Cato At Liberty

This month our online ideas journal Cato Unbound boasts an all-new design, with new software to make reading and navigating a whole lot more intuitive.

Our latest issue tackles the topic of fusionism – the old-new idea that libertarians belong on the right side of the political aisle.

Fusionism has a long history. But will it play to millennials? That could be one of the most important questions in American politics.

Young voters are a lot less conservative on social issues like gay marriage and drug policy. In this, they echo previous generational trends on questions like interracial marriage and pornography, neither of which are live political issues anymore. Younger Americans also seem more skeptical of corporate influences in politics. That fact may tilt them to the left, but it could also pave the way for a less corporatist free-market movement, if only we can make the case to them. And some millennials might not even remember a time when America was at peace – a thing we can’t say about any previous generation.

How does the old right-libertarian alliance fare in this new environment? We decided to ask some young activists who’ve given some thought to the question.

Making the case for fusionism is Jacqueline Otto of the American Enterprise Institute’s Values and Capitalism Project. Economic liberty unites us, she says – and we ought not to let the rest divide us.

And contra, we have Jeremy Kolassa, a writer for United Liberty. He argues that libertarians haven’t gotten much from their old alliance with the right, and it’s time to stand on our own. Libertarians should offer good ideas to whoever will listen and form coalitions wherever specific issues allow it.

Over the next few days we’ll also have essays from Clark Ruper of Students for Liberty and Jordan Ballor of the Acton Institute. Also be sure to stop by our Facebook page and follow us on Twitter as the conversation develops.

I don’t often commend regulators, but for those interested in preserving national sovereignty, new SEC chairwomen, Mary Jo White, is off to a good start if yesterday’s New York Times’ editorial is anything to go by. The Times criticized White for approving new SEC derivatives regulations that defer oversight of foreign security-based swap transactions, including those relating to the foreign subsidiaries of U.S. banks, to foreign regulators. The Times also derided White for approving rules that were “weaker” than the similar rules released by the Commodity Futures Trading Association.

Like the CFTC, the Times’ editorial board has clearly not heard of the concept of international comity, which it seems to confuse with “weakness”. In particular, it is not clear why the Times believes that unelected U.S. regulators should have the right to be self-appointed derivatives tsars to the rest of the world. The Times also appears to have overlooked the recent letter, signed by the finance ministers of nine of the United States’ largest trading partners and addressed to their U.S. counterpart Jack Lew. The letter was a thinly-veiled attack on the CFTC’s so called “extra-territorial” application of its cross-border swap rules and noted that an approach “in which jurisdictions require that their own domestic regulatory rules be applied to their firms’ derivatives transactions taking place in broadly equivalent regulatory regimes abroad is not sustainable.”

Of course, the Times does raise one important point: that it is undesirable to have two agencies releasing different rules on what amounts to the same topic. But the arbitrary distinction in the oversight of security-based swaps (regulated by the SEC) and OTC derivatives (regulated by the CFTC) is just one of Dodd-Frank’s many design flaws. Moreover, the SEC is under no obligation, pursuant to Dodd-Frank or otherwise, to follow the CFTC’s approach just because the CFTC released its regulations first. Especially as those regulations have proven to be so contentious (and not just with U.S. banks who legitimately fear being shut of international derivatives markets, but, more importantly, the foreign regulators on whom the U.S. may have to rely in a crisis).

It has become an unwelcome trend for U.S. regulatory agencies to overreach their jurisdictional and geographical boundaries. This began with the IRS’ FATCA implementation and has continued in the financial regulatory space. That White does not wish to follow her CFTC counterpart, Gary Gensler, down the rabbit hole and alienate the U.S.’s trading partners and allies is commendable, even if the Times is disappointed.

Conservative and libertarian scholars are clashing over the findings and political implications of the new Heritage Foundation immigration study. The study spans 92 pages and is jam-packed full of statistics and detailed calculations.

I’ll leave the immigration policy to my colleagues who are experts in that area. To me, the study provides a very useful exploration into how massive the American welfare state has become. Here are some highlights:

• “There are over 80 of these [means-tested] programs which, at a cost of nearly $900 billion per year, provide cash, food, housing, medical, and other services to roughly 100 million low-income Americans.”
• “The governmental system is highly redistributive … For example, in 2010, in the whole U.S. population, households with college-educated heads, on average, received $24,839 in government benefits while paying $54,089 in taxes … [and] households headed by persons without a high school degree, on average, received $46,582 in government benefits while paying only $11,469 in taxes.”
• “Few lawmakers really understand the current size of government and the scope of redistribution. The fact that the average household gets $31,600 in government benefits each year is a shock.”

Total federal, state, and local government spending in 2010 was $5.4 trillion, or $44,932 per U.S. household. The figure of $31,600 in “benefits” is total spending less spending on public goods, interest, and government pensions.

A useful feature of the Heritage study is a breakdown of the $5.4 trillion in spending into six categories constructed by the authors. “Direct benefits” includes mainly Social Security and Medicare. “Pure public goods” includes programs such as defense and scientific research. “Population-based services” includes programs aimed at whole communities, such as police and highways. (Some of these also seem to be public goods). “Means-tested benefits” includes programs such as food stamps. Education includes both K-12 and college subsidies. “Interest and pensions” is the current costs of past spending, which includes servicing the debt and paying for government pensions. The chart shows spending in 2010.  

This spending breakdown is useful for thinking about the proper size of government. From a libertarian standpoint, governments ought to be spending only on public goods and population-based services, as a first cut. That would be $1.94 trillion, or just 36 percent of the current total of $5.4 trillion. As a percent of GDP in 2010, that would be spending of 14 percent, rather than current spending of 38 percent.

But some of the population-based services mentioned by the authors could be privatized, and spending on some of the public goods could be cut. So a good libertarian target might be less than 36 percent of current spending, or less than 14 percent of GDP.

The Heritage study is sparking a debate about what type of immigration reform the nation should have. But hopefully, it will also spur more discussion about the massive size of the American welfare state. Immigration is partly, or mainly, such a contentious issue because we have such a huge welfare state.

The study includes projections about how many trillions of dollars of government benefits will flow to immigrants and their children in the decades ahead. But conservatives and libertarians agree that we ought to cut trillions of dollars in benefits to immigrants and nonimmigrants alike.

So is there some common ground here? Can we work toward an immigration reform that cuts government dependency in general and downsizes the welfare state?