Don’t (Just) Let the Sun Go Down on Patriot Powers

Julian Sanchez

A handful of provisions of the sprawling USA Patriot Act are now all but certain to at least temporarily expire at the end of the month, including the controversial section 215, the basis of the National Security Agency’s notorious bulk telephone records dragnet.

As a result, NSA has already begun winding down the program, first revealed nearly two years ago by Edward Snowden, and many civil libertarians are breaking out the champagne.

Yet the celebration may not only be premature, but counterproductive if the impending expiration is perceived as a substantial victory in itself. Some legislators and activists are now so fixated on the symbolism of sunsetting “the Patriot Act” that they’re even urging opposition to broader reforms.

The pivot to viewing sunset as a big win for privacy advocates is relatively recent. For months, civil libertarians had rallied behind the latest version of the USA Freedom Act , a modest but significant reform bill with broad bipartisan support, as the best realistic hope to begin reining in our ballooning surveillance state. But surveillance reform plans, like indie rock bands, seem to alienate many of their early core fans just as they achieve mainstream popularity.

Thus, when the Freedom Act finally passed the House by an overwhelming margin earlier this month, many of the “no” votes came from the National Security Agency’s fiercest critics—and in an epic 11 hour jeremiad against the Patriot Act delivered from the Senate floor, Sen. Rand Paul had nearly as many harsh words for the Freedom Act, even suggesting that the bill could ultimately expand rather than restrict government spying powers.

Though a majority of senators last weekend voted in favor of moving forward with the Freedom Act—which would extend section 215 in a heavily modified form—it didn’t get the 60 votes now required to accomplish anything in the Senate. A competing proposal to simply reauthorize the expiring powers without any changes, supported by Majority Leader Mitch McConnell, was even less popular. Other senators are preparing alternatives—mostly weakened versions of USA Freedom—but with the House in recess until after the sunset date, at least a temporary lapse of the authorities now seems assured.

‘Sunset the Patriot Act’ makes for an appealing slogan, the fact remains that the vast majority of the Patriot Act is permanent.”

Meanwhile, many erstwhile reformer boosters—including the American Civil Liberties Union and an assortment of grassroots groups—have adopted a new message: They’re simply embracing the looming sunset. While for some this is a largely strategic shift grounded in the hope that sunset will strengthen their bargaining position, others seem to genuinely think expiration would be a bigger victory for privacy than passing reform legislation.

But while “Sunset the Patriot Act” makes for an appealing slogan, the fact remains that the vast majority of the Patriot Act is permanent—and includes an array of overlapping authorities that will limit the effect of an expiration.

While section 215 covers business records, section 214, also known as the “pen register/trap & trace” authority, covers the acquisition of communications “metadata” (things like dialed phone numbers and email or Internet Protocol addresses) in real time.

Years before the current version of the NSA telephone program under 215 was born, the government employed similar arguments to persuade the secret Foreign Intelligence Surveillance Court (FISC) to bless a bulk program vacuuming up international internet metadata under the aegis of section 214. Though that program was ended in 2011—likely at least in part because NSA was able to obtain much of the same data by collecting it overseas, with fewer restrictions—the authority is permanent.

Also permanent are National Security Letters or NSLs, which that allow the FBI to obtain a more limited range of telecommunications and financial records without even needing to seek judicial approval. Unsurprisingly, the government loves these streamlined tools, and used them so promiscuously that the FBI didn’t even bother using 215 for more than a year after the passage of the Patriot Act. Inspector General reports have also made clear that the FBI is happy to substitute NSLs for 215 orders when even the highly accommodating FISC manages a rare display of backbone. In at least one case, when the secret court refused an application for journalists’ records on First Amendment grounds, the Bureau turned around and obtained the same data using National Security Letters.

Currently the other major use of 215, aside from the bulk telephone program, is to obtain internet records. Previously this was done primarily via NSL, but a 2008 memorandum from the Office of Legal Counsel slapped the FBI’s wrist for reading its National Security Letter authorities too broadly to cover any and all types of electronic communication “transactional records.” Indeed, obtaining specific internet records pursuant to an order signed by a judge seems like the kind of authority we should want the government to have in national security investigations. Ironically, removing 215 completely could make things worse from a civil liberties perspective by creating an incentive for the FBI to again push the limits of NSLs, pleading necessity on the grounds that it now lacks a court-supervised alternative—effectively shifting collection from a mechanism overseen by judges to one requiring only a senior FBI agent’s say-so.

Even 215 itself doesn’t really expire when it expires. In theory, the law reverts to a pre–Patriot Act version of the business records authority that is restricted to records that “pertain” to a suspected foreign agent or terrorist—language the government is sure to read as broadly as possible. But thanks to a little-noticed grandfather clause in the law, the current souped-up version of the law, which covers any records “relevant” to an authorized national security investigation, will remain available for investigations already open at the time of sunset, as well as new investigations into offenses committed before the sunset. Since the FBI routinely maintains massive “enterprise” investigations covering entire terror groups, which can continue for years if not decades, we can expect section 215 to have a lengthy afterlife.

The administration has promised it won’t exploit this loophole to continue the NSA’s telephone dragnet past 215’s expiration. But without transparency reforms to provide some visibility on major decisions of the secret court—one major component of the USA Freedom Act—the public will have little hope of knowing or whether how 215’s grandfather clause is used, nor of learning if the government continues invoking these other authorities to obtain telephone information or other types of sensitive data on a massive scale. All of these authorities, after all, contain the same “relevant to an authorized investigation” language that was used to legitimize the bulk telephone program, on the theory that entire vast databases (such as the phone records of nearly every American) can be “relevant” to an investigation, so long as the government later finds it useful to go trolling through the database later for information that is actually relevant.

All of this is somewhat complicated by a recent Second Circuit ruling holding the NSA telephone program unlawful, on the common-sense logic that Congress had never meant to authorize the government’s unprecedented and effectively unlimited interpretation of “relevance” when it passed the Patriot Act. But the secret Foreign Intelligence Surveillance Court is not directly bound by that decision, and with the government choosing to end the current, 215-based version of its telephone program for now, the case becomes less likely to reach the Supreme Court, which does clearly have the power to rein in the FISC. Even if that court does choose to take the Second Circuit ruling into account, the recent decision really only says that this specific program, sweeping in hundreds of millions of records indiscriminately, without any concrete link to any particular investigation, stretches the language of the Patriot Act too far. That leaves the government plenty of room to argue that even slightly more limited forms of massive collection are still kosher, in front of a court with a solid track record of giving the government almost everything it wants.

That’s not to say that the USA Freedom Act is by any means an ideal alternative, or that its critics shouldn’t use the sunset of 215 as leverage to push for stronger reforms. USA Freedom, for instance, doesn’t even touch massive surveillance within the United States under section 702 of the FISA Amendments Act, or the even more massive spying enabled by Executive Order 12333, a Reagan-era order that covers surveillance conducted outside the United States. But the Freedom Act does at least cover the full range of Patriot Act authorities that employ the “relevance” standard, preventing a tricky shell game that simply moves collection from expired authorities to permanent ones.

The way USA Freedom seeks to do this is also hardly perfect: The law creates a streamlined process for obtaining specific telephone records from multiple phone carriers (addressing objections that a massive NSA database was the only way to avoid the cumbersome necessity of serving many companies with orders for records stored in incompatible formats) and requires that, across all these authorities, “specific selection terms”—like a phone number or billing address—be used to identify the particular records sought. That means instead of evaluating whether an entire database might be “relevant” when considered in aggregate, the court would have to consider whether the government had demonstrated the relevance of the particular records corresponding to a set of selection terms.

Given the government’s history of creative, secret reinterpretation of the law, critics of the law can’t be faulted for fearing that it still leaves ample room for shenanigans. But the critical transparency provisions would at least require the secret court to publish any significant interpretation of the “specific selection term” requirement. Moreover, some of the scenarios floated by critics like Sen. Rand Paul—such as using an entire area code or the name of a telecommunications provider like Google or Verizon as a “selection term”—are explicitly prohibited by the law’s text.

And while some, like Rep. Justin Amash, have worried that the new legislation could somehow be read to expand collection under 215, overriding the Second Circuit’s ruling, it is difficult to see how this would work: The specific selector requirement in the statute is structurally and logically independent of the relevance standard—it’s an additional requriement. As the House Committee Report on the bill makes explicit, should any judge find it ambiguous, the intent of this section is the “prohibition on bulk collection of tangible things,” and it requires the government to make “an additional showing, beyond relevance” in applications for records. Should the court somehow manage to ignore such a clear statement of legislative intent, the new transparency provisions will at least act as a failsafe—one now sorely lacking.

There’s certainly no reason to fear a 215 sunset, despite the claims of national security scaremongers, especially in light of the overwhelming evidence that the authority has not proved critical in any investigations to date. But it would be profoundly misguided to think that permanent expiration of this one authority would be better, from a civil liberties perspective, than even a highly imperfect reform that extends the authority in a heavily modified form. A temporary sunset may be a strategically useful means to the end of stronger reforms. But as a permanent end in itself, the expiration of 215 would provide the illusion of triumph even while leaving much of the machinery of surveillance intact.

Julian Sanchez is a Senior Fellow at the Cato Institute.

When Will Climate Scientists Say They Were Wrong?

Patrick J. Michaels

Day after day, year after year, the hole that climate scientists have buried themselves in gets deeper and deeper. The longer that they wait to admit their overheated forecasts were wrong, the more they are going to harm all of science.

The story is told in a simple graph, the same one that University of Alabama’s John Christy presented to the House Committee on Natural Resources on May 15.


The picture shows the remarkable disconnect between predicted global warming and the real world.

The red line is the 5-year running average temperature change forecast, beginning in 1979, predicted by the UN’s latest family of climate models, many of which are the handiwork of our own federal science establishment. The forecasts are for the average temperature change in the lower atmosphere, away from the confounding effects of cities, forestry, and agriculture.

The blue circles are the average lower-atmospheric temperature changes from four different analyses of global weather balloon data, and the green squares are the average of the two widely accepted analyses of satellite-sensed temperature. Both of these are thought to be pretty solid because they come from calibrated instruments.

The longer that they wait to admit their overheated forecasts were wrong, the more they are going to harm all of science.”

If you look at data through 1995 the forecast appears to be doing quite well. That’s because the computer models appear to have, at least in essence, captured two periods of slight cooling.

The key word is “appear.” The computer models are tuned to account for big volcanoes that are known to induce temporary cooling in the lower atmosphere. These would be the 1982 eruption of El Chichon in Mexico, and 1992’s spectacular Mt. Pinatubo, the biggest natural explosion on earth since Alaska’s Katmai in 1912.

Since Pinatubo, the earth has been pretty quiescent, so that warming from increasing carbon dioxide should proceed unimpeded. Obviously, the spread between forecast and observed temperatures grows pretty much every year, and is now a yawning chasm.

It’s impossible, as a scientist, to look at this graph and not rage at the destruction of science that is being wreaked by the inability of climatologists to look us in the eye and say perhaps the three most important words in life: we were wrong.

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

NSA Surveillance Programs Are a Cancer on the Constitution

Patrick G. Eddington

The month of June has proven to a notable one for revelations about abuses of government power carried out under the cloak of secrecy. June 1971 brought us the Pentagon Papers case, followed two years later with the Watergate hearings into the break in at the Democratic National Committee headquarters. A generation later, another national security whistleblower—Edward Snowden—revealed in June 2013 a fresh series of government abuses of power in secret.

And now, with some of those abusive powers facing a June 1, 2015 expiration date, Congress faces another moment of truth: Will it act decisively to end unconstitutional executive branch overreach, as it did a generation ago?

One of the most haunting and compelling witnesses at those initial Watergate hearings was former White House Counsel John Dean. In his testimony on June 25, 1973, Dean recounted for the committee how he told President Nixon that the Watergate burglary and subsequent cover up were “a cancer on the Presidency” that threatened to destroy Nixon himself unless all involved came clean immediately. The months of public hearings that followed and the damning revelations about Nixon’s role in the break in and cover up culminated in Congress moving to excise the cancer Dean described through the impeachment process, which led to Nixon’s resignation. 

The documents smuggled out of the National Security Agency (NSA) by Snowden sparked the first real public debate about government surveillance powers employed in the post-9/11 era. But in contrast to Congress’s aggressive and forceful reaction to the Watergate era revelations of executive branch criminality and overreach, the Congressional response to Snowden’s revelations of government surveillance abuse has been dangerously anemic. And in the case of these surveillance abuses, we have a cancer not simply on one institution of government, but on the Constitution itself.

Will Congress act decisively to end unconstitutional executive branch overreach?”

Compare the level of effort Congress expended investigating Watergate and the other surveillance-related scandals of the 1970s with that expended to date on Snowden’s revelations. In the Watergate era, Congress set up entire special committees with literally dozens of staff to investigate not only the Nixon White House but the entire U.S. intelligence community, the latter through the select committee chaired by then-Senator Frank Church of Idaho (i.e., the Church Committee). Those investigations lasted years and included dozens of publicly televised hearings. 

When the House Judiciary Committee considered the USA Freedom Act in May 2015—one of the few bills introduced in response to Snowden’s revelations—committee chairman Rep. Bob Goodlatte of Virginia claimed the committee had conducted “aggressive” oversight of the issue through a total of three hearings.

As ProPublica noted, Snowden exposed literally dozens of NSA programs and activities that have a direct impact on the constitutional rights of Americans living at home or abroad. The House Judiciary Committee’s three hearings did not even scratch the surface of those programs. 

The Senate Judiciary Committee under then-chairman Patrick Leahy of Vermont conducted a worthwhile examination of government surveillance programs in March 2013. It stands out for its singular moment in which Senator Ron Wyden caught Director of National Intelligence James Clapper in a falsehood about the scope of government surveillance against Americans. Snowden’s revelations helped highlight just how disingenuous Clapper and other U.S. intelligence community officials had been on the issue, not just with Congress but with the FISA court as well.

Yet none of those revelations moved the Senate to create a select committee to investigate the full scope of post-9/11 surveillance programs, and the Senate Intelligence Committee has been far more a defender of these programs than an overseer of them. The House Intelligence Committee’s public record on this issue is also dismal, with only a single public hearing in the months after Snowden’s revelations that discussed almost purely cosmetic changes to U.S. surveillance authorities.

Indeed, when reform-minded House members not on the House Intelligence Committee have attempted to get information on these programs, they have been blocked from doing so—including in periods leading up to PATRIOT Act reauthorization votes. House reformers have also been stymied in their efforts to rein in or even end dubious surveillance activities, largely through the efforts of the House GOP leadership to restrict the terms and scope of the surveillance reform debate.

The House has seen fit to create a select committee to investigate the death of U.S. Ambassador to Libya Chris Stevens—a singular, tragic event already investigated by the State Department and the House Armed Services Committee. However, it has refused to create such a select committee to investigate Snowden’s revelations, despite their magnitude and direct impact on the rights of Americans and the threat NSA’s actions pose for American technology companies. That’s a far cry from how the Watergate and Church Committees went about their business.

In the introduction to the Watergate Committee’s final report, the authors noted the critical role the committee’s open hearings had played in educating the public about the issues at stake:

Perhaps proof of the impact of the committee’s hearings is found in the unprecedented public response to the firing of Special Prosecutor Cox on October 20, 1973. On that weekend alone, a half million telegrams came into the Congress. Hundreds of thousands of telegrams flowed in during the following days. The overwhelming sentiment of these telegrams was in opposition to the President’s actions. It is doubtful that public sentiment would have been so aroused by the President’s action had the public not been sensitized to the issues involved through the committee’s hearings.

The failure of existing committees to properly probe Snowden’s revelations, the active efforts by previous House Intelligence Committee leadership to impede inquiries by individual House members, and the efforts of House and Senate leaders to truncate any meaningful debate over these surveillance powers—all of these actions make it appear that Congressional leaders are engaged in a process designed to conceal the U.S. intelligence community’s domestic spying transgressions rather than educate the public on them and their implications for our democracy.

And following Senator Rand Paul’s 11-hour filibuster against attempts to extend the PATRIOT Act for five more years, we have more evidence of abuse of PATRIOT Act powers.

On May 21, 2015, the day after Paul’s filibuster, the Department of Justice finally released a partially declassified version of the Sec. 215 PATRIOT Act compliance report covering the period from 2007 to 2009. That report found that the Federal Bureau of Investigation (FBI) violated the PATRIOT Act Sec. 215’s privacy safeguard requirements for seven years. It also found that the Sec. 215 authority was used aggressively by the FBI to acquire huge volumes of information on U.S. citizens not the subject of any authorized investigation: 

Section 215 authority is not limited to requesting information related to the known subjects of specific underlying investigations. The authority is also used in investigations of groups comprised of unknown members and to obtain information in bulk concerning persons who are not the subjects of or associated with any FBI investigation.

The government is vacuuming up the communications of you, your family, your neighbors, your coworkers. No probable cause and no connection to terrorists or foreign intelligence services required. And this is the surveillance dragnet law Congress is considering renewing.

As important as the debate over the Sec. 215 program is, it involves only one of many government surveillance programs that will continue after the current debate is over—and without Congress having taken the time to actually determine how many such programs even exist, much less whether they have violated Americans’ rights or even been operationally effective. Meanwhile, the cancer on our Constitution grows.

Patrick G. Eddington is a policy analyst in Homeland Security and Civil Liberties at the Cato Institute, and an assistant professor in the Security Studies Program at Georgetown University.

Wall Street Offers Very Real Benefits

Thaya Knight

Not every person on Wall Street is a morally corrupt Gordon Gekko. Do Wall Street traders want to make money? Yes. Are they generally people who thrive in a fast-paced, competitive environment? You bet. And that is a good thing.

While the news about corruption, corporate welfare and lawbreaking is very bad, it doesn’t mean the entire industry is rotten.”

At its core, here’s what Wall Street does: It makes sure that companies doing useful things get the money they need to keep doing those things. Do you like your smartphone? Does it make your life easier? The company that made that phone got the money to develop the product and get it into the store where you bought it with the help of Wall Street.

When a company wants to expand, or make a new product, or improve its old products, it needs money, and it often gets that money by selling stock or bonds. That helps those companies, the broader economy and consumers generally.

When we have flashing headlines about Wall Street traders acting badly, as we had last week with news of five major banks pleading guilty to criminal charges, it is very easy to hate Wall Street. But we only hear headlines about the worst behavior.

No one writes news stories about traders who go about their business every day, carefully complying with the many (and there are many) rules and regulations that govern their work. Also, the financial sector, which is usually what people mean when they say “Wall Street,” isn’t only or even mostly the big banks.

There are small firms, banks, funds and advisers that make up a large portion of our financial industry. While the news about corruption, corporate welfare and lawbreaking is very bad, it doesn’t mean the entire industry is rotten. Or, more important, that we don’t need it.

Wall Street could be better. We could eliminate regulations that crowd out competition for the big banks. We could reform the system to do away with “too big to fail,” making it harder for bad traders to get away with bad behavior. Either way, we shouldn’t lose sight of the very real economic and social benefits Wall Street provides.

Thaya Knight is associate director of financial regulation studies at the Cato Institute.

A So-So Republican Budget

Michael D. Tanner

There was none of the sturm und drang that has accompanied past budget battles, but earlier this month the Republican-controlled Congress passed the first fully Republican budget since 2005. A historic event, to be sure, but, given that it has been a decade since Republicans had this ability to shape federal tax and spending policy, it is disappointing that the end result was such mediocre gruel.

First the good news: The budget would spend $6 billion less over the next 10 years than the current baselines, and would, in theory, balance by 2024. The agreement at least ostensibly sticks to the budget caps agreed to under sequestration, although it circumvents them in a way by shifting more funds to “overseas contingency operations” (OCO), which are not subject to the caps.

It contains some positive steps, but also some sleight-of-hand and increased spending.”

Moreover, as valuable as the sequester caps have proven to be in restraining spending, they remain a blunt instrument that allows Congress to avoid truly tough decisions. As one bad sign, the budget agreement takes note of $140 billion in needed health-care savings to offset the cost of the recent “doc fix” agreement, but doesn’t actually propose any specific cuts. On the other hand, the budget resolution establishes a deficit-neutral reserve fund that could allow for some reallocations that would give policymakers flexibility to replace sequestration with other cuts as long as those actions don’t increase the ten-year deficit. We will have to see how this plays out in a practical sense, but if the deficit-neutrality is strict enough, it could potentially be an improvement.

The budget resolution also engages in some serious sleight-of-hand when it comes to defense spending. The resolution keeps the sequester caps on defense in place, but only by shifting some $38 billion in spending for next year to the OCO account, essentially using this war-fighting appropriation as a slush fund. The final budget agreement also removed a Senate provision requiring 60 votes to add future funds to the OCO without offsetting spending cuts.

We should also remember that, while a balanced budget is important, it is not as important as reducing overall levels of federal spending. And the GOP budget envisions spending $1.14 trillion more (in nominal dollars) by 2025. That is not a good thing just because tax revenues will rise fast enough to offset the increases.

The budget’s biggest failing comes, as usual, in its refusal to seriously address entitlement reform. Mandatory outlays now comprise 62 percent of all federal spending, and that proportion would only rise under the GOP budget. In fact, just 3 programs (Social Security, Medicare, and Medicaid) account for 47 percent of federal spending. Unless Congress is willing to reform those programs, any balanced budget will be purely ephemeral.

So what does the budget resolution propose to do about Social Security? The program is currently running a roughly $78 billion cash-flow shortfall that will grow worse with each passing year. Overall, Social Security’s unfunded liabilities approach $25 trillion. And in response, the budget resolution says that “the President should submit legislation to Congress addressing the long-term insolvency of [Social Security].” So a congressional budget resolution solves Social Security’s problems by asking the president to tell them what to do. There’s courage for you.

Medicare’s finances are in even worse shape than Social Security’s, with the program’s unfunded liabilities exceeding $47 trillion. The House budget had included Paul Ryan’s plan to add a premium-support model to Medicare. While Ryan’s plan was substantially watered down — it wouldn’t have taken effect for a decade and would have continued traditional Medicare as an option — it was dropped entirely from the final resolution.

A spokesman for Ryan was reduced to claiming a victory because “nothing in the conference report prevents us from continuing to pursue it.” Fair enough. Nothing prevents me from running for president either, but I wouldn’t buy any inaugural tickets just yet.

Essentially the budget kicks the Medicare can down the road, calling for “the committees of jurisdiction in the House and Senate [to determine] the specific Medicare reforms needed to bring spending levels under current law in line with the budget.” Don’t hold your breath.

Let’s be clear: The GOP budget is a big improvement over the one presented by President Obama, and if appropriators follow through, it would improve our fiscal position. It would spend less and, presumably, tax less. It includes a reconciliation mechanism that could be used to repeal Obamacare.

But given the Democrats’ power to filibuster in the Senate and the president’s veto, the budget resolution is the one area where congressional Republicans can really exercise the power of the purse. One can’t escape the wish that they had done better.

Michael Tanner is a Senior Fellow at the Cato Instititute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

Venezuela: No Rule of Law, Bad Money

Steve H. Hanke

The rule of law subjects the State to a fixed set of rules that limits the scope of its coercive powers. Individuals and their property are protected from the arbitrary, ad hoc actions of the State and other individuals. In consequence, individuals can plan their activities within the confines of known, fixed “rules of the game.” This allows people to pursue their personal ends, as long as their actions do not infringe on the broadly-defined property rights of their fellow citizens.

When properly applied, the rule of law guarantees freedoms in the economic, political, intellectual and moral spheres. In the economic sphere, money constitutes an important element. The great Austrian economist Ludwig von Mises dealt at length with this issue in The Theory of Money and Credit, which was published originally in 1912:

“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the non-observance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American Continental Currency, the paper money of the French Revolution and the British Restriction period—had learned what a government can do to a nation’s currency system.”

Today, Venezuela has at best a tenuous grip on the rule of law. This is nowhere more visible than in the monetary sphere. The country’s foreign exchange reserves are falling like a stone (see the accompanying chart).


Relative to the mighty U.S. dollar, Venezuela’s currency, the bolivar, is also falling like a stone. Indeed, it has lost 47% against the greenback just since the start of the year (see the accompanying chart).


As night follows day, inflation has soared as the bolivar has plunged. I estimate Venezuela’s annual inflation rate at 335%. That’s the highest rate in the world. For those holding bolivars, it amounts to: “no rule of law, bad money.” It is worth noting that currency debasement and inflation robbery were not always the order of the day in Caracas. During the decade of the 1950s, the average annual inflation rate was only 1.7% — not much above Switzerland’s. In the 1960s, inflation in Venezuela fell to a 1.2% average annual rate. It wasn’t until the 1980s that Venezuela experienced a decade of double-digit annual inflation. Today, inflation, contrary to the official numbers and amateur estimates, has soared well into triple-digit territory.

It’s time for Venezuelans, as well as many others, to dollarize.”

When inflation rates are elevated, standard economic theory and reliable empirical techniques allow us to produce accurate inflation estimates. With free market exchange-rate data (usually black-market data), the inflation rate can be calculated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

To calculate the inflation rate in Venezuela, all that is required is a rather straightforward application of a standard, time-tested economic theory (read: PPP). Using black-market exchange rate data that The Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Venezuela’s current annual inflation rate to be 335% (see the accompanying chart).


Facing this inflationary theft, Venezuelan’s have voted with their wallets. Indeed, they have unofficially begun to dollarize the economy. But, the only way to establish the rule of law in the monetary sphere is to officially dollarize the economy by officially dumping the hapless bolivar and replacing it with the U.S. dollar.

Ecuador, where I served as the chief advisor to the Minister of Finance, when that country dollarized, offers some lessons that merit Caracas’ attention.

Ecuador represented a prime example of a country that was incapable of imposing the rule of law and safeguarding the value of its currency, the sucre. The Banco Central del Ecuador was established in 1927, with a sucre-U.S. dollar exchange rate of 5. Until the 1980s, the central bank periodically devalued the sucre against the dollar, violating the rule of law. In 1982, the central bank began to exercise its devaluation option with abandon. From 1982 until 2000, the sucre was devalued against the dollar each year. The sucre traded at 6,825 per dollar at the end of 1998, and by the end of 1999 the sucre-dollar rate was 20,243. During the first week of January 2000, the sucre rate soared to 28,000 per dollar.

In the case of Ecuador, the inability of the government to abide by the rule of law was, in part, a consequence of traditions and moral beliefs. Ecuadorian politics have traditionally been dominated by elites (interest groups) that are uninhibited in their predatory and parochial demands on the State. With the lack of virtually any moral inhibitions, special interest legislation was the order of the day. For example, during the rout of the sucre in 1999, laws were passed that allowed bankers to make loans to themselves. In addition, state guarantees for bank deposits were introduced. These proved to be a deadly cocktail, one that allowed for massive looting of the banking system’s deposit base. This, as well as the collapsing sucre, enraged most Ecuadorians.

With the rule of law (and the sucre) in shambles, President Mahuad announced on January 9, 2000 that Ecuador would abandon the sucre and officially dollarize the economy. The positive confidence shock was immediate. On January 11—even before a dollarization law had been enacted—the central bank lowered the rediscount rate from 200% a year to 20%. But, this newfound ray of hope was threatening to some, and during a 24-hour period (January 21–22), a coup d’état ensued. While the Mahuad government was toppled, the coup was a bungled affair and the former Vice President Gustavo Noboa assumed the Presidency. He honored Mahuad’s dollarization pledge. On February 29, the Congress passed the so-called Ley Trolebus, which contained dollarization provisions. It became law on March 13, and after a transition period in which the dollar replaced the sucre, Ecuador became the world’s most populous dollarized country on September 13.

With much the same enthusiasm as Ecuador’s coup plotters and the rigidity of a dogmatic cleric, the critics of dollarization condemned it as something akin to voodoo economics. Well, the critics have been predictably proven wrong.

The misery index is an objective measure of just how well dollarization has worked. The index is equal to the sum of the inflation rate (end of year), bank’s lending interest rates and unemployment rate, minus the actual percentage change in GDP per capita. Simply put, a high index means higher misery.

In Ecuador, prior to the implementation of dollarization in 2000, the country sustained a misery index of over 120. The public suffered greatly from inflation, but after dollarization was implemented, high inflation was stifled and misery drastically fell. The accompanying chart shows the direct link between dollarization and the immediate and sustained decrease in misery. From 2003 through 2014, the misery index in Ecuador has been remarkably constant at around 20 — one of the lowest in Latin America.


Ecuadorians know that dollarization has allowed them to import a vital element of the rule of law — one that protects them from the grabbing hand of the State. That’s why recent polling results show that dollarization is embraced by 85% of the population. It’s time for Venezuelans, as well as many others, to take note and dollarize.

Steve H. Hanke is a professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute in Washington, D.C. You can follow him on Twitter: @Steve_Hanke

‘Should We Have Waged the Iraq War?’ Is Not a Gotcha Question

Justin Logan

A peculiar tic of contemporary American nationalism is the notion that the American state, particularly if helmed by a Republican president, makes no errors of commission in its conduct of military affairs. No American war was ill-founded, or aimed at a threat that didn’t exist or didn’t warrant the effort.

This logic never applies in the domestic sphere for Republicans, where government programs are at best naive and bound to make problems worse or at worst, venal and Machiavellian.

This tic is the only reason I can think of that we’re actually sustaining a debate in 2015 about whether, with the benefit of hindsight, it was a good idea to invade Iraq. Jim Fallows at the Atlantic argues that nobody should again ask a politician the question, since

To the extent voters—and donors—care about competent foreign policy, they deserve to know the answer.”

the only people who might say Yes on the Iraq question would be those with family ties (poor Jeb Bush); those who are inept or out of practice in handling potentially tricky questions (surprisingly, again poor Bush); or those who are such Cheney-Bolton-Wolfowitz-style bitter enders that they survey the landscape of “what we know now”—the cost and death and damage, the generation’s worth of chaos unleashed in the Middle East, and of course the absence of WMDs—and still say, Heck of a job.

I actually think this makes the case why the question should be—or at least should have been—asked, since at least one fortunate Republican son, Marco Rubio, belongs in Fallows’s bitter-ender camp. To the extent voters—and donors—care about competent foreign policy, they deserve to know that Rubio strongly opposes it, even with the benefit of hindsight.

But beyond the politics, a weird narrative has begun to emerge on the right that asking about the Iraq war is a “gotcha question.” Keep in mind: We are discussing a policy that was dreamed up by the Bush administration, marketedby the Bush administration and purchased by the vast majority of our legislators, including the likely Democratic nominee in 2016.

For example, conservative message man Rush Limbaugh whined on his radio show that this is nothing more than a “gotcha question” designed to tarnish Republicans. Iraq War monger Eliot Cohen would later echo this argument, lamenting “gotcha journalism” and calling the question a “silly hypothetical, and the people who ask it should know better.”

Pardon me. Nearly 5,000 Americans are dead, tens of thousands grievously wounded and more than a hundred thousand Iraqis were killed, two of whom were this little girl’s parents. We spent trillions of tax dollars. We destroyed the political order that existed in Iraq, and a new one has yet to emerge. (To the partisans: Yes! President Obama, too, has failed to produce order in Iraq.)

The conservative movement used to harp on personal responsibility (at least for poor single mothers in inner cities). Today’s conservative foreign policy elite seems to revile that same value. Fortunately for our purposes, Anatol Lieven had all the necessary words for the Eliot Cohens of the world back in 2007:

by contributing… to a hasty, poorly-planned military operation, it must be repeated that Dr. Cohen took on himself a measure of the moral, intellectual and political responsibility for precisely those U.S. administration mistakes in Iraq which he now denounces, and which have cost so many American lives. It is disappointing—though not surprising—that Dr. Cohen himself does not realize that this record demands from him, as an honorable man, a lengthy period of quiet, private reflection on his mistakes and the reasons for them.

If no personal price at all is to be paid in terms of careers for errors on this scale, which contributed to the deaths of thousands of Americans, then the long-term consequences for U.S. government and U.S. democracy could be dire. If being proved obviously, dreadfully wrong brings no long-term consequences, and being proved right brings no long-term rewards, then why in the future should any U.S. analyst, adviser, commentator or public figure ever take a public stand in favor of what he or she believes to be right and correct, if this is going to lead to short-term unpopularity and career damage?

He or she shouldn’t. He or she should go along, and get along … and maybe even run for president.

Justin Logan is the director of foreign policy studies at the Cato Institute.

Memo to Congress: Don’t Do Something, Just Stand There

David Boaz

Congress has a golden opportunity over the next six weeks to significantly improve public policy and expand American freedom by doing nothing. In fact, a long vacation would be just the ticket.

The Export-Import Bank’s authorization expires on June 30, after being kicked down the road from last September. Let it expire.

And the Patriot Act’s most controversial provisions — bulk collection of Americans’ phone records stemming from Section 215 (already ruled illegal by a federal court), roving wiretap authority, and “lone wolf” provisions — will expire on June 1 unless they are reauthorized.

A six-week vacation would give a boost to economic growth and our Fourth Amendment privacy rights. It’s a win-win.”

This is a great opportunity for Congress to take a long vacation — go back to their districts and find out what’s on voters’ minds, take a fact-finding trip to Paris and Rome, or just relax at the beach — and let these misguided laws expire.

Members should stay on vacation through the Fourth of July and come back to Washington after listening to some speeches about our inalienable rights, free enterprise, and the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.

The Ex-Im Bank is the most visible example of cronyism and corporate welfare, which has lately come under fire from both Tea Party and Occupy Wall Street activists. It has an especially close relationship with Boeing, which receives about 40 percent of the bank’s subsidies.

Free enterprise means that people are free to start and build companies, seek customers, and make profits if they succeed. The system works well if there’s competition. But subsidy programs like Ex-Im put a thumb on the scale. They help some companies at the expense of others. The bank backs only about 2 percent of American exports, with 76 percent of its assistance going to a few big companies such as Boeing, General Electric, and Bechtel. Government shouldn’t be picking winners, it should set a few rules of the road and let companies go out and compete vigorously for customers.

Members of Congress committed to free enterprise and competition should let the Ex-Im Bank die, no matter what the Chamber of Commerce and Sen. Elizabeth Warren (D-Mass.) say.

As for the Patriot Act provisions, we’ve heard plenty of dire warnings from advocates of the surveillance state. Sen. Mitch McConnell (R-Ky.) says vacuuming up all Americans’ phone records is a “critical capability” in combating terrorism. Yet as my colleague Julian Sanchez notes, two groups of experts came to a different conclusion:

A Surveillance Review Group appointed by the president found that information from the NSA database “was not essential to preventing attacks,” and concluded that there was “no sufficient justification for allowing the government itself to collect and store bulk telephony meta-data.” Those findings were echoed by the Privacy and Civil Liberties Oversight Board, which was unable to find “a single instance involving a threat to the United States in which the telephone records program made a concrete difference in the outcome of a counterterrorism investigation.” Rather, the Board wrote, “the information supplied by the NSA through Section 215 offered no unique value, but simply mirrored or corroborated information that the FBI obtained independently using other means.”

What if the three provisions aren’t reauthorized? Sen. Rand Paul (R-Ky.) says, “I see no reason why we couldn’t use the Constitution for a while.” And then Congress could spend the summer contemplating what sorts of surveillance authorization are really needed. Members can debate the USA Freedom Act, the Surveillance State Repeal Act, or other alternatives.

Congress gets a lot of criticism for “doing nothing.” Considering some of the things that Congresses actually do, doing nothing is often a better idea. In this case, a six-week vacation would give a boost to economic growth and our Fourth Amendment privacy rights. It’s a win-win.

David Boaz is executive vice president of the Cato Institute and author of The Libertarian Mind, just published by Simon & Schuster.

Sen. Paul’s Great Surveillance ‘Filibuster’ and What to Expect Next

Patrick G. Eddington and Jennifer Granick

Senator Rand Paul, joined by Senator Wyden and other surveillance reform advocates, as well as five members of the House of Representatives, spent much of last night on the Senate floor, making history. He used the platform of a de facto filibuster to name drop privacy and civil liberties advocates like EFF’s Mark Jaycox, former NSA whistleblowers like cryptographer William Binney, and of course America’s Founders, to make his case for surveillance reform. He was joined by Senator Mike Lee with a history lesson on The North Briton No. 45, and Senator Martin Heinrich giving a dramatic reading of the Fourth Amendment from the floor.

Paul filibustered a bill offered by Majority Leader Mitch McConnell that would reauthorize section 215 of the USA PATRIOT Act. Section 215 is the purported legal basis for the NSA’s dragnet collection of American’s phone records, and is scheduled to sunset, or expire, June 1.

Paul has all but assured that 215 will sunset — at least until Congress returns from its Memorial Day recess in early June.”

However, by filibustering yesterday, Paul all but ensured that section 215 will not be reauthorized. The reason why is the arcane legislative procedures of the Senate. In brief, Senate Majority leader Mitch McConnell can’t bring his reauthorization bill to a vote without cloture, a procedural vote required to end debate and move to a vote on the underlying measure and any related amendments. After a cloture vote, the Senate gets 30 hours before the bill can be voted on up or down and to address any amendments offered. That brings us into, or even past, the weekend. But the House goes on recess after last votes today (expected to be completed by 3pm), and doesn’t come back until June 1, after section 215 sunsets.

So, by Paul filibustering up till midnight, and with time so tight, the Senate is left with a choice: either sunset 215 or pass USAFreedom as it is. But … and this is where Senator Paul diverges from some of his colleagues in the filibuster … Paul wants a robust discussion and amendment process for USA Freedom Act. Again, a variation on USA Freedom can’t be passed before the House leaves.

Through his filibuster, Paul has all but assured that 215 will sunset — at least until Congress returns from its Memorial Day recess in early June. At that point, some surveillance reform advocates fear that USA Freedom will be weakened further in a new negotiating round, or that McConnell and his allies will attempt again to extend 215 authorities unaltered.

But the political and legal landscape has shifted, particularly in light of the Second Circuit ruling that bulk collection under 215 is illegal and fresh polling that shows Americans are more supportive of ending bulk surveillance than ever before. Rand Paul realizes this, which is why he appears to be even more unwilling to accept what he clearly views as an uncertain and watered down reform that’s been on the table for months. He’s changing the conversation.

But what happens in June when Congress returns after these Sec. 215 authorities have expired?

A resumption of the fight over their efficacy, legality and political legitimacy seems the most likely outcome, with fresh attempts to reinstate some version of the telephone metadata program a virtual certainty.

And if that does happen, proponents should be forced to explain why the American people should continue to be subjected to the kind of indiscriminate mass surveillance our country denounces when authoritarian or totalitarian regimes like Russia, China, Iran and North Korea employ it against their own populations. Proponents of mass surveillance in America need to be forced to explain why they believe treating the American people as suspects first and citizens second is remotely a constitutionally or politically acceptable “mainstream” approach to upholding the Bill of Rights or defending the nation. We suspect their answers — and their proposed policy prescriptions — will be found wanting.

Patrick G. Eddington was senior policy advisor to Rep. Rush Holt for over 10 years. He is currently a Policy Analyst in Homeland Security and Civil Liberties at the Cato Institute. Jennifer Granick is the Director of Civil Liberties at the Stanford Center for Internet and Society.

The Glaring (Ir)Relevance of Ramadi

A. Trevor Thrall, Erik Goepner, and Maxwell Pappas

What does the fall of Ramadi mean? Even as the Obama administration acknowledged that Ramadi was a setback, spokesman Josh Earnest shrugged it off, declaring that the administration won’t “light our hair on fire” every time there is a setback in Iraq. Meanwhile, hawkish critics of U.S. policy have jumped on the defeat to justify their call for a more robust response. The Pentagon first said Ramadi would be a significant loss, but then argued that it wasn’t. Senator John McCain, on the other hand, labeled the defeat an “abysmal failure.”

Rhetorical positioning aside, the fall of Ramadi is essentially irrelevant to the final outcome in Iraq. Though a city of moderate strategic value considering its proximity to Fallujah and Baghdad, Ramadi does not spell victory for ISIS anymore than Iraq’s retaking of Tikrit from the insurgents spelled defeat for ISIS (despite suggestions to the contrary from the Obama administration). The battle for Iraq will depend on the ability of the Iraqi government to mobilize enough effective fighting power to stop the ISIS expansion. Unfortunately for Iraq, despite over a decade of U.S. investment in training and equipment, Iraq’s military appears incapable of mustering consistent fighting effectiveness to deal a decisive blow to ISIS on the battlefield. The only sure way Iraq can hope to defeat ISIS is by encouraging greater external intervention in the form of airstrikes, weapons, and most importantly of all—ground troops.

Second, Ramadi is irrelevant because, absent a dramatic change after the 2016 elections, it will not change U.S. policy. The fall of Ramadi makes clear that limited U.S. airstrikes are not enough to do the job, but even more clear that Obama has no intention of sending enough military force to change, however briefly, the momentum on the ground. As Susan Rice told USA Today, “We are not going to own this battle as Americans and put combat forces back on the ground again,” she said. “That is not what we are about.” Iraq will get more weapons, more equipment, and a higher tempo training program, but these will not be enough.

Ramadi does not spell victory for ISIS anymore than Iraq’s retaking of Tikrit from the insurgents spelled defeat for ISIS.”

If the U.S. military had managed to transform the Iraqi military into an effective fighting force during eight years of herculean efforts, Ramadi would not have happened. They could not, however, and there is no reason to think additional lesser efforts will work now. Even an expanded air campaign (for which there is little desire within the Obama administration) would be unlikely to make a difference. Given the risks of civilian casualties and the limits of airpower against irregular forces, airstrikes alone cannot roust ISIS from Ramadi or Fallujah. Without meaningful political reconciliation that invites the Sunnis to the table or an overwhelming ground force to compel them, Iraq’s civil war will continue in search of a victor.

Even more fundamentally, Ramadi is irrelevant because the underlying cause of the weak Iraqi military is, in fact, the Iraqi government, which has had years and ample incentive to field a competent military but has failed to do so. In turn, the Iraqi government lacks legitimacy thanks to the sectarian fissures rent open by the 2003 war and the intense trauma and challenges associated with rebuilding a nation after descending into civil war. This problem will not go away whether the Iraqis manage to retake Ramadi in a month or a year.

Ironically, the real relevance of Ramadi for the United States is that it will encourage America to keep ignoring the biggest threat to its strategy in Iraq: the Iraqi government. The Iraqi government helped lay the foundation for ISIS’s success by waging its own sectarian war against the Sunni population under the guise of nationalism for the past decade. Even at this desperate hour, Baghdad refuses to take in displaced Sunnis from nearby cities fleeing the ISIS advance. The Sunni-Shia “rift” has become a gaping chasm in Iraq. As a result, despite its status as an extreme and distinctly minority faction among the Sunnis in Iraq, ISIS has managed to play the Sunni-Shia hostility to its advantage, winning recruits while the Iraqi government’s ability and, perhaps, interest in rallying Sunnis to the flag decreases daily.

This sectarianism has consequences at all levels. On a military level, the use of Iranian-backed Shia militias to retake Sunni territory may succeed in the short-term, but there is very little chance these forces will gain the vital support of the wary Sunni public in expelling insurgent forces from the area. Thus, even if the Shia militias are able to retake Ramadi, the victory will be hollow and short-lived.

On the domestic political level, aside from absolutely shredding the already shaky credibility of the Iraqi Army, the continued reliance on Shia militias by the Iraqi government plays into the ISIS messaging that their cause is one of religious purity against the infidels and apostates—the Government of Iraq is sending an incredibly clear message to their Sunni populace that this is, in fact, a sectarian war. Very few Iraqis will forget the violence and atrocities committed during the last flare-up of sectarian violence following the bombing of the Golden Mosque in Samarra. By making this is a Shia-Sunni fight instead of a government-insurgent fight, the government is making public cooperation incredibly unlikely—much less likely, in fact, than if the Iraqi Army, with its nationalist appeal, continued to muddle ineffectively through this conflict, as opposed to the Shia militias with their religious appeal.

On a geopolitical level, the failure of the U.S. trained, equipped, and supported Iraqi Army, and subsequent Iraqi reliance on Iranian-backed Shia militias damages U.S. credibility, fuels anti-Americanism, and makes future partnerships with both state and non-state actors in the Middle East more difficult.

Win or lose in Ramadi, the damage is already done and U.S. strategy continues to be undone by the very government it is intended to support. Calls for increased airstrikes, training, or direct military intervention in the region are foolish because they fail to address the root issues at stake. In short, the path to a peaceful solution does not run through Ramadi, Fallujah, or Mosul—it runs through Baghdad.

A. Trevor Thrall is associate professor at the School of Policy, Government, and International Affairs at George Mason University and an adjunct scholar at the Cato Institute. Erik Goepner is retired from the Air Force, having commanded units in Iraq and Afghanistan, and is now a doctoral student in public policy at George Mason University. Maxwell Pappas is an Active Duty Army Officer. He led a Rifle Platoon in Anbar Province during the Iraq surge and commanded two companies in Afghanistan. He now is a graduate student in security studies at Georgetown University.