The Federal Reserve is set to act this week to raise short‐term interest rates. There are a number of technical and policy questions raised by this long‐anticipated decision. The Fed conventionally raises short‐term interest rates by selling short‐term Treasury obligations. It no longer owns any short‐term Treasuries to sell.
Based on prior statements, the Fed is expected to increase the interest rate on reserves held by commercial banks at Federal Reserve banks. The Fed is operating in uncharted waters. It is not clear how increasing interest on reserves will affect other short‐term interest rates. Further, the Fed is already paying commercial banks over $6 billion in interest payments annually. That amounts to a fiscal transfer from taxpayers to bankers. Raising rates will only increase that transfer. As we approach a presidential election year, that is likely to become grist for political mills.
The Fed could also raise the interest rate on reverse repurchase agreements at a facility at the New York Fed. The Fed is effectively borrowing money from financial institutions like money market funds. It functions as a subsidy to those institutions, as the Federal Reserve System has no business or policy reason for borrowing money. Once again, I would anticipate political questioning of such a move.
Free‐market economists are in a policy conundrum. Most have long advocated higher interest rates. But the facilities through which that policy will now be effected have questionable validity. Some of the same economists advocating higher short‐term rates have also been critical of the Fed’s payment of interest on reserves. Those economists must now ask for more of something they wanted none of. Operational considerations are confounding substantive policy.
All of the above is a consequence of the Fed’s having implemented extraordinary monetary policy. That included shedding all liquid, short‐term Treasury obligations in favor of loading up on risky and illiquid, long‐term debt obligations. Critics argued the Fed would rue the day it did that. Now that day has arrived.
[Cross‐posted from Alt‑M.org]
divToday is Bill of Rights Day. So it’s an appropriate time to consider the state of our constitutional safeguards.
Let’s consider each amendment in turn.
The First Amendment says that “Congress shall make no law… abridging the freedom of speech.” Government officials, however, have insisted that they can gag recipients of “national security letters” and censor broadcast ads in the name of campaign finance reform and arrest people for simply distributing pamphlets on a sidewalk.
The Second Amendment says the people have the right “to keep and bear arms.” Government officials, however, make it difficult to keep a gun in the home and make it a crime for a citizen to carry a gun for self-protection.
The Third Amendment says soldiers may not be quartered in our homes without the consent of the owners. This safeguard is one of the few that is in fine shape – so we can pause here for a laugh.
The Fourth Amendment says the people have the right to be secure against unreasonable searches and seizures. Government officials, however, insist that they can conduct commando-style raids on our homes and treat airline travelers like prison inmates by conducting virtual strip searches.
The Fifth Amendment says that private property shall not be taken “for public use without just compensation.” Government officials, however, insist that they can use eminent domain to take away our property and give it to other private parties who covet it.
Some prominent conservatives like Larry Kudlow, David Bossie, and Ann Coulter have now called for a complete moratorium on immigration because of the threat of Islamic terrorism. However, they all focus on the benefits and neglect the costs of such a policy. An immigration moratorium will cost the U.S. economy about $200 billion annually on net, even if it is successful at significantly reducing terrorism.
Costs of Terrorism and the Benefits of an Immigration Moratorium
According to the New America Foundation, jihadists have killed 45 Americans on U.S. soil since 9/11. John Mueller estimates that each murder by jihadists costs about $15 million – double that of other deaths. That means the cost of jihadist terrorism on American soil, just taking in to account the loss of life, is about $50 million a year since 9/11. Let’s double that to $100 million to try and take account of other costs, excluding counter-terrorism spending.
Under the most pessimistic assumptions, 73 percent of convicted terrorists in the decade after 9/11 were foreign-born. Assuming that those 73 percent of immigrant terrorists are responsible for 73 percent of the jihadist murders since 9/11, their annual cost is $73 million. At best, assuming there are no immigrant terrorists currently in the United States, the benefits of reducing terrorism via an immigration moratorium are $73 million annually.
Costs of a Moratorium
Of course, measuring just the benefits of a moratorium is only half of the relevant calculation. We must also estimate the economic costs of a moratorium on all future immigration. Professor Benjamin Powell of Texas Tech University estimated the economic costs of a total immigration moratorium at $229 billion annually – $193 billion in rent-seeking costs and an additional loss of the conservatively estimated $36 billion annual immigration surplus. Powell’s estimate is remarkably similar to Raul Hinojosa-Ojeda’s related estimate that removing 11 million unauthorized immigrants would lower GDP over a ten period by $2.6 trillion (Powell’s ten-year cost is $2.3 trillion).
Would more vigorous antitrust enforcement reduce income inequality
? How should genetically modified organisms be regulated? How should government regulate speech by professionals?
The answers to these questions can be found in the Winter issue of Regulation.
The short answer to the first question is no. For the longer answer read Professor Dan Crane’s article. The short answer to the second question, provided by Henry Miller and John J. Cohrssen, is that the regulation of biotechnology should be proportional to the risks it creates. And those are generally less than the risks created by traditional cross breeding techniques that are widely accepted and unregulated. Tim Sandefur rhetorically answers the third question by asking why can government regulate professionals’ speech, when non-professionals can freely engage in the same speech though they lack the professional expertise?
In another article on professional speech, University of Michigan, Flint professor Thomas Hemphill explores the implications of recent court rulings about what manufacturers can “say” to health professionals about so-called “off-label” uses of prescription drugs.
Many believe that early-childhood-intervention programs reduce the educational achievement gap between low-income and other children. Many of these programs have been subject to random-assignment evaluation and the results often do not show positive effects. Even though all policy professionals support the use of scientific evaluation of social programs in theory, many have resisted the implications of negative evidence for the particular programs they favor. University of Missouri Law professor Philip Peters examines the evaluation of such programs and argues we should follow the evidence and terminate those programs that do not work.
Cal State, Northridge economist Robert Krol finds that transportation project projections consistently under predict costs by at least 25 percent. They also over predict rail passenger traffic and under predict road utilization. And these errors have not improved over time.
In “Using Delegation to Promote Deregulation” legal scholar Michael Rappaport argues that while libertarians would prefer that Congress enact statutes with explicit instructions for agencies, most laws delegate policy problem definitions and solutions to agencies. Because efforts to fight Congressional delegation to agencies appear ill-fated, Rappaport advocates the creation of a special agency that would have the same incentives and abilities to deregulate that regulatory agencies have to regulate.
The review section contains reviews of books on a range of interesting topics. Included are reviews of Edwards Stringham’s new book Private Governance by Thomas Hemphill, Christopher and Rachel Coyne’s Flaws and Ceilings by David Henderson, and George Leef’s review of Daniel DiSalvo’s Government Against Itself.
Finally, my Working Papers column this issue describes papers on air pollution, CAFE standards, and cigarette taxation.
Read the full issue here.
There has been a recent surge of allegations that the underlying motive for outrages such as the attacks in Paris and San Bernardino is that radical Islamists hate Western values. Senator Marco Rubio is perhaps the most blatant in pushing that thesis. One of his campaign commercials asserts flatly that such violent extremists target us because we let women drive and girls attend school.
That argument is simply an updated version of the meme that President George W. Bush highlighted in the period following the 9 – 11 attacks. According to Bush and his supporters, Islamists hated us “because of our freedoms.” Just nine days after the assault on the World Trade Center and the Pentagon, Bush addressed Congress and emphasized that theme. “They hate our freedoms,” he said, “our freedom of religion, our freedom of speech, our freedom to vote and assemble and disagree with each other.” Such an argument was simplistic and misleading then, and it is simplistic and misleading now.
That is not to say that it is impossible to find a jihadist somewhere who is so unhinged that he would want to slaughter Americans simply because of a virulent hatred of Western culture. But even the bipartisan commission that investigated the 9 – 11 attacks conceded that the primary driving force for Islamist terrorism was anger at U.S.-led foreign policy in the Middle East. And there were no pacifists, “blame America first” types, or “isolationists” on that commission. The members made the grudging admission that Western actions in the Middle East were root cause of Islamic terrorist blowback because there was overwhelming evidence that it was true.
The Marco Rubios of the world act as though Western policy and the wreckage it has caused in the Muslim world is an irrelevant factor with respect to terrorism. But the United States and its allies have been meddling extensively throughout the region for decades. Indeed, beginning with the military intervention in Lebanon in 1982, they have been almost continuously imposing punishing economic sanctions on, bombing, or invading Muslim countries. Such conduct, and the acute suffering it has caused, might have a little something to do with the rage that is now directed at the West.
Indeed, there are more than a few hints of that motive from the statements of radical Islamic operatives. Osama Bin Laden responded directly to Bush’s facile argument that al‐Qaeda attacked the United States because of a hatred of Western values. Bin Laden noted that his group had not attacked countries such as Sweden. That was true even though Scandinavian culture (especially its liberal sexual mores) was far more offensive than American culture to conservative practitioners of Islam. The reason for the restraint, Bin Laden emphasized, was that Sweden had not attacked Muslim countries. Indeed, he stated categorically that “any nation that does not attack us will not be attacked.”
It is also pertinent to remember the words of the terrorist gunmen at the Bataclan concert hall in Paris. They did not shout out: “This is because you let women drive!” Instead, they shouted: “This is for Syria!” France (along with the United States and other Western allies) had been bombing areas controlled by ISIS in Syria for more than a year. The Paris attacks were bloody payback.
Lest the usual flock of neoconservative hawks try to distort this analysis as a “justification” for terrorism, let’s make it perfectly clear: deliberately attacking innocent civilians is never justified, no matter what the underlying grievance. But stressing that point is far different from pretending that there is no underlying grievance, which is what Rubio and his ideological cohorts are attempting to do.
Ending the U.S.-led policy of militarized meddling in the Middle East might not mean the end of radical Islamic terrorism directed against the West — at least not immediately. But the old adage that when you find yourself in a hole, your first action should be to stop digging, applies here. As a first step, we need to stop pursuing the policies that have produced such catastrophic blowback.
Thirty years ago, in the case Williamson County Regional Planning Commission v. Hamilton Bank (1985), the Supreme Court created a rule that effectively bars regulatory‐takings plaintiffs from ever receiving the just compensation they are due under the Fifth Amendment. Williamson County’s noxious rule says that federal courts won’t hear Takings Clause claims until the state has not only issued a final order taking the plaintiff’s property but the plaintiff has been denied just compensation after seeking it “through the procedures the State has provided for doing so.”
This state‐litigation requirement means that when the government issues a regulation that diminishes property values — for instance, by saying that the owner can’t do any excavation on rocky terrain that can’t be developed without it, as was the case in Arrigoni Enterprises v. Town of Durham—the landowner can’t file its claim in federal courts until it has lost in state court. Not only does this state‐litigation rule severely delay the landowner’s remedy; in most cases, it means that the taking will go unremedied altogether.
One reason to have federal courts is to ensure that citizens whose rights have been violated by their state can have their rights vindicated by a truly impartial judge. The state‐litigation requirement, however, often prevents federal courts from ever seeing such cases because a number of legal doctrines intended to promote fairness and efficiency bar the plaintiff from even seeking redress in federal court after a state court has already considered the matter. This means that the only way for many plaintiffs to get federal judicial review is to ask the U.S. Supreme Court to take their case after exhausting state courts — an uphill battle to say the least.
Arrigoni Enterprises decided not to pursue its federal Takings Clause claim in state court, and thereby presents the Supreme Court with the opportunity to overrule Williamson County’s state litigation requirement once and for all. Cato has filed a brief supporting Arrigoni’s petition. We argue that Williamson County’s rule was not tenable when written and has proven unworkable. The rule relegates Takings Clause claims to second‐class status among other federal constitutional provisions, even though these claims are no more premature and state courts have no greater experience to address them than any other constitutional claims.
Four justices indicated 10 years ago in San Remo Hotel v. San Francisco (2005) that they would be willing to reconsider the wisdom of the state‐litigation requirement in an appropriate case. That case has arrived, but if the Court declines to overrule the requirement outright it should at least resolve the current circuit split by ruling that the state‐litigation rule is merely prudential such that federal courts can disregard it under the right circumstances and hear Takings Clause cases not litigated through state courts.
This post, and the brief it discusses, was co‐authored by Cato legal associate Jayme Weber.
This is the seventh and likely final entry in a series on the expansion of educational choice policies in 2015. As I noted at the outset, the Wall Street Journal declared 2011 “The Year of School Choice” after 13 states enacted new school choice laws or expanded existing ones. As of my last update in late September, 15 states had adopted 21 new or expanded educational choice programs, including three education savings account laws, clearly making 2015 the “Year of Educational Choice.” As I wrote previously:
ESAs represent a move from school choice to educational choice because families can use ESA funds to pay for a lot more than just private school tuition. Parents can use the ESA funds for tutors, textbooks, homeschool curricula, online classes, educational therapy, and more. They can also save unused funds for future educational expenses, including college.
Readers will find a complete tally of the new and expanded programs at the bottom of this post, as well as a list of anti‐school‐choice lawsuits decided in 2015 or still pending.
Lawmakers across the nation are already beginning to consider educational choice proposals for the 2016 legislative session, including Maryland, Oklahoma, South Dakota, Tennessee, Texas, and several others, but Florida will likely be the first state to expand choice next year.