Topic: General

First and Foremost, School Choice Is about Liberty

Liberty. It is America’s foundational value. We have failed to uphold it for far too many people much too often, but the freedom of Americans to choose what they will believe, and how they will live, is at the very heart of the American experiment. It is fitting, then, that we kick off five days of National School Choice Week posts on Cato@Liberty with a reminder of the fundamental good that is sacrificed when government controls education.

As we will be doing all week, I direct your attention to a clip from Andrew Coulson’s award-winning School Inc., a documentary series that ran on PBS stations nationwide in 2017 and can still be watched, in its entirety, on the website of Free to Choose Media. Here, after discussing sometimes even deadly fights that Americans have had over what the public schools will teach, Andrew invokes Thomas Jefferson’s warning about the tyranny of compelled support of others’ views, and explains how, by compelling such support, public schooling forces wrenching, divisive conflict. Such conflict could be avoided were people allowed to direct the funding for their children’s education to educators who share their values. In other words, by upholding liberty school choice is both more just, and more conducive to social harmony, than public schooling.

 

Brexit: What Now?

Two huge developments on Brexit this week.

First, Theresa May’s disastrous EU Withdrawal Agreement (negotiated and endorsed by the EU) suffered a crushing defeat in Parliament, going down by 432 votes to 202. This was a fundamental rejection of a deal with a host of problems. Under any normal circumstances, such a mammoth loss on a key policy would have ended a Prime Minister and a government.

Second, the leader of the opposition, Labour’s Jeremy Corbyn, called a subsequent vote of “no confidence” in the government. But with Brexiteers, including the Northern Irish DUP, swinging back behind the Prime Minister to avoid the possibility of a general election, the government survived (by 325 to 306).

What happens now? The default, set out by law, is that the U.K. leaves the EU on March 29th with or without a deal. It is well documented that there is a clear majority in Parliament who want to avoid leaving without a deal. But there is no clear majority for any of the options necessary to prevent a no deal exit.

I spent some time looking at the parliamentary arithmetic last night, from the perspective of Theresa May. She says that she a) wants to avoid no deal but b) wants to ensure she delivers Brexit. And there is no obvious means of achieving both of these goals.

Option 1: Operation Engage Conservatives

Her first option is to try to get more Conservatives on board to support a Withdrawal Agreement. But the difficulty of her being able to do so is set out by the graphic below. The Brexiteer Conservative rebels either want to completely throw out the Withdrawal Agreement for something new, remove a key provision (the backstop) or else simply leave without a deal. Given the EU has said publicly it will not renegotiate or remove the backstop, this seems a dead end unless May is willing to countenance no deal seriously.

The polling suggests that the Brexiteers were right about the politics up front – if the Prime Minister had pursued an “extensive Free Trade Agreement” Brexit and had not got bogged down in the complex arrangements she’d agreed, then a majority could just about have been eeked through on Conservative and DUP votes, with a smattering of Labour rebels (the no deal and no backstop crowds would have accepted it).

But we are where we are. Unless the EU is willing to reopen negotiations and offer a Canada+ deal for the whole of the UK (ending provisions to treat Northern Ireland differently) then tacking towards Brexiteers is endorsing the prospect of no deal, which May says she does not want.

It remains to be seen, of course, how many of these Brexiteers would actively support delivering Brexit through no deal if the EU rebuffed the opportunity to renegotiate outright. But through revealed preference (rejecting the Withdrawal Agreement), they have surely shown they are willing to countenance that risk.

One clear conclusion of this polling of Conservative rebels though is that there are only a tiny number of additional Conservative votes to be gained from a softer Brexit (single market *and* customs union membership – so-called Norway Plus). Given the commentariat all seem to think this week’s events must result in a softer Brexit, that means…

Option 2: Operation Engage The Opposition Parties

The second option is to give up on Conservative votes and try to reach out to opposition parties. Theresa May has offered Parliamentary talks to their leaders, and other groups of senior Parliamentarians. So far though, the leaders of the Labour party, the Lib Dems and the SNP have all said that their key demand is “taking no deal off the table.” Given no deal is the default Brexit, that essentially means “take guaranteeing Brexit off the table,” something the Prime Minister cannot do without her government likely falling.

The problem with dealing with the opposition parties is that they themselves are divided into two broad camps over what to do next.

Yesterday, 71 of 256 Labour MPs joined the campaign for a second referendum. Add in the Lib Dems, the SNP, the Green, a smattering of Independents who want this too and, say, 20 Conservatives, and there’s still only a combined circa 150 in the Chamber who are strongly for a fresh public vote. Even if the government went in this direction, and took the payroll vote with it, that would not command a majority in the chamber either. An overwhelming number of Conservative and Labour MPs in working class seats still by-and-large oppose a 2016 rerun. This could only happen if the Labour front-bench shift their position.

But the only other option that opposition parties might be interested in is a much softer Brexit: either a full, permanent customs union (Labour’s official position) or a Norway style option. Given 150 MPs would prefer a second referendum, it is unclear how many would opt for this if it was available. The only means of getting it through seems to be with Labour front-bench support, giving blessing to large numbers of Labour MPs to vote with the government. That would tear the Conservative party apart and probably guarantee a defeat in the next election, which would naturally appeal to Labour. But on the flipside, large numbers of Labour MPs in Leave constituencies would consider it highly risky as much of the media would describe as Brexit In Name Only, and the completely unreconciled Remainers would reject it for not fully ending Brexit.

Conclusion

Over the coming weeks, Parliament will likely host lots of indicative votes on all these options. The government has to bring forward a revised motion and try again. But so far the Prime Minister appears unwilling to change much of substance, and it’s not clear where she turns.

Crucial now will be the sequencing of votes by MPs for alternatives. If it gets to a stage where it’s the prospect of no deal against the last perceived line of defense against that happening, then Remainers and soft Brexiteers could unite. For now though, they are hopelessly divided too. Absent further constitutional vandalism endorsed by the Speaker of the House of Commons (a strong possibility), I still believe a no deal Brexit is highly possible, despite media claims to the contrary.

This Is Our Emergency

Last Friday, President Trump threatened to declare a national emergency and build his border wall using “the military version of eminent domain.” By Tuesday, Trump seemed to have climbed down somewhat, declining to repeat the threat in his televised Oval Office address. But the week’s end found the president declaring it would be “very surprising” if he didn’t pull the trigger.

So is the emergency-powers gambit a live option or—like the executive order revoking birthright citizenship Trump floated before the midterms—another pump-fake designed to thrill the base and rile the media? Either way, it’s a noxious, thuggish proposal. Using the army to do an end-run around Congress is not how constitutional government is supposed to work. Imagine believing that Latin American immigration so threatens our free institutions that only banana republic tactics can protect us. 

About the best one can say for the idea is that it has the accidental virtue of concentrating the mind wonderfully about the powers we’ve concentrated in the executive branch. 

Our Constitution cedes vanishingly few emergency powers to the president. He commands “the Militia of the several States, when called into the actual Service of the United States,” and has the power, via Article II, section 3, to convene Congress on “extraordinary Occasions,” such as a national emergency. “That is about as far as his crisis authorities go,” notes the University of Virginia’s Saikrishna Prakash: “the convening authority would have been unnecessary if the chief executive could take all actions necessary to manage ‘extraordinary occasions.’” 

In Youngstown, the 1952 “steel seizure” case, the Supreme Court rebuffed the Truman administration’s claim of a general presidential emergency power divorced from specific statutory or constitutional authority. Justice Jackson, in his influential concurrence, suggested that the Framers neglected to provide such authority for fear “that emergency powers would tend to kindle emergencies.” 

Surely, then, the president can’t just gin up a bogus crisis and use the military to get what he wants when Congress won’t give it to him—can he? It would be nice to be able to answer that question with a confident “no.” Unfortunately, in this case, at least two provisions of the U.S. Code passed during the 1980s, 33 USC § 2293  and 10 USC § 2808, give Trump a non-frivolous rationale for his claim that “I can do it if I want.” 

Overbroad delegations of emergency authority to the executive are a longstanding problem. During the Watergate-era congressional resurgence, a 1974 Senate special committee investigation (co-chaired by Frank Church of Church Committee fame) identified 470 provisions of federal law delegating emergency powers to the president and four proclamations of national emergency, dating as far back as 1933, then still in effect. That investigation led to the National Emergencies Act of 1976, which repealed existing emergency declarations, required the president to formally declare any claimed national emergency and specify the statutory authority invoked, and subjected new declarations to a one-year sunset unless renewed.  

Despite those efforts, the U.S. Code today remains honeycombed with overbroad delegations of emergency power to the executive branch. A Brennan Center report released last month identifies 136 statutory powers the president can invoke in a declared national emergency. Few of these provisions require anything more than the president’s signature on the emergency declaration to trigger his new powers—“stroke of the pen, law of the land—kinda cool,” in the Clinton-era phrase. 

Most of these emergency powers have never been invoked, many of them are innocuous, and some—like the provision that allows suspension of the Davis-Bacon Act in a natural disaster—are even sensible. But other long-dormant powers are extraordinarily dangerous.

Writing in the Atlantic, the Brennan Center’s Elizabeth Goitein highlights a WWII-era amendment to the Communications Act of 1934 empowering the president to close or take over “‘any facility or station for wire communication’ upon his proclamation ‘that there exists a state or threat of war involving the United States.’” She sketches a nightmare scenario in which Trump puts the country on a war footing with Iran; invokes § 706 of the Communications Act to assume control of U.S. internet traffic, deploys federal troops to put down the resulting unrest, and scares people away from the polling stations with a menacing Presidential Alert text message. Goitein grants that “this scenario might sound extreme,” and I admit I found it a bit overcooked. Even if the administration wanted to do something like this, I’m confident it would go bust, thanks to the sort of spectacular ineptitude that botched the initial rollout of the Travel Ban. 

However, she’s absolutely right to call on Congress to “shore up the guardrails of liberal democracy” with comprehensive reform of emergency powers. “Committees in the House could begin this process now,” she writes, “by undertaking a thorough review of existing emergency powers and declarations,” laying out a roadmap for repealing unnecessary delegations, and providing “stronger protections for abuse.” The sooner, the better: you never know when a competent authoritarian is going to come along. 

The Libertarian Experiment That Isn’t

According to Paul Krugman, the government shutdown amounts to a potentially big libertarian experiment.

With nine departments and multiple agencies closed, maybe for months, the New York Times columnist and Nobel laureate envisages a coming test of whether the country can live without the Food and Drug Administration, the Small Business Administration and farm subsidies.

So are those of us at Cato who believe in the abolition of these programs celebrating? Not quite.

As the vast majority of the U.S. population go about their daily lives, barely noticing that 25 percent of federal discretionary spending has been paused, it’s certainly possible many will wonder why debt is being racked up for programs that have no noticeable effect on their well-being. Who knows, many employees, businesses and farms may also reconsider the wisdom of placing their livelihoods at the whims of the political process.

Better still, the shutdown may bring attention to these otherwise rarely-scrutinized programs. If major columnists continue identifying Cato as proponents of scrapping things such as farm subsidies and small business cronyism, linking to our research on the damaging economic, political, and social consequences of existing provisions, the shutdown could serve a useful public education role too!

But, the truth is, most libertarians aren’t cheering current events because shutdowns appear not to change much in regards the size and scope of government in the long term, yet bring chaos, ill-feeling and uncertainty in the short.

Markets are powerful precisely because they allow people to interact in voluntary ways to fulfil wants and needs. Necessity, as they say, is the mother of invention.

Libertarians are indeed confident that, as in countries such as New Zealand, scrapping agricultural subsidies would deliver a more efficient industry, taxpayer savings, and a bigger economy.

But it’s obvious, as Krugman acknowledges, that temporary suspension of promised support is not an environment conducive to farmers making long-term crop or farm ownership decisions, private companies banding to form market-based food safety certification agencies, or small businesses sourcing new finance.

Yes, economic actors will take steps to mitigate the effects of disruption. But knowing government will eventually reopen, there is little to no incentive for the new institutions to develop or businesses and farms to undertake the structural change we would see if government absented from these roles. Instead, businesses and individuals are temporarily crippled in their forward planning and paralyzed by the uncertainty promises made to them being broken.

The natural priority for those farms, businesses and federal employees right now is to lobby successfully for the government to reopen and their payments to start flowing again. Hence the newspaper stories we see already about their difficulties, indicating precisely the diffuse costs yet concentrated benefits associated with much government spending.

That doesn’t mean libertarians are any less supportive of removing government from these activities. In fact, as Chris Edwards shows, a host of other areas likely to be noticeably affected by a sustained shutdown – security screening at airports, air traffic control, and the management of national parks – are better managed in other countries with more private sector involvement. If the shutdown brings attention to this, then great.

Overall though, libertarians are fully aware that for the real policy experiments we desire, the public and/or politicians must be convinced of the necessity or desirability for permanent policy change in a market-based direction. The best chance for success with that is in an environment where those affected can adjust in an orderly manner, and replacement private-sector institutions have time to develop.

Krugman knows it is disingenuous to suggest that the current chaos is some libertarian policy experiment. But as some Republicans do make the case that the programs above are vital for the health of the economy, and libertarians continue to make the case for their abolition, perhaps he will finally cease lumping Republicans and libertarians together in his columns.

Punitive Marginal Tax Rates and A Partial Appeal to The Economics Literature

Alexandria Ocasio-Cortez hit headlines last week for advocating marginal income tax rates “as high as 60% or 70%” on those earning $10 million plus per year. Under her plan, revenues from such a policy would be put towards funding a “Green New Deal.”

Matt Yglesias, Paul Krugman and Noah Smith were quick out of the blocks to defend the idea of massive marginal tax hikes on high earners as simply sensible, mainstream economics. They appealed to the work of economists Peter Diamond, Emmanuel Saez, Thomas Piketty and others, who have set out the case for very high marginal tax rates on top incomes in academic journals over the last two decades.

These economists have indeed recommended the optimal marginal tax rate for the top 1% of income earners in the U.S. should be a combined (federal, state and local taxes) rate of 73 percent or higher – designed with the aim of maximizing revenue from top taxpayers.

But their recommendation is not analogous to jacking up marginal federal income tax rates on very high earners in our current code. Furthermore, their result depends on highly contentious philosophical positions and economic assumptions.

On Behavioral Economics

Scott Sumner had a wonderful post on Econlog last week. He was responding to an Atlantic article lamenting behavioral economics not taking a prominent role in introductory economics courses.

Scott’s key point was that many insights in behavioral economics are intuitive, while important economic concepts are not. In a world in which there is so much misunderstanding about trade, migration, the price mechanism and much else, the real value added of introductory economics comes in giving students the toolkit to “think like an economist.” Hence, it makes sense to spend more time teaching standard micro over human heuristics and biases.

I couldn’t agree more. But there is perhaps another point Scott could have made.

Though behavioral economics is interesting and can have beneficial applications to our own life and in policy areas where clear defaults must be set, leaning so heavily on human irrationality in introductory courses risks behavioral economics becoming a kind of “Market Failure version 2.”

What I mean by that is that, absent a thorough treatment in courses with applications about trade-offs, unintended consequences, or case studies, the risk of throwing out basic economics so early in favor of declaring “humans are irrational” is that policy debates become even more heavily weighted towards unthinking intervention to “correct” for our supposed biases.

As with market failure, the undercurrent of lots of behavioral economic contributions – the throwaway implications – are that government intervention is needed to fix the biases of behavioral consumers. Intervention is often thought implicitly pareto improving over non-intervention (helping behavioral consumers without harming others.) But there are at least six reasons why this may not be the case (even if we see what we consider evidence of behavioralism):

1)      Behavioral consumers (BCs) might themselves respond “behaviorally” to interventions or nudges designed to help them, potentially leaving them worse off (e.g. drug prohibition, payday loan restrictions, some smart disclosures on credit costs).

2)      Seemingly behavioral decision-makers may, in fact, be acting rationally, especially given the costs associated with accessing information or switching (e.g. in credit card markets and in relation to fuel economy).

3)      Interventions to correct for irrational decision-making by BCs may impose substantial costs on others, maybe even failing a reasonable overall welfare evaluation (e.g. autoenrollment often comes with lower default savings rates, caps on payday loan interest rates can reduce services for non-BCs too).

4)      Developing policies to correct the biases of BCs may distract attention from policy approaches that are welfare-improving for all groups (e.g. opt-out organ donation vs. organ markets, environmental behavioral approaches vs. more direct tax incentives).

5)      Interventions can increase the complexity of economic decision making or worsen inaccurate perceptions of risk (e.g. disclosure laws, overdraft protection).

6)      Interventions can undermine the “ecological rationality” of the market, dampening incentives to learn from mistakes or for entrepreneurs to deliver new protections for BCs.

Yes, behavioral economics is an important body of economic knowledge. But putting irrationality front and center of very introductory economic courses would both constrain time from teaching more difficult economic concepts, and worsen economic policy debates absent teaching the difficulties associated with correcting perceived biases through interventions or nudges.

Equality vs. Equity vs. Capitalism

Spotted multiple places on the web, author unknown: 

 

"Equality Equity Capitalism" meme

The new meme isn’t quite satisfactory either, since capitalism provides no guarantees about maximizing access to un-paid-for game views, but it’s nice to see someone challenge the highly unsatisfactory old meme.

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