Today Cato Senior Fellow Nat Hentoff is 90. Happy Birthday Nat!

Check out this interview with Nat by the Foundation for Individual Rights in Education (FIRE).

Rather than retread the ground Michael Cannon ably covered yesterday regarding President Obama’s healthcare speech — short version: we’re all in this together, so if you’re against Obamacare, you’re for letting people die in the streets — I want to look ahead to what our fearless leader will do if the government does indeed lose King v. Burwell.

We’ve famously been told that the Department of Health & Human Services has no Plan B. But what if the Supreme Court forces the executive branch’s hand? Yes, there’ll be plenty of finger-pointing and demagoguery as a high-stakes game of chicken unfolds among the White House, Congress, and various state governments. But what could Obama/​HHS do? Remember, this is the president who has a pen and a phone, and “if Congress won’t act, I will.”

The running joke is that HHS/IRS will simply promulgate another rule deeming all federal exchanges to be state exchanges. But that couldn’t possibly be the answer, could it?

Actually, that’s an option, as described by Josh Blackman, co-author of Cato’s amicus brief in the case, in a new paper he wrote for the Federalist Society titled “The Legality of Executive Action after King v. Burwell.” Here’s the scenario:

HHS could determine that the fourteen states that declined to establish an exchange, but continued to perform certain regulatory activities that overlap with the ACA [what is known as “plan management”] have in effect established an exchange. As a result, consumers in these states could continue to receive subsidies. This approach would be inconsistent with the ACA, and disregard the choices the sovereign states made not to establish an exchange. If HHS issued such regulations—likely without notice and comment—it would amount to an end-run around an adverse ruling in King v. Burwell, and open the door to future litigation.

In other words, HHS would consider some states to have established exchanges without knowing it. Such an action would “distort political accountability and disregard the considered judgment of the sovereign states,” but hey, we’re all in it together, right? The clever lawyers who came up with the after-the-fact justifications for the IRS rule regarding federal subsidies in states lacking “exchanges established by the state” could surely come up with some legalistic language to justify such a radical move. Note that of the 14 states that currently perform certain “plan management” functions, seven have a “state-partnership exchange” (AR, DE, IL, IA, MI, NH, and WV) and seven have a “federally facilitated exchange” (KS, ME, MT, NE, OH, SD, and VA). All of these states explicitly disclaimed setting up their own exchanges and lack the “State law or regulation” required by the ACA of all state exchanges.

Another option would be for HHS to streamline the gauntlet states currently have to run to set up exchanges:

Under the current regime, it is impossible for a state to establish an exchange this quickly [before the end of 2015]. However, HHS may alter the guidelines in the Blueprint to expedite the process. As a report for the National Academy of State Health Policy observed, “It is possible that HHS might revisit, allow for phased compliance, or otherwise adapt these requirements in light of King to allow for state exigencies.” Because the states are attempting to work with HHS, the federal government would have more leeway to streamline the establishment of exchanges. Though at bottom, the state still must take specific actions to actually establish an exchange, rather than just deeming the federal exchange as a state-based exchange. 

One problem here is that 18 of the 34 states at issue passed Healthcare Freedom Acts, which prevent state officials from taking any actions that enforce Obamacare’s penalties. In some of the other states, (mostly Republican-controlled) legislatures would have to act to enable even the newly streamlined path to state exchanges. Perhaps in a handful, governors would be able to establish exchanges via executive order, but it’s unclear whether HHS action would be of any moment in any such decision.

Finally, the Justice Department could take the position that King’s scope is limited to the four named plaintiffs in the case. While this bizarre tactic was suggested by otherwise levelheaded University of Chicago law professor Will Baude in the New York Times, it really belongs in the realm of the trillion-dollar platinum coin that was floated (and rejected by Obama) as a possible solution to the debt-ceiling debate several years ago.

In all of these scenarios, the litigation would be titanic, but the Supreme Court would presumably not take kindly at the government’s attempted end-run around its ruling. We can presume that the government would lose, at least with the current composition of justices. But it will have extacted a political cost on its enemies, who will presumably be seen as trying to stop the subsidies that the administration is valiantly trying to preserve. Of course, that’s what was said about King v. Burwell in the first place.

So we really are back to square one. President Obama can try to run out the clock on his administration, kicking the ultimate resolution of this mess to his successor, but at the end of the day there really is no legal administrative plan B: only Congress can fix the mess it created when it passed Obamacare more than five years ago. As Josh says, “If the ACA is to succeed, it will be based on a partnership between the states and federal governments, complying with the law Congress drafted.” 

It’s all such a shame because it didn’t have to come to this, weakening and gumming up the healthcare system overall just to get a few more people covered (while driving up overall costs and slowing the economy). The ACA is the only major federal program, the only new social-welfare architecture, that was rammed through Congress on a partisan basis and against the obvious will of the people.

The people have tried valiantly to get rid of it, of course — even in 2012, when Obama was reelected, more Americans opposed the law than supported it — and they may get another opportunity in 2016. To that end, I look forward to Josh’s next paper, on the various political scenarios that could play out the day after victory in King through the presidential election.

According to many experts, the Federal Reserve’s discretionary policies didn’t just fail to prevent the Great Depression of the 1930s, the stagflation of the late 1970s and early 1980s, and the Great Recession of 2009. Instead, the Fed’s policies directly contributed to each dismal episode.

So it’s only natural to ask whether we could do better. Could a rules-based, free-market monetary system—one which is spontaneous, self-regulating, and independent of government meddling—serve us better than the existing fiat standard? And if that’s the case, how could we get from here to there?

The latest issue of the Cato Journal, containing the proceedings of Cato’s 32^nd Annual Monetary Conference: Alternatives to Central Banking: Toward Free-Mark Money, addresses these very questions. Its papers examine the constitutional basis for alternatives to central banking, the role of gold in a market-based monetary system, the obstacles to fundamental reform and how they might be overcome, the advent of cryptocurrencies, and much else besides. Highlights from the conference proceedings include Axel Leijonhufvud’s look at expansionary monetary policy’s effects on resource allocation and the distribution of income, Norbert Michel’s strategy for implementing a rules-based monetary framework, and the very different views of Edwin Viera Jr., Jerry L. Jordan, and George Selgin concerning the prospects for a revived gold standard.

In addition to the conference proceedings the issue features original articles by Peter Bernholz on the de-pegging of the Swiss Franc, and by Tyler Watts and Lukas Snyder on the resource costs of irredeemable paper money.

Here is a complete listing of the articles:

• Monetary Muddles by Axel Leijonhufvud
• Money and Banking: A Constitutional Perspective by Walker F. Todd
• Gold and Silver as Constitutional Alternative Currencies by Edwin Viera Jr.
• The Role of Gold in a Market-Based Monetary System by Jerry L. Jordan
• Law, Legislation and the Gold Standard by George Selgin
• Fix What Broke: Building an Orderly and Ethical International Monetary System by Judy Shelton
• Transitioning Standards of Value in Fixed-Value Monetary Systems by Nathan Lewis
• An Agenda for Monetary Action by James Grant
• A Roadmap to Monetary Policy Reforms by Norbert Michel
• A Private Committee for Monetary Reform: Process and Substance by Gerald P. O’Driscoll Jr.
• The Bitcoin Revolution by Bennett T. McCallum
• Bitcoin Will Bite the Dust by Kevin Dowd and Martin Hutchinson
• The Market for Cryptocurrencies by Lawrence H. White
• The Swiss Experiment: From the Lower Bound to Flexible Exchange Rates by Peter Bernholz
• Current Evidence on the Resource Costs of Irredeemable Paper Money by Tyler Watts and Lukas Snyder

The Cato Journal, a valuable resource for public policy scholars that’s also accessible to the non-specialist reader, is published three times a year: Spring/​Summer, Fall, and Winter. To subscribe, please visit the Cato Institute’s online store.

According to recent reportage in The Economist, “Many economists point to Iceland as a case study of what should be done during an economic crisis: devalue your currency, impose capital controls and avoid excessive austerity.” Not so fast.

Capital controls are for the birds. Nobelist, Friedrich Hayek, got it right in his 1944 classic, The Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

The latest validation of Hayek’s warning is being served up by Iceland. Iceland is in the process of phasing out capital controls. Those controls reduced foreign investments. Fine. But, what about property rights and the taking of property?

Creditors of Iceland’s failed banks have two options to remove the shackles and escape the ring fence imposed by capital controls. The creditors’ first option is to come to an “agreement” with the state liquidators by December 31^st and take a haircut. Alternatively, the creditors can escape by paying a tax of 39 percent on their assets. In either case, the creditors will take a heavy hit.

Iceland provides a concrete example that supports Hayek’s conclusions about capital controls: “Complete delivery of the individual to the tyranny of the state” and “the suppression of individual liberty”. 

Senator Ron Wyden wants the government to track imports of e‑cigarettes more closely. Specifically, he has asked the U.S. International Trade Commission to create a specific reporting category for e‑cigarette imports, which are not currently tracked as a distinct category from other small electronic devices. But why does it matter where the e‑cigarettes come from?

Senator Wyden never really answers that question in his letter to the ITC. 

The e‑cigarette market in the U.S. is already a multi-billion dollar market and growing. Unlike the traditional U.S. market for tobacco products where less than 6% of products are imported, it appears that most e‑cigarettes are imported, as are the nicotine-containing liquids used in them. Although the health risks of these products are not fully known, the FDA and [CDC] have warned of their use. In 2014, the [FDA] proposed to deem e‑cigarettes to be tobacco products under the [Tobacco Control Act]. Currently, because they are not a traditional tobacco product, e‑cigarettes and liquids can be sold without restriction to vulnerable segments of the population. CDC recently reported that use among middle and high school students tripled in just the past year from 4.5% of students in 2013 to 13.4% in 2014. Nonetheless, at this point, these products are not subject to health-based regulation, unlike traditional tobacco products imported into the U.S. Similarly, these products are not subject to unique import tariffs or federal excise taxes.

…

Because of the large and growing size of the e‑cigarette market and because of the potential revenue, public health and economic impacts of e‑cigarette and related imports, I respectfully request that the interagency 484(f) committee adopt statistical reporting numbers for e‑cigarette devices, e‑cigarette parts, and e‑cigarette liquids and cartridges respectively.

He notes that e‑cigarettes are increasingly popular, that their health risks are unknown, that the government wants to regulate them, and that they are being imported. But that doesn’t explain how the product’s foreign origin could possibly impact whether and how the government should regulate the product’s use. How will it help health regulators to know how many of the products are made abroad and in what countries?

I suppose import statistics could be relevant if the government wanted to impose a tariff on e‑cigarette imports. But tariffs are by their nature discriminatory taxes—they exist to protect the domestic industry from foreign competition. If you wanted to impose sin taxes on e‑cigarettes, tariffs would be a silly way to do that.

The foreign origin of e‑cigarettes may not legitimately impact the justification for regulation, but it could certainly impact the political calculus driving regulatory efforts. As Wyden noted, the vast majority of tobacco products sold in the United States are made in the United States, while “most e‑cigarettes are imported with upwards of 90% coming from China.” As bootleggers and Baptists push for regulation, the fact that these tobacco alternatives are made by foreigners and competing against domestic products virtually guarantees that regulations will benefit the tobacco industry at the expense of e‑cigarette users.

Recently, the U.S. Trade Representative’s office has begun pushing lower tariffs as a crucial part of the Trans Pacific Partnership (TPP). For me, this is a welcome development, because I worry that the focus on some of the other aspects of the TPP could obscure the positive impact of eliminating or reducing tariffs. In a press release related to a report issued last week, USTR put it like this:

The United States has one of the most open economies in the world, with an average applied tariff of 1.4%. In fact, nearly 70% of the products we import do not face any tariffs at all. However, when our exporters work to sell Made-in-America goods to other countries, they’re burdened with tariffs over twice as high on average. American manufactured goods face tariffs of up to 100% on certain goods in TPP markets, and American agriculture exports face tariffs over 700% on some products.

That’s all sort of true, but there’s more to the story. To get a better sense of tariff levels for the TPP countries, I went to a publication from the World Trade Organization called World Tariff Profiles. Tariffs are a little complicated, because there are individual tariffs for thousands of products, and they are lower for some countries than for others due to various free trade agreements. But a good general measure is the average applied tariff. Here is that tariff rate for all of the TPP parties except Brunei (for which there was no data) for 2013, sorted from lowest to highest, as well as the two general product categories where tariff levels were the highest: 

Country	Average applied tariff (%)	Highest tariffs (%)
Singapore	0.2	Beverages & tobacco (21.3), all else is duty-free
New Zealand	2	Clothing (9.7), Transport equipment (3.2)
Australia	2.7	Clothing (8.9), Transport equipment (4.8)
Peru	3.4	Clothing (11.0), Textiles (8.4)
United States	3.4	Dairy products (20.5), Beverages & tobacco (18.9)
Canada	4.2	Dairy products (248.9), Animal products (24.5)
Japan	4.9	Dairy products (135.3), Cereals & preparations (52.0)
Chile	6	Flat 6.0% applied duty across almost all products
Malaysia	6	Beverages & tobacco (105.5), Transport equipment (11.1)
Mexico	7.9	Sugars & confectionery (57.9), Animal products (36.0)
Vietnam	9.5	Beverages & tobacco (42.8), Coffee & tea (26.7)

Note that even where average tariffs are low, there remain some categories of products for which tariffs are fairly high.

The United States does OK in this comparison, although it is not right at the top (I’m not sure why the USTR average applied tariff figure differs from the World Tariff Profiles figure). Chile deserves some special praise, because while its tariff is not the lowest, it charges the same tariff for virtually all products, which reduces the burden on customs officials of classifying imports. 

The lesson I draw from all this is that there are still plenty of tariffs out there, imposed by the U.S. and others, and it would be great if trade agreements could do something about it.

In a case called King v. Burwell, the Supreme Court will soon decide whether it agrees with two lower courts that President Obama is breaking the law by subjecting 57 million employers and individuals to illegal taxes, and spending the illegal proceeds to hide the cost of Health​Care​.gov coverage from 6.5 million enrollees. Today the president delivered a speech designed to cow the Supreme Court Justices into turning a blind eye to the law. Instead, he offered what for some is the missing piece of the King v. Burwell puzzle. He displayed the very ideological fervor that leads powerful people to break the rules.

“We have an obligation to put ourselves in our neighbor’s shoes, and to see the common humanity in each other,” the president said. Yet the president of the United States has an even more important obligation to “take Care that the Laws be faithfully executed.” It’s right there in Article II, Section 3 of the U.S. Constitution, which President Obama swore to uphold. King v. Burwell is about his failure to meet that obligation. 

“Five years in, what we’re talking about is no longer just a law,” the president said. Indeed, the ACA has become almost a blanket grant of power allowing the president to do whatever he wills to promote his conception of the public good.

“This isn’t about the Affordable Care Act. This isn’t about Obamacare. This isn’t about myths or rumors that won’t go away. This is reality. This is health care in America,” he said. He spoke passionately about some of the people who have received subsidies. “Once you see millions of people having health care…you’d think it would be time to move on,” the president said, and that his illegal taxes and subsidies have been “woven into the fabric of America.” Should we move on if the president achieved these things by violating the law? 

The president is correct in this respect, however. King v. Burwell is not about the Affordable Care Act. It is about the president doing an end-run around the law and the voters.

The broader health care debate is between those who believe more government will increase access to health care, and those who think the only way to expand health care access is with less government and more freedom. (It is not, as the president suggests, a debate between people who want make health care more accessible and those who don’t.) Those who favor the less-government/more-freedom approach scored a victory when, buoyed by public opposition to ObamaCare, they convinced the majority of states not to implement the ACA. That outcome that effectively forces Congress to reopen the statute. The president implemented those taxes and subsidies illegally in the 38 states that had blocked them in order to prevent (a Republican) Congress from reopening his health care law. Rather than take care that the laws be faithfully executed, he did an end-run around around the law and the people. Today’s speech merely tells us why.

The president appealed to “security,” “dignity,” and “freedom.” We will have more of all of those things if the Supreme Court holds the president to his own health care law.