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Jeff Sessions’s Reefer Madness

Trevor Burrus

Attorney General Jeff Sessions has reefer madness. It was
revealed this week that Sessions personally
asked Congress for the authority to prosecute medical marijuana
providers in the 25 states and three additional jurisdictions
(D.C., Guam, and Puerto Rico) where some form of medical marijuana
is legal. Sessions wanted Congress to repeal the broadly supported
Rohrabacher-Farr Amendment, which prohibits the Justice Department
from using federal funds to go after medical marijuana providers
and users in those states where it has been made legal.

Oddly enough, this week is also the 80th anniversary of the
House floor vote on the first major piece of federal marijuana
legislation, the Marihuana [sic] Tax Act of 1937. That was when the
whole country officially caught reefer madness. In the following
decades, a series of misguided government policies made the problem
worse, and prejudice toward marijuana and myths about the drug
still abound.

Only in the last 20 years has the country begun to get over our
self-inflicted disease. Unfortunately, there are those in whom the
condition is lingering.

In a letter, Sessions asked Congress to remove the
restriction due to the “historic drug epidemic and potentially
long-term uptick in violent crime,” showing that the attorney
general has clearly imbibed our coarsest and most antiquated form
of anti-marijuana propaganda: its supposed connection to crime and
its status as a “gateway drug.” Such rhetoric goes back to the
years before the Marihuana Tax Act, a piece of legislation that
emerged out of a haze of smoky propaganda from
the Hearst newspaper company and the unrelenting zealotry of the
Federal Bureau of Narcotics.

The bill came to the House floor late in the afternoon on
Thursday, June 10, 1937. The vote was rushed, and at least one
congressman wondered if it was “a matter we should bring up
at this late hour of the afternoon. I do not know anything about
the bill.” Another congressman reassured him that “it has something
to do with something that is called marihuana. I believe it is a
narcotic of some kind.”

At one point a group of congressmen asked that the bill’s
proponents explain the provisions in further detail. In response, a
member of Ways and Means recounted the hyperbolic testimony of
Harry Anslinger, the Commissioner of the Federal
Bureau of Narcotics and a man who zealously hated drug users. In
committee, Anslinger had presented photographs of bloody murder
scenes in order to show “the fury of the murderer” who is high on
marijuana. He recounted the “case of a 20-year-old boy who killed his
brothers, a sister, and his parents while under the influence of
marijuana,” and he testified that in “some cases” a single
marijuana cigarette “might develop a homicidal mania.” In all, the
congressional record of floor debates over the law takes up fewer
than two pages.

Only in the last 20 years
has the country begun to get over our self-inflicted disease.
Unfortunately, there are those in whom the condition is
lingering.

That’s how federal marijuana prohibition came to America.

At the time of prohibition, scientists knew very little about
how cannabis operated on the human body and whether there were any
legitimate medical uses. Six months after the Act was passed, Dr.
Herbert Wollner, a chemist at the Treasury Department (the act, as
a tax, was enforced by treasury) wrote in a memo to Anslinger: “virtually nothing is known
concerning the nature of the narcotic principle, its physiological
behavior, and the ultimate effect upon the social group.” Wollner
later complained that “ninety percent of the stuff that has been
written on the chemical end of Cannabis is absolutely wrong, and,
of the other ten percent, at least two-thirds of it is of no
consequence.”

But the Marihuana Tax Act put the mark of Cain on the drug, and
scientific interest in studying cannabis, as well as the funding,
became rare. Anslinger was highly antagonistic to any attempt to
study the drug scientifically; he preferred the debate to be
controlled by fear and ignorance. The Public Health Service
sponsored no research in the ensuing decade. Ultimately, in the
words of one historian, “the law enforcement agency [the
Federal Bureau of Narcotics] became the public’s arbiter of
scientific arguments and debates, functioning as a filter through
which scientific research had to pass on its way to the
public.”

Over the next two decades, Anslinger’s Federal Bureau of
Narcotics would help foster our reefer madness world-and Jeff
Sessions’s reefer madness mentality-by essentially controlling the
national narrative on marijuana. Anslinger asked his local
supervisors to collect any newspaper stories or reports that could
link marijuana to crime, and he directed all agents to look for any
connection between insanity and marijuana use. Despite some
researchers poking holes in Anslinger’s favorite
theories-particularly that marijuana causes crime, insanity, and
addiction-Anslinger was steadfast in his beliefs.

Anslinger left the Federal Bureau of Narcotics in 1962, but the
situation hardly improved. In the 60s, one researcher in charge of
the National Institute of Mental Health’s (NIMH) marijuana research
complained that no “employees wanted to offend
any of the Bureau of Narcotics police,” and that they “had to worry
about antediluvian congressional types that had it in their power
to smite us mightily where it hurt-right in our appropriation.” In
the 70s, after the modern Controlled Substances Act was passed and
a commission was created to study marijuana in-depth, President
Nixon was as steadfast as Anslinger: “Even if the Commission does
recommend that it be legalized, I will not follow that
recommendation.” That commission, known as the Shafer Commission, recommended decriminalization and
dispelled many myths about marijuana, concluding that “from what is known now about
the effects of marijuana, its use at the present level does not
constitute a major threat to public health.” President Nixon, of
course, ignored the recommendations.

This is our reefer madness world, fostered by fear, ignorance,
rushed lawmaking, anti-drug zealots, and a consistent
discouragement of hard facts and good science. And it is the world
still inhabited by Jeff Sessions, who cannot even bring himself to
accept the growing consensus that marijuana has many
legitimate medical applications.

Sessions’s reefer madness was once our own. Thankfully, with
61 percent of Americans supporting legalized
recreational marijuana and 80 percent supporting medical marijuana, it is
increasingly just his.

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

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Here’s What the Fed Just Signaled about the Rest of 2017

Gerald P. O’Driscoll Jr.

The Federal Open Market Committee
delivered on its long-signaled quarter-point hike in the target
range for the federal funds rate
. Markets will now focus on the
committee’s next move. There are two questions to be answered.
First, will there be another rate hike this year? Second, how will
the anticipated shrinkage of the Fed’s balance sheet proceed? Thus
far, markets seem calm.

This was the fourth rate hike since December 2015. The FOMC has
signaled one more rate hike this year, but markets give it only
about a 50/50 probability. Certainly, inflation gives no reason for
the Fed to move aggressively on rates. Inflation remains below 2
percent.

The Federal Reserve has
persistently over-estimated the inflation threat and today’s FOMC
statement seems to recognize that. The yield curve has flattened
despite the anticipated rate hike at this meeting. In short,
financial markets are not signaling further Fed rate hikes. The Fed
is inclined to adjust its actions to the market’s expectations.
That suggests there will be no further rate hikes this year.

The labor market is the central bank’s other key concern. The
May jobs report once again sent mixed signals. Job creation was
weak at 138,000. Yet the unemployment rate declined to 4.3 percent,
the lowest in 16 years. These are mixed signals that can, however,
be reconciled. We are in a historically long, but subpar economic
recovery. Slow job growth accompanies slow economic growth.

The historically low unemployment rate is the seeming anomaly.
That figure is misleading on at least two counts. First, the
decline in unemployment is a consequence of the length of the
recovery rather than its strength. Second, the fall in the
unemployment rate has been affected by the decline in the
labor-force participation rate.

The decline in the overall labor-force participation rate
chiefly reflects a decline in the male labor-force participation
rate, and a flattening in the rate for women. Observers have
offered conflicting reasons for the worrisome decline in men
working.

Focusing on the prime-aged workforce, 25-54 years, eliminates
most of the demographic explanations. By this measure, nearly 7
million workers, mostly men, have dropped out of the work force in
the last 50 years. They are removed from both the workforce measure
and the measure of the unemployed. The measured unemployment rate
falls, but in a misleading way. Now the low unemployment rate is
not a sign of strength in the labor force, but of men no longer
seeking employment.

For the rest of 2017 we
are looking at likely no further rate hikes and shift in the focus
of monetary policy to the size of the Fed’s balance
sheet.

There are policy reasons for this (e.g., Social Security
Disability Insurance) and social forces, including a decline in the
work ethic among white, blue collar men. The latter has been
examined by Charles Murray in
Coming Apart: The State of White America, 1960-2010

and, more popularly, by J. D. Vance in Hillbilly Elegy.
The bottom line is that, given economic entitlements and underlying
social forces, we may be at the fullest employment possible.

Accordingly, there is a labor-market rationale for further rate
hikes. The unemployment rate has become a misleading signal,
however, and is neither a reliable target nor indicator of the
stance of monetary policy. Further, the reasons for slow-output
growth must be rethought. Slow growth in GDP reflects, at least in
part, supply constraints in labor markets. There is nothing the
central bank can do about that.

In my view, downsizing the Fed’s balance sheet is where the
important policy actions will now take place. While an unwinding
could potentially lead to instability in financial markets, the
action is long over-due. The Fed’s outsized balance sheet, with a
large amount of mortgage-backed securities, has put it in the
credit-allocation business. It needs to get out of that
business.

For the rest of 2017 we are looking at likely no further rate
hikes and shift in the focus of monetary policy to the size of the
Fed’s balance sheet. The FOMC is signaling that the unwinding will
proceed at a moderate pace. Monetary policy is once again entering
unchartered waters.

Gerald P. O’Driscoll, Jr. is a senior fellow at the Cato Institute. Formerly, he was vice president at Citigroup, and, before that, vice president at the Federal Reserve Bank of Dallas.

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Despite Fear-Mongering, U.S. Is Not Beset by Grave Threats

John Glaser

With Donald Trump in the White House, political divisiveness has
reached new heights. Yet virtually everyone in Washington still
agrees about at least one thing: The United States is beset by
grave threats.

Americans are constantly bombarded with exaggerated claims about
the threat from terrorism and immigration, a nuclear North Korea,
the Iranian menace, China, Russia, and all manner of perils to
world order. Yet the truth is that America faces no major national
security threats from abroad. In fact, a much more proximate threat
Americans face comes from Washington, when policies intended to
chase after inflated threats waste money, undermine civil
liberties, and subvert the rule of law.

When it comes to terrorism and immigration, for example, the
fact is that neither poses a significant threat to Americans.
Research shows that immigrants commit less crime on average than American citizens do, and
your chance of being killed by a Muslim
terrorist is about 1 in 6 million. That’s way less than your
chances of being struck by lightning.

Politicians love to
exaggerate threats because it makes them look tough and
strong.

The same goes for supposed threats overseas. In Senate testimony
last month, Director of National Intelligence Dan Coats warned that North Korea’s nuclear program
is a “very significant, potentially existential threat to the
U.S.” Not true. Nobody welcomes nuclear weapons in
the hands of volatile dictators like Kim Jong Un, but there is no
indication that Pyongyang wants the bomb for any reason other than
to deter a U.S. or South Korean attack. Using nukes would mean
immediate retaliation and the destruction of the regime — not
a scenario North Korea is eager to bring about.

The same goes for the supposed threat from Iran. Even putting
aside the fact that Iran has rolled back its nuclear program
in compliance with international obligations
and has just reelected a moderate reformist, Iran is a
third-rate military power plagued by internal challenges and
surrounded by more powerful regional enemies, like Saudi Arabia and
Israel. In terms of military capability, they are a molehill to the American mountain
and do not represent a serious threat to U.S. security.

The hysteria over Russia and China is similarly overstated.
Moscow is a problem for some of the weaker states that border it,
but the United States’ GDP is more than 13 times
that of Russia’s, and the bulk of European economic and
military power towers over Russia’s. It is not a great power
on the order of the Soviet Union and certainly cannot threaten the
security of the United States beyond spreading fake news on the
internet.

And China has exhibited an impressively benign foreign policy,
given its growing power. The extent of the immediate peril seems to
be that Beijing claims sovereignty over a bunch of uninhabited
rocks in the South China Sea. It’s hard to see how that represents
a direct threat to the United States.

In spite of the little there truly is to fear from any of the
above, politicians love to exaggerate threats because it makes them
look tough and strong. The media love to emphasize looming dangers
because it boosts viewership. And the bureaucracies in Washington
tend to amplify meager security concerns because it sustains high
budgets and political relevance, and protects them from blame in
the event of a terrorist attack or instability overseas.

The reality, however, is that the United States is remarkably
insulated from foreign threats. We are still an economic
powerhouse, we are geographically isolated from enemies, we have a
superior nuclear deterrent and the most powerful military in the
world.

Indeed, the biggest threat comes not from ISIS, mad Iranian
mullahs, or wily autocrats. No, the real threat Americans face is
from their own government. When Washington chooses to become
entangled in unnecessary foreign wars, it imposes serious human and
financial costs. The wars in Iraq and Afghanistan have killed
hundreds of thousands, including almost 7,000 U.S. soldiers, and
along with other post-9/11 expenses, has cost more than $5 trillion. What we’ve gained
in terms of increased safety is less clear.

Likewise, when the National Security Agency infringes on our Fourth Amendment rights to
privacy in the name of protecting us, it threatens our liberties.
When the federal government takes hundreds of billions of dollars
every year from the productive sectors of the private economy to
pay for a defense budget that is more than double the combined budgets of both
Russia and China
, the next biggest military spenders, it makes
us all poorer. And when a capricious president threatens judges,
fires disloyal law enforcement officials, and denigrates American
political norms, it undermines the institutions that are designed
to prevent tyrannical abuses of power.

As Abraham Lincoln once said, “All the armies of Europe,
Asia, and Africa combined” cannot threaten America’s
survival. “If destruction be our lot we must ourselves be its
author and finisher. As a nation of freemen we must live through
all time or die by suicide.”

John Glaser is
associate director of foreign policy studies at the Cato Institute.

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A Softer Brexit May Be May’s Best Hope — for Now

Ryan Bourne

It is unclear whether the Prime Minister’s position is
tenable in anything other than the short-term. But the disastrous
election result last week has thrown the previous clarity on the
government’s approach to Brexit into disarray.

Everyone now has a view on “what the result means”
for our EU exit negotiations, and no two people can be heard to
agree. The question on everyone’s lips appears to be this:
does the result suggest the public wants a “softer
Brexit”, which would see the UK remain in the Single
Market?

People always try to interpret election results to fit their own
preconceived opinions. So it’s worth pointing out a key fact:
neither of the two major parties (which combined received 82.4 per
cent of the vote) stood on a platform of remaining within the
Single Market and Customs Union, the epitome of a soft Brexit.

Opponents of May’s agenda
are now emboldened, and it is practically very difficult for her to
command a consensus behind her original plan.

The Conservatives explicitly repudiated the idea, and wanted a
deep and comprehensive free trade agreement with some customs
arrangements.

The Labour party talked up that their negotiating strategy would
have “a strong emphasis on retaining the benefits of the
Single Market and the Customs Union — which are essential for
maintaining industries, jobs and businesses in Britain”, but
also outlined intentions to control migration.

On Sunday, shadow chancellor John McDonnell confirmed that
Labour would support leaving the Single Market too.

Yet when one sees the strength of Labour in Remain-voting areas
such as London and with young people, at least a portion of their
stronger-than-expected support must surely have arisen as a
Brexit-backlash. Other opponents of May’s agenda are now
emboldened, and it is practically very difficult for her to command
a consensus behind her original plan.

For one, there is less chance of a successful outcome. With her
and her party’s position so much weaker within parliament,
the EU negotiators know that they can apply more pressure.

The other half of the pincer movement will come from the diverse
makeup of parliament itself. May’s own party was pretty
united behind her strategy, with a small vocal minority favouring
the Single Market option. But after the election she now has, by
all accounts, a slate of pro-Single Market Scottish Conservative
MPs and the DUP to contend with too — the latter of which
will demand some form of EU deal given the Ireland question.

If that was not difficult enough, Jeremy Corbyn has positioned
his more-united Labour party perfectly to capture any future
discontent arising from the negotiations.

Remain within the Single Market? Corbyn will outline how May
betrayed Brexiteers. Leave it? Corbyn will claim May did not get a
good enough deal on the economics.

It is a real mess for May. I’ve outlined on these pages
before that I think leaving the EU but remaining within the Single
Market is an unacceptable long-term solution. It means subscribing
to EU regulations, but having no say in shaping them. It makes
running an effective commercial and trade policy extremely
difficult, given the degree of EU control over service sector
regulation making it difficult to deregulate with third parties.
Membership of the Customs Union would also mean a continued need to
charge the EU’s tariffs.

Yet May now appears to not have the political capital to carry
forward her original agenda. Worse, if no deal is reached at all,
her failure to outline and obtain a mandate for rigorous
supply-side changes, stripping away EU tariffs and regulations,
means that Britain would be left with the downsides of Brexit
without realising the gains.

The real looming risk now is a future Corbyn-led government with
much more freedom to change regulation, employment law and trade
policy in an anti-market direction.

For this reason, the less risky economic path for the short-term
would be to try to come to a deal to maintain Single Market
membership explicitly for a slightly extended period, with a longer
term timetable for a free trade deal. Whether this can now be
agreed given the Article 50 process is another question for the
lawyers and politicians.

Ryan Bourne
occupies the R Evan Scharf Chair in the Public Understanding of
Economics at the Cato Institute in Washington DC.

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Pittsburgh or Paris?

Walter Olson

“I was elected to represent the citizens of Pittsburgh,
not Paris,” said President Donald Trump earlier this month,
announcing his decision to withdraw from the climate treaty.
Critics immediately shot back that the city of Pittsburgh voted for
his Democratic opponent, not him, by 75 percent to 21 percent. So
there. Gotcha!

Unlike the critics, I don’t find this a particularly
clever comeback. One reason is that — as analyst Michael
Barone, ever sharp about voting patterns, has pointed out —
Trump did carry the set of counties that makes up the greater
Pittsburgh metro area, running stronger there (50 percent to
Hillary Clinton’s 46) than had most previous Republicans.
People refer to cities while meaning their metro areas all the time
— if you have an aunt in Revere or Middleborough,
Massachusetts, there’s nothing wrong with calling her your
aunt in Boston.

More fundamentally, it seems to me it is Trump’s
speechwriters rather than his critics who are showing the sounder
grasp of what “elected to represent” means. It is not
supposed to mean “elected by one faction of the country to
advance its interests as distinct from the interests of the other
faction.”

If Trump’s opponents are
smart, they will pass up the chance to fight a pointless
“Pittsburgh or Paris?” battle and engage with the question of
whether his policies will help or hurt.

In fact, we specifically shouldn’t want presidents to feel
that they have no responsibility to represent the interests and
rights of voters or regions that went strongly against them.

Trump would rightly be criticized if he gave a speech and said,
“I was elected to represent the citizens of Montana, not
Massachusetts.” He may regret that Massachusetts residents
voted against him, but as president he is responsible for sticking
up for them against the outside world.

Election winners in victory speeches often say they will be a
president (governor, mayor) for all the people, not just the ones
who voted for them. It’s a commonplace bit of civic rhetoric
but no less useful for that.

That’s one reason the slogan briefly popular among some
Trump opponents after the election, “Not My President,”
was open to question. It’s one thing to refuse to rally
around any given president. But you don’t want to do so in
words that might seem to release him from having to recognize that
you, too, are his constituent.

Of course the “Pittsburgh, not Paris” phrase can be
read at a number of rhetorical levels. Because the treaty is in
part about energy burning and heavy industry, Trump probably sought
to evoke the steel and coal industries for which Pittsburgh were so
well known. Critics point out that’s out of date — coal
has declined and there’s not much steel made around
Pittsburgh. The city has gotten back on its feet through resources
like its hospitals and its universities.

The Marcellus Shale fracking boom in Western Pennsylvania
— which is a more ambiguous thing under the Paris treaty,
since natural gas burns with much lower carbon emissions —
has helped a lot too.

Even more broadly, Trump was proclaiming that he consults
Americans’ interests rather than those of other countries
when he acts. Philosophers can debate whether it’s fair to
discount sharply, or ignore entirely, the well-being of the rest of
the world. Politicians can’t afford to, because most voters
from both parties want policy that puts American interests
first.

If Trump’s opponents are smart, they will pass up the
chance to fight a pointless “Pittsburgh or Paris?”
battle and engage with the question of whether his policies will
help or hurt.

Walter Olson
is a senior fellow at the Cato Institute’s Center for
Constitutional Studies.

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One Belt, One Road: Why Trump Should Get behind China’s Economic Growth Plan

Doug Bandow

Like Hong Kong, Macau enjoys special status within China. The
Special Administrative Region is effectively governed by Beijing,
but retains liberal freedoms reflecting its Portuguese heritage.
Much smaller than neighboring Hong Kong, Macau relies on gaming
rather than finance as its economic foundation.

The Special Administrative Region took a major economic hit in
2015 in the midst of the Xi government’s crackdown on
corruption and ostentatious living. The flow of Chinese
“whales” to Macau’s casinos slowed and the
economy retrenched. Macau has since recovered, but its leaders hope
to diversify for the future. To promote that end the territory
hosted the international conference on the Belt and Road Initiative
(BRI) and Macau’s development.

The initiative, also known as One Belt, One Road, was proposed
by China’s President Xi Jinping four years ago. A priority for
Beijing, it necessarily is a priority for anyone under Beijing’s
sway. And while Western states have been understandably skeptical
of the program, Xi’s plans have been boosted by the Trump
administration’s retreat from the international marketplace.

The U.S. government’s withdrawal from the Trans-Pacific
Partnership, which it helped birth, and its talk about trashing the
free trade agreement with South Korea, have encouraged America’s
economic partners to look elsewhere to expand commerce. Beijing is
moving to fill the void, advancing other free trade agreements
along with BRI. Asian analysts and officials remain amazed at the
Trump administration’s pursuit of economic isolation. No one else
intends to follow the United States toward some variant of
protectionist autarchy.

In fact, participants at the Macau conference wanted the United
States to be involved, which is one of the reasons for why I was
invited to attend the conference. In May, President Xi spoke of
creating “a big family of harmonious coexistence.”
Whatever his ultimate ambitions, local officials, with an eye to
expanding economic opportunities, believe the more the merrier.

BRI harkens back to the fabled “Silk Road” of
ancient times. Imperial China once was a dominant presence in Asia,
before choosing isolation. The weakened state lost territory to
Western “concessions” and Japanese conquest. Last
century’s communist revolution created a new, even more
malign form of isolation, until Deng Xiaoping took control and
opened the People’s Republic of China to the world.

China should seize the
opportunity to share global economic leadership.

Since then the People’s Republic of China (PRC) has
revived the best of its ancient commercial heritage. BRI offers an
extension of Beijing’s already expansive commercial network,
with the potential of placing China even more firmly at the center
of the global economy. Weirdly, “Belt” refers to land
transport while “Road” represents sea lanes.
Nevertheless, the basic idea is to enhance old and create new
infrastructure to promote commerce among Asia, the Middle East,
Africa and Europe.

Nearly seventy countries have signed agreements with the PRC to
participate. At its most expansive, the program envisions $4
trillion in spending and could touch two-thirds of the
world’s people responsible for a third of the world’s
GDP. However, so far Western countries and companies have been
hesitant to join China’s BRI parade.

The initiative has multiple objectives. It is a geopolitical
attempt to extend Beijing’s influence. It could enhance
China’s international economic stature. BRI projects also
could strengthen the PRC’s energy supply chain. The program
might boost an economy that has been losing altitude. It offers
projects for underperforming, even underwater state enterprises and
employment for workers who have few obvious alternatives.
Similarly, the initiative could help soak up some of the
PRC’s infamous industrial surplus, particularly in steel and
cement. BRI could increase trade opportunities as China faces
protectionist pressures from America and Europe. Some Chinese even
claim a hint of enlightened self-interest, comparing BRI to the
Marshall Plan, only at thirty times the size.

To the extent that such a program succeeds in expanding global
commerce, it will be good for China and the latter’s trading
partners, as well as other nations which participate in BRI
projects. The initiative also offers opportunities for Macau, which
is why the latter hosted the forum. Having historically relied on
gambling and tourism and with its trade overwhelmingly linked to
China and Hong Kong, Macau is looking for additional economic
options. The Special Administrative Region also has some unique
advantages: a special relationship with the half dozen
Portuguese-speaking nations, an entree into Europe from its
Portugal connection, a specialized if small financial industry, and
close ties with China and Hong Kong.

Although BRI’s ambitions are grand, so far its successes
have been modest. And holding back from participating are major
economic and geopolitical players who could help make the program a
global reality. For instance, European countries have responded
with varying levels of enthusiasm to Beijing’s plans; most
did not send heads of state or government to last month’s
Beijing forum.

Russia also has exercised caution. Although hostility toward
Washington has helped draw Russia and China together, the latter
two compete for political influence and business deals in Central
Asia. Moreover, Moscow, under Western sanctions, may lack the
capital necessary for full participation in BRI.

India has been ostentatiously hostile. New Delhi was angry over
China’s planned $55 billion investment program in Pakistan,
which would include disputed territory in Kashmir. The Hindi
newspaper The Pioneer, tied to the ruling BJP, warned that
the program’s goal “is to establish Chinese mastery
over oceans and connecting routes across Asia and between Asia and
Europe.”

The United States has given off mixed signals. Last year the
Obama administration offered a tepid endorsement. Former Deputy
Secretary of State Tony Blinken said the initiative was
“consistent” with U.S. goals and could be
“complementary” with U.S. efforts. However, the Trump
administration’s Dan Coats, Director of National
Intelligence, warned of the Chinese desire to “expand their
strategic influence and economic role across Asia.” The
administration sent a lower-ranking delegation to last
month’s Beijing forum.

Washington’s reluctance in part reflects concern that the
PRC is using its economic strength for political purposes. The
Obama administration similarly refused to join the Asian
Infrastructure Investment Bank. To this issue now must be added
President Trump’s protectionist tendencies, even though BRI
theoretically offers commercial opportunities for America firms.
However, realization of those possibilities depends greatly on the
rules and terms governing projects at a time when United States
firms feel increasingly unwelcome in China.

If Xi’s program is going to attract greater participation
from these important international players, BRI must focus on
economics, not politics, and promote projects which make economic
sense for lenders/builders as well as borrowers/recipients. BRI
also needs to take into account the often complex and fragile
politics within participating states.

There are many potential pitfalls which need to be avoided. One
is that the program may have too many objectives: China and fellow
participants need to set priorities. Such a program, with high
geopolitical goals, risks encouraging projects of little economic
value. The pressure to find projects may grow particularly acute in
the least developed BRI nations, many of which remain in poverty
because of their own counterproductive policies. Indeed, nearly
half of countries eligible to participate have been judged
“high risk” by Oxford Economics, while half of those
which have accepted projects have credit ratings below investment
grade. To the extent that projects are treated more as assistance
than commerce, BRI risks repeating the unhappy experience of
manifold failed aid programs over the years.

Many of the governments involved are incompetent, unpopular and
corrupt, undermining any program. Moreover, economic projects often
have political overtones. China has found itself subject to
protests and even treated as an election issue in such nations as
Myanmar, Sri Lanka and Zambia. As noted earlier, Beijing’s
Pakistan investment has drawn it into the Kashmir imbroglio. Russia
may not react well if through BRI the PRC further attracts
countries once part of the Soviet Union.

The program’s development might suffer from China’s
own economic problems, such as banks with dangerously high-debt
burdens and the temptation for companies and provinces to relabel
most any economic development as BRI-related in order to win
subsidies and other official support. Beijing’s increasing
geopolitical aggressiveness may deter some states from
participating out of fear of exploitation. Environmental issues are
certain to arise, as well as risks of increased terrorism as
potential targets, both people and projects, spread to more at risk
countries. Finally, implementation issues are monumental: to manage
so many projects in so many nations poses unprecedented
challenges.

What of the future? There’s reason for skepticism, but
problems can be overcome. However, doing so will require restraint
and responsibility from Beijing’s nationalistic and
aggressive authorities. One step would be serious economic reform
at home, especially of state enterprises and banks, as well as
ending what appears to be a systematic campaign to harass and
disadvantage Western concerns. China also should join developed
nations by paying off debts to the World Bank and IMF, which are
artifacts of an earlier era.

The PRC should use BRI to empower poor nations. Beijing could
open its capital markets, ease import barriers and enable more
foreigners to work and do business in China. Also, Beijing should
directly address the concerns of its greatest critics, emphasizing
BRI’s economic purpose, focusing on private investment and
participation rather than government enterprises, and structure
deals to maximize international participation. The PRC could offer
formal discussions over issues of concern, such as technical
standards for projects.

Finally, China should seize the opportunity to share global
economic leadership. Beijing should point out to the Trump
administration that BRI offers the potential for the sort of
“deals” that President Trump appears to value and look
for ways to use the program as a means to expand trade with other
nations in the wake of the Trump administration’s economic
retreat.

In pushing BRI, President Xi spoke of the “great
rejuvenation of the Chinese nation.” That already has
occurred. China accounts for half of Asia’s economic
activity. The PRC is the globe’s largest merchandise trader.
In recent years it has been the largest contributor to world
economic growth. Total Chinese foreign direct investment is
estimated at a trillion dollars.

But challenges remain to Beijing’s program, most seriously
the suspicion that BRI is a political maneuver intended for the
PRC’s global advantage rather than the economic benefit of
others. China should address its critics.

Last month President Xi called on conference attendees to
“build an open platform of cooperation and uphold and grow an
open economy.” Properly structured, BRI could advance that
end. Then Beijing would be well positioned to challenge the United
States and Europe, as well as India and Russia, to join
China’s efforts. If they took up such a challenge, much could
be accomplished for the benefit of all.

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

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The Solar Power Market Is under Threat??from One of Its Own

Ike Brannon

In April, the American solar manufacturer Suniva filed a
petition under Section 201 of the Trade Act of 1974, asking the
U.S. International Trade Commission for new tariffs on solar cells
and the establishment of a minimum price for solar modules imported
into the United States. Last month, the commission announced it was
proceeding with an investigation into the issue. But if the Trump
administration grants these tariffs and minimum prices, it will
have created an irony: an extraordinary intervention into the
marketplace that could devastate, not protect, a thriving domestic
industry.

The market for solar power in the United States is growing
smartly these days: rapid advances in the efficacy of solar panels
have led to a market where solar power can potentially be
cost-effective for tens of millions of homeowners. As a result,
there is now a robust industry for installing solar panels on
houses, apartment buildings, and businesses, which employs hundreds
of thousands of Americans. Today, in fact, over half of the
quarter-million workers employed in the solar industry in some way
install solar panels. That’s
more people
than are employed in the coal industry these
days.

A bankrupt manufacturer
is asking for tariffs that would harm the whole
industry.

However, there is a much smaller fraction of people work at
producing solar panels—just 38,000 people, according to the
Solar Foundation, a trade group for the industry. Higher tariffs on
solar panels will slow down and possibly reverse the healthy job
creation in this sub-sector of the economy, without any
commensurate gains elsewhere.

It seems doubtful that more solar panel construction will
commence in the United States, even with a massive tariff and
minimum prices. One such production facility, Solar City’s new
giga-factory in upstate New York, does have the potential to be
price-competitive with foreign producers. But that represents an
enormous investment that few, if any other domestic solar producers
can ever hope to replicate. The number of jobs there is still
dwarfed by the installation sector’s employment, anyway.

The higher price of solar panels that would result from a tariff
would not only dampen the demand for producing them. It would also
lower the demand for installing them, which is an important fact
given Suniva’s request for a rarely-used emergency trade
protection. The company filed for bankruptcy last month, and blames
its financial travails on “unfair” competition from Chinese and
other producers.

There is just a bit of extra irony here. The company was founded
in the United States by two Americans, and over the last few years
it has received various subsidies for its research from the U.S.
government. But in 2015, a Chinese solar energy conglomerate called
Shunfeng took a majority stake in the company. Shunfeng has said it
does not want the United States to impose new tariffs—since
it would hurt the company’s other businesses—and there is
speculation that Suniva is proceeding with its attempt ?to? obtain
relief from the? International Trade Commission because its
?creditors in ?bankruptcy are pushing? it to do so.

It would be a shame if such an “accidental” complaint were to be
successful: If the International Trade Commission grants the relief
requested, it would double the price of solar panels, which would
debilitate the rest of the solar industry. Many projects, including
many of those currently under contract, may become unviable as a
result.

President Trump’s pledge to create more jobs for blue-collar
workers is admirable, and politicians on both sides of the aisle
seem to share this sentiment. But limiting the imports of solar
panels via higher tariffs would do little to boost domestic
production, and any jobs created in that industry would be a purely
pyrrhic gain, swamped by the jobs lost in the solar panel
installation industry. Most of these jobs happen to be, it should
be noted, well-paying blue-collar jobs.

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

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Trump Is Right Not to Spend for the Sake of Spending

Ryan Bourne

Donald Trump’s adviser Steve Bannon once claimed US
conservatives were going to “go crazy” about the new
administration’s infrastructure plans. Trump had spoken endlessly about
investing $1?trillion
(£773bn) in American highways, roads,
bridges, tunnels, airports, and more, and how this was going to
create jobs and improve growth.

This won praise even from his Democrat opponents, but coming so
soon after President Obama’s 2009 “stimulus”
programme, was the stuff of fiscal conservative nightmares.

Fast forward to today and it’s the Democrats upset with
Trump again. The one issue which offered the possibility of
cross-party co-operation has again broken along partisan lines.

A thought-through
supply-side agenda which cut red tape and removed barriers to
privatisation could make infrastructure development both more
responsive to demands and cheaper for US taxpayers.

That’s because in his budget a fortnight ago, Trump relegated infrastructure to
his second tier of priorities
, pledging a much smaller $200bn
(£155bn). Instead of federal spending, Trump’s team wants to
focus on reducing regulations, streamlining permitting processes
and encouraging user fees, such as tolling, to boost private
investment to get to the $1?trillion total. To Democrats, who want
more spending and are concerned by more private sector involvement
in infrastructure, this is seen as a missed opportunity to boost
growth significantly.

But is it? The Democrat position has become conventional wisdom
among commentators. More government infrastructure spending is seen
as a “win-win” that can boost GDP in the short term,
creating high-paid jobs, and enhance productivity in the longer
term, through better connectivity and mobility. Just last week the
OECD called for more public investment in the UK.

Yet there are good reasons to think both claims are severely
overblown, particularly for the US.

In fact, now is probably the worst possible time for a fiscal
stimulus there. The unemployment rate has fallen to 4.3pc, below
the level that many organisations believe is sustainable. There are
some reports of labour shortages. In such an environment, more
government borrowing for major projects will simply shift workers
from private sector activity into government-driven activity. This
is particularly true given the recorded unemployment rate in
construction is now at its lowest level since the height of the
boom in 2007.

More government borrowing in a period when interest rates are
rising and with full employment will also increase inflation,
leading to higher interest rates more quickly, in turn discouraging
capital investments in the private sector. Increasing federal
spending temporarily will do little to boost short-run GDP but will
raise US public debt further.

No serious economist, of course, would argue that having good
infrastructure in the long term would not enhance an
economy’s growth potential. With productivity growth
projections in the US so low compared to historic rates, one can
see the appeal of thinking careful, targeted, long-term
infrastructure investment could really help boost growth. But the
real question is whether a centralised national infrastructure
programme is the best means of achieving good infrastructure and
higher productivity.

Japan threw $6.3?trillion at infrastructure between 1991 and
2008 and, while they have an excellent rail system and other
marvels, it did little to boost long-run growth. A recent academic
study of major Chinese infrastructure investment projects
undertaken by the University of Oxford found that over half had
benefit-to-cost ratios below 1 — net losses in economic
value.

When resources are allocated through the political process, many
considerations other than growth come into play. Politicians do not
choose the unsexy but crucial projects such as road maintenance,
but prefer megaprojects. In the UK, the 2010 spending review
allocated funds to HS2 even though the benefit-cost
ratio is around 1
, deferring or cancelling road schemes with
ratios of 6.8 and 3.2 respectively.

In the US, research has found that allocating federal funding
for highways on the basis of benefit-cost ratios could deliver the
same outcomes for the system at 30pc less cost.

In other words, though theoretically governments can enhance
growth by investing in good projects with higher returns than the
private sector, in practice they do not. The book Megaprojects and
Risk by Bent Flyvberg and others at Oxford University has shown
that governments’ conflicting role of both promoting and
being responsible for projects often leads to a significant bias
toward overoptimism. In a study of 258 projects across 20
countries, they found nine out of 10 ended with cost overruns.

Given all this, Trump should ignore Democrat whining. He is
surely right that re-examining the incentives, frameworks and
institutions surrounding infrastructure provision are more
important than merely chucking more money at it. The US certainly
has significant infrastructure needs given areas of high
congestion, but one could easily see a huge amount of taxpayer
money being wasted on bad investment.

A thought-through supply-side agenda which cut red tape and
removed barriers to privatisation could make infrastructure
development both more responsive to demands and cheaper for US
taxpayers. The devil will be in the details, but Trump is right to
reject the principle of a mammoth infrastructure spending
spree.

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

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President Trump’s Lower-Court Nominees Are as Good as His SCOTUS Pick

Ilya Shapiro

Whatever’s happening with James Comey’s testimony, Donald
Trump’s Twitter account, or congressional inaction on Obamacare
repeal, tax reform, or much of anything else, from where I stand
all that is fake news designed to distract your eyes from the
prize: we have more judicial nominees!

This week, in an echo of how the 21 contenders for the Supreme
Court vacancy were rolled out during the presidential campaign, 11
would-be black-robers join last month’s stellar list of 10 lower-court
nominees. They join the one confirmed nominee, Sixth Circuit Judge
Amul Thapar, who was elevated from a Kentucky district court after
having been on that list of Supreme Court potentials.

ase Western law professor Jonathan Adler, who appeared with me
on a panel at Cato’s
40th anniversary celebration
right before the May 8
announcement, says they’re “‘incredibly strong
nominees’ who were within the judicial mainstream and should
‘have an intellectual influence on their
courts.’” As they say in Congress, I wish to associate
myself with that analysis—and to extend those remarks to
apply to all the nominees we’ve seen thus far.

This week, in an echo of
the 21 contenders for the Supreme Court rolled out during the
campaign, 11 would-be black-robers join last month’s stellar list
of 10 lower-court nominees.

Let’s Take a Look

In that first batch are two state justices who were on the
potential Supreme Court list, Michigan’s Joan Larsen
(nominated to the Sixth Circuit) and Minnesota’s David Stras
(nominated to the Eighth Circuit). These are engaged and scholarly
jurists—both former law professors who still teach on the
side—who will make terrific circuit judges.

Eleventh Circuit nominee Kevin Newsom, a former Alabama
solicitor general who hosted me when I spoke to the Birmingham
Federalist Society chapter earlier this year, is a serious lawyer
and public servant who will serve the nation well even if I
disagree some with his interpretation of the
Slaughterhouse cases.

Pacific Legal Foundation’s Damien Schiff, with whom
I’ve worked on many cases, is an inspired pick for the Court
of Federal Claims, an Article I court that mainly handles
government-contract disputes and property-rights claims against the
government. Throughout his career, Damien has shown a commitment to
protecting individual rights against government overreach.

This week’s second batch brought us three more circuit court
nominees, including Justice Allison Eid of the Colorado Supreme
Court to fill Neil Gorsuch’s vacant Tenth Circuit seat and
professor Stephanos Bibas of the University of Pennsylvania Law
School for the Third Circuit. I know Eid by reputation. A former
clerk for Supreme Court Justice Clarence Thomas, she’s a thoughtful
and intellectual jurist much in the mold of her former boss. Bibas
is one of the top criminal-law scholars in the country. I’ve worked
with him professionally and had drinks personally; he’ll be
outstanding but leaves a gaping hole as faculty adviser for Penn’s
Federalist Society chapter.

Then there’s Stephen Schwartz, an old friend who was a few years
behind me at the University of Chicago Law School and has also been
nominated to the U.S. Court of Federal Claims. Stephen has the
perfect blend of nerdiness and skepticism of federal power that the
job demands.

I’ll Never Tire of This Kind of Winning

If the other eight announced June 7 are of the same caliber as
these three (and the previous 10)—and we have no reason to
think otherwise given that the administration’s nominations staff
is the same—then this is the sort of #winning of
which I won’t ever tire.

The only curiosity is the continued absence of Justice Don
Willett of the Texas Supreme Court—and indeed no nominees to
the Fifth Circuit at all. As Hugh Hewitt tweeted, of the 11 original SCOTUS short-listers, five
were state judges. Three have now been nominated to the federal
appellate courts. The two remaining are Tom Lee of Utah (which has
no current vacancies) and Willett (and Texas has two
vacancies). Moreover, Willett was apparently one of the five or six
finalists for the seat that Gorsuch filled, and is close to Texas
Sen. Ted Cruz. So you’d think he’d be a shoo-in.

Now, it’s certainly possible there’ll be some grand
bargain whereby two other worthies get the Fifth Circuit slots but
Willett goes to the high court whenever Justice Anthony Kennedy
decides to retire. But that’s pie-in-the-sky because so many
other stakeholders are involved at that point. Of course, if this
deal—a fabulous deal, believe me!—is ratified by the
president himself, that would be bigly indeed.

In the meantime, the White House counsel’s office should
just keep these black-robe orders coming. Their work, and that of
the Federalist Society’s Leonard Leo, has allowed President
Trump—regardless of what else he does with his time—to
continue fulfilling what was probably his most important campaign
promise: to appoint “the best” judges.

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

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Embracing the Hard Realities of Health-Care Reform

Michael D. Tanner

It is an old joke among health-policy wonks that what the
American people really want from health-care reform is unlimited
care, from the doctor of their choice, with no wait, free of
charge. For Republicans, trying to square this circle has led to
panic, paralysis, and half-baked policy proposals such as the
Obamacare-replacement bill that passed the House last month. For
Democrats, it has led from simple disasters such as Obamacare
itself to a position somewhere between fantasy and delusion.

The latest effort to fix health care with fairy dust comes from
California, whose Senate voted last week to establish a statewide
single-payer system. As ambitious as the California legislation is,
encompassing everything from routine checkups to dental and
nursing-home care, its authors haven’t yet figured out how it will
be paid for. The plan includes no copays, premiums, or deductibles.
Perhaps that’s because the legislature’s own estimates suggest it
would cost at least $400 billion, more than the state’s entire
present-day budget. In fairness, legislators hope to recoup about
half that amount from the federal government and the elimination of
existing state and local health programs. But even so, the plan
would necessitate a $200 billion tax hike. One suggestion being
bandied about is a 15 percent state payroll tax. Ouch.

The utopian fantasy of a
single-payer system is attractive to many voters, but it would
destroy the American economy.

The cost of California’s plan is right in line with that of
other recent single-payer proposals. For example, last fall,
Colorado voters rejected a proposal to establish a single-payer
system in that state that was projected to cost more than $64
billion per year by 2028. Voters apparently took note of the fact
that, even after figuring in savings from existing programs,
possible federal funding, and a new 10 percent payroll tax, the
plan would have still run a $12 billion deficit within ten
years.

Similarly, last year Vermont was forced to abandon its efforts
to set up a single-payer system after it couldn’t find a way to pay
for the plan’s nearly $4 trillion price tag. The state had
considered a number of financing mechanisms, including an 11.5
percent payroll tax and an income-tax hike (disguised as a premium)
to 9.5 percent.

On the national level, who could forget Bernie Sanders’s
proposed “Medicare for All” system, which would have cost $13.8
trillion over its first decade of operation? Bernie would have paid
for his plan by increasing the top U.S. income-tax rate to an
astounding 52 percent, raising everyone else’s income taxes by 2.2
percentage points, and raising payroll taxes by 6.2 points. Of
course, it is no surprise that Medicare for All would be so
expensive, since our current Medicare program is running $58
trillion in the red going forward.

It turns out that “free” health care isn’t really free at
all.

How, though, could a single-payer system possibly cost so much?
Aren’t we constantly told that other countries spend far less than
we do on health care?

It is true that the U.S. spends nearly a third more on health
care than the second-highest-spending developed country (Sweden),
both in per capita dollars and as a percentage of GDP. But that
reduction in spending can come with a price of its own: The most
effective way to hold down health-care costs is to limit the
availability of care. Some other developed countries ration care
directly. Some spend less on facilities, technology, or physician
incomes, leading to long waits for care. Such trade-offs are not
inherently bad, and not all health care is of equal value, though
that would seem to be a determination most appropriately made by
patients rather than the government. But the fact remains that no
health care system anywhere in the world provides everyone with
unlimited care.

Moreover, foreign health-care systems rely heavily on the U.S.
system to drive medical innovation and technology. There’s a reason
why more than half of all new drugs are patented in the United
States, and why 80 percent of non-pharmaceutical medical
breakthroughs, from transplants to MRIs, were introduced first
here. If the U.S. were to reduce its investment in such innovation
in order to bring costs into line with international norms, would
other countries pick up the slack, or would the next revolutionary
cancer drug simply never be developed? In the end, there is still
no free lunch.

American single-payer advocates simply ignore these trade-offs.
They know that their fellow citizens instinctively resist rationing
imposed from outside, so they promise “unlimited” care for all,
which is about as realistic as promising personal unicorns for all.
In the process, they also ignore the fact that many of the systems
they admire are neither single-payer nor free to patients. Above
and beyond the exorbitant taxes that must almost always be levied
to fund their single-payer schemes, many of these countries impose
other costs on patients. There are frequently co-payments,
deductibles, and other cost-sharing requirements. In fact, in
countries such as Australia, Germany, Japan, the Netherlands, and
Switzerland, consumers cover a greater portion of health-care
spending out-of-pocket than do Americans. But American single-payer
proposals eliminate most or all such cost-sharing.

Adopting a single-payer system would crush the American economy,
lowering wages, destroying jobs, and throwing millions into
poverty. The Tax Foundation, for instance, estimated that Sanders’s
plan would have reduced the U.S. GDP by 9.5 percent and after-tax
income for all Americans by an average of 12.8 percent in the long
run. That is, simply put, not going to happen. So Americans are
likely to end up with a lot less health care and than they have
been promised.

Santa Claus will always be more popular than the Grinch. But the
health-care debate needs a bit more Grinch and a lot less Santa
Claus. Americans cannot have unlimited care, from the doctor of
their choice, with no wait, for free. The politician that tells
them as much will not be popular. But he or she may save them from
something that will much more likely resemble a nightmare than a
utopian dream.

Michael
Tanner
is a senior fellow at the Cato Institute, a free-market
oriented think tank.