Archives: 06/2013

A Reply to Epstein & Pilon on NSA’s Metadata Program

Last week, my colleague Roger Pilon and Prof. Richard Epstein co-wrote a Chicago Tribune op-ed defending the National Security Agency’s bulk metadata collection program. I had not, initially, intended to respond directly: Cato scholars often disagree among themselves—as Roger and I long have in this area—and normally it suffices for us each to state our own affirmative arguments and let readers decide for themselves which is most convincing. However, as I now see that some observers—and in particular, a significant number of libertarians—have mistakenly taken this to mean that “Cato” supports the NSA program, which continues to dominate the news, I feel it’s necessary to say something here about why I (and, as I believe, the majority of my colleagues) reject that view.

In an area where so much remains secret, it is impossible to have a sensible debate unless we are at least clear on the public facts.  So before I address their broader arguments, it is necessary to correct a few important factual errors in the Tribune piece. Pilon and Epstein write:

The names linked to the phone numbers are not available to the government before a court grants a warrant on proof of probable cause, just as the Fourth Amendment requires.

This is incorrect. Nothing in the law would require a warrant to get the name associated with a number, and the public statements of FBI Director Robert Mueller directly contradict this claim.

At the risk of stating the obvious: phone numbers can often be associated with names by a simple Google search, and the NSA and FBI have access to far larger databases that would likely make such an association trivial.

But even if that weren’t the case, 18 USC §2709 allows names, addresses, and other “basic subscriber information” associated with a number to be obtained via a National Security Letter based on a certification of “relevance” to an investigation, with no need for judicial approval. As Director Mueller explained at a recent hearing, this is precisely how such information would be obtained here, assuming it were not already available.

Indeed, once that warrant is granted to examine content, the content can be used only for national security issues, not even ordinary police work.

This is also incorrect. Under 50 USC §1801, the minimization procedures governing information acquired from electronic surveillance shall “allow for the retention and dissemination of information that is evidence of a crime which has been, is being, or is about to be committed and that is to be retained or disseminated for law enforcement purposes.” As the FISA House Report makes clear, this does not refer to terrorism or espionage related crimes, which can already be retained and disseminated as “foreign intelligence information,” but rather to information about crimes “totally unrelated to intelligence matters.”

The Old Infrastructure Excuse for Bigger Deficits

Washington Post columnist/blogger Ezra Klein recently echoed the latest White House rationale for additional “stimulus” spending for 2013-15 and postponing spending restraint (including sequestration) until after the 2014 elections. Klein argues for “a 10- or 12-year deficit reduction plan that includes a substantial infrastructure investment in the next two or three years.” In other words, a “deficit-reduction plan” that increases deficits until the next presidential election year.

Citing Larry Summers (who similarly promoted Obama’s 2009 stimulus plan while head of the National Economic Council) Klein says, “There’s a far better case right now for being an infrastructure hawk than a deficit hawk.”

“Deficit hawks tend to [worry that] … too much government borrowing can, in a healthy economy, begin to “crowd out” private borrowing. That means interest rates rise and the economy slows… That’s not happening right now. In real terms — which means after accounting for inflation — the U.S. government can borrow for five, seven or 10 years at less than nothing… . That’s extraordinary. It means markets are so nervous that they will literally pay us to keep their money safe for them.”

If low yields on Treasury and agency bonds simply reflected investor anxiety (unlike stock prices),  rather than quantitative easing, then why has the Federal Reserve been spending $85 billion a month buying Treasury and agency bonds? Despite those Fed efforts, Treasury bond yields have lately been moving up rather smartly – even on TIPS (inflation-protected securities). The yield on 10-year bonds rose by a half percentage point since early May. It is not credible to assume, as Summers does in a paper with Brad DeLong, that today’s yields would remain as low as they have been even in the face of substantially more federal borrowing for infrastructure. Even the Fed’s appetite for Treasury IOUs has limits. 

A second worry of deficit hawks, according to Klein and Summers, “is a moral concern about forcing our children to pay the bill for the things we bought… .These are real, worthwhile concerns. But in this economy, both make a stronger case for investing in infrastructure than paying down debt.”  Paying down debt?!  Nobody is talking about paying debt. That would require a budget surplus.  The debate is only about borrowing slightly less (sequestration) or substantially more (Obama).

The Summers-Klein argument for larger deficits is that interest rates are very low, so why not borrow billions more for a “substantial investment” in highways, bridges and airports?  Summers says, “just as you burden future generations when you accumulate debt, you also burden future generations when you defer maintenance.”  This might make sense if there was any link between government tangible assets and federal liabilities.  In reality, though, this smells like a red herring. Politicians always say they want to borrow more to build or rebuild highways and bridges.  But this is not how borrowed money is spent, particularly when it’s federal borrowing.

Accumulation of federal debt since 2008 − including the 2009 stimulus plan − had virtually nothing to do with investment. Nearly 90 percent of the  2009 “stimulus” was devoted to consumption – $430.7 billion in transfer payments to individuals, more than $300 billion in refundable tax credits, $18.4 billion in subsidies (e.g., solar and electric car lobbies), more pay and perks for government workers, etc. Stanford’s John Taylor shows that even the capital grants to states − ostensibly intended for infrastructure projects − were used to reduce state borrowing and increase transfer payments such as Medicaid.

In the National Income and Product Accounts (NIPA), the closest thing we have to a measure of “infrastructure” is government investment in structures.  Federal borrowing in the NIPA accounts rose from $493.5 billion in 2008 to $1,177.8  in 2010, yet total federal, state and local investment in structures was unchanged − $310.1 billion in 2008 and $309.3 billion in 2010. Such investment was lower by 2012, but not because federal borrowing was “only” $932.8 billion that year.  

NIPA accounts show only a $12.9 billion federal investment in nondefense structures in 2012 and $8.5 billion for defense structures. By contrast, transfer payments accounted for 61.7 percent of federal spending in 2012, consumption for 28.2 percent, interest 8.5 percent and subsidies 1.6 percent.   Consumption is mostly salaries and benefits. Transfer payments did include more than $607 billion in grants to states and localities in 2011, according to a new CBO study, but 81.7 percent of such grants were for health, income security and education, leaving only 10 percent for transportation. Transportation accounted only 3.2 percent of total federal spending in 2012 and nine percent of “discretionary” spending.

In short, direct federal infrastructure investment plus grants to states add up to only a little over $80 billion out of a budget that exceeds $3.5 trillion. If federal borrowing had anything to do with $80 billion a year in federal infrastructure spending, then we wouldn’t have been borrowing about a trillion a year for the past four years. 

Klein’s rephrasing of Summers’ rerun of the 2009 “infrastructure” excuse is not a plausible argument for increased federal debt. It is, at best, an argument for ending the chronic misuse of borrowed money to pay for transfer payments and government consumption so that we could prudently reallocate a greater share to transportation infrastructure.  


A Libertarian Moment in Turkey?

What are the protesters in Istanbul upset about? Well, I noted last week that a survey by a Turkish newspaper gave us a partial picture. A headline from the Hurriyet Daily News in Istanbul reported: 

Protesters are young, libertarian and furious at Turkish PM, says survey

An online survey of 3000 protesters conducted by two academics found, among other things:

A majority of the protesters who completed the survey, 81.2 percent, defined themselves as “libertarian.” A total of 64.5 percent of the respondents defined themselves as “secular.”

And now the Washington Post tells us that one young protester, Aysun Yerlikaya, objects to Prime Minister Recep Tayyip Erdogan because he’s, well, too much like Michelle Obama and Michael Bloomberg:

Erdogan “pokes into everything — what you drink, what you eat,” she said, referring to advice he gave earlier this year to eat “genuine wheat bread” with a lot of bran in it.

Arizona Expands Its School Choice Program

Arizona is the latest state to expand school choice. Yesterday, the Arizona legislature passed a bill to expand the type of corporations eligible to participate as donors in the Grand Canyon State’s scholarship tax credit (STC) program and to streamline the program’s tax credit approval process.

Under current law, only C-corporations are eligible to receive tax credits in return for donations to state-approved scholarship organizations. The legislation expands donor eligibility to include S-corporations and limited liability corporations, which are typically smaller businesses relative to C-corps. Expanding the donor pool will make it easier for scholarship organizations to raise money to help low-income and disabled students attend the schools of their choice.

The bill also mandates that the Arizona Department of Revenue create a website to process the tax credit requests electronically. Since the STC program caps the total amount of tax credits issued in a given year, the AZ-DOR must pre-approve donations to be eligible for tax credits. According to the Center for Arizona Policy, the current system can be “a tedious and lengthy process [that] often discourages donors from participating.” The web-based approval process is expected to be much faster and easier.

This is the latest of numerous STC program expansions. Earlier this year, state legislatures in Iowa and Georgia voted overwhelmingly to expand their states’ STC programs. Last year, Arizona and Florida expanded their STC programs as well. In total, six of the seven states to enact STC programs before 2010 have subsequently expanded them.

Farm Bill: Is Today’s GOP to the Left of Bush?

It’s widely accepted that George W. Bush was a big-spending president. He was a social conservative, but not a fiscal one. To his credit, however, even Bush recognized how wasteful and unfair farm subsidies are, and he vetoed the last major farm bill in 2008.

That bill “would needlessly expand the size and scope of government,” he said in his veto message. Unfortunately, Congress overrode Bush’s veto and the 2008 farm bill became law at an estimated taxpayer cost of $640 billion over 10 years.

Congress is moving ahead on another farm bill this year, with the Senate recently passing its version and the House to take up a bill shortly. The Senate-passed bill would spend $955 billion over 10 years—49 percent more than the 2008 bill that was too expensive even for Bush.

Four-fifths of the spending in this year’s farm bill is for food stamps, yet 18 Republican senators still voted for it. Perhaps those members hadn’t noticed that the cost of food stamps has quadrupled over the last decade. Perhaps they hadn’t noticed that federal government debt has doubled since 2008. To members who see themselves as fiscal conservatives, it should be obvious that a less expensive bill this time around is appropriate, rather than one that is far more expensive.

The farm bill to be considered by the House would spend $940 billion over 10 years, and thus is almost as irresponsible as the Senate version. Despite what farm bill supporters are saying, this year’s bill represents a huge spending increase, not a cut.

In his 2008 veto message, Bush noted that the farm bill “continues subsidies for the wealthy,” and he pointed to the high and rising incomes enjoyed by farmers. Farmers are doing even better today, with their incomes soaring over the last five years.

Today’s Republicans often admit that federal spending got out of control under President Bush. But now John Boehner is saying that he will support the new House farm bill that spends 47 percent more than the one Bush vetoed.

French Film Protectionism Is Just Part of the Game

Right now, the French government is making a huge stink over whether its existing program of film quotas and subsidies could be threatened by a potential trade agreement between the United States and the European Union. French officials have threatened to obstruct any efforts to negotiate a deal unless they get assurance that their pet program is off the table.

Is this an early sign that the trade negotiations are bound to fail? Not quite.


In a piece titled “Pretentious Movies May Doom U.S.-EU Trade Pact,” Evan Soltas offers this unpleasant scenario:

An exclusion of French films would set a precedent. Other nations would like to protect their own entertainment industries. The demand could set off an escalating “tit-for-tat” game with the U.S. and other European nations–eventually leaving large segments of their economies immune from freer trade.

Over at Slate, Matt Yglesias urges people to “calm down” and assures us that France’s obstinacy is political posturing. No one really minds if France gets to keep its subsidies, so the film exception will be accepted and everything will continue apace.

In a way, Soltas and Yglesias are both correct. France’s demand for an exception will not scuttle the negotiations because demanding exceptions is what trade negotiations are all about. An agreement to end all tariffs, quotas, and subsidies is easy to draft. The job of trade negotiators is to reach agreement while managing the very real and harmful “tit-for-tat” game that Soltas worries about.

Trade liberalization is politically difficult. Almost every trade barrier currently in place has a domestic special interest that will fight tooth and nail to keep it in place. Achieving freer trade through international agreements is one way to overcome that opposition; offering access to foreign markets garners support that offsets the opposition.

But some domestic industries just have too much political clout to overcome without a concession. Free trade agreements are full of exceptions, caveats, and contingencies, and each one represents an effort to appease special interests that would otherwise threaten to scuttle the deal. For example, thanks to the ever-shrinking U.S. textile and apparel industries, our trade agreements have historically contained ridiculously byzantine rules of origin and confusing quota systems for textiles. Each inefficient, uncompetitive industry will yelp until it gets a satisfactory bone tossed its way. These exceptions don’t kill the deal; they just make the deal less good.

Liberalizing the French cinema market is not so important that a U.S.-EU free trade agreement cannot continue without it. The main loser in exempting France’s protectionist film policies from the agreement is the French people, who are denied the full benefits of a competitive marketplace. Exceptions should be counted as losses in the battle to liberalize global commerce, but the immediate goal is to minimize the number and impact of these exceptions while still arriving at a final deal.


Weirdest Scandal Ever: Foreign Knights Invade America

When Politico gave its usual run-down of the morning’s hot topics in health care on Wednesday, one extra special blurb caught my colleague Michael Cannon’s eye. Apparently a Dutch knight is working at the Centers for Medicare & Medicaid Services (CMS), a key federal agency in the Department of Health and Human Services.

On April 29, Sir Jay Merchant was knighted by Ambassador Rudolf Bekink on behalf of Queen Beatrix of the Netherlands. Merchant is the “international relations adviser” in the Office of the Administrator of CMS, which is the agency’s highest executive office.

While this may seem like just a neat factoid for inside-the-Beltway water-cooler amusement, there’s actually a constitutional problem that precludes this gallant story from having a fairytale ending. Article I, Section 9, Clause 8 (the “Emoluments” or “Titles of Nobility” Clause) states:

No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State. 

In other words, it’s illegal for someone holding a federal “office of profit or trust” to accept a knighthood or other noble title. And this isn’t some archaic provision that hasn’t been dusted off since knights wore suits of armor. Believe it or not–and nothing is unbelievable when it comes to Obamacare implementation–this isn’t the first time this issue has arisen. It’s not even the first time in the last decade!  

In 2007, for example, the FBI asked the Department of Justice for a legal opinion as to whether a member of the FBI Director’s Advisory Board held an “Office of Profit or Trust” under the Emoluments Clause, in the context of accepting travel reimbursements from foreign government. In his memorandum on the topic, Deputy Assistant Attorney General John Elwood (who wrote an article in the Cato Supreme Court Review just last year) concluded that an advisory board member doesn’t hold such an office “[b]ecause mere access to, or receipt of, classified information is not a delegation by legal authority of a portion of the sovereign power of the United States.”

But that was a different scenario than what we have with Sir Jay. He is a federal employee, listed among seven similar-ranking colleagues on the CMS employee directory. The Office of the Administrator is surely an “Office of Profit or Trust,” implementing and making decisions regarding Medicare, Medicaid, and other parts of the Social Security Act.