Rethinking Monetary Policy – Cato’s 33rd Annual Monetary Conference

monetary policy, federal reserve, plosser, miron, selgin, sumner, john b. taylorMore than two hundred people gathered at the Cato Institute last Thursday for our 33rd Annual Monetary Conference.  Over the course of three addresses and four panel discussions, a distinguished cast of speakers — including St. Louis Fed president James Bullard, Richmond Fed president Jeffrey Lacker, and Stanford economist John Taylor — covered topics ranging from the rights and wrongs of monetary rules, to the ins and outs of the Fed’s long-awaited “exit strategy” from quantitative easing and near-zero interest rates.  If you didn’t make the event, here’s a synopsis.

The WellCare Case Provides an Example of Overcriminalization in Action

Overcriminalization is not a myth. Labyrinthine regulations often produce absurd outcomes, including prison sentences for individuals who do everything in their power, including consulting multiple attorneys, to comply with the law before acting.

A recent op-ed in The Washington Times illustrates the point, using a recent Medicaid fraud case that is currently in front of a federal appeals court:

Here’s a quiz: Which of the following is a federal crime: (a) A hamster dealer needlessly tilting a hamster’s cage while in transit; (b) subliminally advertising wine; or (c) selling a fresh steak with paprika on it?

Give up? The answer: all of the above.

Right now, there are approximately 4,500 federal criminal statutes and 300,000 administrative regulations that can be punished with imprisonment — and the list keeps growing. This is an invitation for our government to over-prosecute. Too often, federal prosecutors are accepting that invitation and rejecting more measured and effective administrative and civil remedies.


In a case that was recently argued before a federal appeals court, executives at WellCare, a managed health care company in Florida, were prosecuted based on their reasonable interpretation of a Florida statute. Federal prosecutors, however, disagreed with the company’s interpretation, even though Florida never issued any regulations contradicting the executives’ reading of the law.

Let’s Talk Turkey

Thanksgiving is almost upon us and time has come for that most sacred of American traditions: bemoaning the rising cost of living. Per this Bloomberg headline on Thursday, “Thanksgiving Meal Costs Most Ever as Bird Flu Hits Turkeys.”

Well, that’s complete and utter nonsense. 

The headline grabbing data comes from the American Farm Bureau Federation, which faithfully records the cost of 12 items (e.g., turkey, pumpkin pie mix, sweet potatoes, etc.) that go into a preparation of a Thanksgiving meal for 10 people.

On the face of it, the nominal cost has risen by $0.70 from $49.41 in 2014 to $50.11 in 2015. Using a BLS calculator, I have inflated $49.41 in 2014 dollars to $49.64 in 2015 dollars. So, the real increase amounts to mere $0.47.

Now let us see what happens when we adjust the nominal cost of Thanksgiving dinners by the rise in nominal wages.


Universal Savings Accounts (USAs) Introduced

I have proposed that America adopt a Canadian-British innovation to encourage greater household savings. Canada’s Tax Free Savings Accounts (TFSAs) and Britain’s Individual Savings Accounts (ISAs) are revolutionizing savings for moderate- and middle-income families in those countries.

Now Americans may get a chance to save in a similar tax-friendly vehicle. Senator Jeff Flake (R-AZ) and Representative David Brat (R-VA) are introducing companion Senate-House bills to create Universal Savings Accounts (USAs). The accounts are like supercharged Roth IRAs.

Here are some of the features of the Flake-Brat USAs:

  • Americans could save without the restrictions, confusion, and penalties associated with other savings accounts.
  • Anyone 18 years of age or older could open a USA, contribute up to $5,500 after-tax a year, and use the tax-free withdrawals for any purpose at any time.
  • Funds would be invested in bonds and equities, and grow tax-free.
  • USA accounts would allow individuals to decide what to use their savings for and when, without Congress micromanaging their choices, as they do with other accounts.

Flake and Brat cite data showing that only 53 percent of adults could currently cover an emergency expense of $400 without selling an asset or borrowing, and most Americans do not have the recommended three to six months of income in their current savings accounts.

As Ernest Christian and I have noted, USAs would help solve these sorts of problems for many Americans by giving them a savings account that maximized liquidity and flexibility, while zeroing out taxes that eat away at returns. Flake and Brat are right that their USA accounts would encourage more savings by Americans at all income levels.

House Speaker Paul Ryan is known to admire these sorts of accounts, and numerous Republican presidential candidates have pro-savings features in their tax plans. So if the next president is a Republican, we should have a good chance at making these pro-family, pro-growth savings accounts a reality.

Air Hostesses Then and Now

In the mid-1960s, being an air hostess was considered to be a glamorous job. Back then, however, air stewardesses were paid less than half of what they make today. They also had to endure much longer flights, since 1960s airplanes carried relatively little fuel and had to stop for refueling. That also meant that flight attendants had to serve more meals and, consequently, worked harder during the flight. Most importantly, the likelihood of dying on the job declined substantially. In 1965, there were 1,142 airplane fatalities per 250 million passengers carried worldwide. Only 761 people died out of over 3 billion people who flew in 2014.


Democracy Triumphs in Burma—If Military Will Yield Real Power

In 2010, Burma’s military junta–misnamed the State Peace and Development Council–began a controlled move toward limited democracy. The process was highly imperfect and there has been backsliding of late.

Nevertheless, national elections were held last week.

Nobel Laureate Aung San Suu Kyi’s National League for Democracy annihilated the regime’s Union Solidarity Development Party, winning 78 percent of the seats. Voters rejected many top military and USDP leaders.

The losers were surprised that the people gave them so little credit for the end of dictatorial rule. “All of our calculations were wrong,” said one. Yet this happened before.

After ruthlessly suppressing pro-democracy demonstrations, the military regime sought to improve its image with an election in 1990. The NLD similarly won about 80 percent of the legislative seats. The embarrassed junta promptly voided the results, suppressed protests, and kept Suu Kyi under house arrest for most of the last quarter century.

No one expects a similar response this time, however. The military made a far more calculated move toward democracy, writing the constitution to guarantee its influence. Moreover, after inviting in the West, the military could not easily return to isolation, the almost certain result of any electoral repudiation.

However, is the military prepared to allow reform to move forward?

Suu Kyi and the NLD face extraordinary challenges, made more difficult by people’s high expectations. People across Burma voted for The Lady, but she has never held office or participated in the give and take of politics.

She faces what remains an authoritarian state. Human Rights Watch recently warned that “the reform process has stalled.”

Much must be done. Civil and political freedoms must be further expanded. All members of parliament should be elected. Judges must be made independent and fair criminal procedures need to be established.

Moreover, power must be fully vested in civilians. Today, the Ministries of Defense, Border Affairs, and Home Affairs are formally under military control, while the army has seeded its personnel throughout the nominally civilian bureaucracy and judiciary.

Fundamental economic reform also is necessary. The Economic Freedom of the World index places Burma at a dismal 146 of 157 nations. Little progress has been made toward a market economy. The new government must make Burma attractive to domestic entrepreneurs and foreign investors alike.

Conflict continues among a number of ethnic groups. Peace requires allowing substantial self-government, creating trust after decades of military atrocities, and reintegrating ethnic and religious minorities in Burmese institutions.

Riots and massacres have continued in Rakhine State targeting the Muslim Rohingya, encouraged by radical Buddhist nationalists. The national government must protect vulnerable groups from organized violence.

Standing in the way of real change is the military-drafted constitution, which bars Suu Kyi from the presidency and requires a 75 percent vote in parliament to amend the constitution, while guaranteeing 25 percent of the seats to the military. Forging a relationship with the army while edging it aside will require extraordinary sensitivity.

Suu Kyi also must overcome her own limitations. Although a heroic figure who has suffered much for the cause of democracy, she has failed to delegate and develop a broad leadership within the NLD.

And her plan for governing sounds anything but inclusive: “The president will be told exactly what he can do. I make all the decisions, because I am the leader of the winning party.”

It has been more than a half century since the people of Burma have been able to rule themselves. They face tough questions of media freedom, political reform, economic liberalization, ethnic conflict, military accountability, and more.

As I argued on Forbes online: “For too long the Burmese people could only look to the future and hope for change. Today they have a chance to enjoy the opportunities that the rest of us take for granted. Hopefully now, after decades of conflict, the future finally has arrived for Burma.”

Do the Paris Attacks Authorize President Obama to Wage War under NATO’s Article 5?

At the Washington Post online, Ilya Somin claimed that the Paris attacks gave “the Obama administration an opportunity to legalize its previously unconstitutional war against ISIS.” He continues, though invoking Article 5 may not appeal to the Obama administration it “is nonetheless the only sound legal justification for continuing the war against ISIS, unless and until the president gets a new authorization from Congress.”

International legal scholar Julian Ku disagreed, noting “Article 9 of the North Atlantic Treaty states that ‘[t]his Treaty shall be ratified and its provisions carried out by the Parties in accordance with their respective constitutional processes.’ (emphasis added).”

In response to Ku, Somin wrote: “in the event of an enemy attack on the US itself, the president has the legal authority to use force of his own volition, without additional congressional authorization.” And Article 5 “gives him the same authority to use force as he would have in the event of an attack on the United States itself.” Indeed, Somin enthused that “Empowering the president to assist an ally under attack without having to seek congressional authorization…makes the US commitment to defend its European allies more credible and certain.”

I am struck by Somin’s enthusiasm for allowing Barack Obama to circumvent the Congress’s war-making authority, and take the United States to war in Syria on account of attacks in France.

This is the same Barack Obama, mind you, who a number of scholars have criticized for exceeding his Constitutional authority. It seems particularly odd, given the importance that the Founders invested in the principle of legislative supremacy over the executive with respect to the war powers – Madison famously said that it was the most important passage of the entire document – that anyone, but especially advocates of limited, constitutional government, would be quick to make an exception in this case.

Will these advocates of greater executive power be now similarly inclined to allow the president to usurp a number of the other legislative powers enumerated in the Constitution? Should Obama be allowed to levy taxes and fees? Or initiate massive new domestic spending programs, independent of the Congress? Say, to implement a health care plan?

That is doubtful. What we are seeing, instead, is a manifestation of the fear-driven politics of the post-9/11 era, which has created a worrisome double-standard: presidents supposedly have nearly unlimited authority to send Americans abroad to be killed or maimed, but they are severely constrained when acting here at home. This attitude is perhaps best exemplified by Bush-era lawyer John Yoo’s claim that, in light of the supposedly uniquely dangerous threats confronting us today, “we should not…adopt a warmaking process that contains a built-in presumption against the use of force abroad.”

Actually, we should. The supposed dangers are precisely that: we do not live in a uniquely dangerous world. Americans today, in particular, enjoy a measure of safety that our ancestors would envy, and that our contemporaries do envy. Given this state of affairs, we should be extremely reluctant to intervene in others’ disputes when our vital interests are not directly threatened. And we should never forget that efforts to create a strong executive abroad will inevitably lead to a strong one at home.

The United States should maintain military power capable of deterring attacks against the United States, and fighting and winning wars when deterrence fails. That military will also be large enough to assist other nations in need, but the authority to deploy forces in that way should never be pre-delegated to circumvent the Congress – and, by extension, the people – of the United States.