August 8, 2020 8:21PM

Stephen F. Williams, R.I.P.

Judge Stephen F. Williams

We at Cato are saddened by the passing, from Covid‐​19, of our good and long‐​time friend, Judge Stephen F. Williams of the U.S. Court of Appeals for the District of Columbia Circuit. Steve, as we all knew him, was a regular guest at Cato events, a frequent contributor to our programs, and a significant supporter of Cato. I first met Steve in November of 1990, in my early days at Cato, when he moderated a panel for our conference on “The Expanding Criminal Law.” More than a decade later, in 2002, he reprised that role at the Center for Constitutional Studies’ very first Constitution Day Symposium.

But Steve was more than a learned and engaging moderator. He lived the life of the mind, not simply as a distinguished judge but as an author in his own right, with books and scholarly articles on energy law, a subject on which he was a noted expert, and more broadly on Russian and Soviet affairs. In fact, we held a private luncheon for Steve and a group of Russian scholars to discuss his 2006 book, Liberal Reform in an Illiberal Regime: The Creation of Private Property in Russia, 1906–1915. And more recently, Steve served as a commentator for two Cato book forums, one in June 2014 to mark the publication of Professor Philip Hamburger’s new book, Is Administrative Law Unlawful? and another in October of 2016 when Steve commented on Timothy Sandefur’s new book, The Permission Society: How the Ruling Class Turns Our Freedoms into Privileges and What We Can Do about It. 

Yet beyond his many contributions to Cato, we knew Steve for his intellectual curiosity, his humor and warm personality, and his love of liberty, to which he contributed so much over a long and distinguished life. May he rest in peace.

August 8, 2020 12:26PM

An Unconstitutional Action That’s Been “Ratified” Is Still Unconstitutional

One of the Constitution’s chief protections for individual liberty is the separation of powers. The legislative power is granted to Congress, the judicial power to the courts, and the executive power to the president. This division cannot be altered by anything short of a constitutional amendment.

Still, since the beginning of the 20th century, Congress has enjoyed considerable success in limiting the president’s executive power through the creation of what are known as “independent agencies.” One of the main differences between these agencies and traditional executive departments is that officers of the latter serve at the pleasure of the president, while the heads of independent agencies are insulated from presidential removal except “for cause.” This structure denies the president the ability to exert control over independent agencies, even though they exercise significant executive power by enforcing laws and pursuing investigations.

This past June, the Supreme Court took a step toward limiting independent agencies by holding that the structure of the Consumer Financial Protection Bureau violated the separation of powers (Seila Law LLC v. CFPB, in which Cato filed an amicus brief). The CFPB, created in 2010, was even less accountable to the democratically elected branches because, unlike the independent agencies of the 20th century, headed by multi‐​member commissions, the CFPB is headed by a single director who was removable only for cause. The CFPB director had unilateral authority to enforce 19 federal laws. In Seila Law, the Supreme Court severed the for‐​cause protection for the CFPB director, bringing the bureau in line with traditional executive agencies.

While Seila Law made clear that the CFPB has been operating unconstitutionally since its inception, it left undecided what that ruling means for the many litigants who filed lawsuits challenging the CFPB’s structure. All American Check Cashing, a check‐​cashing and lending‐​services company, falls into this category. When All American was targeted by a CFPB enforcement action in 2016, it argued that this investigation was void because the bureau’s structure violated the Constitution. Cato filed an amicus brief supporting All American’s case before the U.S. Court of Appeals for the Fifth Circuit.

Now that the Supreme Court has vindicated All American’s arguments, all the judges on the Fifth Circuit, in a special en banc sitting, will have to determine what happens to the bureau’s enforcement action. The CFPB argues that its process can continue because it has been “ratified” by its director—now removeable at‐​will post‐Seila Law—while All American argues that the investigation must be dismissed.

Cato has now filed a brief supporting All American’s request for the Court to dismiss the enforcement action. We argue that allowing the CFPB to carry on with unconstitutionally initiated actions would perpetuate the earlier constitutional violation. An illegitimate exercise of power cannot become legitimate through after‐​the‐​fact ratification.

Failing to dismiss the enforcement action would also undermine a key historical protection of the separation of powers: private litigation. Meaningful remedies for litigants are necessary to incentivize people to continue to bring suits that safeguard the Constitution’s structural protections. If even winning your separation‐​of‐​powers claim doesn’t dismiss the enforcement action against you, why file suit to begin with?

The purpose of the separation of powers is to protect liberty. The remedy for a separation‐​of‐​powers violations should, accordingly, protect liberty as well. In this case, that remedy is clear: dismissal of the unconstitutionally initiated enforcement action.

August 7, 2020 5:19PM

Trump’s Latest Betrayal of Foreign Policy Realism

Given his comments on a variety of international issues during the 2016 presidential campaign, some advocates of a new foreign policy based on realism and restraint had cautious hopes that Donald Trump would implement some badly needed changes once he became president. Most of those expectations soon proved to be unfounded. To this day, U.S. troops remain mired in Afghanistan and Syria, despite Trump’s rhetorical commitment to end those quixotic ventures. There were no serious steps to re‐​evaluate NATO and other U.S. alliances that candidate Trump had termed “obsolete,” although U.S. pressure on the allies to accept greater financial burden sharing did intensify. And contrary to the prevailing political mythology, there has been no attempt to dial‐​back Washington’s dangerously confrontational policy toward Russia.

One recent action that initially appeared to be a refreshing exception to that dismal record was the announcement in June that Washington would withdraw 9,500 of the 34,500 U.S. troops stationed in Germany. Even before the formal announcement, rigid defenders of the NATO status quo responded with a hysterical overreaction to news reports about the decision. Predictable allegations that the modest withdrawal would play into the hands of Vladimir Putin and fatally undermine the defense of democratic Europe became the norm. Defenders of the move were few and far between.

Even that rare Trump administration gesture toward foreign policy realism and restraint now seems overblown. Although the actual size of the withdrawal will be larger than the total in the original reports (11,900 versus 9,400), only 6,400 will return to the United States. The remainder will be deployed to other NATO countries in Europe. Analyst Binoy Campmark put the matter well when he described the move as merely “adjusting the military furniture.”

Worse, the decision apparently includes deploying 1,000 U.S. troops to Poland—a step that Moscow will view as even more antagonistic to its security interests than if they were left in Germany. Poland’s defense minister boasted that “we will have an American command in Poland. This command will manage the troops deployed along NATO’s eastern flank.” Permanently stationing U.S. forces there also violates promises given to Moscow when the Kremlin agreed to Germany’s reunification and the continued membership of a united Germany within NATO.

The redeployment and partial withdrawal of U.S. forces does little to reduce Europe’s unhealthy security over‐​dependence on the United States. It does even less to mitigate an increasingly dangerous confrontational U.S. policy toward Russia; indeed, it will have the opposite effect. On balance, it appears to be a decision motivated primarily by President Trump’s annoyance with the German government’s continued underinvestment in its own defense and resistance to Washington’s pressure for greater NATO burden‐​sharing. Poland has conducted a better public relations campaign on both fronts, and the Trump administration has responded to that courtship by rewarding Warsaw with a deployment of U.S. forces to act as a tripwire to deter Russia.

Once again, Donald Trump proves that with respect to foreign policy realism and restraint, he may talk the talk, but he doesn’t walk the walk. Most realists abandoned any hope for meaningful, productive changes in Washington’s approach to world affairs under President Trump a long time ago. This latest episode should convince the handful of remaining holdouts that such hopes are totally misplaced.

August 7, 2020 3:00PM

The Market for Speech Paternalism

From Plato on, paternalists have argued that individuals would be better off if they were shielded from lies, disinformation, and “bad speech.” In contrast, liberals think individuals are capable of discerning their own ideals and interests, free from the oversight of “those who know.” For liberals, such restrictions elevate society and the state to a despotic command and…reduce the individual to the arbitrary control of others.

In the United States this liberal case for speech enshrined constitutional constraints on government paternalism. Those constraints “do not permit a State to forbid or proscribe advocacy of the use of force or of law violation except where such advocacy is directed to inciting or producing imminent lawless action and is likely to incite or produce such action.” But that power to punish incitement matters less than you might think. People may be shouting “fire,” but they rarely are in a “crowded theatre” and hence, subject to censorship. We thus risk speech causing “harm to others.”

What about expression that might harm its listeners or readers? The religion clauses of the First Amendment mean government may not protect its citizens’ immortal souls. In theory, obscene speech may be censored; in fact, disagreements about the definition of obscenity have hampered restrictions. Thanks to the First Amendment, the government cannot act like a parent overseeing what its children say and hear. Adults have the right and responsibility to speak, to hear, and to discern the truth in a world often filled with uncertain claims and outright lies.

Private forums for speech, like social media, are different. They are not obligated to follow the First Amendment. But why? Here again the individual matters. Individuals want things, others provide them, and consensual agreements bring them together. Those who create businesses seek to maximize their profits; platforms’ tolerance of some sorts of speech would reduce revenue. An individual or individuals own the platform; they may exclude speech that reduces their profits. More generally no one has the right to use other people’s property without their consent. A platform owner, unlike a government official, may suppress speech they find offensive. Indeed, federal law empowers them to do so.

Some see a conflict between property rights and civil liberties. Platform owners may suppress the speech of their political opponents as a danger to the commonweal. The suppressed say in response that speech should be free in “the new public square” of social media. Property rights must give way to “freedom of speech” with government officials the unlikely champion of the latter.

Yet social media users may want speech paternalism. They might wish to be protected from extreme expression or be told “the truth” in a confusing era when everything seems up for grabs. And social media are multi‐​sided platforms. Advertisers, who pay social media to target their ads, want users to come and stay on the platforms. They care little why users come and stay. In any case, they do not want ads for their brands near extreme speech. Content moderation by social media may be less a political imposition and more a business necessity. Even if social media managers have no desire to parent their users, they must meet a market test for their shareholders. Perhaps providing a measure of protection is a part of the social media product. And that measure of protection need not be small. People want what they want, and businesses per se are satisfiers, not judges, of those wants.

We should not exaggerate the novelty of such protections. Legacy media big and small often confirmed rather than challenged the views of their readers providing thereby an untroubled path to familiar conclusions. The older gatekeeping was a kind of content moderation offering safety (among other things) to those seeking it. And the power of gatekeepers raised the costs of reaching an audience; many ideas remained at the margin of public debate. Now we have fewer gates and lower costs to reach readers or listeners. More people are called upon to tolerate more “dangerous” or “false” speech than in the past. The supply of tolerance may be falling short of demand, at least from a liberal perspective. That’s an explanation not a justification for the current situation. Those who wish to live in a free society should live up to liberal ideals.

Most political philosophies are often betrayed by realities. Liberals put the individual at the center of society. They also demand much of each individual, not least the strength to sort good ideas from bad and live (and vote) by their results. Individuals may not meet those demands. At times, they may wish for security and protection and for a world of clear enemies and few doubts. Many see content moderators as politically correct censors or abettors of social injustice. But the liberal among them should be seen in another light, as ordinary people struggling with a dilemma created by our failure to live up to liberal ideals. We may hope moderators will resolve this dilemma in favor of liberal ideals. But it is our failure to live up to individualism, rather than the power of social media moderators, that should concern us all.

August 7, 2020 1:08PM

The Lesson of TikTok

There are not that many things that excite both teenagers and policy wonks at the same time, but TikTok has found a way to do so. The fate of this Chinese‐​owned social media company that has become a phenomenon in America is now in the spotlight. Because of concerns over data security, it appears that the company must either be sold to Microsoft (or some other American company) or be forced to shut down in the United States.

Although there may be some legitimate concerns here, the administration’s unilateralist approach creates a bad precedent. A better way to address the concerns of data security would be for the United States and others to create a set of international rules to govern data protection, which would foster a safe, fair, and stable environment for both businesses and consumers.

My colleague Julian Sanchez offered some good background on the TikTok ban here. In brief, TikTok, a popular short‐​video app used widely by teenagers, is owned by a Chinese company. In 2017, the Chinese company ByteDance acquired Musi​cal​.ly, a video service popular in the Americas and Europe, and later merged it with TikTok, a similar app that was more popular in Asia. Since then, TikTok has become one of the world’s most popular social media platforms and has 80 million active daily users in the United States alone.

The unexpected growth in popularity in recent years, along with the growing tensions and distrust between the United States and China, raises concerns that TikTok will send the data of U.S. users to its parent company in China, ultimately allowing the Chinese government to access the information. (There are also concerns over how TikTok censors its content, but data security seems to be dominating the conversation for now.)

Because ByteDance acquired Musi​cal​.ly, the Committee on Foreign Investment in the United States (CFIUS) has jurisdiction here. CFIUS is an agency set up to review foreign investments in the United States. It was created by President Ford in 1975 through an Executive Order. In 1988, the Exon‐​Florio Amendment to the Defense Production Act of 1950 authorized the president to block foreign investment, and the CFIUS review process was later codified by the Foreign Investment and National Security Act of 2007. The law authorizes the President to block foreign “mergers, acquisitions, or takeovers” when there is a threat to U.S. national security. The law further clarifies that national security “shall be construed so as to include those issues relating to ‘homeland security’, including its application to critical infrastructure” and “critical technologies.”

ByteDance’s acquisition of Musi​cal​.ly did not lead to a CFIUS review, probably because it appeared to carry few national security risks at the time. However, the level of risk the U.S. is willing to take is now lowered, triggering a reevaluation of the ByteDance’s acquisition, after the passage of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019. FIRRMA broadened CFIUS’s jurisdiction to cover more transactions and adds more factors to consider, including the risk of “expos[ing] personally identifiable information, genetic information, or other sensitive data of U.S. citizens to access by a foreign government or person that may exploit that information to threaten national security,” when determining whether a transaction poses a threat to national security. This gives CFIUS the authority to review investments that involve personal data.

TikTok is not the first Chinese investment to trigger a CFIUS review because of data security concerns under FIRRMA. The administration has in the past used its authority to force Chinese companies to divest for data security reasons. In 2019, the administration ordered Chinese company iCarbonX to divest its stake in PatientsLikeMe, which was a health tech start‐​up, to protect user data collected by the company. In the same year, Chinese gaming company Kunlun was forced to divest its investment in Grindr, a gay dating app, due to concerns over data safety. Earlier this year, the administration requested Chinese company Shiji, a leader in hotel technology, to divest its holdings in StayNTouch because the Chinese company “might take action that threatens to impair the national security of the United States.” Judging from these existing cases, the scope for CFIUS intervention on the basis of securing personal data can be very broad.

CFIUS has been investigating the ByteDance purchase since last year. Although the investigation is still pending, last week President Trump announced that he would ban the app. After a strong backlash from TikTok users, President Trump put the ban on hold until mid‐​September. This delay is designed to give Microsoft, or some other U.S. company, time to negotiate the purchase of TikTok from ByteDance. If successful, TikTok will then be wholly owned in the United States and its Chinese roots will be completely cut off. If a deal cannot be reached by mid‐​September, TikTok will be banned in the United States, because of the national security threat it poses to the United States, according to an Executive Order issued yesterday.

Without more information from the administration, it is difficult for outsiders to judge how much of a threat TikTok poses to national security. TikTok says that it stores its data in the United States, with a backup located in Singapore. According to one analysis, TikTok does not appear to gather more user data than U.S. tech companies, such as Facebook, and there is no proof that it is sharing data with the Chinese government.

Of course, there is always a possibility that ByteDance will be forced by the Chinese government to hand over data in the future. The administration’s fear of Americans’ personal information falling into the hands of another government is legitimate, but without evidence, the decision to ban TikTok appears to be excessive. And the response may be expanded as time goes on. For now, the administration is targeting Chinese companies, but it could extend the approach to companies that have minimal ties to China or that are simply deemed to be providing inadequate data protection.

Coincidentally, the Court of Justice of the European Union recently invalidated the Privacy Shield framework between the United States and the European Union, which allowed more than 5,300 companies to freely transfer data across the Atlantic. The court ruled that the framework lacked adequate protection of EU citizen’s privacy from the U.S. government. Applying the same logic used to ban TikTok, the EU and other countries could ban U.S. companies, such as Google, Facebook and Twitter.

The TikTok case also has the potential to fuel tensions and additional distrust between Washington and Beijing. Secretary of State Mike Pompeo already warned that more actions will be taken to deal with other Chinese companies that fall into the realm of the Clean Network program. Details of these actions remain unclear, but President Trump has broad authority to take actions under a variety of statutes, including the International Emergency Economic Powers Act, as he stated in one Executive order that bans another Chinese social media app WeChat. Citing data security and national security, Beijing could quickly adopt this U.S. practice (as in the trade remedy regime) and use the same logic to conceal protectionist actions. One could argue that China already bans social media platforms like Twitter and Facebook, so there is little room for Beijing to retaliate. However, there are many more American companies that have access to Chinese consumers’ information in China. Right now, Beijing requires most data to be stored domestically. Beijing could follow the U.S. precedent and start banning these Americans companies or force them to sell their business to a Chinese firm. The scale of vulnerable companies would be massive. As Tom Braithwaite from the Financial Times pointed out, “The great uncoupling would cause huge economic pain to hundreds of US tech companies.”

Data security is not just a concern of the United States. Many others, including the European Union, are just as concerned. Instead of taking unilateral actions against companies and creating instability in the market, governments should agree on a set of international rules and find a forum for adjudicating potential violations. A possible platform is the e‐​commerce negotiations at the World Trade Organization. While major economic powers like the United States, European Union, and China are still at odds on what issues should go into the agreement and what the rules should be, the fate of TikTok should serve as a reminder that without a set of common international rules governing data, we will face a fragmented world, rife with uncertainty, that hurts both companies and consumers.

August 7, 2020 9:47AM

The New Deal and Recovery, Part 7: FDR and Gold

"In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve's balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply." ("FDR takes United States off gold standard,", November 24, 2009.)

As I pointed out several installments ago, the recovery that followed FDR's assumption of office was fueled almost exclusively by growth in the Federal Reserve's gold holdings. As the following FRED chart shows, those holdings almost tripled during the four years following the nationwide bank holiday, allowing the M2 money stock to concurrently grow to 150 percent of its pre-holiday level. The result was a "Great Expansion" of real GNP that more than offset the "Great Contraction" of the preceding three years.

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August 7, 2020 9:46AM

Two Different Approaches To Dealing With Allies On Issues Related To China

It is reasonable to think that when dealing with the various economic and political challenges presented by China, it would make sense for the U.S. government to work with our many democratic allies around the world. There seems to be a clear contrast between the two presidential candidates on this issue. Here is something President Trump said yesterday:

… earlier today I signed a proclamation that defends American industry by re‐​imposing aluminum tariffs on Canada. Canada was taking advantage of us, as usual …

Not surprisingly, Canada has announced that it plans to retaliate with tariffs of its own.

In contrast, here is something candidate Joe Biden said two days ago:

I’ll rally our allies to set the rules of the road and push back on Beijing’s aggressive and predatory behavior.

For those who want to do something about China’s behavior, this seems like the more effective approach.