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Ian Vásquez

According to the polls, Venezuelans will overwhelmingly vote against President Nicolas Maduro in Sunday’s presidential election, posing the biggest threat his regime has so far seen to its survival. Nobody expects Maduro to accept the results, but neither does anybody know how things will turn out.

After many years of ineffective and internally divisive opposition, the person who has managed to unite Venezuelans under a single ballot is Maria Corina Machado, one of the world’s most admirable political leaders. Although she won the opposition primary by more than 90 percent of the vote, her name is not on the ballot. Sensing vulnerability, the regime disqualified her candidacy. Machado then selflessly backed Edmundo Gonzalez and has organized massive rallies across the country in her campaign to support Gonzalez and restore freedom to Venezuela.

Machado is under no illusion that Sunday’s vote will be free or fair, as she explained in an address to our recent conference in Buenos Aires, “The Rebirth of Liberty in Argentina and Beyond,” which is worth watching. Machado’s appeal is that she represents a clear set of values—those of liberal democracy—and has come to embody sheer dignity and courage in the face of adversity and threats to her life and safety.

For example, Venezuelans remember when, as a congresswoman, she called Hugo Chavez a thief to his face on national television in 2012 and challenged him to explain his disastrous record. They remember too how Chavistas broke her nose in an attack on the very same floor of the Congress the next year. The past year of campaigning has seen even more adversity, with numerous members of her team being abducted or arrested or who have had to seek foreign refuge.

Throughout her many years of activism and political involvement, her message has been consistent and clear-eyed. At a Cato policy forum in 2009, for example, she explained how Chavez’s social policies were failing to achieve their supposed goals and why socialist policies would not work. Venezuelans have heard her stick to her principled message in favor of market democracy and limiting power over the years and that too has bolstered her credibility as the country’s economic, social, and political crisis deepens.

Maria Corina Machado’s achievement in uniting her country against tyranny has already been great. No matter what the outcome, the regime and its legitimacy have already been weakened as a result.

Benjamin Giltner and Jonathan Ellis Allen

On Wednesday, July 24, President Joe Biden delivered a speech in which he claimed he is the “first president of this century to report to the American people that the United States is not at war anywhere in the world.” Anyone following current events knows that this is, as Biden likes to say, pure “malarky.” The current president may not have initiated any new wars, but he ended only one of the many unnecessary conflicts he inherited and continues to support many others.

To Biden’s credit, he completed the withdrawal from Afghanistan and he has not started a new war or committed troops to the two highest casualty wars occurring right now: the war in Ukraine and the war in Gaza. However, that does not mean the United States is not involved in those conflicts. Using presidential drawdown authority, Biden has transferred billions of dollars’ worth of weapons to Ukraine and has considered sending additional American military advisors to the country. The Biden administration has approved over 100 weapons transfers to Israel worth more than $41 billion and $15 billion in military aid. Whether the public agrees or disagrees with the administration’s actions, both conflicts have the potential for escalation that could lead to direct US military involvement.

Despite not technically having officially declared war since World War II, the United States is engaged in numerous conflicts across the globe. The Pentagon’s Defense Casualty Analysis System reported the deaths of thirteen US service members from “hostile action” under the first two years of the Biden administration, for which data are available. While this is less than the sixty-five deaths from hostile action under the Trump administration, these casualty numbers cut against Biden’s claims.

In the Middle East, US forces remain in harm’s way despite the region’s declining strategic relevance to the United States. Today, a total of 900 troops are deployed in Syria and 2,500 military personnel remain in Iraq. These troops represent sitting ducks, serving no strategic purpose for the US.

Since October 2023, Iran-backed groups have launched more than 170 attacks on US troops in Iraq and Syria, as recently as yesterday. So far, these attacks have resulted in the tragic deaths of three US service members in Jordan and left at least 130 American troops with traumatic brain injuries. US support for the Saudi Arabia-led war in Yemen helped the Houthis consolidate power and align with Iran.

The Houthis have attacked over fifty shipping vessels since November 2023 in retaliation to Western support for Israel’s war in Gaza. US naval forces have launched numerous strikes against the Houthis, including the day of Biden’s Oval Office address. Pentagon officials and analysts alike have labeled these attacks as the toughest running sea battle that the US Navy has faced since World War II. So far, casualties include two Navy SEALS during an interdiction mission of a ship carrying Iranian weapons.

Involvement in Yemen also epitomizes how objectiveless the War on Terror has been. When asked about the strikes against the Houthis, Biden said, “When you say ‘working,’ are they stopping the Houthis? No. Are they going to continue? Yes.” Besides placing US troops in danger, this tit-for-tat between the US Navy and the Houthis has cost the United States around $1 billion in missiles and munitions.

Despite this, the Middle East is neither more stable nor secure.

Outside of the Middle East, the United States under Biden has been involved in active combat throughout the African continent, with most of these missions taking place under Operation Juniper Shield, a counterterrorism mission. Today, the United States has approximately 10,219 troops deployed throughout Africa at approximately twenty bases throughout the continent, including Somalia, Mali, Kenya, Chad, and Niger. Just as in the Middle East, the results of US troops in Africa have been lackluster at best. Somalia remains a failed state, and coups have upended Mali and Niger. Though plans to withdraw US troops from Niger and Chad are welcomed, a Pentagon spokesperson called this only a “temporary step.”

Biden’s speech presented an incomplete picture of Washington’s myriad military engagements abroad to the American public. The United States remains deeply involved in objective-less and counterproductive conflicts around the globe, endangering US troops and jeopardizing American security.

Daniel Raisbeck

The outcome of Sunday’s election in Venezuela is anyone’s guess. For one thing, referring to the exercise as an “election” is hardly precise because most voters will not be allowed to elect their candidate of choice. In 2023, the Chavista regime banned opposition leader María Corina Machado from running for office for fifteen years. Last October, Machado won an opposition primary with over 90 percent of the vote. The regime even prevented Machado’s chosen successor, octogenarian academic Corina Yoris, from registering as a candidate before the official deadline.

The opposition thus had to settle for supporting the pre-approved candidacy of Edmundo González Urrutia, an obscure, 74-year-old former diplomat who last held a post—as ambassador to Argentina—in 2002. But Machado’s massive rallies across Venezuela are still the campaign’s primary spectacle; she often has to elude the socialist regime’s roadblocks and other impediments—such as the arbitrary imprisonment of her staffers— just to speak to eagerly expecting crowds.

Due to Machado’s support, González Urrutia is due to win in a landslide on Sunday against Nicolás Maduro, the unpopular socialist autocrat who has held power since 2013. This is according to practically all opinion polls. The question is whether the Maduro regime will accept an adverse result, or even if it will allow an electoral defeat to materialize. Notoriously, the regime controls the National Electoral Council, which presides over a fully electronic voting system that has elicited constant suspicions of fraud. According to Lewis Pereira, a Venezuelan sociologist,

“Testimonies from former government intelligence agents, who later defected, suggest that the government, apart from announcing fraudulent results, has introduced false national identification cards into the system. The estimate is 4 million false ID’s. It seems that, when the government wants to provide authentic data, it manipulates the results in its favor by several million votes.”

Beyond the possibility of fraud on a colossal scale, consider Maduro’s incentives to leave power or rather the lack thereof. With the US State Department offering up to USD $15 million for information leading to his arrest or conviction due to drug trafficking charges, and the International Criminal Court probing his government for crimes against humanity, Maduro can hardly look forward to a quiet spell in opposition. The same applies, of course, to his cronies, for whom power, jail, or bitter exile appear to be the main options at hand. Hence Maduro’s recent threat of a bloodbath and a civil war if the opposition wins the election. Hence also the rumors of the offer of an amnesty in exchange for a peaceful transfer of power, and of Maduro’s alleged plans to flee to Cuba or even Turkey. For the time being, these are matters for speculation.

Far less speculative are the root causes of Maduro’s current predicament. It is thus fitting to ask how the once-formidable Chavista regime, which was so certain of its grip on power that it attempted to export its revolution aggressively across the region, ended up with its back against the wall on its home turf, even in Hugo Chávez’s old regional strongholds. The following graphs, pertaining solely to inflation and currency devaluation, will provide some hints.

Inflation

Source: International Monetary Fund 

High inflation rates in Venezuela during the 1990’s are an underestimated cause of Chávez’s eventual rise to power. Even so, the “Agenda Venezuela” economic plan, which Rafael Caldera implemented toward the tail end of his second presidency (1994–1999), got rid of fiscal deficits and reduced the annual inflation rate from 99.99 percent in 1996 to 35.8 percent in 1998, the year when Chávez won his first election.

The downward trend continued during Chávez’s first years in office. While the central bank maintained some independence, the inflation rate reached 12.5 percent in 2001, the lowest level since the 1980’s. Nonetheless, public spending spiraled out of control and Chávez took control of Venezuela’s central bank in 2007. The following year, José Rojas, who served as Chávez’s finance minister before turning into a critic, predicted that the Venezuelan Central Bank’s loss of autonomy would lead to a financial crisis. The warning turned out to be understated.

As Chávez depleted international reserves and expanded the money supply to finance deficit spending, inflation inevitably rose and remained in double digits. By 2013, the year of Chávez’s death, inflation exceeded 40 percent per annum for the first time since 1997. Nor would it recede from that level. The inflation rate surpassed triple digits in 2015. By 2017, the year when Maduro repressed massive, student-led protests against his regime (hence the ICC’s probe against the autocrat), inflation stood above 430 percent. Yet this paled in comparison to the hyperinflationary phase of 2018 and 2019 when inflation reached over 65,000 percent and 19,000 percent per annum respectively. Such stratospheric inflation levels make the triple-digit figures of 2015–2017 and 2020–2023 seem mild.

Source: International Monetary Fund

It is a wonder, one might say, that Maduro’s hyperinflationary government currently maintains support levels above 20 percent, according to some opinion polls.

Devaluation

When Chávez took power in 1999, one dollar bought 595 bolivars, a price within the currency band that had been in place since 1996. Following the failed attempt to oust him from power in April of 2002, Chávez let the currency float freely, initially from a rate of 793 bolivars per dollar. In February of 2003, Chávez abandoned the short-lived free-floating regime, imposed exchange rate controls, and fixed the currency to the dollar at a rate of 1,600 for purchases, whereas the market rate had stood at over 1,800 bolívares per dollar.

Chávez blamed the bolivar’s glaring weakness on the large oil sector strike of late 2002. But, as economist Ronald Balza Guanipe wrote, public spending had increased by 50 percent in real terms (over 90 percent nominally) in a mere three-year period, while the financing of such largesse with oil revenues expanded the monetary base and “generated pressure over the exchange rate and the prices of goods and services.”

Source: Federal Reserve of St. Louis

As the spread between the official and black-market rates grew, Chávez further devalued the currency in 2004, in 2005, and in 2010 (by a full 50 percent). Two years earlier, in 2008, Chávez had eliminated three zeroes from the currency, thus announcing the launch of the “strong bolivar,” a new currency. In early 2013, as he received treatment for cancer in Cuba, Chávez devalued the bolivar a further 32 percent. After the latter’s death, Maduro devalued by a further 37 percent in 2016, thus leaving the official exchange rate at 10 bolivars per dollar (or 10,000 according to the previous denomination).

By December 2017, the Venezuelan currency had lost 92 percent of its value against the US dollar since December 2000. Amid the hyperinflationary bout of 2018, Maduro devalued the bolivar by a further 95 percent and pegged it to a new cryptocurrency called the Petro, purportedly backed by Venezuelan crude oil. With a single dollar buying over 248,000 bolivars—and a modest lunch selling for around 3 million bolivars—Maduro announced the removal of a further five zeroes from the currency in July 2018 (he removed yet another six zeroes in October 2021).

Source: Federal Reserve Bank of St. Louis

In effect, Chávez and Maduro had made Venezuela’s currency worthless, with street vendors selling woven goods made out of bolivar banknotes.

Source: Federal Reserve Bank of St. Louis

Naturally, Venezuelans did not sit idly as the socialist regime destroyed a national currency that had once been praised for its stability. Hence their adoption of bitcoin and other cryptocurrencies; according to a 2022 United Nations Conference on Trade and Development policy brief, Venezuela ranked third in the world in terms of cryptocurrency adoption (with digital currency ownership as a share of the population standing at 10.3 percent, behind only Ukraine and Russia). Hence, above all, Venezuelans’ widespread adoption of the US dollar as their unofficial currency after Maduro was forced to relax Chávez-era exchange rate controls in 2018.

In early 2021, Reuters reported that over 50 percent of all transactions for basic goods in large Venezuelan cities—and 90 percent in cities close to the Colombian border— were being made in dollars or euros. Johns Hopkins economist Steve Hanke argued that the dollar had become Venezuela’s unit of account, since even bolivar transactions were calculated in dollar terms. As I wrote at the time, de facto dollarization provided Venezuelans with much-needed monetary stability. Today, it is evident that, though still incomplete, dollar adoption has helped to rein in thousand-plus-percent annual inflation levels, thus buying Maduro some time (nominally until Sunday’s election) at the very least.

In 1919, Vladimir Lenin told London’s Daily Chronicle that “the simplest way to exterminate the very spirit of capitalism is (…) to flood the country with notes of high face-value without financial guarantees of any sort,” a quote best known through John Maynard Keynes’s synthesis: “the best way to destroy the capitalist system (is) to debauch the currency.” And yet Venezuela’s recent experience—Sunday’s results notwithstanding— confirms that debauching the currency is also the natural way in which a socialist system destroys itself.

How else to explain the “Bolivarian Republic’s” forced entry into Latin America’s dollar zone, where people freely choose a relatively sound currency, much in the tradition of the bourgeois pitiyankis (roughly “Yankee lovers”) whom Chávez so often maligned?

Neal McCluskey

This morning, vice president and presumptive Democratic presidential nominee Kamala Harris is scheduled to speak to the national convention of the American Federation of Teachers, the country’s second-largest teachers union. She will almost certainly talk about raising teacher pay, perhaps harkening back to her 2020 presidential campaign proposal to have the federal government fund roughly $13,500 per-teacher raises.

If Harris mentions that teacher pay has been stagnant for decades, she is right. As seen in Figure 1, since 1990 inflation-adjusted salaries have been essentially flat, hovering between $69,000 and $70,000, with a big dip recently.

There is a good chance that an explanation for this that will be offered at the convention is spending cuts to public schools. But as Figure 2 shows, that has not been the case. Inflation-adjusted spending per-pupil has risen pretty steadily, from $12,272 in the 1990–91 school year to $18,614 in 2020–21. Meanwhile, real total spending rose from around $513 billion in 1990–91 to almost $927 billion in 2020–21.

Where is the money going? One place to look is total public school employees (Figure 3).

The number of teachers as a share of all employees has decreased considerably since 1990, from 53.4 percent to 47.5 percent. The employment increases have come especially in instructional aids, which rose from 8.8 percent of all employees to 13.3 percent.

There are also simply more employees. In the fall of 1990, public schools employed 4.5 million people, or 9.2 students per employee. In fall 2022, it was 6.8 million, or just 7.3 students per employee.

So why are public school teachers not getting paid better? At least in part, because public schools have chosen the path of hiring more people, and smaller shares of them teachers, rather than paying teachers more.

That is not something the federal government, which has no constitutional authority to govern in education anyway, should be encouraging.

Michael Chapman

Donald Trump’s vice presidential running mate, Republican Senator J.D. Vance (OH), is a very smart and admirable man, but when it comes to basic economics—economics vital to liberty—he apparently is lacking. Vance supports price controls, specifically hiking the federal minimum wage to $11 an hour. This will raise costs for businesses and consumers and (as most studies still find) will kill jobs, especially for younger workers.

Vance is not alone in his devotion to government manipulating prices, of course. President Joe Biden and Vice President Kamala Harris also back a 5 percent cap on rent increases for corporate landlords nationwide. My colleague Ryan Bourne has explained why that is bad policy and documented how top economists are cold on the plan. Yet the prevalence of price controls is growing (Bourne calls it The War on Prices), and rising minimum wage rates at the state and local level exemplify this trend.

Vance would bring the policy of minimum wage hikes to DC. The current federal minimum wage is $7.25 an hour. In the fall of 2023, however, Vance co-sponsored a Republican bill, “The Higher Wages for American Workers Act.” This legislation “gradually raises the federal minimum wage to $11 by 2028, and then indexes it to inflation every two years,” reads a fact sheet on the bill. The legislation also mandates E‑Verify to “ensure rising wages go to legally authorized workers.”

The new bill is currently sitting in the Senate Judiciary Committee.

Vance spoke about the minimum wage in a June 24 interview with Ross Douthat of the New York Times. Explaining his populist economics, Vance said, “It’s a classic formulation: You raise the minimum wage to $20 an hour, and you will sometimes hear libertarians say this is a bad thing. ‘Well, isn’t McDonald’s just going to replace some of the workers with kiosks?’ That’s a good thing, because then the workers who are still there are going to make higher wages; the kiosks will perform a useful function; and that’s the kind of rising tide that actually lifts all boats.”

“What is not good is you replace the McDonald’s worker from Middletown, Ohio, who makes $17 an hour with an immigrant who makes $15 an hour,” added Vance. “And that is, I think, the main thrust of elite liberalism, whether people acknowledge it or not.”

As Eric Boehm at Reason magazine noted, “Vance is trying to play a clever game here. He’s arguing that job losses (or other negative economic consequences) due to well-intentioned governmental interventions should be ignored, and the focus should be on how workers benefit from those interventions. If you’re someone who favors greater governmental intervention in the economy, as Vance does, this is exactly the framework you’d like to work within.”

But, as Bourne has written, there is all the difference in the world between genuine productivity-enhancing innovation changing job opportunities and the government making it artificially expensive to employ people to do a job:

It’s true that free markets incentivize firms to invest in machinery that substitutes for labor if it boosts profits. This type of capital investment, when genuinely economic, can indeed improve firm productivity and raise wages for the remaining workers.

Yet artificially raising the price of labor through a government-mandated wage floor is different. It is a price control, incentivizing otherwise uneconomic investments that firms would spurn. The price control is, in effect, lying about the state of factor availability in the market, pushing businesses away from the optimal capital-labor mix based on the actual relative scarcities of those production factors.

Yes, the workers who remain employed might again see higher pay when firms purchase kiosks, though businesses may shift towards hiring higher-skilled labor to work alongside the machines, meaning the particular workers employed may change. What’s more certain is that fewer low-skilled workers would find jobs, and by raising the marginal cost of production, these uneconomic investments would reduce the overall scale of the firm’s operations. Hardly a route to ‘lifting all boats.’

Current day California is a good example of some of these adjustments. In April, California raised its minimum wage for most fast-food workers to $20 per hour. Since then thousands of workers have lost their jobs and menu prices have risen. Round Table Pizza and Pizza Hut, for example, announced they were laying off about 1,300 delivery drivers. McDonald’s, Chipotle, and Jack in the Box said they planned “to raise menu prices to compensate for the required wage increase,” reported NBC 7 San Diego.

This price control on wages has eradicated entry-level positions that can give vital experience to young and lower-skilled workers and provide protection against poverty. Driver Michael Ojeda, 29 years old, said, “Pizza Hut was my career for nearly a decade and with little to no notice it was taken away.”

Yes, some fast-food workers now get $20 an hour. But what is not seen is that about 9,500 fast-food workers lost their jobs, reported the Hoover Institution. That is a direct consequence of government intervention.

If the investment in kiosks Vance celebrates were so economically wise, businesses would have made them already. The fact they have not shows that minimum-wage-induced investments are inefficient. Indeed, as Bourne writes:

Suppose the government introduced a minimum sale price of $25,000 for used cars. Many cars worth $10,000 or $5,000 would simply not get sold at all. What might happen, however, is that some used car owners would face incentives to “invest” in upgrading their vehicles so that they justify the new $25,000 price.

Would anyone claim such investments were worthy because it resulted in some better cars? Would we celebrate that investment as a route to prosperity?

The answer is clearly “no.” Yet that is the reality Vance seeks to deny.

Jeffrey A. Singer

Last evening, the US premiere of the documentary “COVID Collateral: Where Do We Go For Truth?” was screened at the Cato Institute’s Hayek Auditorium. The film was produced and directed by Canadian filmmaker Vanessa Dylyn and premiered in Toronto, Canada in May.

While the film wasn’t live streamed, I moderated a roundtable discussion following it that was live streamed and recorded. The roundtable participants included Vanessa Dylyn, Dr. Jay Bhattacharya, former Director of the Centers for Disease Control and Prevention (2018–2021) Robert Redfield, and Cato economist Ryan Bourne.

During the discussion, Dr. Redfield said, “I always felt the basic premise of the Great Barrington Declaration was right on target…it wasn’t really about herd immunity; it was about targeted intervention to protect the vulnerable.”

Dr. Redfield also told the audience he argued against any mandates: “I think in public health, when you mandate somebody to do something they don’t want to do, all you do is reinforce in them the hesitancy to do that. So it was a huge mistake to go for vaccine mandates.”

The former CDC director drew attention to the fact that, as viewers of the film noted, he was not present among the pandemic task force members who stood behind President Trump in a press conference announcing lockdowns in the early days of the pandemic. Redfield chose not to participate in the press conference because “I was not an advocate of that at all.” Redfield added, “They tried to keep me off television. In fact, the secretary didn’t approve my ability to talk on television, which was awkward because I was only the CDC director” and “I always argued that the public health benefit of K through 12 was to stay in school.”

Later in the discussion, I asked Dr. Redfield why the World Health Organization recommended against entry and exit screening of travelers and that most advanced countries abandoned the policy while it persisted in the United States until mid-2022. Redfield responded that he initially recommended the policy in January, but by mid-February, it became clear that it was a mistake and no longer made sense.

Redfield also admitted that the task force underestimated how transmissible the virus was and that it had spread to many more people than they initially suspected, many of whom were asymptomatic.

Dr. Redfield stated he believed as early as January 2020 that the COVID-19 virus was genetically modified in the Wuhan Institute of Virology and escaped in a lab leak.

You can watch the whole discussion here.

Go here to find out when the documentary will become available to the public.

Chris Edwards

Media outlets are identifying vice-presidential options for likely presidential candidate Kamala Harris. Many of the VP options are state governors.

Cato grades the governors from “A” to “F” every two years on their tax and spending policies. The “A” governors push for lower taxes and spending, the “F” governors push for higher taxes and spending, and there are many governors in between.

Potential VP picks are listed below with their past Cato grades and a few notes on recent tax policy actions. Past Cato reports are here. The 2024 report will be released in October.

Progressive Democratic governors oppose nearly all tax cuts, and they often push for tax hikes hitting high-earners and businesses. The only tax cuts they favor are narrow low-income breaks and loopholes for favored corporations.

Moderate Democratic governors may go along with income tax rate cuts when pressed, and they may resist efforts to hike broad-based taxes unless they perceive a serious budget need.

Based on tax policy, I would put Newsom, Pritzker, and Whitmer in the category of left-wing progressives, and I would put Polis, Beshear, Cooper, and Shapiro in the category of moderates.

Gavin Newsom, California. Took office January 2019

Cato grades: 2022 (F), 2020 (C)

In 2022, Newsom approved legislation providing one-time rebates for low-income families. But he also approved a large tax hike on wages with SB 951, which increased payroll taxes to fund the state disability insurance program. The hike will raise taxes at least $3 billion annually and increase the state’s top tax rate on wages to 14.4 percent.

In 2024, Newsom signed a budget that raises corporate tax revenues $15 billion over the next three years.

Jared Polis, Colorado. Took office January 2019

Cato grades: 2022 (C), 2020 (C)

In 2022, Coloradans passed Proposition 121 cutting the individual and corporate tax rates. Polis endorsed the measure.

In 2023, Polis supported Proposition HH, which would have cut property taxes but would have also reduced taxpayer rebates under the TABOR mechanism. Voters rejected the plan.

In 2024 Polis signed SB 228, which changed TABOR to reduce income tax rates but not the total amount refunded to taxpayers. He also signed HB 1311, which created a new family tax credit, but the credit will reduce the amount of revenues refunded under TABOR.

Lastly, Polis signed SB 230, which imposed a fee on the oil and gas industry to raise $138 million a year for subsidizing public transit and other programs.

J.B. Pritzker, Illinois. Took office January 2019

Cato grades: 2022 (F), 2020 (F)

Pritzker has been raising taxes almost continuously since he entered office but with some narrow tax breaks mixed in. In recent years, he reduced inflation indexing under the income tax, and he has pushed for a sports wagering tax and limits on business deductions. While Pritzker favors higher taxes on businesses in general, he hands out narrow breaks to big corporations, such as $213 million in tax credits to a Chinese battery maker building a facility in Illinois.

Andy Beshear, Kentucky. Took office December 2019

Cato grades: 2022 (D)

Beshear proposed modest tax cuts in 2022, including freezing vehicle property tax rates and reducing the sales tax rate for a year. But he vetoed HB 8, which cut income taxes, and the legislature overrode him to enact the reforms.

Beshear changed direction in 2023 and reluctantly approved tax reforms. He signed HB 1, which accelerated the income tax cuts passed in 2022. That decision made political sense because he is running for reelection this year, and if he had vetoed the bill the legislature would have likely overridden him.

Gretchen Whitmer, Michigan. Took office January 2019

Cato grades 2022 (F), 2020 (F)

Whitmer has repeatedly vetoed reforms reducing income tax rates, but she has approved a smattering of narrow breaks such as low-income credits and tax cuts for retirement income. Recently, she proposed a gimmicky rebate of $1,000 for gas-powered cars, $2,000 for electric vehicles, and an extra $500 for union-made cars.

Governor Roy Cooper, North Carolina. Took office January 2017

Cato grades: 2022 (B), 2020 (C), 2018 (F)

In 2021, Cooper went along with the legislature and approved large income tax rate cuts, but in 2023 he reversed course and did not sign further tax reforms passed by Republican legislators.

In 2024, Cooper proposed raising future corporate taxes, cutting the state’s school choice program, and replacing the state’s flat-rate individual income tax with a two-rate system. The legislature rejected the plan.

Governor Josh Shapiro, Pennsylvania. Took office January 2023

Shapiro has not been graded by Cato yet. Over his first year and a half in office, he has supported both tax cuts and tax increases.

Shapiro’s predecessor in office, Tom Wolf, signed a phased-in corporate tax rate cut, and Shapiro supports the reform. Shapiro has not pushed for a severance tax on the energy industry, as Wolf had done, and he has proposed exempting cell phone bills from sales taxes.

However, Shapiro has favored some tax hikes. He supports cap-and-trade plans to raise hundreds of millions of dollars a year from electric utility customers, and he is proposing a new tax on electronic gaming machines.

Nicholas Anthony

More people are taking notice each day of the risks of central bank digital currencies (CBDCs). These concerns have been voiced in the media, in testimonies before Congress, and elsewhere. However, the officials driving the charge for CBDCs appear undeterred. Instead, some of these officials have taken up a marketing effort to rebrand CBDCs as “digital cash.”

Consider just a few examples. The European Central Bank has said, “A digital euro would be an electronic form of cash for the digitalised world.” The Norges Bank has said a CBDC would be a “digital version of cash.” Similarly, the Sveriges Riksbank has said a CBDC would be “just like cash.” Or, in a more striking example of this rebranding, the Reserve Bank of New Zealand published a CBDC consultation paper that said “CBDC” just eight times. In contrast, the paper said “digital cash” 370 times.

Finally, at a World Economic Forum event, Central Bank of Bahrain governor Khalid Humaidan said, “We’re probably going to stop calling it ‘central bank digital currency.’ It’s going to be a digital form of the cash, and at some point in time hopefully we will be able to be one hundred percent digital.”

A CBDC is Not Just Another Form of Money

Despite the claims, a CBDC is not “cash for the digitalised world.” Yes, like cash, a CBDC would be a liability of the central bank. However, unlike cash, a CBDC would offer neither the privacy protections nor the finality that cash provides.

First, on the issue of privacy, a CBDC would be a radical departure from cash. When I present a five-dollar bill to someone for payment, we are the only ones who truly know the transaction’s details. Maybe a person nearby saw the transaction, but they are unlikely to know just how much money I handed off. It’s even more unlikely that they know the serial number of the note that I handed over. And unless they know me well, they are unlikely to know my name and address.

In contrast, central bankers—including Federal Reserve Chair Jerome Powell, Bank for International Settlements General Manager Agustín Carstens, European Central Bank President Christine Lagarde, and Bank of England Governor Andrew Bailey—have openly and repeatedly said that anonymity and complete privacy would not be an option with a CBDC. To share just one example, President Lagarde said, “When we surveyed Europeans, the first concern that they had … was privacy. Privacy is first and foremost on their mind when we divvy up the digital euro. [But] there would not be complete anonymity as there is with [cash.]”

Second, a CBDC would be a radical departure from cash in terms of finality as well. In simple terms, when I hand over cash to make a payment, that payment has settled. There are no pending updates that require me to wait for the transaction to be approved or cleared. There are no chargebacks. There are no interventions. The payment is final.

In contrast, a CBDC payment would not be final. Much like the electronic money used today with credit cards, debit cards, and payment apps, transactions would not settle instantly. More so, transactions could be charged back after the fact. But going further than today’s electronic money, basic programmability with a CBDC could limit, or otherwise restrict, payments based on a whole host of criteria—criteria that would likely vary depending on the political party in power.

Conclusion

Central bankers and other policymakers are likely to continue their efforts to rebrand CBDCs as “digital cash,” but the public shouldn’t be fooled by these marketing efforts. Given governments have consistently chipped away at financial privacy and CBDCs are positioned to be the capstone in financial surveillance, it’s unlikely that promises made to tamp down concerns are going to hold true in practice.

Are you interested in learning more about central bank digital currency? My new book, Digital Currency or Digital Control? Decoding CBDC and the Future of Money, is out now and available here.

Romina Boccia and Dominik Lett

The Senate is ready to raid the figurative emergency rainy day fund again. As we highlighted in a recent Debt Digest, Senate Appropriations Chair Patty Murray (D‑WA) and Vice Chair Susan Collins (R‑ME) have reportedly struck a deal to increase fiscal year (FY) 2025 discretionary spending by $34.5 billion by designating some ordinary spending as emergency funding. This is a common trick legislators employ to get around spending limits when sticking to a budget seems too politically difficult.

Over at the American Enterprise Institute, Jim Capretta has pointed out how Congress has already fully reversed all of the $1.3 trillion in 10-year savings from the June 2023 Fiscal Responsibility Act (as scored by the Penn Wharton Budget Model) when it included emergency designations in FY 2024 funding bills and passed the unpaid-for Ukraine-plus foreign aid bill. As the CBO explained in its June update:

“To account for legislation enacted since CBO completed its February 2024 baseline projections, the agency increased its projections of discretionary outlays over the 2025–2034 period by $1.3 trillion. Funding that is not constrained by the limits put in place by the Fiscal Responsibility Act of 2023 (FRA, P.L. 118–5)—often referred to as nonbase funding [aka emergency spending]—accounts for more than 70 percent of the upward revision.”

To legislators’ credit, Congress hasn’t spent the full $1.3 trillion yet. Instead, CBO assumes that higher emergency spending in FY24 will be extended into the future, thus assuming a higher baseline level of spending because Congress will likely come up with new “emergencies” it wants to spend money on. That’s not an unreasonable assumption given congressional profligacy and, as Capretta points out, “proliferating global security threats.” However, it also reflects a budget baseline policy where budget-busting deficit spending is nearly a foregone conclusion—not an ideal state of affairs given the nation’s deteriorating fiscal health.

Against this backdrop, the House Budget Committee recently released three legislative discussion drafts and issued a request for information, asking independent experts and issue stakeholders to provide feedback and additional ideas to reform the budget process. Bringing more transparency and limiting congressional abuse of emergency designations has been a big priority for us over the past year, and we jumped at the chance to submit a statement for the record. Below are highlights from our submission:

Emergency spending is a major contributor to US publicly held debt. Since 1992, Congress has designated more than $12 trillion as emergency spending. Sometimes emergency spending is necessary to respond to unanticipated, temporary, and urgent events, such as the COVID-19 pandemic. Even then, Congress has overleveraged the emergency spending category following the adage to “never let a good crisis go to waste.”

Moreover, Congress is increasingly abusing emergency designations to evade spending limits by designating regular, expected spending as “emergencies” simply to get around inconvenient spending limits. Given the unsustainable growth in national debt accompanied by high and rising interest costs, the time to rein in emergency abuses is now before the next costly disaster strikes.

Draft Proposal: Requiring Sponsors of Legislation to Justify any Emergency Spending

The House Budget Committee’s emergency discussion draft aims to foster greater fiscal responsibility in emergency spending by requiring legislators to justify new emergency expenditures, covering both mandatory and discretionary spending. This requirement would introduce a minimal hurdle in the legislative process, encouraging good-faith discussions on emergency designations. Additionally, the draft legislation would require tracking and reporting on the cumulative total of all emergency-designated amounts for each fiscal year. This increased transparency and accountability would provide regular insight into the costs of emergency designations, promoting more responsible use of taxpayer dollars.

In short, the committee draft wants lawmakers to explain why they’re dousing emergencies in money as if they were watering a Vegas golf course and keep track of it all so we don’t drown in waste-ridden debt.

These were two major recommendations we made in our Cato policy analysis from January, titled Curbing Federal Emergency Spending, and we’re thrilled that the House Budget Committee is advancing these ideas further! The House is taking an important first step to getting a hold of the emergency spending problem. At the very least, we can expect some comedic relief as legislators try to explain why something as mundane as paying FBI agents their yearly salaries and planned expenses is suddenly an emergency.

Beyond tracking and justifying new emergency spending, here are several other reforms the committee might consider:

Offset emergency spending: Implement a budget enforcement mechanism to offset new emergency expenditures with spending reductions elsewhere to prevent budget-breaking initiatives—when Congress plays fast-and-loose with emergency spending like there is no tomorrow—and encourage forward-thinking budget planning. Unlike many states, there is not a federal “rainy day” fund that provides for general emergencies. Instead, Congress chooses to designate just about anything as emergency spending, and there are no limits for how much legislators can spend on emergency designations either. Rep. Emmer (R‑MN) and Sen. Braun’s (R‑IN) Responsible Budget Targets Act would implement emergency offsets over a six-year period as part of a comprehensive set of budget targets.

End executive emergency declarations after 30 days: Create a “shot clock” for emergency declarations to automatically expire unless extended by Congress, limiting costly executive overreach and preventing prolonged states of national emergency. The ARTICLE ONE Act, introduced by Rep. Roy (R‑TX) and Sen. Lee (R‑UT), would restrict presidential emergencies to 30 days, reigning in excessive emergency powers.

Enhance transparency over executive emergency spending: Require more detailed and publicly available expenditure reports from the executive to provide transparency and accountability, allowing Congress and the public to monitor emergency fund usage. Rep. Gosar (R‑AZ) and Sen. Marshall’s (R‑KS) National Emergency Expenditure Reporting Transparency Act would take a big step in the right direction by requiring National Emergency Act expenditure reports to be publicly available.

Correct the budget baseline distortion: Exempt emergency spending from the CBO baseline to avoid the ratchet effect of increased spending expectations and accurately reflect that emergency designations should be temporary. The Stop the Baseline Bloat Act, introduced by Reps. Grothman (R‑WI) and Case (D‑HI), would make this exact change. While this reform would make new emergency authorizations appear to have a smaller effect on the 10-year budget baseline, emergency spending writ large would no longer be assumed to continue increasing in perpetuity, removing a baseline distortion that serves as an implicit justification for spending-prone legislators.

Congress has a habit of playing fast and loose with emergency spending, like a kid in a candy store with grandpa’s credit card. This reckless behavior has ballooned deficits and debt to cartoonish proportions, with the emergency spending total, including interest costs, over the past 30 years being equivalent to about half of the total publicly held debt.

The House Budget Committee is taking a crucial step toward ensuring everyone can see where the money is going and why, with their current draft requiring sponsors of legislation to justify any new emergency spending. Legislators have the chance to further step up and put sensible guardrails in place before the next crisis blows the US debt even further out of proportion.

Jeffrey A. Singer

The German edition of Medscape Medical News reported on July 19 that Europe is beginning to experience a surge in black-market synthetic opioids. Professor Heino Stöver of the Institute for Addiction Research in Frankfurt am Main, Germany, told Medscape Medical News reporter Ute Eppinger that fentanyl might “flood the German market as early as next year.”

This is due to the Taliban crackdown on opium cultivation in Afghanistan, a major opium source. Morphine and codeine are natural derivatives of the opium poppy, and drug trafficking organizations use acetic anhydride to convert morphine into diacetylmorphine (diamorphine), better known as heroin. Nonmedical users in Europe commonly smoke or inject heroin. Stöver estimates that 170,000 people in Germany use heroin. He told Eppinger the opium poppy supply from Afghanistan has dropped by 95 percent and, therefore, “we expect synthetic opioids to increasingly enter the German market from next year.”

Mexican-based drug trafficking organizations began adding the synthetic opioid fentanyl to heroin in 2012 to increase its potency, thus making it easier to smuggle in smaller sizes and subdivide into more units to sell (see “The Iron Law of Prohibition”). By 2017, more than 50 percent of all opioid-related overdose deaths in the United States contained fentanyl.

However, the border closures and supply chain problems that resulted from COVID-19 pandemic policies made it increasingly difficult to transport opium and process it into heroin. The drug trafficking organizations switched to almost exclusively producing and smuggling fentanyl, which they can easily make in underground labs with readily available ingredients. With the pandemic over, the drug trafficking organizations stuck with what works. Today, fentanyl well surpasses heroin and leaves diverted prescription pain pills in the dust as the primary cause of opioid-related overdoses in the US and Canada.

But synthetics like fentanyl have not been as prevalent in the European black market because drug trafficking organizations based in the Balkans have, until recently, been able to supply users with heroin easily. A German AIDS help group has already detected fentanyl mixed in with heroin samples it has tested—reminiscent of what happened in the US in 2012. The German Federal Criminal Police Office reported that this led to a 12 percent increase in opioid-related overdose deaths from 2022 to 2023.

Also, another class of synthetic opioids more potent than fentanyl, nitazenes, has entered the black market. I wrote about nitazenes here and here. There were 54 nitazene-related overdoses reported over four days in Dublin, Ireland, last year, and 30 nitazene overdose deaths last summer in Birmingham, England.

The appearance of synthetics in Europe is a direct result of the crackdown on opium production. The harder the enforcement, the harder the drug.

Europeans are preparing for the coming synthetic tsunami. Europeans have long embraced harm reduction strategies to reduce deaths and the spread of disease among people who access drugs on the black market. The European Union’s Justice Programme created the “SO-PREP” (synthetic opioid preparation) project to help member countries prepare for the expected fentanyl surge. The SO-PREP document recommends seven key strategies: “Early warning systems, Internet monitoring, e‑health solutions, drug checking, supervised drug consumption rooms [called overdose prevention centers in the US], naloxone distribution, and opioid agonist therapy [methadone, buprenorphine].”

Unfortunately, policymakers in the US have been generally reluctant to adopt harm reduction approaches. While New York City, Rhode Island, Minnesota, and Vermont have defied federal law by authorizing overdose prevention centers, this proven strategy has yet to gain acceptance by lawmakers and policymakers in most of the country. Many states still have drug paraphernalia laws that ban harm reduction organizations from distributing fentanyl test strips and other devices to people who use drugs. And although the Centers for Disease Control and Prevention, the National Institute on Drug Abuse, the American Public Health Association, the Surgeon General, and the National Academy of Science, Engineering, and Medicine recommend that states permit harm reduction organizations to operate syringe services programs (SSPs), formerly known as “needle exchange” programs, several states, for example, Idaho, are turning back the clock and repealing recently passed laws that authorize them.

Because Europeans embrace harm reduction, its coming synthetic opioid surge is unlikely to cause as many per capita overdose deaths as it is causing in the US. But until drug prohibition ends, all countries should expect newer and more potent synthetic drug waves in the future.