On North Korea, Diplomacy Is the Sensible Option

The Trump administration’s approach to North Korea’s nuclear weapons and ballistic missile development has been almost exclusively an emphasis on military confrontation. The latest eruption of escalatory actions and rhetoric is in keeping with the norm.

Following Pyongyang’s successful testing of an inter-continental ballistic missile (ICBM) this week, Trump referenced “some pretty severe things that we are thinking about” in response. Gen. Vincent K. Brooks, commander of U.S. forces in South Korean, warned ominously that “it would be a grave mistake for anyone” to doubt our willingness to use military force in response to North Korean “provocation.” UN Ambassador Nikki Haley said in a statement that we will use “our considerable military forces…if we must, but we prefer not to have to go in that direction.” Finally, U.S. and South Korean forces “fired a barrage of guided-missiles into the ocean” off the east coast of the Korean Peninsula, as a show of force.

Many Americans believe the hardline approach to North Korea is wise because peaceful negotiations, in Eli Lake’s words, have been used by Pyongyang “to buy time and extract concessions from the West.” Diplomacy doesn’t work on the intransigent North Korea, we’re told.

But that conflicts with the historical record. According to Stanford University’s Siegfried S. Hecker, the record from the Bill Clinton and George W. Bush administrations shows that “Pyongyang was willing to slow its drive for nuclear weapons” but “only when it believed the fundamental relationship with the United States was improving, but not when the regime was threatened.”

This is a crucial point. For decades, Washington’s general approach has involved economic sanctions, military encirclement, and regular threats of preventive war. In this environment, and without good faith overtures from Washington, North Korea is going to continue to insist on having the ability to deter invasion or attack by the United States or its allies.

There Is No Evidence of an Illegal Immigrant Crime Wave: Why the “Elusive Crime Wave Data Shows Frightening Toll of Illegal Immigrant Criminals” Is Flawed

The House of Representatives recently passed the No Sanctuary for Criminals Act (H.R. 3003) and Kate’s Law (H.R. 3004) to tighten immigration enforcement in response to the fear that illegal immigrants are especially likely to commit violent or property crimes.  Both laws stem from the tragic 2015 murder of Kate Steinle by an illegal immigrant named Juan Francisco Lopez-Sanchez after he had been deported multiple times. 

Debates on the House floor over both bills veered into the social science of immigrant criminality.  The majority of research finds that immigrants are less likely to be incarcerated than natives and that increases in their population in local areas are correlated with lower crime rates – even for illegal immigrants.

Despite that wealth of empirical evidence, a two-year-old Fox News piece entitled “Elusive Crime Wave Data Shows Frightening Toll of Illegal Immigrant Criminals” by investigative reporter Malia Zimmerman was offered as evidence of illegal immigrant criminality.  Ms. Zimmerman’s piece makes many factual errors that have misinformed the public debate over Kate’s Law and the No Sanctuary for Criminals Act.  Below, I quote from Ms. Zimmerman’s piece and then respond by describing her errors and what the actual facts are.

Unpublished ICE Memo Allows Arrests of Non-Criminal Immigrants Who Trump Did Not Prioritize

A new document received by ProPublica under a Freedom of Information Act request demonstrates that the U.S. Immigration and Customs Enforcement (ICE) has adopted a policy that conflicts with both President Trump’s executive order (EO) and public Department of Homeland Security (DHS) guidelines on immigration enforcement. I commented for the story, which you can read here.

The bottom line is that the memo shows that for months, ICE has been requiring agents to arrest all unauthorized immigrants whom they “encounter,” regardless of whether they are otherwise priorities for removal. Previously, ICE had admitted that it sometimes arrests non-prioritized immigrants, but this memo goes much further, requiring them to do so in all cases. This directly contradicts President Trump’s statements about targeting criminal aliens, the text of his EO which creates priorities for removal, and Secretary John Kelly’s department-wide DHS memo that requires that agents be able to retain their discretion over arrests and mandates that they follow the department’s removal priorities when arresting people that they “encounter.” 

A Legal Setback for the Fed

Twice here, yours truly has reported on The Fourth Corner Credit Union’s attempts to get the Kansas City Fed to grant it a master account, so that it could gain access to the Federal Reserve operated interbank payment and settlement system, and thereby supply ordinary banking services to Colorado’s legal marijuana-related businesses.

Although the 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA) requires that “All Federal Reserve bank services…shall be available to nonmember depository institutions and such services shall be priced at the same schedule applicable to member banks,” the Kansas City Fed, after dragging its feet for months, summarily turned down TFCCU’s request in July 2015, on the dubious grounds that the National Credit Union Authority had earlier (and almost certainly at the Fed’s behest) denied TFCCU’s request to take part in its Share Insurance Fund — the credit-union counterpart of FDIC deposit insurance. I say “dubious” in part because TFCCU was planning to secure private insurance coverage, but mainly because insurance coverage had never been considered a requirement for having a Fed master account.

Until now, things have worked out badly for TFCCU. Although it sued the Kansas City Fed, the Fed’s lawyers replied with a motion to dismiss the suit, to which TFCCU’s lawyers responded with a counter motion, along with a request for summary judgement. Alas, TFCCU’s efforts came to naught when U.S. District Judge R. Brooke Jackson sided with the Fed. In his nine-page opinion, Jackson insisted that despite TFCCU’s “attempts to give me comfort that, notwithstanding the oath I took to uphold the laws of the United States, I can grant the relief it seeks,” despite federal justice guidelines issued in February 2014, granting banks in states where marijuana-related businesses were legal a green light to do business with them, subject to specific reporting requirements, and despite TFCCU’s stated intent to obey federal law, his hands were tied by the Controlled Substances Act.

Well, recently TFCCU got some good news at last. In a message he sent me last week, Mark Mason, the credit union’s attorney, wrote

I wanted to share the big win with you — we got Judge Jackson’s order vacated by the 10th Circuit Court of Appeals. Judge Bacharach’s opinion agreed 100 percent with our position [that the F]ed must provide all depository institutions access to the payments system and that it has no discretion in that regard.

Judge Bacharach’s well-argued opinion, which is well-worth reading in full, allows TFCCU to proceed with its suit after all. Though not yet a complete victory for the beleaguered credit union, it’s at least a giant step in that direction.

[Cross-posted from Alt-M.org]

What the FOMC Minutes Reveal about Normalization

The Federal Reserve released the minutes from its June policy-setting meeting yesterday afternoon.  The Federal Open Market Committee (FOMC) minutes reflect an economic outlook consistent with recent public comments made by Fed officials: an improving labor market, confidence that the current path of monetary policy will achieve 2% inflation in the long run, and an expectation that economic growth will continue to rise from the disappointing Q1 figures.

Balance Sheet Reduction

The minutes note that all FOMC participants agreed to the balance sheet reduction program, which was described in more detail in an update to the Fed’s Policy Normalization Principles and Plans following the June policy meeting. In sum, the program suggests that the Fed will limit the reinvestment of the principal of maturing assets on its balance sheet through a series of monthly caps. Initially, the Fed will allow up to $6 billion in Treasuries and $4 billion in agency debt and MBS to roll off each month. Whatever matures above those limits in a given month will continue to be reinvested. Every three months the caps will increase by $6 billion for Treasuries and $4 billion for agency debt and MBS over 12 months until $30 billion of Treasuries and $20 billion of agency debt and MBS are rolling off each month. The Committee anticipates these to be the monthly caps until the balance sheet returns to a new normal that is considerably lower than the present $4.5 trillion level but appreciably higher than its pre-crisis level of around $800 billion.

One new detail revealed in the minutes is that the FOMC seems to be split on when the balance sheet wind down should be announced. Some members want to announce the start date within a couple months while others prefer to wait until late this year. Noticeably absent from the minutes is a discussion about the actual start date for the reduction plan.

Corruption Is Not All Bad

According to the WSJ, drug-trade-related violence is rising again in Mexico:

On the morning of March 23, gunmen here fired eight shots into a cherry-red Renault Duster SUV, killing newspaper reporter Miroslava Breach as she waited outside her home to drive her 14-year-old son Carlos to school.

A hand-painted sign at the scene said the journalist—known for her investigations into ties between drug gangs and local political machines—was murdered “for having a loose tongue.”

After a few years of declining violence under Mexican President Enrique Peña Nieto, the drug war has come roaring back to life.

Ms. Breach was one of 11,155 people murdered in Mexico in the first five months of 2017, according to government statistics. The pace of murders—about one every 20 minutes—represents a 31% jump from a year earlier, and, by year-end, could rival 2011’s 27,213 homicides for the worst body count in Mexico’s peacetime history.

Why? The story offers multiple reasons, such as increased bloody competition between rival gangs, set off by the arrest of senior leaders. The most interesting hypothesis, however, is this:

There is also a counterintuitive dynamic at work, say scholars of the drug trade: In recent months, voters have thrown out of office allegedly corrupt state and local leaders of President Peña Nieto’s ruling Institutional Revolutionary Party, or PRI. That, in turn, has led to the breakdown of unofficial alliances between drug gangs and politicians—what some are calling a pax mafiosa—that had kept the killings in check.

That is, when governments impose bad laws, corruption that circumvents the laws can have beneficial effects. In this case, violence is costly to traffickers as well as other citizens, so corruption that diminishes prohibition enforcement—de facto legalization—makes it easier for the cartels to operate non-violently.

Another Misleading Quotation in Nancy MacLean’s “Democracy in Chains”

Everybody’s finding errors in Duke historian Nancy MacLean’s “work of speculative historical fiction” on Nobel laureate James Buchanan and the libertarian movement, Democracy in Chains. I’d feel left out if I weren’t misquoted, so I’m relieved to find my name on page 211. Here’s what MacLean says about me and some of my purported allies:

Nancy MacLean quotes David Boaz

Now: Did I actually say that the poor and working class are “intent on exploiting the rich”? Or “that they contribute nothing”? Well, here’s what I wrote on pp. 252-53 of The Libertarian Mind, which is the source MacLean footnotes:

Economists call this process rent-seeking, or transfer-seeking. It’s another illustration of Oppenheimer’s distinction between the economic and the political means. Some individuals and businesses produce wealth. They grow food or build things people want to buy or perform useful services. Others find it easier to go to Washington, a state capital, or a city hall and get a subsidy, tariff, quota, or restriction on their competitors. That’s the political means to wealth, and, sadly, it’s been growing faster than the economic means.

Of course, in the modern world of trillion-dollar governments handing out favors like Santa Claus, it becomes harder to distinguish between the producers and the transfer-seekers, the predators and the prey. The state tries to confuse us, like the three-card monte dealer, by taking our money as quietly as possible and then handing some of it back to us with great ceremony. We all end up railing against taxes but then demanding our Medicare, our subsidized mass transit, our farm programs, our free national parks, and on and on and on. Frederic Bastiat explained it in the nineteenth century: “The State is that great fiction by which everyone tries to live at the expense of everyone else.” In the aggregate, we all lose, but it’s hard to know who is a net loser and who is a net winner in the immediate circumstance.

On the preceding pages I introduced James Buchanan and the concept of public choice:

One of the key concepts of Public Choice is concentrated benefits and diffuse costs. That means that the benefits of any government program are concentrated on a few people, while the costs are diffused among many people. Take ADM’s ethanol subsidy, for instance. If ADM makes $200 million a year from it, it costs each American about a dollar. Did you know about it? Probably not. Now that you do, are you going to write your congressman and complain? Probably not. Are you going to fly to Washington, take your senator out to dinner, give him a thousand-dollar contribution, and ask him not to vote for the ethanol subsidy? Of course not. But you can bet that ADM’s corporate officers are doing all that and more. Think about it: How much would you spend to get a $200 million subsidy from the federal government? About $199 million if you had to, I’ll bet. So who will members of Congress listen to? The average Americans who don’t know that they’re paying a dollar each for ADM’s profits? Or ADM, which is making a list and checking it twice to see who’s voting for their subsidy?

I also wrote on page 253 about the “parasite economy,” in which

every group in society comes up with a way for the government to help it or penalize its competitors: businesses seek tariffs, unions call for minimum-wage laws (which make high-priced skilled workers more economical than cheaper, low-skilled workers), postal workers get Congress to outlaw private competition, businesses seek subtle twists in regulations that hurt their competitors more than themselves. 

Let’s be clear: when public choice economists and I talk about “rent seeking” and “concentrated benefits,” and we point to “subsidy, tariff, quota, or restriction on their competitors,” we’re not trying to protect the rich. We’re talking about ways that businesses, unions, and other organized interest groups seek to use government to gain advantages that they couldn’t gain in the marketplace. And when we suggest limiting the power of government to hand out such favors, we are arguing in the interests of workers and consumers.

I do not believe that MacLean’s two very short quotations from The Libertarian Mind and the paragraphs in which she situates them fairly depict my argument in the book. One might even say that she reversed the meaning of “the predators and the prey.” Unfortunately, selective quotation and misrepresentation seem to be MacLean’s M.O., as Steve Horwitz, Phil Magness, Russ Roberts, David Henderson, David Bernstein, Bernstein again, Nick Gillespie, Michael Munger, and others have pointed out.

By the way, Professor MacLean derides me as a writer “subsidized by wealthy donors.” Well, yes, it’s true that the Cato Institute is supported by voluntary contributions, not by tax funding. And donors to organizations – Duke University, NPR, the Sierra Club, Planned Parenthood, the Brookings Institution, the Cato Institute – tend to be well-off. But I assure Professor MacLean that I was absorbing the ideas of John Locke, Adam Smith, F. A. Hayek, the American Founders, and John Stuart Mill long before I discovered that there might be jobs available to write about such ideas.

Although James Buchanan was not involved in the founding of the Cato Institute, as MacLean writes, we are proud that he chose to write frequently for the Cato Journal, speak at various Cato events, and allow us to count him as a Distinguished Senior Fellow. And we regret that he has been so ill treated by a fellow academic.