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According to press reports, South Africa’s government has begun expropriating privately-owned farmland without financial compensation, thereby ignoring the post-apartheid political settlement, which allows for land redistribution in the country on a “willing buyer, willing seller” basis.

Eighteen years ago, Zimbabwe embraced a similar policy. As a consequence, South Africa’s northern neighbor’s economy collapsed and the country descended into penury and political violence. This scenario is likely to repeat itself in South Africa. An attack on property rights will result in the destruction of South Africa’s farming community, dramatic reduction in agricultural productivity, and mass unemployment. It could also lead to a collapse of the banking sector (which depends on land as collateral for loan-making) and the local currency, hyperinflation, and even bloodshed.

In the early 1990s, the United States was heavily involved in negotiating the transfer of power from the ruling National Party to the current government, which is composed of the African National Congress and the South African Communist Party. As such, the United States bears some responsibility for ensuring that South Africa’s post-apartheid political settlement, including protection of minorities and private property, endures. President Trump should warn the South African government that if South Africa’s Constitution is amended to allow for expropriation without compensation, South Africa will be suspended from the African Growth and Opportunity Act, as Zimbabwe had been. Moreover, the U.S. Congress should hold hearings on the situation in South Africa, if the government of South Africa continues its destructive economic policies.

Section 104 of AGOA states that a sub-Saharan African country is eligible for membership of AGOA if it “protects private property rights, incorporates an open rules-based trading system, and minimizes government interference in the economy through measures such as price controls, subsidies, and government ownership of economic assets; (b) [respects] the rule of law, political pluralism, and the right to due process, a fair trial, and equal protection under the law.” Furthermore, the text of AGOA states that “If the President determines that an eligible Sub-Saharan African country is not making continual progress in meeting the requirements described in … [Section 104] the President shall terminate the designation of the country [as being eligible for membership of AGOA].” Considering that South Africa is in breach or is about to breach a number of requirements for membership of AGOA, the president should act by issuing a preemptive warning to the South African government.

Lawrence D. Burns asks, in the Wall Street Journal and in his new book Autonomy: The Quest to Build the Driverless Car, why the major automobile companies ignored the technology that could create self-driving cars and are now playing catchup to Google:

Early in 2011, two top engineers for Google traveled together to Detroit on what amounted to a diplomatic mission. They had just spent 18 months on a top-secret project called Chauffeur: the development of a car that could drive itself over 10 different 100-mile routes on public roads. Now they were looking for a partner to carry the project forward. “The idea was, if you’re going to make self-driving cars, you have to work with a car company,” recalls Chris Urmson, who made the trip with fellow engineer Anthony Levandowski. “Maybe they’ll sell us cars to build a fleet. Maybe we’re going to be retrofitting our stuff onto their cars to sell.”

But they couldn’t find any takers.

They might have been better prepared if they had read Cato analyst Randal O’Toole’s early warning, also in the Wall Street Journal but in early 2010:

Consumers today can buy cars that steer themselves; accelerate and brake to maintain a safe driving distance from cars ahead; and detect and avoid collisions with other cars on all sides. Making them completely driverless will involve little more than a software upgrade.

O’Toole’s article was based on his book Gridlock: Why We’re Stuck in Traffic and What to Do About ItReading his manuscript was the first time I’d heard about the possibility of self-driving cars. You’d think Detroit would have been ahead of me, but maybe not so much.

Back in May I invited Aaron Rhodes to come over from his home in Hamburg, Germany, to talk about his new book from Encounter Books, The Debasement of Human Rights: How Politics Sabotage the Ideal of Freedom. The Wall Street Journal’s James Taranto was in town to interview Rhodes, which he did after our forum. The interview appears in today’s Journal. It’s a tour de force, pulling together the many threads of a huge, complex argument and presenting them in a short, readable format.

If you’ve ever wondered what’s wrong with the UN Human Rights establishment but have never quite been able to put your finger precisely on what it is, this interview will answer many of your questions—and the book will spell out the details. The origins of a world in which dictators sit of the UN Human Rights Council, immune from criticism while condemning free societies, can be found in progressivism’s conflation of natural and positive law, which Franklin Roosevelt mastered with his “Four Freedoms” and his wife Eleanor helped institute in 1948 in the UN Universal Declaration of Human Rights. With that foundation, equating rights to liberty with rights to social security, rest and leisure, periodic holidays with pay, job training, and more, it was only a matter of time before tyrants would find their immunity in their purported provision of such services, invariably at the expense of liberty, leading to the debasement of real rights.

During the Reagan administration I served for a time as director of policy for the State Department’s Bureau of Human Rights and Humanitarian Affairs where I saw human rights hypocrisy up close. During the annual meetings in 1987 in Geneva of what was then the UN Commission on Human Rights, for example, we introduced a resolution condemning Cuba’s human rights record, only to be met with objections from European nations, effectively excusing those abuses by pointing to Cuba’s health care record. With the end of the Cold War, which tended to sharpen the difference between these two kinds of rights, the distinction has become increasingly blurred, as Rhodes explains, drawing on his experience as director of the International Helsinki Federation from 1993 to 2007 and his present position as president of the Forum for Religious Freedom – Europe.

“Can anything be done?” Taranto asks at the end of the interview. “I wish that the Trump administration would talk about human rights once in a while,” Rhodes answers. “They should talk about freedom.” 

Sen. Elizabeth Warren of Massachusetts has introduced legislation that would radically overhaul corporate governance in America, requiring that the largest (over $1 billion) companies obtain revocable charters from the federal government to do business, instituting rules reminiscent of German-style co-determination under which workers would be entitled to at least 40% representation on boards of directors, placing directors under a fiduciary obligation to serve “stakeholders” as opposed to owners as currently, prohibiting political expenditures by corporations unless approved by at least 75 percent of directors and shareholders, and restricting directors and officers from reselling incentive stock within five years. 

“Let’s be clear, none of these are new ideas,” writes leading corporate governance expert Stephen Bainbridge of UCLA. “They are either academic utopian schemes or failed European governance models. There are very good reasons none of these dusty relics of eons of progressive corporate thought have made it into law.” His series of posts picking it apart in detail begins here.

Our friend James Copland of the Manhattan Institute points out that Sen. Warren’s proposal would pull down three main pillars of U.S. corporate governance: shareholder primacy, director independence, and charter federalism. Each has long been a subject of extensive research and debate, and the alternatives, European or otherwise, simply do not have as good a track record of supporting a dynamic economy that generates world-beating enterprises across a wide range of business sectors (as opposed to, say, the kind of specialty manufacturing at which Germany does well.) Worker board representation, in particular, shapes incentives in ways that discourage important forms of risk-taking and reallocation of capital across sectors. 

All of which helps explain why few startups would willingly accept Warren-style rules in drafting their by-laws. But there’s a big additional problem in applying the rules, as Warren would, to existing companies that have already been capitalized under different assumptions: it would in effect confiscate at a stroke a large share of stockholder value, transferring it to some combination of worker and “community” interests. This gigantic expropriation, of course, might be a Pyrrhic victory for many workers and retirees whose 401(k) values would take a huge hit in exchange for new rights of uncertain value to install board members. Already, some early enthusiasts for the Warren plan are treating the collapse of shareholder value as a feature rather than a bug, arguing that it would reduce wealth inequality. 

Whether or not it would accomplish that, it would test the restraints the U.S. Constitution places on the taking of property without compensation. Alas, the courts have been inconsistent about the extent to which they will recognize as takings, and provide a remedy for, legislative enactments that strip away much of the value of financial instruments or other property rights without expropriating fully 100% of their value.  Cato over the years has been very much part of that legal debate, arguing for a strong interpretation of the Fifth Amendment’s language: “nor shall private property be taken for public use, without just compensation.” 

Confiscatory proposals like Warren’s make it more important than ever that we be prepared to defend this element of liberty in the courts. 

John Kelly, who writes a local column for the Washington Post, set out to investigate a century-old milk bottle claiming medicinal qualities and discovered a mid-20th century story of rent-seeking and crony capitalism:

But the big change for Burton-Parsons came in the late 1960s, when it entered the burgeoning soft contact lens market — not the lenses themselves, but the solution used to clean them.

And that’s where things took an interesting turn.

Up until 1974, consumers could purify their contact lenses by boiling them for 10 minutes in distilled water with salt tablets. But that year an Food and Drug Administration microbiologist named Mary Bruch — known as “the first lady of contact lenses” — gained oversight of that product. Bolstered by FDA ophthalmologist Arnauld Scafidi, Bruch started disallowing soft lens manufacturers from utilizing salt tablets, decreeing that consumers risked eye infection.

The only cleaning solution she approved was made by Burton-Parsons, which by then was headquartered in Seat Pleasant, Md., and owned by the Manfuso family, which also owned horse-racing tracks around the state. Its product — Boil-n-Soak — cost four times as much as the simple salt tablets.

It emerged during congressional hearings in 1980 that Bruch and Scafidi had been repeatedly wined and dined by Burton-Parsons executives. The Washington Post’s John F. Berry wrote: “Expense records showed that top executives bought Bruch more than 50 meals at places ranging from Caesars Palace in Las Vegas and Brennans in New Orleans to Maison Blanche and L’Auberge Chez Francois in the Washington area . . . [Bruch] also told the congressional committee that she exchanged vintage wine with one of the Manfusos who shared her interest in fine wine.”

Scafidi was unable to provide research to substantiate his claims that salt tablets were unsafe.

In 1974, Burton-Parsons had annual sales of about $5 million. In 1979, after five years of a near monopoly, it was sold to Alcon Laboratories, a subsidiary of Nestle S.A. of Switzerland, for $110 million, according to industry estimates.

Bruch and Scafidi were investigated by the FBI for the favors they allegedly gave the firm. Scafidi resigned, and Bruch was fired.

More on rent-seeking, crony capitalism, and lobbying regulators.

Earlier this month the Centers for Disease Control and Prevention released preliminary estimates of the opioid overdose rate for 2017. The total overdose rate rose to approximately 72,000, up from a total overdose rate of 63,600 in 2016, an increase of roughly 10 percent. The total overdose rate includes deaths from numerous drugs in addition to opioids, such as cocaine, methamphetamine, and benzodiazepines. The opioid-related overdose rate increased as well, from a little over 42,000 in 2016 to over 49,000 in 2017. This increase occurred despite a 4 percent drop in heroin overdoses and a 2 percent drop in overdoses due to prescription opioids. A 37 percent increase in illicit fentanyl-related overdoses explains the jump in the death rate.

All of this is happening while the prescribing of high-dose opioids continues to decrease dramatically—over 41 percent between 2010 and 2015, with a recent report showing a further decrease of 16 percent during the year 2017.

This is more evidence, if any more was needed, that the opioid overdose problem is the result of non-medical users accessing drugs in the black market that results from drug prohibition. Whether these users’ drug of choice is OxyContin or heroin, the majority have obtained their drugs through the black market, not from a doctor. A 2007 study by Carise, et al in the American Journal of Psychiatry looked at over 27,000 OxyContin addicts entering rehab between the years 2001 and 2004 and found that 78 percent never obtained a prescription from a doctor but got the drugs through a friend, family member, or a dealer. 86 percent said they took the drug to “get high” or get a “buzz.” 78 percent also had a prior history of treatment for substance abuse disorder. And the National Survey on Drug Use and Health has repeatedly found roughly three-quarters of non-medical users get their drugs from dealers, family, or friends as opposed to a doctor.

Media and policymakers can’t disabuse themselves of the false narrative that the opioid problem is the product of doctors hooking their patients on opioids when they treat their pain, despite the large number of studies showing–and the Director of the National Institute on Drug Abuse stating—that opioids used in the medical setting have a very low addiction rate. Therefore, most opioid policy has focused on decreasing the number of pills prescribed. Reducing the number of pills also aims at making less available for “diversion” into the black market. This is making many patients suffer from undertreatment of their pain and causes some, in desperation, to turn to the black market or to suicide.

Since 2010, opioid policy has also promoted the development of abuse-deterrent formulations of opioids—opioids that cannot be crushed and snorted or dissolved and injected. As a just-released Cato Research Brief as well as my Policy Analysis from earlier this year have shown, rendering prescription opioids unsuitable for abuse has only served to make non-medical users migrate over to more dangerous heroin, which is increasingly laced with illicit fentanyl. 

This is how things always work with prohibition. Fighting a war on drugs is like playing a game of “Whac-a-mole.” The war is never-ending and the deaths keep mounting.

The so-called “opioid crisis” has morphed into a “fentanyl and heroin crisis.” But it has been an unintended consequence of prohibition from the get go.

Several times on these pages (e.g., here and here), and elsewhere (e.g., here and here) I’ve tried to refute the claim, championed by certain Austrian-school economists and their many fans, that fractional-reserve banking is inherently fraudulent, because whenever the sum of readily-redeemable bank deposit balances and (when they exist) redeemable commercial banknotes exceeds the quantity of bank reserves, the difference must consist of so many fake “warehouse receipts” or “property titles.”

Although the popularity of the “fractional reserves equal fraud” (FR=F) thesis seems to be on the wane, many still remain in thrall to it, and I’m pretty darn sure that no further exertions by myself, Larry White, or anyone else will ever suffice to change all of their minds. Although I wish this weren’t so, I worry less and less about it. After all, there are still several Flat Earth societies, complete with dues-paying members, yet reputable geographers don’t seem to be losing any sleep over it.

There is, however, a second “prong” to the Austrian attack upon fractional-reserve banking which has also won many adherents, and which hasn’t been so thoroughly debunked as to make one wonder about those adherents’ powers of ratiocination. I mean the argument that fractional reserve banking inevitably causes business cycles by allowing banks to finance levels of investment exceeding those warranted by voluntary savings, at interest rates driven below their equilibrium of “natural” levels. The ensuing “malinvestment” boom, financed by “forced” rather than voluntary saving, inevitably leads to a bust, when unsustainable investments are liquidated, and economic activity is painfully redirected along sustainable paths.

In fact this second “fractional reserves equal Austrian business cycles” (FR=ABC) prong of the Austrian assault on fractional-reserve banking is just as unfounded as the first. The difference is that, while trying to win over the last, staunch adherents to the FR=F thesis may be futile, getting many who now believe that FR=ABC to see the error of their ways may not be so difficult, because the counterarguments haven’t been aired as often.

Those counterarguments are, on the other hand, more involved than the ones that can be brought to bear against the against the FR=F argument. Consequently I’ve chosen to devote several posts to them. I begin this first post with a review of conventional “Austrian” arguments concerning the meaning of excessive monetary expansion. I then consider the bearing of fractional reserves on an economy’s rate of monetary expansion. In two follow-up posts I use this background information to  critically assess the claim that fractional reserve banking is an important cause of Austrian-style boom-bust cycles.

Monetary Expansion and the Austrian Theory of Business Cycles

To asses the claim that fractional reserve banking is an important cause of booms and busts of the sort described by the Austrian theory of the business cycle, we have, first of all, to recognize at least two popular versions of that theory that supply grounds for this claim. Both versions attribute cycles to excessive monetary expansion. But each defines “excessive” monetary expansion differently. According to one version, a constant money supply alone is capable of averting cycles. As Murray Rothbard explains, in summarizing Austrian monetary theory,

once any commodity or object is established as a money, it performs the maximum exchange work of which it is capable. An increase in the supply of money causes no increase whatever in the exchange service of money; all that happens is that the purchasing power of each unit of money is diluted by the increased supply of units. Hence there is never a social need for increasing the supply of money, either because of an increased supply of goods or because of an increase in population. People can acquire an increased proportion of cash balances with a fixed supply of money by spending less and thereby increasing the purchasing power of their cash balances, thus raising their real cash balances overall… .

A world of constant money supply would be one similar to that of much of the 18th and 19th centuries, marked by the successful flowering of the Industrial Revolution with increased capital investment increasing the supply of goods and with falling prices for those goods as well as falling costs of production. As demonstrated by the notable Austrian theory of the business cycle, even an inflationary expansion of money and credit merely offsetting the secular fall in prices will create the distortions of production that bring about the business cycle (my emphasis).

The other version of the theory maintains instead that cycles are caused, not by growth in the money stock per se, but by growth in the supply of unbacked (“fiduciary”) bank money. According to Frank Shostak, one of several adherents to this view, what sets in motion these cycles is not fluctuations in the growth rate of money supply as such, but the fluctuations in the growth rate of money supply generated out of “thin air.” By money “out of thin air” we mean money that is created by the central bank and amplified by fractional reserve lending by commercial banks.

An increase in the money supply out of “thin air” provides a platform for non-productive activities, which consume and add nothing to the pool or real wealth. Money out of “thin air” diverts real wealth from wealth generators to non-wealth generating activities, thus weakening the wealth-generating process.

In this alternative version of the theory, what matters is whether new money is either made of or backed by some commodity, like gold, or not. In a gold standard system, growth in the stock of gold, no matter how rapid, can never set off a cycle; in contrast any decline in the ratio of gold reserves to readily-redeemable bank liabilities can set a cycle in motion. In the case of a fiat money system, the two versions of the Austrian cycle theory coincide, for in this case there is no question of any “commodity-money” driven growth in the total quantity of money, whether that growth is due to central bank expansion or to a reduction in commercial banks’ reserve ratios.

Fractional Reserves and Monetary Expansion

The next step in countering the FR=ABC thesis consists of showing that a banking system’s reserve ratio and its rate of monetary expansion are largely independent of one another. One might have a banking system that rests on slimmest of reserve cushions, in which the monetary supply doesn’t grow at all. Alternatively one could have a 100-percent reserve system in which the money stock grows at a rapid rate.

These conclusions follow from the simple fact that, in any banking system with a given reserve ratio, the growth rate of the supply of bank-created money (or, if one prefers Austrian terminology,  money “substitutes”) consisting of readily-redeemable deposits and, perhaps, commercial banknotes, will be approximately equal to the growth rate of the supply of “basic” money or bank reserves. That will be so whether these reserves consist of some commodity like gold or of the liabilities of a central bank. Nor does it matter how low the reserve ratio is: as I’ll show in a moment, although the growth rate of the money supply does depend on whether and how rapidly the banking system reserve ratio itself changes, is doesn’t depend on the absolute value of that ratio.

I say “approximately” above because some basic money may also circulate outside of the banking system, in which case movements of basic money into and out of the banking system will also influence to total money supply. To simplify the discussion, let’s assume that “basic” money consists of gold coins, but that instead of actually using these coins, the public prefers to hold banknotes and deposits, so that the supply of bank reserves is always equal to the supply of basic money. Let’s also assume that there are no mandatory reserve requirements. These circumstance make life relatively easy for the bankers, who need never fear having customers withdraw gold, and can presumably expand their liabilities more readily as a result. The assumption is therefore meant to allow as much scope for fractional-reserve based monetary expansion as possible.

The banks still need some gold, however, to settle accounts among themselves, especially when the amounts involved are too small to cover with other assets. Consequently they must maintain some positive ratio of reserves, though the ratio may fall well below 100 percent. Letting r stand for that ratio, with R and M standing for the quantities of reserves and bank-created money, respectively. Then

(1) M = R(1/r).

Differentiating (1) with respect to time after taking logs gives

(2) M = Rr,

where the italics stand for rates of change. Equation (2) shows that the growth rate of the money supply depends, not on the absolute value of r, but on how that value changes over time. A falling reserve ratio will be associated with a growing money stock, other things equal; but a small reserve ratio, if constant, doesn’t imply a more rapidly growing money stock than a high one. Instead, if the reserve ratio is constant, the money stock will grow only as rapidly as the supply of bank reserves,  regardless of the value of the reserve ratio.

Real and Pseudo Money Creation

Austrian accounts of the money-creation process often exaggerate the ability of fractional reserve banks to create money “out of thin air,” even while sticking to a fixed reserve ratio, by looking at only one part of the bank money creation process. Consider the following, typical account, from a paper by Walter Block and Kenneth M. Garschina. Banks, they write,

are able to increase the money supply due to the system of fractional reserve banking. For example, if a deposit is made of one hundred dollars, the bank is only required to hold “in reserve” or “on hand” a small fraction of this amount. The rest can be granted as credit to customers who will inevitably follow the same deposit process with their newly acquired funds. In this way, in a decentralized system, money travels from bank to bank, multiplying each time it is lent out. And the original depositor, of course, is still able to draw on the funds entrusted to the bank on demand. As the process continues, the volume of money increases, lowering the money rate of interest below the natural rate.

But is it really true that a deposit to any bank in a fractional reserve system leads to substantially greater increase in the total money stock, and a correspondingly large increase the the money stock’s fiduciary component, with all the business-cycle repercussions that follow from such?

Actually, it isn’t, for the simple reason that, more often than not, a deposit made at one bank involves a corresponding withdrawal of funds from another bank, as when the deposited sum takes the form of a check. In that case, the process of deposit expansion that Block and Garschina describe will have as its counterpart a like process of deposit destruction, where the ultimate result (assuming the simple case in which all banks maintain the same, given reserve ratio) is an unchanged total money stock, with the only actual change consisting of a change in the distribution of bank deposits among the various banks.

In order for the total money stock to increase, as Block and Garschina suggest it will, the initially deposited sum, instead of consisting of funds transferred from a different bank, must consist of basic money, meaning either cash that had been circulating outside the banking system, or basic money that has freshly entered the economy, in the shape of newly produced or imported metallic money or, alternatively, the fresh fiat money emissions of a central bank. But in that case the fundamental cause of growth in the money stock is, not the fractional value of r, but the increase in R, just as our previous equations suggested. Provided that the system reserve ratio itself stays constant, so long as the supply of bank reserves itself remains unchanged, the total quantity of bank deposits won’t change.

It follows from what’s been said so far that, to assess the claim that fractional reserve banking causes business cycles, we must ask two questions. The first question is, “To what extent have historical money-fueled booms been associated, not with growth in the supply of either commodity money or central-bank supplied bank reserves, but with declining banking system reserve ratios?” The second question is, “When a banking system does manage to operate on a lower reserve ratio, does its doing so necessarily contribute to an unsustainable boom?” I’ll answer these questions in subsequent posts.

[Cross-posted from]

On Tuesday, a Sudanese immigrant to the United Kingdom named Salih Khater crashed his car into cyclists and pedestrians in a terrorist attack in London. Fortunately, Khater did not murder anybody in his attack but he did injure three pedestrians, one of whom was so lightly wounded that he was treated at the scene and released. The other two wounded people have since been released from the hospital. 

Terrorism has been relatively common in the United Kingdom for decades, from the Irish Republican Army to al Qaeda to ISIS. However, there is little research on the actual risk of a British person being killed or injured in a terrorist attack. This post is an attempt to quantify that risk.

According to data from the Global Terrorism Database at the University of Maryland, the RAND Corporation, and online sources for 2018, terrorists murdered 2,402 people in the United Kingdom from 1975 through August 14, 2018 (Figure 1). Despite increases in the number of murders committed by terrorists in recent years, especially a series of horrible attacks in 2017 that murdered 42 people, the long run trend is a decline in the number of people murdered by terrorists in the United Kingdom. Figure 2 shows that 5,267 people were wounded in terrorist attacks in the United Kingdom during the same period. Figures 1 and 2 only include victims and exclude the terrorists themselves from the death and injury statistics. Using existing data sources, somebody with knowledge and a lot of time could use the GTD and RAND databases to identify the nativity, ideology, and other characteristics of each terrorist like I did for the United States

Figure 1: Annual murders committed by terrorists in the United Kingdom
 " class="oembed-title">Figure 2: Annual injuries committed by terrorists in the United Kingdom

From 1975 through August 15, 2018, a British person’s chance of being murdered in a terrorist attack on British soil was about 1 in 1.1 million per year.  But that annual chance of being murdered in a terrorist attack obscures big shifts over time. Over the last decade, the annual chance of being murdered in a terrorist attack on British soil was about 1 in 11.4 million per year, far lower than the entire 1975-2018 period. Especially relevant is the number of injuries given that Khater only injured people in his attack. The annual chance of being injured over the entire time was 1 in 496,464 per year, but only 1 in 1.4 million per year over the last decade. 

Figure 3 tries to show how the risk has changed over time by using a moving three-year average of the annual chance of being murdered in a terrorist attack. I used a three-year moving average because zero people were killed by terrorists in many years and one cannot divide by zero. A note about reading Figures 3 and 4: the Y-axis is the annual chance of being murdered or injured in a terrorist attack, so the 2011 number of 63,280,444 in Figure 3 means that the chance of a British person being murdered in a terrorist attack was 1 in 63,280,444 that year. Thus, the higher the number, the lower the chance of being murdered in a terrorist attack. 

Figure 3 shows that the annual chance of being murdered in a terrorist attack fell rapidly from 1975 through 2004, rose over the next several years, fell again, and has been increasing since about 2012. Dropping the moving gives sharper divides: In 2016, 2017, and 2018 (so far), the annual chance of being murdered in a terrorist attack was about 1 in 7.3 million per year, 1 in 1.8 million per year, and zero (so far), respectively. 

Figure 3: Annual chance of being murdered in a terrorist attack in the United Kingdom

Figure 4 shows a similar decline in injuries inflicted by terrorists from 1975 through 2003 that abruptly reverses in 2004, falls again in the following years, and then starts to increase over the last few years. 

Figure 4: Annual chance of being injured in a terrorist attack in the United Kingdom

These above figures show that the chance of dying or being injured in a terrorist attack in the United Kingdom is small. Yet terrorism succeeds in terrifying people. None of the numbers above would give comfort to the actual victims of terrorism or their families because what happened to them is the equivalent of “winning” an evil anti-lottery. But the above numbers should show British citizens, their government, and the world at large that terrorism is a relatively small problem in the United Kingdom.    

The big picture of U.S. - China trade tensions can be difficult to sort out. How problematic are China’s trade practices, as compared to those of other countries? What is the appropriate U.S. government response? These are not easy questions to answer (although we do have some views).

Sometimes it can be helpful to focus on particular sectors instead. One such sector is beef, which U.S. farmers would like to export more of to China. At a recent Senate hearing, U.S. Trade Representative Robert Lighthizer was asked about this (starts around 20:00):

Sen. Jerry Moran: Let me get another question in before my time is fully expired. I applauded the administration for successfully concluded negotiations with China in 2017 to allow the US beef exports resumption into China after they were blocked in 2003. However, the 25% retaliatory tariff on US beef, which stems from the USTR 301 investigation, threatens to halt those exports and certainly any expansion. So on one hand, we had the opportunity to high five and brag about beef going to China. That seems – that opportunity seems to have disappeared and most concerning is what the growth potential that exists in China, what it does to our opportunities for increasing US beef sales.

Lighthizer: So, if I can, let me speak for a second about beef with China. I think it is a good example of what we are facing with China. So, the President’s strategy, as was the strategy of prior administrations, was to initially engage in a dialogue with China. We clearly have a chronic problem with China, we have a trade deficit with China, which was unsustainable, 375 billion dollars. A lot of which is not the result of real economics but really is a result of state capitalism. So, ten years ago as a result of negotiations because of their unfair practices, China agreed to allow US beef in certain circumstances, ten years ago. Over the course of the next ten years they didn’t let in beef because they made the promise but didn’t keep the promise. The President, during the 100-day period, when the President decided I will try a dialogue first, had that dialogue and as a result of that they agreed to let beef in. Let’s be clear though. The amount of beef – US beef that was eligible to come in was less than 3% of US production. So it wasn’t like it was going to be a panacea, although a lot of people thought it was. The result is that after the last time I saw the numbers, which were eight or nine months in, this was something like $60 million worth of beef sold in all of China. So I guess to me the China beef situation is more an example of what we’re facing with China than it is actually a solution. We really thought we would (a) be able to sell beef with hormones, the normal US production of beef into China for a long period of time. We don’t think they have a WTO right to keep us out. So while we made some headway in there, you’re right, they did take it away. That raises the question, this is going to be the question not with beef, but with all of the members and all of the retaliation, this may not be the appropriate time to raise it, I’ll do it on someone else’s time if you’d like, but we have to at some point discuss why we’re doing any of this. Because there clearly is pain associated with what we’re doing and the President is very sympathetic to not only cattle ranchers but to everyone else and a lot of ag but a lot of over people who are being, we believe, unfairly treated as a result of our attempt to really level the playing field.

Last year we wrote about the problems faced by U.S. beef exporters. (It’s worth noting that the 2003 ban mentioned by Senator Moran was in response to concerns about mad cow disease, and other countries also blocked U.S. beef exports). In our paper, we had some data showing how much beef imports into China have increased in recent years, and how well other countries were doing selling their beef in China:


Since we put together this data, China removed its ban on U.S. beef as part of a broader U.S.-China agreement, and U.S. exports of beef to China have grown. U.S. Meat Export Federation data show that, after the ban was lifted, there have been just over $60 million in sales of U.S. beef in China, over the past year or so. That figure matches pretty closely to the one Lighthizer referred to in his answer above. However, this figure is still dwarfed by the imports from other countries. As the table shows, imports come mostly from countries other than the United States. There are a number of reasons for the expansion of non-U.S. beef imports into China in recent years, but it is worth pointing out that Australia and New Zealand have a price advantage over their competitors, because those countries have negotiated trade agreements with China under which China cut its beef tariffs. Some of the other major beef exporting countries are also negotiating with China. Beyond tariffs, a trade negotiation provides a forum to talk about regulatory barriers.

If you don’t like numbers, we now have some visual evidence as well, as one of us (Huan) just went over to China, and while there she took a picture of the beef for sale in a Chinese grocery store in downtown Guangzhou, one of the most developed cities in China:  


This picture illustrates that imported beef is available for sale in China, but the market is dominated by non-U.S. beef. As can be seen in this picture, beef from Australia (indicated by an Australian flag and a yellow boundary) far exceeds the beef from anywhere else. Canadian beef (indicated by a red boundary) is a distant second. And American beef (indicated by a blue boundary) is pulling up the rear. 

When there is a situation where nobody can sell a product or service in China, it is clear that the problem is with China. But when other countries are selling a lot in China, it is worth thinking about what other countries are doing right and what the United States might need to improve.

Something promising is happening at the Department of Housing and Urban Development. Recent New York Times and Wall Street Journal articles suggest Secretary Ben Carson and his team are impressing on policymaker’s minds that 1) local policymakers have created housing affordability problems and 2) local policymakers can solve those problems. 

According to the Times article, “as city and state officials and members of both parties clamor for the federal government to help, Mr. Carson has privately told aides that he views the shortage of affordable housing as regrettable, but as essentially a local problem.”

Meanwhile, a Journal article published this week reports “[Carson] plans instead to focus on restrictive zoning codes. Stringent codes have limited home construction, thus driving up prices and making it more difficult for low-income families to afford homes, Mr. Carson said.” 

Carson is right to describe housing affordability as a local problem, and smart to signal HUD can’t and won’t solve the problem for local policymakers.

For its part, Cato scholars have argued for zoning reform in numerous places. Earlier this month, Cato Institute published a new issue brief on zoning regulation and housing prices. Elsewhere I’ve written about zoning in the context of Affirmatively Furthering Fair Housing, the controversial HUD rule the agency opened for public comment and revision earlier this week. 

Carson seems to understand that federal assistance has encouraged poor local policies. In a Cato report published last year I show that the federal government subsidizes housing in states with more restrictive zoning at higher rates than those with less restrictive zoning. Specifically, the most-restrictively zoned states receive nearly twice the federal dollars per capita compared to the least-restrictively zoned states (see figure). 


Because restrictive zoning drives the cost of housing up, local governments actively undermine the purpose of federal housing subsidies when they adopt restrictive zoning and land use policies. HUD staff have mentioned housing vouchers cost more money each year to service the same number of people.

Local zoning regulations grow every year, so it makes sense HUD would see climbing costs. For fiscal conservatives that care about efficiently using government dollars, attaching pro-market zoning requirements to HUD grants is arguably a cost-saving device. Pro-market zoning requirements also support the purpose of housing affordability subisidies by ensuring cities are doing their part to allow development. 

Determining whether attaching requirements to grants is a constitutionally-sound strategy is best decided by a legal expert. However, Carson’s new focus on educating policy makers on the damaging consequences of local policy, while acknowledging HUD cannot overcome local problems by spending money, is a welcome change.

A lot of ink was spilled last month over President Trump’s criticism of the Fed raising interest rates. Observers worried that those criticisms meant the President was prepared to directly meddle with U.S. monetary policy. But so far, at least, there’s no evidence that any such meddling has occurred.

The Trump administration’s fiscal policies have, however, indirectly influenced the Fed, by straining it’s post-crisis operating system. In particular, the large federal budget deficit has been putting upward pressure on short-term market interest rates; and those rising rates have, in turn, put pressure on the Fed’s “floor” system of monetary control. If the deficit continues to grow, as is expected, it might even bring an end to that system.

To see why, a quick review of the floor system’s workings is in order.

The Fed’s Floor System

In one of its more important but underappreciated crisis-era monetary policy innovations, the Fed switched from a corridor-like operating system to a floor operating system. It did so by paying interest on excess reserves (IOER) at a rate higher than going short-term market interest rates, thereby pushing banks onto the perfectly elastic region of their reserve demand curve. The change allowed the Fed to add reserves to the banking system, as it had been doing through various emergency lending programs, without loosening its monetary policy stance by causing the effective fed funds rate to fall below its target. Changes to the supply of money were thus “divorced” from the setting of monetary policy (Keister et al. 2008).  This divorce was seen by some as a virtue of the floor system, for it allowed the Fed to manage bank liquidity and monetary policy independently, changing the size of its balance sheet to control liquidity, and the IOER rate to alter its monetary policy stance.

George Selgin, however, has noted a number of challenges facing the floor operating system, one of which is its inherent fragility. Maintaining a floor system means keeping the IOER rate at or above comparable market interest rates, so that banks will be willing to hold on to any reserves that come their way. Stated differently, the  return on reserves needs to exceed the risk-adjusted marginal return banks might earn, net of their operating and other variable costs, on other assets.*

The figure below compares the Fed’s IOER rate to both the overnight dollar LIBOR rate and the 1-month Treasury-bill yield for the period from 2009 until 2017, showing how the spreads between the IOER rate and these other representative market rates has almost always been positive. The IOER-LIBOR spread averaged almost 10 basis points, while the IOER-Treasury spread averaged about 20 basis points. Such spreads are what has kept the floor system running.

On a few occasions, however, the spreads in question, and other similar measures, have been very small, and in some brief instances negative. What’s more, the spreads have been declining. Since January 2018 the IOER-LIBOR spread has declined to about 5 basis points, while the IOER-Treasury spread average has fallen to 7 basis points. Were the decline to continue to the point where other short-term interest rates rise above the IOER rate for a sustained period, the Fed’s floor system would unravel: instead of having a practically unlimited demand for excess reserves, banks would start rebalancing their portfolios away from excess reserves and toward other, more profitable investments. Monetary policy would then cease to be “divorced” from money, for changes in the quantity of money and changes in the Fed’s monetary policy stance would once again tend to go hand-in-hand.

Though the floor system is still intact for now, we can already see in the figures below that the narrowing of the spreads is straining the floor system. The first figure plots the IOER-LIBOR spread against the banking system’s cash assets as a percent of all assets. This cash asset category comes from the Fed’s H8 database and has consisted mostly of excess reserves over the past decade. The shrinking of the IOER-LIBOR spread has coincided with a decline in the share of cash assets held by banks.

The next figure plots the same spread against the loan share of bank assets. It has been rising sharply as the spread has declined this year. Banks, in other words, suddenly began investing a larger share of their portfolios in loans starting in early 2018.

These two figures suggest that the Fed may be already pushing the limits of its floor system. The banks appear to be shying away from holding so many excess reserves. That change suggests reserve demand is becoming less elastic at this narrowed IOER spread. The floor system may be more fragile than many Fed officials believe it to be.

The only way to ease this pressure on the floor system would be for the Fed to raise the IOER above these other interest rates. That, though, could lead to an undesirable tightening of monetary policy, putting the Fed in a bind: should the Fed raise rates to keep its floor system intact, at the risk of overtightening? Or should it avoid overtightening at the risk of seeing its operating system come unglued?

Trump’s Policies and Short-Term Interest Rates

But why have IOER-market rate spreads been narrowing? One answer is President Trump’s large budget deficits. His administration’s heavy spending is causing it to borrow a great deal. In addition, the shrinking of the Fed’s balance sheet and the restocking of Treasury’s General Account, which had been wiped out during the recent debt ceiling episode, have also contributed to the rising budget deficit.

To fund this growing deficit, the Treasury has been increasing its issuance of Treasury bills. The next figure shows this surge is evident in terms of both gross and net Treasury bill issuance. The black line shows the trend gross issuance and the blue line shows the net cumulative issuance.

Source: SIFMA

The recent burst of Treasury bill issues has a bearing on the IOER spread over other interest rates. In particular, the greater issuance of Treasury bills should drive up (down) their yields (prices), moving other short-term interest rates in the same direction through arbitrage. This should narrow the IOER spread over other interest rates.

The Federal Reserve agrees. From the June FOMC minutes, we learn the following:

The deputy manager [of the System Open Market Account at the NY Fed] followed with a discussion of money markets… Rates on Treasury repurchase agreements (repo) had remained elevated in recent weeks, apparently responding, in part, to increased Treasury issuance over recent months… Elevated repo rates may also have contributed to some upward pressure on the effective federal funds rate in recent weeks as lenders in that market shifted some of their investments to earn higher rates available in repo markets.

So some Fed officials themselves believe that the increased issuance of Treasury bills is pushing up short-term interest rates via arbitrage.

But is there any evidence for this claim? The figures below suggest the answer is yes, especially as it relates to interbank rates. The first set of figures plot the trend gross and cumulative net issuance of Treasury bills during the Fed’s floor system against the IOER-LIBOR spread. Both measures suggests a fairly strong, negative relationship. That is, a higher supply of Treasury bills shrinks the IOER-LIBOR spread.

One should be careful, though, in looking at the absolute dollar amount of Treasury bill issuance as it may grow secularly due to a rising economy. To account for this possibility, the next set of figures normalizes the two Treasury bill issuance measures by dividing them by total marketable Treasury securities outstanding. Now the relationship is even tighter and stronger. Relationships like these are not found for the issuance of Treasury notes and bonds against the IOER spreads.

President Trump, then, appears to be already influencing Fed policy by putting upward pressure on short-term interest rates and thereby causing pressure on the Fed’s floor system. The Wall Street Journal recently reported this budget pressure is only expected to  increase:

Rising federal budget deficits are boosting the U.S. Treasury’s borrowing… [T]he Treasury plans to borrow $329 billion from July through September—up $56 billion from the agency’s April estimate—in addition to $440 billion in October through December. The figures are 63% higher than what the Treasury borrowed during the same six-month period last year.

To be clear, there are other explanations for the narrowing of the IOER spread. George Selgin, for example, points to the unequal distribution of bank reserves causing problems as the Fed winds down its balance sheet. That seems right and complements the above explanation. Both explanations point to increasing strains on the Fed’s floor system moving forward.

In short, its at least conceivable that the Trump administration’s fiscal policies could compel the Fed to rethink its floor system. Given this possibility, the Fed has yet another reason to start thinking now about its floor system and whether sticking to it will be worth the trouble. Far better for the Fed to leave the floor system on its own terms, than to be forced out by fiscal policy.

*Banks cannot control the total quantity of reserves, but they can control the form of reserves held. That is, banks can choose to hold excess reserves or invest in other assets like treasuries and loans that, in the aggregate, would lead to a rise in required reserves.

[Cross-posted from]

Sanctuary policies on the city, county, and state level are frequently in the news.  Opponents claim that they increase crime in jurisdictions while proponents claim that they allow illegal immigrants, their families, and their American neighbors to rest a little easier knowing that the local government won’t help the federal government enforce its immigration laws.  Both sides assume that sanctuary policies produce those results by decreasing the scope and scale of immigration enforcement within their jurisdictions that, in turn, reduce the number of deportations from there.

There are undoubtedly individual cases where a sanctuary policy helps a person avoid deportation, but the more important question is whether they reduce deportations overall.  If there isn’t much of an impact, then the debate over sanctuary policies is just a costly diversion from other issues.  However, if sanctuary policies do reduce deportations, then perhaps pro-immigration activists and policy-makers should devote more effort to increase their number.  Likewise, opponents of sanctuary policies should also stop opposing them if they don’t have an impact on deportations but expand their opposition if they do reduce deportations by a lot  

There is suggestive evidence that sanctuary policies reduce deportations but many reasons to also be skeptical of big effects.  We decided to look at how the California TRUST Act reduced deportations from California.  Governor Jerry Brown (D) signed the TRUST Act in October 2013 – the beginning of the fiscal year for 2014.  The TRUST Act was a state-level sanctuary policy that limited law enforcement cooperation with ICE unless the arrestee had already been convicted of serious crimes. 

ICE deports people apprehended in specific Areas of Responsibility (AOR).  There are three AORs that include the states of California and Hawaii.  For the purposes of this blog, we assumed that Hawaii was not part of the California AORs.  According to the Center for Migration Studies, Hawaii’s illegal immigrant population was under 40,000 in 2015 while California’s was almost 2.6 million.  Since Hawaii’s illegal immigrant population was only 1.5 percent of California’s, we were comfortable in ignoring it.

Figure 1 shows a steep relative decline in deportations from the California AOR relative to the rest of the country when the TRUST Act was enacted.  In FY2014, the first year that the TRUST Act was in effect, deportations from California dropped 39 percent relative to FY2013.  In the rest of the country in FY2014, they only dropped 9 percent relative to FY2013. 

Figure 1

Annual Percentage Change in Removals by AOR


Sources: ICE and authors’ calculations. 


Figure 2 shows the differences in removal trends before and after California’s TRUST Act became law relative to the other AORs that were not covered by the California law.  Each regression line fit to the pre- and post-TRUST Act, called “Fitted Values,” highlights the change from a steady increase in the number of removals from California’s AOR to a precipitous decline in the number of removals when the TRUST Act became law. 


Figure 2

California Deportation Trends Pre- and Post-TRUST Act


Sources:  ICE and authors’ calculations.


On a statistical basis, these findings are merely suggestive as we only have 12 years of data and we didn’t control for any other factors.  For Figure 2, it appears that the more substantive change transpired in FY2012 prior to the TRUST Act.  Regardless, this simple exercise strongly suggests that the California TRUST Act caused the number of deportations from California to fall faster than they otherwise would have relative to other AORs. 

Last week Facebook, Google, and Apple removed videos and podcasts by the prominent conspiracy theorist Alex Jones from their platforms (Twitter did not). Their actions may have prompted increased downloads of Jones’ Infowars app. Many people are debating these actions, and rightly so. But I want to look at the governance issues related to the Alex Jones imbroglio.

The tech companies have the right to govern speech on their platforms; Facebook has practiced such “content moderation” for at least a decade. The question remains: how should they govern the speech of their users?

The question has a simple, plausible answer. Tech companies are businesses. They should maximize value for their shareholders. The managers of the platform are agents of the shareholders; they have the power to act on their behalf in this and other matters. (On the other hand, if their decision to ban Jones was driven by political animus, they would be shirking their duties and imposing agency costs on shareholders). As private actors, the managers are not constrained by the First Amendment. They could and should remove Alex Jones because they reasonably believed he drives users off the platform and thereby harms shareholders. End of story.

For many libertarians, this story will be convincing. But others, not so inclined to respect private economic judgments, may not be convinced. I see two limits on business logic as a way of governing social media: free speech and fear.

Elites in the United States value free speech in an abstract sense, apart from legal limits on government. Platform managers are free of the First Amendment, but not of those cultural expectations. Fear informs online struggles over speech. The right believes that platform managers are overwhelmingly left-leaning and responsive to the values of the left. They believe tech companies are trying to drive everyone on the right off their platforms and into the political wilderness (or worse). The left fears people like Alex Jones having access to a mainstream audience leading to electoral victories by authoritarians. And yet, if the left were to gain enough power to fulfill the right’s fears about deplatforming, the latter might fight back and force the platforms to remove their enemies, a victory that would leave the left in the wilderness (or worse). The cultural power of the left might yet be trumped by the political power of the right and, on another day, vice versa.

Such is the foundation of the platforms’ dilemma. Protecting free speech short of incitement to violence heightens fear while tamping down fear offends free speech. How to cope with the dilemma?

The platforms need legitimacy for their governance. In other words, they need for users (and others) to accept their right to govern (including the power to exclude). Legitimacy would confer authority on the decisions of the platform managers. Max Weber distinguished three kinds of authority rooted in different ways of gaining legitimacy. Two of the three seem irrelevant here. Users are unlikely to accept content moderation because Mark Zuckerberg is a special person with unusual powers (charismatic authority). They also are unlikely to accept Facebook’s power because things have always been done that way (traditional authority). What Weber called rational-legal authority seems to be the only choice for the platforms. In other words, they need a process (or due process) that looks like the rule of law (and not the rule of tech employees).

Facebook seems to be trying to establish rational-legal authority. It set out Community Standards that guide governing speech. Why should that “basic law” be accepted by users? One answer would be the logic of exchange. When you use Facebook for free, you give them in return data and consent to their basic law. That looks a lot like the tacit consent theory that has troubled social contract arguments for political authority. In any case, Facebook itself sought comments from various groups and individuals – that is, stakeholders - about the Community Standards. The company itself wanted more than a simple exchange.

But do the Community Standards respect the culture of free speech? Facebook has banned speech that includes “direct attacks on people based on what we call protected characteristics — race, ethnicity, national origin, religious affiliation, sexual orientation, caste, sex, gender, gender identity, and serious disease or disability.” The speech banned here is often, if loosely, called “hate speech.” Their basic law thus contravenes American free speech legal doctrine. Hate speech is protected by the First Amendment, but not by Facebook.

I conclude that either Facebook’s standard violates the culture of free speech or it reflects a difference between the culture of free speech (which does not include hate speech) and American First Amendment legal doctrine. If the latter, Facebook’s recognition of the difference will foster a greater gap between culture and law.

Facebook’s idea of hate speech may be a relatively limited and stable exception to a generally open platform. But community standards for social media are said to be “living documents” that change over time. And hate speech itself is an ambiguous term. Perhaps all mention of The Bell Curve might one day be removed from Facebook as a direct attack on African Americans. Removing Alex Jones should not prompt fear in any reasonable conservative. Banning Charles Murray should and would. And what of the vast landscape between those two figures? American free speech doctrine largely precludes drawing such lines. Facebook is committed to doing so.

The political context matters in applying standards. In one way, Facebook is less like a court and more like a legislature: it is beset by highly organized interests who seek to convince Facebook to remove content. As with legislatures, those who are organized are those who are heard from, and policy reflects what policymakers hear.

With regard to content moderation, people who lean left are organized and on the inside. This observation applies to the employees of tech firms, the academic experts from whom they seek advice, and the groups organized to guide their decisions about what is removed from the platforms. In contrast, the right is on the outside and less organized, more or less reduced to having elected officials complain about the platforms. How long before cheap talk gives way to serious actions? This asymmetry between inside the companies and outside is not good for the freedom of speech. It is also not good for the legitimacy of content moderation.

As a legal matter, social media companies have broad discretion to police their platforms. That is how it should be. But they need to make their authority legitimate. If they do not, elected officials may one day act to compel fairness or assuage fears. As always, that will not be good news for the freedom of speech or limited government.   

In yesterday’s Washington Post, George Will makes a familiar argument: “if you want peace, prepare for war.”

Drawing mostly on key episodes from the late Cold War period, Will suggests that Ronald Reagan’s military buildup was instrumental to bringing down the Soviet Union. He places particular emphasis, with an assist from John Lehman, on the importance of a massive naval buildup in the 1980s.

As it happens, I served in the Navy during this period. Lehman was the Secretary of the Navy when I was an NROTC midshipman at George Washington University. I witnessed what such a force could do when it was called upon to fight – not the Soviet Union, but rather Saddam Hussein’s Iraq in 1991. And that war was over in a matter of weeks.

But fast-forward to today, and the picture is more complicated. The issue is not whether we are preparing for war, to prevent war, but rather why we fight so many wars in the first place. We have a political class that engages in war, but with little consideration of the long term strategic benefits. War, in short, has become a matter of habit.

It wasn’t always this way, as I wrote this morning at War on the Rocks. Jumping off of two excellent articles – David Montgomery in last weekend’s Washington Post on the proliferation of war memorials in our nation’s capital; and C.J. Chivers in the latest New York Times magazine regarding an Army unit in Afghanistan’s Korengal Valley – I wondered: “Might our war memorials do more than memorialize war? Might they also help us to avoid future ones?”

William Dean Howells, writing in the Atlantic Monthly in 1866, worried that a proliferation of war memorials would “misrepresent us and our age to posterity; for we are not a military people, (though we certainly know how to fight upon occasion).” I worry that the character of the American people has changed. “Judging from the war memorials now adorning the National Mall, and those planned,” I write, “we are a military people, and our constant wars are disrupted only by brief occasions of peace.”

Returning for a moment to Will’s Op-Ed, let’s dismiss the question of whether we have a strong military. We absolutely do. Plus, we have nuclear weapons,thousands of them. Any competent leader, any tin pot tyrant with a return address, knows that an attack on the United States will produce a swift and devastating response. The mere prospect of such retaliation is an effective deterrent against any rational adversary. We should retain such a capability. As I and others have written, however (e.g. here), we don’t need nearly as many nuclear weapons in order to maintain a credible deterrent.

The fact that we spend enormous sums to build a massive military doesn’t mean that everything that we spend is equally effective in preventing future wars – or even of winning the wars we’re in. Back in 2009, then-Secretary of Defense Bob Gates told the Economic Club of Chicago “If the Department of Defense can’t figure out a way to defend the United States on a budget of more than half a trillion dollars a year, then our problems are much bigger than anything that can be cured by buying a few more ships and planes.”

By this standard, we have a big problem.

Adjusting for inflation, Gates’s “half a trillion” would be about $576 billion in today’s dollars. The defense bill awaiting President Trump’s signature authorizes a budget of $717 billion in 2019.

My main concern, therefore, is not about how much we spend, per se. Rather, I’m mostly focused on the wars that the United States has initiated, despite the fact that we have enormous military advantages over any conceivable combination of rivals.

Many of these wars have undermined our security. George Will calls the Iraq war “the worst U.S. foreign policy decision…in American history.” With respect to Afghanistan, Will earlier this year noted that U.S. forces had been there for 6,000 days and asked “What are we doing?”

He’s not alone in wondering such things, and such confusion is unfortunate. These unhappy and inconclusive conflicts may even have sapped the American people’s will to fight the truly necessary wars of the future. And at least some of the additional increments of military power, beyond what is needed for deterrence, have made it easier for us to become involved in foreign wars that do not advance American security.

In that sense, preparing for war hasn’t brought peace, but rather just more war.

In a recent piece at The Hill, I argue that Trump’s terrible approval ratings for his handling of foreign policy will matter more than most people think.

The basic argument consists of four points:

1. Trump has made foreign policy more important to Americans today thanks to his “America First” approach:

The genius of Trump’s “America First” slogan was the way it allowed Trump to connect foreign and domestic politics under a single populist and nationalist banner. When Trump says he’s protecting American workers, he could be talking about tax cuts, illegal immigration, “horrible trade deals,” or terrorism. Trump’s America First strategy has blurred much of the historical difference between foreign policy and domestic policy. All of this makes foreign policy more important moving forward.

2. Trump’s foreign policy has been historically unpopular:

Not only does Trump suffer lower approval for his handling of foreign policy than all presidents back to Ronald Reagan, but majorities of Americans oppose Trump’s calling card issues. Fifty-eight percent oppose building a wall along the Mexican border and 67% think that illegal immigrants currently living in the United States should eventually be allowed to apply for citizenship. Twice as many Americans (49%) think raising tariffs will hurt the economy as think it will help (25%)…

3. Foreign policy approval feeds into overall presidential approval:

… even though the impact of foreign policy is most obvious during a war or international crisis, it plays a key role in shaping the general narrative of a president’s performance while in office. One analysis, for example, found that public approval of the president’s handling of foreign policy has a larger impact on his overall approval rating than does his handling of the economy.

4. Trump’s net-negative presidential approval ratings signal big trouble for Republicans at the midterms:

Research suggests that Trump’s current 41% approval rating historically would typically result in about an 8-point national advantage in voting for Democrats…. Looking at data from each president’s first midterm elections going back to 1946, the four presidents who did not enjoy a net-positive approval rating saw their party lose an average of 49 seats in the House and 6.5 seats in the Senate.

The bottom line is that Trump’s handling of foreign policy hasn’t done Republicans any favors this year and is likely to be an even bigger problem for Trump himself in 2020.

Thanks to Hannah Kanter for the background research and contributing to the writing of the original commentary.

Last week, a transportation consultant named Bruce Schaller published a report claiming that ride hailing was increasing traffic congestion. Since then, we’ve been innundated with wild claims Uber and Lyft were increasing traffic by 180 percent, and these claims are used to support arguments that that cities should tax companies like Uber and Lyft and use the revenues to compensate transit agencies for the riders lost to ride sharing.

Yet the congestion claims are completely inaccurate. Schaller concluded that, because well under half of ride-hailing trips would otherwise have used private automobiles, ride hailing put “2.8 new vehicle miles on the road for each mile of personal driving removed.” He went on to say that this is “an overall 180 percent increase in driving on city streets,” but that would be true only if ride hailing removed 100 percent of private driving from the streets.

The report also said that ride hailing added “5.7 billion miles of driving annually in the Boston, Chicago, Los Angeles, Miami, New York, Philadelphia, San Francisco, Seattle and Washington DC metro areas.” That sounds like a lot, but Federal Highway Administration data show that it is only about 1 percent of driving in those metro areas. Since, by Schaller’s estimation, about a third of ride-sharing travel displaced private auto travel, ride hailing added a net of just two-thirds of a percent of driving in those metro areas.

Nor does even that two-thirds of a percent necessarily add to congestion. A disproportionate share of ride hailing takes place during off-peak hours, so only a small portion of that two-thirds of a percent actually contributed to rush-hour congestion.

Aside from being arithmetically challenged, Schaller is an unabashed opponent of auto driving. “Cities need less driving, not more,” he says, claiming that cities that allow too much auto driving will be “drained of the density and diversity which are indispensable to their economic and social well-being.” The reality is that low-density cities that emphasize driving, such as Dallas and Houston, tend to be more affordable and more socially and economically diverse than high-density cities that emphasize transit such as New York and San Francisco.

To promote transit and limit driving, Schaller advocates imposing fees on Uber and Lyft of as much as $50 per hour. Cities that are already charging such fees (though less than $50 an hour) are using them to compensate transit agencies that have lost riders to ride sharing, a policy Schaller would applaud but one that makes as much sense as taxing pocket calculators to save the slide rule industry.

Only transit, says the report, can “make possible dense urban centers with lively, walkable downtowns; a rich selection of jobs, restaurants, entertainment and other activities; diversity of population; and intensive and inventive face-to-face interactions that make cities fertile grounds for business and artistic innovation.” Has New York City resident Schaller ever been to Silicon Valley? It doesn’t have a dense urban center and it’s transit system carries less than 5 percent of commuters to work and only about 1 percent of local passenger travel. Yet it is one of the most creative and innovative places on earth.

The reality is that the ride-hailing industry is threatening the transit industry, and transit advocates are demonizing Uber and Lyft in order to protect their $50 billion in annual subsidies. Schaller’s report estimates that ride-hailing grew by 710 million trips in 2017, the same year that transit ridership declined by 255 million trips. If just 36 percent of ride-hailing trips would otherwise have taken transit–a number Schaller’s report would seem to support–then ride hailing is responsible for 100 percent of the decline in transit.

The truth is that transit was obsolete before Uber and Lyft were invented. Nearly 96 percent of American workers have cars and most of the 4 percent who do not don’t take transit to work. Outside of New York City, transit plays a minor role in urban transport, and outside of New York, Chicago, Philadelphia, Washington, Boston, and San Francisco, its role shrinks to insignificance. Given a choice between automobiles and transit, Americans have overwhelmingly chosen the former. Given a choice between ride hailing and transit, policy makers should also side with the mode that is faster, more convenient, and least subsidized.

Tuesday was National Lighthouse Day and social media was abuzz highlighting lighthouses’ beauty and their important role in navigation. On August 7, 1789, in one of its first actions, Congress approved an Act that established federal administration and support for lighthouses, beacons, buoys, and public piers. Interestingly, though the Act established tax funding for lighthouses in the United States, the history of lighthouses in the United Kingdom took a very different path and has been a source of debate about public goods and the proper role of government.

Public goods, according to economists, are commodities for which it is impossible (or at least difficult) to restrict consumption to those who pay. Such goods are said to exhibit the free-rider problem. Economists from John Stuart Mill to Paul Samuelson argued that lighthouses were a textbook example of a public good because a private operator would have difficulty collecting payment from passing ships that use the light as a navigational aid. A lighthouse cannot pick and choose which ships view its light. Thus, a privately-owned lighthouse would raise no revenue. If government didn’t provide them through taxation, then no one would.

In 1974, Nobel Prize winning economist Ronald Coase examined the history of lighthouses in Britain and argued that, contrary to the traditional view, the service provided by lighthouses is excludable: passing ships need to dock somewhere, and when they do they can be charged user fees for the lighthouses they passed before docking. Coase showed that there were many privately owned lighthouses in 18th and 19th century Britain that were supported by user fees.

Subsequent scholarship has challenged Coase’s view. David van Zandt found that though many English lighthouses were privately owned, they needed permission from the government to build a lighthouse, enjoyed monopoly privileges, and earned government mandated and collected fees.

Market purists may be disappointed, but van Zandt’s findings add some nuance to discussion about public goods. He created a continuum of possibilities between pure private and full governmental provision:

1. private provision with government enforcement of property and contract rights;
2. private provision with government rate setting and revenue collection, and monopoly concessions;
3. government provision with only user fees as revenue;
4. and government provision with only taxpayer support.

While Coase argued that, historically, some lighthouses fit into the first category, van Zandt found that lighthouses were always in categories 2, 3, or 4. But both agree that dependence on user charges eliminates the budgetary excesses found with government provision of infrastructure, especially when it is funded from general revenues.

During the last few decades, many countries have privatized railroads, airports, energy companies, and postal services, even though governmental provision of them has been widely thought to be appropriate. As my colleague Chris Edwards has discussed, the United States has lagged other countries in this transformation. Lighthouses continue to be supported by tax dollars in the United States and through user fees in the United Kingdom. 

Lighthouses are not only beautiful reminders of our seafaring past. They also have played an important role in the intellectual history of economics, the economics of public policy analysis, and discussions about the proper role of the state.

Written with research assistance from David Kemp.

After a brief hiatus during the run up to the recent Mexican elections, negotiations on the North American Free Trade Agreement (NAFTA) are in the news again, with hints of an agreement by the end of August. We have heard talk of an imminent agreement before and the chances of an agreement within the month may not be very high, and even if it does happen it may be more of an “agreement in principle” with many details still to be worked out. Nevertheless, with the renewed interest, we thought it was worth breaking down some of the key remaining issues (there are a lot of them, which helps illustrate the amount of work still left to do!).

Rules of Origin (RoO) for Autos

This is the focus of the current talks taking place between the U.S. and Mexico (Canada does not appear to be actively involved, perhaps because it does not have strong feelings about some of the outcomes here). In essence, the Trump administration wants to tighten the requirements for having trade in autos benefit from zero tariffs. In this regard, the U.S. wants to increase the percentage of content that must be from North American sources (currently the figure is 62.5%; the U.S. proposed raising it to 85%, and press reports suggest that 75% is the figure being discussed now). It also wants a percentage of the autos to be made by workers who make above a certain hourly wage (reports suggest that the current U.S. proposal is that 40% of light-duty vehicles and 45% of pick-up trucks are to be made by workers that make as least $16 an hour).

The Trump administration’s goal here is to provide an incentive to do more production in higher wage Canada and the U.S., although the actual impact will depend on the percentage required and the wage specified, so the effect of this policy is unclear. If the Trump administration gets what it wants, it is likely that free trade in autos in the North American market will be scaled back.  If the requirements are too burdensome to meet, automakers will simply opt for paying the 2.5% MFN tariff instead and just raise the cost of cars for consumers to compensate; and if they do meet the requirements, their costs will go up as a result of doing so. Either way, it will be bad for the industry and for consumers.

Government Procurement

In October, Secretary of Commerce Wilbur Ross suggested that government procurement rules should be made more “reciprocal” by establishing dollar-for-dollar access to each country’s procurement market. This idea prompted some cheekiness from Mexican negotiators who proposed that the U.S. should receive the same level of government procurement contracts in Mexico as Mexico receives in the United States (about $1.1 million dollars, a very small portion of the overall American procurement market). As with auto rules of origin, the Trump administration seems to be looking to take some of the free trade out of NAFTA.

Canadian Agriculture Restrictions.

The U.S. has had its sights on dismantling Canada’s agriculture barriers for quite some time. The 2017 National Trade Estimate Report on Foreign Trade Barriers highlights concerns with Canada’s supply management for dairy, and also for the chicken, turkey and egg industries. Another bone of contention has been Canada’s Special Milk Class Permit Program that gives domestic processors milk components for discounted prices. Canada has opposed any changes to its supply management system “on principle” and argued that the U.S. also maintains agricultural protections, such as on sugar.  Canada may ultimately give a little bit here, but it is likely to want something in exchange.

Seasonal Growers

There was some talk early on that the U.S. would push for rules that would make it easier for seasonal growers to bring anti-dumping and countervailing duty cases. Current trade remedy laws require domestic producers to account for at least half of domestic industry to access AD/CVD proceedings. This has been a hotly contested issue even within the U.S., as it has pitted produce growers from different states against each other.

Chapter 11: Investor-State Dispute Settlement (ISDS)

The Trump administration wants to opt-out of the investor-state dispute settlement mechanism for investment protection, based on their own concerns about sovereignty, and also to make the agreement more palatable to various critics of trade agreements. The precise scope of the opt-out is unclear, but it seems likely that some form of it will end up in any new NAFTA.

Chapter 20: State-to-State Dispute Settlement

The Trump administration has said it wants to “soften” dispute settlement, by making the outcomes of dispute settlement “non-binding.” It would be hard to see Congress or Canada and Mexico going along with this.

Chapter 19: Binational Panels on Anti-dumping/Countervailing Duty Disputes

Chapter 19 allows special binational panels, rather than domestic courts, to review domestic anti-dumping and countervailing duty decisions involving the NAFTA parties. Though a similar mechanism appeared in the predecessor to NAFTA, the Canada-U.S. Free Trade Agreement (CUSFTA), it has not appeared in any other U.S. trade agreement. There has also been a question of whether Chapter 19 is constitutional. In the first round of negotiations, the U.S. put forward a proposal to completely eliminate Chapter 19. Canada and Mexico want to keep it. Nothing has been said about this issue in recent months.

Sunset Clause/Performance Review

The Trump administration has been pushing for a provision under which NAFTA automatically expires after 5 years unless all three governments affirmatively decide to stay in. Congress, Canada, and Mexico are unlikely to accept this, but there is some possibility that Canada and Mexico would agree to a periodic performance review, so long as it didn’t trigger a lapse in the agreement.

Currency Manipulation

The November 2017 update of USTR’s NAFTA negotiating objectives stated that it would aim to “ensure that the NAFTA countries avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage” through “an appropriate mechanism.” In the recently renegotiated Korea-U.S. Free Trade Agreement (KORUS), the currency side-deal was said to be “historic” even though the provisions are non-binding. The big question in NAFTA is whether there would be a binding and enforceable chapter on currency manipulation.

Intellectual Property

Intellectual property protection has some powerful industries behind it, and some strong advocates in Congress. In the TPP, the United States pushed hard for stronger protections on “biologic” drugs and achieved some but not all of it what it wanted. And the United States has long complained of insufficient Canadian protections for copyrights and patents. There has been little reporting on these issues during the NAFTA renegotiation, but the outcomes are going to be important for generating Congressional support.


Telecom reform has been a longstanding issue in North America. USTR’s 2017 National Trade Estimate Report on Foreign Trade Barriers noted that “Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based telecommunication services” and that Mexico’s “barriers included limitations on foreign investment in telecommunications and broadcasting, a weak regulatory agency, and an uncompetitive market dominated by a near-monopolistic player.” There seemed to be some progress on this issue in the second round of negotiations, but very little has been heard of it since then.


This is a key component of the “modernizing” elements of a new NAFTA. It was widely suggested that the e-commerce provisions in the TPP would be the starting point for negotiations on this chapter, and would cover issues such as digital trade and data localization.

De Minimis Threshold

The U.S. has been pushing for Canada and Mexico to increase their de minimis threshold for duty-free treatment of express shipments to the higher U.S. standard of $800. Currently, Canada and Mexico have a $20 and $50 threshold, respectively. Christine McDaniel of the Mercatus Center has noted the value to small businesses from raising this limit.

Regulatory Cooperation

Inu talked in detail about the possibility of a regulatory cooperation chapter in the new NAFTA after a proposal was tabled in the second round of negotiations. In March, it was reported that a chapter on Good Regulatory Practices was closed, but it was unclear as to what it would include. Will this go beyond the TPP? How much of the current bilateral regulatory cooperation initiatives would be incorporated? In June 2018, a memorandum of understanding was signed between the U.S. and Canada reaffirming their commitment to the Regulatory Cooperation Council. This could be a signal that this process will remain outside of NAFTA.

State-Owned Enterprises

In the TPP, the United States and others pushed for the most detailed provisions on SOE behavior in any trade agreement. This issue has flown under the radar in the NAFTA talks, but the TPP provisions are likely to be carried over to the new NAFTA.

Labor and Environment

The labor and environment side-letters were brought into the original NAFTA by President Clinton to increase Democratic support. Over the years, many groups have argued that the lack of enforceability has made these chapters little more than symbolic gestures. All parties seemed to be on board to include them as individual chapters in the agreement, but the revised content remains unclear. Will there be, as Canada proposed, some sort of provision on combating climate change? Will Mexico concede in addressing concerns over unions and the minimum wage? Will there be updates to the standard labor chapter language in response to the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) panel ruling related to Guatemalan labor practices? And finally, what will happen to the NAFTA institutions that were created to monitor the labor and environment side letters?

Trudeau’s “Progressive Trade Agenda”

Canadian Prime Minister Justin Trudeau has made his “progressive trade agenda” a central marketing pitch in his government’s trade policy. What this means in practice, however, has been rather vague. In NAFTA, Canada has pushed for the inclusion of a chapter on trade and gender, as well as on indigenous rights. Questions that remain are: (1) whether the U.S. and Mexico would agree to an indigenous rights chapter at all, and (2) to what extent would a trade and gender chapter be any more than just opening up a dialogue, as it is in the Canada-Chile FTA?

What’s Next?

Given the deadlines set out by Trade Promotion Authority (TPA), it is clear that the current Congress will not vote on a new NAFTA, even if it is completed this month. However, it is possible that the deal can be voted on in Mexico ahead of the presidential transition, as President-Elect Lopez Obrador will assume office in December. His domestic agenda will be ambitious, and it is possible that NAFTA would not get the high-level attention it has received up until this point. What we do know is that we are down to the final grind, and no deal this year may lead to this being dragged out for quite a while.  The Trump administration says it wants to sign many new trade deals, but it is hard to see how they can do anything new if they struggle to update an existing agreement with our closest neighbors.

Ten years after the 2008 financial crisis we are again facing the possibility of economic turmoil as the Fed and other central banks exit their unconventional monetary policies by raising interest rates and shrinking their balance sheets. Although central banks will move gradually, unforeseen circumstances could trigger a flight to safety and a collapse of asset prices that had previously been stimulated by near-zero interest rates and large-scale asset purchases, popularly known as “quantitative easing.”

This book brings together leading scholars and former policymakers to draw lessons from the decade of unconventional monetary policies relied upon to stimulate the global economy in the aftermath of the financial crisis. The articles included in this book combine historical perspectives and forward-looking views of the Fed’s exit strategy and monetary normalization, along with the arguments for a rules-based monetary policy both at the domestic and international levels.

Kevin Warsh, a former member of the Board of Governors of the Federal Reserve System, reminds us in his article that, although the economy has improved since the crisis, the tasks facing the Fed are still large. “So we should resist allowing the policy debate to be small or push aside ideas that depart from the prevailing consensus. The Fed’s job is not easier today, and its conclusions are not obvious.” The contributors to this volume meet Warsh’s challenge by questioning the status quo and offering fresh ideas for improving monetary policy.

The financial crisis highlighted the uncertainty that confronts policymakers. Having failed to prevent the 2008 financial crisis and the Great Recession, the Federal Reserve and other major central banks all subsequently adopted similar policies characterized by near-zero interest rates, quantitative easing and forward guidance. Those unconventional monetary policies were designed to increase risk taking, prop up asset prices, increase spending and restore full employment.

While asset prices have risen and unemployment is at historic lows, the Fed’s balance sheet ballooned from about $800 billion before the crisis to more than $4 trillion today, and the long period of near-zero interest rates has created a series of asset bubbles, which risk being burst as interest rates rise again.

Moreover, the Fed has engaged in preferential credit allocation through its large-scale asset purchase program, in which it has acquired billions of dollars’ worth of mortgage-backed securities and shifted out of short-term Treasuries to longer-term government debt.

In order to expand its balance sheet, the Fed has radically changed its operating procedure. Instead of engaging in open market operations nudging the policy rate toward a single target rate by buying and selling short-term Treasuries, the Fed now establishes a target range for the funds rate—with the rate of interest on excess reserves (IOER), introduced in October 2008, as its upper limit and the Fed’s overnight reverse repurchase (ON RRP) agreement rate as its lower limit.

Because the IOER exceeds comparable market rates, some banks now find it worthwhile to accumulate excess reserves instead of trading them for other assets. The economy is, in other words, kept in a purpose-made “liquidity trap,” so that the traditional monetary “transmission mechanism” linking increases in the monetary base to changes in bank lending, overall spending, and inflation, no longer functions as it once did. Under the new operating arrangements, the Fed changes its policy stance by changing its IOER and ON RRP rates, thereby influencing not the supply of but the demand for the Fed’s deposit balances.

Meanwhile, the Fed’s regulatory powers have increased dramatically as well. The Federal Reserve System, which was intended to be decentralized so that policymakers would take account of divergent ideas, has become even more centralized with each new crisis. As a result, monetary policy has also become more politicized.

Finally, the lack of any systematic policy rule to guide long-run decisions has increased regime uncertainty. The so-called knowledge problem—and the limits of monetary policy—need to be widely recognized. Policymakers err by paying too much attention to short-run remedies and too little attention to the long-run consequences of current decisions. If human judgments were perfect, then purely discretionary monetary policy would be ideal. However, as Karl Brunner (1980: 61) wisely noted, the reality is that:

We suffer neither under total ignorance nor do we enjoy full knowledge. Our life moves in a grey zone of partial knowledge and partial ignorance. [Consequently], a nonactivist [rules-based] regime emerges … as the safest strategy. It does not assure us that economic fluctuations will be avoided. But it will assure us that monetary policymaking does not impose additional uncertainties … on the market place.*

Before serious consideration can be given to implementing any rules-based monetary regime, the Fed needs to normalize monetary policy by ending interest on excess reserves and shrinking its balance sheet to restore a precrisis federal funds market. Once changes in base money can be effectively transmitted to changes in the money supply and nominal income, the Fed can then implement a rules-based regime to reduce uncertainty and spur investment and growth.

The ideas put forth in this volume for monetary reform are meant to inform policymakers and the public about the importance of maintaining a credible monetary policy regime both for financial stability and economic prosperity. Ensuring long-run price stability, letting market forces set interest rates and allocate credit, and keeping nominal income on a steady growth path will create new opportunities and widen the scope of markets to promote economic performance.

This article originally appears as the Editor’s Preface in Monetary Policy in an Uncertain World: Ten Years After the Crisis

* Reference: Brunner, K. (1980) “The Control of Monetary Aggregates.” In Controlling Monetary Aggregates III, 1–65. Boston: Federal Reserve Bank of Boston.

[Cross-posted from]

The Constitution’s Taking Clause provides that government cannot conscript property to its own purposes without compensating the rightful owner for the value of what is taken. The most direct application of this principle is in cases of eminent domain, where the government takes title to a piece of land for some public purpose—or sometimes a not-so-public purpose. But the takings principle applies to other impositions on property rights as well, such as regulations that render a previously expensive piece of property valueless. Courts recognize that in these cases there is likewise an infringement on property rights in the name of the public good, and that such a public good should come at the expense of the public as a whole, not some particularly unlucky land owner.

The Supreme Court has repeatedly recognized the potential for these abuses and, in a series of cases beginning with 1987’s Nollan v. California Coastal Commission, it has demanded that permit requirements and development exactions bear some relationship to the actual impacts of the project. If one wishes to build an apartment building, its reasonable enough to say one should contribute to the public expense that creates when the municipality needs to build a new road to serve it. Requiring a landowner to pay for an unrelated project many miles away for the privilege of making perfectly legal improvements to their own property should be out of bounds.

But lower courts friendlier to acts of state extortion believe they have found a loophole: Nollan and its progeny dealt with specific ad hoc permitting requirements by local planning agencies. Where the legislature imposes the exaction as part of a general ordinance, however, these courts claim Nollan doesn’t apply. What principle of aggregation renders an act that is unconstitutional when applied to a specific person constitutional when applied to the public generally?

Such was the fate of William Dabbs. Anne Arundel County, Maryland required him to pay an “impact fee” to build a house on a piece of property he owned. Ostensibly, this fee was to compensate for the costs of new development on “public schools, transportation, and public safety,” but a brief glace at the ordinance demonstrates that this pretext is illusory: rather than charging, say, per unit of new development, the fee is based on the size of the house. A family living in a 3,000-square-foot house does not, on average, use more public schooling or transportation than a family in a 2,000-square-foot house (if anything, arguably the opposite), but under the ordinance it is charged more. This therefore represents an attempt to raise general revenue on the backs of disfavored individuals—precisely the evil the Takings Clause is supposed to prevent.

Dabbs has filed a petition asking the Supreme Court to hear his case and affirm that takings performed by ordinance are no less offensive to the Constitution than takings performed ad hoc. Cato, joined by the Reason Foundation, has filed a brief encouraging the Court to take the case.

New development is often opposed by a coalition of vested interests, be they governments like Anne Arundel County who demand their cut or environmental activists who live in perpetual fear of paving paradise to put up a parking lot. Thankfully, the Constitution recognizes that property rights are central to the liberty of citizens and should not be enjoyed at the sufferance of ninnying NIMBYsim.

The Supreme Court should take up Dabbs v. Anne Arundel County and reaffirm that these protections cannot be circumvented by legislative gamesmanship.