March 2018

March 31, 2018 8:54AM

Patrick Korten, R.I.P.

divI am saddened to report that Pat Korten, Cato’s vice president for communications from 1996 to 1999, died Thursday evening after suffering a stroke earlier in the week. 
divPat was a personal friend of mine. We served together in the administration of President Reagan, first for four years at the Office of Personnel Management, then for two years at the Department of Justice where Pat continued to serve under President George H.W. Bush. 
divPat was a movement classical liberal from his first days as an undergraduate at the University of Wisconsin. He was an informed and sharp communicator of the first order in all the positions he held, including with the Knights of Columbus, where he spent the last ten years of his career. More than anything, however, he was man of deeply held principle, who at the same time could fill a room with his infectious laugh. We’ve lost a wonderful spokesman for liberty. May he rest in peace.

March 30, 2018 12:03PM

California’s Coffee Chaos — And Why Prop 65 Goes Unreformed

A judge in Los Angeles ruled Wednesday that Starbuck’s, Peet’s, and many other retailers face potentially massive liability under California law for not warning consumers that naturally occurring substances in roasted coffee beans can cause cancer, at least in lab animals. Absurd? Outrageous? Yes. But the scorn and outrage should be directed not at the judge but at the law whose terms he was required to enforce — Proposition 65, adopted by state voters through the initiative process in 1986 — as well as the lawyer‐​swayed California political system that still, more than 30 years later, is unwilling to address the measure’s gross flaws. 

Acrylamide is a naturally occurring substance formed when many foods are browned or otherwise subjected to high heat, including in many cases grilled burgers, fried chicken, bread, almonds, and potato chips. Like many other constituents of everyday life, it appears to cause cancer in some animals at high dosages. And that brings it under the terms of Prop 65, which has already led to a proliferation of warnings on and around thousands of common goods and services in California, from office furniture to hotel corridors to garages (car exhaust). Almost everyone agrees by now that the over‐​proliferation of warnings makes it less likely that consumers will pay attention to those few warnings that actually flag notable risks. Although on paper the law provides exemptions for some risks that are not “significant” or are balanced by benefits, these have been hard for defendants to use in practice, and the coffee vendors were not saved by the argument that java overall provides (scientifically uncertain) net health benefits, which may even perhaps include net anti‐​cancer benefits, that outweigh the (also scientifically uncertain) risks. 

What happens next? As the Post reports, “In addition to the warning signs likely to result from the lawsuit, the Council for Education and Research on Toxics, which brought the lawsuit, has asked for fines as much as $2,500 for every person exposed to the chemical since 2002, potentially opening the door to massive settlements.” And the financial shakedown value here is far from incidental; it’s the very motor that keeps the law going. Way back in 2001 — yes, Overlawyered has been covering this for nearly 20 years — I noted of the idealistic‐​sounding CERT, then involved in a suit against Starbucks over minute amounts of the Chinese herb ma huang in chai tea, and its lawyer Raphael Metzger:

While CERT is previously unknown, the same is not true of attorney Metzger, based in Long Beach, who runs a large “toxic‐​tort” practice whose website is publicizing the Starbucks action… “The constitutional right of Californians to pursue and obtain safety could be an untapped source of riches that plaintiffs’ attorneys should consider on behalf of their clients and the public,” Metzger wrote a while back in the San Francisco Daily Journal regarding the prospect of tort claims based on the California Constitution’s “inalienable rights” provision. 

Metzger is involved in CERT’s current coffee litigation as well. Meanwhile the California political system, which listens carefully to the small industry of nonprofits and attorneys that make a living by filing suits, has been unwilling to do more than nibble around the browned edges of Prop 65’s famous irrationalities. The warnings of potentially chaotic results like today’s — like Prop 65 warnings in general — have gone ignored. Overlawyered has covered in detail both Prop 65 in general (including its use against scented candles, matches, brass knobs, light bulbs, playground sand, and billiard cue chalk) and acrylamide in particular. 

Disneyland Proposition 65 warning
March 30, 2018 8:42AM

Repeal the Second Amendment?

The NRA cites this pronouncement by the Brady Center’s co‐​founder, Pete Shields: “The first problem is to slow down the number of handguns being … sold…. The second problem is to get handguns registered. The final problem is to make possession … totally illegal.” There’s the proof, says the NRA, that liberals just want to get rid of our guns and kill the Second Amendment. That narrative had traction among hardcore gun rights people, but Heller actually defused the argument by affirming that the Second Amendment is here to stay, and it secures a fundamental, individual right. 

Then comes Justice Stevens — for many years, the intellectual leader of the liberal wing of the Court — and breathes new life into the NRA’s storyline. What better evidence that the left wants a gun‐​free America? A liberal icon calls for repeal of the Second Amendment – a proposal that will never be implemented, and would have limited effect if it were. The Second Amendment doesn’t prevent states from enacting reasonable regulations; and its repeal wouldn’t prevent states from allowing assault weapons or high capacity magazines. It’s state law, not the Second Amendment, that “calls the shots.”

But if so, then why the Second Amendment? To prevent government from constructively banning a large class of weapons in common use for self‐​defense. That was tried in DC (until Heller), and in Chicago (until McDonald), and perhaps in a few other localities. That’s what would happen again if the Second Amendment were repealed. And that’s why the NRA’s slippery slope argument still resonates with millions of gun owners.

March 29, 2018 4:19PM

Venezuela’s Petro: Fool’s Oil

Venezuela has the largest oil reserves in the world. Crude exports earn the country 95 per cent of its foreign exchange. That figure used to be lower, but relentless nationalization and the government’s insistence on controlling prices and exchange rates have made other exports unviable. Not that productive activity has reoriented inward: the IMF expects Venezuelan GDP to have dropped by 15 per cent in real terms each year in 2016 and 2017, and to do so again in 2018. This is a country in freefall.

Nor have price controls helped to sustain Venezuela’s currency. The bolivar, dubbed with cruel irony ‘strong’ because it replaced the old, weaker, bolivar at a 1:1,000 rate, has itself lost 99.9 per cent of its value against the U.S. dollar since March 2016. Shortages induced by controls, inept state management of nationalized companies, and capital flight have joined unlimited central bank money‐​printing to extinguish the purchasing power of Venezuelan money.

Rational policymakers would react to such a catastrophic state of affairs by enacting a dramatic U‐​turn and committing to it. Previous episodes of hyperinflation in Latin America were most effectively quelled by dollarization and the subsequent liberalization of goods and capital markets. But the extreme form of socialism that is the ruling regime’s ideology makes the leadership unwilling to countenance change.

Instead, they regale the population with a mixture of repression and gimmicks. The launch of the Petro, a state‐​sponsored cryptocurrency announced late last year, belongs in the latter category.

The Petro, which according to the Venezuelan government’s clumsy white paper is available for purchase as of yesterday, is supposed to be linked to the price of Venezuelan oil. From the white paper:

Media Name: petro-white-paper-equation.png

In words: the government vows to accept Petros in payment for taxes and government fees at a rate determined by the previous day’s price of Venezuelan oil. Dv is a discount rate.

Because the quantity of Petros in circulation is fixed and governance of the cryptocurrency is technically decentralized, the government argues that future manipulation of the Petro’s value is outside its control.

The reality, unsurprisingly, is more complicated. The Petro will run on the NEM blockchain, where transactions are validated differently from most cryptocurrencies. Bitcoin, for example, relies on a proof‐​of‐​work consensus algorithm, where computing power determines which transactions are validated. NEM, on the other hand, uses a proof‐​of‐​importance system where transactions are confirmed by the most important nodes, with importance defined as the number of coins owned and the frequency of transactions.

The Petro will ostensibly be accepted for payment of Venezuelan taxes and government fees, but little else. Moreover, the government has issued 100 million tokens but only 82.4 million are available for sale. Venezuelan authorities will presumably retain the remainder, so they will play an outsize role in the governance of the cryptocurrency under the POI system, despite the nominally decentralized blockchain.

Second, the supposed “backing” of the Petro by oil reserves is nothing of the kind. There is a link between the market price of Venezuelan oil and the Petro’s bolivar exchange rate, but ownership of the cryptocurrency gives its owner no claim on sovereign oil assets. By buying Petros, one is giving the country’s socialist government full faith and credit that it will fulfill its promise to redeem liabilities at the prevailing oil price. Given recent experience and Venezuela’s multiple oil commitments to sovereign creditors such as Russia and China, that would be a lot of faith indeed.

The Petro might offer Venezuelan citizens a distraction from their nation’s dire problems; it may even allow the Venezuelan dictatorship to evade some U.S. sanctions, despite President Trump’s decision to ban U.S. citizens from buying Petros. But as a cryptocurrency, it is doomed to fail.

A true crypto‐​asset might instead represent claims on real barrels of oil, which could be traded in a decentralized market through transactions recorded on the blockchain. It’s unclear how much of an improvement this would yield over futures trading on an exchange, although it’s probably cheaper for some market participants to transact on the blockchain. But the Petro offers no true claim on anything, so its utility is dubious given the likelihood that the Petro’s state sponsor will default on its promises.

If you needed another reason not to buy any currency, digital or otherwise, issued by the Venezuelan government, then this is it.

[Cross‐​posted from Alt​-​M​.org]

March 29, 2018 3:57PM

Shulkin Out at VA

President Donald Trump has dismissed Secretary of Veterans Affairs Dr. David Shulkin amid disagreement within the administration over the future of the beleaguered Veterans’ Health Administration, a single‐​payer health system whose closest analogue is the United Kingdom’s National Health Service. 

In a farewell printed in the New York Times, Shulkin criticizes proposals to improve health care for veterans by privatizing the VHA:

The private sector, already struggling to provide adequate access to care in many communities, is ill‐​prepared to handle the number and complexity of patients that would come from closing or downsizing V.A. hospitals and clinics, particularly when it involves the mental health needs of people scarred by the horrors of war. Working with community providers to adequately ensure that veterans’ needs are met is a good practice. But privatization leading to the dismantling of the department’s extensive health care system is a terrible idea. The department’s understanding of service‐​related health problems, its groundbreaking research and its special ability to work with military veterans cannot be easily replicated in the private sector.

Actually, Shulkin is probably right. The VHA has built expertise in treating the special challenges veterans face (which is not to say the VHA always treats veterans well). If privatization “dismantl[es] the department’s extensive health care system,” it could take the private sector years to fill in the gap. Simply “closing or downsizing V.A. hospitals and clinics” could well be “a terrible idea.”

Fortunately, that is not what privatization means. To privatize does not mean to dismantle. It means to transfer ownership of a resource from the government to private individuals. 

Privatization of the VHA need not dismantle any aspect of that unique system. All that privatization would or need do is transfer ownership of VA hospitals and clinics–of all the system’s physical capital–to the people that system exists to serve: veterans. The VHA would continue to exist as the nation’s largest integrated health system, and would preserve its capacity to meet the unique needs of veterans, but under the control of veterans themselves rather than politicians who persistently renege on the commitments they make to veterans.

Cato Vice President for Defense and Foreign Policy studies Christopher A. Preble and I explain in the New York Times how privatization can have bipartisan appeal:

The alternative system we propose combines the universal goal of improving veterans’ benefits with conservative Republicans’ preference for market incentives and antiwar Democrats’ desire to make it harder to wage war. 

Read more about this bipartisan VA privatization proposal in Chapter 14, Veterans Benefits of Cato’s Handbook for Policymakers (8th ed.).

March 29, 2018 1:53PM

Spending Catastrophe

I take a look at the federal budget situation in The Hill:

The 2,232-page omnibus spending deal signed into law last week threw fiscal sanity out the window. While entitlement spending has continued to grow, the relative restraint in discretionary spending had provided hope that federal budget control was possible.

But that hope is now dashed under this president and Congress. The omnibus hiked discretionary spending 13 percent in a single year, while scraping the budget caps that were the singular achievement of reformers after the landmark 2010 election.

President Trump included substantial cuts in his recent budget, but signing the omnibus made a joke of his own proposals for fiscal restraint. 

The GOP’s discretionary budget actions and the relentless rise of health care and retirement spending have put the budget on a catastrophic course.

You can read the rest at The Hill.

March 29, 2018 1:29PM

Trump and Amazon: States Don’t Need More Sales Taxes

President Trump continued his grumbling about Amazon this morning, echoing common but misguided views about the states being hurt by the rise of retail sales over the Internet. NPR has said, “The big problem is a loss of sales tax revenues as online sales climb.” And a coalition of states recently complained that online sales are imposing an “ever‐​increasing toll on the states’ fiscal health.”

But government data does not show any substantial “toll.” The chart shows total state‐​local revenues from income and sales taxes as a percentage of gross domestic product (GDP). E‐​commerce sales have grown to nine percent of retail sales, but sales tax revenues have nonetheless roughly kept pace with economic growth.

Since 1990, sales tax revenues (including excise taxes) have dipped only slightly from 3.1 percent to 3.0 percent of GDP.

Meanwhile, state‐​local income tax revenues have fluctuated with the economy, but have trended upward. They have risen from 1.8 percent of GDP in 1990 to 2.1 percent today.

Overall, state‐​local tax revenues (including property and other taxes) have edged up since 1990 from 8.7 percent of GDP to 8.8 percent.

It is not a lack of revenue that is taking “a toll on the states’ fiscal health,” but, rather, ever‐​increasing spending on Medicaid and worker pensions, as the Wall Street Journal discusses today.

Media Name: sales_taxes.png