Archives: 07/2012

How to Increase the Money Supply, Without Increasing the Government’s Debt

In my August 2012 Globe Asia column, “Money, Where’s the Money?”, I explained why the global economy is still sputtering, and proposed a partial solution. In short, I called for governments (not central banks) to engage in debt market operations – a way to increase the money supply directly, without increasing the overall level of government debt. A number of readers have since contacted me with questions about the specific example I discussed in my column. The most frequent question was:

“Isn’t your proposal just the same as the Fed’s Operation Twist, where the Fed purchases long-term government securities from the public and increases high-powered money?”

The answer is, in short, no – and here’s why:

The first thing that should be noted is that both a central bank and a government can conduct debt market operations. Debt market operations constitute either central bank, or government, transactions with non-banks, which change the bank deposits held by those non-banks. There are many combinations of such operations that can be employed, but with all debt market operations of the type I am envisioning, long-dated debt is replaced with short-dated debt (and so, in one sense, there would be some similarity with Operation Twist).

In my Globe Asia example, however, the government would conduct the debt market operations with no involvement by the central bank. The government would borrow from private banks and purchase outstanding long-dated government debt from the public, and then cancel the debt that had been purchased. The result would be an increase in the money supply, with no change in the monetary base. If the government were instead to borrow from the central bank, both base money and broad money would increase – a fundamental difference.

The central bank could engage directly in debt market operations (and several have done so in recent QE operations). But, in this case, the long-dated bonds purchased by the central bank would end up on the central bank’s balance sheet. The debt would not be canceled out, as it would be if the government was to conduct debt market operations. It is this fact that defines one of the fundamental differences between debt market operations conducted by a central bank and those conducted by a government. A central bank engaged in debt market operations would be left with holdings of long-dated government debt and be exposed to interest rate risk on those securities. It could incur large accounting losses if interest rates were to rise. This would not be the case if the government conducted debt market operations.

Denver Fools the Wall Street Journal

“Denver rethinks the modern commuter,” heralds the Wall Street Journal. The article goes on to say that, instead of building parking lots at its rail stations, Denver is encouraging developers to build high-density, mixed-use developments. Somehow, this is supposed to be news.

Let’s think this through. First of all, no one is “rethinking the modern commuter.” The Census Bureau reports that transit carried less than 5 percent of Denver-area commuters in 2010, while more than 85 percent drove. Instead, what RTD, Denver’s transit agency, is rethinking is the role of public transit.

The old-style public transit system used cheap, flexible buses whose routes could be altered overnight to take people from where they were to where they wanted to go. When Denver first built rail, it substituted expensive but glamorous trains for inexpensive buses, but still allowed people to go from where they were–provided they were willing to drive to a park-and-ride station–to where they wanted to go–provided they wanted to go downtown.

Under RTD’s latest “rethink,” transit will no longer take people from where they are to where they want to go. Instead, planners will try to coerce and entice people to live in places served by rail transit and go where those rail lines go. On one hand, this is far more intrusive on people’s lifestyles; on the other hand, it is a far more limited view of the purpose of transit. Instead of “mobility for those who can’t or don’t want to drive,” the new purpose is “mobility for those who are willing to completely rebuild their lifestyles around transit.”

This has been tried before, of course, most notably in Portland. How well did it work there? In 1980, under the old bus-transit model, transit carried 9.8 percent of Portland-area commuters to work. By 2010, with seven different rail lines and scores of transit-oriented developments, transit carried just 7.1 percent of the region’s commuters to work.

The sad part is that the Wall Street Journal not only thinks this is newsworthy, but that it is laudable. In fact, it is government at it worst: inefficient, coercive, and unable to learn from past mistakes.

Transit should serve people and not the other way around. It is time to rethink the rethink.

Campaign Finance Proposals That Deter Speech Are Bad

Perhaps the first thing you should know about campaign finance “reform” proposals – at least those coming from the left – is that their ultimate goal is to deter speech about political issues.  Whether it’s limiting campaign donations or spending, restricting the ability of corporations or other groups to publicize their views, or imposing disclosure rules, the goal isn’t to have better-informed voters or a more dynamic political system, but to have less speech.   Those who advocate these things want the government to have the power to control who speaks and how much.

That lesson was repeated to me during two public events I participated in yesterday.  First, at a Senate hearing (which you can watch here; my opening remarks, a longer version of which you can read here, begin at 59:50) several senators seemed incredulous at my suggestion that we need more speech rather than less.  After Sen. Dick Durbin (D-IL) tried to get me to admit that I was a Koch pawn, a particularly laughable charge in a year when the Kochs sued Cato over management issues, Sens. Sheldon Whitehouse (D-RI) and Richard Blumenthal (D-CT) were incredulous that I would want fewer restrictions and less disclosures than them.  If I favor certain disclosure rules for donations to campaigns – which I do, in conjunction with eliminating donation caps, as I wrote yesterday – why am I against the DISCLOSE Act, which would impose certain further reporting requirements on independent political spending (and which failed last week after getting zero Republican votes)?

I should’ve just referred the senators to John Samples’s analysis of an earlier version of the proposed legislation, but in any event, the answer boils down to the idea that the required disclosures (of expenditures – which shouldn’t be confused with donations) are so onerous as to burden and deter speech with negligible impact on voter information.  That is, as former FEC chairman Brad Smith explains in this video, disclosing that a TV commercial was paid for by Americans for Apple Pie, one of whose donors is the local chamber of commerce, one of whose donors is the U.S. Chamber of Commerce, one of whose donors is the national widget manufacturers’ associations, one of whose donors is Acme Widgets … doesn’t tell a voter anything.  What it does do is require 20 seconds of the 30-second ad to be given over to disclosure rather than the actual political speech.  So what’s the purpose of the regulation if not to deter that speech?

Moreover, Super PACs already have to disclose their donors, and if their donors are corporations/associations rather than individuals, you can look up the people leading those entities in their corporate filings.  And if the problem is “millionaires and billionaires” – there was more than one reference to the Kochs during the hearing, and I helpfully suggested that I’m happy to defend Georges Soros and Clooney as well – then no law short of a complete ban on political speech by individuals will do.  Luckily, we have the First Amendment in place to stop self-interested incumbents from trying that.

My second public event was an unlikely appearance on the Rachel Maddow Show, where I joined Harvard law professor Larry Lessig, who also appeared at the earlier Senate hearing, to discuss campaign finance regulation.  I thought it went pretty well, and you can watch for yourself (segment titled “How to take American democracy back from the .000063 percent”).  What’s telling is that guest-host Ezra Klein was more even-handed than the senators at the earlier hearing.

Finally, here’s another nugget from yesterday: As I exited the Senate hearing room, a young “reform” activist said to me, “I think you’re a fascist.”  And here I thought that I did a decent job of getting across the point that we should have less government, not more.

‘We’re Not Going To Protect You’

New York City Mayor Michael Bloomberg, on TV the other day answering a question about why the public doesn’t demand the enactment of gun control after the Colorado theater shooting: “Well, I would take it one step further. I don’t understand why the police officers across this country don’t stand up collectively and say, we’re going to go on strike. We’re not going to protect you [unless new restraints are enacted].” James Taranto at the Wall Street Journal’s “Best of the Web” calls out the Gotham mayor:

A police strike, as Bloomberg figured out a day late, is illegal in itself. Bloomberg’s strike would be for the purpose of curtailing the citizenry’s constitutional rights. The mayor urged an unlawful rebellion by government employees against their employers, the people.

Taranto also notes:

And whether Bloomberg meant to suggest a real strike threat or an empty one, it seems obvious that such a move would be counterproductive. The prospect of police shirking their duty to protect the citizenry strengthens, not weakens, the case for private ownership of firearms and other tools of self-defense.

It’s enough to make you wonder whether Bloomberg is secretly a passionate admirer of the Second Amendment and keeps saying things this outrageous from a covert intent to sabotage the case for gun control.

Ayn Rand on Johnny Carson: It Once Was Lost But Now Is Found

In the 1960s Ayn Rand was becoming a major cultural presence. She drew overflow crowds at colleges from Yale to Wisconsin to Lewis and Clark. She wrote a column for the Los Angeles Times. She was interviewed by Alvin Toffler in Playboy. (The interview can be found in The Libertarian Reader.) She accepted an offer to place her papers in the Library of Congress.

And in 1967 her celebrity was officially recognized by an invitation to appear on the Tonight Show with Johnny Carson. Those who remember it say that Carson was so fascinated that he scrapped his other guests and kept her on for the whole show. He invited her back twice more. Alas, many of the early Carson shows were lost in a fire at NBC’s archive, and Objectivists have lamented the lost tapes ever since. Now a partial tape of that first Tonight Show appearance has turned up, and Libertarianism.org has it:

Visit Libertarianism.org for classic and original videos of Milton Friedman, F. A. Hayek, Thomas Szasz, Walter Williams, and many more.

Net Neutrality Violates the First and Fifth Amendments

This blogpost was co-authored by legal associate Matt Gilliam.

In December 2010, the FCC adopted Preserving the Open Internet, a “network neutrality” order regulating broadband internet access service. Issued under authority (ostensibly) derived from 24 disparate provisions of federal communications law, Preserving the Open Internet is predicated on three basic rules: transparency, no blocking, and no discrimination.

Broadly speaking, “transparency” requires broadband providers to “disclose network management practices, performance characteristics, and terms and conditions of services.” The “no blocking” rule forbids fixed broadband providers from “blocking lawful content, applications, services, and non-harmful devices.” Meanwhile, mobile broadband providers are restricted from blocking “lawful websites” and certain applications. The “No Discrimination” rule prohibits broadband providers from unreasonable discrimination in transmitting lawful network traffic.

The promulgation of the FCC’s network neutrality order will have serious consequences for the constitutional rights of broadband providers. One such provider, Verizon, now seeks to challenge the FCC order in the U.S. Court of Appeals for the D.C. Circuit. This week, Cato joined TechFreedom, the Competitive Enterprise Institute, and the Free State Foundation, on a brief urging the court to uphold Verizon’s First and Fifth Amendment rights.

We first argue that the FCC order violates broadband providers’ First Amendment rights by compelling speech, forcing them to transmit messages from content providers that they might not wish to convey, preventing them from transmitting messages they want to convey, prohibiting them from exercising editorial discretion, and generally restricting the mode and content of their communications. Because the order singles out certain speakers, it demands “strict scrutiny,” which it cannot survive because it neither serves a compelling governmental interest nor is narrowly tailored. We next argue that the FCC order violates broadband providers’ Fifth Amendment rights by subjecting them to physical and regulatory takings. The FCC order enacts a physical taking by granting the content providers an unrestricted right to occupy property while slicing through the bundle of property rights broadband providers enjoy as network owners. The order essentially gives the content providers unlimited use of the network owners’ physical property without any compensation, forbidding the rightful owners from exercising their right to control the use of their property and exclude others.

Furthermore, in forcing network owners to give network space to content providers, the regulation shifts costs to consumers, discouraging them from using broadband service and thus diminishing the network’s economic value. The FCC order also constitutes a regulatory taking because it prevents broadband providers from attaining their networks’ full economic value and subverts network owners’ reasonable investment-backed expectations. Finally, we argue that the FCC’s assertion of authority to regulate the Internet is a dangerous aggrandizement of agency power. In sum, while seeking to benefit content providers, the FCC has promulgated a regulation that violates the First and Fifth Amendment rights of broadband providers.

The case of Verizon v. FCC will be argued at the D.C. Circuit later this summer.

Coburn Report on Federal Job Training Programs

Oklahoma Republican Sen. Tom Coburn released a report today on federal job training programs in his state. Here’s what Coburn’s intrepid staff found: duplication, waste, ineffectiveness, and stupidity. In short, the report is another example of how Washington is better at creating problems than solving them.

The report’s most important takeaway is that providing job training assistance is not a proper function of the federal government:

The convoluted mess of job training programs exists, not because of any well-meaning Oklahoman, but because Congress created a system that is doomed to fail. Employers and communities know best what skills are needed for a successful workforce, not bureaucrats—despite good intent.

What part of this scenario makes sense: Congress taxes Oklahoma employers at record rates, to fund job training programs created by politicians in Washington, only to send taxpayer money back to Oklahoma with rules and regulations that tie the hands of state and local governmental and business and ignore the unique economic and demographic factors of their communities. This scenario is the reality of the employment programs operated by federal government.

The first step Congress took in the wrong direction was a step out of the Constitutional boundaries set forth by our founders. Providing employment and training services is not a role for federal government at all, according to the enumerated powers listed in the U.S. Constitution. [Emphasis in original.]

Of course the scenario doesn’t make any sense, but as a Cato essay on federal employment and training programs notes, federal policymakers are fixated on “doing something”:

More fundamentally, federal employment and training programs don’t fill any critical economic need that private markets don’t already fill. Instead, the federal programs provide an opportunity for policymakers to show that they are “doing something” to help the labor market. To policymakers, federal job training sounds like something that should boost the economy, but five decades of experience indicate otherwise.