How to Play Geopolitical Poker with Kim Jong-Un

Doug Bandow

One of the chief fears about North Korea’s possession of nuclear
weapons is the increased risk of a conflict no one wants. It might
be started by accident, mistake, or misjudgment. By Kim Jong-un,
assume most Americans.

Yet the Democratic People’s Republic of Korea is behaving like
normal: bombastic and threatening in rhetoric, but cautious and
restrained in behavior. The DPRK’s last direct military
provocation, which justified South Korean retaliation and could
have triggered a conflict, was in 2010, with the sinking of a naval
vessel and bombardment of an island. Since then there has been
missile and nuclear testing, but only long-standard rhetorical
threats to act.

The Trump administration, in contrast, has dramatically changed
Washington’s approach. President Donald Trump has gone mano-a-mano
with Kim in the threat department. The former threatens fire and
fury and talks of sending armadas. Insults and warnings fly fast
and furious. More ominously, the president and his officials have
suggested that war is inevitable if the North does not concede
everything America demands. The DPRK must give up its missiles and
nukes and then hope for the best while apparently relying on
perhaps soon-to-be-former Secretary of State Rex Tillerson’s
promise that Washington does not seek regime change.

Now, more than ever, the
administration needs to take a grown up approach to the Korean
Peninsula.

If President Trump is serious about starting the Second Korean
War, then he should be aware that more than North Koreans would
suffer. The first Korean conflict consumed three to four million
lives. Depending on the North’s capability to deliver weapons
of mass destruction—biological, chemical and nuclear—on
civilian targets such as Seoul and Tokyo, even more could die in
the second round. South Korea would again be a battlefield and the
entire peninsula would be wrecked; the economic disruption would be
enormous.

Yet the danger may be almost as great if the president is only
attempting to intimidate Kim Jong-un. Threatening the North
strengthens its case for a nuclear deterrent: only with the ability
to retaliate against the U.S. homeland could Pyongyang be certain
of preventing an American attempt at regime change. The more
administration officials say war is going to happen, the more
urgent it is for the DPRK to perfect its missile and nuclear
technology.

Moreover, if the North believes an attack is inevitable, it
should plan to strike first. To stand by and allow Washington to
build up its forces, strengthen Seoul’s defenses, withdraw
noncombatants, and open the campaign with massive bombing of North
Korean forces would be to guarantee a speedy defeat. That movie
played twice in Iraq and shorter versions also were shown in
Afghanistan and Libya. Kim certainly doesn’t like the common
ending.

In contrast, damaging or destroying military and transportation
facilities in Pusan, Guam, Okinawa, Tokyo and elsewhere would
greatly hinder American efforts. The North might also attempt to
grab Seoul as a bargaining chip or threaten to retaliate against
Seoul and Tokyo if Washington did not agree to a ceasefire. Belief
that U.S. threats and actions triggered the conflict might divide
the Republic of Korea and its American ally.

Exactly what would convince the Kim regime that the Trump
administration was about to strike is unknown. But the
president’s aides and supporters seem to be doing their best
to make the threat appear real, which could have horrendous
consequences.

For instance, UN Ambassador Nikki Haley, perhaps the shrillest
administration voice next to the president on attacking Pyongyang,
has questioned whether Americans would attend the upcoming Olympics
in South Korea. White House press secretary Sarah Huckabee Sanders
has said that Olympics attendance was an open issue about which
“no official decision has been made.” Imagine if the
administration announced that it was banning—or merely
recommending against—attendance at the global event.

Similar is Sen. Lindsey Graham’s insistence that the
administration should “start flying out noncombatant U.S.
citizens” from the South. Estimates of the number of
Americans who live in the ROK range up to a half million. That
number includes students, business people, tourists, and families
of diplomats and service members. Imagine if Washington announced
that it was initiating a massive airlift for Americans and
recommending against private travel to South Korea.

There would be consternation and panic in the South. Residents
of Seoul, who until now have remained largely unaffected by the
Kim-Trump rhetorical slugfest, could not help but react. Many would
start to look for an out as well. Even more so other foreign
visitors,

The reaction in Japan would be similar. Th Japanese would see
U.S. military installations and Japanese cities alike at risk.
Moreover, Americans there and in Guam, also within range of North
Korean missiles, might demand transportation home as well. China
and Russia could not ignore what looked like Washington’s
unstated intent to attack.

Nor could the DPRK. Kim now might believe Trump to be a paper
tiger, big on rhetoric but not much else. However, if the United
States consciously and officially unleashes chaos across Northeast
Asia, the administration either is going all-in on a bluff or
really is preparing for the war that the president and his aides
have been planning.

In which case, the North would have to begin preparing its
response. To believe it was more geopolitical poker would be taking
a huge risk. Pyongyang at least would likely become hyper-sensitive
to American threats and actions, prepare to use or lose its most
important weapons, and plot how to disrupt U.S. plans. With such an
atmosphere, it wouldn’t take much to start the war that both sides
were treating as inevitable.

There are some adults in the administration. For instance,
Defense Secretary Jim Mattis responded to a question on the issue
by emphasizing diplomacy. One suspects that his private reaction
probably was a bit harsher. And the U.S. Olympic Committee, which
is not a government agency, insisted that it was having no second
thoughts about participating in the games that are to be held in
the mountainous region of Pyeongchang some fifty miles from the
DMZ, which marks the border with North Korea.

Hopefully the president realizes that war at any time is serious
business. War with a hostile, paranoid state which possesses a
sizable conventional military and variety of WMDs and missiles is
really serious. The lives of millions of people are potentially at
stake.

One of the dangers of nuclear proliferation is increasing the
chance of a war no one actually desires. Unfortunately, the United
States and North Korea could bring about such a calamity. Now, more
than ever, the administration needs to take a grown up approach to
the Korean Peninsula.

Doug Bandow is
a senior fellow at the Cato Institute. A former special assistant
to President Ronald Reagan, he is the author of several books,
including Tripwire: Korea and U.S. Foreign Policy in a Changed
World
and coauthor of The Korean Conundrum: America’s Troubled Relations
with North and South Korea
.

Gambling Away Federalism

Trevor Burrus

Pennsylvania legalized online gambling in late October,
becoming the fourth state to allow online betting. Some lawmakers
in Washington, however, would like the federal government to
override those states’ laws and prohibit online gambling
nationwide. The Restoration of America’s Wire Act(RAWA),
which has been floating around Congress since 2015 but is receiving
renewed attention, is an attempt to assert federal control over
states that have legalized online gambling. Just as states have
been allowed to experiment with marijuana legalization, Congress
should resist attempts to override state experiments in online
gambling.

The story goes back to a 2011 Department of Justice memo that
clarified the interpretation of the 1961 Federal Wire Act, which
was passed to give federal officials the authority to go after the
mafia. When asked by the states of New York and Illinois whether
intrastate online lotteries would violate the Federal Wire Act, the
DOJ clarified that the 1961 law applied only to sports betting and
not to other forms of online gambling, freeing states to legalize
online gambling, as Pennsylvania and others have. Since that time
various lawmakers have been trying to either convince the DOJ to
revisit that interpretation or to amend the Federal Wire
Act-“restore” it, as the bill’s title says-to
cover online gambling.

Congress should resist
attempts to override state experiments in online
gambling.

Seemingly spurred along by Pennsylvania’s law, in November
Senators Feinstein (D-CA) and Graham (R-SC) wrote a letter to the DOJ asking for reconsideration of the
2011 interpretation of the Federal Wire Act. They cite the usual
concerns: the children, society’s most vulnerable, and
organized crime as a reason to revisit the interpretation. Yet,
even if such concerns were valid, the Federal Wire Act clearly does
not apply to non-sports related gambling, as CEI’s Michelle
Minton has conclusively shown.

All of this arises as New Jersey is at the Supreme Court challenging a federal law,
the Professional and Amateur Sports Protection Act (PASPA), which
prohibits states from authorizing “a lottery, sweepstakes, or
other betting, gambling, or wagering scheme based” “on
one or more competitive games in which amateur or professional
athletes participate.” The law, which was passed in 1992,
carved out exceptions for four states-Delaware, Montana, Nevada,
and Oregon-and gave New Jersey the option to legalize sports
betting at casinos as long as it did so within a year after the law
went into effect. New Jersey didn’t do so at the time but now
it would like to. It tried twice to legalize sports betting, but
each time federal courts have said that PASPA prohibits it. Now at
the Supreme Court (the case was argued December 4th), the state is
arguing that such a prohibition violates the Tenth Amendment by
“commandeering” states to enforce federal law. The Cato
Institute has filed multiple briefs in the case, arguing that PASPA’s
prohibition violates the Tenth Amendment.

More broadly, as a voluntary activity between consenting adults,
gambling should of course be legal. Ironically, gambling is legal
in nearly every state in the form of state
lotteries. This is an absurd paradox that doesn’t get enough
attention: if the government can profit from it, then apparently
it’s not gambling. In 2014, Americans spent $70 billion on lotteries, more than their
spending on sports tickets, books, video games, movie tickets, and
recorded music sales combined. What’s more, the
poorest third of American households purchase half of all lottery
tickets.

Prohibitions on gambling demonstrate a deep disconnect between
our laws and the behavior of most people. Millions of Americans
participate in annual NCAA March Madness office pools, to the tune
of over $10 billion per year. According to the American Gaming
Association, only 3 percent of that betting is legal. Certain types of home poker
games, which have greatly increased in popularity in the past 20
years, may be illegal in your state. And approximately 75
million people play fantasy football every year, often for money,
and daily fantasy sports leagues are of uncertain legal status in over a dozen
states.

There is now a danger that RAWA may be surreptitiously inserted
into an appropriations bill, as has been tried before. The bill has received heavy
support from billionaire casino owner Sheldon Adelson, who has said he’s “willing to spend
whatever it takes” to stop online gambling. It’s odd
that a man who has made billions off of gambling would call online gambling “a societal train
wreck waiting to happen.” Perhaps his concerns are genuine,
but a cynic might think he’s trying to eliminate
competition.

Either way, the bill’s co-sponsors are almost all Republicans,
purportedly the party of federalism. As we’ve seen many
times, however, federalism has many fair-weather fans. Like many
political ideals, commitments to federalism are often abandoned
when given the opportunity to use the federal government to combat
disfavored state policies. Yet anyone who has lauded the trend of
“marijuana federalism” that is moving through the
states, should support “gambling federalism” for the
same reasons.

Trevor
Burrus
is a Research Fellow in the Cato Institute’s Center for
Constitutional Studies.

The Media Keep Saying the GOP Tax Bill Is Best for Rich Families. They’re Wrong.

Chris Edwards

There is one thing the mainstream media agrees on about the
Republican tax cuts. The “GOP Plan Evolved into a Windfall
for the Wealthy,” said a Washington Post
headline
. An Associated Press
story discussed
, “How GOP Tax Plans Would Reward Rich
Families.” And a New York Times
editorial called it
, “A Tax-Cut Bill to Make Scrooge
McDuck Proud.”

That narrative is everywhere, and it is false. The GOP’s
tax proposals would give the largest relative cuts to the middle
class, increase subsidies to low-income households, and make the
tax code more progressive. Those are misguided policies, but that
is what Republicans will likely deliver even with some final tweaks
this week.

Let’s look at data on the Senate tax bill from the Tax Policy
Center. In 2019 the middle-income quintile (or one-fifth) of U.S.
households would receive an average tax cut of $840, while the top
quintile would receive $5,420. At first blush, the top group seems
to do better.

The GOP’s tax proposals
would give the largest relative cuts to the middle class, increase
subsidies to low-income households, and make the tax code more
progressive.

However, the top group currently pays far more in income and
estate taxes, so its relative cut would be smaller. The tax cut for
the top quintile would be 8 percent of current taxes, while the cut
for the middle quintile would be a huge 23 percent. The Senate bill
trims the top income tax rate and the rate on small businesses, but
it cuts rates, doubles the standard deduction, and increases child
credits for the middle class.

Let’s look at other TPC data. The Senate bill would give
62 percent of the overall tax cut to the top quintile in 2019. But
that group pays 84 percent of individual income
taxes and 67 percent of all federal taxes. Since the tax cut
percentage for that group is smaller, it would pay a larger share
of overall federal taxes going forward.

What about the middle quintile? It currently pays 10 percent of
all federal taxes, but would receive 13.5 percent of the Senate
bill’s tax cuts in 2019. Thus, middle earners would gain an
extra-large share of the tax cuts.

As for lower-income households, they would receive a subsidy
increase. Currently, the bottom two quintiles of households do not
pay any federal income taxes on net. Yet those groups would receive
substantial tax “cuts,” which would be largely an
increase in refundable tax credits.

The bottom line is that the GOP tax cuts would make the tax code
more “progressive,” which is not a good idea because we

already have the most progressive
individual tax system of any
major industrial country.

Increased progressivity, or redistribution, undercuts the growth
potential of tax reform. The key to growth is cutting marginal tax
rates because that encourages working and other productive efforts,
yet the House and Senate bills only modestly trim individual
rates.

News reports say the final tax deal cuts the top individual rate
from 40 to 37 percent, which is good news because the top rate
creates a lot of economic damage. A basic rule is that damage rises
with the square of the marginal tax rate, so a 40 percent rate is
four times more damaging than a 20 percent rate. The upshot is that
every percentage point cut in the top rate matters.

Consider also that high earners, such as doctors and executives,
are productive people who have flexibility in their working and
investing decisions. They will respond relatively strongly to tax
rate cuts. So for individual tax reforms, high earners are the key
to boosting growth.

The GOP’s individual reforms produce only modest growth
benefits because the rate cuts are small. Tax Foundation
simulations find that the GOP’s business tax cuts would boost
the economy twice as much as the individual cuts, even though the
revenue losses from the latter are much larger. If the final bill
cuts the top individual rate, that would boost the growth
benefits.

Whatever the final bill looks like, many news articles are
likely to call it “tax cuts for the rich.”
Unfortunately, that will embolden Democrats to try and undo the
pro-growth elements of the GOP tax reforms in the years ahead.

Republicans will need to set the record straight. The truth
about their plan is that the largest relative tax cuts go to the
middle class, while the business tax reforms will benefit all
income groups from stronger economic growth.

Chris
Edwards
is a contributor to the Washington Examiner’s Beltway
Confidential blog.

Understanding ‘Net Neutrality’

Peter Van Doren and Thomas A. Firey

The FCC is set to vote on changing how the federal government regulates the internet, and commentators and activists are up in arms. New York Times technology writer Farhad Manjoo, for one, claims “the internet is dying.”

So what is the controversy about? FCC commissioner Ajit Pai proposes to repeal rules upholding “net neutrality” and replace them with a very simple rule: tell all customers about your services and prices in a transparent manner.

What is net neutrality? The internet is simply a set of pathways for transmitting packages of 1s and 0s—the basic language of computers—from one computer to another. When content (such as email, music, or video) is transmitted, the content is broken down into small packages of information, each of which, is sent separately over the internet to a destination computer, which then reassembles the information packages back into the content. Network neutrality requires that all the different packages of information be treated and priced alike by internet network providers regardless of who sent them or what information they contain.

While net neutrality sounds appealing, the actual internet experience that we have come to enjoy and expect actually requires non-neutrality. In the early days of the internet, packets of information were basically treated alike. This was back when the internet was a government-funded communications system that allowed university researchers to communicate with each other.

However, when the internet started to allow private internet service providers (ISPs) to connect to the government system in the 1990s, the structure of the internet became more complex. Private backbones supplemented the original government network, connecting through four backbone network access points. The four access points almost immediately became congested with traffic, which gave the backbone operators market power over regional ISP providers. To reduce congestion and limit backbone market power, ISPs quickly developed new pathways and connections.

Thus since the early days of the private internet there have been multiple paths for packets of information to travel. Similar packets have traveled over different pathways at different speeds and have long paid differing amounts to do so. These arrangements were not anti-consumer or anti-competitive. They were simply what was required to create redundancy and overcome market power.

In fact, they allowed content providers—websites, media streamers, and others—to reduce costs and increase quality of service because not all uses of the internet are alike in their technical demands on the network. For instance, email packets don’t have to arrive “simultaneously” for email to “work” but Skype packets do.

The management of those multiple paths and internet uses has been governed by contract, not government regulation. In fact, during the development of the internet from its early days to the present, regulation, including net neutrality regulation, has actually had very little effect.

The net neutrality regulations that exist today arose out of the rivalry between the different regulatory treatment of traditional telephone service and cable television. Telephone service had been subject to comprehensive regulation including pricing under Title II of the Federal Communications Act (FCA). But except for a brief period in the mid-1990s, cable television prices and service had not been subject to such regulation. When cable and telephone companies both started to provide internet service, the legal question was whether the internet would be subject to traditional Title II telephone regulation?

The FCC said no in 2002 and the Supreme Court agreed in 2005. But then the FCC began to change its mind. First, it tried to enact neutrality regulations using other parts of the FCA than Title II, but federal courts struck down those efforts in decisions in 2010 and 2014. So early 2015 the FCC adopted net neutrality rules using traditional Title II public utility provisions. In a pair of rulings in June 2016 and May 2017, the D.C. Circuit Appeals upheld that effort, and the rules finally went into effect. So the legal net neutrality regime that the FCC is set to rescind actually has not existed for very long and thus has had practically nothing to do with the internet’s flourishing up till now.

Net neutrality has captured the imagination of pundits and the public, but its effects on the actual technical and legal evolution of the internet have been rhetorical rather than real. Repeal of the net neutrality rules will not be the death of the internet. It will simply return us to the hands-off regulatory framework that has nurtured the past two-plus decades of the internet revolution.

Peter Van Doren and Thomas A. Firey are Cato Institute senior fellows and editor and managing editor, respectively, of Cato’s journal Regulation.

War with North Korea Appears More Imminent Than Ever

Doug Bandow

War on the Korean Peninsula appears to be a greater possibility
today than at any recent time. President Trump insists he will not
allow North Korea to develop the capability to target the U.S.
homeland. Meanwhile, Supreme Leader Kim Jong-un refuses to abandon
a project he believes to be necessary to guarantee his
regime’s survival.

The problem of intention is exacerbated by the threat of mistake
and misjudgment. Two impulsive blustery leaders of uncertain
temperament are facing off. With threats flying, military forces
moving, and WMDs testing, much could go wrong.

Yet President Trump appears to be doubling down on his strategy
of maximum military pressure. He continues to threaten war by
sending U.S. carrier groups and bombers to Northeast Asia to
demonstrate Washington’s resolve. American and South Korean
forces are also conducting military maneuvers. The allies insist
that “Vigilant Act 18” is merely a standard, annual
exercise. But it comes at an unusually sensitive time.

Provocative U.S. military
exercises in Northeast Asia aren’t helping.

The administration apparently presumes Pyongyang is not aware of
American military power. But it is. U.S. armed services are the
strongest argument for the North developing nuclear weapons and
ICBMs.

At the end of the Korean War there was little left in North
Korea to bomb. When I first visited the Democratic People’s
Republic of Korea 25 years ago, officials commented that they had
to completely rebuild Pyongyang. America’s capacity to
destroy is even greater today.

Then, at least, China came to the DPRK’s rescue. But today
the North cannot count on similar aid. Beijing might act to preempt
an American advance to the Yalu; it would not, however, intervene
to preserve the Kim dynasty, especially if the latter bore at least
some responsibility for starting the war. Russia would be even less
inclined to act.

Nor does Pyongyang only fear conflict arising from the peninsula
itself. Since the end of the Cold War the U.S. has routinely
targeted regimes it dislikes: Panama, Somalia, Haiti, Serbia,
Afghanistan, Iraq (twice), Syria, and Libya. The latter is
particularly striking: Moammar Gaddafi made a deal with the U.S.
and Europe to abandon his nuclear and missile programs, only to be
ousted when his supposed new friends found it to be convenient. For
North Korea, the assurances of Secretary of State Rex Tillerson,
who doesn’t even speak for this president (let alone a future
one), are of little value.

So the DPRK is aware that America has substantial military power
and is willing to use it. The chief danger now may be that
Pyongyang ends up believing the Trump administration is preparing
to act when it is not.

When I again visited North Korea in June, officials were
particularly concerned about Washington’s intentions. Other
presidents have affirmed their willingness to take military action.
Trump has made the threat repeatedly. He has ramped up the
rhetoric, talking of delivering “fire and fury,” and
repeatedly sending U.S. military forces, which he once referred to
as the “armada,” to threaten the North. His officials,
as well as militaristic members of Congress such as Senator Lindsey
Graham, have spoken of the near-inevitability of war unless the
DPRK surrenders to Washington’s demands.

It is difficult to know what Pyongyang—or America’s
allies, for that matter—make of the administration’s
plans. But to the extent that North Korean officials take the
president’s rhetoric and actions seriously, they are likely
to perceive a heightened threat of war. And that is likely to make
the DPRK trigger-happy.

While U.S. officials are talking about a preventive war, which
differs from preemption in the lack of any imminent threat, the
North is likely to consider the need for actual preemption. North
Korea’s problem is that the U.S. and South Korea possess
vastly superior conventional capabilities, and allowing America to
take the initiative, and especially to build up beforehand, would
be suicidal. Of Saddam Hussein’s many mistakes, perhaps the
greatest was to stand idle as the United States deployed its forces
in preparation for war. He had no good options, but allowing
Washington to prep at its leisure guaranteed his destruction.

The DPRK faces the same problem. It has a quantitative edge, but
its equipment is aged and the allies would rule the skies. Allow
America to attack first, and it will quickly erode the
North’s conventional capabilities. The ensuing conflict would
still be costly, but ensure a more rapid defeat of the North Korean
forces.

So Pyongyang may believe it must use it or lose it. Wait for
America to mobilize, reinforce its ground forces, and conduct
massive bombing operations? Or strike to the extent it is able
to—we don’t know the exact capabilities of the
DPRK’s nuclear arsenal—first. That is, if the Kim
regime believed Washington was preparing for war, one could imagine
missile strikes on Pusan, Okinawa, Guam, and other American bases
in the region to impede any military buildup. Also likely would be
a concentrated artillery and missile attack on Seoul, perhaps
followed by rolling the tanks in an attempt to seize the Republic
of Korea’s capital, which could be used to negotiate the Kim
dynasty’s survival. The latter step might be backed by the
threat to hit Tokyo.

Exactly how a conflict would play out is impossible to predict.
But most assessments and wargames predict massive destruction and
casualties. The pessimistic counts are in the millions. After
having spent 64 years trying to prevent a Second Korean War, it
would be madness for Washington to trigger another potentially more
catastrophic conflict, even inadvertently.

While squaring the circle between the stated objectives of the
U.S. and North Korean governments won’t be easy, the most
important immediate goal should be to halt the seeming slide
towards war. Accelerating missile and nuclear tests by the North
and threats from Washington have ramped up tensions and made
mistakes and misjudgments more likely. The Trump administration
continues to insist that it won’t talk until the North agrees
to denuclearize, that is, yield on the very issue to be negotiated.
Pyongyang seems to believe that it faces a dangerous transition
period, during which Washington might strike on the theory that the
war would be “over there,” in Senator Graham’s
approving words. If so, the DPRK understandably wants to acquire a
full deterrent as quickly as possible.

The more the Trump administration flexes its military muscles to
demonstrate its seriousness, the more the North might believe that
the moment has come. In which case it might believe it must act
preemptively.

No doubt, annual exercises improve U.S.-South Korean military
cooperation. But the Republic of Korea’s continuing reliance
on America is outdated. The South possesses upwards of 45 times the
GDP, twice the population, and a vast technological edge over the
North. Seoul relies on the U.S. for conventional support only
because America allows it to do so. If more troops are needed, the
South should provide them. South Korea’s dependence should be
declining, especially as Washington faces ever greater budgetary
challenges. (The most important cost is increasing force structure,
not basing troops, to back the security guarantee.)

Pyongyang once proposed a freeze-for-freeze, that is, suspending
military exercises in return for freezing missile and nuclear
testing. Beijing is pushing the same measure. The objection that
the North is doing what it is supposed to while America and the
South are giving up what they are free to do is true but
irrelevant. Does the U.S. want to exacerbate or defuse the crisis?
Does Washington want to increase or decrease the chance of war?
Halting the threatening spiral upward would create some breathing
room.

Such a step also would enhance the likelihood of continuing
Chinese cooperation regarding the DPRK. China long has insisted
that Washington, not Beijing, bears the blame for the North’s
nuclear program. Absent a U.S. “hostile policy,” China
believes, North Korea would not be so determined to arm itself in
such a way.

Whether true or not, a serious U.S. attempt to defuse the crisis
would increase the Trump administration’s leverage with
China. First, Washington could offer to suspend the
exercises—long criticized by the North—and develop a
comprehensive benefit package for Pyongyang, long sought by
Beijing. It would also need to press for unequivocal Chinese
backing. Finally, such an effort should include negotiations over
the DPRK’s future—how to protect Chinese interests in
the event of a North Korean collapse or Korean
reunification—and press for Beijing to back an American
negotiating initiative with the threat of an energy embargo.

The effort still might fail. The North might decide to go it
alone no matter what. Kim Jong-un might decide to let his people
starve before yielding his nuclear ambitions. But better to make
the best effort possible—and especially to reduce the
likelihood of conflict, intentional or accidental.

War on the Korean peninsula is too awful to contemplate.
Although deterrence and containment may be a second best when
dealing with the DPRK, the U.S. followed the same policy in
confronting Joseph Stalin’s Soviet Union and Mao
Zedong’s China. The likely price of a preventive war, without
persuasive evidence that Kim and his colleagues are suicidal, would
be far too high.

Which means the Trump administration’s highest priority
should be to keep the peace. That requires more than not starting a
conflict. The president also should reduce the pressure on North
Korea to start one as well. He should ratchet down tensions rather
than up. Preventing an accidental war would at least leave the
possibility of finding a solution in the future.

Doug Bandow is
a senior fellow at the Cato Institute and a former special
assistant to President Ronald Reagan.

Continuing Crack down in Hong Kong Risks China’s International Reputation

Doug Bandow

President Xi Jinping has ascended China’s political
mountaintop and is imposing his will on both the Communist Party
and Chinese people. What the PRC does at home no doubt concerns
people around the world. Nevertheless, China remains far freer
today than during Mao Zedong’s rule.

But Beijing’s domestic policies matter more when applied
to nominally autonomous Chinese territories, most notably Hong
Kong. The latter is not only the economically freest land on earth.
It also is governed by law, not men, and protects basic liberties.
But that appears to be changing, for the worse.

Seized by Great Britain from the decrepit Chinese Empire, Hong
Kong ended up on a 99-year lease and spent the 20th century as a
British colony. As such, the territory was liberal, not democratic.
And Beijing promised to preserve this unique characteristic after
Hong Kong’s return in 1997 as a Special Administrative
Region.

Instead of attempting to
stifle dissent in Hong Kong, they should channel criticism to more
productive ends, while demonstrating why the PRC is an attractive
overlord.

Little changed for many years. But the 2014 Umbrella Revolution
featured youth-driven demands for the impossible: democratic
selection of the SAR’s political leaders. With the world
watching Beijing might have been willing to make some concessions,
but could not offer a political system which repudiated the
Communist Revolution. All the democratic protestors managed to do
was block any change, including modest reforms with a nod to
democracy proposed by the chief executive.

But intrusions in Hong Kong’s autonomy have since
increased. In 2015 several publishers critical of the PRC were
arrested by Chinese authorities in seeming violation of
international law. Last year two independence-minded activists were
blocked from taking their seats in the legislative council after
highlighting their contempt for Beijing while taking their oath of
office. Many residents of Hong Kong rejected what they saw as
juvenile publicity-seeking and the National People’s Congress
joined the controversy, approving legislation that disqualified
candidates who backed independence. The authorities then challenged
the election of another four political activists.

In July President Xi visited Hong Kong to mark the 20th
anniversary of China’s takeover and made clear his government
would not tolerate support for independence. In August three
leaders of the Umbrella Revolution were sentenced to prison for
their role in occupying a public square next to the government
headquarters three years before.

Now the territory’s Legislative Council is expected to
approve legislation pushed by Beijing to criminalize showing
disrespect to China’s national anthem, which is shown at Hong
Kong sporting events. Participants at soccer matches have booed,
chanted, and waved banners against the PRC. Hong Kong authorities
originally threatened to make the measure, which provides for a
prison term up to three years, retroactive. That, however, would
violate existing Hong Kong law.

Exactly how the measure would be enforced is unclear. But it
almost certainly will be challenged. Then Hong Kong will face the
embarrassing question of whether it is willing to jail its citizens
for what is pure free speech.

Much will be at stake in how it answers.

As China grows stronger it needs to learn the value of
forbearance. Beijing has the power to do most anything that it
wants not only in the mainland but also Hong Kong (and Macau).
However, prudence counsels for less rather than more.

First, Hong Kong is the canary in the mine for Taiwan. Most
Taiwanese, especially young people, do not identify with the PRC.
The authoritarian colossus next door is alien to their lives. Why
would they choose to be ruled from Beijing?

To accept even a looser connection would require trust in the
central authorities. What is occurring in Hong Kong is not
reassuring, however. The SAR’s special status survived a
couple decades, but looks ever more vulnerable. With a robust
democracy, the Taiwanese people have even more to lose.

Second, the status of Hong Kong is an indicator of
Beijing’s respect for international law. London never had the
means to enforce its agreement with the PRC over Hong Kong’s
return. However, both nations put much effort into the
negotiations. The resulting pact was a symbol of China’s
maturity. Instead of simply demanding the territory’s return,
Beijing negotiated with a colonial power which seemed to belong in
a different age. To ostentatiously toss aside the SAR’s most
important liberties would demonstrate a worrisome mix of arrogance
and impatience, sure to concern the PRC’s neighbors.

Third, targeting symbolic opposition rather than substantive
resistance guarantees organized disobedience with public support.
Plenty of Hong Kong residents oppose independence, or at least the
pursuit of independence against the PRC’s wishes. But they
also believe in allowing people to express their views freely.
Barring independence activists from the Legislative Council is
controversial but imprisons no one. Going after those deemed
disrespectful toward China would be a nightmare.

Fourth, Beijing needs to fight for the fabled hearts and minds
of Hong Kong residents. Repression makes the PRC even less
attractive, especially to young Hong Kongers. Legal dissent is the
equivalent of a popular steam valve, releasing public pressure.
China has sufficient security forces to “win” any
confrontation in the streets. But coercion and violence would be
devastating to the PRC’s international reputation.

With great power comes responsibility. So it is with China in
Hong Kong.

Officials not used to opposition in Beijing bridle at criticism
further from home. But instead of attempting to stifle dissent in
Hong Kong, they should channel criticism to more productive ends,
while demonstrating why the PRC is an attractive overlord.
Confrontation will benefit no one.

Doug Bandow is
a Senior Fellow at the Cato Institute. A former Special Assistant
to President Ronald Reagan, he is the author of several books,
including Foreign Follies: America’s New Global Empire.

Without Serious Reforms, U.S. Postal Service Could Be next Bailout Recipient

Ike Brannon and Jared Whitley

Delivering mail to every address in the country, the USPS has a
nearly daily impact on every American’s life. With over $121
billion in debt and unfunded liabilities, it could have an even
larger impact in every American’s life if it cannot begin cutting
costs and paying its debt and outstanding liabilities. Otherwise
the only alternative available would be another taxpayer-funded
bailout of a financially mismanaged government agency.

Benefit packages have become very precarious issues for
employers in both the public and private sectors. The issue is not
the fault of employees, as sometimes presented, but it deals with
employers’ failure to properly fund these benefits as they are
accrued in order to ensure that the benefits can be delivered when
promised. The U.S. Postal Service is faced with this same dilemma
when it comes to funding promised health benefits for their
retirees.

Today, the USPS has a
$79.1 billion unfunded liability for retirement benefits, which
includes retiree pensions and health care benefits.

Today, the USPS has a $79.1 billion unfunded liability for
retirement benefits, which includes retiree pensions and health
care benefits. Nearly a decade and a half ago, the USPS made a
proposal that Congress adopted to shore up the funding of this
benefit. However, the USPS made few of the required payments and
are now saddled with an even larger liability.

I recently co-wrote a paper with Jared Whitley, a former colleague of
mine on the Senate Finance Committee, which provides a historical
look at the issue of “prefunding” for retiree health
benefits at the USPS. It is important to know that what the USPS
classifies as “prefunding” is nothing more than making
the necessary payments into the program that ensures the benefits
can in fact be delivered in the future.

In 2002, Congress determined that the USPS had been contributing
more than was necessary into their pension fund. Had they continued
making those payments the fund would have been overfunded by
somewhere between $78 billion to $105 billion. Because of this, the
USPS proposed to take the savings from reducing these scheduled
pension payments to shore up what at that time was an approximately
$48 billion unfunded liability in the retiree health system,
thereby creating the Postal Service Retiree Health Benefit Fund
(PSRHBF). Congress adopted these proposals along with others in
legislation passed by Congress in 2003.

After the Government Accountability Office confirmed the
viability of the proposals, Congress included aspects of them in
the 2006 Postal Accountability Enhancement Act (PAEA). This law
maintained numerous provisions from the 2003 law as well as a
schedule for payments to ensure the solvency of the PSRHBF.

Amongst other things, PAEA adopted the USPS’s proposals
and thus directed them to make the equivalent of a $5.6 billion
per-annum payment into the PSRHBF from 2007 to 2016 using savings
created through the payment diversions from pension overfunding.
Then USPS Chief Financial Officer and Executive Vice President H.
Glen Walker hailed the plan as “a farsighted, responsible
action.”

However, the Postal Service failed to make all of the necessary
payments.

Today, the USPS has roughly $52 billion in underfunded retiree
health benefits, mainly because they paid just $18 billion of the
intended $78 billion to $105 billion of savings. What happened to
the money?

In addition to these missed payments, the USPS has not covered
its costs in over a decade. Revenue has remained fairly steady over
the past decade, but costs have continued to rise.

Postal leadership tends to blame Congress or declining mail
volumes for their financial malaise, but it does not take an
economist to realize that its current business model and financial
mismanagement are a prime cause of its fiscal morass.

While its core service of letter mail delivery has been
declining, it remains the USPS’s most profitable service,
generating $2.25 in revenue for every $1 in cost on Standard Mail
and First-Class letter mail products.

Asking the USPS to reduce its underfunded healthcare liability
through savings accrued from redirecting future payments from its
formerly overfunded pension obligation was a sensible way to
address their problem. Because the USPS failed to make the
necessary payments, the beleaguered agency finds itself in a much
more serious financial predicament today. Without renewed steps to
reform the operations of the USPS in the near future, a
taxpayer-funded bailout will almost inevitably be on the
horizon.

Ike Brannon is
a visiting fellow at the Cato Institute and Jared Whitley. .

“Hey California, Stop Telling Us What to Say at Work!”

Ilya Shapiro

Based on opposition to “crisis pregnancy centers”
— which provide pregnancy-related services with the goal of
helping women make choices other than abortion — the
California legislature passed a law that burdens the centers’
speech. Specifically, the new law requires licensed clinics
“whose primary purpose is providing family planning or
pregnancy-related services” to deliver to each of their
clients the following message: “California has public
programs that provide immediate free or low-cost access to
comprehensive family planning services (including all FDA-approved
methods of contraception), prenatal care, and abortion for eligible
women.”

The law has an exception for clinics that actually enroll
clients in these public programs, so it targets only businesses
that decline to participate in what is supposed to be a voluntary
state program.

Several crisis pregnancy centers sued to block the law, arguing
that it violates their First Amendment rights by forcing them to
express a message to which they are opposed. But the U.S. Court of
Appeals for the 9th Circuit rejected their challenge, holding that
the statute regulates only “professional speech” and
therefore should be reviewed under intermediate First Amendment
scrutiny, a relatively deferential standard.

Fundamentally,
California’s law burdens speakers’ consciences by forcing them to
promote programs that they morally oppose.

That lower level of scrutiny may well have been
outcome-determinative. The 9th Circuit didn’t reach the
factual question of whether California could have distributed this
message itself, but admitted that “even if it were true that
the state could disseminate this information through other means,
it need not prove that the Act is the least restrictive means
possible” in order to satisfy intermediate scrutiny. Yet
First Amendment restrictions are typically evaluated under the more
rigorous “strict scrutiny” standard of review, with
only certain narrow (and controversial) exceptions, such as for
“commercial” speech.

Accordingly, in National Institute of Family and Life Advocates v.
Becerra
, the Supreme Court will decide whether licensed
professionals can have their speech “commandeered” to
advertise services that the government wishes to promote. The
definition of professional speech that the lower court applied so
it wouldn’t have to hold California’s feet to the full
constitutional fire is dangerously overbroad and requires the
court’s correction.

No one disputes that the speech of licensed professionals can be
legitimately regulated in some circumstances. As relevant here,
regulation of patient-physician speech is justified by the notion
that when doctors speak to their patients, they assume a special
obligation to communicate their expertise fully and truthfully.
These regulations protect patients, who can’t be expected to
have the same specialized knowledge as their medical providers.
Medical doctors can be liable for malpractice if they fail to
convey a diagnosis to a patient, for example, or if they fail to
obtain informed consent before performing surgery. But such
regulations can’t be extended beyond that bright line of
specialized knowledge: If a state can require its doctors to read a
pre-written advertisement to their patients, it can force them to
say anything the state wants.

Some courts and scholars have argued that speech regulations of
this type deserve their own doctrinal category — applicable
to professional speech — and that a lower level of scrutiny
should be applied to such regulations. Others have argued that no
new doctrinal tier is necessary, because the compelling need for
malpractice enforcement and informed-consent laws means that laws
regulating professional speech would pass strict scrutiny. Rodney
A. Smolla, the former dean of the University of Richmond and
Washington and Lee Law Schools, argued in the West Virginia Law Review
last year that “properly applied First Amendment principles
would sustain the power of regulators to regulate professional
speech in these instances. These are the very regulations that
would typically be upheld even under application of the
‘strict scrutiny’ test.”

I tend to agree with Smolla, but that doctrinal debate need not
be resolved to decide this case. That’s because the quality
of true professional speech that justifies those limited
regulations — namely, an asymmetry of expert knowledge as to
diagnosis, treatment and risks — is entirely absent here. For
that reason, the compulsory speech that California has mandated
neither qualifies for intermediate scrutiny nor overcomes strict
scrutiny.

Translated from legalese to English: (1) There’s nothing
particularly “professional,” in the sense of
“special-knowledge-demanding,” about the
“California offers family-planning programs that include
abortion” message that justifies the government’s
forcing people to communicate it, and (2) even if the message is
really, really important, there are other ways of conveying it.

Moreover, the 9th Circuit’s test ignores the threat posed
by compulsory transmission of government-selected facts. Under that
test, a state can compel unwilling physicians to recite any fact
that may be relevant to “the health of [the state’s]
citizens,” a definition broad enough to encompass essentially
any statement the government chooses. If left to stand, the
decision below would allow states to force professionals of all
kinds to promote products and services they morally oppose. And, of
course, the list of “professionals” would expand over
time so that eventually states could claim power to compel any
employer (or employee) to say anything in their employment
capacity.

Compelling people to speak the government’s message at
work is dangerous for precisely the reasons that compelled speech
is always dangerous. Most importantly, it allows the government to
put its thumb on the scale in a social debate, by conscripting
individuals to help spread a particular message. (Tellingly,
California has no equivalent law forcing clinics to advertise
adoption agencies or other options for pregnant women.)

Lower courts have struggled for guidance in formulating the
boundaries and definitions of true professional speech. This is the
Supreme Court’s opportunity to prevent those definitions from
being dangerously expanded to the point at which doctors
effectively lose their First Amendment rights the moment they walk
into their clinics.

Fundamentally, California’s law burdens speakers’
consciences by forcing them to promote programs that they morally
oppose. That’s precisely the invasion of “the sphere of
intellect and spirit” that Justice Robert Jackson warned of
nearly 75 years ago in the first Supreme Court case to strike down
a compelled-speech law, West Virginia Board of Education v. Barnette. The
Supreme Court should reject the 9th Circuit’s dangerous
professional speech doctrine and apply Barnette’s
lesson to strike down this noxious law.

Ilya Shapiro
is a senior fellow in constitutional studies at the Cato Institute
and editor-in-chief of the Cato Supreme Court Review. He filed
an amicus brief supporting the cert petition in
NIFLA v. Becerra, on which this essay is based, and will
be doing so again at the merits stage.

A Progressive Push for More Gun Violence

Walter Olson

Who ever thought the progressive position on gun violence would
be to encourage more of it?

Yet that’s the paradox in Philadelphia, where on Thursday
the city council will consider a bill to force owners of hundreds
of small corner stores to take down glass partitions that protect
their managers and clerks from being robbed and assaulted.

It’s all being rationalized in the name of social justice.
Watch for the idea to show up in New York, too.

Philadelphia has hundreds of convenience stores known as
“stop and gos.” Some are licensed as restaurants, which
lets them sell beer and shots for consumption on premises, but
means they’re supposed to have 30 seats and serve food.
Critics say many skirt those rules, making most of their money from
beer, cigarettes and packaged snacks. They have drawn fire from
neighborhood-improvement commissions as magnets for petty sidewalk
offenses like loitering and the sale of “loosie”
cigarettes.

Philadelphia is
considering a bill to force owners of hundreds of small corner
stores to take down glass partitions that protect their managers
and clerks from being robbed and assaulted.

Councilwoman Cindy Bass, who’s sponsoring the measure,
calls the establishments “quasi liquor stores” and says
they can stay in business as delis if they stop “masquerading
as restaurants” and operate under a different kind of
license. Otherwise they’ll need to offer customer bathrooms
accessible without walking through a food-preparation area and
— the sticking point — remove physical barriers between
food servers and customers.

Some insist enforcing existing state law would be enough to
shutter or fine the pretend restaurants and nuisance operators. But
on one point, Bass is implacable: “the plexiglass has to come
down.”

Here it becomes clear that zoning and liquor control
aren’t the only things on her mind.

“Have you ever been served food at a sit-down restaurant
establishment through a solid barrier? That is not
acceptable.” There’s an “indignity” to it,
she adds, and it happens “only in certain
neighborhoods.” Hence : “No more normalization of
receiving food or drink through a prison-like solitary confinement
window. What message does it send our children? What are we
conditioning them for?”

Well, it sends several messages.

One is a moral that echoes down through the ages: Human beings
threatened with violence have the right to protect themselves.

Another is that no matter how many of your neighbors may be
personally liked and trusted, it takes only a few bad actors for
you to live in a rough neighborhood. Acting as if it isn’t
— or that police will always arrive in time to stop an
assault — is playing pretend.

Predictably, some of the store managers say if their glass comes
down they will start carrying guns to defend themselves.

At least 230 owners are Asian, including Korean, Chinese and
Vietnamese immigrant families. More than 200 attended a Dec. 4
hearing to protest the bill.

Adam Xu, president of the Asian-American Licensed Beverage
Association, said his group was willing to live with all the
elements of the bill except the plexiglass ban. Rich Kim, whose
family has owned a deli for 20 years, said the glass in his shop
“went up after a shooting and claims it saved his
mother-in-law from a knife attack,” according to one
account.

If the bill passes, “there will be lots of dead
bodies.”

Testifying on the other side was a figure well known to New
Yorkers, Philadelphia Health Commissioner Tom Farley, who formerly
held a similar post under New York’s Mayor Mike
Bloomberg.

Farley seemed to be straining in his public-health rationale,
though: he said a barrier might cost precious seconds if a customer
needed employee help after choking or an allergic reaction.

Farley is often quoted in the press demanding stronger
government action to reduce gun violence. But that’s what the
barriers deter. Philadelphia has a shooting every six hours, to say
nothing of knifings and strong-arm robberies.

The barriers reduce theft, too.

Yet the bill won committee approval at the Dec. 4 hearing,
though amended so as to phase in the ban over three years. The
editors of the Philadelphia Inquirer can’t make it any
plainer in their headline: “Philly’s proposed bulletproof glass ban could
get someone shot
.”

Even with a crime rate much lower than Philly’s, New York
City still has plenty of stores with partitions. Want to bet this
bad idea doesn’t show up here before long?

 

Walter Olson
is senior fellow at the Cato Institute.

Exclude Puerto Rico from Tax Reform

Ike Brannon

The year 2017 has been a disastrous one for the residents of
Puerto Rico. In the Summer, the island’s government
effectively filed for bankruptcy, which effectively foreclosed its
access to capital markets and set it down an uncertain path of
recovery. A few months later, of course, the island was pummeled by
two hurricanes in close succession, Irma and Maria, which left a trail of
devastation in their wake. The latter was, in fact, described as
the worst hurricane in a century to strike the
Caribbean island.

However, the damage to the Puerto Rican economy may not be over.
The comprehensive tax reform legislation being negotiated by
Congress includes a new tax on Controlled Foreign Corporations
(CFCs) that, in its current iteration, may result in a hefty tax
increase on the facilities of U.S. corporations operating on the
island, which would likely result in fewer jobs and lower wages on
the island. Exempting the island from this provision would be an
inexpensive and economically sensible step for Congress that would
be a great benefit for the residents of the island.

The comprehensive tax
reform legislation being negotiated by Congress includes a new tax
on Controlled Foreign Corporations (CFCs) that, in its current
iteration, may result in a hefty tax increase on the facilities of
U.S. corporations operating on the island, which would likely
result in fewer jobs and lower wages.

The purpose of the new CFC tax is meant to save American jobs
from cheaper labor in foreign countries: with the U.S. moving
towards a territorial tax regime in the new tax code Congress
wanted to put certain “guardrails” on foreign-sourced
income to ensure that the code does not inadvertently create an
incentive for U.S. corporations to locate more business activity in
foreign countries that have sharply lower tax rates. While there is
nothing wrong with that goal, Puerto Rico is an unincorporated US
territory and its residents are US citizens, yet the current
legislation would categorize it as “foreign” in the US
Tax Code.

Applying the new CFC tax provision to the island could be
disastrous for the island, threatening the jobs of over 235,000
Americans employed in manufacturing on the island and which account
for nearly half of the island’s GDP.

A likely response to the higher tax regime on the island is that
companies will consider abandoning their reconstruction efforts and
simply close their operations in Puerto Rico.

Puerto Rico needs more than just hurricane aid – it is in need
of long-term support to help it resume economic growth. The current
unemployment rate on the island is over 10%, while average household income in
Puerto Rico is less than half of that in the poorest US state.
Over 65% of households in Puerto Rico saw a
drop in income from 2012-2016, and over half the children on Puerto Rico born into
poverty.

Given its current economic morass and substantial damage from
the hurricane—a significant proportion of its residents still
do not have power—it is no surprise that Puerto Rico also
faces widespread outmigration. Its population has been steadily
decreasing over the last decade. Between 2005
and 2015, almost half a million people migrated from
Puerto Rico, and the hurricanes of 2017 caused another 200,000 to pack up and leave so
far.

Americans would benefit from a simplified tax code that reduced
pernicious economic incentives and encouraged businesses to invest
and expand their businesses in the US, and the tax code will help
to achieve that—for people who live in the 50 U.S. states, at
least. However, as currently structured it will serve exacerbate
Puerto Rico’s problems at a time when it simply cannot
countenance another economic blow.

Puerto Rico is struggling to rebuild after the hurricanes and
new taxes on U.S. business operating on its land will allow it to
do none of those. While the intent of the members of Congress who
helped draft the tax bill was to help keep American jobs out of
foreign countries, but Puerto Rico is American territory with
American citizens. It should not be unfairly targeted by this
legislation.

Ike Brannon is
a visiting fellow at the Cato Institute and president of Capital
Policy Analytics, a consulting firm in Washington DC.