounced dead.

Unlike a precinct, no one taken to Homan Square is said to be booked. Witnesses, suspects or other Chicagoans who end up inside do not appear to have a public, searchable record entered into a database indicating where they are, as happens when someone is booked at a precinct. Lawyers and relatives insist there is no way of finding their whereabouts. Those lawyers who have attempted to gain access to Homan Square are most often turned away, even as their clients remain in custody inside.

What NSA Director Mike Rogers Doesn’t Get About Encryption

At a  New America Foundation conference on cybersecurity Monday, NSA Director Mike Rogers gave an interview that—despite his best efforts to deal exclusively in uninformative platitudes—did produce a few lively moments. The most interesting of these came when techies in the audience—security guru Bruce Schneier and Yahoo’s chief information security officer Alex Stamos—challenged Rogers’ endorsement of a “legal framework” for requiring device manufacturers and telecommunications service providers to give the government backdoor access to their users’ encrypted communications. (Rogers repeatedly objected to the term “backdoor” on the grounds that it “sounds shady”—but that is quite clearly the correct technical term for what he’s seeking.) Rogers’ exchange with Stamos, transcribed by John Reed of Just Security, is particularly illuminating:

Alex Stamos (AS): “Thank you, Admiral. My name is Alex Stamos, I’m the CISO for Yahoo!. … So it sounds like you agree with Director Comey that we should be building defects into the encryption in our products so that the US government can decrypt…

Mike Rogers (MR): That would be your characterization. [laughing]

AS: No, I think Bruce Schneier and Ed Felton and all of the best public cryptographers in the world would agree that you can’t really build backdoors in crypto. That it’s like drilling a hole in the windshield.

MR: I’ve got a lot of world-class cryptographers at the National Security Agency.

AS: I’ve talked to some of those folks and some of them agree too, but…

MR: Oh, we agree that we don’t accept each others’ premise. [laughing]

AS: We’ll agree to disagree on that. So, if we’re going to build defects/backdoors or golden master keys for the US government, do you believe we should do so — we have about 1.3 billion users around the world — should we do for the Chinese government, the Russian government, the Saudi Arabian government, the Israeli government, the French government? Which of those countries should we give backdoors to?

MR: So, I’m not gonna… I mean, the way you framed the question isn’t designed to elicit a response.

AS: Well, do you believe we should build backdoors for other countries?

MR: My position is — hey look, I think that we’re lying that this isn’t technically feasible. Now, it needs to be done within a framework. I’m the first to acknowledge that. You don’t want the FBI and you don’t want the NSA unilaterally deciding, so, what are we going to access and what are we not going to access? That shouldn’t be for us. I just believe that this is achievable. We’ll have to work our way through it. And I’m the first to acknowledge there are international implications. I think we can work our way through this.

AS: So you do believe then, that we should build those for other countries if they pass laws?

MR: I think we can work our way through this.

AS: I’m sure the Chinese and Russians are going to have the same opinion.

MR: I said I think we can work through this.

I’ve written previously about why backdoor mandates are a horrible, horrible idea—and Stamos hits on some of the reasons I’ve pointed to in his question.   What’s most obviously disturbing here is that the head of the NSA didn’t even seem to have a bad response prepared to such an obvious objection—he has no serious response at all. China and Russia may not be able to force American firms like Google and Apple to redesign their products to be more spy-friendly, but if the American government does their dirty work for them with some form of legal backdoor mandate, those firms will be hard pressed to resist demands from repressive regimes to hand over the keys. Rogers’ unreflective response seems like a symptom of what a senior intelligence official once described to me as the “tyranny of the inbox”: A mindset so myopically focused on solving one’s own immediate practical problems that the bigger picture—the dangerous long-term consequences of the easiest or most obvious quick fix solution—are barely considered.

Clearly Worded Contracts Should Be Enforced

Freedom of contract—the right of individuals to manage and govern their own affairs—is a basic and necessary liberty. The appropriate role of the government in contract-law disputes is to hold parties to their word, not to enforce its own policy preferences.

The New Jersey Supreme Court recently struck a blow against that basic freedom, however, in ruling that clearly worded arbitration provisions—one of the most common parts of consumer contracts—are unenforceable unless the parties comply with multiple superfluous formalities. The case arose when Patricia Atalese retained a law firm, U.S. Legal Services Group, to negotiate with creditors on her behalf. Atalese signed a retainer agreement with a standard arbitration provision: she checked a box that unambiguously indicated that she read and understood that all disputes would be settled via arbitration. Then, after a dispute over legal fees, Atalese disregarded the arbitration agreement and filed a lawsuit in state court.

The trial court dismissed her complaint and compelled arbitration, a ruling that was affirmed by the intermediate appellate court. But instead of letting that decision stand, the New Jersey Supreme Court broke from years of tradition and federal precedent found the arbitration provision unenforceable because it lacked certain magic words stating, in addition to all disputes being resolved by arbitration, that the parties were waiving their right to a civil jury trial.

Cato, joined by the National Federation of Independent Business, has filed an amicus brief urging the U.S. Supreme Court to review the case. We make three key points. First, the New Jersey court’s proposed requirement—that contracts with an arbitration provision include belt-and-suspenders-and-drawstring language regarding jury-trial waiver—is redundant. Agreeing to submit a dispute to an impartial arbitrator instead of going through the expense of litigation is the very essence of an arbitration agreement.

Austerity, A New Weaselword

The financial press has become inundated with the word “austerity.” Since Greece’s left-wing Syriza proclaimed an “anti-austerity revolution,” strong adjectives, like “incredibly savage,” precede that overused word.

What was once a good word has become a weaselword. That, according to the Oxford Dictionary, is “a word that destroys the force of a statement, as a weasel ruins an egg by sucking out its contents.” How could that be?

Well, in the hands of an unscrupulous or uninformed writer, the inversion of a perfectly good word into a weaselword is an easy task. All one has to do is leave the meaning of a word undefined or vague, rendering the word’s meaning so obscure as to make it non-operational. With that, a meaningless weaselword is created.

In its current usage, the word austerity is so obscure as to evoke Fritz Machlup’s paraphrase of Goethe’s line from Faust: To conceal ignorance, Mephistopheles counsels a student to misuse words. Such is the story and fate of austerity.