Budget Conference Moves Forward

Negotiators for the House of Representatives and the Senate are expected to announce a deal on the budget resolution as early as today. A budget resolution sets overall spending limits for the year. If it passes, it would be the first resolution in six years, but it does little to fix the country’s long-term fiscal mess.

The original House and Senate budget proposals left much to be desired. Each proposal increased defense spending by using the Overseas Contingency Operations (OCO) account as a slush fund. This maneuver allowed each chamber to claim allegiance to the 2011 Budget Control Act spending caps, while bypassing it to boost spending.  The House budget included a version of Medicare reform, but delayed its start date until 2024. The Senate left Medicare reform off the table.

This week, budget negotiators seem to be taking disappointing parts from each chamber.

What You Should Know about Free Banking History

This is a revised excerpt from White (2015), and the first item in our “What You Should Know” series offering essential background information on various alternative money themes.


Historical monetary systems that are properly classified as free banking systems, in Kevin Dowd’s (1992, p. 2) words, have involved “at least a certain amount of bank freedom, multiple note issuers, and the absence of any government-sponsored ‘lender of last resort.” There were 60-plus episodes around the world of plural private currency issue in the 19th century (Schuler 1992). Dowd (1992) has compiled studies of 9 of these episodes, and Ignacio Briones and Hugh Rockoff (2005) have surveyed economists’ assessments of 6 relatively well-studied episodes: Scotland, the United States, Canada, Sweden, Switzerland, and Chile. Because none of the six systems they review enjoyed complete freedom from legal restrictions, they suggest that “lightly regulated banking” is a more accurate label than “free banking.” All these nineteenth-century episodes had another feature worth mentioning: banknotes and deposits were denominated in and redeemable for silver or gold coins.

When we look into these episodes, we find a record of innovation, improvement, and success at serving money-users. As in other goods and services, competition provided the public with improved products at better prices. The least regulated systems were not only the most competitive but also by and large the least crisis-prone.

Supreme Court Focuses on Equality Under Law

Vindicating conventional wisdom, today’s argument suggested that the Supreme Court will find that states must both recognize and license same sex marriage. That’s remarkable in and of itself considering that a little over a decade ago, we were still debating whether states could criminalize gay sex. But it’s not surprising, given that it represents the most rapid transformation in public opinion on any political issue.

What’s more noteworthy is the reason why the Court is poised to rule this way. While it’s certainly possible that Justice Kennedy will wax metaphysical about the “sweet mystery of marriage,” the majority opinion is more likely to rest on the technical requirements of the Equal Protection Clause. Given that provision’s enforcement of “equality under the law,” states simply cannot devise a reason to draw their marriage licensing regimes in a way that distinguishes between heterosexual and homosexual couples.

Haddock and Polsby On How Riots Occur

“This is not justice. This is just people finding a way to steal stuff,” Carron Morgan, cousin of Freddie Gray, told Kevin Rector of the Baltimore Sun yesterday.  That’s one of the most clear-headed interpretations of yesterday’s mob violence in Maryland’s largest city, which followed the convergence of hundreds of youths at 3 p.m. outside Mondawmin Mall, a shopping center on the city’s west side that also serves as a hub for bus service. In the resulting tumult, groups of rioters burned police vehicles, looted stores and restaurants, and injured more than a dozen Baltimore police officers with flying missiles. 

More than twenty years ago in the Cato Journal, distinguished law and economics scholars David Haddock and Daniel Polsby published a paper entitled “Understanding Riots” that’s still highly relevant in making sense of events like these. Employing familiar economic concepts such as opportunity cost, coordination problems, and free-rider issues, Haddock and Polsby help explain why riots cluster around sports wins as well as assassinations, funerals, and jury verdicts; the group psychology of rioting, and why most crowds never turn riotous; the important role of focal points (often lightly policed commercial areas) and rock-throwing “entrepreneurs” of disorder; the tenuous relationship between riots and root causes or contemporary grievances; and why when a riot occurs the police (at least those in places like the United States and United Kingdom) seldom manage to be in enough places at once, more or less by definition.

The Ex-Im Bank and Globalization

This is from a Wall Street Journal article about President Obama’s push for the Trans Pacific Partnership (TPP):  
Mr. Obama also warned of rising anti-globalization sentiment in Washington, reflected in Democratic opposition to the trade agreement [TPP], Republican efforts to kill the Export-Import Bank, and congressional unwillingness to approve new rules for operation of the International Monetary Fund.
I agree that opposition to the TPP often, although not always, reflects anti-globalization sentiment; I’m not familiar with the IMF issue here.  But on the Ex-Im Bank issue, I think the President has it backwards. His logic, I assume, is that subsidies from the Ex-Im Bank promote exports, and are therefore pro-globalization.  But this logic is flawed.  The reality is that all export subsidies are a form of economic nationalism, in the sense that they try to give an advantage to domestic products over their foreign competition.  This leads to escalating trade wars and international economic tension.  The pro-globalization approach would be negotiate an end to the subsidies provided by export credit agencies, and let all products compete in the global marketplace without government support for domestic industry. 

Indian Schools Are Failing

Since treaties in the 19th century, the federal government has provided educational aid to American Indians. These days, the Bureau of Indian Education (BIE) owns about 180 Indian schools, which have about 41,000 students in Arizona, New Mexico, South Dakota, North Dakota, and other states.

I examined Indian schools in this study at Downsizing Government. The schools have long failed Indian children and seem to waste a great deal of money.

The Washington Post reported similar findings:

The U.S. Bureau of Indian Education spends nearly 56 percent more money than American public schools on each student, but many Native Americans learn in facilities that are languishing in poor condition, according to federal auditors.

A report this week from the Government Accountability Office said the agency has struggled to staff, manage and repair its schools, largely because of a broken bureaucracy.

… The bureau also suffers from high leadership turnover, inconsistent accountability, poor communication between offices, a lack of strategic planning and a dearth of financial experts to manage spending, auditors said. The “systemic management challenges,” as the report described them, have hindered the agency’s efforts to improve student achievement and sustain key initiatives, according to the report.

The problems have persisted for years, despite the bureau spending significantly more than U.S. public schools in general. A 2014 GAO analysis found that the agency spends an estimated $15,000 per pupil on average, while public schools nationwide spend an estimated average of about $9,900.

… Indian Education spokeswoman Nedra Darling said Thursday that the bureau is “deep into the process of fixing the problems that the GAO highlighted.”

… “The president has asked Congress for significant increases in the budget to accomplish many of these goals and to increase staff available to serve tribal schools and BIE-run schools,” Darling said.

The last two sentences are classic: Agency leaders using their own failings as an excuse to demand more taxpayer money.

A better reform would be for Congress to advance Indian self-determination by ending the federal ownership and operation of schools and converting BIE funding to block grants. Tribal governments could then use the block grants to either competitively source school management or to pass through the funds to Indian parents in the form of school vouchers.

The important thing is to get Washington out of the business of running schools because decades of experience reveal that it is not very good at it.

LAPD Proposes Worrying Body Camera Policies

Today, the five-member civilian Board of Police Commissioners will consider the LAPD’s body camera video (BMV) proposals outlined by Chief Charlie Beck, which leave much to be desired. If implemented as drafted, the proposals will allow officers to view body camera footage before being interviewed after a use-of-force incident and do not outline under what circumstances the public  can access body camera footage. Such policies will not provide the transparency and accountability Los Angeles residents deserve from their public servants.

At first glance, the policy recommendations look relatively innocuous. The document rightly requires that officers have their body camera on “prior to initiating any investigative or enforcement activity involving a member of the public.” It also outlines when officers should not have their body cameras on (such as when talking to informants, undercover officers, or when in hospitals or rape treatment centers). These requirements mean that the majority of police interactions with members of the public will be caught on camera and that investigations and the privacy of crime victims will be protected.                                

Yet other policy recommendations ought to worry civil libertarians and law enforcement accountability advocates. Section 19 of the document reads in part as follows (bolding is mine):                     

If an officer is involved in a Categorical Use of Force (CUOF), such as an officer-involved shooting, an officer shall not review his or her BWV until authorized by the assigned Force Investigation Division (FID) investigator. Once authorized, the officer shall review his or her BWV recording, and any other relevant BWV footage as deemed necessary and appropriate by the assigned FID supervisor, prior to being interviewed by investigators. An officer may have an employee representative present during the review of the BWV recordings without the FID investigator or supervisor present.

This proposal would provide officers with an opportunity that is not afforded to citizens accused of crimes: to view evidence against them prior to being interviewed by investigators. Police officers involved in a use-of-force incident should not be allowed to view their own body camera footage or the footage captured by colleagues’ body cameras before speaking to investigators. An officer involved in a use-of-force incident should give comments to investigators that have not been influenced by police body camera footage.