Archives: 08/2018

The Debasement of Human Rights

Back in May I invited Aaron Rhodes to come over from his home in Hamburg, Germany, to talk about his new book from Encounter Books, The Debasement of Human Rights: How Politics Sabotage the Ideal of Freedom. The Wall Street Journal’s James Taranto was in town to interview Rhodes, which he did after our forum. The interview appears in today’s Journal. It’s a tour de force, pulling together the many threads of a huge, complex argument and presenting them in a short, readable format.

If you’ve ever wondered what’s wrong with the UN Human Rights establishment but have never quite been able to put your finger precisely on what it is, this interview will answer many of your questions—and the book will spell out the details. The origins of a world in which dictators sit of the UN Human Rights Council, immune from criticism while condemning free societies, can be found in progressivism’s conflation of natural and positive law, which Franklin Roosevelt mastered with his “Four Freedoms” and his wife Eleanor helped institute in 1948 in the UN Universal Declaration of Human Rights. With that foundation, equating rights to liberty with rights to social security, rest and leisure, periodic holidays with pay, job training, and more, it was only a matter of time before tyrants would find their immunity in their purported provision of such services, invariably at the expense of liberty, leading to the debasement of real rights.

During the Reagan administration I served for a time as director of policy for the State Department’s Bureau of Human Rights and Humanitarian Affairs where I saw human rights hypocrisy up close. During the annual meetings in 1987 in Geneva of what was then the UN Commission on Human Rights, for example, we introduced a resolution condemning Cuba’s human rights record, only to be met with objections from European nations, effectively excusing those abuses by pointing to Cuba’s health care record. With the end of the Cold War, which tended to sharpen the difference between these two kinds of rights, the distinction has become increasingly blurred, as Rhodes explains, drawing on his experience as director of the International Helsinki Federation from 1993 to 2007 and his present position as president of the Forum for Religious Freedom – Europe.

“Can anything be done?” Taranto asks at the end of the interview. “I wish that the Trump administration would talk about human rights once in a while,” Rhodes answers. “They should talk about freedom.” 

Sen. Warren’s Confiscatory Corporate Governance Proposals

Sen. Elizabeth Warren of Massachusetts has introduced legislation that would radically overhaul corporate governance in America, requiring that the largest (over $1 billion) companies obtain revocable charters from the federal government to do business, instituting rules reminiscent of German-style co-determination under which workers would be entitled to at least 40% representation on boards of directors, placing directors under a fiduciary obligation to serve “stakeholders” as opposed to owners as currently, prohibiting political expenditures by corporations unless approved by at least 75 percent of directors and shareholders, and restricting directors and officers from reselling incentive stock within five years. 

“Let’s be clear, none of these are new ideas,” writes leading corporate governance expert Stephen Bainbridge of UCLA. “They are either academic utopian schemes or failed European governance models. There are very good reasons none of these dusty relics of eons of progressive corporate thought have made it into law.” His series of posts picking it apart in detail begins here.

Our friend James Copland of the Manhattan Institute points out that Sen. Warren’s proposal would pull down three main pillars of U.S. corporate governance: shareholder primacy, director independence, and charter federalism. Each has long been a subject of extensive research and debate, and the alternatives, European or otherwise, simply do not have as good a track record of supporting a dynamic economy that generates world-beating enterprises across a wide range of business sectors (as opposed to, say, the kind of specialty manufacturing at which Germany does well.) Worker board representation, in particular, shapes incentives in ways that discourage important forms of risk-taking and reallocation of capital across sectors. 

All of which helps explain why few startups would willingly accept Warren-style rules in drafting their by-laws. But there’s a big additional problem in applying the rules, as Warren would, to existing companies that have already been capitalized under different assumptions: it would in effect confiscate at a stroke a large share of stockholder value, transferring it to some combination of worker and “community” interests. This gigantic expropriation, of course, might be a Pyrrhic victory for many workers and retirees whose 401(k) values would take a huge hit in exchange for new rights of uncertain value to install board members. Already, some early enthusiasts for the Warren plan are treating the collapse of shareholder value as a feature rather than a bug, arguing that it would reduce wealth inequality. 

Whether or not it would accomplish that, it would test the restraints the U.S. Constitution places on the taking of property without compensation. Alas, the courts have been inconsistent about the extent to which they will recognize as takings, and provide a remedy for, legislative enactments that strip away much of the value of financial instruments or other property rights without expropriating fully 100% of their value.  Cato over the years has been very much part of that legal debate, arguing for a strong interpretation of the Fifth Amendment’s language: “nor shall private property be taken for public use, without just compensation.” 

Confiscatory proposals like Warren’s make it more important than ever that we be prepared to defend this element of liberty in the courts. 

How One Company Got the FDA to Ban All Its Competitors

Tom Toles cartoon on regulations

John Kelly, who writes a local column for the Washington Post, set out to investigate a century-old milk bottle claiming medicinal qualities and discovered a mid-20th century story of rent-seeking and crony capitalism:

But the big change for Burton-Parsons came in the late 1960s, when it entered the burgeoning soft contact lens market — not the lenses themselves, but the solution used to clean them.

And that’s where things took an interesting turn.

Up until 1974, consumers could purify their contact lenses by boiling them for 10 minutes in distilled water with salt tablets. But that year an Food and Drug Administration microbiologist named Mary Bruch — known as “the first lady of contact lenses” — gained oversight of that product. Bolstered by FDA ophthalmologist Arnauld Scafidi, Bruch started disallowing soft lens manufacturers from utilizing salt tablets, decreeing that consumers risked eye infection.

The only cleaning solution she approved was made by Burton-Parsons, which by then was headquartered in Seat Pleasant, Md., and owned by the Manfuso family, which also owned horse-racing tracks around the state. Its product — Boil-n-Soak — cost four times as much as the simple salt tablets.

It emerged during congressional hearings in 1980 that Bruch and Scafidi had been repeatedly wined and dined by Burton-Parsons executives. The Washington Post’s John F. Berry wrote: “Expense records showed that top executives bought Bruch more than 50 meals at places ranging from Caesars Palace in Las Vegas and Brennans in New Orleans to Maison Blanche and L’Auberge Chez Francois in the Washington area . . . [Bruch] also told the congressional committee that she exchanged vintage wine with one of the Manfusos who shared her interest in fine wine.”

Scafidi was unable to provide research to substantiate his claims that salt tablets were unsafe.

In 1974, Burton-Parsons had annual sales of about $5 million. In 1979, after five years of a near monopoly, it was sold to Alcon Laboratories, a subsidiary of Nestle S.A. of Switzerland, for $110 million, according to industry estimates.

Bruch and Scafidi were investigated by the FBI for the favors they allegedly gave the firm. Scafidi resigned, and Bruch was fired.

More on rent-seeking, crony capitalism, and lobbying regulators.

Prohibition Is the Obvious Cause of Opioid Crisis as CDC Releases Preliminary Casualty Numbers for 2017

Earlier this month the Centers for Disease Control and Prevention released preliminary estimates of the opioid overdose rate for 2017. The total overdose rate rose to approximately 72,000, up from a total overdose rate of 63,600 in 2016, an increase of roughly 10 percent. The total overdose rate includes deaths from numerous drugs in addition to opioids, such as cocaine, methamphetamine, and benzodiazepines. The opioid-related overdose rate increased as well, from a little over 42,000 in 2016 to over 49,000 in 2017. This increase occurred despite a 4 percent drop in heroin overdoses and a 2 percent drop in overdoses due to prescription opioids. A 37 percent increase in illicit fentanyl-related overdoses explains the jump in the death rate.

All of this is happening while the prescribing of high-dose opioids continues to decrease dramatically—over 41 percent between 2010 and 2015, with a recent report showing a further decrease of 16 percent during the year 2017.

This is more evidence, if any more was needed, that the opioid overdose problem is the result of non-medical users accessing drugs in the black market that results from drug prohibition. Whether these users’ drug of choice is OxyContin or heroin, the majority have obtained their drugs through the black market, not from a doctor. A 2007 study by Carise, et al in the American Journal of Psychiatry looked at over 27,000 OxyContin addicts entering rehab between the years 2001 and 2004 and found that 78 percent never obtained a prescription from a doctor but got the drugs through a friend, family member, or a dealer. 86 percent said they took the drug to “get high” or get a “buzz.” 78 percent also had a prior history of treatment for substance abuse disorder. And the National Survey on Drug Use and Health has repeatedly found roughly three-quarters of non-medical users get their drugs from dealers, family, or friends as opposed to a doctor.

Media and policymakers can’t disabuse themselves of the false narrative that the opioid problem is the product of doctors hooking their patients on opioids when they treat their pain, despite the large number of studies showing–and the Director of the National Institute on Drug Abuse stating—that opioids used in the medical setting have a very low addiction rate. Therefore, most opioid policy has focused on decreasing the number of pills prescribed. Reducing the number of pills also aims at making less available for “diversion” into the black market. This is making many patients suffer from undertreatment of their pain and causes some, in desperation, to turn to the black market or to suicide.

Since 2010, opioid policy has also promoted the development of abuse-deterrent formulations of opioids—opioids that cannot be crushed and snorted or dissolved and injected. As a just-released Cato Research Brief as well as my Policy Analysis from earlier this year have shown, rendering prescription opioids unsuitable for abuse has only served to make non-medical users migrate over to more dangerous heroin, which is increasingly laced with illicit fentanyl. 

This is how things always work with prohibition. Fighting a war on drugs is like playing a game of “Whac-a-mole.” The war is never-ending and the deaths keep mounting.

The so-called “opioid crisis” has morphed into a “fentanyl and heroin crisis.” But it has been an unintended consequence of prohibition from the get go.

Fractional Reserve Banking and “Austrian” Business Cycles, Part I

Several times on these pages (e.g., here and here), and elsewhere (e.g., here and here) I’ve tried to refute the claim, championed by certain Austrian-school economists and their many fans, that fractional-reserve banking is inherently fraudulent, because whenever the sum of readily-redeemable bank deposit balances and (when they exist) redeemable commercial banknotes exceeds the quantity of bank reserves, the difference must consist of so many fake “warehouse receipts” or “property titles.”

Although the popularity of the “fractional reserves equal fraud” (FR=F) thesis seems to be on the wane, many still remain in thrall to it, and I’m pretty darn sure that no further exertions by myself, Larry White, or anyone else will ever suffice to change all of their minds. Although I wish this weren’t so, I worry less and less about it. After all, there are still several Flat Earth societies, complete with dues-paying members, yet reputable geographers don’t seem to be losing any sleep over it.

There is, however, a second “prong” to the Austrian attack upon fractional-reserve banking which has also won many adherents, and which hasn’t been so thoroughly debunked as to make one wonder about those adherents’ powers of ratiocination. I mean the argument that fractional reserve banking inevitably causes business cycles by allowing banks to finance levels of investment exceeding those warranted by voluntary savings, at interest rates driven below their equilibrium of “natural” levels. The ensuing “malinvestment” boom, financed by “forced” rather than voluntary saving, inevitably leads to a bust, when unsustainable investments are liquidated, and economic activity is painfully redirected along sustainable paths.

In fact this second “fractional reserves equal Austrian business cycles” (FR=ABC) prong of the Austrian assault on fractional-reserve banking is just as unfounded as the first. The difference is that, while trying to win over the last, staunch adherents to the FR=F thesis may be futile, getting many who now believe that FR=ABC to see the error of their ways may not be so difficult, because the counterarguments haven’t been aired as often.

The Chance of Being Murdered or Injured in a Terrorist Attack in the United Kingdom

On Tuesday, a Sudanese immigrant to the United Kingdom named Salih Khater crashed his car into cyclists and pedestrians in a terrorist attack in London. Fortunately, Khater did not murder anybody in his attack but he did injure three pedestrians, one of whom was so lightly wounded that he was treated at the scene and released. The other two wounded people have since been released from the hospital. 

Terrorism has been relatively common in the United Kingdom for decades, from the Irish Republican Army to al Qaeda to ISIS. However, there is little research on the actual risk of a British person being killed or injured in a terrorist attack. This post is an attempt to quantify that risk.

According to data from the Global Terrorism Database at the University of Maryland, the RAND Corporation, and online sources for 2018, terrorists murdered 2,402 people in the United Kingdom from 1975 through August 14, 2018 (Figure 1). Despite increases in the number of murders committed by terrorists in recent years, especially a series of horrible attacks in 2017 that murdered 42 people, the long run trend is a decline in the number of people murdered by terrorists in the United Kingdom. Figure 2 shows that 5,267 people were wounded in terrorist attacks in the United Kingdom during the same period. Figures 1 and 2 only include victims and exclude the terrorists themselves from the death and injury statistics. Using existing data sources, somebody with knowledge and a lot of time could use the GTD and RAND databases to identify the nativity, ideology, and other characteristics of each terrorist like I did for the United States

Figure 1: Annual murders committed by terrorists in the United Kingdom
Figure 2: Annual injuries committed by terrorists in the United Kingdom

From 1975 through August 15, 2018, a British person’s chance of being murdered in a terrorist attack on British soil was about 1 in 1.1 million per year.  But that annual chance of being murdered in a terrorist attack obscures big shifts over time. Over the last decade, the annual chance of being murdered in a terrorist attack on British soil was about 1 in 11.4 million per year, far lower than the entire 1975-2018 period. Especially relevant is the number of injuries given that Khater only injured people in his attack. The annual chance of being injured over the entire time was 1 in 496,464 per year, but only 1 in 1.4 million per year over the last decade. 

Figure 3 tries to show how the risk has changed over time by using a moving three-year average of the annual chance of being murdered in a terrorist attack. I used a three-year moving average because zero people were killed by terrorists in many years and one cannot divide by zero. A note about reading Figures 3 and 4: the Y-axis is the annual chance of being murdered or injured in a terrorist attack, so the 2011 number of 63,280,444 in Figure 3 means that the chance of a British person being murdered in a terrorist attack was 1 in 63,280,444 that year. Thus, the higher the number, the lower the chance of being murdered in a terrorist attack. 

Figure 3 shows that the annual chance of being murdered in a terrorist attack fell rapidly from 1975 through 2004, rose over the next several years, fell again, and has been increasing since about 2012. Dropping the moving gives sharper divides: In 2016, 2017, and 2018 (so far), the annual chance of being murdered in a terrorist attack was about 1 in 7.3 million per year, 1 in 1.8 million per year, and zero (so far), respectively. 

Figure 3: Annual chance of being murdered in a terrorist attack in the United Kingdom

Figure 4 shows a similar decline in injuries inflicted by terrorists from 1975 through 2003 that abruptly reverses in 2004, falls again in the following years, and then starts to increase over the last few years. 

Figure 4: Annual chance of being injured in a terrorist attack in the United Kingdom

These above figures show that the chance of dying or being injured in a terrorist attack in the United Kingdom is small. Yet terrorism succeeds in terrifying people. None of the numbers above would give comfort to the actual victims of terrorism or their families because what happened to them is the equivalent of “winning” an evil anti-lottery. But the above numbers should show British citizens, their government, and the world at large that terrorism is a relatively small problem in the United Kingdom.    

The U.S. Trade Beef with China

The big picture of U.S. - China trade tensions can be difficult to sort out. How problematic are China’s trade practices, as compared to those of other countries? What is the appropriate U.S. government response? These are not easy questions to answer (although we do have some views).

Sometimes it can be helpful to focus on particular sectors instead. One such sector is beef, which U.S. farmers would like to export more of to China. At a recent Senate hearing, U.S. Trade Representative Robert Lighthizer was asked about this (starts around 20:00):

Sen. Jerry Moran: Let me get another question in before my time is fully expired. I applauded the administration for successfully concluded negotiations with China in 2017 to allow the US beef exports resumption into China after they were blocked in 2003. However, the 25% retaliatory tariff on US beef, which stems from the USTR 301 investigation, threatens to halt those exports and certainly any expansion. So on one hand, we had the opportunity to high five and brag about beef going to China. That seems – that opportunity seems to have disappeared and most concerning is what the growth potential that exists in China, what it does to our opportunities for increasing US beef sales.

Lighthizer: So, if I can, let me speak for a second about beef with China. I think it is a good example of what we are facing with China. So, the President’s strategy, as was the strategy of prior administrations, was to initially engage in a dialogue with China. We clearly have a chronic problem with China, we have a trade deficit with China, which was unsustainable, 375 billion dollars. A lot of which is not the result of real economics but really is a result of state capitalism. So, ten years ago as a result of negotiations because of their unfair practices, China agreed to allow US beef in certain circumstances, ten years ago. Over the course of the next ten years they didn’t let in beef because they made the promise but didn’t keep the promise. The President, during the 100-day period, when the President decided I will try a dialogue first, had that dialogue and as a result of that they agreed to let beef in. Let’s be clear though. The amount of beef – US beef that was eligible to come in was less than 3% of US production. So it wasn’t like it was going to be a panacea, although a lot of people thought it was. The result is that after the last time I saw the numbers, which were eight or nine months in, this was something like $60 million worth of beef sold in all of China. So I guess to me the China beef situation is more an example of what we’re facing with China than it is actually a solution. We really thought we would (a) be able to sell beef with hormones, the normal US production of beef into China for a long period of time. We don’t think they have a WTO right to keep us out. So while we made some headway in there, you’re right, they did take it away. That raises the question, this is going to be the question not with beef, but with all of the members and all of the retaliation, this may not be the appropriate time to raise it, I’ll do it on someone else’s time if you’d like, but we have to at some point discuss why we’re doing any of this. Because there clearly is pain associated with what we’re doing and the President is very sympathetic to not only cattle ranchers but to everyone else and a lot of ag but a lot of over people who are being, we believe, unfairly treated as a result of our attempt to really level the playing field.

Last year we wrote about the problems faced by U.S. beef exporters. (It’s worth noting that the 2003 ban mentioned by Senator Moran was in response to concerns about mad cow disease, and other countries also blocked U.S. beef exports). In our paper, we had some data showing how much beef imports into China have increased in recent years, and how well other countries were doing selling their beef in China:


Since we put together this data, China removed its ban on U.S. beef as part of a broader U.S.-China agreement, and U.S. exports of beef to China have grown. U.S. Meat Export Federation data show that, after the ban was lifted, there have been just over $60 million in sales of U.S. beef in China, over the past year or so. That figure matches pretty closely to the one Lighthizer referred to in his answer above. However, this figure is still dwarfed by the imports from other countries. As the table shows, imports come mostly from countries other than the United States. There are a number of reasons for the expansion of non-U.S. beef imports into China in recent years, but it is worth pointing out that Australia and New Zealand have a price advantage over their competitors, because those countries have negotiated trade agreements with China under which China cut its beef tariffs. Some of the other major beef exporting countries are also negotiating with China. Beyond tariffs, a trade negotiation provides a forum to talk about regulatory barriers.

If you don’t like numbers, we now have some visual evidence as well, as one of us (Huan) just went over to China, and while there she took a picture of the beef for sale in a Chinese grocery store in downtown Guangzhou, one of the most developed cities in China:  


This picture illustrates that imported beef is available for sale in China, but the market is dominated by non-U.S. beef. As can be seen in this picture, beef from Australia (indicated by an Australian flag and a yellow boundary) far exceeds the beef from anywhere else. Canadian beef (indicated by a red boundary) is a distant second. And American beef (indicated by a blue boundary) is pulling up the rear. 

When there is a situation where nobody can sell a product or service in China, it is clear that the problem is with China. But when other countries are selling a lot in China, it is worth thinking about what other countries are doing right and what the United States might need to improve.