Research papers presented at November’s 34^th Annual Monetary Conference: Central Banks and Financial Turmoil are now available in the latest edition of the Cato Journal. The articles investigate pressing questions like the monetary effects of macroprudential regulation, central banks and the debt trap, and the monetary transmission breakdown.

In his editor’s note, Jim Dorn summarizes the general damage done by post-crisis monetary policy as well as the particular issues explored within the CJ’s covers, writing:

The Fed’s unconventional monetary policies have distorted interest rates and asset prices, misallocated credit, encouraged risk taking, increased leverage, penalized savers, and increased uncertainty…the contributors to this volume confront the uncharted waters of unconventional policies and offer valuable insights about how to move toward a transparent and robust monetary system.

The papers by retired BB&T CEO John Allison and FDIC Vice Chair Thomas Hoenig offer contrasting perspectives on the failures of post-crisis macroprudential regulation. Hoenig argues that regulation must be detached from short term economic objectives. Allison questions the ability of regulators to improve financial stability at all. Distinguished former central bankers Robert Heller, Athanasios Orphanides, and Daniel Thornton each claim that government debt and projected future deficits will weigh on the Fed’s interest rate policymaking decisions. Jerry Jordan explains how the buildup of excess reserves challenges the textbook understanding of monetary transmission, while Steve Hanke and Matt Sekerke examine the relation between bank regulation and broad money growth, showing that post-crisis monetary policy has been “tight” rather than “accommodative.”

Read these and more articles in the online Spring/​Summer 2017 Cato Journal here. Or order a hard copy here. Wish you’d attended the conference? Watch the video and check out a detailed summary here.

The Epoch Times quotes me on how the American Health Care Act’s Medicaid provisions create almost identical incentives to ObamaCare’s Medicaid expansion:

While both the per capita matching funds and the block grants seek to unleash innovation, they provide the states with very different incentives, according to Michael Cannon, director of health policy studies at the Cato Institute.

“The current per dollar matching grant system provides an unlimited entitlement to federal funds,” Cannon said. “The per capita matching grant system allows the states to keep that unlimited entitlement to federal funds going if they keep expanding enrollment, and so it creates enormous pressure for states to expand enrollment.”

Because able-bodied adults consume less health care than those who are more vulnerable, the per capita matching grants have an unintended consequence, according to Cannon. They will give states incentives to enroll able-bodied adults in preference to others who are more needy.

Cannon prefers giving the states block grants, which have the benefit of limiting federal expenses to a fixed amount, making the program financially sustainable.

For more, read my Philadelphia Inquirer op-ed, “Fulfill Promise to Repeal ObamaCare.”

This morning’s Supreme Court opinion in TC Heartland v. Kraft Foods, hinging on what I described in January as a dry point of statutory interpretation, is likely to stand as a landmark win for defendants in patent litigation — and, on a practical level, for fairer ground rules in procedure. A unanimous Court (8–0, Thomas writing, Gorsuch not participating) rejected the broad reading of a venue statute by which the Federal Circuit had empowered lawyers to forum-shop disputes from all over the country into a few decidedly pro-plaintiff venues, above all the largely rural Eastern District of Texas. From here out, defendants can still be sued in a district such as E.D. Tex. if they have a regular and established place of business in it, but the decision is likely to shrink what I called in my January preview a “jackpot patent litigation sector… that shifts around billions of dollars.” By redirecting cases into more neutral venues, it should bring outcomes closer to reflecting cases’ actual merits, which would in turn do much toward restoring confidence in this sector of the law.

If Congress believes the Court has erred it is free to restore patent venue to a more shopper-friendly set of rules. But after the experience of recent years, it is unlikely that a Congress of either party or any likely political complexion will have an appetite for doing that.

In 1964, most transit was privately owned, earned a profit, and was used by the average urban American 60 times a year. Then Congress passed the Urban Mass Transportation Act, offering capital grants to cities that took over their transit systems. Since then, most transit has been municipalized, we spend nearly $50 billion a year subsidizing it, and today the average American rides transit just 40 times a year.

Transit advocates complain that Americans have some sort of irrational love affair with their automobiles. But Americans have excellent reasons not to rely on transit. Here are nine of them.

1. Transit is slow.

Most transit is much slower than driving, and a lot of transit is slower than cycling. While the average speed of driving in most American cities is more than 30 mph, and in some it is more than 40 mph, the American Public Transportation Association’s Public Transportation Fact Book admits that the average speed of rail transit is just 21.5 mph while the average speed of buses is 14.1 mph. That doesn’t count the time it takes to get to and from transit stops.

2. It doesn’t go where you want to go.

Most transit is oriented to downtown, a destination few people go to anymore as less than 8 percent of urban jobs and 1 percent of urban residences are located in central city downtowns. If you don’t want to go downtown, transit is practically useless as hub-and-spoke transit systems can require hours to take you to destinations that are only a few minutes away by car.

3. It’s expensive.

The transit industry claims that transit saves people money. But the truth is that, for most people, it costs a lot less to drive than to ride transit. Transit fares in 2015 averaged 28 cents a passenger mile. That’s less than the cost of driving if you count all the costs of owning a car and are the only person in the car. But if you already own the car, the cost of one more trip is less than 20 cents a mile, and you save even more if you carry any passengers.

4. Lack of privacy and security.

Compared with the aura of security offered by riding inside of an automobile, many people avoid transit because they feel vulnerable and threatened by other riders. Teenagers swarm onto San Francisco BART trains to rob passengers. One person was killed and three injured in an Atlanta train shooting. Transit crime is up in New York despite a drop in the city overall. Even if these highly visible crimes had never taken place, sexual harassment of women is a constant problem with transit.

5. Our cities aren’t built for it.

Housing, jobs, and other destinations are so diffused throughout American urban areas that they don’t generate the large numbers of people moving from one point to another that mass transit systems need to work. One hundred years ago, when transit was at its peak, half of urban jobs were concentrated in factory districts. Today, most urban employment is in service jobs in such fields as health care, education, wholesale and retail trade, and utilities, and these jobs are diffused throughout urban areas. This makes it almost impossible for transit to serve commuters, much less anyone else.

6. Transit infrastructure is crumbling.

Rather than maintain transit systems in a state of good repair, the transit industry has chosen to build more transit lines that it can’t afford to maintain. Transit riders respond to delays and dilapidated transit by finding other methods of travel. The Department of Transportation’s latest assessment estimates that transit has a $90 billion maintenance backlog. Yet rather than address this backlog, transit agencies spent $6.4 billion building new rail transit lines in 2015.

7. It doesn’t carry freight.

Carrying large packages, suitcases, or shopping bags on transit is awkward at best and impossible at worst. Anyone who expects to travel with such cargo, even if only some of the time, will do best with a car.

8. Life is complicated.

Transit works best going from point A to point B if you happen to be near point A and want to get to point B. Transit doesn’t work well for trip chaining, going from point A to point B via points C, D, and E. Because life is complicated and people don’t want to spend all their time traveling, trip chaining works best in an independent vehicle such as a car.

9. It’s demeaning.

“Exact change only.” “Carry proof of fare with you at all times.” “No food or beverages.” “No playing music aloud.” “Take off your backpack and put it between your legs so we can cram more people onto your transit vehicle.” Some of these rules are for the convenience of other passengers, but most of them are for the convenience of the transit agencies themselves. Owning your own car means you can throw your bag in the back, drink your morning coffee, and play your favorite music as loud as you want. 

Bonus 10. Europeans don’t use transit much either

Europe is supposed to be a transit mecca, and transit there works for American tourists who are content to see only the major sights in big cities. But it doesn’t work for most Europeans much better than American transit works for most Americans. Example: According to the European Union, the average American rode light- or heavy-rail transit (known in Europe as trams and metros) 34 miles in 2006, while the average European rode them 89 miles. Yes, that’s more than twice as much, but that extra 55 miles is insignificant compared with the 12,600 miles the average American travels by car each year.

For all these reasons, just 5 percent of American commuting is by transit while 86 percent is by car. When all travel is counted, transit represents less than 1 percent of the total. Yet transit subsidies per passenger mile are 50 to 100 times as great as subsidies to driving. The solution is not to increase subsidies for one form of travel or another but to end all transportation subsidies and let people choose how to get around based on the real costs of travel.

In the New York Times, Niki Kitsantonis writes, “It may seem paradoxical, but Greece’s anarchists are organizing like never before.”

No. Anarchists — the sensible ones, at least — are not against organization. They are against rule — against ruling and against being ruled. Merriam-Webster explains the derivation of the word: “Medieval Latin anarchia, from Greek, from anarchos having no ruler, from an- + archos ruler.” True, as the dictionary editors note, “anarchy” and “anarchism” are sometimes used to mean something like “absence or denial of any authority or established order” or simply “absence of order.” But rational political theorists and even activists don’t advocate pure disorder; they advocate the absence of rule, which they define as the absence of government. 

So what is it that these Greek anarchists are organizing for? Well, in fact, the focus of the article is on how anarchists are supplying the services that the Greek state is not providing:

Seven years of austerity policies and a more recent refugee crisis have left the government with fewer and fewer resources, offering citizens less and less. Many have lost faith. Some who never had faith in the first place are taking matters into their own hands, to the chagrin of the authorities.…

Whatever the means, since 2008 scores of “self-managing social centers” have mushroomed across Greece, financed by private donations and the proceeds from regularly scheduled concerts, exhibitions and on-site bars, most of which are open to the public. There are now around 250 nationwide.

Some activists have focused on food and medicine handouts as poverty has deepened and public services have collapsed.

In recent months, anarchists and leftist groups have trained special energy on housing refugees who flooded into Greece in 2015 and who have been bottled up in the country since the European Union and Balkan nations tightened their borders. Some 3,000 of these refugees now live in 15 abandoned buildings that have been taken over by anarchists in the capital.

One part of Athens seems to have been a self-governing, but not state-governed, territory for some time. Some sources say Exarchia has existed since as early as 1870. The name presumably comes from “ex‑,” out of, away from, and of course “archos,” ruler.

In Athens, the anarchists’ epicenter remains the bohemian neighborhood of Exarchia, where the killing of a teenager by a police officer in 2008 set off two weeks of rioting, helped reinvigorate the movement and produced several guerrilla groups that led to a revival of domestic terrorism in Greece.

The police and the authorities tread lightly in the area.

The police have recently raided some buildings illegally occupied by anarchists, called squats, in Athens, in the northern city of Thessaloniki and on the island of Lesbos, a gateway for hundreds of thousands of migrants over the past two years.…

The anarchists say their squats are a humane alternative to the state-run camps now filled with more than 60,000 migrants and asylum seekers. Human rights groups have broadly condemned the camps as squalid and unsafe.

In Exarchia, one of the squats includes a former state secondary school that was abandoned because of structural problems. Established last spring with the help of anarchists, the squat is now home to some 250 refugees, mostly from Syria, who have set up a chicken coop on the roof. Many more refugees are on a “waiting list” for other occupied buildings.

The squats function as self-organized communities, independent from the state and nongovernmental organizations, said Lauren Lapidge, 28, a British social activist who came to Greece in 2015 at the peak of the refugee crisis and is actively involved with several occupied buildings.

“They are living organisms: Kids go to school, some were born in the squat, we’ve had weddings inside,” she said.

There’s really nothing paradoxical about anarchists setting up institutions and communities outside the state to provide needed goods and services. The Greek anarchists probably don’t see businesses as part of that non-state society, though libertarian anarchists and anarcho-capitalists do. 

What is paradoxical, as I wrote five years ago, is Greek “anarchists” who object to the state reducing its size, scope, and power by cutting back on taxes and transfer payments. Anarchists who organize voluntarily to achieve common purposes are just living their philosophy.

The Trump administration’s 2018 budget to be released tomorrow will include a range of proposed spending cuts. The budget will call for cuts to food stamps, Medicaid, and other entitlement programs. These reforms come on top of proposed cuts to discretionary programs released in March.

There is more good news. The budget will propose cuts to the fat benefit packages received by federal workers. An April CBO report found that benefits for the government’s civilian workers were 47 percent higher, on average, than for comparable private-sector workers. 

One cause of the excess is that federal workers receive both a defined-benefit and defined-contribution pension plan. Pensions and other benefits for the 2.1 million federal civilian workers cost taxpayers about $80 billion a year (excluding postal workers). So federal benefits are a good place in the budget to tap for savings.

The Washington Post reports that the Trump budget will propose these reforms:

• Increasing the required worker contribution to defined-benefit (DB) pension plans.
• Basing DB benefits on the average of the top five salary years rather than the top three.
• Ending cost of living increases for DB payouts.

These would be reasonable and long-overdue changes. Indeed, a better reform would be to phase out DB benefits for federal workers altogether. After all, just 13 percent of private sector workers even have DB plans. Federal compensation packages should reflect typical packages in the rest of the nation.

The Washington Post said, “The thought of Trump’s assault on federal retirement programs becoming law enrages federal employee leaders.” It certainly does. The paper quotes union leaders calling the proposals an “outrageous attack,” “downright mean,” and “beyond insulting.”

On the contrary, trimming the 47 percent advantage in benefits enjoyed by federal workers is a sensible attack on overspending. Furthermore, it is mean and insulting to taxpayers to give gold-plated pensions to workers inside the government bubble, especially since those favored few also have much higher job security than the rest of us.

See here for more thoughts on federal worker pay.

According to news reports last week, the legislature in Oklahoma passed, and Gov. Mary Fallin then signed, a bill whose wording directs judges to award reasonable attorneys’ fees and costs in cases of civil litigation. The provision was part of a bill on certain child abuse lawsuits, and its Senate sponsor said it was believed that the fee provision applied only to those cases until on a closer reading “it seems evident that it makes all civil cases … loser pays,” said Sen. David Holt. “But nobody caught that.”

As someone who has been writing in favor of the loser-pays principle since my first book, The Litigation Explosion, you might expect my reaction to this news (once I stopped laughing) to be positive. After all, there’s nothing wrong with a legislature enacting good policies through inadvertence. (For some legislatures, that seems to be the only way they do enact good policies.)

Sober second thoughts, however, will be less cheerful. Most advanced legal systems around the world follow versions of a loser-pays rule, but generally with the advantage of long experience that has allowed kinks to be worked out through Hayekian evolution, code tinkering, or both. Even the state of Alaska, the only one of the 50 to follow the principle, traces its experience back to 19th century territorial days. A well-functioning system must reflect a lot of embodied knowledge about how to handle the many intermediate cases (where both sides win on some issues, for example, or when a case wins but recovers no more than had previously been on the table as a settlement offer). Completely different results and incentives can be expected if fee shifts are set at artificially high levels (say, on a rationale of encouraging more assertion of the claim in question) than if their amount is low-balled.

Where there is no evolved local tradition, trying to design a system from scratch means either tying judges’ hands, inviting one set of problems, or accepting that they will use their discretion in perhaps surprising ways. Would you have guessed, for example, that language explicitly and neutrally providing for two-way fee shifts would at length be interpreted to entitle prevailing plaintiffs, but not prevailing defendants, to collect fees in ordinary cases? That’s what has happened in many employment discrimination cases in federal court.

Assuming Oklahoma goes ahead and does not look back, it will be placing a lot of confidence in its judiciary to learn fast and resolve a lot of issues on the fly.