Daniel Hannan writes in the Wall Street Journal today about Magna Carta, whose 800th anniversary will also be celebrated at a Cato conference next week. Alas, he persists in an error that I regret to say he's made before.
Hannan is a great advocate of liberty and particularly of English liberty. His patriotism is admirable in an English representative to the European Parliament. But he fails to grasp the shift in the idea of liberty that took place in America in the 1770s. Hannan, I think correctly, celebrates Magna Carta as the great foundation of ordered liberty, of what I have called the greatest libertarian achievement in history, bringing power under the rule of law:
As Lord Denning, the most celebrated modern British jurist put it, Magna Carta was “the greatest constitutional document of all time, the foundation of the freedom of the individual against the arbitrary authority of the despot.”
It was at Runnymede, on June 15, 1215, that the idea of the law standing above the government first took contractual form. King John accepted that he would no longer get to make the rules up as he went along. From that acceptance flowed, ultimately, all the rights and freedoms that we now take for granted: uncensored newspapers, security of property, equality before the law, habeas corpus, regular elections, sanctity of contract, jury trials.
But he goes wrong when he glosses over the change in thinking that occurred around 1776 in the American colonies:
The American Revolutionaries weren’t rejecting their identity as Englishmen; they were asserting it. As they saw it, George III was violating the “ancient constitution” just as King John and the Stuarts had done. It was therefore not just their right but their duty to resist, in the words of the delegates to the first Continental Congress in 1774, “as Englishmen our ancestors in like cases have usually done.”
Nowhere, at this stage, do we find the slightest hint that the patriots were fighting for universal rights. On the contrary, they were very clear that they were fighting for the privileges bestowed on them by Magna Carta. The concept of “no taxation without representation” was not an abstract principle. It could be found, rather, in Article 12 of the Great Charter: “No scutage or aid is to be levied in our realm except by the common counsel of our realm.” In 1775, Massachusetts duly adopted as its state seal a patriot with a sword in one hand and a copy of Magna Carta in the other.
I recount these facts to make an important, if unfashionable, point. The rights we now take for granted—freedom of speech, religion, assembly and so on—are not the natural condition of an advanced society. They were developed overwhelmingly in the language in which you are reading these words.
When we call them universal rights, we are being polite.
It's true that the colonists came here with the spirit of English liberty running in their veins. They brought with them the books of Locke and Sydney, the examples of Lilburne and Hampden, the writings of Edward Coke. In the 18th century they read Cato's Letters and William Blackstone. They petitioned Parliament and the king for their rights as Englishmen.
But the Declaration of Independence marks a break in that thinking. When Thomas Jefferson sat down to write "an expression of the American mind," he did not appeal to the rights of Englishmen. Instead, the Americans declared:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. (emphases added)
They appealed not to the British Parliament nor to King George III, but rather to "the opinions of mankind...a candid world...the Supreme Judge of the world." Hannan glosses over this when he makes reference to 1774 and writes, "Nowhere, at this stage, do we find the slightest hint that the patriots were fighting for universal rights." True, not in 1774. But by 1776, when Thomas Paine published Common Sense, in which he defended "the natural rights of all mankind" and denounced kings as "ruffians" and "a French bastard landing with an armed banditti," and the Continental Congress made its case on the basis of the unalienable rights of all men, American thinking had changed. Americans declared their belief in universal rights and their independence from a nation that denied those rights.
As I was researching this post, I found a similar argument from Tim Sandefur a year ago. Alas, Hannan persists in making this error year after year. Besides citing the argument of the Declaration, Sandefur presents in evidence the thoughts of John Quincy Adams on the 50th anniversary of the Constitution:
English liberties had failed [the Patriots]. From the omnipotence of Parliament the colonists appealed to the rights of man and the omnipotence of the God of battles. Union! Union! was the instinctive and simultaneous cry throughout the land. Their Congress, assembled at Philadelphia, once—twice had petitioned the king; had remonstrated to Parliament; had addressed the people of Britain, for the rights of Englishmen—in vain. Fleets and armies, the blood of Lexington, and the fires of Charlestown and Falmouth, had been the answer to petition, remonstrance and address.
Independence was declared. The colonies were transformed into States. Their inhabitants were proclaimed to be one people, renouncing all allegiance to the British crown; all co-patriotism with the British nation; all claims to chartered rights as Englishmen. Thenceforth their charter was the Declaration of Independence. Their rights, the natural rights of mankind. Their government, such as should be instituted by themselves, under the solemn mutual pledges of perpetual union, founded on the self-evident truths proclaimed in the Declaration…. The omnipotence of the British Parliament was vanquished. The independence of the United States of America, was not granted, but recognized. The nation had “assumed among the powers of the earth, the separate and equal station, to which the laws of nature, and of nature’s God, entitled it.”
Daniel Hannan is a thoughtful, forceful, and eloquent advocate of liberty under law. But he needs to read the Declaration of Independence and respect what it says, that the United States of America, though inspired by the tradition of English liberty, was founded on the self-evident truth that all men are endowed by their Creator with certain unalienable Rights, and that those rights reside in all men and women in every country of the earth.
In my prior post, “The Futility of Stimulus,” I examined whether Federal Reserve Policy has provided economic stimulus. I employed standard measures of money-supply growth to evaluate the question. I concluded that Federal Reserve policy has resulted in less expansion of the money supply than would normally be expected. The weakness of the current economic expansion testifies to that.
In this post, I employ an alternative measure of monetary stimulus. I rely on a recent lecture at the University of Nevada Reno by Professor John Taylor of Stanford University. With a series of charts, he made a convincing case that successive rounds of Quantitative Easing provided no monetary stimulus. Taylor looked at the interest-rate channel, particularly longer-term interest rates. If monetary policy stimulates the economy through real capital investment, then we must look to longer-term interest rates.
Taylor specifically examined the effects on 10-year Treasury yields of each round of Quantitative Easing by the Fed. In each case, there was an announcement effect. When the Fed announced a new round of bond purchases, interest rates on 10-year Treasuries did drop. As QE was executed, however, the 10-year rate recovered to its previous level or even moved higher. On the assumption that rates on corporate bonds price off Treasuries, there was no measurable effect on investment and economic growth. Again, the weakness of the economic expansion is consistent with Taylor’s argument.
There is policy background here. Taylor is the author of a monetary rule, which others have dubbed the Taylor Rule. It is a rule for adjusting short-term interest rates (the Fed Funds rate) to changes in inflation and real economic activity. The Taylor Rule calculates that the Fed Funds should by 1.5 percent versus the current reality of near-zero. Taylor did not advocate an immediate increase to that level, but the beginning of gradual increases.
What of the economic recovery? If Taylor is correct, then low short-term interest rates have not contributed to the economic expansion and raising them will not slow economic growth.
Have very low short-term interest rates had any effect? Janet Yellen recently hinted they might have contributed to unsustainably high equity prices. I will not argue with the Fed Chair on that point, but only suggest that other financial bubbles may also have been financed by Fed policy. To repeat a hackneyed phrase (nonetheless accurate), Wall Street has benefited but not Main Street.
To sum up, following Taylor’s analysis of the interest-rate channel, I conclude that Fed policy has not stimulated economic growth. It has had consequences, which some would consider undesirable. Taylor has provided a reasonable case for beginning to raise interest rates. I doubt that will happen soon. But the debate should continue.
[Cross-posted from Alt-M.org]
This morning, a car bomb exploded outside a mosque in Saudi Arabia, the second such attack in a week. The attacks, which have killed at least 25 people, were aimed at the minority Saudi Shi’a community. In doing so, ISIS is expertly capitalizing on Saudi Arabia’s internal sectarian divide, which is worsened not only by domestic repression, but by the propaganda supporting Saudi Arabia’s activist foreign policy in Syria, Yemen and elsewhere. Saudi rulers should remember that sectarianism, though convenient for political purposes, also carries substantial risk.
In an interview shortly before the recent Camp David summit, President Obama committed the faux-pas of pointing out the internal problems faced by many of the GCC states. He noted that these states contain “populations that, in some cases, are alienated, youth that are underemployed, an ideology that is destructive and nihilistic, and in some cases, just a belief that there are no legitimate political outlets for grievances… The biggest threats that they face may not be coming from Iran invading. It’s going to be from dissatisfaction inside their own countries.”
He's not wrong. Saudi Arabia is well-known as one of the world’s most repressive states, with little political representation and no rights for women or minorities. Further, oil prices remain low, and while the Saudi state has massive cash reserves, the rise of shale oil has diminished its role as the world’s main oil producer. Saudi Arabia also has a growing youth population, with 51% of the population under the age of twenty five.
This is itself less concerning than the inability of the oil-dependent Saudi state to provide stable employment opportunities; the unemployment rate for those between fifteen and twenty-five years of age is at least 30%. It is no wonder that many of the unemployed youth of Saudi Arabia are attracted by movements like ISIS. Indeed, by some estimates, more than 2,500 of the foreign fighters in Syria come from Saudi Arabia. The newest iteration of this threat is seen in attacks like those of the last week, as young men susceptible to ISIS avoid travel to Syria, and instead carry out attacks inside Saudi borders.
Yet the ISIS attacks also highlight the pernicious influence of state-supported sectarianism. The bombers astutely aimed the bombings not at Sunnis, but at the state’s minority Shi’a population. While targeting Sunnis would likely have increased resolve among Saudi citizens, targeting Shi’a mosques instead served to cast worshippers as heretics, highlighting domestic sectarian tensions.
The attacks remind Saudi Shi’ites that their own government uses sectarian messaging on state TV, and has close ties to clerics which rail against Shi’a heretics. Shi’ites in Saudi Arabia don’t even enjoy the same minimal political rights that their Sunni compatriots do, and the state has repeatedly cracked down on calls for increased representation.
These tensions are being further inflamed by the war in Yemen, which is being presented by Saudi state TV as a crusade against Houthi Shi’ites. The same applies to the state’s newly activist foreign policy, which is portrayed broadly as a challenge to Iranian and Shi’a interests across the region. The high civilian death toll in Yemen – as many as 2,000 people – and the reticence of the Saudi government to seek a political settlement with the Houthis also contributes.
In short, the ISIS attacks targeted a potential cause of instability within the Saudi state, requiring Saudi rulers to strike a delicate balancing act. They must show support for the attacked communities, while avoiding upsetting the hardline Sunni clerics which support the royal family. Balancing these factors while continuing to use sectarian language to justify the state’s wars in Yemen and elsewhere may prove impossible.
As the Arab Spring illustrated, even states which appear relatively stable can suffer from instability and chaos. It also showed that once the Pandora’s Box of sectarianism has been opened, it is extremely difficult to shut. As ISIS attacks within Saudi Arabia seek to increase tensions between Sunni and Shi’a populations, this is a lesson Saudi Arabia’s rulers would be wise to bear in mind.
I’ve argued that the centralization of government spending in Washington over the past century has severely undermined good governance. Citizens get worse outcomes when funding and decisionmaking for education, infrastructure, and other things are made by the central government rather than state and local governments and the private sector. The problem is the same in the European Union, as a new article in Bloomberg on the funding of Polish airports illustrates:
Local authorities are spending some 205 million zloty ($58 million), including more than $44 million in EU subsidies, to build runways and a new terminal that could accommodate more than 1 million passengers a year. The Olsztyn Mazury Airport is scheduled to open next January, but traffic and revenue forecasts developed by the project's backers are "very far from reality," says Jacek Krawczyk, a former chairman of LOT Polish airlines who advises the EU on aviation policy through its European Economic and Social Committee.
Szymany adds to a burgeoning supply of costly new airports across Poland. Since 2007, the EU has spent more than €600 million ($666 million) to build or renovate a dozen Polish airports.
… Mostly, though, Poland's new airports have been a financial bust. A report in December by the European Court of Auditors found that EU-subsidized airport projects in Poland, as well as others in Estonia, Greece, Italy, and Spain, had "produced poor value for money." Traffic at most airports fell far short of projections, and there was little evidence of broader economic benefits, such as job creation, the report found.
With respect to U.S. infrastructure, there is ongoing pressure to increase federal investment, despite decades of experience on the inefficiency of it. Politicians and lobby groups constantly complain that America does not spend enough on infrastructure. But they rarely discuss how to ensure efficiency in spending, or cite any advantages of federal spending over state, local, and private spending.
I’ve discussed the many downsides to federal aid for infrastructure and other local activities here and here. But I was alerted to an additional argument against aid from this Regulation article by William Fischel and this book by James Bennett. Federal aid encourages local governments to expropriate private property, often for dubious purposes.
The article and book discuss the expropriation of Detroit homes for the benefit of General Motors in the 1980s. The “Poletown” project would not have happened without $200 million in federal and state loans and grants to the city. So Fischel makes the point that (abusive) government uses of eminent domain—such as the Kelo case in New London, Connecticut—are encouraged by the flow of federal and state funds to cities. That is, money for “economic development” and the like.
State and local governments would make better decisions if they were responsible for their own funding of programs and projects. The annual flow of more than $600 billion in federal aid to state and local governments should be phased out over time and eliminated.
Discontent at a land-use control process perceived as “condescending and obnoxious” helped fuel a surprise voter revolt in affluent Chevy Chase, Md., just across the D.C. border in Montgomery County, reports Bill Turque at the Washington Post. Aside from intensive review of requests to expand a deck or convert a screened-in porch to year-round space, there are the many tree battles:
[Insurgents] cite the regulations surrounding tree removal as especially onerous. Property owners seeking to cut down any tree 24 inches or larger in circumference must have a permit approved by the town arborist and town manager attesting that the tree is dead, dying or hazardous.
If turned down, residents can appeal to a Tree Ordinance Board, which applies a series of nine criteria to its decision, including the overall effect on the town’s tree canopy, the “uniqueness” or “desirability” of the tree in question and the applicant’s willingness to plant replacement trees.
With debate about NSA spying continuing in the Senate, it's worth looking at some of the historical and modern precedents for protecting our communications and communications data. A few highlights:
- The earliest precedent for protection of communications in the United States is the treatment of mail. The founders used postal mail to communicate their revolutionary ideas and even to plan their insurrection against the tyranny of King George, so they prioritized protecting the privacy of the mail. In the Act of Feb. 20, 1792, passed a few short years after ratification of the Constitution, the U.S. Congress enshrined protections for mail in the law, creating heavy fines for opening or delaying mail.
- The Supreme Court confirmed the existence of constitutional protection for postal communications in Ex Parte Jackson. In that 1877 case, the Court described the Fourth Amendment's guarantees in very interesting and clear language: "Letters and sealed packages ... are as fully guarded from examination and inspection, except as to their outward form and weight, as if they were retained by the parties forwarding them in their own domiciles." Though we place mail in the hands of government agents, the Fourth Amendment protects it like it's inside our homes.
- The year Ex Parte Jackson case was decided, both Western Union and the Bell Company began providing voice telephone service. The Supreme Court addressed constitutional protection for phone calls some decades later in 1928. The Olmstead case was wrongly decided, we now know. It found that telephone communications weren't protected by the Constitution. So the dissents are where to look for precedential language. Justice Brandeis's famous dissent spoke of the "right to be let alone," but Justice Butler provided thinking and language that should have more lasting value: "The contracts between telephone companies and users contemplate the private use of the facilities employed in the service," he wrote. "The communications belong to the parties between whom they pass." The communications belong to the parties. That's a fasacinating and important way to think about our communications, as property that we own.
When the Court reversed Olmstead in 1967's Katz decision, it unfortunately and inadvertently produced a Fourth Amendment doctrine basing constitutional protection on "reasonable expectations of privacy." People do reasonably expect privacy in their communications, but "reasonable expectations" doctrine is not well equipped for administering the Fourth Amendment. We saw that in Smith v. Maryland, the 1979 case in which the Court used no research or even consideration of the opposing view in finding that people have no expectation of privacy in data about their phone calls. Happily, the Court has eschewed "reasonable expectation" doctrine in many recent cases.
When the Second Circuit Court of Appeals ruled that the NSA spying program is illegal a few weeks ago, it treated data as property. When we reduce our thoughts and records to digital form and send them over the Internet, we're doing the same thing the founders did when they wrote letters and put them in the mail. Those communications are still ours, and they should be protected in transit as if they are in the home. America's private telecommunications system is not like the U.S. mail, of course. We're not handing our calls over to the government like we hand our letters to the U.S. Postal Service. Our calls and Internet communications should be more protected than the mail because we are using service providers that are obligated by contract and regulation to protect our privacy.
The communications data the NSA is accessing belongs to the parties between whom it passes. It is not the government's to take---not without a particularized warrant based on the requisite level of suspicion. There's good precedent for that.
Back in March, I shared a remarkable study from the International Monetary Fund which explained that spending caps are the only truly effective way to achieve good fiscal policy.
And earlier this month, I discussed another good IMF study that showed how deficit and debt rules in Europe have been a failure.
In hopes of teaching American lawmakers about this international evidence, the Cato Institute put together a forum on Capitol Hill to highlight the specific reforms that have been successful.
I moderated the panel and began by pointing out that there are many examples of nations that have enjoyed good results thanks to multi-year periods of spending restraint.
I even pointed out that we actually had an unintentional - but very successful - spending freeze in Washington between 2009 and 2014.
But the problem, I suggested, is that it is very difficult to convince politicians to sustain good policy on a long-run basis. The gains of good policy (such as what was achieved in the 1990s) can quickly be erased by a spending binge (such as what happened during the Bush years).
Unless, of course, there's some sort of constraint on the desire to spend money. And the panelists discussed the three most successful examples of reforms that constrain the growth of government.
We started with a presentation by Daniel Freihofer from the Swiss Embassy. He talked about Switzerland's "Debt Brake," which actually is a spending cap.
It's remarkable how well Switzerland has performed while most other European nations have suffered downward spirals of more spending-more taxes-more debt. Here's a chart I put together on what's happened to spending in Switzerland ever since 85 percent of voters imposed the Debt Brake early last decade.
By the way, Herr Freihofer said during the Q&A session that support for the Debt Brake is now probably about 95 percent, so Swiss voters obviously understand that the policy has been very successful.
Our second speaker was Clement Leung, Hong Kong's Commissioner to the United States. He talked about Article 107 and other rules from Hong Kong's Basic Law (their constitution) that limit the temptation to over-tax and over-spend.
By the way, the burden of government spending in Hong Kong averages about 18 percent of economic output. That's the most impressive result. And Commissioner Leung explained that there's a commitment to keep the burden of spending below 20 percent of GDP.
The final panelist was Jonathan Williams from the American Legislative Exchange Council, and he talked about Colorado's Taxpayer Bill of Rights, popularly known as TABOR.
Jonathan talked about how the pro-spending lobbies keep attacking TABOR, and he mentioned that they narrowly succeeded in getting a five-year suspension of the law back in 2005. But Colorado voters generally understand they have a good policy.
The most recent attempt to enable more spending came in the form an increase in the state's flat tax back in 2013 and voters rejected it by a stunning 66-34 margin (almost as impressive as the recent vote against tax hikes in Michigan) even though Jonathan said advocates outspent opponents by a 289-1 margin.
Here's a slide from his presentation showing what happened during other attempts to enable more spending.
By the way, Jonathan also mentioned that Colorado's voters are about to get a TABOR-mandated tax cut because taxes on marijuana are pushing revenues above the limit. Talk about a win-win situation!
To wrap up, one of the big lessons from all the presentations is that governments generally get in trouble because they can't resist over-spending when the economy is doing well and generating lots of tax revenue.
I fully agree, and I've previously explained this is why Alberta got in fiscal trouble, and also why California suffers a boom-bust budgetary cycle.
The way you solve this problem is not with a balanced budget requirement (which often serves as the justification for tax hikes), but some sort of spending limitation rule.