A new Cato Institute/YouGov poll finds a solid majority—58%—of Americans supports the main components of the Iran nuclear deal, in which the United States and other countries would ease oil and economic sanctions on Iran for 10-15 years in return for Iran agreeing to stop its nuclear program over that period. Forty percent (40%) oppose such a deal.

Americans also prefer Congress to allow such a deal to go forward (53%) rather than block the agreement (46%). Support declines slightly when the deal is described as an agreement between the “Obama administration and Iran.”

Full poll results found here

Despite support for the deal, Americans remain skeptical it will stop Iran’s nuclear program. Fifty-two percent (52%) of Americans say the agreement is “unlikely” to “stop Iran from developing nuclear weapons,” including 32% who say it’s “extremely unlikely.” Conversely, 46% believe the deal is likely to achieve its primary goal.

However, Americans are more optimistic the deal will delay Iran from developing nuclear weapons. The poll found 51% of Americans think the deal will likely “delay” Iran’s nuclear development while 47% disagree.

The survey also offered Americans an opportunity to select which one of several policy options would be “most effective” in reducing the likelihood Iran develops nuclear weapons. Doing so found a plurality –40%— think the Iran nuclear agreement would be more effective than taking military action against Iran’s nuclear facilities (23%), imposing new economic sanctions against Iran (23%) or continuing existing sanctions against Iran (12%).

Ultimately, 63% of Americans say it would be a “disaster” if Iran developed nuclear capabilities while 32% say the problem could be managed and 5% say it wouldn’t be a problem. Nevertheless, Americans tend to have confidence that the Iran nuclear agreement may be the next best step toward reducing that possibility.

I owe a heckuva lot to Friedrich Hayek. Had it not been for him, I might never have heard of “free banking,” meaning the genuine article rather than the phony antebellum U.S. version. Certainly I would never have found myself writing about it. Nor, perhaps, would any other modern economist.

It was two pamphlets that Hayek published in the 1970s — first, Choice in Currency (1976) and then Denationalisation of Money (1978) — that caused the scales to fall off of my eyes and of those of some other economists, thereby encouraging us to reconsider the merits of private and competitive currency systems. That reconsideration in turn led to a revival of interest in former free banking episodes, including those of Scotland and Canada, which monetary economists had previously neglected or overlooked. In short, were it not for Hayek, there’d be no such thing as a Modern Free Banking School.

Yet Hayek himself was no free banker. For starters, his own vision of “choice in currency” had little if anything in common with historical free banking arrangements. In those arrangements, banks dealt in established, precious-metal monetary units, like the British pound and the American dollar, receiving deposits of metallic money, or claims to such, and offering in place their own readily-redeemable liabilities, including circulating banknotes. In Hayek’s scheme, in contrast, competing firms issue irredeemable paper notes, with each brand representing a distinct monetary unit. Far from resembling ordinary commercial banks, Hayek’s “banks” resemble so many modern central banks in that they issue a sort of “fiat” money. But they differ from actual central banks in enjoying neither monopoly privileges nor the power to compel anyone to accept their products.¹

Competition, Hayek claimed, would force private issuers of irredeemable currencies to maintain those currencies’ purchasing power, or else go out of business. An overexpanding free bank, in contrast, is disciplined, not by an eventual loss of reputation, but by the more immediate prospect of running out of cash reserves. Hayek’s claims have always been controversial, even among persons (myself among them) who are inclined to favor competitive currency arrangements over monopolistic ones. It isn’t clear that a Hayekian money issuer would ever manage to get its paper accepted, or that it would resist the temptation to hyperinflate if it did.²

But Hayek didn’t merely differ from free bankers in proposing a form of currency competition distinct from free banking. He expressly opposed free banking. Asked, during a 1945 radio interview, whether he considered the Federal Reserve System a step along “the road to serfdom,” he unhesitatingly replied, “No. That the monetary system must be under central control has never, to my mind, been denied by any sensible person.“³ And although by the 1970s he had come to believe it both possible and desirable to have a currency stock consisting of the irredeemable paper of numerous private firms, he also continued to maintain that, so long as government authorities supplied a nation’s standard money, private firms should not be able to issue circulating paper claims denominated and redeemable in that money.

The most explicit, later statement of Hayek’s views on free banking occurs in a lecture he gave at a conference in New Orleans in 1977, just as Denationalisation of Money was in press:

We have indeed given government, and for fairly good reasons, the exclusive right to issue gold coins. And after we had given the government that right, I think it was equally understandable that we also gave the government the control over any money or any claims, paper claims, for coins or money of that definition. That people other than the government are not allowed to issue dollars if the government issues dollars is a perfectly reasonable arrangement, even if it has not turned out to be completely beneficial. And I am not suggesting that other people should be entitled to issue dollars. All the discussion in the past about free banking was really about the idea that not only the government or government institutions but others should also be able to issue dollar notes. That, of course, would not work.⁴

Actually, governments monopolized the coining of gold and other metals, not for any good reasons, but because doing so gave them the opportunity to manipulate precious-metal standards in pursuit of narrow fiscal ends. But it is the last sentence of this quote that’s most surprising, for what Hayek declares “unworkable” is an arrangement that worked quite successfully in many places, including Canada, where it survived well into Hayek’s own lifetime. Canada’s banking and currency system had in fact been remarkably stable, altogether avoiding the crises by which the U.S. was afflicted in the decades leading to the Fed’s establishment, and weathering the Great Depression far better than the U.S. system did despite having lacked a central bank until after that episode’s nadir.⁵

That Hayek should have written as if he was quite unaware of the Canadian experience or, for that matter, of the still more famous Scottish free banking episode is extremely puzzling. It was Hayek, after all, who supervised, and signed off on, Vera Smith’s 1935 doctoral dissertation on “The Rationale of Central Banking” (subsequently published by P.S. King & Son, and reprinted by LibertyPress) in which she discusses both the Canadian and the Scottish episodes, as well as some other free banking episodes, in unmistakably favorable terms.

Had Hayek forgotten his own PhD student’s work, if not some of his own early research? Had he simply changed his mind, reverting to conventional wisdom after a brief interval during which he had entertained a more favorable view of free banking? Or had he never accepted Free Banking School arguments?

Larry White, who drew attention to Hayek’s anti free-banking stance some years ago in a History of Political Economy article entitled, “Why Didn’t Hayek Favor Laissez Faire in Banking?,” favors the third hypothesis, tracing Hayek’s position to his unwavering belief that a free banking system would manage the stock of bank money in a procyclical manner. Whereas for Mises, who did favor free banking,⁶ a cyclical boom was most likely to be set off by a central bank, for Hayek it is the competitive commercial banks that are most likely to overissue. Unlike Mises, Hayek subscribed to the popular view that banks might expand credit without limit so long as they expanded in unison, and that they would in fact be inclined to overexpand, while allowing their reserve ratios to decline, in response to cyclical increases in the demand for loans.

But Hayek was mistaken. The popular view, according to which banks can expand credit all they like so long as they expand it in unison, incorrectly equates a bank’s demand for reserves with its net demand for such — that is, with its need for reserves to cover expected or deterministic outflows. This overlooks banks’ need for “precautionary” reserves, or reserves that serve to protect against an undue risk of stochastic or random reserves losses. Even a well-coordinated, industry-wide expansion of bank credit will involve some increase in banks’ collective demand for precautionary reserves. For that reason such a coordinated expansion isn’t sustainable unless it’s accompanied by an increase in the nominal quantity of bank reserves. That is why, if one examines the record of so-called bank lending “manias,” one finds that they typically involve, not a substantial decline in bank reserve ratios, but a substantial increase in the nominal quantity of bank reserves.

Whether Hayek was right to reject free banking or not, and tempting as it may be for fans of free banking to claim him as one of their own, doing so would hardly be doing justice to that great economist. We may credit him for inspiring us all; but we mustn’t otherwise associate him with opinions that, rightly or wrongly, he flatly rejected.

______________________________________

[1] The modern cybercurrency market, consisting of Bitcoin and its many less well-known rivals (“altcoins”) offers something close to a real-world counterpart of Hayek’s scheme.

[2] For criticisms of Hayek’s scheme, and others like it, see George Selgin and Lawrence H. White, “How Would the Invisible Hand Handle Money?,” Journal of Economic Literature 32 (4) (December 1994), and Lawrence H. White, The Theory of Monetary Institutions, Part XII, “Competitive Supply of Fiat-Type Money” (New York: Blackwell, 1999).

[3] Hayek on Hayek: An Autobiographical Dialogue, ed. Stephen Kresge and Leif Wenar (Chicago: University of Chicago Press, 1994), p. 116; quoted in White, “Why Didn’t Hayek Favor Laissez Faire in Banking?, p. 763 n12.

[4] F. A. Hayek, “Toward a Free Market Monetary System.” Journal of Libertarian Studies 5 (1) (Fall 1979). Whether Hayek, like Friedman before him, imagines that private banks’ circulating paper dollars would be indistinguishable from the fiat dollars issued by the central authority, is unclear from this passage. If so, he committed the crude error of equating free banking with counterfeiting.

[5] On Canada’s decision, despite its monetary system’s good record, to establish a central bank in 1935, see Bordo and Redish.

[6] See Lawrence H. White, “Mises on Free Banking and Fractional Reserves,” in John W. Robbins and Mark Spangler, eds., A Man of Principle: Essays in Honor of Hans F. Sennholz (Grove City: Grove City College Press).

I owe a heckuva lot to Friedrich Hayek. Had it not been for him, I might never have heard of “free banking,” meaning the genuine article rather than the phony antebellum U.S. version. Certainly I would never have found myself writing about it. Nor, perhaps, would any other modern economist.

It was two pamphlets that Hayek published in the 1970s — first, Choice in Currency (1976) and then Denationalisation of Money  (1978) — that caused the scales to fall off of my eyes and of those of some other economists, thereby encouraging us to reconsider the merits of private and competitive currency systems. That reconsideration in turn led to a revival of interest in former free banking episodes, including those of Scotland and Canada, which monetary economists had previously neglected or overlooked. In short, were it not for Hayek, there’d be no such thing as a Modern Free Banking School.

Yet Hayek himself was no free banker. For starters, his own vision of “choice in currency” had little if anything in common with historical free banking arrangements. In those arrangements, banks dealt in established, precious-metal monetary units, like the British pound and the American dollar, receiving deposits of metallic money, or claims to such, and offering in place their own readily-redeemable liabilities, including circulating banknotes. In Hayek’s scheme, in contrast, competing firms issue irredeemable paper notes, with each brand representing a distinct monetary unit. Far from resembling ordinary commercial banks, Hayek’s “banks” resemble so many modern central banks in that they issue a sort of “fiat” money. But they differ from actual central banks in enjoying neither monopoly privileges nor the power to compel anyone to accept their products.¹

Competition, Hayek claimed, would force private issuers of irredeemable currencies to maintain those currencies’ purchasing power, or else go out of business. An overexpanding free bank, in contrast, is disciplined, not by an eventual loss of reputation, but by the more immediate prospect of running out of cash reserves. Hayek’s claims have always been controversial, even among persons (myself among them) who are inclined to favor competitive currency arrangements over monopolistic ones. It isn’t clear that a Hayekian money issuer would ever manage to get its paper accepted, or that it would resist the temptation to hyperinflate if it did.²

But Hayek didn’t merely differ from free bankers in proposing a form of currency competition distinct from free banking. He expressly opposed free banking. Asked, during a 1945 radio interview, whether he considered the Federal Reserve System a step along “the road to serfdom,” he unhesitatingly replied, “No. That the monetary system must be under central control has never, to my mind, been denied by any sensible person.“³  And although by the 1970s he had come to believe it both possible and desirable to have a currency stock consisting of the irredeemable paper of numerous private firms, he also continued to maintain that, so long as government authorities supplied a nation’s standard money, private firms should not be able to issue circulating paper claims denominated and redeemable in that money.

The most explicit, later statement of Hayek’s views on free banking occurs in a lecture he gave at a conference in New Orleans in 1977, just as Denationalisation of Money was in press:

We have indeed given government, and for fairly good reasons, the exclusive right to issue gold coins. And after we had given the government that right, I think it was equally understandable that we also gave the government the control over any money or any claims, paper claims, for coins or money of that definition. That people other than the government are not allowed to issue dollars if the government issues dollars is a perfectly reasonable arrangement, even if it has not turned out to be completely beneficial. And I am not suggesting that other people should be entitled to issue dollars. All the discussion in the past about free banking was really about the idea that not only the government or government institutions but others should also be able to issue dollar notes. That, of course, would not work.⁴

Actually, governments monopolized the coining of gold and other metals, not for any good reasons, but because doing so gave them the opportunity to manipulate precious-metal standards in pursuit of narrow fiscal ends. But it is the last sentence of this quote that’s most surprising, for what Hayek declares “unworkable” is an arrangement that worked quite successfully in many places, including Canada, where it survived well into Hayek’s own lifetime. Canada’s banking and currency system had in fact been remarkably stable, altogether avoiding the crises by which the U.S. was afflicted in the decades leading to the Fed’s establishment, and weathering the Great Depression far better than the U.S. system did despite having lacked a central bank until after that episode’s nadir.⁵

That Hayek should have written as if he was quite unaware of the Canadian experience or, for that matter, of the still more famous Scottish free banking episode is extremely puzzling. It was Hayek, after all, who supervised, and signed off on, Vera Smith’s 1935 doctoral dissertation on “The Rationale of Central Banking” (subsequently published by P.S. King & Son, and reprinted by LibertyPress) in which she discusses both the Canadian and the Scottish episodes, as well as some other free banking episodes, in unmistakably favorable terms.

Had Hayek forgotten his own PhD student’s work, if not some of his own early research? Had he simply changed his mind, reverting to conventional wisdom after a brief interval during which he had entertained a more favorable view of free banking? Or had he never accepted Free Banking School arguments?

Larry White, who drew attention to Hayek’s anti free-banking stance some years ago in a History of Political Economy article entitled, “Why Didn’t Hayek Favor Laissez Faire in Banking?,” favors the third hypothesis, tracing Hayek’s position to his unwavering belief that a free banking system would manage the stock of bank money in a procyclical manner. Whereas for Mises, who did favor free banking,⁶ a cyclical boom was most likely to be set off by a central bank, for Hayek it is the competitive commercial banks that are most likely to overissue. Unlike Mises, Hayek subscribed to the popular view that banks might expand credit without limit so long as they expanded in unison, and that they would in fact be inclined to overexpand, while allowing their reserve ratios to decline, in response to cyclical increases in the demand for loans.

But Hayek was mistaken. The popular view, according to which banks can expand credit all they like so long as they expand it in unison, incorrectly equates a bank’s demand for reserves with its net demand for such — that is, with its need for reserves to cover expected or deterministic outflows. This overlooks banks’ need for “precautionary” reserves, or reserves that serve to protect against an undue risk of stochastic or random reserves losses. Even a well-coordinated, industry-wide expansion of bank credit will involve some increase in banks’ collective demand for precautionary reserves. For that reason such a coordinated expansion isn’t sustainable unless it’s accompanied by an increase in the nominal quantity of bank reserves. That is why, if one examines the record of so-called bank lending “manias,” one finds that they typically involve, not a substantial decline in bank reserve ratios, but a substantial increase in the nominal quantity of bank reserves.

Whether Hayek was right to reject free banking or not, and tempting as it may be for fans of free banking to claim him as one of their own, doing so would hardly be doing justice to that great economist. We may credit him for inspiring us all; but we mustn’t otherwise associate him with opinions that, rightly or wrongly, he flatly rejected.

***

Addendum (July 22, 2015): Over at Mises Wire, Joe Salerno points to some passages in my post that he considers misleading or wrong. I’ve corrected one indisputable error — my suggestion that Vera Smith’s book includes a discussion of Canadian free banking — by crossing-out the offending words.

______________________________________

[1] The modern cybercurrency market, consisting of Bitcoin and its many less well-known rivals (“altcoins”) offers something close to a real-world counterpart of Hayek’s scheme.

[2] For criticisms of Hayek’s scheme, and others like it, see George Selgin and Lawrence H. White, “How Would the Invisible Hand Handle Money?,” Journal of Economic Literature 32 (4) (December 1994), and Lawrence H. White, The Theory of Monetary Institutions, Part XII, “Competitive Supply of Fiat-Type Money” (New York: Blackwell, 1999).

[3] Hayek on Hayek: An Autobiographical Dialogue, ed. Stephen Kresge and Leif Wenar (Chicago: University of Chicago Press, 1994), p. 116; quoted in White, “Why Didn’t Hayek Favor Laissez Faire in Banking?, p. 763 n12.

[4] F. A. Hayek, “Toward a Free Market Monetary System.” Journal of Libertarian Studies 5 (1) (Fall 1979). Whether Hayek, like Friedman before him, imagines that private banks’ circulating paper dollars would be indistinguishable from the fiat dollars issued by the central authority, is unclear from this passage. If so, he committed the crude error of equating free banking with counterfeiting.

[5] On Canada’s decision, despite its monetary system’s good record, to establish a central bank in 1935, see Bordo and Redish.

[6] See Lawrence H. White, “Mises on Free Banking and Fractional Reserves,” in John W. Robbins and Mark Spangler, eds., A Man of Principle: Essays in Honor of Hans F. Sennholz (Grove City: Grove City College Press).

Without government interference, insurance markets will naturally charge higher premiums for riskier individuals. For example, life insurance premiums vary considerably based on factors that increase the likelihood of death, such as age, gender, smoking status, and health.

Under Obamacare, many factors that influence healthcare expenditures are excluded from premiums. For example, premiums make no distinction for obesity, likelihood of having a baby, alcoholism or pre-existing conditions. One notable exception is for smokers, where premiums may be up to 50 percent higher than that for non-smokers. I have collected data on premiums for smokers and non-smokers in 35 states, and the data shows large variation in the extent to which smokers are charged more for their choice.

Smokers are certainly a risker group than non-smokers. Thus, one would expect some actuarial adjustment to premiums. Given the variation across states, it is clear that premiums vary not only due to a smoker’s greater risk, but other factors as well. At least part of the markup for smokers should be viewed as a “smoker’s tax” rather than an actuarial adjustment.

One expects that the detrimental effects of smoking would build over time. You wouldn’t expect to see large risk adjustments for young individuals. Let’s consider a 27-year-old who doesn’t receive subsidies but is mandated to purchase health insurance. If a non-smoker lived in Cheyenne, WY, he or she could purchase Blue Cross Blue Shield of Wyoming — BlueSelect Silver ValueTwo Plus Dental plan for $334 per month. This plan has a $3,000 deductible and an out-of-pocket maximum of $6,600. If the 27-year-old smoked, the same plan would be $417 per month, or 24.9% higher. For a pack-a-day smoker, this represents a $2.72 per-pack increase in expenditure due to Obamacare.

Smoker’s Premium in Wyoming — $2.72 per pack for a pack-a-day 27-year-old smoker

Smoker

Non-Smoker

However, not all of the $2.72 per-pack is a tax. Smokers are more expensive. Consider a non-smoker in Marquette, MI, who selects Blue Cross Blue Shield of Michigan — Blue Cross Silver Extra with Dental and Vision, a Multi-State Plan. That person pays $335 per month, nearly identical to the premium for the non-smoker in Wyoming. The plan has a $2,000 deductible and an out-of-pocket maximum of $5,500. If the 27-year smoked, the same plan costs $351 per month (4.8 percent higher), or $0.53 per-pack of cigarettes. If 53 cents per pack approximates the actuarial adjustment for young smoker, then much of the mark-up in Wyoming – $2.19 of the $2.72 – doesn’t represent risk, and can be viewed as a smoking tax.

Smoker’s Premium in Michigan — $0.53 per pack for a pack-a-day 27-year-old smoker

Smoker

Non-Smoker

It might be the case that the numbers above are the exception, not the rule. Yet, in a more comprehensive analysis of premiums, it is clear that the smoker’s premium varies considerably by state. Wyoming has some of the highest mark-ups, while Michigan has some of the lowest mark-ups. The plans presented above are quite similar with respect to premiums and cost sharing for non-smokers, yet the smoker’s mark-up varies greatly. The table below shows average mark-ups for young smokers, restricting the set of plans to Obamacare “Silver” plans for 27-year-olds.

 

If a “pack-a-day” smoker is an overstatement for actual consumption, then Obamacare cigarette taxes are extremely high in some states – in fact, far higher than the explicit excise tax. The median excise tax on cigarettes is $1.36 per pack, and is $0.60 per pack in Wyoming (ranking 40^th out of the states) and $2.00 per pack in Michigan (ranking 12^th).

Based on this analysis, it is clear that the Obamacare smoker’s tax doesn’t represent risk adjustment in many states. But why are cigarette taxes in Obamacare – above and beyond the actuarial adjustment – a problem? Aren’t smokers are doing something terrible to themselves (and others, through secondhand smoke)? In economics, one of the core assumptions is individual rationality. People weight the costs and benefits of their actions and do what’s best for them. Everyday behavior – from smoking cigarettes, to eating pizza instead of broccoli (or sometimes both), to jaywalking in order to save a few seconds of time, to getting in the car to drive to work – involves risk and rewards. If people understand the inherent risks and rewards, then we respect consumer autonomy even if we wouldn’t make the same choice. The economic argument for taxing behavior like smoking (through excise taxes or Obamacare taxes) is that it creates negative externalities. For smoking, there are in fact negative externalities. These are costs produced but not borne by the smoker, the most obvious of which is secondhand smoke. When such externalities exist, corrective taxation is one of several ways that a more efficient allocation of resources can be achieved. Nonetheless, evidence suggests that cigarette taxes at their current levels more than pay for such negative externalities. As importantly, there’s no reason to think these externalities are much different in Wyoming and Michigan.

With that said, should we be concerned with Obamacare cigarette taxes versus, say, excise taxes? One disadvantage of differing excise taxes across state or city borders is that it encourages smuggling or purchases from low-tax areas. Thus, the tax doesn’t correct the negative externality. That differs, of course, from Obamacare taxes where a person would need to move from Wyoming to Michigan to reduce the tax. Yet, Obamacare cigarette taxes present a host of problems. The vast majority of people do not receive health insurance from Obamacare, so its cigarette taxes do not correct the externalities smoking produces. In addition, the cigarette taxes in Obamacare lack transparency. They are buried in the weeds of Obamacare premiums as hefty smoking taxes, meant to influence or punish the choices of 18 percent of American adults. Perhaps if smoking rates were as high as obesity, they’d have enough political power that bureaucrats wouldn’t punish them.

 

Aaron Yelowitz is an associate professor in economics at University of Kentucky and a Visiting Scholar at Cato Institute.

People who have heard of the Jones Act (Merchant Marine Act of 1920) generally are aware that its stated purpose is to maintain a strong U.S. merchant marine industry. Drafters of the legislation hoped that the merchant fleet would remain healthy and robust if all shipments from one U.S. port to another were required to be carried on U.S.-built and U.S.-flagged vessels. Unfortunately, things haven’t worked out very well. 

The protectionism of the Jones Act has given the United States the type of merchant marine that would be expected from a sector that has been cut off from market forces for close to a century. Instead of being a global powerhouse, the U.S. merchant fleet has become a minor player. In 1955 the 1,072 ships in the fleet accounted for 25 percent of global tonnage. Today the 191 vessels account for 2 percent of the world total. Those vessels primarily carry cargoes from one U.S. port to another, along with government-generated exports, such as military equipment and food aid. 

Not surprisingly, shipping goods on a U.S.-flagged vessel is a high-cost proposition, which explains why the U.S. fleet simply can’t compete in normal global commerce. A 2011 study by the U.S. Maritime Administration (Marad) showed that the average daily operating costs for American vessels were roughly three times higher than comparable vessels registered in other countries.

Currently there are only three U.S.-flagged dry-bulk vessels of the type used to haul grains, fertilizers, and coal. Lack of availability of U.S.-flagged vessels to ship grains between U.S. ports helps to explain a news item from last week: 50,000 metric tons of Brazilian corn have been contracted for shipment to Wilmington, NC. 

The decision to bring more grain into North Carolina isn’t hard to understand. The state ranks second in production of pigs and turkeys, fourth in production of broiler chickens, and ninth in production of eggs. The state’s livestock industry is large, so its animals require a lot of feed. North Carolina and surrounding southeastern states don’t raise enough corn and soybeans to meet local demand. The United States as a whole produces plenty of livestock feedstuffs – particularly corn and soybeans – more than any other country. From a North Carolina perspective, too much of those crops grow in the wrong place. Des Moines, IA, for example, is in the heart of the Midwest. It also is well over 1000 miles away from livestock producers in North Carolina. 

A substantial quantity of corn and soybeans (or soybean meal) moves by train from the Midwest to feed mills in the Southeast. However, rail transport of bulk commodities not only is relatively costly, the timing of shipments also can be unpredictable. Trains moving from the western Corn Belt need to go through Chicago, the busiest rail junction in the country. Trains have been known to be delayed for days just trying to transit that city. It’s not fun to be raising pigs or chickens when the feed you need to keep them from getting hungry is stuck on a train far away.

Several years ago a group of North Carolina livestock producers took steps to deal with the challenge of procuring a steady supply of competitively priced feedstuffs. They banded together to build a facility for unloading cargoes of grains or soybean meal from ocean-going vessels at the port of Wilmington. Wilmington Bulk LLC provides a cost-effective entry point for water-borne cargoes, which helps to assure abundant feed supplies for North Carolina farmers. Instead of being limited to sourcing grains and soybean meal in the Southeast or Midwest of the United States, those products now can be procured from anywhere in the world.

But why not simply ship corn from the Midwest to Wilmington by water? Waterborne transport of bulk commodities generally is less expensive than moving them via rail or truck. The United States already has a highly sophisticated system for transporting agricultural commodities from the Midwest to the Gulf of Mexico that uses the Mississippi River and its tributaries. This country long has been the world’s largest exporter of grains and soybeans. The majority of those exports move down the river system before being loaded onto ocean vessels near New Orleans. Why not just contract with an ocean-going dry-bulk vessel to make the relatively short trip (approx. 1600 miles) from Louisiana to North Carolina instead of the much longer trip (approx. 4500 miles) from the port of Santos in Brazil?

Yes, the Jones Act makes the perfectly rational plan of moving Midwestern grain by water to North Carolina economically infeasible. Recall that there are only three dry-bulk vessels in the U.S.-flag fleet, and that the daily cost of chartering those vessels would be roughly three times higher than international rates. Under those circumstances, it’s not hard to understand why the operators of Wilmington Bulk find it most cost-effective to obtain their supplies from overseas and have them shipped on foreign-flagged vessels.

The solution to this problem, of course, would be to allow foreign-flagged vessels to carry shipments from one U.S. port to another. The best way to achieve this would be to repeal the Jones Act. (Sen. John McCain (R‑AZ) has drafted legislation to do so.) If special maritime policies are needed to meet national security requirements, they should be targeted thoughtfully so that they don’t interfere with commercial shipping. Until maritime statutes are reformed, though, it can be expected that North Carolina’s pigs and turkeys will continue to enjoy feedstuffs from around the world.

(For more detail on the Jones Act, see this recent article by my Cato colleague, Scott Lincicome.)

Martin O’Malley, the former governor of Maryland and Democratic presidential candidate, is no Bill and Hillary Clinton, who have made more than $100 million from speeches, much of it from companies and governments who just might like to have a friend in the White House or the State Department. But consider these paragraphs deep in a Washington Post story today about O’Malley’s financial disclosure form:

While O’Malley commanded far smaller fees than the former secretary of state – and gave only a handful of speeches — he also seemed to benefit from government and political connections forged during his time in public service.

Among his most lucrative speeches was a $50,000 appearance at a conference in Baltimore sponsored by Center Maryland, an organization whose leaders include a former O’Malley communications director, the finance director of his presidential campaign and the director of a super PAC formed to support O’Malley’s presidential bid.

O’Malley also lists $147,812 for a series of speeches to Environmental Systems Research Institute, a company that makes mapping software that O’Malley heavily employed as governor as part of an initiative to use data and technology to guide policy decisions.

I scratch your back, you scratch mine. That’s the sort of insider dealing that sends voters fleeing to such unlikely candidates as Donald Trump and Bernie Sanders.

These sorts of lucrative “public service” arrangements are nothing new in Maryland (or elsewhere). In The Libertarian Mind I retell the story of how Gov. Parris Glendening and his aides scammed the state pension system and hired one another’s relatives.

In some countries governors still get suitcases full of cash. Speaking fees are much more modern.

The same day three weeks ago that the Supreme Court ruled on same-sex marriage (Obergefell v. Hodges), our friends at the Institute for Justice claimed a strong victory in favor of individual rights and economic freedom in an important case before the Texas Supreme Court (a.k.a. SCOTEX).

In Patel v. Texas Department of Licensing and Regulation, the court was faced with a state constitutional challenge to a licensing requirement that hair threaders acquire cosmetology licenses — to the tune of nearly $9,000 and 750 hours — when such classes “are not related to health and safety or what threaders actually do.”

Threading is a South Asian and Middle Eastern beautification practice whereby a person removes eyebrow hair through the skilled application of taut cotton threads tied in a small loop. Licensing requirements have recently come under scrutiny from both Democratic and Republican leaders, who claim that they unduly restrict trade and burden the poor.

In Patel, SCOTEX interpreted the “due course of law” provision of the Texas Constitution to protect economic liberties. This despite the court’s jurisprudence in this area having been plagued by the application of inconsistent standards. State law had recognized three applicable standards of scrutiny: the “real and substantial relation” test, the rational-basis-plus-review-of-evidence test, and the good ol’ rational basis test. The expansive language of the Texas Due Course Clause would suggest that courts should be more skeptical of state regulations than they are under the rational basis test (which is similar to its federal counterpart in that essentially all laws survive such “scrutiny”). 

And indeed here, the court adopted a more restrictive form of review — apparently yet another new standard — looking at whether “a statute’s effect as a whole is so unreasonably burdensome that it becomes oppressive in relation to the underlying governmental interest.” Applying that test, the court found the cosmetology requirements had “no rational connection to reasonable safety and sanitation requirements” and invalidated the licensing scheme as it applies to hair threaders.

After enjoying the majority opinion, don’t overlook the concurrence by Justice Don Willett, joined by two other colleagues on the nine-member court:

This case concerns far more than whether Ashish Patel can pluck unwanted hair with a strand of thread. This case is fundamentally about the American Dream and the unalienable human right to pursue happiness without curtsying to government on bended knee. It is about whether government can connive with rent-seeking factions to ration liberty unrestrained, and whether judges must submissively uphold even the most risible encroachments. 

George Will recently praised Justice Willett’s approach — favorably comparing him to Chief Justice John Roberts (a low bar, to be sure) — particularly for his treatment of Lochner v. New York (1905). Questions of substantive economic liberties always bring about discussion of that famous case, in which the U.S. Supreme Court struck down maximum-hours regulations regarding New York City bakers as an imposition on the constitutional freedom of contract. The New Deal Court effectively overruled Lochner in West Coast Hotel v. Parrish (1937), paving the way for Carolene Products v. United States (1938), which bifurcated our rights and protected so-called fundamental rights more than others (including economic and property rights).

That Lochner was wrong is one of the few points of agreement between conservative and progressive legal scholars, both of which would rather that “unelected black-robed philosopher-kings” stop striking down the people’s laws. (Somehow, progressives have no problem with Brown v. Board of Education, or Roe v. Wade, or indeed Obergefell, all of which invalidated state laws — and conservatives were dismayed when the Supreme Court saved RobertsCare in NFIB v. Sebelius.) Chief Justice Roberts invoked Lochner 16 times(!) in his dissenting opinion in Obergefell.

As Justice Willett notes, “The Lochner bogeyman is a mirage but a ready broadside aimed at those who apply rational basis rationally.… The Constitution does protect economic liberty.” To Justice Willett — the most Twitter-friendly jurist in the land (also a low bar) — the fundamental question in Patel and similar cases is “one of constitutional limitations”: “Should judges blindly accept government’s health-and-safety rationale, or instead probe more deeply to ensure the aim is not suppressing competition to benefit entrenched interests?” Willett would have presumed the question in favor of individual liberty, rather than presuming the constitutionality of the statute as the majority opinion did (before rebutting that presumption) to conclude that “[t]hreaders with no license are less menacing than government with unlimited license.”

So kudos to IJ, to SCOTEX, and to liberty. June 26 was a great day for judicial engagement and judicial review across the land.