April 9, 2019 9:22AM

More on Commodity Price Targeting

In a previous post, I argued that Paul Volcker didn't put a stop to inflation by having the Fed systematically increase interest rates when commodity prices rose, and lower them when commodity prices fell. While commodity-price targeting, aka a "price rule" for monetary policy, had some prominent proponents back in the 1980s, neither Volcker nor any other Fed chair embraced the idea.

Today's post has to do with two things that I didn't say in that earlier one. I didn't say that commodity price movements played no part at all in the Fed's decision-making. And I didn't say whether they should or shouldn't play any part in it. I plan here to review studies of the actual role commodity price movements have played in the Fed's monetary policy decision-making, as well as ones that ask whether the Fed would do a better job if it let them play a bigger one.

This post is, I warn you, both long and very wonkish. But if the Fed is to consider once again the possibility of basing its monetary policy decisions on the behavior of commodity prices, it's useful to take account of what a substantial body of previous research has had to say on the topic.

Read the rest of this post »
April 8, 2019 1:13PM

Federal Aid Failure #12

In my upcoming Cato study, “Restoring Responsible Government by Cutting Federal Aid to the States,” I discuss 18 reasons why federal aid to state and local governments should be zeroed out.

Reason #12 regards how aid induces states to delay important projects such as infrastructure. Governments stall needed projects for years as they wait for federal grant approval, and then after approval federal regulations raise project costs and create further delays.

Federal disaster aid illustrates the problem. Texas is currently stalled in pursuing $4 billion of hurricane protections as it waits for federal money, according to the Wall Street Journal. But Texas has a $1.7 trillion economy. There is no reason why it cannot find $4 billion to fund its own hurricane defenses. State-funded spending would be more timely and less bureaucratic than spending funded by Washington.

Unfortunately, when it comes to subsidies for their own states, nominal conservatives such as Governor Greg Abbott and Senator John Cornyn put aside their conservative views on federalism and become federal spending proponents.

The WSJ summarizes the current battle:

Texas lawmakers are up in arms over more than $4 billion in federal aid for hurricane protection that has been delayed amid tensions between the Trump administration and Puerto Rico.

In the aftermath of the calamitous 2017 hurricane season, the federal government last April allocated a total of $16 billion to Texas, Puerto Rico, and other areas to invest in defenses against future storms. A year later, not a single dollar has been disbursed …

Political leaders in Texas, which will receive about a quarter of the total allocation, say they are being unfairly ensnared in a bureaucratic tussle. And they are increasingly worried that the delay is leaving Gulf Coast communities still recovering from Hurricane Harvey vulnerable to more destruction just as another hurricane season is set to begin June 1.

Texas Republican Sen. John Cornyn, a Trump ally on most issues, in a speech on the Senate floor last week blamed the White House budget office for the delay.

“The disregard of those who are struggling to rebuild and prepare for future storms by the bureaucrats is appalling,” Mr. Cornyn said.

His comments came after Texas Gov. Greg Abbott and state land commissioner George P. Bush, both Republicans, and members of the state’s congressional delegation have implored the Trump administration to move quicker to release the funding.

. . . Before any of the funds can be disbursed, the White House budget office must sign off on rules drafted by HUD detailing how the money can be spent. The federal housing agency said the process has been slow because it is the first time billions of aid dollars have gone toward such a prevention effort.

A HUD spokesman said the department expects to complete the rules in the next few weeks.

But even after those rules are complete, states must then devise a plan to disburse the money, which also needs federal approval. That process could potentially take an additional nine months, said Brittany Eck, a spokeswoman for Mr. Bush.

. . . The delays could slow the pace of storm-protection projects such as deepening and widening bayous, according to Alan Black, director of operations for the Harris County Flood Control District, which includes Houston.

More on federal disaster spending here.

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April 8, 2019 8:30AM

The Pentagon’s Accounting Problem

The Pentagon’s inability to pass an audit, after years of outright stonewalling, followed by many more years of foot‐​dragging, is suddenly a hot topic. A few weeks ago, Rolling Stone featured a scathing exposé highlighting the Pentagon’s inability to count.

Writer Matt Taibbi explains

Ahead of misappropriation, fraud, theft, overruns, contracting corruption and other abuses that are almost certainly still going on, the Pentagon’s first problem is its books. It’s the world’s largest producer of wrong numbers, an ingenious bureaucratic defense system that hides all the other rats’ nests underneath.

These and other stories seem to have prompted House Armed Services Committee Chairman Adam Smith (D‑WA) to deliver a stern message to officials in the Department of Defense. The Trump administration has requested $750 billion for the Pentagon, but, Smith noted, “We literally don’t know where a chunk of that $750 billion is going to go. We can identify some of it here and there, but by any normal accounting measure, you can’t tell us where you’re spending your money, or how much inventory you have.”

Taibbi continues:

If and when the defense review is ever completed, we’re likely to find a pile of Enrons, with the military’s losses and liabilities hidden in Enron‐​like special‐​purpose vehicles, assets systematically overvalued, monies Congress approved for X feloniously diverted to Program Y, contractors paid twice, parts bought twice, repairs done unnecessarily and at great expense, and so on.

Enron at its core was an accounting maze that systematically hid losses and overstated gains in order to keep investor money flowing in. The Pentagon is an exponentially larger financial bureaucracy whose mark is the taxpayer. Of course, less overtly a criminal scheme, the military still churns out Enron‐​size losses regularly, and this is only possible because its accounting is a long‐​tolerated fraud.

Judging from the response of DoD’s senior leaders, however, there is absolutely no cause for alarm. Acting Secretary of Defense Pat Shanahan explained last year that they “never expected to pass the audit.” When a reporter asked him why taxpayers should trust the Pentagon with their money if it can’t even “get their house in order and count ships right or buildings right,” Shanahan quipped, “We count ships right.”

Taibbi explains: “This was an inside joke. The joke was, the Pentagon isn’t so hot at counting buildings. Just a few years ago, in fact, it admitted to losing track of ‘478 structures,’ in addition to 39 Black Hawk helicopters (whose fully loaded versions list for about $21 million a pop).”

This cavalier attitude is pretty maddening. It’s almost as though the DoD sees public scrutiny as not much more than a bothersome distraction. As I explained when we discussed Taibbi’s article in War on the Rocks’ latest “Net Assessment” podcast, I had Colonel Nathan R. Jessup’s courtroom monologue from the movie A Few Good Men running through my head.

While on the stand, Jessup (played by Jack Nicholson) tries to deflect questions about his immoral and unethical actions: “I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide and then questions the manner in which I provide it. I would rather that you just said ‘thank you’ and went on your way.”

DoD leaders may not have the inclination to explain their shoddy accounting, but they do have a responsibility to the American people who pay the bills; and our elected representatives have an obligation to get to the truth. There are reasonable doubts about the Pentagon’s ability to be a responsible steward of the vast sum of money shoveled its way every year. So long as these doubts persist, we shouldn’t expect that Americans will want to spend even more


April 5, 2019 3:03PM

What the Data Say About Equal Pay Day

This week saw the passing of “Equal Pay Day,” which marks the culmination of the roughly three extra months that an average female employee had to work in 2019 to match the amount of money made by an average male worker in 2018. Many people see the pay gap as unjust, but is it really a result of rampant sexism in the workplace as the critics allege?

survey unveiled on Tuesday by CNBC and Survey Monkey suggests that, actually, both men and women are equally pleased with their employment situations and the earnings gap can largely be explained by women being more likely on average to choose part‐​time work.

“Men have a Workplace Happiness Index score of 72 and women a score of 70, close enough to lack a statistically meaningful difference,” according to the newly released data. That fits with earlier polling that was conducted by Cato’s Dr. Emily Ekins, which found that in the United States, the vast majority of women “believe their own employers treat men and women equally.” Fully 86 percent of women polled believed that their employer pays women equally.

There is still a pay gap between men and women who work full‐​time, but that may be partly due to men and women opting to work in different fields. Dangerous jobs in fields like mining and fishing, for example, tend to attract men. Those jobs also tend to be relatively well‐​remunerated. (As Human​Progress​.org advisory board member Mark Perry points out, the gender gap in workplace deaths far exceeds the gap in pay).

Even so, among full‐​time workers, the “pay gap” is rapidly narrowing. Data from the OECD shows that the gender wage gap in median earnings of full‐​time employees is declining in practically all countries for which there are data. In the United States, highlighted in blue in the graph below, the wage gap has fallen dramatically since the 1970s. In 1975, the U.S. gender wage gap was 38 percent. By 2015, it had shrunk to 18 percent.

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That 18 percentage point difference does not take into account important characteristics like “age, education, years of experience, job title, employer, and location,” according to my Cato colleague Vanessa Calder. A recent study, which controlled for those characteristics, concluded that the U.S. gender pay gap is only around five percent, meaning that Equal Pay Day should actually be in January.

Of course, if any of that small remaining five percent gap is the result of sexist discrimination — rather than additional mitigating factors that the study failed to control for — then that is unacceptable. We should denounce all forms of inequitable treatment, wherever it persists. We should also take a clear‐​eyed view of the data and recognize the remarkable gains women have made in the workplace — and how labor market participation has transformed women’s lives for the better.

April 5, 2019 1:59PM

A Pretextual Traffic Stop Should Require Sufficient Pretext

Several years ago, Atlantic writer Conor Friedersdorf asked Twitter “If you could add one Bill of Rights style amendment to the Constitution what would it be?” I responded “The Fourth Amendment and “we mean it.”

My answer may have been tongue‐​in‐​cheek, but quite seriously, the Fourth Amendment and its protections have been eroded by the Supreme Court precedents over several decades. As a result, the power of the police to intrude upon the lives of individuals has grown and they have taken advantage of that power throughout the country.

The Fourth Amendment reads:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place searched, and the persons or things to be seized.”

In plain English, the amendment should mean — among other things — that the police cannot stop (or “seize”) you on the street for no good reason. In the context of traffic stops, the Supreme Court held in Whren v. U.S. (1996) that the police had to have probable cause to believe the driver or vehicle is in violation of a traffic law. In the abstract, Whren makes perfect sense: If an officer observes a moving violation, he or she can stop a driver to address the issue.

In practice, however, Whren has provided virtual carte blanche for police to stop motorists due to innumerable traffic laws, many of which are vague and subjective, that most drivers violate every time they get behind the wheel. As I explained in my 2016 Case Western Reserve Law Review article “Thin Blue Lies,” police routinely use these myriad violations as pretext to stop motorists and investigate other crimes entirely unrelated to traffic safety. Officers understand if they follow any driver long enough, they can almost certainly find a pretext for stopping the vehicle and conducting an informal roadside investigation, subverting the spirit (if not the letter) of the Fourth Amendment’s protection against arbitrary seizure.

Despite this gaping hole in Fourth Amendment protections, police officers in Nebraska initiated a traffic stop on a vehicle without probable cause of any traffic violation whatsoever. (This isn’t hyperbole. In court filings, the State of Nebraska stipulates there was no traffic violation.) As a result of the stop, the driver of the vehicle, Mr. Colton Sievers, was questioned and eventually arrested for methamphetamine possession after a search of his vehicle. He moved to have the evidence thrown out because the original stop was an illegal seizure under the Fourth Amendment.

In a rather unusual decision, the Supreme Court of Nebraska found that the stop was legal under a different case, Illinois v. Lidster (2004), which allowed police to stop vehicles at checkpoint to seek eyewitnesses to a recent crime in the area, not to investigate drivers for criminal wrongdoing. The merits of that decision aside, neither Sievers nor the State of Nebraska argued Lidster would have permitted the stop at issue in the present case.

So unusual is the Nebraska Supreme Court decision that law professor Orin Kerr, to whom Cato scholars often find ourselves in opposition regarding Fourth Amendment jurisprudence, has joined the Sievers legal team and co‐​authored a cert petition to the U.S. Supreme Court (SCOTUS). The petition asks SCOTUS to either hear Sievers v. Nebraska or summarily reverse the decision below.

In a Volokh Conspiracy blogpost about the Nebraska Supreme Court decision, Kerr wrote:

It’s true that Lidster allowed a suspicionless “information‐​seeking” checkpoint stop, which is effectively an exception to the usual rule that reasonable suspicion is required under Terry v. Ohio. [note: Terry v. Ohio (1968) preceded Whren, requiring police to have reasonable suspicion to initiate a pedestrian stop.] But the key to Lidster was that the officers were only trying to find innocent eyewitnesses to a past crime. The police set up the checkpoint at the scene of the accident hoping to find a member of the public who had seen the crime and might be able to give the police some leads. This fell out of the usual Terry requirement of suspicion, the Lidster Court held, because the police where just asking members of the general public if they could help the police.


It seems obvious that Sievers was different. This was not a case of “seeking information from the public.” The officers testified that they stopped the truck because they thought it might contain evidence of crime — specifically, stolen goods that they thought were being stored at the house where the truck had been parked. When the stop occurred, the officer who ordered the stop “advised the [other] officers to make a traffic stop to prevent the truck from leaving with any stolen items.” The lead officer explained that they need to stop and search the truck “for any items taken from the [firearms] burglary.”

And when Sievers was stopped, the officers didn’t treat him like a member of the public who perhaps just might have seen a crime. Instead, Sievers was treated as a dangerous suspect.

Hopefully, SCOTUS agrees to hear the Sievers case or summarily reverses the Nebraska Supreme Court. SCOTUS has already ceded too much leeway to police to stop motorists as pretext, but police officers should at least meet the minimum standard for a legal stop.

You can read the whole cert petition here.

April 4, 2019 4:44PM

Brown v. Board Did Not Start Private Schooling

A common refrain in opposition to school choice is that choice is rooted in racial segregation. Specifically, that people barely thought about choice until the Supreme Court’s 1954 Brown v. Board of Education decision required public schools to desegregate, and racists scrambled to create private alternatives to which they could take public funds. I have dealt with this before and won’t rehash the whole response (hint: Roman Catholics), but a new permutation popped up on Vox yesterday, with author Adia Harvey Wingfield asserting:

Prior to Brown v. Board of Education, most US students attended local public schools. Of course, these were also strictly racially segregated. It wasn’t until the Supreme Court struck down legal segregation that a demand for private (and eventually charter and religious parochial) schools really began to grow, frequently as a backlash to integrated public institutions.

Kudos to Prof. Wingfield for making clear that many public schools were “strictly racially segregated,” which often seems to be soft pedaled when linking choice to segregation. But her assertion that private schooling didn’t “really” begin to grow until after Brown is not borne out by the data. As the chart below shows, while the share of enrollment in private schools spiked in 1959, the growth in private schooling didn’t suddenly increase right before that. In 1889 — the earliest year available— the private school share was 11 percent, dipping to 7 percent in 1919, then pretty steadily rising until the 1959 peak. (Note, the earlier years of the federal data are in ten‐​year increments. Also, data include pre‑K enrollments.)

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History is clear that private education has long been with us, and while it has certainly at times been used to avoid racial integration, it has also been employed for reasons having nothing to do with that. This remains true even in our relatively modern era in which “free” public schools have crowded out many private options.

April 4, 2019 12:10PM

Wisconsin’s Butter Grading Law Is Udderly Ridiculous

By Ilya Shapiro and Matthew Larosiere

Minerva Dairy, based in Ohio, is America’s oldest family‐​owned cheese and butter dairy. It has been producing artisanal, slow‐​churned butter in small batches since 1935. It has sustained its business through their website and by selling to regional distributers in several states. This model has worked well everywhere except Wisconsin, which requires butter manufacturers to jump through a series of cumbersome and expensive hoops to sell their product.

Of course, Wisconsin is America’s Dairyland, with many large producers who (big surprise) have an interest in limiting competition. At the behest of these companies, the state requires every batch of butter to be “graded” by a specifically state‐​licensed grader — all of whom live in Wisconsin, except for a half‐​dozen in neighboring Illinois and a handful around the country that have been licensed only in the last year — who must taste‐​test every single batch. Because Minerva’s butter is produced in multiple small batches over the course of each day, the law would effectively require the dairy to keep a licensed tester on‐​site at all times, which is cost‐​prohibitive. The state admits that the grading scheme has nothing to do with public health or nutrition, but claims that its grades, based largely on taste, inform consumers.

The fact that Wisconsin is trying to shape the taste of butter isn’t even the most absurd part of this story. The criteria used to grade the butter are a ludicrous mad‐​lib of meaningless jargon not even the state’s experts understand. The law purports to identify such flavor characteristics as “flat,” “ragged‐​boring,” and “utensil.” (All commonplace terms spoken by consumers in dairy aisles across the nation, no doubt.) The terminology hearkens to a freshmanic — not even sophomoric — term paper on the semiotics of postmodern agrarian literature. To claim that a grade calculated with reference to udder nonsense serves the purpose of informing anyone illustrates the danger inherent in judges’ deferring to government rationales for silly laws that burden people who are just trying to make an honest living.

Our friends at the Pacific Legal Foundation represent Minerva in a lawsuit that challenges the butter‐​grading law on the grounds that it burdens interstate commerce in violation of the Commerce Clause, and also hurts small dairies’ Fourteenth Amendment rights to due process and equal protection of law. Minerva lost at the district court when the judge applied a toothless, cheesy “rational basis” test to the law in question, giving little weight to the serious concerns described above, then again in the Seventh Circuit (where Cato filed an amicus brief).

Tireless in its pursuit of reasonable review of this silly law, Minerva has asked the Supreme Court to take its case. Because laws that abrogate constitutional rights warrant meaningful judicial oversight, Cato has again filed an amicus brief supporting Minerva’s petition.

Wisconsin’s law directly burdens the right to participate in the state’s butter market, and thus their economic liberty, for no sane or “rational” reason. There are simply no benefits to consumers that come from forcing producers to pay considerable sums to have an arbitrary process deposit a random letter on product packaging. It curdles the mind to argue otherwise.

The Supreme Court will decide before it breaks for the summer whether to take up Minerva Dairy v. Pfaff.