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Trump’s Big Problems: Anemic Private Investment and Weak Productivity

Steve H. Hanke

Why was the Great Depression so deep, and why did it drag on for so long? According to impressive research by Robert Higgs of the Independent Institute, it was because President Roosevelt abandoned his campaign promises of 1932: to cut federal spending, to balance the budget, to maintain a sound currency, and to rein in Washington’s bureaucracy. Instead, Roosevelt switched gears. Roosevelt and the Congress, according to Higgs, produced a “bewildering, incoherent mass of new expenditures, taxes, subsidies, regulations, and direct government participation in productive activities … . The New Deal created so much confusion, fear, uncertainty, and hostility among businessmen and investors that private investment and hence overall private economic activity never recovered enough to restore the high levels of production and employment enjoyed during the 1920s.”

Crucially, the economy failed to add anything to its capital stock between 1930 and 1940, when the net private investment for that period totaled a minus $3.1 billion.

Higgs’ granular analysis of this collapse in private investment led him to introduce and test a new concept: “regime uncertainty.” Higgs’ regime uncertainty is, in short, uncertainty about the course of economic policy — the rules of the game concerning taxes and regulations, for example. These rules of the game affect the net benefits and free cash flows investors derive from their property. Indeed, the rules affect the security of their property rights. So, when the degree of regime uncertainty increases, investors’ risk-adjusted discount rates increase and their appetites for making investments diminish.

Trump’s challenge will be to reduce regime uncertainty, and also introduce tax and regulatory policies that encourage private investment.

Since the Great Recession of 2009, regime uncertainty has been elevated. This has been measured by Scott R. Baker of Northwestern University, Nicholas Bloom of Stanford University and Steven J. Davis of the University of Chicago. Their “Economic Policy Uncertainty Index for the U.S.” measures, in one index number, Higgs’ regime uncertainty. In addition, there is a mountain of other evidence that confirms the ratcheting up of regime uncertainty during the tenures of Presidents George W. Bush and Barack Obama. For example, Pew Research Center surveys find that the percent of the public that trusts Washington, D.C. to do the right thing has fallen to all-time lows.

So, President Trump has inherited a legacy of regime uncertainty, which has caused both private investment and productivity to sag. Trump’s challenge will be to reduce regime uncertainty, and also introduce tax and regulatory policies that encourage private investment. If he fails, private investment and productivity will continue their downward secular trends, and the economy will continue to underperform.

Just how bad is Trump’s inherited legacy? As the accompanying chart shows, gross private domestic business investment, which does not include residential housing investment, has rebounded modestly since the Great Recession. But, most of this gross investment has been eaten up in the course of replacing capital that has been used up or became obsolete. Indeed, the private capital consumption allowances shown in the chart are huge. While these capital consumption figures are approximate, they are large enough to suggest that there is little left for net private business investment. This means that the total capital stock, after actually shrinking in 2009, has grown very little since then. This is bad news, as productivity is dependent on the quality and size of the economy’s private capital stock.

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Steve Hanke is a professor of applied economics at The Johns Hopkins University and a senior fellow at the Cato Institute.

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It’s Time to Dump Most Central Banks

Steve H. Hanke

On March 16th, the New York Times carried reportage by Peter S. Goodman, Keith Bradsher and Neil Gough, which was titled “The Fed Acts. Workers in Mexico and Merchants in Malaysia Suffer.” The theme of their extensive reportage is that U.S. monetary policy is the elephant in the room. It is the elephant that swings exchange rates and capital flows to and fro in emerging-market countries, causing considerable pain.

Emerging-market countries should dump their central banks and local currencies.

The real problem that all of the countries mentioned in the New York Times reportage face is the fact that they have central banks that issue half-baked local currencies. Although widespread today, central banks are relatively new institutional arrangements. In 1900, there were only 18 central banks in the world. By 1940, the number had grown to 40. Today, there are over 150.

Before the rise of central banking the world was dominated by unified currency areas, or blocs, the largest of which was the sterling bloc. As early as 1937, the great Austrian economist Friedrich von Hayek warned that the central banking fad, if it continued, would lead to currency chaos and the spread of banking crises. His forebodings were justified. With the proliferation of central banking and independent local currencies, currency and banking crises have engulfed the international financial system with ever-increasing severity and frequency. What to do?

The obvious answer is for vulnerable emerging-market countries to do away with their central banks and domestic currencies, replacing them with a sound foreign currency. Panama is a prime example of the benefits from employing this type of monetary system. Since 1904, it has used the U.S. dollar as its official currency. Panama’s dollarized economy is, therefore, officially part of the world’s largest currency bloc.

The results of Panama’s dollarized monetary system and internationally integrated banking system have been excellent (see accompanying table).

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  • Panama’s GDP growth rates have been relatively high. Since 1994, when the Mexican tequila crisis commenced, real GDP growth has averaged 5.8% per year.
  • Inflation rates have been somewhat lower than those in the U.S. Since 1994, CPI inflation has averaged 2.3% per year.
  • Since Panama’s fiscal authorities can’t borrow from a central bank, the fiscal accounts face a “hard” budget constraint dictated by the bond markets. In consequence, fiscal discipline is imposed, and since 1994, Panama’s fiscal deficit as percent of GDP has averaged 1.7% per year.
  • Interest rates have mirrored world market rates, adjusted for transaction costs and risk.
  • Panama’s real exchange rate has been very stable and on a slightly depreciating trend vis-à-vis that of the U.S.
  • Panama’s banking system, which operates without a central bank lender of last resort, has proven to be extremely resilient. Indeed, it weathered a major political crisis between Panama and the United States in 1988 and made a strong comeback by early 2000.

To avoid the pain described in the New York Times reportage, emerging-market countries should dump their central banks and local currencies. They should follow Panama’s lead and adopt a stable foreign currency. Or, they could install a competitive currency regime, which would allow for more than one foreign currency to be used.

Steve Hanke is a professor of applied economics at The Johns Hopkins University and a senior fellow at the Cato Institute.

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Day One of the Neil Gorsuch Hearings Was Not about Neil Gorsuch

Ilya Shapiro

Those who tuned into C-SPAN today for hot-and-heavy questioning of President Donald Trump’s Supreme Court nominee were sorely disappointed. The first day isn’t actually about the nominee, but just a chance for senators on the Judiciary Committee to make opening statements. Accordingly, we learned very little about Judge Neil Gorsuch—he made an opening statement too, confirming everything we already knew about him as a humble jurist and western family man—and some about the Democrats’ approach to this confirmation process.

Actually, there was nothing new there either. There was no magical coalescence around certain deadly needles found in the haystack of 2,700 Gorsuch opinions. Just the tired old issues we saw the day after the nomination announcement on January 31. First, this was a #StolenSeat, so no Republican nominee will be confirmed until Merrick Garland is returned from exile. This issue was of course litigated at the election, and the voters decided that they’d rather have Trump filling the Scalia vacancy. So it’s unclear who this argument is for, other than the arch-blue base.

Second, a handful of carefully cherry-picked cases show results that don’t make Gorsuch look sympathetic to the “little guy.” The leading contenders for this strategy are the “frozen trucker” case, the “cancer survivor” case, and the “taser-to-the-head” case. Indeed, Senator Mazie Hirono (D-HI) accused Gorsuch of being too “fixated on the plain meaning” of a statute. Well, then.

These hearings are unlikely to change a single vote on anything (filibuster or nomination).

Oh, and then there’s an addendum strategy. When do you think Trump stopped beating his wife? Particularly on display from Senator Richard Blumenthal (D-CT)—who leaked Gorsuch’s private comment about being dismayed at attacks on the judiciary—we’ll see much more of this as senators try to pin some of the president’s controversial pronouncements, tweets, and policies onto the elegant nominee.

Still, the results-oriented foofaraw was really quite astonishing. Ranking Member Dianne Feinstein (D-CA) both botched the definition of originalism and then claimed that this rather standard legal theory would lead to all sorts of bad things. (It was sort of like Ted Kennedy’s “Robert Bork’s America” speech, except lacking in imagination.) Sen. Sheldon Whitehouse—who once asked me at a hearing why I thought corporations had more rights than amputee vets—railed against the corporations that have apparently bought all Republican-appointed judges (and Justice Ruth Bader Ginsburg?). And on and on, as if judges were supposed to put a thumb on scale of certain preferred parties—after checking the latest hierarchy of intersectionality of course—rather than doing their best to apply the law to the facts in a neutral manner.

The Republican senators were less memorable—perhaps because I didn’t have to take Bacardi shots for “super-precedent,” “Garland,” “Citizens United,” and the rest—but generally set a good tone. I alas was at lunch when Senators Ted Cruz (R-TX) and Mike Lee (R-UT), both former Supreme Court clerks, gave their remarks, but Senator Ben Sasse (R-NE) gave a characteristically thorough explication of judges as ideally indistinguishable “black robes.” The Twitterverse has “black rober” as the early favorite for the theme of the hearings.

Of course, Tuesday the real fun begins, with each of the 20 senators taking half an hour for questioning Gorsuch. If they need any help on what to ask, here are some good suggestions from George WillRamesh PonnuruRandy Barnett/Josh Blackman, and yours truly.

But really, unless something really weird happens, this is so much about everything except the nominee. These hearings are unlikely to change a single vote on anything (filibuster or nomination). I’m just hoping they elucidate some important areas of constitutional interpretation and legal process despite (because of?) that dynamic.

Ilya Shapiro is a senior fellow in constitutional studies at the Cato Institute.

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Trump’s Tsa Budget Fails to Cut the Obvious: Air Marshals

John Mueller and Mark G. Stewart

To fund President Donald Trump’s fanciful plans for a massive southern border wall, his administration is scrounging around in the budgets of current US government programs. The results are evident in last week’s budget blueprint.

The administration has been looking to squeeze money from the budget of the Transportation Security Administration, which may represent an admission that some of the money slung at the terrorism problem in the United States might have been wasted.

Although such a reappraisal is a decade or more overdue, it isn’t clear that Trump’s budget staffers know what they are doing. In particular, in their quest to cut costs they have ignored an elephantine program, the Federal Air Marshal Service, which provides little security at great cost.

In their quest to cut costs they have ignored an elephantine program, the Federal Air Marshal Service, which provides little security at great cost.

For some time, in books and professional articles we have been applying standard techniques of risk and cost-benefit analysis to domestic counterterrorism efforts. By those measures, we have repeatedly found that FAMS fails spectacularly at reducing risk enough to justify its cost.

The program involves paying people to fly shotgun on airliners to prevent or disrupt hijackings. Even though there are thousands of such marshals, there are too few to be on much more than 5 percent of all flights—though the service still wouldn’t be cost-effective even if that number rose to 20 percent. The TSA insists marshals are placed on high-risk flights, but since no terrorist has boarded an airliner in the US with hostile intent since 2001, it is difficult to see how that “risk” is determined.

A 2015 CNN investigation found that air marshals were often medicated. Because of their hectic schedule they were also often sleep-deprived: 75 percent on domestic runs and 84 percent on international ones.

Crucially, the program is very expensive. It takes up some 10 percent of the TSA’s budget, costing more than $1 billion per year, including losses borne by airlines forced to provide free seats (mostly in first class) for their uninvited guests. In general, spending one dollar on the service generates less than 10 cents in benefit.

We have assessed a policy mix in which the air marshal budget is reduced by 75 percent (still leaving hundreds around for special assignments), the inexpensive program to train and arm pilots to resist hijackers is doubled, and secondary barriers to the cockpit—easily deployable and stowable—are installed. The result: better aviation security and a savings of hundreds of millions of dollars each year for both the taxpayers and the airlines.

Whether the border wall makes sense or not, the Trump budget staff is on firmer ground with a couple of other suggestions. They want to dump the legions of “behavioral detection officers” (BDOs) who wander the airports looking for passengers with quirks like exaggerated yawning, excessive throat clearing, bobbing Adam’s apples, and downward gazes, while arriving late for flights, whistling during the screening process, making repetitive grooming gestures, and/or wearing improper attire. The BDOs have yet to waylay a single terrorist, visibly anxious or not.

After reviewing more than 400 studies about detect­ing deception, the Government Accountability Office found that “the ability of human observers to accurately identify deceptive behavior based on behavioral cues or indicators is the same as or slightly better than chance.” It also noted that, after years of implementing and testing, “TSA cannot demonstrate that the agency’s behavior detection activities can reliably and effectively identify high-risk passengers who may pose a threat to the US aviation system.”

Also dumpable are the VIPRs. Visible Intermodal Protection Response (we’re not making this up) consists of teams of air marshals, transportation security inspectors, behavior detection officers, explosives specialists, and local law enforcement and airport officials who coordinate to randomly screen aviation workers, property, and vehicles for terrorists. They have had about the same success rate as BDOs.

In our assessment, the costs of both the BDO and the VIPR programs considerably outweigh the benefits, even if we bend over backwards to assume they offer any of the latter.

Because the programs are so labor-intensive, they are quite expensive: about $200 million per year for the BDOs and $50 million for the VIPRs. The budget blueprint says the administration wants to reduce the VIPRs and eliminate the BDOs for savings of $80 million, a number that doesn’t exactly add up.

However, the costs of these two programs clearly pale when they are compared to those of the monumentally expensive TSA program the Trump budget scroungers have clearly, and unaccountably, ignored: the air marshals.

John Mueller is a political scientist at Ohio State University and a senior fellow at the Cato Institute.

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California’s Cap-And-Trade Train Wreck

Patrick J. Michaels

Californians like to brag they are the nation’s pioneers, pointing to freeways, Disneyland and In-N-Out Burger. They’ve started construction on a 118-mile high-speed rail segment, the first in the nation, from Madera (population: 61,416) to Shafter (population: 16,998). They’re paying for it with revenues from a statewide cap-and-trade system, which sells “permits” allowing industry to emit carbon dioxide.

That first segment, which is over land as flat as a table, requiring very little bulldozing and very few superelevated curves, was supposed to cost $6.4 billion, but that’s already ballooned to $10 billion. As Steven Greenhut at Reason.com wrote earlier this year, “it’s costing the train to nowhere a lot to get there.”

If the legislature doesn’t extend it, the train to nowhere might come to the end of the line.

Twenty-five percent of the cap-and-trade permit revenue is earmarked for the train, which is generated by four sales a year. The last tranche of sales, which was supposed to produce $600 million in revenue, only sold $8.2 million. This was the third sale in a row that has gone badly, and if it keeps up, the train to nowhere is headed for oblivion unless money can be reallocated from elsewhere in the California budget.

What’s going on? The spin from environmentalists is cap-and-trade permits are not selling because industry has been so successful at reducing its emissions that it doesn’t need those stinking permits.

If only that were true! That would mean that reducing emissions 40 percent by 2030, as mandated by California law, is a piece of cake, and that the whole world will soon follow.

But that’s not the case. The problem is the cap-and-trade program is probably illegal. It was passed by a simple majority in the Legislature, but in California, taxes require a two-thirds supermajority. The California Chamber of Commerce and a tomato processor have sued over this, because it looks like a tax (the government taking your money) and acts like a tax (it spends it on dozens of different projects). The California Appellate Court may declare, after all, that it is a tax, and if it does not, the case will go to the state Supreme Court.

A judgment ruling it’s a tax will suspend the program, which legislatively sunsets in 2020 anyway, also helping to explain why no one is buying the permits. Gov. Jerry Brown, whose term ends in 2019, is now asking the Legislature to admit it’s a tax, and pass a new bill with a two-thirds majority. He has also made rumblings that the program can continue without specific legislative authority, sounding curiously like the nation’s last president on climate policy.

Passing this tax may be a problem. Even though the Democrats hold a supermajority in both state houses, a defection of one senator or two Assembly members will kill the bill. There are surely some in the less-blue parts of the state who don’t want their taxpayers to be responsible for these costs.

There are a large and diverse number of contenders to succeed Gov. Brown, and one or more may stake out a position against cap-and-trade. It was one “different” candidate vying against a dozen others with similar ideas that resulted in the Republican nomination of Donald Trump. Polls have support for the cap-and-trade around 54 percent.

California is not the first location of a cap-and-trade train wreck. In December, 2010, the Chicago Climate Exchange, the nation’s first carbon dioxide cap-and-trade market, shut its doors when the U.S. Senate had the good sense to run away from cap-and-trade, less than two months after the Democrats lost control of the House as a result of passing it.

Will California’s cap-and-trade program meet a similar fate? If the legislature doesn’t extend it, the train to nowhere might come to the end of the line.

Patrick J. Michaels is the director of the Center for the Study of Science at the Cato Institute.

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What to Ask Neil Gorsuch at His Confirmation Hearing

Ilya Shapiro

Things are looking good for Supreme Court nominee Neil Gorsuch as he prepares for his confirmation hearings, which begin March 20. Judge Gorsuch has continued to be his charming and disarming self, leaving Democrats with little to latch onto in opposition and only increasing his already-solid chances for securing a seat on the high court. Indeed, a recent survey showed that 91% of Democratic congressional expect Gorsuch to be confirmed—and only 41% expect there to be an attempted filibuster.

Only by holding nominees’ feet to the substantive constitutional fire can we make confirmation hearings great again.

Still, senators shouldn’t look past the upcoming hearings. After all, this is a unique opportunity to get to know the nominee’s mind and to educate the American people about constitutionalism and the legal process. It’s literally the only time that someone on the verge of ascending to the pinnacle of one of our three branches of government—for life!—goes toe-to-toe with politicians who are accountable to the people.

To be sure, such hearings have become kabuki theater. Senators from the president’s party toss softballs that let the nominee display his or her erudition, while opposing senators ask “gotcha” questions that anybody skilled enough to be nominated can evade with ease. Indeed, the nominee in the supposed hot seat has been trained for weeks to talk a lot while revealing very little, literally running out the clock allotted for each senator’s questions while executing what’s been called the (Ruth Bader) Ginsburg “pincer movement”: refusing to analyze hypothetical cases because those issues might come before the Court and then declining to discuss broader doctrinal issues because judges should only deal in specifics.

As one observer put it: “When the Senate ceases to engage nominees in meaningful discussion of legal issues, the confirmation process takes on an air of vacuity and farce, and the Senate becomes incapable of either properly evaluating nominees or appropriately educating the public.” Untenured law professor Elena Kagan was not wrong in writing that back in 1995, even if the would-be justice recanted her emperor-has-no-clothes logic when she herself became a nominee.

But it doesn’t have to be that way. By focusing on constitutional clauses, not cases—recall Senator Arlen Specter’s bizarre question to then-Judge John Roberts regarding whether Roe v. Wade was a “super-duper precedent”—and asking about reasoning rather than results, senators can restore the “teachable moment” that these hearings are supposed to be.

Here are some ideas of what that might look like as Neil Gorsuch takes center stage:

  1. You’ve stated in the past that you interpret the Constitution according to its original public meaning. What factors do you look to in ascertaining that? In situations where the original public meaning is unclear, what interpretive methods will you rely on? Relatedly, at what point should original meaning give way to stare decisis and the force of precedent?
  2. The first sections of Articles I, II, and III, respectively, are known as the “vesting” clauses, laying out the distinct roles of each branch of government. What do you think each clause means, and why is this important to protecting people’s individual rights?
  3. The administrative state often consists of agencies’ combining of legislative, executive, and judicial powers. To what extent is that unavoidable given the scope of modern government—and what about independent agencies that in theory aren’t part of any branch?—and how should judges should check the bureaucracy?
  4. Do you think judges should more strictly review laws and regulations that bear criminal penalties? In what circumstances does the Constitution allow criminal punishments where there is no intention or knowledge of wrongdoing?
  5. Under Article I, Section 8, Congress has the power to “lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common defense and general Welfare of the United States.” Is this General Welfare Clause a grant of power or a limitation?
  6. Congress justifies much of the legislation it enacts today (if at all) by invoking the power to regulate interstate commerce. Some would say that the scope of this Commerce Clause has grown to the point where it constitutes a federal police power. What is the original meaning of this clause and what are some judicially enforceable limits on it?
  7. Does the Second Amendment protect an individual right to carry arms or just the right to keep them at home? How would you go about analyzing whether a particular restriction on this right is constitutional?
  8. The Ninth Amendment specifies that the Bill of Rights doesn’t provide an exhaustive list of rights that “We the People” have. What are some of these unenumerated rights and how are judges to determine whether a particular asserted right is constitutionally protected?
  9. How should judges enforce rights protected by the Fourteenth Amendment? Did this amendment truly “incorporate” the Bill of Rights or does it protect both more and less than the rights enumerated there? What rights does the Privileges or Immunities Clause protect and what role should it play in areas now dominated by the Due Process and Equal Protection Clauses?
  10. In light of your remarks that only a “bad judge” likes every result he reaches, please describe a case where you ruled against your policy preferences. Conversely, in cases where you rule in accord with your personal views, how do you know that your motivations are pure?

Imagine how fruitful an exercise this would be if only a few Judiciary Committee members go into such lines of questioning. And if Gorsuch, or any future judicial nominee, refuses to answer other than by offering platitudes or recitations of the relevant case law, senators should be free to make adverse inferences.

Only by holding nominees’ feet to the substantive constitutional fire can we make confirmation hearings great again.

Ilya Shapiro is a senior contributor to The Federalist. He is a senior fellow in Constitutional Studies at the Cato Institute and Editor-in-Chief of the Cato Supreme Court Review.

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Jeff Sessions Is Rip Van Winkle on Drug Policy

Ted Galen Carpenter

Lost in the brouhaha about whether Attorney General Jeff Sessions lied to Congress about his contacts with Russian officials is an appropriate consideration of the pernicious influence he could have on policy toward illegal drugs. At a time when America seems poised to adopt a more enlightened policy on that issue, Sessions could set back progress at least a generation.

Especially when it comes to policy regarding marijuana, Sessions emulates Rip Van Winkle. He apparently went to sleep shortly after Richard Nixon declared a “war” on illegal drugs in 1971 and just recently awakened from his slumber. There is little evidence that Sessions understands what havoc the war on drugs has wrought both domestically and internationally since Nixon issued his declaration.

Intensified enforcement of marijuana prohibition would be a tragedy.

Instead, the attorney general regurgitates simplistic clichés right out of the 1970s and 1980s about marijuana use. “I don’t think America is going to be a better place when people of all ages, and particularly young people, are smoking pot,” Sessions told reporters on February 26, claiming that “we’re seeing real violence” around the trade. During a Senate hearing in 2016, he vehemently condemned pot use and wanted the federal government to send a message to the American people that “good people don’t smoke marijuana.” That statement ignored abundant evidence that millions of people from all walks of life use the drug either medically or recreationally. Chastising the Obama administration for a supposedly lax stance on the issue, Sessions asserted that “we need grown-ups in Washington to say marijuana is not the kind of thing that ought to be legalized.”

Amazingly, he has escalated such inflammatory and bizarre rhetoric. Speaking at a gathering in Richmond, Virginia on March 15, Sessions equated marijuana use to heroin addiction. Either one, he contended, was a “life-wrecking dependency,” adding that marijuana was “only slightly less awful.” He reserved special contempt for those who argue (with growing evidence) that marijuana has been useful in weaning opiate addicts off of those harder drugs.

Such comments confirm that critics may be right when they label him a “drug war dinosaur.” He seems either oblivious or scornful about the trend in public opinion regarding marijuana. Multiple polls indicate a growing majority in favor of legalizing the drug not only for medical purposes, but also for recreational use. And that grassroots sentiment has resulted in major legislative changes at the state and local levels. Over the past two decades, 28 states have legalized medical marijuana, and in the past few years, eight states (including most recently, large states such as California and Massachusetts) have legalized recreational marijuana.  Most recently, a February survey from Quinnipiac University confirmed that 71 percent of American voters, including a majority of Republicans, want the federal government to respect state marijuana laws instead of overriding them with federal enforcement measures.

Despite being a conservative Republican who touts the importance of states’ rights, Sessions is making ominous statements about running roughshod over the wishes of states that have embraced marijuana legalization. Since taking office, he has on several occasions emphasized that marijuana remains illegal under federal law and that he fully intends to enforce that statute vigorously. Aside from the hypocrisy on his part, such a move would create a nasty showdown between federal and state authorities.

Unfortunately, Sessions’ retrograde views are apparently already having a poisonous influence on the Trump administration. During the campaign, Trump on several occasions promised to “leave it up to the states” regarding marijuana. That certainly implied a respect for the laws of states that had legalized even recreational marijuana. Now, however, there are signs the administration is retreating from that position. Press spokesman Sean Spicer recently stated that states that have legalized recreational marijuana will see not just enforcement, but “greater enforcement” of federal prohibition laws, and that the Justice Department (i.e., Sessions) would make the decisions about appropriate steps.

Continued, much less intensified, enforcement of marijuana prohibition would be a tragedy. The drug war has created more than enough societal disasters, both domestically and internationally, since Nixon launched that initiative. Millions of Americans have had their lives disrupted and acquired the stigma of a criminal record for doing nothing more than choosing to use a drug that politicians arbitrarily made illicit.

To state the obvious, having a criminal record does not help one’s prospects for getting a job and all the benefits that tend to flow from stable employment at a good wage. For those who have been sentenced to prison terms for possession or trafficking, the consequences are even worse. That action pulls breadwinners out of the home, causing families to be shattered, thereby producing an assortment of social pathologies.

Perhaps worst of all, drug prohibition has filled the coffers of violent criminal organizations. Making a drug illegal causes the retail price to soar, creating a lucrative profit margin for individuals and organizations willing to undertake the risks associated with violating prohibition laws. Not surprisingly, most people willing to do that are prone to violence and have no respect for laws in general. The result has been horrifying levels of carnage, both in American communities where the drugs are sold and in countries that are the source of the product. The latter turmoil has been especially pronounced in America’s southern neighbor, Mexico, where nearly 100,000 people have died in the fighting over the past decade.

Incurring such results is bad enough in a futile attempt to enforce laws against cocaine, heroin, and other hard drugs. It is reprehensible to do so with a popular, mild drug such as marijuana. Unfortunately, Jeff Sessions seems clueless about the negative consequences of drug prohibition. “You can’t sue somebody for drug debt; the only way to get your money is through strong-arm tactics, and violence tends to follow that,” Sessions recently informed reporters. That perverse situation, however, is the result of marijuana prohibition, not mere commerce in marijuana (or any other drug, for that matter). When marijuana is legal, collection of such debts most certainly can be enforced in a court of law, rather than through gunfire, and since legitimate businesses instead of criminal enterprises would dominate the trade, they would have every incentive to do so.

Jeff Sessions was a most unfortunate choice for U.S. attorney general. Rather than letting this modern-day Rip Van Winkle ignore the multitude of negative consequences that the drug war has caused over the past four and a half decades and launch a new, destructive crusade against marijuana, including in states that have legalized the drug, President Trump should keep his campaign promise to let the states decide policy. Above all, he needs to rein in Jeff Sessions before he does irreversible damage.

Ted Galen Carpenter, a senior fellow in defense and foreign policy studies at the Cato Institute and a contributing editor at the National Interest, is the author of ten books, the contributing editor of ten books, and the author of more than 650 articles on international affairs.

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Maybe Education Cuts Wouldn’t Be so Bad

Neal McCluskey

With the release of today’s “skinny budget” we are likely to hear the usual coverage: “Good-Sounding Program X is being cut by Y million dollars. ‘These cuts will be devastating,’ said someone who gets money through X.’”

Cuts to education programs, which instinctively sound awful because education is generally a good thing, are especially susceptible to this.

But focusing on the immediate recipients of the money, and maybe the good intentions behind the programs, is a terrible way to approach government spending. It ignores that resources are finite, and every government use competes with other uses that may be equally good or better, including what taxpayers may have spent the money on had they been able to keep it.

School choice works, but the danger of federalized choice is huge.

Unfortunately, it is impossible to show someone not spending money on a new car, or investing in a new business, because the dough has gone to an after-school program, or a college Work Study job. So news reports basically ignore opportunity costs.

That problem now off my chest, let’s look at a few of the education items in the Trump administration’s thin proposal:

$250 million for a new private school voucher program, $168 million more for charter schools

School choice works, but the danger of federalized choice is huge. It threatens to homogenize private schools through regulation, and a federal effort could eventually grow large enough to crowd out state programs, killing the competition and innovation that comes through state — “laboratories of democracy” — policymaking. Like almost all federal education meddling, it also would be unconstitutional: the Constitution gives Washington no power to govern or fund education, including school choice.

Eliminate the 21st Century Community Learning Centers

This $1.2 billion program, which supplies funds for before- and after-school programs as well as summer programming, cries out for elimination. Not only is it unconstitutional and in no way something states could not do on their own, but federal evaluations have found that it may have negative effects. As I have discussed before, a 2005 evaluation stated:

This study finds that elementary students who were randomly assigned to attend the 21st Century Community Learning Centers after-school program were more likely to feel safe after school, no more likely to have higher academic achievement, no less likely to be in self-care, more likely to engage in some negative behaviors, and experience mixed effects on developmental outcomes relative to students who were not randomly assigned to attend the centers.

Eliminate the Federal Supplemental Educational Opportunity Grant and reduce Work Study

Of course these programs — one provides grants to students, the other funding for student jobs — are unconstitutional, but they are also counterproductive. Like all federal student aid programs, they enable schools to boost prices or redirect other aid, and they incentivize students to think less intensely about whether they should go to college, what they study, and how quickly they finish.

They are not the main culprits — both are quite small relative to other student aid programs — but they are subsidies nonetheless, and starting with small programs is a good way to ease into the bigger cuts we need. It is also difficult to justify giving taxpayer money to students, even in exchange for some sort of work, when the average payoff of graduating from college is around $1 million. At the very least, shouldn’t beneficiaries of aid have to repay taxpayers? The feds offer loans, after all. (Of course, they should be eliminated, too.)

Trim TRIO Programs and GEAR UP

These programs are supposed to help low-income students prepare for, and access, college. Again, there is no constitutional authority for their existence, and states or civil society could handle the job. But the evidence on the programs’ effectiveness is also pretty poor. As I testified to the U.S. Commission on Civil Rights, recent official assessments have often used weak research methods, and better ones have found uninspiring effects.

The people who benefit directly from federal programs will no doubt be unhappy with threatened cuts affecting them, and they will likely be featured in news coverage. But for the country, many of these proposed cuts may well be good news.

Neal McCluskey is a contributor to the Washington Examiner’s Beltway Confidential blog. He is the director of the Cato Institute’s Center for Educational Freedom and maintains Cato’s Public Schooling Battle Map.

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As Brexit Process Begins, PM May Shouldn’t Expect a Helpful EU

Ryan Bourne

Brexit is coming. That should have been obvious for some time, but, in the aftermath of the June 23 vote last year, many “Remainers” were in outright denial it would actually happen.

Like the doubters in early episodes of Game of Thrones who could not believe that undead White Walkers actually existed, Remainers listened when commentators and politicians promised that Brexit was indeed coming, but refused to believe it. Now, despite all their attempted delays, court cases and special pleading, legislation to enable the triggering of Article 50 has passed the British Parliament. 

Prime Minister Theresa May is likely to start the formal process around March 27. This will begin a two-year formal exit negotiation with the EU, during which time she hopes to foster agreement for a smooth exit, coupled with a pathway for the longer-term relationship outlined in January.

Britain should be fully prepared for the negotiations to fail and for Britain to exit the EU without a trade agreement, leading to trade under WTO terms.

Economically, this would see the U.K. leave the European Economic Area (the so-called “single market”) and regain control of tariff policy. It would replace the single market with a U.K.-EU free-trade agreement and a separate deal to eliminate customs checks.

This is a decent set of aims, as far as they go. It is in both parties’ interests to maintain tariff-free trade to avoid disruption to supply chains and to avoid imposing costly taxes on consumers. What’s more, the cost of losing access to financial services’ expertise in London will be far greater for other EU states in the short-term than any benefits from mercantilist attempts to “attract business”.

A mutual recognition deal on services should, in theory, be easy at the point of exit. After all, the U.K. has been complying with EU regulation already. If this can all be done alongside a smoothing of genuine difficulties, then bravo.

There are three big barriers to May achieving her objectives. The first is that negotiations entail two parties. The EU has shown that rational economic interest does not always dictate its actions. It is an inherently political project, which is one good reason to leave it.

Many prominent EU leaders would prefer to engage in self-harm in order to “punish” Britain on the basis that this would deter other countries from exiting. For these federalist ideologues, the worst outcome from Brexit would be a British economic success story.

The second issue is time. The U.K. has been in the EU for 44 years, meaning it is signed up to many programs, agreements, commitments, and regulations. Though the experience of other countries shows that signing free-trade agreements should not take a half-decade, we should not underestimate how Brexit might be used as an excuse to assuage producer interests in different EU states.

The need for agreement between 27 members in such a tight time period, with the usual ebbs and flows of domestic politics in each, could be the biggest barrier of all.

Finally, there is a risk (and the U.K. tabloid press is pushing this hard already) that vast amounts of time and political capital will be expended debating when Britain’s budget contributions should cease and how much is owed. Divvying up liabilities and assets must be part of the settlement, but media attention is likely to dwarf its real importance and potentially reduce goodwill for other more technical matters.

For these reasons, Britain should be fully prepared for the negotiations to fail and for Britain to exit the EU without a trade agreement, leading to trade under WTO terms. If the government can use this as an opportunity to embrace freer trade, opening up the country to global competition through unilateral tariff and non-tariff elimination, then the country has nothing to fear in terms of long-term economic health.

Indeed, exit without a deal could be the catalyst the country needs to really embrace the free market reforms necessary to return to sustained robust growth. But failure for May to achieve her ambitions will be seen as a political failure. Just ask former Prime Minister David Cameron. Given the EU’s current position, it is a political failure that’s all too likely again.

Ryan Bourne occupies the R. Evan Scharf chair at the Cato Institute and was a founding member of Economists for Brexit.

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Geert Wilders Is No Hero of Free Speech

Flemming Rose

Copenhagen — Geert Wilders, the leader of the Dutch Party for Freedom and one of Europe’s most influential politicians, likes to express his admiration for the U.S. Constitution’s First Amendment. That’s no coincidence. The First Amendment provides the best legal protection of speech in the world, including the kind of speech that in December 2016 led to the conviction of Wilders in the Netherlands for having insulted Dutch Moroccans and having incited discrimination during a political rally a few years back.

I suppose that’s why Wilders is seen by some as a politician willing to stand up for freedom of expression and speak his mind about uncomfortable issues that others have refrained from doing. He insists on his right to unfettered criticism of Islam and Muslim communities as fundamental to free speech. In the wake of terrorist attacks in Europe and clashes of culture and values, these issues have risen to the top of the political agenda in most European countries.

Recently, one of Wilders’s supporters in the U.S., the right-wing activist David Horowitz, lauded the anti-Muslim Dutchman as “the Paul Revere of Europe … a hero of the most important battle of our times, the battle to defend free speech.” It’s true that this is a crucial battle. Its outcome will have long-term consequences for the protection of freedom in liberal democracies. Free speech is under attack from many quarters. Wilders himself has to live with round-the-clock security because of his stance on Islam and immigration.

Wilders insists that it’s impossible to separate words and deeds when it comes to Islam … This is the way a dictatorship operates.

I am fully on Wilders’s side when it comes to the speech crimes he has been accused of. I am against hate speech laws as a matter of principle but also for practical reasons. They are not the most effective way to fight bigotry. They tend to be enforced selectively and express a social norm, not a genuine will to fight bigotry. One man’s hate speech may be another man’s poetry. I also believe it’s important to defend Wilders’s right to speak out in light of the threats against his life.

Nevertheless, I disagree with people like Horowitz, who see Wilders as a defender of free speech. Let me explain why. Wilders has called for banning the Quran. He wants to close mosques and ban the building of new ones, and he has proposed a change to the Dutch Constitution that would outlaw faith-based schools for Muslims but not for Christians and citizens committed to other religions and life philosophies.

As a justification for his position on Islam, Wilders often quotes Abraham Lincoln’s words from a letter written in 1859: “Those who deny freedom to others deserve it not for themselves.” But one could turn Lincoln’s words against Wilders himself. By calling for a ban on the Quran and for the closing of mosques and faith-based schools for Muslims, he insists on denying freedom of speech and religion to Muslims.

Does that mean that Wilders, contrary to Lincoln’s claim in a very different context, deserves freedom of speech for himself? It does, I believe, though Wilders’s position on Islam makes his support for the First Amendment and calls for a European First Amendment ring hollow. A couple years ago, when I debated Wilders on the legitimate limits of free speech in a democracy, I told him that all his proposals to restrict freedom of speech and religion for Muslims would be denounced by the U.S. Supreme Court with reference to First Amendment protection. They wouldn’t stand a chance to become the law of the land. Wilders responded that if that’s the case, then we need to adopt a slightly different version of the First Amendment in Europe.

It became clear to me that Wilders’s support for the First Amendment was based on the fact that it would protect his own speech, but when he found out that the First Amendment would also provide a robust protection of the freedom of speech and religion for Muslims, he was reluctant to support it.

In doing so, he failed the acid test for the support of free speech in a democracy. It was first formulated by the legendary Supreme Court Justice Oliver Wendell Holmes, who issued a famous dissenting opinion in 1929: “If there is any principle of the Constitution that more imperatively calls for attachment than any other it is the principle of free thought — not free thought for those who agree with us but freedom for the thought that we hate.”

Freedom for the speech that we hate. That’s the acid test. This principle embodies the essence of tolerance. You do not ban, intimidate, threaten or use violence against speech that you deeply dislike or hate.

So, on Islam and Muslims, Wilders comes down on the wrong side of democracy when it comes to three of its key principles: freedom of speech and religion, equality before the law and tolerance.

Wilders tries to escape accusations for discrimination against Islam and Muslims by saying that Islam just isn’t like any other religion. It’s a totalitarian ideology like fascism and Communism, he insists. He has compared the Quran to Hitler’s Mein Kampf, and for a while, he justified his call for banning the Quran with a reference to the fact that Mein Kampf was banned in the Netherlands. In recent years, he has insisted on outlawing the Quran independent of the fate of Mein Kampf,which was recently published in Germany for the first time since the fall of the Nazis.

Some people would be inclined to support Wilders’s claim about Islam as a totalitarian ideology. However, it doesn’t improve his argument significantly. The works of Karl Marx, Vladimir Lenin, Mao Zedong, Benito Mussolini, Adolf Hitler and other ideologues of totalitarian or anti-democratic ideologies are accessible in the majority of democratic states. The classical texts of Communism weren’t banned during the Cold War. In many Western democracies, there were Communist newspapers and publishing houses. Communists had their own schools and controlled unions, and Communist parties were running for Parliament. If Communist parties became targets of bans, they were usually short-lived or not enforced.

Why treat Islam any different, even if you think it’s not a religion but a totalitarian political ideology?

Here is what Wilders replied when I said that it is fundamental to a democracy to make a distinction between words and deeds if one wants to safeguard free speech and provide space to a diversity of opinions: “We have to not only criminalize actions but the source legitimizing actions as well — that is the Quran. If we don’t do it, we provide those who want to kill our freedom with the means to do so.”

Wilders insists that it’s impossible to separate words and deeds when it comes to Islam — i.e. between what the Quran says and what Muslims quoting the Quran say, and violence committed by Muslims in the name Islam. That is very problematic. This is the way a dictatorship operates. It treats words as if they were actions and therefore they put people propagating unwelcome opinions in jail. Authoritarian regimes state explicitly that these kind of people represent a threat to the public order, social harmony or security.

Wilders’s argument for limiting the rights of Muslims shares other similarities with unfree societies. When he calls for banning the Quran and shutting down mosques and faith-based schools, he refers to opinion polls taken from among the Muslim population — he bases his call for restrictions on what Muslims think and believe, not what they actually do or plan to do. In other words, Wilders accuses Muslims of being guilty of thought crimes, and he believes that this is sufficient to justify restrictions of their civil rights.

I am not saying that widely spread opinions among Muslims — on apostasy and blasphemy, on equality between men and women, on homosexuality and freedom of speech and religion and other issues — aren’t problematic, to say the least. I am saying that in a democracy, you cannot restrict freedoms based on what people think. In a democracy, you criminalize quite a few deeds — like tax evasion, shop lifting, fast driving, fraud and murder — but you ban only words that directly incite violence or crimes.

Wilders’s quote of Abraham Lincoln — “Those who deny freedom to others deserve it not for themselves” — is incomplete. It continues: “and under a just God, cannot long retain it.” In the context of Wilders’s selective defense of free speech, those words are worth remembering.

Flemming Rose is a Danish author, journalist and adjunct fellow at the Cato Institute.