A Hayekian Theory of Parental Rightshe last few decades haveseen a dramatic increase inthe control that many par-ents wish to exercise overtheir children. That desire

for control has been reinforced by a varietyof institutions, from schools to the police,who have slowly reduced the range of free-dom children have. For example, local policeare arresting parents who allow their kids towalk to school or play in the park by them-selves. In response, we’ve seen the rise of the“free-range kids” movement which aims atletting parents decide what degree of freedomis right for their kids.

Libertarians are a natural ally for this move-ment, and more nonlibertarians are beginningto be rightly outraged by the overreach oflocal authorities in arresting parents who arelegitimately exercising their parental rightsand best judgment about how to raise theirkids. But do libertarians have a coherenttheory of parental rights that can providesome intellectual support for free-range par-enting? I think they do, and I think it can befound using insights from F. A. Hayek.

In thousands of pages of written work,Hayek said remarkably little about the family,which is nonetheless one of the most impor-tant of all social institutions. Like most otherclassical liberals, he noted the family’s role inconveying important social norms and values,but he had almost nothing else to say about

its role in either the social order in general,or as a key institution of a classical liberalsociety. In my bookHayek’s Modern Family:Classical Liberalism and the Evolution of SocialInstitutions, I try to fill that gap by applyingHayek’s intellectual framework to the history

BY STEVEN HORWITZ

Continued on page 6

On the first anniversary of the United States’ unauthorized war against ISIS, Sen. TIMKAINE (D-VA) came to the Cato Institute to criticize President Obama’s abuse of executivepower and to insist that Congress live up to its obligation under the Constitution to author-ize any war. Watch for text of his speech in Cato’s Letter or see the video at www.cato.org.

T

STEVEN HORWITZ is Charles A. Dana Professor of Economics at St. Lawrence University in Canton,New York, and an affiliated senior scholar at the Mer-catus Center in Arlington, Virginia. He is the authorof Hayek’s Modern Family: Classical Liberalism and theEvolution of Social Institutions, out in September fromPalgrave Macmillan.

FREEDOMINDEXRanking liberty in 152 countriesPAGE 3

RICHARDPIPESMagna Carta:From Runnymedeto RussiaPAGE 4

THE END OF DOOMAre thedoomsayersalways wrong?PAGE 16

Cato Policy ReportSEPTEMBER/OCTOBER 2015 VOL. XXXVII NO. 5

2 • CATO POLICY REPORT September/October 2015

C H A I R M A N ’ S M E S S A G E

BY ROBERT A. LEVY

“The federal judiciary hasalso become

more engaged in binding

the politicalbranches with

the chains of theConstitution.

irst, the bad news. Arguably the greatestthreat to freedom in the United States is thecontinued growth of the federal govern-ment. Entitlement spending is out of con-

trol, taxes are confiscatory, regulations are pervasive,and economic liberties—especially property rights andfreedom of contract—have been consigned to second-class status. Equally troublesome, many of our politicalleaders—even those who question the efficacy of gov-ernment in domestic matters—seem eager to embracegovernment intervention overseas. From a constitutional perspective, the accelerating

delegation of lawmaking power to administrativeagencies is particularly alarming. Our Framers vestedall legislative power in Congress. They knew that thepotential for tyranny would be reduced if legislativeand executive powers were separated. Yet Congresspersists in writing murky laws and then authorizingone or more of the 300-plus regulatory agencies inWashington, D.C., to flesh out the details. Thoseagencies now dwarf Congress when it comes to mak-ing rules controlling what Americans can do. That said, there’s good news to report as well. State

legislatures—with a push from groups such as Cato andthe Institute for Justice—have curbed the worst abusesof eminent domain and civil asset forfeiture. Home-owners now have greater assurance that their propertywill not be seized for private development, and inno-cent parties can more easily reclaim assets that, with-out the owner’s knowledge or consent, have allegedly“facilitated” commission of a crime.The federal judiciary has also become more engaged

in binding the political branches with the chains of theConstitution. For example, when Texas and 25 otherstates challenged President Obama’s executive orderon immigration, a federal judge ruled that it was is a“complete abdication” of the president’s duty to en-force the laws—“not simply. . .inadequate enforcement;[but] non-enforcement. . .that contradicts Congress’sgoals.”On the Supreme Court front, despite occasional

backsliding, the Court has issued several key decisionsvindicating individual rights and constraining govern-ment powers.

n In Heller v. District of Columbia (2008) and Mc-Donald v. Chicago (2010), the Court rejected thecollectivist, militia-only view of the SecondAmendment and secured an individual right tobear arms.

n In Citizens United v. Federal Election Commission(2010), The Court overturned provisions of theMcCain-Feingold campaign finance law, therebyextending First Amendment protection to cor-porate and union-sponsored political advocacy.n In National Federation of Independent Business v.Sebelius (2012), notwithstanding Chief JusticeRoberts’ inexplicable opinion upholding Oba-macare, the Court instituted two significant lim-itations on federal power. First, Congress maynot bootstrap its authority under the CommerceClause—by compelling persons to engage incommerce and then asserting regulatory domin-ion triggered by that engagement. Second, Con-gress may not coerce states to participate infederal programs by imposing onerous condi-tions on the receipt of federal funds. n In the Defense of Marriage Act case, UnitedStates v. Windsor (2013), the Court barred the fed-eral government from discriminating againstmarried same-sex couples. In Obergefell v. Hodges,the Court went even further—applying the Four-teenth Amendment to establish a gender-neutral“fundamental right to marry.”

This coming term, the Court will have at least twoopportunities to reverse long-standing precedents thathave restricted personal freedom. Friends of liberty areguardedly optimistic.

n In Friedrichs v. California Teachers Association,the plaintiff argues she should not be requiredto pay union dues if she’s not a union member.Mandatory dues are essentially compelledspeech that subsidize public advocacy.nIn Fisher v. University of Texas, the Court will haveyet another chance to rein in racial preferences.

All told, a decidedly mixed bag for libertarians. Theexecutive branch has been a consistent disappoint-ment. Congress has enlarged federal power no matterwhich party controls the agenda. Only a handful ofstates and the federal courts have sporadically movedthe country in a pro-liberty direction. That certainlyunderscores the critical importance of judicial appoint-ments by the next president.

”

FGood News and Bad News

BATTLING THE MYTHS AROUND TPA

During the Senate debate over Trade Promotion Authority legislation, the Wall Street Journal editorial

board criticized Sen. Ted Cruz (R-TX), who claimed the bill would permit the Obama administration to unilaterallychange immigration law. “The Cato Institute’s Scott Lincicome has demolished this argument,” the Journalproclaimed. Lincicome has written extensively on themyths surrounding TPA, arguing that Cruz’s fears are un-founded. “I, and many others here at Cato, would welcome a more modern and open US immigration system (done inan orderly and lawful fashion, of course),” he wrote, “butthere’s simply no credible evidence that it’s happening here.”

A MIXED VICTORY FOR GAY RIGHTS

In a historic decision, the Supreme Court ruled 5-4 thatsame-sex couples have a constitutional right to marry.

The Cato Institute has long fought for equal rights for gayand lesbian couples, and filed a brief with the Court in thecase. It was a mixed victory, however: Cato’s senior fellow inconstitutional studies, Ilya Shapiro, declared the Court’smajority decision “right for the wrong reasons.” Civil mar-riage itself should not be proclaimed a “right,” he argued—it is essentially a government benefit, and as such must bedistributed without discrimination, under the Equal Protection Clause. “Good for the Supreme Court—and I echo Justice Kennedy’s hope that both sides now respecteach other’s liberties,” wrote Shapiro, “but the actual rulingthat got us there could’ve been so much more.”

WHITE HOUSE CITES CATO

Occupational licensing needlessly regulates scores ofU.S. workers. A recent White House report—Occupa-

tional Licensing: A Framework for Policymakers—cited both anessay in Cato’s monthly online magazine, Cato Unbound, andan entry in Cato’s online forum, “Reviving EconomicGrowth,” which will soon be published as an ebook. “Yelp,Angie’s List, and Amazon Reviews all make it easy for pastbuyers to report their observations on seller quality,” Merca-tus Center scholars Tyler Cowen and Alex Tabarrok arguedin “The End of Asymmetric Information” for Cato Unbound.Thus, they said, one of licensing’s supposed benefits, helpingconsumers identify quality work, is becoming obsolete. Inthe growth forum, Dean Baker of the Center for EconomicPolicy Research made the case for freer trade for both phar-maceutical drugs and foreign-born physicians.

CATO NEWS NOTES

I n 1989 political scientist Francis Fukuyama declared “the end of histo-ry,” arguing that the death of communism signaled the ultimate tri-umph of liberal democracy and market capitalism. But it may be thathistory never quite ends. Since the global economic meltdown of

2008, the idea of freedom has been under threat once again as markets getblamed for a crisis that was grounded at its root in government intervention.

As such, it has become more important than ever to study and interpretthe concept of freedom. Severalyears ago, a number of thinktanks—including the Fraser Insti-tute, the Liberales Institut at theFriedrich Naumann Foundation forFreedom, and the Cato Institute—began exploring the possibility ofcreating a broad measure of free-dom around the world. Thismarked the inception of the newlyreleased Human Freedom Index: AGlobal Measurement of Personal, Civil,and Economic Freedom, by IanVásquez, director of Cato’s Centerfor Global Liberty and Prosperity,and Tanja Porčnik, president of theVisio Institute.

The index presents a broad meas-ure of human freedom—understoodas the absence of coercive con-straint—using 76 distinct indicatorsof personal and economic freedom.

“Hard facts must counter the perception that freedom is somehow failing toachieve the goal of a better society while serfdom succeeds,” Detmar Doer-ing, director of the Liberales Institut, writes in the introduction.

And indeed, the findings, which cover 152 countries for 2012 (the mostrecent year for which data is available), suggest that freedom plays a centralrole in human well-being. For instance, countries in the top quartile offreedom enjoy a significantly higher per capita income ($30,006) thanthose in other quartiles; the per capita income in the least-free quartile is$2,615.

The Human Freedom Index is the most comprehensive freedom indexever created for a globally meaningful set of countries. It offers opportuni-ties for further research into the elaborate ways in which freedom influ-ences, and can be influenced by, political regimes, economic development,and the whole range of indicators of human well-being.

THE HUMAN FREEDOM INDEX CAN BE FOUND AT WWW.CATO.ORG/HUMAN-FREEDOM-INDEX.

An index of liberty in 152 countries

Ranking Global Freedom

September/October 2015 CATO POLICY REPORT • 3

4 • CATO POLICY REPORT September/October 2015

C A T O E V E N T S

In June, Cato marked the 800th birthday of Magna Carta with a conference. SWAMINATHAN S. ANKLESARIA AIYAR (above),a Cato research fellow, and Harvard University Frank B. Baird Professor of History RICHARD PIPES (bottom right) dis-

cussed the history of the rule of law in India and Russia. RICHARD HELMHOLZ, a law professor at University of Chicago LawSchool, (top right) explained the emergence of Magna Carta and its effect in England.

A t the annual Libertarianism vs. Conservatism intern debate, Cato Instituteinterns WILL DUFFIELD and CHARLES LEHMAN (pictured) championed

libertarianism, while Heritage Foundation interns countered with their conser-vative views. The interns debated a broad array of topics, including immigra-tion, the size of the military, and the morality of the surveillance state.

R ONALD BAILEY, an award-winning sci-ence correspondent for Reason maga-

zine, discussed his new Cato book, The Endof Doom: Environmental Renewal in the 21stCentury, arguing that environmentalalarmists have consistently been wrong,while human resourcefulness has alwaystriumphed.

September/October 2015 CATO POLICY REPORT • 5

M illennials, who now make up nearly a quarter of the U.S. population, have a unique perspective on foreign policy com-pared with their elders. George Mason University scholars A. TREVOR THRALL and ERIK GOEPNER, the authors of a re-

cent Cato study on the origin of these views, keynoted a panel discussion on how this generation’s noninterventionist tendenciesmight influence U.S. policy.

A t a Capitol Hill Briefing, Cato Ad-junct Scholar KEVIN DOWD, Pro-

fessor of Finance and Economics atDurham University, UK, called for anend to the Federal Reserve’s “stress tests,”arguing that regulatory risk modeling is“worse than useless.”

W ILLIAM ISAAC, former chair of the Federal Deposit Insurance Corporation(right) and the Cato Institute’s director of Financial Regulation Studies, MARK

CALABRIA (left), participated in a discussion of An Unlikely Solution—a documentaryfilm exploring the phenomenon of Native American tribes entering the business ofconsumer lending via the Internet.

6 • CATO POLICY REPORT September/October 2015

of the family, its functions in the modernworld, and how classical liberals might thinkabout issues of family policy. One of the issuesI discuss is the question of parental rights. Iargue that Hayekian insights should lead usto make a strong defense of parental rightsand place a high burden of proof on thosewho would intervene into families for any-thing beyond obvious cases of violence orabuse. Parental rights also come with parentalobligations to care for their children.

A HAYEKIAN ARGUMENT FORSTRONG PARENTAL RIGHTS

A key part of Hayek’s intellectual frame-workis the idea that knowledge is dispersed,contextual, and often tacit. No one knowseverything, and it is those closest to choicesand their direct consequences who are in thebest position to know what to do. This argu-ment is at the core of Hayek’s objections tosocialism and his case for the market: byestablishing well-defined and well-protectedproperty rights, we allow people to developand use their local knowledge in ways thatmake the best use of resources. In the sameway, it is parents who have the right incentivesand best relevant knowledge to know whatis best for their children. Establishing well-defined and well-protected parental rightsencourages parents to act on this local knowl-edge and thereby helps to ensure the bestoutcomes for children.

The intimacy of the family provides parentswith deep and often tacit knowledge of theirchild that can be deployed in finding the mosteffective ways to transmit social rules andnorms. A great deal of the parent-child social-ization process works through imitation, asimitation is a way to pass on knowledge thatotherwise cannot be articulated. The familyprovides an ideal setting for this sort of imitativelearning.

Parents also have strong incentives to makesure that such behaviors are learned. Thefamily remains a major site of social interactionwhere appropriate behavior will make par-

ent-child interactions smoother. Parents bearthis responsibility in part because otherfamily members may suffer negative externalreputation effects due to the misbehaviorof their children. Children who do not learnthe rules of social interaction will cause theirparents to suffer both directly and indirectly,thus providing parents with an incentive toensure that proper rules are learned.

The family’s role in this Hayekian social-ization process is complemented by schools,houses of worship, and the other elements ofcivil society. However, none of them can com-pletely replace the family. Placing the stew-ardship responsibility for child-raising in thehands of parents gives those with the mostknowledge and strongest incentives the rightto make the relevant decisions about the chil-dren. Where children have clearly definedstewards and where those stewards have thenecessary knowledge and incentives, they willbe more likely to engage in the sorts of mod-elling of behavior and explicit instructionconcerning social behavior that are the keyHayekian functions of the family. Where respon-sibility is diffuse, and where those in chargelack the necessary knowledge and incentives,we would expect the same sorts of commonsproblems we are familiar with in other realms.As a result, allowing “the village” to raise childrenis no more likely to succeed than has allowing“the village” to run agriculture or industry.

MAY PARENTS NEGLECT THEIR CHILDREN?

One of the most thorough, and infamous,libertarian discussions of parental rights isin Murray Rothbard’s Ethics of Liberty. Roth-

bard rightly argues that children possess aright of self-ownership by virtue of beingpotential adults. This prevents them frombeing treated strictly as the parents’ property.However, Rothbard further argues that,although the child’s right of self-ownershipprohibits anyone, including the parents,from aggressing against it, that right doesnot create a “legal obligation to feed, clothe,or educate” the child. “The law, therefore,may not properly compel the parent to feeda child or keep it alive”. To put it in differentlanguage, parents cannot abuse their children,but they can neglect them. Their actionsmay be immoral, but they cannot properlybe considered illegal.

The key premise in Rothbard’s argumentis that if parenthood implied an obligationto feed and clothe, it would mean that theparents were being coerced into doing “positiveacts . . . depriving the parent of his rights.”Because Rothbard’s version of libertarianismis rooted in natural rights and begins withwhat he calls the “non-aggression axiom,”any situation in which the state coerces aperson (who has not initiated force herself)into acting in a particular way constitutes aviolation of that person’s fundamental rightto not be aggressed against. The naturalresponse is that parents have somehow vol-untarily accepted that obligation to care bycreating the child in the first place, so thathaving a child constitutes a form of contractualobligation for the parents. If so, then ensuringthat parents do not neglect their children isa matter not of coercion, but legitimate con-tract enforcement.

Rothbard’s response to this criticism isto raise a number of counterexamples thataim to show the absurdity of what he callsthe “creation argument.” He rightly askshow this can be true of a child conceived in a rape. But then he also asks how step-parenting, foster parenting, or guardianshipcan be legitimate if those people did not par-ticipate in creating the child. What he seemsto miss in this discussion is the idea that theobligation to care for a child does not come

Allowing ‘the village’ to raise

children is no morelikely to succeed than

has allowing ‘the village’to run agriculture

or industry.

”

Continued from page 1 “

September/October 2015 CATO POLICY REPORT • 7

from the act of sexual creation per se, butfrom the assumption of the legal rights asso-ciated with making the child “one’s own.” Inmost cases, sexual creation and the assumptionof rights take place together, as the birthparents take actions to establish that theywish to keep the child and thereby consentto the obligations that come with it beingtheirs. However, adoptive parents, perhapseven more clearly than in the case of birthparents, must take affirmative steps in thelegal system to acquire parental rights, whichmakes it even clearer that they have consentedto the responsibilities to the child that comewith such rights. All of the other examplesRothbard mentions are amenable to thesame sort of analysis.

Parental obligations come when parentsengage in the positive act of treating thechild as theirs by asserting their parentalrights, and thereby accepting the correspon-ding obligations. In this sense, taking a childhome from the hospital is analogous tohomesteading: the parents are declaring toothers that this child is theirs, and that theythereby accept the responsibilities to carethat come with exercising those parentalrights. If people bring a child into the worldand do not wish to care for it themselves,they have an obligation to arrange for itscare by finding someone else who wants toassume those rights and responsibilities.

Children must be cared for, and they areunable to consent to who becomes their care-givers. Therefore the agreement parents enterinto when accepting parental rights andresponsibilities is not with the infant directly.Instead it is an implicit agreement with “therest of us” that arises when parents engagein de facto exercises of parental rights thatthen create de jure obligations to care for (orto arrange for the care of) those children. Andthis is the reason that all forms of abuse orcruelty, and extreme forms of neglect, shouldbe actionable in a libertarian world. Acceptingparental rights, but refusing to accept thecorresponding obligations to care for a helplesschild, is a form of breach of contract. Again,

the implicit contract in question is not withthe child, but with “the rest of us.” Given thehelplessness of infants, someone has to providefor their care, and those who act in ways thatexercise parental rights are simultaneouslyannouncing publicly their willingness toaccept the obligation to care. Throughouthistory, we have seen various religious traditionscapture this idea through ceremonies suchas baptisms, baby-namings, and namakarans.Those have endured because of the importanceof that public declaration of acquiring parentalrights and accepting parental obligations.

VARIETIES OF CONSENTWhat Rothbard’s argument relies on is

the centrality of consent in the classicalliberal tradition as a justification for rightsand responsibilities. The paradigmaticexample of consent is the express consentthat we see in a written contract associatedwith a negotiated exchange. However, aslegal theorist Tom W. Bell has argued, thatform of consent lies at one end of a scale ofgraduated consent and unconsent whoseability to justify the validity of an action willvary. Bell’s scale runs from “express consent”to “implied consent” to “hypothetical consent”and then continues with hypothetical,implied, and express unconsent. Just as con-tractual language that indicates both parties’agreement to take specific actions is thestrongest form of consent, so is express con-tractual language that indicates an unwill-ingness to accept particular actions thestrongest form of unconsent.

Bell’s framework of graduated consent

gives us a way of talking about the processby which parents accept the rights andresponsibilities of parenthood. Adoptionhas many of the characteristics of expressconsent, as parents take affirmative legalsteps to acquire the rights of parenthood.By contrast, conceiving a child and bringinghim home from the hospital does not involvethe express consent of the legal process ofadoption. As Bell points out, express consentremains the standard for judging consent,and the other forms are more powerful thecloser they are to express consent. Althoughbirth parents never engage in an act of expressconsent, the express decision to attempt toconceive a child along with the expressdecision to continue the pregnancy, andthen the express decision to keep the childin one’s house after the birth, all add up toa very strong form of implied consent thatcomes close to express consent, even if thereis no specific moment at which the parentsexplicitly agree to the legal rights and respon-sibilities of parenthood.

The graduated consent approach alsoallows us to avoid Rothbard’s logically con-sistent but offensive conclusion that parentsshould be legally able to neglect their children.Once we recognize that consent is not abinary choice between express consent andno consent, we can construct a view of parentalobligations to children that derives from theparents’ express or implied consensual accept-ance of those responsibilities via a variety offorms of actions they undertake to asserttheir parental rights. Having taken on thoseresponsibilities through forms of consentthat are strongly justificatory, failure todischarge them would be legitimate groundsfor legal action.

THE COMPARATIVE POLITICAL ECONOMY OF PARENTAL RIGHTS

How does this case for parental rightsand responsibilities translate into publicpolicy? The newspapers are full of stories ofparents who have made choices that clearlyare not in the best interests of their children.

Accepting parental rights, but refusing to accept the corresponding obligations to care for a helpless child, is a form of breach

of contract.

”

“

8 • CATO POLICY REPORT September/October 2015

Do these cases necessarily require someaction on the part of the state or others tostop the parental behavior in question? Andif parents are imperfect, will the state orother institutions that intervene in the familynecessarily improve upon their parenting?

Another of Hayek’s key insights was thatno set of social institutions will perform per-fectly across the whole range of knowledgeand incentives facing human actors. Instead,we must look for those that work better, andHayek’s standard of judgment was to preferthose institutions that have built-in powerfulways of informing actors of their mistakesand providing them the incentives to correctthem. Mere imperfection in one set of insti-tutions is not automatically a reason to adoptan alternative. We must ask whether thealternative can actually improve upon themistakes of the status quo. We can apply thatframework to the issue of imperfect parentingand the role of the state.

Imagine a case of child neglect, though notphysical abuse. The parents are not sufficientlycaring for the kids in terms of consistentlyproviding warm clothes or regular, nutritiousmeals, or medical care. They also leave thechildren home alone and unsupervised quitea bit and none of them are older than 10. Assume that the children are in no immediatephysical danger. It might be tempting to callthis a case of “parenting failure” and ask ChildProtective Services to intervene, perhaps evenremoving the children from the home. In theface of such a temptation, the first Hayekianquestion worth asking is the comparative ques-tion “and do what with them?” Is the alternativethat the state will offer for the children reallybetter, on net, than their current situation?Suppose that alternative is foster care. Thereis enough empirical evidence on the problemswith foster care, especially short-term place-ments where the incentive to really behave asa steward for the child is weaker, to be skepticalthat it would be an improvement. When weaccount for the psychological effects on youngerchildren of being taken from their parents andplaced with strangers, the comparative analysis

suggests the case for intervention is even-weaker.

In addition, we can ask in the case of par-enting failure whether there are other nonstateinstitutions of civil society that could bebrought into play to help these parents performbetter (e.g., a religious institution, a neigh-borhood group, extended family members,etc.). In the specific case of neglect, the prob-lems are often financial, rather than bad par-enting per se. Parents may be too poor toafford what others would see as an adequatelevel of care and/or they may be working somany hours that supervising children is chal-lenging, as is finding the time to cook, shop,or get them to a doctor. In such cases, thesorts of civil society solutions noted above

are far more likely to be appropriate thanremoving the kids from the home of whatare otherwise well-intentioned parents. Oneof the problems facing state interventionfrom a Hayekian perspective is knowing allof the fine details of each particular case suf-ficiently to come up with a solution. In general,those closest to the family are in the bestposition to understand the problems at hand,imagine an effective solution, and have theincentive to act on that knowledge. Bureaucratswith dozens of cases or more are unlikely tohave enough knowledge or incentive whencompared to those in the family’s local sphere.

Despite not having written much aboutthe particulars of the family, Hayek’s theoreticalframework gives us a way to think about whywe need strong parental rights, why thoserights come with corresponding obligationsto care for children, and why imperfection inparenting is not a sufficient condition for stateintervention. A better understanding of Hayekhelps to see why this sort of intervention infamilies is both unnecessary and counterpro-ductive, and thereby provides intellectualsupport for the free-range kids movementand its defense of, in the words of the SupremeCourt in 1925, the “liberty of parents andguardians to direct the upbringing and edu-cation of children under their control.” n

No set of social institutions will

perform perfectlyacross the whole range

of knowledge andincentives facing

human actors. Instead,we must look for those

that work better.

”

“

THURSDAY, NOVEMBER 12 l WASHINGTON, D.C.

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MICHAEL CANNON: The ink wasn’t yet dryon the ruling in King v. Burwellbefore support-ers declared that the debate over repealingObamacare is over. Well, that debate has beendeclared over so many times at this point thatI’ve lost count. But I believe that Obamacaresupporters dodged a bullet with this ruling.

The way the Affordable Care Act (ACA)was written, approved by both chambers ofCongress, and signed into law by the presi-dent, it gave states the power to block majorprovisions of the law. States can block the sub-sidies that are supposed to flow through thehealth insurance exchanges. They can blockthe employer mandate and, to a large extent,the individual mandate. The law as writtengave states these powers.

Obamacare supporters dodged a bullet be-cause 34 or 38 states—depending on how youcount—did not establish health insurance ex-changes, which they needed to do in order forthose provisions to take effect. They effec-tively exercised the vetoes that Congress gavethem over portions of the ACA. And eliminat-ing those subsidies would have revealed the fullcost of this coverage to enrollees in Health-Care.gov. That is what the Obama administra-tion and its supporters fear. (I do not considerthem ACA supporters, by the way, becausethey do not really support that law as written.)

Nevertheless, the repeal debate is not overand there are a lot of reasons why. First, morethan six years after the first draft of Oba-macare was introduced in the House, it re-mains unpopular. In fact, it is as unpopularnow as it was when it was enacted more thanfive years ago. And this is a year and a half intoimplementation, a year and a half after peoplehave been receiving the benefits under this law,as rewritten by the Obama administration andthe Supreme Court. And a lot of the costs ofthe law have not even taken effect yet: theCadillac tax, some premium hikes on the hori-zon, the fact that some of the temporary pro-grams designed to mitigate adverse selectionwill expire. This law has been unpopular for sixsolid years, and you know what? Unpopularlaws, in a democracy, are always up for repeal.

Second, the Obamacare repeal debate isgoing to keep going on because Obamacarehurts the sick. Yes, it does insure more peopleby throwing lots and lots of money at healthinsurance. But it also threw millions out oftheir health care plans in 2013—including can-cer patients and others with severe illnesses—leaving them with inferior coverage. Itthreatened to throw millions more out of theirplans again until the Supreme Court amendedthe law in this latest ruling. And it is going tocontinue to threaten coverage for cancer pa-

tients and others as long as that law remainson the books.

It is not just opponents of the law that arenoticing this. If you look at the January 29issue of the New England Journal of Medicine,the lead article is about how Obamacare ispushing insurers into a race to the bottom byjettisoning coverage for HIV patients. Thereare other studies that have found the samething happening with other high-cost chronicconditions, like mental illness, diabetes,rheumatoid arthritis, and cancer. This hashappened in other markets with Obamacare-like bans on discrimination on the basis ofpreexisting conditions. There are a numberof examples where community rating ruleshave encouraged insurers to avoid, mistreat,and ultimately dump the sick. And it does notmatter that it is only happening with a few in-surers now. The New England Journal of Med-icinearticle said that a quarter of the insuranceplans that they studied displayed these char-acteristics. But eventually all insurers will haveto follow suit. Supporters of the law will likelyblame this on greedy insurance companies.But the truth is that it is Obamacare thatforces these companies into this race to thebottom, even when insurers are not trying todiscriminate against the sick.

Another reason the repeal debate willcontinue is because Obamacare, and theway it has been implemented, demeans vot-ers. And they feel it. They sense that it de-means them. The way that the Obamacare’sarchitects designed, sold, enacted, and im-plemented this law has been an ongoingstring of insults to the intelligence, thecompassion, the dignity, and the sense offair play of Americans who oppose this pol-icy. Obamacare’s architects have lied to thepublic. They have called voters stupid.They have called opponents evil. PresidentObama and the Supreme Court haverewritten the ACA now in so many ways

September/October 2015 CATO POLICY REPORT • 9

P O L I C Y F O R U M

After King v. Burwell

T he Supreme Court’s decision in King v. Burwell upheld President Obama’smassive power grab, allowing him to tax, borrow, and spend $700 billion with-out congressional approval. This establishes a precedent that could let any

president modify, amend, or suspend any enacted law at his or her whim.As it stands, Obamacare will continue to disrupt coverage for sick Americans until

Congress repeals it and replaces it with reforms that make health care better, more af-fordable, and more secure. Despite the ruling, Obamacare remains unpopular with theAmerican public and the battle to set in place a health care system that works for allAmericans is far from over. At a Capitol Hill Briefing in July, Michael Cannon, directorof health policy studies at Cato, and Ilya Shapiro, a senior fellow in constitutional stud-ies at the Institute, came together to discuss the impact of King v. Burwell on healthcare reform, the separation of powers, and the rule of law.

10 • CATO POLICY REPORT September/October 2015

P O L I C Y F O R U M

that it disempowered and disenfranchisedObamacare opponents.

Finally, this debate is going to continue be-cause there are ways to provide more securehealth coverage to the sick. No one wants thepre-Obamacare world where governmenthad already been making health insuranceless secure. But in spite of the tax exclusionfor employer-sponsored insurance and all theother things that the government has doneto cripple private health insurance markets,they were still innovating to develop prod-ucts that made health insurance more secure.One example is guaranteed renewability. An-other example is preexisting condition insur-ance, an innovation that was happening rightunderneath Congress’s nose as they were de-bating the Affordable Care Act. It was firstintroduced in late 2008, and UnitedHealth-care was getting regulatory approvals in early2009. What was this product? It was basi-cally an insurance product where, at a cost ofjust 20 percent of what you would pay forhealth insurance, you can buy the option topurchase that health insurance plan at anytime, no matter how sick you get. Even if youdevelop a preexisting condition, you pay thesame rate as everyone else. This was availablein 2008. There were further innovations thatmarkets were likely to develop that encour-aged insurers to compete to cover the sickrather than to avoid them.

But Obamacare destroyed these innova-tions. When you think about it, if Oba-macare were such an improvement over thestatus quo ante as it existed before the law,then why do 65 percent of HealthCare.govenrollees want the freedom to purchase theirpre-Obamacare plans? Obviously somethingis amiss there. Unfortunately, these innova-tions are not coming back until we get rid ofObamacare, specifically its community rat-ing price controls, and that’s why the debateis going to keep happening.

Now, what should Congress do in thewake of King v. Burwell? It should stay fo-cused on what it has always been focused on

with regard to Obamacare—which is repeal-ing it. We are not going to get lower costs andmore secure health insurance for the sickuntil this law is off the books.

Repeal is actually more important afterKing v. Burwell. With that ruling, the pres-ident and the Supreme Court just createdentitlements and imposed taxes on 70 mil-lion Americans—employers and individu-als—that no Congress ever approved and

from which Congress specifically ex-empted those 70 million employers and in-dividuals. The fact that tens of millions ofAmericans are currently subject to taxesthat Congress never approved makes it allthe more important that Congress repealObamacare. King v. Burwell shows thatwhat we are living under right now is an il-legitimate law.

I like to say that the Affordable Care Actis imperfect. But, gosh, it is a lot better thanwhat we’ve got.

ILYA SHAPIRO:Look, I’m a simple constitu-tional lawyer. Essentially everything I knowabout health care I’ve learned through liti-gating two cases, NFIB v. Sebeliusthree yearsago and now King v. Burwell. Originally,when we were planning this forum, wethought the case could go either way. It wasreally a 50/50 toss-up, and I thought I couldadd some value by explaining the nuancedrules of decision: for instance, what does thismean for health care or other types of regu-latory policy going forward? Given theCourt’s opinion, however, all I can say is thatthere’s really very little law, as it were, in themajority opinion. It’s as if the whole opinionjust said “Affirmed.” The reasons don’t mat-ter because they don’t make any sense what-soever. Words have whatever meaning thewriter wants them to have—which is a far cryfrom the following judicial opinion: “It is notour job to protect the people from the con-sequences of their political choices.” Nowwho wrote that? Is that from Justice AntoninScalia’s dissent here in King v. Burwell? No.Is it from Justice Anthony Kennedy’s (com-bined with Scalia’s) dissent in NFIB v. Sebe-lius? No. It was Chief Justice John Roberts inthe majority opinion in NFIB.

What’s going on here is an unholy conflu-ence of liberal judicial activism and conser-vative judicial passivism that has found aperfect home with John Roberts. It’s not thatthe Court is liberal. Nor is John Roberts“evolving,” as so many justices have in thepast. What’s going on here is that, well, Oba-macare is special. As Scalia pointed out in hisdissent, all the normal rules of constitu-tional—and now statutory—interpretationgo out the window when it comes to the Af-fordable Care Act. Mind you, it wasn’t a mat-ter of enforcing the text of the AffordableCare Act. It was rewriting the text in a differ-ent way to do what John Roberts thought inhis infinite wisdom would cause the least dis-ruption in public policy or the health caresystem. And it shows why we don’t wantjudges making these kinds of extra-legal de-

MICHAEL CANNON

“King v. Burwellshows that what

we are living under right now is an illegitimate law.

”

September/October 2015 CATO POLICY REPORT • 11

terminations, because again this is not a liberal decision. In NFIB, the individual-mandate case, Justice Ruth Bader Ginsburg’spartial concurrence/partial dissent said thatthere are no constitutional limits on federalpower. That’s the liberal position.

Similarly here, the liberal position wouldhave been to say that the IRS gets to do what-ever it wants, applying what is known asChevrondeference. Chevron is a legal doctrinenamed after a case from more than 30 yearsago, which says that when a law is ambiguous,courts are to defer to an agency’s interpreta-tion of that law, unless that agency is beingarbitrary and capricious. So even if courtsmight disagree with the agency’s determina-tion, as long as it’s not completely crazythey’ll defer to it. In other words, A, B, C, D,and E are all somewhat plausible interpreta-tions. One might be better; one might beworse. But as long as the agency doesn’t gofor X, Y, or Z—which are all completely outof left field—they’ll be okay. Roberts specifi-cally said in King v. Burwell said that that wasnot what he was doing. This was not an ad-ministrative-law, agency-deference case.

And that was backed up in June in theMichigan v. EPAcase, where Justice ClarenceThomas wrote a concurring opinion on theneed to narrow Chevron. Justice Scalia’s ma-jority opinion there said that the agency’s de-termination was indeed unreasonable andtherefore sent it back to the drawing board.But that doesn’t mean, I don’t think, that insome future instance Chevron is going to benarrowed. I don’t know if the Court has thefive votes necessary to do that. Some peopleare saying the fact that Chevron wasn’t ex-panded is the silver lining in King v. Burwell.It sort of is. But again, this is kind of a suigeneris opinion, good for the AffordableCare Act only. I’m sure some lower-courtjudges will use it to buttress some future fan-ciful statutory interpretations—to say that Ais equivalent to Not-A, as it is here—that “ex-change established by the state” means “ex-change not established by the state.” Possibly.

But really the way that it’s written, JohnRoberts’s goal in King, as it was in NFIB, wasto achieve a certain result without reallychanging legal doctrine, without expandingfederal power.

Let me extrapolate from that. Lookingforward, there’s a lesson we can draw toavoid that unholy alliance of liberal ac-tivism—rewriting the law—with conserva-tive passivisim—restraining and bending

over backwards to let Congress do whateverit wants. The way we avoid that is to learnthe lessons of history.

In the late 1930s and early 1940s, theSupreme Court started going off the rails andeviscerating the doctrine of limited and enu-merated powers. It began eviscerating feder-alism and bifurcating (even trifurcating) ourrights, such that some rights are more equalthan others. Then, from the 1950s to the1970s, when the Warren and Burger Courts

continued these “evolving” notions of whatthe Constitution means, the conservative re-sponse to that sort of activism was not:“You’re wrong. Here’s the correct theory ofconstitutional or statutory interpretation.”Instead and alas, the response was: “Why areyou not deferring to the political branches?You are unelected judges. You should be re-strained. You should be deferring. You shouldbe sitting on your hands.” And that’s why wehave what we have now.

The answer is to appoint judges who areactually committed to judging. We should befighting for judges who have a proven trackrecord of saying what the Constitution actu-ally is—of engaging with the law—rather thantrying to bend over backwards and defer toagencies or to Congress. The judicial branchis a branch of the federal government for a rea-son. It’s there to check and balance the others.

John Roberts’s background was toosmooth in many ways. He checked all theright boxes and excelled at the legal craft, buthe never identified as an originalist or move-ment conservative. It’s clear that he’s a Re-publican. But it’s never been clear that he wascommitted to any particular theory of judicialinterpretation. So congratulations to him, butfuture Republican administrations will haveto be more careful about what kindof conser-vative they want on the Supreme Court:someone who focuses on restraint (a judicialmode) or someone who has a particular sub-stantive theory of jurisprudence.

Those of you, especially here on CapitolHill, who are going to the barricades to fightfor a proper judiciary, make sure you’re fight-ing for the right people so that it’s worth theeffort. Someone who has displayed loyalty togeneric conservatism or some kind of “RedTeam, Blue Team” fight is not enough. Weneed judges who actually are willing to makethe difficult “balls and strikes” calls—as JohnRoberts said at his confirmation hearings—rather than kick the plate a little bit, squint,and call it a strike because Congress “in-

ILYA SHAPIRO

“What’s going on here is an unholy

confluence of liberal judicial activism andconservative judicial

passivism.

”

Continued on page 12

12 • CATO POLICY REPORT September/October 2015

E conomic growth—including,importantly, wage growth—is ulti-mately driven by increases in pro-ductivity. The most effective way

of driving productivity is a deepening of thecapital stock. Capital, however, only multi-plies in a hospitable environment—one of liq-uid, efficient capital markets with a respectfor both contract and property.Has America lost that hospitable environ-

ment? If so, can it be regained? In June, theInstitute hosted a conference, “CapitalUnbound: The Cato Summit on FinancialRegulation,” during which a distinguishedpanel of experts examined the current stateof U.S. capital markets regulation and offeredproposals for unleashing a new engine of eco-nomic growth. The all-day event was held atthe historic Waldorf-Astoria in New YorkCity. Mark Calabria, Cato’s director of finan-cial regulation studies, opened the summit bydiscussing the foundations of the economicmeltdown of 2008. “Unfortunately, the federal reaction to the

financial crisis has been to double down onmany of the distortions that drove it,” he said.For instance, policymakers have loaded evermore mortgage risk onto the backs of taxpay-ers, despite the fact that residential mort-gages play a central role in the turmoil. “Asunbelievable as it sounds, Washington isagain calling for reducing underwriting stan-dards and pushing homeownership as a get-rich-quick scheme for everybody,” Calabriasaid. “I thought it would at least be a few moreyears before we went down that path again.”Joshua Rosner, managing director at Gra-

ham Fisher & Co. and coauthor of RecklessEndangerment, added that attempts to assign

blame have prevented policymakers fromrecognizing the real causes of the crisis.“There’s a false meme in Washington where alot of the Democrats suggest that it was pri-vate markets and a lot of the Republicans sug-gest that it was government,” he said—whenin reality it was both. Kevin Dowd, a professor at Durham Uni-

versity and an adjunct scholar at the CatoInstitute, focused on the problems with theFederal Reserve’s so-called “stress tests.”Using risk modeling, the tests subject banks tovarious scenarios to determine the capital“buffer” banks need to safely weather pooreconomic conditions. The problem, Dowdsaid, is that the models themselves suffer frommany fatal flaws. Ending the Fed’s stress testsis a necessary first step toward reducing this“carnage by computing,” Dowd concluded. Other speakers at the summit included

Commissioner Michael Piwowar of theSecurities and Exchange Commission;George Selgin, director of the Cato’s Centerfor Monetary and Financial Alternatives; and

Thaya Knight, associate director of financialregulation studies at the Institute.In his keynote address, Commissioner J.

Christopher Giancarlo of the CommodityFutures Trading Commission highlighted thefact that a return to traditional Americanprosperity begins with efficient capital mar-kets. “It’s not a matter of opinion,” he said.“It’s a matter of economic fact that every-where in the world today where there are freeand competitive markets, combined withfree enterprise, personal choice, voluntaryexchange, and legal protection of person andproperty, you will find the underpinnings ofbroad and sustained prosperity.”“Yet here at home,” Giancarlo concluded,

“these same elements are under attack bycritics of our financial markets. These criticsconstantly talk about separating marketsfrom risk, as if they have no idea that risk andprosperity are invariably intertwined.” n

EACH OF THE PRESENTATIONS FROM THISCONFERENCE CAN BE VIEWED ONLINE ATWWW.CATO.ORG/EVENTS/ARCHIVES.

A conference on financial regulation and economic growth

Risk, Regulation, and Capital Markets

In June, the Institute hosted “Capital Unbound: The Cato Summit on Financial Regula-tion” in New York, where a distinguished panel of experts critiqued the state of U.S. capitalmarkets regulation.

tended” it to be a strike. This is not going tochange overnight. It’s not a matter of winningthe White House. It’s a matter of picking the

right judges and understanding the climate ofideas such that the proper judicial philosophyisn’t being conservative or minimalist or in-crementalist or restrained. It’s about judging

in a particular way and applying the standardtools of statutory and constitutional interpre-tation regardless of where the political chipsmay fall. n

Continued from page 11

September/October 2015 CATO POLICY REPORT • 13

N early two years ago, Rep. F.James Sensenbrenner (R-WI)first announced his NSA sur-veillance reform bill, the USA

Freedom Act, at a Cato Institute confer-ence. And in June, the USA Freedom Act of2015—a watered-down and reintroducedversion of the original—was signed into law.

In his 2013 speech, Sensenbrennerdeclared that this legislation would enactsweeping reforms to intelligence-gathering.“Let me make it quite clear,” he said. “It endsthe NSA’s ability to collect what they call a‘metadata program.’” Sensenbrenner, whoas chairman of the House Judiciary Com-mittee had introduced the Patriot Act in2001, expressed outrage over how that legis-lation had since been abused. “Put simply,the phone calls we make to our friends, ourfamilies, and business associates are privateand have nothing to do with terrorism or thegovernment’s efforts to stop it.”

But in the end, did the law actually accom-plish what Sensenbrenner promised? Theprivacy community—including Cato schol-ars—remained divided over the bill up untilthe day it landed on the president’s desk.

The final version of the bill reauthorizedseveral expiring PatriotAct provisions, butlimited bulk collection by stipulating thatthe government may ask telecom companiesfor records only when they have “reasonable,articulable suspicion” that a “specific selec-tion term” used to search the records is rele-vant to a terrorism investigation.

Some organizations and legislators,including Sen. Rand Paul (R-KY), refused tosupport the bill, depicting it as ultimately avote for the PatriotAct. Several, such as Rep.Justin Amash (R-MI), pointed to a recentfederal court decision which had ruled thegovernment’s previous justification for bulkcollection, under Section 215 of the PatriotAct, illegal. Amash argued that to pass legisla-tion in the wake of that ruling would only

provide the government convenient newlegal justification for its spying—which itwould interpret broadly.

Cato homeland security and civil liber-ties analyst Patrick Eddington agreed withthis position, writing that the bill “wouldeffectively represent a repeat of the ProtectAmerica Act fiasco of the previous decade—an act of Congress that made legal a previ-ously illegal surveillance program that didexactly nothing to protect the country, whilecosting billions and subjecting Americans tocontinued mass surveillance.”

“Real Patriot Act ‘reform’ should sub-stantively bar the government from indis-criminate bulk surveillance,” he said. “Any-thing less risks laying the groundwork foranother decade of abuse.”

On the opposite side of the argumentstood some pro-privacy groups; reform-minded senators Ron Wyden (D-OR), PatLeahy (D-VT), and Mike Lee (R-UT); andCato senior fellow Julian Sanchez. Thisgroup held that modest reforms were betterthan no reforms at all.

Sanchez deemed it “highly unlikely”that the USA Freedom Act could be inter-

preted as overriding the federal court’srejection of bulk collection. “At that point Ithink we’re simply saying the FISC [For-eign Intelligence Surveillance Court] willpervert whatever language is adopted,however clear, and it doesn’t really matterwhat the legislature does.”

While acknowledging the bill’s obviousshortcomings, he countered that “It’s hardto see how blocking this particular set ofreforms makes it any more likely that otherimportant changes to the law will bepassed.”

“While the reforms embedded in theUSA Freedom Act by no means address thefull range of surveillance excesses Ameri-cans have learned about over the past twoyears, they represent a significant step inthe right direction—and, at long last, an endto the continuous, reflexive augmentationof government powers to intrude into theprivate lives of citizens,” he wrote. n

ANALYSES BY SANCHEZ AND EDDINGTON,AND VIDEO OF THE 2013CONFERENCE “NSASURVEILLANCE: WHAT WE KNOW; WHAT TODO ABOUT IT,” CAN BE FOUND ATWWW.CATO.ORG.

Bill was originally unveiled at 2013 Cato conference

Cato Scholars Differ on USA Freedom Act

REP. F. JAMES SENSENBRENNER (R-WI) announced his NSA surveillance reform bill, theUSA Freedom Act, at a Cato conference on October 9, 2013. In June of this year, a modi-fied version of the bill was signed into law.

14 • CATO POLICY REPORT September/October 2015

C A T O E V E N T S

A t a Cato conference marking the 10th anniversary of Kelo v. City of New Lon-

don, George Mason University law professorILYASOMINdiscussed his comprehensive cri-tique of Kelo, as offered in his Cato/Universityof Chicago Press book The Grasping Hand:Kelo v. City of New London.

S EN. JEFF FLAKE (R-AZ) deliveredthe dinner address for Cato Uni-

versity, speaking on the imperative oflimiting runaway government.

I n Brazil, a group of young libertarians have sparked a vibrant political move-ment, drawing as many as a million people to protest marches in April. FABIO

OSTERMANN and 19-year-old KIMKATAGUIRI (above), two leaders of the FreeBrazil Movement, spoke at Cato University and at a luncheon for scholars abouttheir mission. Elsewhere at Cato University, students browsed through their pocketConstitutions (below) during lectures by law professor Randy Barnett.

S ocial Security, Medicare, and Medicaid account for a staggering 48 per-cent of federal spending. MAYAMACGUINEAS, president of the Commit-

tee for a Responsible Federal Budget, participated in a forum on Cato seniorfellow Michael Tanner’s new book, Going for Broke: Deficits, Debt, and the Entitlement Crisis, where Tanner offered solutions for entitlement reform.

JUNE 2:Capital Unbound: The CatoSummit on Financial Regulation

JUNE 4:Magna Carta and the Rule ofLaw around the World

JUNE 4:Math Gone Mad: Systemic Dangers of the Federal Reserve’s StressTests

JUNE 11: Property Rights on the 10thAnniversary of Kelo v. City of New London

JUNE 16: Going for Broke: Deficits, Debt,and the Entitlement Crisis

JUNE 17: An Unlikely Solution: Tribal Development and Consumer Finance

JUNE 18:Millennials and U.S. ForeignPolicy

JUNE 23: King v. Burwell: Previewing the Supreme Court’s Obamacare Ruling

JUNE 23: Sustaining the American Energy Renaissance

JUNE 25:#CatoConnects: Scholars An-swer Your Questions on King v. Burwell

JUNE 25:Air Farce: The EPA’s Regula-tory “Science” on Airborne Particles

JUNE 26 :#CatoConnects: Gay Mar-riage Legalized Nationwide

JUNE 30:A History of Free Market En-ergy Thought

JULY 9: In the Wake of King v. Burwell:Options for Congress

JULY 9: Sovereign Patent Funds—A NewIssue at the Nexus of International Tradeand Intellectual Property

JULY 14: The Conservatarian Manifesto

JULY 17 :The BEPS Project: The OECD,

Tax Policy, and U.S Competitiveness

JULY 17:Choosing in Groups: AnalyticalPolitics Revisited

JULY 20:Designer Drugs: A New FutileFront in the War on Illegal Drugs?

JULY 22: A Better Choice: Healthcare Solutions for America

JULY 23: Going for Broke: Deficits, Debt, andthe Entitlement Crisis (Capitol Hill Briefing)

JULY 23: The End of Doom: EnvironmentalRenewal in the Twenty-first Century

JULY 23: Intern Debate: Libertarianismvs. Conservatism

JULY 26-31:Cato University 2015AUDIO AND VIDEO FOR ALL CATO EVENTS DATING BACK TO1999, AND MANY EVENTS BEFORE THAT, CAN BE FOUND ONTHE CATO INSTITUTE WEBSITE AT WWW.CATO.ORG/EVENTS.YOU CAN ALSO FIND WRITE-UPS OF CATO EVENTS IN PETERGOETTLER’S BIMONTHLY MEMO FOR CATO SPONSORS.

CatoCalendar

September/October 2015 CATO POLICY REPORT • 15

I n the five years since Obamacare, Republi-cans have failed to offer a viable solution for

health care. At a Cato Book Forum, JOHN C.GOODMAN, founder of the Goodman Institute,outlined his new book, A Better Choice: Health-care Solutions for America, and proposed a new alternative for health care.

CITY SEMINAR PALO ALTO / SILICON VALLEY FOUR SEASONS l PALO ALTO, CAOCTOBER 23, 2015

CATO INSTITUTE POLICY PERSPECTIVES 2015NEW YORK l WALDORF-ASTORIA NOVEMBER 5, 2015

RETHINKING MONETARY POLICY33RD ANNUAL MONETARY CONFERENCEWASHINGTON l CATO INSTITUTENOVEMBER 12, 2015Speakers include James Bullard, Jeffrey Lacker, Rep. Bill Huizenga, Claudio Borio, Manuel Sanchez, George S. Tavlas, George Selgin, and John B. Taylor.

CATO INSTITUTE POLICY PERSPECTIVES 2015CHICAGO l DRAKE HOTEL DECEMBER 2, 2015

CATO INSTITUTE POLICY PERSPECTIVES 2016NAPLES, FLRITZ CARLTON BEACH RESORT JANUARY 27, 2016

28THANNUAL BENEFACTOR SUMMITLAS VEGAS FOUR SEASONS HOTELFEBRUARY 25–28, 2016Speakers include Randy Barnett.

MILTON FRIEDMAN PRIZE PRESENTATION DINNERNEW YORK WALDORF-ASTORIA MAY 25, 2016

CATO CLUB 200RETREATPARK CITY, UT MONTAGE DEER VALLEYOCTOBER 13–16, 2016

29TH ANNUAL BENEFACTOR SUMMITNAPLES, FL RITZ-CARLTON GOLF RESORTMARCH 2–5, 2017

CATO CLUB 200RETREATLAGUNA BEACH, CAMONTAGE LAGUNA BEACHOCTOBER 5–7, 2017

16 • CATO POLICY REPORT September/October 2015

C A T O P U B L I C A T I O N S

M ore than two decades ago, aPBS producer and formerForbes science writer cameup with a concept for a book

on the psychological appeal of doom. Heobserved that the classic works of environ-mentalism—from Rachel Carson’s SilentSpring to the Club of Rome’s The Limits toGrowth—had all confidently predicted theirown versions of global catastrophe. Yet notone of these forecasts had come to fruition.“Two decades after these and other dire pre-dictions had been made, I noticed that wewere still here and that civilization had notcollapsed,” he wrote.Now Ronald Bailey, an award-winning

science correspondent for Reasonmagazine,is back with a fresh perspective on whyenvironmental pessimists continuouslylead us astray. In The End of Doom: Environ-mental Renewal in the 21st Century, Baileyprovides a detailed examination of the the-ories, studies, and assumptions that havespurred the current forecasts of calamity. “Iaim in this new book to again remind thepublic, the media, and policymakers thatthe foretellers of ruin have consistentlybeen wrong,” he writes, “whereas the advo-cates of human resourcefulness have nearlyalways been right.”Why have the doomsayers consistently

been such poor guides to the future? One ofthe most infamous examples of these unful-filled predictions was Stanford Universitybiologist Paul Ehrlich’s 1968 bestseller, ThePopulation Bomb. Ehrlich warned that unbri-dled population growth would outpacefood supply in a matter of years. “The battleto feed all of humanity is over,” he wrote. “Inthe 1970s the world will undergo famines—hundreds of millions of people are going tostarve to death in spite of any crash pro-grams embarked upon now.” Ehrlich com-pared humanity to a growing cancer.As Bailey points out, globe-spanning

famines have yet to occur.Instead, average life expectancyhas increased and a higher per-centage of people are enjoyingthe benefits of modern technol-ogy than ever before. Howcould Ehrlich have been so off-the-mark? Like all prophets ofdoom, he wildly underestimat-ed the power of human ingenu-ity. “Human beings are not like a herd of deer that simply starvesto death when it overgrazes itsmeadow,” Bailey argues. “Insteadwe seek out new ways to producemore food and do it ever moreefficiently.” Breakthroughs inplant breeding spawned theGreen Revolution, which dra-matically boosted global foodproduction. More people meantmore creative minds brought tothe task of providing nourish-ment for the planet.This same dynamic applies

across a wide range of ecological issues.Breaking down the numbers, Bailey findsthat—thanks to human ingenuity—manycurrent trends are in fact positive. Cancerrates are falling in America. More and moreland is being restored to nature. Increasingwealth is leading to decreasing pollution.And the cost of clean energy will soon fallbelow that of fossil fuels. As he demon-strates, the way to cement these trends isnot to retreat into a maze of paralyzing reg-ulation but to craft our own future.And yet, this doesn’t seem to have reined

in the pessimists. “While the overpopula-tion dirge has become somewhat muted asa result of their massive predictive failure,many of the more radical environmentalistideologues still sing the same old Malthu-sian song,” he writes. The persistence ofalarmism, according to Bailey, is both psy-

chological and political. “Human beings dohave a psychological bias toward believingbad news and discounting good news,” headds. “But besides that, the sciences sur-rounding environmental issues have beenpoliticized from top to bottom.”Nevertheless, Bailey offers an ultimately

hopeful perspective. “Humanity does facebig environmental challenges over thecourse of the coming century, but the bulkof the scientific and economic evidenceshows that most of the trends are positiveand can be turned in a positive direction byfurther enhancing human ingenuity.”“The end of the world is not nigh,” he

concludes. “Far from it.”n

VISIT STORE.CATO.ORG/BOOKS, ONLINE RETAILERS, OR BOOKSTORES NATIONWIDETO GET YOUR COPY OF THE END OF DOOMTODAY.

Why environmental alarmists keep getting it wrong

Refuting the Doomsayers

September/October 2015 CATO POLICY REPORT • 17

“A mericans want to believethat their country is a bas-tion of moral principlesand that their govern-

ment does not violate those values in thecourse of implementing the nation’s foreignpolicy,” Ted Galen Carpenter and MalouInnocent write in their new book. But as theUnited States assumed a global leadershiprole after World War II, a growing numberof relationships were forged in which Wash-ington’s new security partners were, to vary-ing degrees, repressive and corrupt.

In Perilous Partners, Carpenter, a seniorfellow for defense and foreign policy studiesat Cato, and Innocent, an adjunct scholar atthe Institute, offer case studies of U.S.engagement with dubious allies, examiningthe official justifications for these partner-ships and assessing their credibility. Theylook at both the benefits and the costs inblood, treasure, and values to the Americanrepublic of more than a dozen specific asso-ciations. “We hope that such a treatmentwill assist both policymakers and the Amer-ican people strike a proper balance in thefuture,” they write.

The authors begin by surveying the peri-od when these questionable alliances firstformed. “The ethical rot in U.S. foreign poli-cy began early in the Cold War and grewworse as the rivalry with the Soviet Uniondeepened,” they write. With time, Washing-ton’s actions were not just inconsistent withAmerica’s ideals—they directly underminedthem. “It is difficult to square the notion ofallegiance to the values of peace, democracy,individual liberty, and the rule of law withthe overthrow of democratically electedgovernments, the provision of financial aidand political support for corrupt autocrats,and in some cases, helping to install and sus-tain in power murderous sociopaths,” Car-penter and Innocent write. “Yet at times theU.S. government did all of those things.”

In examining each casestudy—from Latin Americanstrongmen to South Vietnamesedictators—Carpenter and Inno-cent demonstrate “the acutedilemma” inherent in balancingnational security with America’svalues. “U.S. leaders cynicallyreferred to some of the most cor-rupt and brutal dictatorships asmembers of the Free World, aslong as those regimes cooperatedwith Washington’s geopoliticalobjectives,” they write.

Unfortunately, those coali-tions did not dissolve once theCold War ended. As the authorsnote, the United States strength-ened its commitment to democ-racy and human rights through-out the 1990s. But that revivaldidn’t last long. “Once the UnitedStates embarked on a new cru-sade, targeting radical Islamistmovements and regimes follow-ing the 9/11 terrorist attacks,there was a tendency to revert to old habitsand cut ethical corners without sufficientreflection,” Carpenter and Innocent write.

The authors acknowledge that whennational survival or other vital interests areat stake, such alliances can be justified. Buttoo often American leaders have sacrificedthe moral high ground in pursuit of second-ary and peripheral national interests. Theauthors therefore recommend an ethicalpragmatism when it comes to foreign poli-cy, outlining standards to determine whencompromising American principles is nec-essary, when it is questionable, and when itis outright counterproductive. They pro-pose an arm’s-length relationship withauthoritarian regimes, emphasizing thatthe United States will gain little if it dealswith the threat of terrorism in ways that

routinely pollute American values.In the end, Carpenter and Innocent offer

a compelling account of perils involved ingetting too close to friendly tyrants, inject-ing historical insight into current dilemmasin order to provide policy prescriptions forthe near future. “To promote human rightsin some countries and simultaneously sup-port the world’s most savage and illegitimateautocracies may very well reflect Washing-ton’s geopolitical preferences,” they write,“but such inconsistency also highlights anenormous discrepancy between what theU.S. government claims to do and what itactually does.” n

VISIT STORE.CATO.ORG/BOOKS, ONLINE RETAILERS, OR BOOKSTORES NATIONWIDETO GET YOUR COPY OF PERILOUS PARTNERSTODAY.

A new book on America’s alliances with authoritarian regimes

The Perils of Friendly Tyrants

18 • CATO POLICY REPORT September/October 2015

C A T O S T U D I E S

M ost Americans think thatthe federal government isincompetent and wasteful.Their negative view is not

surprising given the steady stream of scan-dals emanating from Washington. Scholarlystudies also support the idea that many fed-eral activities are misguided and harmful.What causes all the failures? As ChrisEdwards, Cato’s director of tax policystudies and editor of Cato’s website Down-sizing the Federal Government, writes in“Why the Federal Government Fails”(Policy Analysis no. 777), “The causes of fed-eral failure are deeply structural, and they willnot be solved by appointing more competentofficials or putting a different party incharge.” First, federal policies rely on top-down planning and coercion. That tends tocreate winners and losers, which is unlike the

mutually beneficial relationships of markets.Second, the government lacks knowledgeabout our complex society. While marketsgather knowledge from the bottom up andare rooted in individual preferences, the gov-ernment’s actions destroy knowledge andsquelch diversity. Third, legislators often actcounter to the general public interest. Theyuse debt, an opaque tax system, and othertechniques to hide the full costs of programs.Fourth, civil servants act within a bureaucrat-ic system that rewards inertia. Finally, today’sfederal budget is 100 times larger than theaverage state budget, and is far too large toadequately oversee. “Management reformsand changes to budget rules might reducesome types of failure,” Edwards concludes.“But the only way to create a major improve-ment in performance is to cut the overall sizeof the federal government.”

HOW CONSERVATIVES, PROGRES-SIVES, AND LIBERTARIANS CANUNITE ON ECONOMIC REFORM The U.S. economy is slowing down. Trendsfor all the major components of growth arenow uniformly unfavorable: labor participa-tion is falling, the pace of human capital accu-mulation is slackening, the rate of invest-ment is in long-term decline, and growth in

total factor produc-tivity has been low for three of the fourpast decades. A sud-den turnaround isalways possible, butthere are strong rea-sons for believing

that U.S. economic growth in the comingyears will fall well short of the long-term his-torical trend. As Brink Lindsey, vice presi-

The Structural Causes of Federal Government Failure

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CATO POLICY REPORTDavid Boaz............................................................................EditorDavid Lampo.......................................................Managing EditorMaria Santos........................................................Assistant EditorJon Meyers.................................................................Art DirectorBrendan O’Hara...................................................... PhotographerClaudiaRingel............................................................. CopyeditorMai Makled.......................................................Graphic Designer

CATO INSTITUTEPeter Goettler..................................................President and CEORobert A. Levy................................................................ChairmanDavid Boaz.............................................Executive Vice PresidentLinda Ah-Sue..................................V.P., Events and ConferencesKhristine Brookes......................................V.P., CommunicationsJames A. Dorn ..........................................V.P., Monetary StudiesGene Healy............................................................. Vice PresidentJon Heimerman...................... V.P./ Chief Administrative Officer David Kirby....................................................... V.P., DevelopmentBrink Lindsey................................... Vice President for ResearchRoger Pilon.........................................................V.P., Legal AffairsChristopher Preble..........V.P.,Defense & Foreign Policy StudiesJohn Samples...................................................V.P. and PublisherEdward H. Crane............................................President Emeritus

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dent for research at the Cato Institute,writes in “Low-Hanging Fruit Guardedby Dragons: Reforming Regressive Reg-ulation to Boost U.S. Economic Growth”(White Paper), progressives, conservatives,and libertarians have a strong commoninterest in reversing this slowdown. Unfor-tunately, agreement on ends need not trans-late into agreement on means. Neverthe-less, Lindsey argues that despite today’spolarized political atmosphere, it is possibleto construct an ambitious and highly prom-ising agenda of pro-growth policy reformthat can command support across the ideo-logical spectrum. Such an agenda would takeaim at policies whose primary effect is toinflate the incomes and wealth of the rich,the powerful, and the well-established. Thispaper identifies four major examples ofwhat Lindsey calls “regressive” regulation:excessive monopoly privileges grantedunder copyright and patent law, restrictionson high-skilled immigration, protection ofincumbent service providers under occupa-tional licensing, and artificial scarcity creat-ed by land-use regulation. Focusing on theseareas, he argues, would open up a new frontin the ongoing policy fight. “Instead ofanother left-right conflict, the contest couldbe framed as a choice between the publicinterest and vested interests,” he concludes.

HOW MARKETS UNDERMINE CASTEDISCRIMINATION IN INDIAWhen India became independent in 1947, itsliberal constitution banned caste discrimina-tion and reserved seats for dalits—oncecalled untouchables—in the legislatures, gov-ernment services, and some educationalinstitutions. These reservations created athin upper crust of dalits in politics and gov-ernment services. But caste discriminationremained widespread, especially in ruralIndia. As Cato research fellow SwaminathanS. Anklesaria Aiyar argues in “Capitalism’sAssault on the Indian Caste System” (Pol-icy Analysis no. 776), however, major changeswere sparked by economic reforms in 1991,

opening up a once-closed economy. One dis-trict survey in Uttar Pradesh shows the pro-

portion of dalits own-ing brick houses upfrom 38 percent to 94percent, and the pro-portion running theirown businesses upfrom 6 percent to 36.7percent. The DalitIndian Chamber of

Commerce and Industry now boasts ofmore than 3,000 member-millionaires. Fordecades, India’s socialist policies achievedonly 3.5 percent annual growth. Licenses andpermits were required for all economic activ-ity. Upper-caste networks monopolized theseand kept dalits out. But the 1991 economicreforms dismantled controls, acceleratinggrowth and competition. “Fierce competi-tion soon ensured that the price of a suppliermattered more than his caste,” Aiyar con-cludes. “The dalit revolution is still in its earlystages, but is unstoppable.”

YOUNG VOTERS DEVELOP “IRAQ AVERSION”The Millennial Generation, those bornbetween 1980 and 1997, now represent onequarter of the U.S. population. Comparedwith their elders, Millennials have distinctattitudes toward foreign policy issues. “Themain drivers of Millennials’ foreign policyattitudes fall into two major categories,”write A. Trevor Thrall, associate professor atGeorge Mason University and Cato adjunctscholar, and Erik Goepner, doctoral studentin public policy at George Mason University,in “Millennials and U.S. Foreign Policy:The Next Generation’s Attitudes towardForeign Policy and War (and Why TheyMatter)” (White Paper). The first compris-es the trends and events that started oroccurred before the Millennials came of age,including the end of the Cold War, the devel-opment of the Internet, and the accelera-tion of globalization. The second includesmajor events that occurred when they were

between the ages of roughly 14 to 24, includ-ing the attacks of 9/11 and the wars inAfghanistan and Iraq. Together, these forceshave led to three critical differencesbetween the Millennials’ attitudes and thoseof previous generations. First, Millennialsperceive the world as significantly lessthreatening than their elders do. Second,Millennials are more supportive of interna-tional cooperation than prior generations.Finally, thanks in particular to the impact ofthe wars in Iraq and Afghanistan, Millenni-als are also far less supportive of the use ofmilitary force.

THE HIGH COSTS OF E-VERIFYE-Verify is an electronic employment eligi-bility verification system intended to weedunauthorized immigrants out of the labormarket. A mandate requiring all employersto screen their new hires through federalgovernment databases will likely be includ-ed in immigration reform measures con-templated by the 114th Congress. But,according to Alex Nowrasteh, a Cato immi-gration policy analyst, and Jim Harper, a sen-ior fellow at the Institute, in “Checking E-Verify: The Costs and Consequences of aNational Worker Screening Mandate”(Policy Analysis no. 775), E-Verify is an intru-sive regulation that places the onus of immi-gration law enforcement on Americanemployers. It’s not only expensive, but alsohas “a startling degree of inaccuracy.” Itcould exclude hundreds of thousands ofAmericans from employment—at least inthe short run. And it’s ineffective at prevent-ing unauthorized immigrants from workingin the United States, as the experience ofArizona demonstrates. “If E-Verify is man-dated nationwide, worker and employeravoidance and noncompliance would causesupporters of interior enforcement of immi-gration law to seek harsher sanctions onbusinesses, more punitive measures forunauthorized workers, and a biometricidentity system for all Americans—a stepthat must be avoided,” the authors write. n

September/October 2015 CATO POLICY REPORT • 19

HAHAHAVeep is the most authentic because it un-derstands the three most important thingsabout life in Washington: the humanity,the banality, and the absurdity. . . .

There is one important element thatthe show gets wrong: President Meyer andher staff are motivated entirely by self-interest. In my experience, the vast major-ity of people in Washington—Republicansand Democrats alike—show up to work toserve and improve a country that they love.—DAN PFEIFFER IN GRANTLAND, 06/12/15

IT’S FORBIDDEN ANDCOMPULSORYSeveral Washington cab companies maymiss a June 29 deadline to upgrade at least 6percent of their fleets to wheelchair-accessible vehicles. . . . Under the D.C. TaxiAct of 2012, the 27 cab companies withfleets of at least 20 taxis were supposed toconvert or purchase accessible vehicles. . . .

Independent drivers may not purchaseand operate their own wheelchair-accessi-ble taxis.—WAMU, 06/09/15

“CRUEL GERMANS” INSIST THATGREEKS PROMISE TO PAY BACKMONEY THEY BORROWED INORDER TO BORROW MOREJust like that, the image of the “cruel Ger-man” is back.

Germany—more specifically, its chan-cellor, Angela Merkel—has faced years ofderision for driving a hard bargain with fi-nancially broken Greece, which has re-ceived billions in bailouts since 2010. Butfor both Germany and Merkel, the conces-sions extracted this week from Athens ap-pear to have struck a global nerve. By

insisting on years more of tough cuts andmaking other demands that critics havebilled as humiliating, Berlin is wiping outdecades of hard-won goodwill. . . .

Germany was one of more than adozen nations that insisted on a toughdeal with Greece. But Britain’s Daily Mailsingled out Germany, saying Greece hadsurrendered to austerity “with a Germangun at his head.”—WASHINGTON POST, 07/17/15

SO THE BACKLOG IS BEING REDUCEDNearly one-third of veterans waiting to receive health care through the Depart-ment of Veterans Affairs are already dead,according to an internal VA document pro-vided to The Huffington Post.—WASHINGTON TIMES, 07/14/15

THE SCI-FI DYSTOPIA CREATEDBY A LACK OF WATER MARKETSTheir two peach trees had turned brittle inthe heat, their neighborhood pond had van-ished into cracked dirt and now their stain-less-steel faucet was spitting out hot air.“That’s it. We’re dry,” Miguel Gamboa saidduring the second week of July, and so hewent off to look for water.—WASHINGTON POST, 07/19/15

CRONYISM DOES A GOOD BUSINESS IN MARYLANDWhile [former Maryland governor Mar-tin] O’Malley commanded far smaller feesthan the former secretary of state—andgave only a handful of speeches—he alsoseemed to benefit from government andpolitical connections forged during histime in public service.

Among his most lucrative speeches wasa $50,000 appearance at a conference inBaltimore sponsored by Center Maryland,an organization whose leaders include a for-mer O’Malley communications director, thefinance director of his presidential campaignand the director of a super PAC formed tosupport O’Malley’s presidential bid.

O’Malley also lists $147,812 for a seriesof speeches to Environmental Systems Re-search Institute, a company that makesmapping software that O’Malley heavilyemployed as governor as part of an initia-tive to use data and technology to guidepolicy decisions.—WASHINGTON POST, 07/16/15

THIS IS THE HOUSING MARKETYOU WANTED, HILLARY CLINTON STAFFERSFor decades, idealistic twenty-some-things have shunned higher-paying andmore permanent jobs for the altruism andadrenaline rush of working to get a candi-date to the White House. But the stafferswho have signed up for the Clinton cam-paign face a daunting obstacle: the NewYork City real estate market. . . .

Mrs. Clinton’s campaign prides itselfon living on the cheap and keepingsalaries low, which is good for its own bot-tom line, but difficult for those who needto pay New York City rents. . . .

When the campaign’s finance direc-tor, Dennis Cheng, reached out to NewYork donors [to put up staffers in theirapartments], some of them seemed con-cerned with the prospective maze of cam-paign finance laws and with howproviding upscale housing in New YorkCity might be interpreted.—NEW YORK TIMES, 06/26/15

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