Readers of this blog may recall Cato’s filing an amicus brief for an appeal in the Eighth Circuit supporting two Missouri women’s challenge to state requirements that they become licensed as cosmetologists or barbers before being allowed to work as African-style hair braiders. Obtaining the mandatory license from the Missouri Board of Cosmetology & Barber Examiners entailed undergoing a minimum of 1,000 hours of mostly irrelevant training and passing an exam with both written and “practical” (term used loosely) components.
Not only is over 90 percent of the required training completely inapplicable to the practice of African-style hair braiding, but seven of the nine board members are barbers, cosmetologists, or cosmetology school owners with a direct financial incentive to limit competition.
None of that mattered to the three judges on the Eighth Circuit panel, who yesterday after a full year of foot-dragging issued a perfunctory opinion upholding the district court ruling in the board’s favor. Instead of finally providing two aspiring entrepreneurs their day in court before a neutral arbiter, this ruling continues the pattern of courts’ violating bedrock due-process principles by rubber-stamping occupational regulations under the flimsiest of rationales.
Beginning with a single footnote in the 1938 case United States v. Carolene Products Co., the Supreme Court has scrutinized rights violations differently depending on how it classifies the right in question and whether the violation harmed “discreet and insular minorities.” (Ironically, the plaintiffs in Niang are both women and African Americans—two classes traditionally protected under this principle.) For a law that infringes so-called “fundamental” rights, courts apply what is known as “strict scrutiny” and require governments to prove that the law is narrowly tailored toward achieving a compelling government interest.
On the other end of the spectrum are economic rights that courts have decided are less important, with infringements only being reviewed under the much less rigorous “rational basis” standard. Under this lower standard, it is up to the person challenging the law to prove that it is not “rationally related” to a “legitimate” (real or imagined) government interest.
In 1955, the Supreme Court extended this standard to new extremes in Williamson v. Lee Optical Co., upholding a law that allowed only optometrists and ophthalmologists (but not mere opticians) to fit or duplicate lenses for glasses. After conjuring a number of potential justifications, the Court dismissively ruled that it was “enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it (emphasis added).” While the entire concept of tiered scrutiny is itself deeply flawed, the district and now Circuit courts in Niang failed to meaningfully apply even the over-deferential rational basis standard, choosing instead to parrot (and even surpass!) Lee Optical as a means of tipping the balance further in favor of the Board.
In its initial ruling upholding the challenged licensing scheme, the district court engaged in factually unsupported speculation and invented justifications that the board itself had failed to imagine, thus denying the challengers any way to challenge either the rationality of the government’s means or the legitimacy of its ends. Now, by reiterating that the district court was “not bound to consider only the stated purpose of a legislature,” the Eighth Circuit has blessed the practice of trial judges’ acting as the government’s de facto co-counsel.
Even more outrageously, the opinion cited the absurd language from FCC v. Beach Communications (1993) holding that challengers must not only refute any justifications actually advanced by the state, but also negate “every conceivable basis which might support” the statute or regulation under review. What are the actual limits of this amorphous standard? Could a court rationalize requiring a hair braider to obtain a degree in economics to properly price her services? A medical degree with experience in pain management in order to protect the tender-headed? Mandatory viewing of 80’s hair metal videos in order to warn against the dangers of hair styling gone terribly wrong?
Not only must such decidedly irrational rationales be addressed, but challengers apparently must also invent time travel in order to challenge judicial justifications that only appear after all briefing and argument has been completed!
In any event, this will be appealed to the Supreme Court, where the justices will have the opportunity to reevaluate both the proper level of scrutiny used to assess occupational licensing and how levels of scrutiny are to be applied by courts more broadly. And while the panel opinion is certainly troubling, legal scholar and Cato senior fellow Randy Barnett offered an important reminder:
Court of Appeals judges are limited by precedent. We need [Supreme Court] Justices who will reconsider this constitutional wrong turn. But decisions like this don’t tell us if they will if elevated. And sadly neither will confirmation hearings.
One further disturbing aspect of the ruling is thus that one of the panelists, Judge Steven Colloton, appears on President Trump’s list of potential Supreme Court nominees. By contrast, another member of the Trump shortlist, newly confirmed Fifth Circuit Judge Don Willett, wrote a concurrence while on the Texas Supreme Court that addressed this very issue of overly burdensome occupational licensing in a manner that properly considered plaintiffs’ right to earn an honest living in the face of arbitrary government regulations.
If nothing else, Niang should remind us all of the need for substantive debate at future judicial confirmation hearings, not frivolous demagoguery.
Our thanks to research assistant Anthony Gruzdis for his help with the post.
Donald Trump's whiplash-inducing Twitter comments about the surveillance legislation his administration had just endorsed didn't stop the House of Representatives from approving a bill to reauthorize the FISA Amendments Act for another six years, but if you watched the floor debate, you might come away thinking civil libertarians won at least a few concessions in the process. Defenders of the statute's controversial Section 702, which authorizes warrantless surveillance of foreigners' communications, rejected a proposal to require FBI agents to seek a warrant before querying the vast 702 database for Americans' communications—a practice critics have dubbed a "backdoor search"—but did accept a narrower warrant requirement for queries conducted for criminal investigations unrelated to national security. Is this, as the bill's boosters repeatedly insistence, a "compromise" that should provide some small consolation to civil libertarians?
Alas, no. There's a good reason you won't find any privacy advocates cheering even a partial victory following Thursday's vote. First, as I noted back in October, such a narrow warrant requirement would do almost nothing to prevent abuses of the sort it's most reasonable to worry about: historical abuses of spying power have nearly all been clothed in invocations of national security. But it's worse than that. The limited warrant requirement in the House bill not only exempts a potpourri of ordinary crimes—among them any involving the risk of death or serious injury, cybersecurity, or offenses against minors—it applies only to what are known as "predicated" or "full" investigations.
What this means, perversely, is that when FBI agents are conducting "preliminary" investigations—which are essentially inquiries into whether a crime worth investigating may have been committed—they are free to search for Americans' intercepted communications. The requirement to obtain a warrant kicks in only when there is enough evidence of wrongdoing—a "factual predicate"—to open a full-blown criminal investigation. In other words, Americans will actually enjoy greater privacy protections when the government has evidence they're involved in criminal activity. That should seem inherently rather backwards, but it also sets up some pretty terrible incentives. In effect, it tells investigators: "You'd better go hunting for people's private communications in the preliminary stages of an inquiry, when it's less clear who or what actually merits scrutiny, because once you've developed actual evidence you won't be able to do it without jumping through additional hoops." This inverts the normal progression of investigations, where more intrusive methods become available as evidence of criminal conduct accumulates.
This also incentivizes the unseemly practice of "parallel construction," wherein information obtained by intelligence methods is passed along to ordinary law enforcement agencies, which then conceal its intelligence origins, often fabricating an alternative story of how that information was discovered before bringing a case to court. As a new report from the group Human Rights Watch details, the practice appears to be disturbingly routine, despite the serious and obvious due process questions it raises. Now Congress is poised to give explicit statutory blessing to the warrantless querying of intelligence intercepts for ordinary criminal investigative purposes. A probable unintended consequence is to make parallel construction even more attractive: agents can develop preliminary leads without being burdened by court oversight, then offload the task of building a case to bring before a judge on state and local authorities (or other federal agencies, such as the Drug Enforcement Administration).
Finally, it's worth noting a tension in the arguments offered by 702's defenders that came out with unusual clarity in Thursday's floor debate. One representative after another insisted that civil liberties concerns about 702 were misplaced since, after all, it was focused on "targeting" only foreigners on foreign soil. Yet again and again, the very same representatives insisted that the intelligence value of 702 would be "crippled" if the government could not routinely query the database of intercepted communications for information about Americans. It does not take advanced training in logic to see that those claims cannot both be true.
The Wall Street Journal had a flattering piece about Governor Jerry Brown’s budgeting today:
California Gov. Jerry Brown appears poised to exit office next year with a top political priority in hand: free from the massive budget deficits that had weighed on his predecessors.
… Mr. Brown has been preaching frugality for years—he kicked off one past budget talk with Aesop’s fable about the thrifty ant and the lazy grasshopper.
Mr. Brown took office in 2011 with a $27 billion deficit and drastically slashed spending. In 2012, he staked his governorship on a tax increase that voters approved that year and reauthorized in 2016.
Brown might have been “preaching frugality,” but his high-speed rail boondoggle is about as spendthrift as you can get.
As for state deficits, they generally arise when states project high future spending growth even when revenues are stagnating. They have more to do with excessively optimistic forecasts than they do with real gaps between current spending and revenues.
California general fund spending increases have been substantial under Brown, as shown in the chart below using the latest state data.
Spending fell 6 percent Brown’s first year, but then bounced back strongly, rising 46 percent from 2012 to the enacted level for 2018.
During the whole period, 2011 to 2018, general fund spending rose 38 percent in California, compared to an average 27 percent in the other 49 states, per NASBO data.
Total California spending (general and nongeneral funds) has risen 44 percent under Brown, 2011-2018. Perhaps Brown did too much preaching, and not enough actual cutting.
In the Cato 2016 Governors Report Card, I assigned Brown an “F.” Look for another Report Card this October.
Two months of drama in the House of Representatives over the soon-to-expire FISA Section 702 mass surveillance program came to an end this morning, with a bipartisan group of House members first defeating a FISA reform amendment (USA RIGHTS Act) offered by Rep. Justin Amash (R-MI), then passing the GOP House leadership bill. The key votes in support of the GOP House leadership effort came from Democrats, including Minority Leader Nancy Pelosi (D-CA) and House Intelligence Committee Ranking Member Adam Schiff (D-CA).
The progressive activist group Demand Progress, which spearheaded the campaign on the political left for meaningful surveillance reforms, issued a blistering statement after the vote, the key paragraph of which follows:
Demand Progress has opposed the FISA Amendments Reauthorization Act from the start and has instead urged the House to pass strong reform legislation, like the USA RIGHTS Act, which was offered as an amendment but defeated 183-233, despite strong support from members of both parties. 55 Democrats voted against the amendment, where a swing of 26 votes would have meant its adoption and the protection of Americans’ privacy. The USA RIGHTS amendment would have enacted meaningful reforms to Section 702, which are imperative given the government’s historical abuse of surveillance authorities and the danger posed by future abuses.
Amash garnered 58 GOP votes for his amendment (offered with several other Democratic and Republican House members), by far his best showing since his first attempt to rein in federal mass surveillance programs in the summer of 2013, in the wake of Edward Snowden's revelations.
The FISA Amendments Act was first passed in 2008, when Pelosi was Speaker. In her floor speech in support of the FISA Amendments Act on June 20, 2008, Pelosi made this claim:
Some in the press have said that under this legislation, this bill would allow warrantless surveillance of Americans. That is not true. This bill does not allow warrantless surveillance of Americans. I just think we have to stipulate to some set of facts.
In fact, as Demand Progress noted in their 2017 report on Section 702, the FISA Court itself found the federal government had done exactly that in a number of cases. But as is so often the case in politics, it is emotion and perception, not facts and reason, that dominate debate on Capitol Hill. Today was another one of those days.
A surprising Politico story this morning laid out the contours of a rough deal to legalize the DACA recipients. There are several welcome developments. First, it would be a wider DREAM Act that goes beyond the DACA recipients. In exchange, it would restrict the legalized DREAMers from sponsoring their parents (essentially duplicating current law), but it does allow the parents 3-year renewable legal status. This is a fine compromise. Second, it would not eliminate any of the family-sponsored green card categories, a wonderful development. Third, it would use the 50,000 annual diversity green cards, also known as the visa lottery, to legalize Salvadorans here on Temporary Protected Status (TPS) who just had their status canceled (this status will expire in 18 months). This third point is the most potentially troubling depending on what happens to those green card numbers after the 200,000 or so Salvadorans are legalized.
If the green cards from the diversity visa that are allocated to legalize those on TPS are canceled after the Salvadorans are legalized, then this would be a bad move. Green cards are rare and valuable commodities that are beneficial to the United States and to the immigrants themselves. The Salvadorans should be legalized, but not at the cost of reducing legal immigrants by substantially more.
I propose three ways of dealing with the diversity green cards after the Salvadoran TPS holders are legalized:
- The 50,000 diversity green cards are recaptured and allocated to a new lawful permanent residency program based on the RAISE Act proposed by Senators Tom Cotton (R-AR) and David Perdue (R-GA). This new green card category would allocate 50,000 green cards a year to applicants living overseas who have the greatest number of points according to the RAISE Act’s proposed system. This is a great way to co-opt a portion of the RAISE Act for a positive purpose while making the United States immigration system more merit-based – one of the stated goals of the RAISE Act. Crucially, creating a new merit-based category does not cut legal immigration like the RAISE Act would nor would it destroy the current employment-based green card system. It would also make sure that the recipients of this merit-based category continue to come from abroad, just like most of the recipients of the diversity green card lottery currently do. The diversity visa program won’t last forever, so this is a less harmful way for it to end
- The diversity visa starts up again after all of the TPS workers are legalized without any other changes. This would probably satisfy the Congressional Black and Hispanic Caucuses.
- Congress auctions the 50,000 green cards every year to the highest bidders who are non-excludable under current law. An annual auction of 50,000 green cards could raise substantial revenue for the federal government. The median wage gain for immigrants from developing nations to the United States is about four-fold. Estimates of the annual wage premiums for earning a green card are between $11,860 and $20,000 for adjustments of status, meaning that such an auction could command a very high price. Some American firms have even offered to pay $10,000 to $15,000 for an H-1B visa or a green card. Nobel Prize-winning economist Gary Becker thought the government could sell a green card for $50,000 back in 2011. Based on those statements, an auction of 50,000 green cards would raise $500 million to $2.5 billion per year and, potentially, far more. This extra revenue could sweeten the pot. Additionally, this new auction category would attract richer and more educated immigrants who think they have a promising economic future in the United States – a decent measure of merit.
It’s wonderful that Congress is moving away from some of the more radical cuts in lawful immigration that have been discussed over the last year. However, the future of the green cards currently allocated under the diversity visa is important to resolve. There should not be any net-cut in the number of green cards issued. If the diversity visa program is going to end then those green cards so be reallocated to more valuable uses rather than extinguished entirely.
Over at The National Interest, I review some recent articles (e.g. here, here and here) claiming that President Donald Trump has completely reoriented U.S. foreign policy in the span of one year. If true, that would be a pretty mean feat. After all, Barack Obama claimed to have tried to do the same thing, and he essentially admitted to being rolled by what Obama adviser Ben Rhodes labeled "the blob."
But, it turns out, it isn't true. Trump hasn't, for example, restructured U.S. alliances.
On the contrary, he allowed Montenegro’s admission to NATO to go forward, the first new member in ten years. Last month, he backed the sale of weapons to Ukraine’s government as it struggles to put down a Russia-backed insurgency. He increased the number of U.S. troops in Europe. None of these decisions advance U.S. security—arguably, they undermine it—so it is hardly consistent with what most Americans think of when they hear “America First.”
Aside from his running feud with North Korea's Kim Jong Un, the U.S. presence in Asia remains largely unchanged.
The U.S. Navy continues to operate extensively throughout the Asia-Pacific. There are still tens of thousands of troops in Korea and Japan, and the Trump administration has shown no signs of reducing that permanent presence, despite the president’s stated misgivings, and the dubious connection between such a presence and U.S. safety.
And, in the Greater Middle East, Trump's approach isn't so different from Obama and Bush 43, except for the fact that many more civilians are being killed. And Trump's decision to continue the war in Afghanistan indefinitely provides the most obvious evidence that the foreign policy establishment is winning.
"To be sure," I observe:
Donald Trump has pushed through a number of changes to U.S. foreign policy that neither Obama nor Clinton would have (e.g. withdrawal from the Paris climate accord; reversal on better relations with Cuba; threats to undo the Iran nuclear deal; calls for recognizing Jerusalem as Israel’s capital). Indeed, if there is a single theme connecting his disparate actions it seems to be “If Obama did it, it must be wrong.” But, on matters of substance, and particularly with respect to the U.S. global military posture, Donald Trump hasn’t changed that much.
So, why all the fuss? Because Trump is different. Words matter, and Trump’s Twitter rants and ill-considered off-hand comments have not made us, or the world, safer.
Unsurprisingly, European leaders, from Angela Merkel to Emmanuel Macron to Theresa May, have pushed back against Trump–but also, more broadly, against U.S. leadership. “We Europeans must really take our destiny into our own hands,” Merkel said in May. “The times in which we can fully count on others—they are somewhat over.”
She’s not alone. “Germany can no longer simply react to U.S. policy but must establish its own position,” German Foreign Minister Sigmar Gabriel explained in early December, “even after Trump leaves the White House, relations with the U.S. will never be the same.”
To be honest, I think we should be encouraged that the leaders of other countries, appropriately unsettled by Trump's unpredictability, now question the wisdom of basing their security on the wishes and whims of an American president--even if future chief executives aren’t as mercurial as Donald J. Trump. Whether they act on those concerns, however, remains to be seen. A lot will depend not on what Trump says, but on what he actually does.
In the meantime, I conclude:
We should be disappointed...that concerns about Trump and Trumpism haven’t prompted a more serious debate over the future of U.S. foreign policy. Instead we get lamentations that all is lost, followed by a forlorn hope to go back to the way it was before.
You can read the whole thing here.
Many commentators have compared Bitcoin to gold as an investment asset. “Can Bitcoin Be Gold 2.0?,” asks a portfolio analyst. “Bitcoin is increasingly set to replace gold as a hedge against uncertainty,” suggests a Cointelegraph reporter.
Economists, by contrast, are more interested in considering how a monetary system based on Bitcoin compares to a gold-standard monetary system. In a noteworthy journal article published in 2015, George Selgin characterized Bitcoin as a “synthetic commodity money.” Monetary historian Warren Weber in 2016 released an interesting Bank of Canada working paper entitled “A Bitcoin Standard: Lessons from the Gold Standard,” which analyzes a hypothetical international Bitcoin-based monetary system on the supposition that “the Bitcoin standard would closely resemble the gold standard” of the pre-WWI era. More recently, University of Chicago economist John Cochrane in a blog post has characterized Bitcoin as “an electronic version of gold.”
In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?
Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so they either provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”
Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card. The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer to peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.
The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.
Let’s consider supply in more detail. Secularly, annual production of gold has been a small percentage (typically 1% to 4%) of the existing stock but not zero. Because the absorption of gold by non-monetary uses from which it is not recoverable (like tooth fillings that will go into graves and stay there, but unlike jewelry) is small, the total stock of gold grows over time. Historically this has produced a near-zero secular rate of inflation in gold standard countries. The number of BTC in circulation was programmed to expand at 4.0 percent in 2017, but the expansion rate is programmed to fall progressively in the future and to reach zero in 2140. At that point, assuming that real demand to hold BTC grows merely at the same rate as real GDP, Bitcoin would exhibit mild secular growth in its purchasing power, or equivalently we would see mild deflation in BTC-denominated prices of goods and services. (Warren Weber’s paper similarly derives this result.) This kind of growth-driven deflation is benign, but the difference is small in real economic welfare consequences between a money stock that steadily grows 3% per year and one that grows 0%.
The key difference in the supply mechanisms is in the induced variation in the rate of production of monetary gold in response to its purchasing power, by contrast to the non-variation in BTC. A rise in the purchasing power of BTC does not provoke any change in the quantity of BTC in the short run or in the long run. In Econ 101 language, the supply curve for BTC is always vertical. (The supply curve is, however, programmed to shift to the right over time, ever more slowly, until it stops at 21 million units). By contrast, a non-transitory rise in the purchasing power of gold brings about some small increase in the quantity of monetary gold in the short run by incentivizing owners of non-monetary gold items (jewelry and candlesticks) to melt some of them down and monetize them (assuming open mints) in response to the rising opportunity cost of holding them and to the owners’ increased wealth. The short-run supply curve is not vertical. Still more importantly, the rise will bring about a much larger increase in the longer run by incentivizing owners of gold mines to increase their output. The “long-run stock supply curve” for monetary gold is fairly flat. (I walk through the stock-flow supply dynamics in greater detail in chapter 2 of my monetary theory text.) The purchasing power of gold is mean-reverting over the long run, a pattern seen clearly in the historical record.
Because its quantity is pre-programmed, the stock of BTC is free from supply shocks, unlike that of monetary gold. Supply shocks from gold discoveries under the gold standard were historically small, however. The largest on record was the joint impact of the California and Australian gold rushes, which (according to Hugh Rockoff) together created only 6.39 percent annual growth in the world stock of gold during the decade 1849-59, resulting in less than 1.5 percent annual inflation in gold-standard countries over that decade. For reference, the average of decade-averaged annual growth rates over 1839-1919 was about 2.9 percent.
As a result of the long-run price-elasticity of gold supply combined with the smallness and infrequency of supply shocks, the purchasing power of gold under the classical gold standard was more predictable, especially over 10+ year horizons, than the purchasing power of the post-WWII fiat dollar has been under the Federal Reserve. As I have written previously: “Under a gold standard, the price level can be trusted not to wander far over the next 30 years because it is constrained by impersonal market forces. Any sizable price level increase (fall in the purchasing power of gold) caused by a reduced demand to hold gold would reduce the quantity of gold mined, thereby reversing the price level movement. Conversely, any sizable price level decrease (rise in the purchasing power of gold) caused by an increased demand to hold gold would increase the quantity mined, thereby reversing that price level movement.” Bitcoin lacks any such supply response. There is no mean-reversion to be expected in the purchasing power of BTC, and thus its purchasing power is much harder to predict at any horizon.
Describing gold supply, Warren Weber writes: “Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.” This is not well put. Changes in the world stock of monetary gold come about every year from normal mining. Gold strikes and technical improvements in extraction brought about changes in the growth rate (not the level) of the stock. Historically, the changes in the growth rate were not dramatic by comparison to changes in the postwar growth rates of fiat monies. As often as not, the changes in gold stock growth rates were equilibrating, speeding the return of the purchasing power of gold to trend from above trend. As Rockoff noted, some important gold strikes (like the Klondike in the 1890s) and some important technical breakthroughs (like the cyanide process of 1887) were induced by the high purchasing power of gold at the time, which gave added incentive for prospecting and research.
The phrase from John Cochrane quoted above is part of a sentence that reads in its entirety: “It's an electronic version of gold, and the price variation should be a warning to economists who long for a return to gold.” From the consideration of the mean reverting character of the purchasing power of gold, by contrast to Bitcoin’s lack of such a character, we can see that the second half of Cochrane’s statement is incorrect. The inelastic supply mechanism that produces price variation in Bitcoin should give pause to those who predict that Bitcoin will become a commonly accepted medium of exchange. It says nothing about the purchasing power of gold under a gold standard.
[Cross-posted from Alt-M.org]