October 2015

October 31, 2015 7:26AM

The Courage to Refuse

Last week I attended a talk and panel discussion at Brookings, in which Roger Lowenstein discussed his new book on the Fed's origins. I have much to say about that book, and I eventually plan to say some of it here. But for the moment my concern is with another book, this one concerning, not the Fed's origins, but its recent conduct. I mean Ben Bernanke's The Courage to Act.

So why bring up the Brookings event? Because, in the course of that Federal Reserve love-fest, someone made a passing reference to those crazy people who actually want to limit the Fed's emergency lending powers. Having seen the Fed save the economy from oblivion, such people, one of the panelists observed (I believe it was former Fed Vice Chairman Donald Kohn), are determined to make sure it can never save it again! At this, the audience chuckled approvingly.

Well, mostly it did. My own reaction was more like a bad attack of acid reflux. Is it really possible, I asked myself (as I struggled to keep my gorge from rising), that nobody here takes the moral hazard problem seriously? Do they really suppose that Senators Warren and Vitter and others seeking to limit the Fed's bailout capacity are doing so because they like financial meltdowns and couldn't care less if the U.S. economy went to hell in a hand-basket?

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October 30, 2015 6:03PM

More Mission Creep in an Illegal War

In the 15 months since the president unilaterally launched our latest war in the Middle East, he's repeatedly pledged that he wouldn't put U.S. "boots on the ground" in Syria. As he told congressional leaders on September 3, 2014, "the military plan that has been developed" is limited, and doesn't require ground forces. 

Alas, if you liked that plan, you can't keep it. Earlier today, the Obama administration announced the deployment of U.S. Special Forces to Northern Syria to assist Kurdish troops in the fight against ISIS. U.S. forces will number "fewer than 50," in an "advise and assist" capacity; they "do not have a combat mission,” according to White House press secretary Josh Earnest. Granted, when "advise and assist" missions look like this, it can be hard for us civilians to tell the difference.  

Asked about the legal authorization for the deployment, Earnest insisted“Congress in 2001 did give the executive branch the authority to take this action. There’s no debating that.”

It's true that there hasn't been anything resembling a genuine congressional debate over America's war against ISIS. But the administration's legal claim is eminently debatable. It's based on the 2001 authorization for the use of military force, or AUMF, the Congress passed three days after 9/11, targeting those who "planned, authorized, [or] committed" the attacks (Al Qaeda) and those who "aided" or "harbored" them (the Taliban).

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October 30, 2015 5:55PM

Printers Shouldn’t Be Forced to Print Messages They Don’t Agree With

Hands On Originals, a t-shirt printing company in Kentucky, refused to print t-shirts promoting a gay-pride event, the Lexington Pride Festival. Its owners weren’t objecting to any customers’ sexual orientation; instead, they objected only to the ideological message conveyed by the shirts.

The Gay and Lesbian Services Organization nevertheless filed a complaint with the Lexington-Fayette Urban County Human Rights Commission under an antidiscrimination ordinance that bans public accommodations from discriminating against individuals based on sexual orientation. The Commission ruled against Hands On Originals, but the state district court reversed on free speech and free exercise grounds.

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October 30, 2015 3:37PM

GMOs and the EU Parliament

The European Union (EU) and its member states have had a difficult time dealing with the politics of genetically modified organisms (GMOs).  Despite the fact that the European Food Safety Authority (EFSA) has determined numerous GMO products to be safe, only one currently is allowed to be planted.  MON 810 corn (maize) resists insects, such as the European corn borer.  Although this type of corn is widely grown around the world, it is planted on only 1.5 percent of the land area devoted to corn production in the EU.  The main reason is a decision by the EU to allow individual member states to forbid the planting of crops that have been enhanced through genetic engineering. Member states now banning the planting of GMOs include Austria, France, Germany, Greece, Hungary, Italy, Luxembourg, and Poland. 

Regardless of the EU’s reluctance to allow GMO crops to be grown, importation of GMO soybeans and soybean meal has been a commercial necessity.  In 2014 the EU consumed the protein equivalent of 36 million metric tons of soybeans for livestock feeding.  Roughly 97 percent of those soybeans were imported.  The three largest soybean producing and exporting countries – the United States, Brazil, and Argentina – each devote more than 90 percent of their plantings to GM varieties.  It simply isn’t possible to buy enough non-GMO soybeans in today’s world to meet the protein needs of the EU livestock sector. 

Apparently it also isn’t possible for the European Commission to achieve agreement among member countries to authorize new GMOs for importation as human food or livestock feed.  Since the regulations for considering GMO applications went into effect in 2003, a qualified majority of member states has never agreed to approve a new food or feed product.  When the outcome among member states is “no opinion,” the decision on whether to allow a product containing GMOs to be imported reverts to the Commission.  Perhaps with some reluctance, the Commission has approved the importation of around 50 genetically modified products. 

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October 30, 2015 2:37PM

Zombie Corporate Welfare

By Charles Hughes

Perhaps in anticipation of Halloween, two components of corporate welfare have been doing their best impression of a Hollywood monster that refuses to die.


The Export‐​Import Bank (Ex‐​Im) seems poised to come back from the grave, and promises have already been made to reverse the minor cuts to the crop insurance subsidy program agreed to in this week’s budget deal. These cases give some insight into just how difficult it is to actually get rid of corporate welfare.


Cato has long criticized both corporate welfare and crony capitalism, which benefit the few, the powerful, and the politically connected at the expense of everyone else. These policies introduce distortions into the market and limit competition, all at taxpayer expense. Despite their many harmful effects, the nature of these programs, with concentrated benefits and dispersed costs makes it hard to root out corporate welfare from the budget. The groups and companies that benefit are highly motivated to make sure they continue, while ordinary people who all bear a smaller share of the cost are more focused on other things like the practical concerns of providing for their families. This can explain part of why it’s so hard to end any of the many programs that make up the web of corporate welfare.


Ex‐​Im provides financing and loan guarantees for foreign customers of certain U.S. companies. While proponents argue that Ex‐​Im is critical to exports and helps American businesses, the vast majority of these benefits flow to a handful of major corporations, and roughly 98 percent of U.S. exports do not get any kind of Ex‐​Im assistance at all. As Cato’s Dan Ikenson has shown, these subsidies also harm “competing U.S. firms in the same industry, who do not get Ex‐​Im backing, and U.S. firms in downstream industries, whose foreign competition is now benefiting from reduced capital costs courtesy of U.S. government subsidies.” Given these inefficiencies and distortions, opponents of Ex‐​Im cheered when the bank’s charter lapsed this summer, but unfortunately that was not the last chapter in this saga. Earlier this week, the House, in a discouraging instance of bipartisanship, voted to reopen Ex‐​Im by a 331–118 margin. While it still has to get past the Senate, a similar bill passed that chamber earlier this year, and the measure will likely be included in the coming highway bill. So after a prolonged battle to shut down this one small component of corporate welfare, the hard‐​fought victory for Ex‐​Im opponents will probably be short‐​lived.


Tucked into this week’s very disappointing budget deal was one minor positive aspect: modest cost savings from making changes to the subsidized crop insurance program. In this program, farmers can purchase insurance from approved private insurance companies, and the federal government reimburses these insurance companies for administrative and operating costs in addition to reinsuring their losses. The tweak in the budget deal wouldn’t even achieve savings by increasing the insurance premiums paid by farmers, but by merely lowering the rate of return for the insurance companies from 14.5 percent of premiums to 8.9 percent. It’s worth noting that the Congressional Budget Office estimated that this change would save about $3 billion through 2025, and that these savings would not really start to materialize until 2019. Perhaps unsurprisingly, Roll Call reports that “[f]arm-state lawmakers have been assured by leaders that a provision in the bipartisan budget deal that would trim the federal crop insurance subsidy program will be replaced down the road.” This modest change was years away from even taking effect and the savings were extremely modest over a decade, but there have already been promises to reverse them, citing the potential for “dramatic” consequences.


Past Cato research has analyzed the amount of corporate welfare in the federal budget, estimating that it consistently accounts for more than $100 billion (in inflation‐​adjusted dollars) each year.

Media Name: corporate_welfare_by_year.png

Sources: Author’s calculations using Office of Management and Budget, “Public Budget Database, Outlays,” https://​www​.white​house​.gov/​s​i​t​e​s​/​d​e​f​a​u​l​t​/​f​i​l​e​s​/​o​m​b​/​b​u​d​g​e​t​/​f​y​2​0​1​6​/​a​s​s​e​t​s​/​o​u​t​l​a​y​s.xls and Office of Management and Budget, “The Appendix, Budget of the United States Government, Fiscal Year 2016,” https://​www​.white​house​.gov/​o​m​b​/​b​u​d​g​e​t​/​A​p​p​endix; Tad DeHaven, “Corporate Welfare in the Federal Budget,” Cato Institute Policy Analysis No. 703, July 25, 2012; Stephen Slivinski, “The Corporate Welfare State: How the Federal Government Subsidizes U.S. Businesses,” Cato Institute Policy Analysis No. 592, May 14, 2007.

The developments with Ex‐​Im and crop insurance subsidies are just the two most recent examples of why corporate welfare keeps coming back like a Hollywood monster, costing taxpayers and introducing economic distortions, year after year. Even so, opponents of corporate welfare need to continue to expose the flaws, costs and harmful effects of these programs, otherwise they will always be with us.

October 30, 2015 1:17PM

The TPP Is Already Poised to Grow

The Trans‐​Pacific Partnership negotiations have just concluded and the parties are about to begin a very long process of ratification and implementation. Once all of that is complete, the TPP will be ready and willing to accept new members. There’s a pretty long list of countries ready to join.


The president called the TPP America’s chance to “write the rules” instead of China. That’s an unfortunately confrontational way to sell international commercial cooperation. Certainly, the TPP is an effort to circumvent gridlocked negotiations at the World Trade Organization and establish new norms while lowering trade barriers. It’s not clear yet whether the proliferation and growth of megaregional agreements like the TPP will help or hinder the broader and more valuable goal of global trade liberalization. 


In practice, having America “write the rules” mostly means (1) lower tariffs; (2) more rules on things like intellectual property, state‐​owned enterprises, and labor and environment protection; and (3) less pressure to eliminate America’s own protectionist policies like outrageous farm subsidies, shipping restrictions, and abusive antidumping laws. 


But if the TPP is going to be a vehicle for exercising American influence over global economic governance, it will surely need to expand beyond its current 12 members. 


Since the negotiations concluded a few weeks ago, half a dozen governments in the region have expressed or reiterated their interest in joining the TPP. These include Indonesia, South Korea, Colombia, Thailand, the Philippines, and Taiwan. The fact that so many countries are eager to join an agreement they haven’t seen and had no role in drafting says a lot about the politics of international trade.


Once the TPP text is released, we will have a better idea of what these countries will be required to do to gain entry to the agreement. Will they need unanimous approval from existing members? Will they be required to accept additional obligations beyond the current text? Will Congress and other legislatures have to ratify each accession? The answers to these questions could have a big impact on the future of the global trading system.

October 30, 2015 10:01AM

The Politics of the TPP

In the trade policy world, everyone is eagerly awaiting the release of the full text of the Trans Pacific Partnership (TPP) agreement, but trade news sources say this is still several weeks away. My colleague Bill Watson has done a nice job with the one chapter, on intellectual property, that is available in mostly final form through a leak, but for the rest of the text, it is hard to say too much at this point.


But if we can’t talk much about substance yet, what we can talk about is the politics of the TPP: What are its chances in Congress? The Obama administration has taken a somewhat creative approach to assembling a coalition from across the political spectrum in support of the TPP.


They have tried to appeal to free market conservatives by talking about how the TPP would involve “18,000 tax cuts,” in the form of lower tariffs on U.S. exports.


They have tried to bring in liberal support by calling it the “most progressive trade agreement in history.”


And some people have portrayed the TPP as having a security component, in order to bring security hawks on board.


But here’s a key question related to the first two: Can they bring in supporters without creating new opponents? For example, with regard to the TPP’s “progressive” nature, the administration says the TPP would do the following on labor protections: “Require laws on acceptable conditions of work related to minimum wages, hours of work, and occupational safety and health.” Focusing on the first one, what exactly would the TPP require with a minimum wage? If it requires that all TPP countries have a minimum wage — either set at a particular level, or just having one at all — some Republicans in Congress might object.


With trade agreements these days addressing so many aspects of social policy, assembling a package of provisions that Congress will support is a challenge. Putting aside the substance, which we will get to once the text is released, the politics of the TPP are going to be very interesting.