This Government Agency Is Seriously Overstepping Its Bounds

Thaya Brook Knight

The Consumer Financial Protection Bureau (CFPB) has a mission:
to protect consumers from unfair, deceptive, or abusive practices.
According to a new national poll by the Cato Institute in collaboration
with YouGov, protection from deceptive practices is just what the
American public wants. Asked to prioritize regulatory goals, the
majority of respondents put “protect consumers from
fraud” front and center.

Unfortunately, the CFPB continually misses the mark, issuing
rules that make splashy headlines but in practice do little to stop
bad behavior. Its latest proposed rule, expected to become final
soon, doesn’t target fraud itself. Instead, it goes after an
entire industry and will significantly reduce consumers’
access to credit at the exact moments they need it most.

This rule would restrict the ability of short-term lenders,
often known as “payday” lenders, to continue offering
their services. These loans require no credit check and no
collateral. For a flat fee, usually about $15 per $100 borrowed,
the lender provides a loan lasting about two weeks. The borrower
gives the lender a post-dated check for the full amount of the
loan, plus the fee. At the end of two weeks, the lender deposits
the check. If the borrower does not have the funds to repay the
loan, the borrower can roll it over, taking out a new loan for
another $15 per $100 fee.

The CFPB has claimed that these loans create a “debt trap” for borrowers, the majority of
whom do roll over the loan. To protect people from these
“traps,” the CFPB wants to institute new compliance
requirements. If payday loan consumers end up accruing fees
equivalent to 36% or more of the amount originally borrowed as a
result of rollovers, the CFPB’s compliance requirements would
kick in, requiring lenders to assess the borrower’s ability
to repay the loan in the two-week period, and limiting the number
of times a loan can be rolled over.

But the word “trap” is misleading. In fact, the
terms of the loans are remarkably clear. “Borrow $100.”
“Pay $15 plus the amount borrowed.” “Payment is
due in full in two weeks.” Try putting the terms of any other
credit instrument—a credit card, an auto loan, a
mortgage—into just 15 words. Even putting such loans into 15
pages would be a challenge. In fact, payday loans are a viable
business model precisely because they’re quick and require
little paperwork, making it feasible for them to lend to people
with poor credit.

Those who use payday loans agree. As the Cato poll finds, the
majority of payday borrowers say they receive good information
about rates and fees from their payday lenders. The fact that
payday borrowers remain in debt longer than two weeks is not
evidence of deception; according to a recent Pew survey, the majority of borrowers correctly
estimated how long it would take them to pay off the debt, even
though for most of them, that would mean several months of

Using payday loans can be expensive. Often opponents of the
loans cite the fact that the fees can ultimately total more than
the amount initially borrowed if the loan is rolled over many
times. Each time the loan is rolled over, the borrower effectively
takes out a new loan and pays the applicable fees on the amount

While some compare this fee to an interest rate, arguing that
the total fees paid on a loan are comparable to an annual
percentage rate (APR), in reality they are simply a flat fee for
each $100 borrowed for a set period of time. It’s true that
the fees can add up, especially if a borrower rolls over the loan
multiple times, but it doesn’t make the loans deceptive.
Limiting the effective APR would limit the number of times a loan
could be rolled over, requiring borrowers to pay on the spot. Given
the way payday loans are often used, being able to roll over the
loan is a benefit to borrowers who might need more time to save up
the cash.

New technologies and the widespread use of smartphones have made
financial transactions easier and more widely available. Reducing
regulatory barriers to the development of these products may be the
best way to improve financial access for low- and moderate-income
Americans. In the meantime, the CFPB needs to focus on preventing
and punishing fraud, rather than making news with rules no one
wants or needs.

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

A Few Thoughts on the Catalan Independence Referendum

Marian L. Tupy

Having observed the buildup to and consequences of the legal and
peaceful dissolution of my native land of Czechoslovakia in 1993
into two separate countries, I have developed an open mind about
separatist arguments. Since their separation, tensions between
Czechs and Slovaks have disappeared and the two are, once again,
the very best of friends. The Czechs no longer subsidize their
poorer cousins in the east, while Slovaks no longer blame their
problems on their “big brother” in the west. Everyone has won.

As such, I have kept an open mind about Scottish independence.
Many Scots resented their bigger neighbor to the south and wished
to regain the statehood they lost with the creation of Great
Britain in 1707. Scots, ultimately, balked at going it alone – a
decision partly influenced by the large financial subsidies that
Caledonia receives from England. The Brits handled the question of
the referendum in a typically cool-headed fashion. Unencumbered by
a “written Constitution,” a simple agreement between David Cameron,
the British Prime Minister and Alex Salmond, the Scottish First
Minister, paved the way for a vote north of the Hadrian’s Wall,
with 55 percent of the Scots opting for the status quo.

Madrid’s approach, while
legal and proportionate, seems to me politically unwise.

Spain, alas, has a Constitution, which was adopted in 1978 by 92
percent of the Spanish voters, including 95 percent of the voters
in Catalonia. The document does not provide for independence
referenda and specifically refers to the indivisibility of the
Kingdom of Spain. Consequently, the Spanish Supreme Court ruled
that the Catalan independence referendum was unconstitutional and
should not take place. The Catalan government ignored the Court’s
ruling and decided to hold the plebiscite anyway. The Spanish
government responded by sending in the national police and the
referendum was, for all practical purposes, derailed – amid some

With regard to the crackdown, a couple of things should be kept
in mind. First, nobody died, which is a bit of a miracle,
considering the red-hot passion on the Catalan side. From the film
footage I saw, it seemed to me that the Spanish police were
remarkably restrained and only responded with batons and rubber
bullets when under physical threat from the pro-independence
protesters. Second, given the Supreme Court ruling, the Spanish
government was obliged to enforce the rule of law and should not be
unduly blamed for the unpleasantness that followed.

That said, Madrid’s approach, while legal and proportionate,
seems to me politically unwise. The only way that the Catalans
could have held the vote legally was through constitutional change,
which is impossible, because the Spanish Parliament is filled with
unionists opposed to Catalan independence. The crackdown leaves the
Catalans with no recourse to rectify their grievances and could
lead to increased support for independence and, even, occasion a
rise of more extreme forms of Catalan resistance to the central

For most Europeans, Spain without Catalonia is as strange of a
concept as the United Kingdom without Scotland. But, independence
can be a good way to lower tensions between peoples who no longer
wish to remain a part of the same political entity and an excellent
way to increase inter-jurisdictional competition, thereby allowing
for greater institutional experimentation.

Prior to the rise of the European nation states in the 16th and
17th centuries, Europe was sub-divided into hundreds of different
states and statelets. Germany alone consisted of over 300 different
political entities prior to Napoleon’s consolidation of the
territories in 1806.

These states offered their residents different sets of rights
and responsibilities. They competed with one another in terms of
policies, including religious tolerance and taxation. In fact, it
was this territorial disunity that, scholars argue, enabled Europe
to zoom past heavily centralized China to become the world’s
leading economy.

Today, Europe is in a bit of a funk. Perhaps an injection of
greater jurisdictional competition is just what the old world needs
to take it out of its morass and reinvigorate it once more.

Marian L. Tupy
is a policy analyst at the Cato Institute’s Center for Global
Liberty and Prosperity and editor of

Kurdistan Ignites New Mideast Fires: National Independence at What Price?

Doug Bandow

The people of Kurdistan have voted for independence from Iraq.
Baghdad already has retaliated against its rebellious province.
Iran and Turkey have threatened to respond as well. The Kurdish
vote also will exacerbate tensions in Syria, where Washington and
Ankara already have clashed over America’s reliance on
Kurdish forces in battling the Islamic State.

Iraq’s Kurds suffered greatly under Saddam Hussein’s
rule: he used poison gas and killed nearly 200,000. An American
“no-fly” zone effectively freed them of his control and
Erbil has been autonomous since 1991. That status survived the U.S.
invasion and subsequent sectarian war, though all parties
acknowledged the fiction of Iraqi sovereignty. For instance,
Washington’s military assistance to the Kurdistan Regional
Government officially passed through Baghdad. The Kurdish statelet
doesn’t enjoy UN membership, but otherwise acts largely
independently. Until now visitors could fly directly into the KRG,
as did I last year.

Of course, the Kurdish desire for independence is not unique.
Spain faces a political crisis after the government in Madrid
employed riot police to disrupt an independence referendum in
Catalonia. Scottish independence remains a live possibility.
Belgium is badly divided and Flemish residents have pressed for
greater autonomy if not a full-scale split. The French-speaking
province of Quebec once came close to leaving Canada. Somaliland
exists de facto independent of chaotic Somalia, the prototype of a
failed state. Independence campaigns succeeded in South Sudan,
Slovakia, Kosovo, East Timor, and the multiple nations derived from

The most dangerous independence movement, at least from
America’s standpoint, today may be that in Taiwan. The Republic of
China survived the defeat of the nationalist government by the
Chinese communists when Chiang Kai-shek and his government moved
offshore to the island of Taiwan, which had been occupied by Japan.
Years ago the ROC gave up the pretense of ruling the mainland, but
the People’s Republic of China did not return the favor. Today few
Taiwanese identify with Beijing’s authoritarian rulers and by any
measure deserve their own internationally recognized state.
However, a formal declaration of independence would force the
Chinese government to act. And the rising nationalistic power is
unlikely to docilely accept the legal loss of such an important

Kurdistan could prove to be even more dangerous. The Kurds
joined a long line of peoples betrayed by the Versailles settlement
to World War I when the British and French divided up the Middle
East. There are as many as 45 million Kurds today and they
constitute one of the largest people groups without their own
nation. They are concentrated in several Middle Eastern nations
which increasingly look like failed states.

This is one potential
conflict Washington should stay out of.

But there is no agreed upon criteria as to who gets to create a
country where and when. In practice, people get to secede when they
are able to secede. Only a few succeed.

What about the Kurds? No event precipitated last week’s vote.
With presidential elections scheduled next month domestic politics
was an important factor. Still, the KRG has a bill of particulars
against Baghdad—broken promises, constitutional violations,
political failures—that makes a plausible case for
separation. However, Kurdistan’s ability to sustain an independent
existence is uncertain at best. The landlocked territory is
surrounded by adversaries which control its access to the world.
The Islamic State’s surge stalled Kurdistan’s economic development;
financially the KRG is dependent on declining oil revenue shipped
through other states.

Until now Kurdistan has survived as an autonomous zone because
of both the weakness of the Iraqi state and Washington’s informal
protection. Moreover, Kurds in Syria have created an autonomous
region out of the collapse of the Syrian state and chaotic civil
war. Opposition to the Islamic State yielded American military
support though not political sponsorship.

In contrast, Turkey’s Kurds have suffered under the full weight
of the Turkish military. The first round, from about 1978 to 1999,
displaced hundreds of thousands, imprisoned scores of thousands,
and killed tens of thousands. Thousands of villages were destroyed.
The war reignited two years ago, with a resurgence of brutality,
destruction, and death. Iran’s Kurds have avoided a similar fate
because they are better integrated nationally, though armed
resistance occurred even there. But their dissatisfaction

There is no inherent reason why Washington must take a position
when other people seek independence. However, U.S. policymakers
find it almost impossible to resist the temptation to meddle in
affairs of no particular interest to America. And in this case
Washington’s seemingly hopeless entanglement in the Mideast makes
Kurdish affairs important.

America never paid much attention to Kurds in Iran and
Syria—there were no militant independence movements, the
ruling regimes were hostile to America, and both nations posed
larger security challenges. In Turkey, which contains the largest
number of Kurds, Washington ignored the ill consequences of the
government’s brutal military campaign, fought with
U.S.-supplied weapons. Then, at least, Ankara was a key American
ally. Humanitarian considerations were of little concern.

In Iraq support for Kurdish autonomy advanced America’s
geopolitical ends, most notably constraining Saddam Hussein’s
government. The Kurds have remained helpful allies over the 14
years since the U.S. invasion, during which the Baghdad government
has not been in position to reassert authority over Kurdish
territory. However, tensions have risen as Kurdish forces extended
their territorial control while defending against ISIS, including
to Kirkuk, a contested city also claimed by Arabs and Turkmen. As
the threat from the Islamic State receded the Abadi government was
likely to turn its attention toward the KRG.

Now Erbil’s referendum multiplied the dangers. Opposition
to Kurdish independence may be the one issue uniting Iran, Iraq,
Syria, and Turkey. Ellen Laipson of the Stimson Center argued that
“It should not be beyond imagination for statesmen of good
will to negotiate a new status for Iraqi Kurdistan.” Of
course, one can imagine that. But this is the Middle East. It is
going to remain a matter of imagination.

Erbil rejected proposals for mediated talks with Baghdad:
Kurdistan desires independence. However, such talks would not
likely have yielded a solution. Behind Prime Minister Haider
al-Abadi hovers his predecessor, Nouri al-Maliki, who originally
won power using the Shia nationalist card.

Abadi demanded nullification of the “illegal” and
“unconstitutional” referendum results. He promised to
take all “necessary measures to preserve the unity of the
country.” His government also requested control of Erbil and
Sulaimani airports; refused by Kurdistan, Baghdad closed down air
traffic into the autonomous territory. Baghdad has moved to take
control of Iraq’s border posts in Kurdish territory. The
Abadi government is conducting joint military exercises with Turkey
and announced similar maneuvers with Iran. More ominously, the
Iraqi parliament authorized the movement of military forces into
the disputed city of Kirkuk and use of troops to take control of
oil resources under the Kurds’ control; legislators also
urged the Abadi government to bring charges against the Kurdish

Turkey, busy waging a war against its Kurdish citizens,
conducted military maneuvers along its border with Kurdistan and
threatened to close the border and cut the oil pipeline
transporting Kurdish oil. Said President Recep Tayyip Erdogan:
“We have the tap. The moment we close the tap, then
it’s done.” Turkey’s parliament extended the
authorization for Turkish troops in both Iraq and Syria. He warned
that the KRG risked bearing “the shame of having dragged the
region into an ethnic and sectarian war.” Kurdish leaders
believe that Erdogan is bluffing, given economic considerations,
but they may underestimate the power of the same nationalism which
is pushing them toward independence.

Iran closed its airspace to KRG flights and banned
transportation of refined oil products in and out of Kurdistan.
Tehran also conducted military operations along its border with the
KRG. Militias allied with Tehran, the Popular Mobilization Units or
Quds Forces, have been operating in Iraq and also could become

In Syria the Assad government backed away from Kurdish areas
early in the civil war, giving greater space to the Kurdish
Democratic Union Party, which has created an autonomous region
called Rojava. But the YPG is tied to Turkey’s Kurdistan
Workers Party, and Ankara used its military to constrain the
ambitions of Syrian Kurds. Moreover, if President Bashar al-Assad
consolidates control he also may move to curb Kurdish autonomy.

In short, the cause of Kurdish independence could spark multiple
conflicts. And Washington would face pressure to choose sides.

Kurdistan has its advocates. Kurds fought Hussein, gave refuge
to religious minorities, and battled the Islamic State, playing an
especially important role in the liberation of Mosul and battle for
Raqqa. Kurds are religious moderates, friendly to Israel, and
pro-Western. Kurdistan is not as democratic and free as sometimes
claimed; it is essentially a Barzani family enterprise. Kurdish
parliamentarian Rabbon Marof, who promoted the “No for
Now” campaign, complained: “We don’t have rule of
law—we have a monarchy.” But given its neighbors, Iraq,
Iran, Syria, and, these days, Turkey, the Kurdish statelet
doesn’t look so bad even on this score.

Washington long offered the Kurdish leadership discreet, private
assurances of support, but then strongly opposed the
“provocative” referendum. Secretary of State Tillerson
said that Washington did not recognize a referendum that
“lacked legitimacy.” That stance probably was inevitable,
given fears of further destabilizing an already war-ravaged

Some analysts urged Washington to intervene to at least calm the
waters. For instance, said the Washington Post’s
David Ignatius: “The United States owes it to the Kurds
to help broker their dialogue with Baghdad” and
“de-escalate tensions that could destabilize” the KRG.
Guardian’sSimon Tisdall argued that it “is
time to settle the debt” from the Western allies to the
Kurds. Bloomberg’s Eli Lake suggested that U.S. officials
“could exercise some leverage—not only to protect their
Kurdish allies, but also to stabilize the region.” He would
threaten to cut off aid to Ankara and Baghdad.

The belief that U.S. officials can limit regional opposition to
the KRG’s unilateral moves toward independence evokes
thoughts of the Tooth Fairy and Great Pumpkin. After all, if it was
possible for Washington to stabilize the region, America would
already have done so. To cut aid to Iraq would undercut the regime
that Washington just went to great expense and effort to save from
destruction by the Islamic State.

Turkey spent decades brutally suppressing Kurdish separatism;
how likely is President Erdogan, who has greatly enhanced his
domestic power by playing the nationalism card, to back down
regarding Kurdistan? Ankara already is putting distance between
Turkey and the U.S. and NATO. Additional threats aren’t
likely to dissuade the Erdogan government from protecting what it
views as vital interests.

Obviously, negotiation among the interested parties would be
better than confrontation and conflict. Indeed, it probably would
be best for Kurdistan to focus on enacting economic reform, freeing
its political system, improving relations with Baghdad and Ankara,
and strengthening its autonomous status. However, Kurds have been
waiting a long time to move from de facto to de jure

Moreover, from Iraq’s standpoint there is nothing to negotiate:
Baghdad has no reason to accept an independent Kurdistan. Iran and
Turkey gain nothing from tolerating what looks to be a contagion
which could divide their nations. The Assad government can make few
demands now, but Ankara might act to prevent a de facto Syrian
Kurdish state on its border.

Kurds are entitled to their own country. In theory. But reality
is very different. Kurds live in a dangerous region, surrounded by
opponents of their independence ambitions. If they make a nation,
they deserve Americans’ best wishes. But this is one potential
conflict Washington should stay out of.

Ike Brannon is
a visiting fellow at the Cato Institute and president of Capital
Policy Analytics.

The Rise of the Trauma State: Afghanistan and America’s Unwinnable War

Erik Goepner

Post-traumatic stress disorder afflicts 11 to 20 percent of U.S. military members after
they serve in Afghanistan or Iraq. The military expends significant
effort to provide them with needed care. Commanders move the
psychologically injured out of the combat zone. Medical and mental
health providers deliver needed aid. And, commanders may
temporarily suspend individuals’ authority to bear firearms
to minimize any threat they pose to themselves or others. For good
reason: studies indicate that combat veteran status and
PTSD associate with a two to three times increase in the risk of violence against others.

If trauma has such negative effects on U.S. service members
despite all of the assistance available, what are its effects on
Afghans who have lived in a combat zone for 40 years straight with
little access to care? More importantly for the United States, how
does all of that trauma and PTSD affect America’s longest
war? I argue that Afghanistan’s national trauma assures U.S.
policy goals will continue to go unmet and, as a result, U.S.
forces should be withdrawn.

When at war, the U.S. military prioritizes winning, not mental
health. Grievous psychological harm has remained the concern of
helping agencies and religious organizations. Warfighters rightly
eschewed such issues in order to focus on killing enemy forces and
destroying their warfighting capability. But this war is different.
It is as much (or more) about the villagers caught in the middle
and their government as it is about the insurgents. General
Petraeus observed that “the human terrain is the decisive
terrain.” For this type of war, doctrine calls on military
members to have “an adaptive and flexible mindset to understand the population,” in contrast to the
traditional enemy-centric focus. However, despite the U.S.
military’s attempts to learn the languages, religion, and
culture, the decades of psychological trauma experienced by Afghans
have gone unexamined.

The scope and scale of trauma endured by Afghans is staggering.
Upwards of 50 percent likely met the criteria for PTSD, major
depressive disorder, or both before the U.S. invaded in
2001. A meta-analysis of conflict-affected populationspublished in the
Journal of the American Medical Association calculated
that half of a population exposed to extremely high rates of
torture and political terror will meet the criteria for one or more
mental disorders. Afghanistan has met those criteria for

America has no good
choices in Afghanistan. The least bad option, though, is likely the
withdrawal of U.S. forces.

Severe and repetitive trauma over four decades has had at least
three major consequences for Afghans. Violence has become
normalized as a legitimate means for goal achievement and problem
resolution. The people lack the capacity for trust required for an
enduring settlement across dissimilar ethnic and religious groups.
And, Afghans do not have the ability to govern effectively,
especially problematic for a nascent democracy.

Hurt People Hurt People

Trauma states like Afghanistan become more violent as a result
of all the trauma and negative effects which often accompany it.
Increased exposure to severe traumatic stressors, such as torture,
rape, and war, results in more mental
, substance abuse, and diminished impulse
control. Taken together, those three factors dramatically increase
violence rates.

Larry Goodson observes that killing has become “a way of
life in Afghanistan, creating “a cult of violence.” Others have
expounded on the role of psychological factors on violence,
observing that previous trauma negatively alters violence
. Explaining societal violence after civil conflict has
ended, Chrissie Steenkamp refers to a “culture of violence” in which “the
norms and values that underpin the sustained use of violence”
become established in the society.

A scene during my deployment to Afghanistan in 2010 (and right
out of Dr. Strangelove) makes the point. An argument took place in
the “war room” between two Afghan colonels. The senior
police official drew his pistol to shoot a peer from the security
directorate over an insult. An American military officer—and
friend—bravely placed himself between the gun and intended
target and spoke the only English the middle-aged police chief
understood, “It’s okay. It’s okay.” With
the situation peacefully resolved, they banned the police leader
from the operations center for 30 days and all government buildings
posted makeshift signs indicating no guns allowed.

The police chief serves as an archetype of the traumatized
Afghan. A brave fighter against the insurgents, he has been at war
for all of his adult life and has become a drug addict in response.
Self-medication was preferable to no medication, and soberly
confronting his demons was too painful. The Colonel’s impulse
control had plummeted well below safe levels. Violence has become
his reflexive tool for goal achievement and problem resolution.

Eroding Trust

Repeated exposure to traumatic events severely erodes a
person’s ability to trust. Additionally, victims of
repeated traumas often develop attentional bias towards expressions
of anger and fear and they tend to miss cues associated
with happiness, amplifying the cycle of distrust. The effects appear particularly pronounced when the
traumas occur early in life. The fact that Afghans have suffered so
much trauma at the hands of so many different actors intensifies
the erosion of trust.

Diminished Capacity, Diminished Governance

Adverse changes to the brain can also follow severe and repeated trauma.
These alterations include reduced hippocampal volume
and hemispheric integration, decreases in corpus callosum size, and
diminished activity in the basal ganglia. These changes associate
with a variety of negative outcomes, including lowered intelligence
quotient, diminished capacity to reason, and poor problem-solving

Everyone, government officials included, becomes less competent.
Governance and the delivery of basic goods and services suffer.
This is particularly problematic in a democracy, where government
legitimacy derives from its competence.

Militaries Can’t Fix Trauma States

Afghanistan’s national trauma helps explain why nation
building efforts have been so difficult and the gains from American
combat power so temporary. Only Afghans can bring about enduring
change, and they are too traumatized to do it. The trauma-induced
“cult of violence” fuels the war, eroding the
possibility for negotiation. Politicians cannot trust each other,
which further incentivizes the use of violence rather than dialogue
for goal achievement. The cognitive deficits resulting from decades
of trauma reduce the capacity of government bureaucrats and
security forces, adding to the population’s grievances. And
because the trauma is on-going—civilian deaths are at record highs—and
Afghans have meager mental health infrastructure, these problems
should only get worse.

Implications for U.S. Policy

America has no good choices in Afghanistan. The least bad
option, though, is likely the withdrawal of U.S. forces. Sixteen
years of fighting later and the Afghan government remains egregiously corrupt and incompetent, while the
Taliban now control more territory than at any
time since 2001. Traumatized Afghans have a lot to do with it, and
American combat power has no answer for that.

, a visiting research fellow at the Cato Institute.
During his earlier military career, he commanded units in
Afghanistan and Iraq.

Jones Act Is a Swamp Creature That’s Strangling Puerto Rico

Colin Grabow

President Trump’s administration has wisely chosen to
waive outdated regulations that are getting in the way of Puerto
Rico’s recovery from Hurricane Maria. The regulations, known
as the Jones Act, make it more expensive for the U.S. territory to
affordablyimport goods from the mainland. And while it’s
commendable that Trump has temporarily waived this obstacle, it
shouldn’t have taken a major disaster to realize the harm it
was causing.

But like so many federal laws and regulations, there’s one
big reason the Jones Act remains — and while talking to reporters on Wednesday, Trump gave
the game away. Stating that he was considering the waiver, Trump
admitted he was hesitant to do so because “a lot of people
that work in the shipping industry … don’t want the Jones
Act lifted.”

So much for draining the swamp.

If Trump and the GOP are
serious about deregulation, spurring economic growth and taking on
special interests, they’ll repeal this archaic law.

This same president once vowed to take on the established
interests, and promised at his first address to
that he would undertake “A historic effort to
massively reduce job-crushing regulations.” Yet the fact that
Trump needed a historically destructive hurricane as the impetus
for temporarily waiving the Jones Act should come as no surprise.
Occupants of the White House come and go, and control of Congress
occasionally shifts from one party to the next, but for almost 100
years no one has mustered the necessary courage to take on the
interests behind this protectionist and economically backwards

A swamp creature is born

More formally known as the Merchant Marine Act of 1920, the
Jones Act mandates that goods travelling by water between U.S.
ports be carried on ships that are built in the U.S., registered in
the U.S., at least 75% American-owned, and at least 75%

The results have been universally abysmal. The Jones Act reduces
choice and competition among shipping providers, driving
transportation costs higher. A 2015 report by a group of economists,
including former World Bank Chief Economist Anne Krueger, found
that shipping costs to Puerto Rico are twice that of neighboring
islands — costs that are then passed along to consumers. And
the law certainly hasn’t achieved its stated goal to
“develop and encourage the maintenance” of a merchant
marine capable of supporting the U.S. in time of war. As economist
Thomas Grennes notes, from 2000 through 2016
the number of large Jones Act-eligible ships in the U.S. fleet
actually declined from 193 to 91. Fewer ships means fewer jobs, and
those which remain do so at the eye-popping figure of $250,000 per position, according a study
conducted by former President Clinton’s Council of Economic

It’s easy to see how harmful this could be for Puerto Rico.
Puerto Ricans needlessly pay higher prices for the many goods and
products they import from the rest of U.S., driving up their cost
of living for the sake of protecting unions, American shippers and
the U.S. shipbuilding industry. And although they’re getting some
relief for 10 days, once the Jones Act comes back into effect,
Puerto Ricans will be right back where they started.

In spite of this hardship, the law persists. In fact, the sad
reality is that recent efforts to outright repeal the Jones Act
haven’t even come close to succeeding. In January 2015, Sen. John
McCain, R-Ariz., presented an amendment to repeal parts of the law
but ultimately failed to gather the necessary support to even have
a vote. Last week McCain and Sen. Mike Lee, R-Utah, introduced a
bill to permanently exempt Puerto Rico from the
century-old shipping law. The success or failure of this bill will
reveal much about where Trump and the Republican-controlled
Congress stand on draining the swamp.

Maddeningly, the Jones Act even enjoys support from politicians
who purport to represent constituents harmed by its provisions. The
four members of Hawaii’s congressional delegation are a case in
point — they’re uniformly in favor of the Jones Act. While
the precise impact on Hawaii is difficult to calculate, a 1999
U.S. International Trade Commission report
found Jones Act requirements to be the equivalent of a 65% tariff
on shipping services, an impact that is surely felt on an island
which imports 90% of its food and much else of what it

Perhaps, however, the devastation in Puerto Rico can serve as
something of a turning point.

As outrage mounts over the plight of Americans on the island,
there are signs of a growing recognition of the human costs the
Jones Act imposes. If Republicans in Congress and Trump are serious
about deregulation, spurring economic growth, and taking on the
special interests, they will set their sights firmly on finally
repealing this archaic and counterproductive law. It’s time to
finally drown this swamp creature.

Colin Grabow
is a policy analyst at the Cato Institute’s Herbert A. Stiefel
Center for Trade Policy Studies.

Corbyn’s Easy Answer to UK High Rents Is No Answer at All

Ryan Bourne

President Ronald Reagan once said: “There are no easy
answers, but there are simple answers.” In his Labour Party
conference speech, Jeremy Corbyn instead proposed easy answers to
Britain’s rent affordability crisis that were simply

Corbyn’s commitment to reintroduce rent controls in the
private rental sector would either be highly damaging or else have
trivial consequences. Without detail, we do not know which. Either
way, he is promising false hope that a solution is just one
government price-control away.

Rent control is one of the most intensely researched areas in
economics, and a rare consensus has emerged that rent caps are
highly damaging. A whopping 95pc of economists in an IGM Chicago
Survey opposed the idea, for example, that rent control in New York
and San Francisco had improved the amount or quality of highly
affordable accommodation.

It’s widely acknowledged
that rent control can also have substantial negative effects on the
quality of accommodation.

Now, perhaps replicating these cities is not what Corbyn has in
mind. So let’s give him the benefit of the doubt and examine
two scenarios.

First, let’s suppose Corbyn was really serious about
willing rents lower, and granted powers to councils to hold private
rents below market rates. This could be an explicit rent cap, or
might be like the old UK “Fair Rent” regime, whereby
councils set rents on the physical characteristics of the property,
but could not account for relative scarcity or demand in the

Holding rents low in an area of already relative scarcity would
merely exacerbate that scarcity, because it deters the provision of
new rentable accommodation. Fix prices below market rates, and you
discourage new supply.

This is not just some theoretical insight. In the UK’s
rent control period, the share of private rented accommodation in
total all-tenure supply fell from nearly 80pc in 1918 to 10pc
around 1989, only rebounding somewhat following rent deregulation
that year. But Britain isn’t alone in this. Vienna,
Massachusetts, and Israel have all, in the past, seen similar
effects. As a striking example, between 1906 and 1946 in San
Francisco under rent control, the ratio of listings in the San
Francisco Chronicle between houses for sale and rentable
accommodation available increased from 3-to-10 to 730-to-10.

It’s widely acknowledged that rent control can also have
substantial negative effects on the quality of accommodation. It
produces an incentive for landlords to encourage tenants to leave,
souring tenant-landlord relations, so that accommodation can be
repurposed. But even for landlords who stick it out, low rent
discourages maintenance such that the quality of the accommodation
falls to reflect the lower rental price.

In New York’s old style rent control, for example,
economists found that there was almost a 9pc higher probability of
an older or smaller building being in unsound condition in
Manhattan if it was rent-controlled. Here in the UK, by 1982 18pc
of rentable accommodation was defined as unfit and needing repair.
Meanwhile, OECD work has found that countries with more restrictive
rent controls have higher proportions of tenants living in homes
with leaky roofs.

But wouldn’t poorer tenants benefit from the lower rents,
you ask? Well, potentially, but it really depends on how the
properties are allocated. The absence of proper price signals means
allocation by queuing or search intensity, wasting resources and
time. In Stockholm, the average wait time to get a contract is nine
years, but can be as high as 20 in some areas. Unsurprisingly,
contracts trade at double the rent-controlled price on black

For all these reasons, crude rent controls are widely considered
a disaster. Some have suggested instead that Labour might introduce
less-damaging “tenancy rent controls”. This would, in
effect, be a new form of contract, maybe a three-year tenancy,
whereby rent rises are capped at inflation within that fixed
period, but able to vary between tenancies.

Under this framework, rents would adjust to changing market
trends in the medium term, negating the stark consequences of
cruder controls. Even so, there would be some real damage on the
margin. Landlords would bear much more of the risk of vacancies and
changing market prices, likely deterring investment. And again the
incentive will be to only undertake substantial unforeseen
maintenance needs between tenancies, when they can reflect their
investment into new rental prices.

The key point about this form of rent regulation though is that
there’s no way it will solve the problem outlined by Corbyn:
high rents. Sure, it gives a degree of security to tenants against
“economic eviction” — unforeseen large jumps in
rent. But landlords will simply forecast likely market trends,
pricing in their expectations, and will front-load rents to reflect
these forecasts.

As such, Corbyn is presenting a solution that is bound not to
solve the underlying problem. If he opts for crude rent controls,
he will worsen availability and cause substantial economic damage.
If he opts for fancy new rent regulation, he will not reduce market
rents. The simple long-term answer is: more supply, more supply,
more supply. The easy answer Corbyn outlines, to blame landlords
and will the problem away, is no answer at all.

Ryan Bourne
holds the R Evan Scharf Chair for the Public Understanding of
Economics at the Cato Institute.

‘Direct Care’ Could Help Ease Medical Costs

Jeffrey A. Singer

As a general surgeon I see patients every day who’ve had
batteries of preventive and screening tests that, after all is said
and done, yield nothing more than increased spending and increased
anxiety. Many doctors are unconcerned with the cost/benefit aspects
of the treatments or tests they offer, and often abandon taking a
detailed medical history and performing an extensive physical exam
— instead they rely on costly imaging studies to do the heavy

I blame the third-party payer system.

The healthcare consumer pays only 10 percent of every healthcare
dollar directly out of pocket. The third party — either an
insurance company or Medicare — pays the rest. With Medicaid
the government is the third party and pays 100 percent of every

Many of the cost drivers in healthcare today are symptoms of
this third-party payer system. When somebody else is paying the
bill, it’s easy for doctors and patients both to forget about the
cost-effectiveness of medical diagnostics and treatments.

When somebody else is
paying the bill, it’s easy for doctors and patients both to forget
about the cost-effectiveness of medical diagnostics and

Over-diagnosis and over-treatment in healthcare are well
documented. They are part of the reason healthcare spending has
increased as a share of Gross Domestic Product from 5 percent in
1960 to over 17.8 percent in 2015. According to a 2010 report from
the Institute of Medicine, they may be responsible for over 15
percent of healthcare spending.

Many blame over-testing and over-treating on “defensive
medicine,” i.e., practicing in fear of getting sued. But the
evidence does not support that hypothesis. In fact, many studies
suggest that major tort reform has no impact on healthcare spending
and, if anything, might lead to a slight increase in spending.

Patients are also a part of this healthcare culture. For
example, a 2012 analysis of 14 large studies by the RAND Corp.
found annual physicals for healthy adults don’t lower the risk of
serious illness. Yet millions get them, and this is not helped by
the fact that the Affordable Care Act mandates insurance companies
pay for an annual wellness exam at no out-of-pocket expense to the
patient. The cost/benefit relationships of numerous other
preventive measures have also come into question.

People every day consider cost/benefit when they purchase
shelter, food, cars, computers, smartphones, etc. They ask detailed
questions and expect satisfactory answers. Not so when it comes to
healthcare decisions. The public uncritically accepts screening,
early detection and early treatment as always worthwhile.

The public also accepts that having insurance is a critical part
of staying healthy. Yet insurance is supposed to protect against
unforeseen, high-cost, catastrophic events. As a result of years of
tax and regulatory policy, health insurance has morphed into a form
of prepaid healthcare, covering predictable, foreseen, pre-existing
and routine “maintenance” events in addition to the catastrophic
and unforeseen. Hospitals, labs, pharmacies and providers negotiate
fees with a third-party payer, not the consumer. Consumers are left
out of the loop, along with consumer-driven market forces.

The third party has deeper pockets than any consumer. That’s why
providers reflexively seek approval from third-party payers for new
and innovative services before considering the approval of the
actual consumers of those services.

Those taking part in the third-party payment healthcare system
are not crooks. They are rational beings, responding to rules and
incentives that have been in place for generations. Healthcare
providers, hospital administrators and patients have been
conditioned — acculturated — to play the game according
to these rules.

There is a healthcare community that is not a part of this
culture. It exists in a setting with minimal or no third-party
involvement. In service areas such as LASIK eye surgery, cosmetic
surgery, dental implants and cosmetic dentistry, and many general
dentistry practices, providers compete for the patients’ business:
in price, quality, service and accountability. Patients shop and
ask detailed questions. Competition drives prices down and quality

“Direct care” is a growing sector in healthcare offering primary
and specialized care, and even surgical hospital care, directly to
consumers for direct payment, absent a third party. More and more
providers are migrating to direct care from the third-party model.
Many others avail themselves of its cousin, the Health Care Sharing
Ministries. A 2014 Physicians Foundation Survey found 7 percent of
physicians were already doing direct care or “concierge” medicine;
13 percent said they were planning to make the move; and 17 percent
of doctors under age 45 plan to do so.

“Medical tourism,” another form of direct care is on the rise.
Consumers travel offshore, often considerable distances, to
purchase high-quality, sophisticated medical and surgical
treatments at very affordable cash prices. Firms and websites help
consumers shop and connect with these medical centers.

America’s healthcare system suffers from dysfunction and
dysphoria and is in cultural decline. Its last best hope may be
this counterculture called “direct care.”

Jeffrey A.
practices general surgery in Phoenix, Ariz., and is a
senior fellow at the Cato Institute.

On Judicial Nominees, Trump Just Keeps on #Winning

Ilya Shapiro

President Trump hit another judicial home run with his 5th
Circuit nominees today. Don Willett and Jim Ho are tremendously
experienced and qualified lawyers and public servants whose
intellect and legal skills are matched only by their integrity and
commitment to the rule of law. I have known them both for a long
time and can attest that they will be tremendous assets to the
federal judiciary.

Justice Willett’s nomination in particular will make national
headlines because of his presence of social media. A decade from
now it probably (hopefully!) won’t be unusual to find federal
judges tweeting about life, the universe, and everything —
but in 2017, Willett is a trailblazer.

Whatever else is going on
in the world, this administration’s judicial appointments are on
the right track.

Not that he’s snarky or glib or anything that Twitter is known
for. Instead, he’s become the judicial Twitter laureate because of
the education he gives his fellow citizens on the Constitution and
the proper role of a judge (and bacon) all in his own inimitable
“judge next door” style. It’s to the enduring credit of the White
House counsel’s office and Justice Department that someone who’s
not plain-vanilla made it through the vetting process.

Not that Willett is all hat, no cattle. His work on the Texas
Supreme Court has become known for his clear writing style and
unwillingness to let the government, especially the Texas
government, slide if it’s exceeding its powers or intruding on
constitutional rights. It’s no wonder that he made the Supreme
Court shortlist for the seat that Justice Neil Gorsuch now
occupies, nor that he’s become a favorite of conservative (and
libertarian) elites and Texas lawyers alike.

Jim Ho has also made a reputation as someone committed to
originalism and textualism, having graduated with honors from the
University of Chicago Law School (my alma mater), clerked for
Justice Clarence Thomas, built on Ted Cruz’s success as Texas
solicitor general, and established his own nationally renowned
appellate practice at Gibson Dunn in Dallas. He’s truly a rising

An additional winner from this announcement is Cruz himself.
Both Willett and Ho are longtime friends of his and the fact that
the junior senator from the Lone Star state was able to prevail in
the Texas battle royale that delayed the filling of these two seats
speaks volumes about the continued influence he has regarding
constitutional issues and the future of the conservative legal

In short, I offer a double-barrel salute to President Trump and
his legal advisers on this one. Whatever else is going on in the
world, this administration’s judicial appointments are on the right

Ilya Shapiro
is a senior fellow in constitutional studies and editor-in-chief of
the Cato Supreme Court Review.

Feds, Wasting Time on Facebook

Alex Nowrasteh

In the annals of the Federal Register, the Department of
Homeland Security just published a scary new rule. It requires
immigrants to hand over “social media handles, aliases,
associated identifiable information and search results” as
part of the visa-vetting process.

Slated to go into effect Oct. 18, and applying to permanent
residents and naturalized citizens as well , this rule is intended
to weed out people whose social media activity reveals they are
national security threats.

Unfortunately, despite the Trump administration crowing about
the importance of “extreme vetting” of newcomers, the
new rule will just make immigration a more convoluted process,
while doing little to protect Americans from terrorism.

Much of the impetus for searching social media accounts, such as
Twitter and Facebook, comes from a myth about the Dec. 2, 2015,
terrorist attack in San Bernardino, Calif., in which Pakistani-born
Tashfeen Malik and her U.S.-born husband murdered 14 people.

Before coming to America, Malik was rumored to have publicly
posted on her social media accounts that she supported violent

If the government discovered those posts, supporters of the new
Homeland Security Department rule argue, many lives could have been

Only that’s not what happened. After the rumors started to
swirl, then-FBI Director James Comey noted that, “Those
communications are direct, private messages … we have found no
evidence of posting on social media by either of them …
reflecting their commitment to jihad or to martyrdom.”

And no other jihadi terrorists who targeted U.S. soil have
publicized their radical intent online prior to an attack , as far
as we know. Little wonder why not — it would be supremely

The “underwear bomber” (Umar Farouk Abdulmutallab)
did post jihad-supportive statements in Islamic chat rooms using a
pseudonym, but that is not a social media handle. Convicted
terrorist Mohamed El Hassan posted, under a pseudonym, at least one
YouTube comment supporting a radical preacher.

If wannabe terrorists post online, they use a pseudonym.
Accessing immigrants’ legitimate social media handle
won’t expose terrorists-in-waiting.

Introducing more ideological thought crimes into the immigration
process will just place more power in the hands of unaccountable
bureaucrats and won’t improve security.

Comey’s comments and the facts about terrorists posting on
social media were too late to stop 25 U.S. senators from writing a
letter to the Homeland Security Department in 2015 requesting the
agency look into screening social media accounts.

But a 2016 pilot program to do exactly that proved so
ineffective that Homeland Security determined that an immigration
agent would have to manually check each immigrant’s social
media account.

All of which is why it’s highly unlikely this new rule
will prove successful from a security standpoint. Indeed, the
social-media-vetting program proposed by the Trump administration
was tested on a group of refugees who were rejected for national
security reasons — and it found zero evidence of ties to
terrorist groups or any other threat to national security.

The fact is, normal immigrant vetting is already so thorough
that a social media check is unable to increase security. As for
refugees, they’re already subject to the most intense
visa-vetting of any immigrant or visitor category.

Besides, authorities already have access to this information.
Prosecutors and attorneys already introduce social media posts as
evidence in immigration courts.

Immigration attorney Greg Siskind told me that,
“We’ve heard anecdotally for years about how
immigration examiners will look at social media and scour the
internet when adjudicating a case, and I’ve told clients to
assume that their online history is being reviewed.”

Mining social media posts as evidence for a specific claim is
easier and more likely to succeed than fishing expeditions for
posts that show an intent to violate national security.

As a broad policy matter across the federal government, the
Trump administration has promised to remove two regulations for
each new one introduced. However, it has made an exception in the
immigration system, where the rules and regulations — each of
them costing time and money — keep piling up.

For example, the government increased the length of the green
card adjustment-of-status form to 18 pages, up from six, while
doubling the length of many other applications.

This new proposed rule, whose rationale is rooted in fake news,
will waste many man-hours and delay visa-processing to legitimate
immigrants for no apparent gain in security. The Trump
administration should scuttle it now.

is an immigration policy analyst at the Cato

An Outdated Protectionist Law Is Hurting Puerto Rico

Michael D. Tanner

If anyone wants more evidence of how protectionism hurts the
poor and most vulnerable among us, Puerto Rico now offers a prime

The island was devastated by Hurricane Maria. Tens of thousands
have been left homeless. Basic goods and services, such as food,
water, and fuel, are in short supply. Electricity is out for
virtually the entire island, and may not be restored in some places
for months. Nearly 85 percent of the island has no cell-phone
coverage. Much of the country’s already-shaky economic base,
including tourism and agriculture, has been all but wiped out.

Yet despite the unfolding humanitarian crisis, the Trump
administration has so far refused to waive the law’s

Yet vital aid to the island is being slowed by the Jones Act, a
100-year-old example of protectionism and corporate welfare. The
Jones Act requires that all cargo shipped to Puerto Rico is carried
on ships built entirely in the United States, owned by a U.S.
citizen, flying a U.S. flag, and staffed by a majority-American
crew. Relatively few ships meet those requirements. And at a time
when even a brief delay in getting assistance to suffering
islanders could cost lives, the Jones Act is an unneeded impediment
to that aid.

Yet despite the unfolding humanitarian crisis, the Trump
administration has so far refused to waive the law’s

Over the years, the Jones Act has been larded with all sorts of
national-security justifications, but its real purpose is to
protect jobs in the U.S. shipbuilding and merchant-marine
industries. No doubt those are good jobs, though the number of
people employed in shipbuilding has fallen by 40 percent since
1980. But like most protectionist measures, this law ends up doing
far more harm than good. And those most likely to be hurt are those
who can least afford it.

This is not just true of the Jones Act, but of protectionism
generally. For example, economists estimate that trade and the
availability of low-cost imported goods improves the purchasing
power of middle- and upper-income Americans by roughly 29 percent.
But trade increases the purchasing power of the poor by more than
62 percent. At the same time, the Peterson Institute for
International Economics estimates that past gains from U.S. trade
and liberalization of investment range from $9,270 to $16,842 per
household. Another study found that that “a 1 percent increase in
trade raises real income by 0.5 percent.” That might not seem like
a huge boost for the wealthy — the global elite, to use the
pejorative preferred by protectionists — but it makes a big
difference in the lives of the poor.

For now, the bigger debate over protectionism can wait.
Suspending the Jones Act for the duration of Puerto Rico’s recovery
should be a no-brainer. Better yet, let’s repeal this antiquated
example of special-interest protectionism. And let’s begin to
understand that there is a very real price to be paid for all
special-interest protections.

is a senior fellow at the Cato Institute and the author
of Going for Broke: Deficits, Debt, and the Entitlement