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Nicholas Anthony

An interesting issue with central bank digital currencies (CBDCs) is their status as a direct liability of the central bank. This distinction rarely gets the attention of the broader public, but it’s an important distinction because it could lead to a complete destabilization of the financial system as we know it. For example, a CBDC would likely worsen bank runs, lead people to leave the banking system, and increase the cost of loans. Broadly speaking, this direct liability feature is one of the main reasons that a CBDC represents a radical departure from the existing financial system.

What Is a Liability?

For those that might not be familiar, the term “liability” is used in finance to describe something that person A owes to person B. In contrast, an “asset” is something that person A owns outright. From here, we can see that something—such as a loan or a deposit—can simultaneously be a liability for one person and an asset for another person. The difference between what is owned (assets) and what is owed (liabilities) is referred to as “equity.” Generally, equity is the residual value that belongs to the owners of the bank.

If we step back to accounting 101, we can model the relationship between assets, liabilities, and equities in a simplified balance sheet for a bank (see Figure 1). There might be different items in each category, but, ultimately, assets should equal liabilities plus equities. This relationship is often referred to as “the accounting equation.”

Whose Liability Is It?

When people spend money digitally today with a debit card, the money in the corresponding checking account is a liability of the bank (e.g., Bank of America or Capital One). Similarly, when people spend money digitally today with a prepaid card, the balance is a liability of the private company that issued the card (e.g., Visa or Mastercard). In either case, the financial institution owes the customer the funds that are deposited in the account. When a customer transfers that money to make a payment, the financial institution that has the liability is responsible for transferring the money.

In the case of a CBDC, however, the digital money would be a liability of the central bank itself. That is, it would be the government that has the direct responsibility to hold, transfer, or otherwise remit those funds to the ostensible owner. This feature creates a direct link between citizens and the central bank.

Why Does a CBDC’s Liability Status Matter?

As mentioned in the initial accounting primer, something can be a liability to one person and an asset to another. However, something cannot be a liability owned by two separate parties (Note: the word “separate” is used here to exclude agreements like joint partnerships). In the context of a CBDC, this distinction means that a CBDC cannot be a liability on both the Federal Reserve’s balance sheet and a bank’s balance sheet. That condition matters because the basic business model for banks has long involved a strategy of using deposits (i.e., their liabilities) to fund loans (i.e., their assets).

If the number of deposits is cut down as people put their money in CBDC wallets instead of bank accounts, then the number of loans will be cut down, too (see Figure 2). As the supply of private loans decreases (Q1 to Q2), the price of those loans will start to increase (P1 to P2). In other words, this issue is about more than just bank profits. Yes, some banks would likely go out of business or merge with larger banks as the price of loans increases and cuts into profit lines, but this disruption would also make loans more expensive for everyone.

Why Would People Choose a CBDC Over a Bank Account?

There are many civil liberty concerns that might make people hesitant to adopt a CBDC. However, setting those concerns aside, there are reasons people may still be swayed to use a CBDC. Consider two situations that people may face in financial markets: a time of panic during a bank run and a time of peaceful planning during a period of financial stability.

Bank runs are instances when customers lose faith in their bank for one reason or another (often due to bad news about the bank’s finances) and, as the name suggests, run to the bank to withdraw all their money. In the past, that primarily meant people ran to get their money out in cash. Yet, as far as a run for cash is considered, the time waiting in line, the amount of cash available in the vault, the difficulty in carrying cash, and the security risk of storing cash all act as frictions that slow down runs. In contrast, as explained by the Federal Reserve itself, “The ability to quickly convert other forms of money—including deposits at commercial banks—into CBDC could make runs on financial firms more likely or more severe.” In other words, rather than run to the bank to get physical cash, a person could instead choose to transfer their balances into a CBDC without leaving their home. Not only that, but the money might be kept as a CBDC for prolonged periods because it would essentially be digital money that is “100 percent insured” and, unlike cash, people would not need to worry about storing, securing, or carrying a large sack of money.

While running for cash was more common in the past, technological advances have since led to digital runs where people instead wired or otherwise transferred their money directly to another bank instead of withdrawing cash (see Panel A in Figure 3). To be clear, the speed of these digital runs does pose a challenge. Yet, there is a silver lining with this development: this type of run is largely limited to the initial institution in question and does not affect the larger supply of deposits. Rather than leave the system, the money transferred flows into other institutions and stays within the financial system. The problem posed by a CBDC in this scenario is that people would instead transfer their money out of the financial system and into their digital wallets and purses—the digital equivalent of placing one’s money under a mattress (see Panel B in Figure 3).

It is also likely that incentives could be used—even without a crisis or failure to spark a bank run—to encourage people to leave the existing financial system. For example, some CBDC proponents have called for CBDCs to offer things like “high interest compared with ordinary bank accounts and full government backing with no need for deposit insurance.” For many people, the allure of above-market interest rates would likely make transferring to a CBDC a quick decision. In fact, proponents have specifically recognized that these offerings would crowd out alternatives in the private sector. When weighing the costs and benefits, one proponent went so far as to say that disrupting the banking system is the number one advantage of creating a CBDC even though doing so would lead to “profound systemic changes that threaten entire lines of business within banks and credit card companies.”

Theory is not the only source for concern when considering how government incentives might lead people to leave the banking system. For those that might not recall, the U.S. Postal Savings System operated from 1911 to 1966 on the premise of offering “safe and convenient places for the deposit of savings at a comparatively low rate of interest.” That low rate of interest, however, was set in stone by bureaucrats and later became comparatively high when market rates fell during the Great Depression—a period that coincided with a significant number of bank failures. So in addition to people leaving banks in pursuit of a higher return, studies have shown that other people moved their money to the Postal Savings System directly in response to the announcement of local bank suspensions. From 1929 to 1933, the amount of money deposited in the Postal Savings System had increased nearly eightfold from $154 million to $1.2 billion.

So both in times of panic and times of peace, a CBDC could destabilize the financial system.

Can’t You Just Store CBDC at the Bank?

With a general understanding of both liabilities and bank runs in hand, let’s dive deeper and explore how a CBDC might be used by the public. A common question that comes up when discussing CBDC risks is: Why can’t people just keep their CBDC at the bank? There are really three options for a consumer looking to store their CBDC—partially depending on what CBDC model is ultimately used.

With a retail CBDC provided directly by the central bank, people would store their CBDC in accounts directly managed by the Federal Reserve. That means every dollar held as a CBDC is a dollar that has either been taken out of the banking system or converted from cash. Any dollar stored as a CBDC here would be off-limits to banks. This arrangement sort of turns the Federal Reserve into a payments processor like PayPal or Cash App. However, rather than solely handling money like those services do today, the Federal Reserve would also be providing money directly to the public—another deviation from the current system.

With an intermediated CBDC supported by private intermediaries, people would store their CBDC in a digital wallet that banks (or other private institutions) maintain on behalf of the Federal Reserve. Although the bank would incur costs for things like processing payments, cybersecurity, and regulatory compliance, putting a CBDC into this wallet does not mean that the CBDC becomes the bank’s liability. Rather, storing a CBDC in this wallet is more akin to storing valuables in a safety deposit box. Banks will maintain the account, but they can’t touch what is inside or have ownership of it—as ultimately, those accounts are being maintained on behalf of the Federal Reserve.

With either of those two CBDC designs, people could instead exchange their CBDC for bank deposits—though, it’s a bit of a roundabout process. Behind the scenes, the bank would send the customer’s CBDC to the Federal Reserve in exchange for a credit that would then be used to balance a newly created deposit of equal value. This method would allow banks to use deposit accounts to fund loans and consumers to continue using the financial system like they already do, but the owner of the account would no longer be using a CBDC. A payment from that account would be a regular debit transaction like what already happens—without a CBDC—over 240 million times a day in the United States.

This last option is akin to what happens with cash, or paper money, that is deposited at a bank. When someone deposits cash, they no longer get to use an anonymous, physical money. Instead, they spend money by initiating transfers to and from a deposit account. Exchanging a CBDC for a deposit account would resemble this process as people would no longer have access to the features of the CBDC.

Hold On, Isn’t Cash a Direct Liability of the Central Bank?

At this point, some people might still be wondering how a CBDC poses a unique threat when cash is also a direct liability of the central bank and involves a similar exchange process when deposited at banks. It’s a good question to consider.

First, the existence of cash does facilitate disruptions to the financial system considering it gives consumers a final means of payments that they can run to. In fact, similar arguments could be made about physical gold during the gold standard era. Yet, a CBDC poses a unique threat because consumers would likely be able to pull out their money faster than ever before and store the funds easily without significant storage or security costs. It’s for this reason that the Federal Reserve said a CBDC would make bank runs “more likely” and “more severe.” The digital nature of a CBDC would increase the impact of a run and delay the return to normal relative to cash (see Figure 4).

The CBDC Tradeoff

Many others have also recognized that the risk of destabilizing the financial system is a serious threat posed by CBDCs. George Selgin (Cato Institute), Andrea Maechler (Swiss National Bank), Greg Baer (Bank Policy Institute), Rob Morgan (American Bankers Association), and researchers at the European Central Bank, Massachusetts Institute of Technology, and University of Michigan have all described similar concerns about CBDCs destabilizing the financial system. In fact, the Federal Reserve has acknowledged that the introduction of a CBDC, “could reduce the aggregate amount of deposits in the banking system, which could in turn increase bank funding expenses, and reduce credit availability or raise credit costs for households and businesses.”

Not ready to throw in the towel, some CBDC proponents have proposed making CBDCs intentionally bad to discourage and limit their use. For instance, the Federal Reserve and the European Central Bank have proposed not paying interest on CBDCs, limiting the amount of CBDC a person can hold, or limiting the amount of CBDC a person can accumulate over time. In other words, there won’t be interest payments, total CBDC holdings will be limited, and the amount that can be transferred over time will be limited.

William Luther, director of AIER’s Sound Money Project, has described this issue as the “CBDC Tradeoff.” Consider two extremes. On the one hand, a CBDC could pay interest, offer subsidized payments, and even tax discounts. These offerings would lead people to leave the banking system, but it would mean that the CBDC gains enough users to maintain a stable network. On the other hand, a CBDC could pay no interest, have some low cap like $10,000, and restrict how many transactions people can make. In this case, people probably wouldn’t leave their bank any time soon, but then the CBDC probably would not have enough users to be considered a worthwhile effort. In short, the tradeoff becomes a question between making something people will want at the expense of the larger financial system or making something no one will want at the expense of taxpayer resources.

Faced with this tradeoff, the best choice is to not introduce a CBDC at all.

Conclusion

Let’s quickly recap the ground that has been covered here.

Introducing a CBDC risks destabilizing the banking system and worsening panics. The Federal Reserve tried to lessen that risk by “including” banks in the process by proposing an intermediated CBDC. Yet, with an intermediated CBDC, banks would have to cover regulatory and overhead costs to maintain CBDC accounts even though they would have no loan revenue from those funds since the CBDC is still a liability of the central bank. Moreover, shrinking the supply of deposits would likely lead to costlier credit. That means loans will be more expensive for everyone.

Today’s financial system is not perfect, but it usually works so well that people rarely stop to ask: “Whose liability is it anyway?” Yet, being a direct liability of the central bank is a defining feature of a CBDC. In practice, that trait means destabilizing the financial system is a defining feature of a CBDC. Consequently, the risk posed to financial markets is just another reason why Congress should prohibit the Federal Reserve and Treasury from issuing a CBDC.

Michael F. Cannon

President Biden has proposed requiring insurers (1) to cancel short‐​term health insurance plans after four months and (2) to refuse to re‐​enroll those patients. I’ve written previously about how these changes would increase the number of uninsured U.S. residents by 500,000.

The Biden administration believes those changes are necessary to force people into ObamaCare plans. They may be right. The non‐​partisan U.S. Congressional Budget Office reports that for many consumers, short‐​term plans offer a better deal than ObamaCare. Short‐​term plans often “have lower deductibles or wider provider networks,” the agency writes, at premiums “as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan.”

But not everyone who loses access to short‐​term plans can just enroll in an ObamaCare plan. Congress generally prohibits those folks from enrolling until the following January. So Biden’s proposal would throw short‐​term plan enrollees, many of whom will have expensive illnesses, out of their plans and leave them with no coverage for up to 12 months.

Even then, ObamaCare will still be unaffordable for many people. I know one such individual personally. Let’s call her “Maria.”

Maria is an immigrant and postulant. That is, she is entering a monastery this year to study to become a nun. When she enters, her annual income will fall below the federal poverty line of $14,580. That’s plenty low to qualify for Medicaid but Maria’s immigration status makes her ineligible.

An ObamaCare plan would cost Maria at least 33 percent of her annual income, i.e., four times the 8.5 percent threshold that ObamaCare considers “affordable.” Why? She would have to pay the full $4,821 premium herself because (ironically) her income will be too low to receive a subsidy.

Fortunately, under current rules, there’s a more affordable option. Maria could purchase a series of one‐​year short‐​term plans. She would have many options, with premiums ranging from $1,100–$5,300 per year and deductibles ranging from $1,000–$10,000.

Crucially, a short‐​term plan would not require Maria to violate her religious beliefs. ObamaCare is so much more expensive in part because it would require her to purchase coverage for contraceptives and maternity care. One of those things violates her religious beliefs; neither of them she needs. Short‐​term plans leave Maria free to follow her conscience by declining to pay for contraceptives.

President Biden is a self‐​described pro‐​immigrant Catholic. His proposal would nevertheless require this immigrant and aspiring Catholic nun to pay contraceptives‐​coverage‐​laden premiums that are four times higher that what Biden himself considers affordable.

Despite its title, the “Affordable Care Act” made health insurance less affordable for millions. Short‐​term plans can help. Biden should rescind his proposal to limit them.

Colleen Hroncich

It’s hard to believe it’s already “back to school” season. But the displays in every store are impossible to miss. This year’s back to school experience could be a new one for many teachers, parents, and students as they have the chance to choose their own educational path for the first time. Finding high‐​quality resources is likely top of mind for many parents and teachers. That’s where izzit​.org can come in handy.

izzit​.org is a non‐​profit that provides educators with engaging educational resources designed to help students develop critical thinking skills. I first learned about izzit​.org in 2015 through our speech and debate league, and I’m amazed at how many new resources are available every time I visit the website. Happily, these resources are available at no cost to anyone who is interested in teaching or learning—parents (including homeschoolers), grandparents, teachers, tutors, librarians, and more.

The video lessons were my first exposure to izzit​.org. Most of them are geared toward students in sixth grade and older. Subject areas include Business & Economics, Career Technical Education, Constitution & Civics, and Social Studies & Humanities. There is a special subset of videos aimed at elementary‐​aged students that features “Pups of Liberty.” (I just watched my first Pups of Liberty episode, The Dog‐​claration of Independence, and was quite amused by Spaniel Adams, Paul Ruffere, the Minute Mutts, and the Red Cats.)

In keeping with izzit.org’s educational mission, these aren’t just standalone videos. There are short, online comprehension quizzes students can take at the end of each video. Some of the videos are part of Teaching Units that include teacher’s guides. There are also Learning Modules, which are online, interactive collections that cover about a week’s worth of material. Teachable Moments are short—typically five minutes or less—videos that focus on one topic and can be easily added to other lessons. Since the website allows you to sort by topic and grade level, it’s easy for educators to find the content that will work best for a specific lesson.

More recently, izzit​.org has expanded to offer full courses. Civics Fundamentals is hosted by Judge Douglas Ginsburg, a senior judge on the United States Court of Appeals for the District of Columbia Circuit. He answers the 100 questions in the U.S. Citizenship & Immigration Services naturalization test with two‐​minute videos that include an explanation of each answer. The course is supplemented with additional materials, including a Jeopardy‐​style game and flash cards.

izzit​.org also boasts a first‐​in‐​the‐​nation career readiness course—Workforce Innovation Now, or W.I.N.. This unique course blends financial literacy, employability, skill mastery, and work‐​based learning experiences. It’s divided into nine units that include videos, quizzes, essay prompts, and other student assignments (including resume‐​drafting guidance).

To help teachers make the most of the incredible izzit​.org resources, the website includes free Professional Development (PD) webinars. Teachers can receive certificates of participation for each PD they complete.

In addition to the video resources, izzit​.org offers two current events lessons each school day. The lessons feature articles from various major news sources to encourage debate and critical thinking. Typically one is easier to read and the other is more challenging. The articles may include uncomfortable or unpopular topics. The goal is for students to read, process, debate, and think critically about these issues. The lessons include questions to help drive discussions.

Whether you’re a full‐​time teacher, a homeschooler, or a parent looking for additional learning opportunities for your children, izzit​.org is an amazing resource. As I really explored the site for this post, I realized we missed out on some great content by not using it more. So learn from my mistake—and check it out today!

Jeffrey Miron

This article appeared on Substack on August 4, 2023.

Fitch has just lowered its rating of U.S. debt from AAA to AA+. This is a modest step, but it reminds everyone that:

According to projections from the Congressional Budget Office, the United States faces a perilous fiscal future; and

The only plausible fix is slower growth of entitlements, especially Medicare and Social Security.

Conventional wisdom then concludes that the United States is between a rock and a hard place: it must risk fiscal catastrophe or cut widely popular and economically vital programs.

The political difficulty of cutting entitlements is undeniable; almost every voter either collects or expects to collect those benefits.

The economic value of these programs, however, is debatable.

Medicare subsidizes the purchase of health care. Standard economics holds that when government subsidizes a good, the economy produces and consumes too much relative to the efficient, laissez‐​faire outcome. (This holds even if health insurance markets suffer from asymmetric information and adverse selection. Those conditions might suggest intervention, but not subsidizing health insurance.)

Thus scaling back Medicare implies a more productive economy, with fewer resources devoted to health care and more to other goods and services.

Consistent with this view, abundant evidence suggests that health expenditure has a modest impact on health.

Social Security also lowers economic productivity by distorting savings and retirements decisions relative to a free market.

Regardless of the fiscal outlook, therefore, concern for economic productivity implies scaling back or eliminating both programs. The obvious adjustments are a higher age of eligibility for both Medicare and Social Security, plus larger co‐​pays and deductibles for Medicare. These changes can phase in over decades so that the pain is spread across many cohorts.

Reducing these programs will also have distributional implications, but these reinforce the case for cuts: both programs mainly benefit the middle class, not those living in poverty. Directly targeted anti‐​poverty programs (perhaps including Medicaid) and disability insurance are more reasonable ways to address distributional concerns.

Cutting Medicare and Social Security is therefore a no‐​brainer, if only the politics will let it happen.

Walter Olson

Does this prosecution seek to criminalize speech and advocacy?

Nothing in the charges filed Wednesday seeks to punish the former president for speech or advocacy as such. While the indictment does recite many things Trump said and calls them false, it identifies each such statement as being part of an overall course of conduct satisfying the elements of a crime under one of four federal statutes: conspiracy to defraud the United States, 18 U.S.C. section 371; conspiracy to obstruct an official proceeding, 18 U.S.C. section 1512(k); obstruction of and attempt to obstruct an official proceeding, 18 U.S.C. section 1512(c); and conspiracy to deprive persons of protected rights, 18 U.S.C. section 241.

It is long established and ordinarily uncontroversial that speech can lose the protection of the First Amendment if, for example, it seeks to intimidate a public official into shirking a legal duty, or if it consists of the submission of forged documents to a government agency, or if it solicits or facilitates crime generally (this past term’s Supreme Court decision in United States v. Hansen, criticized by colleague Thomas Berry on a different issue, reiterated that last simple truism). Speech that is part of a conspiracy to accomplish those things may be unprotected as well.

One popular commentator published a full column decrying the new prosecution as an assault on speech but never got around to naming the four statutes Trump is actually charged with violating, instead making it sound as if the charges were somehow based on the speech as such.

But I keep hearing this case could be a step toward making “disinformation,” specifically untruthful denial of election results, a crime. Isn’t that dangerous?

Yes, it would be highly dangerous were it true. I’ve written at length about why a general ban on the telling of falsehoods about elections would violate the First Amendment, and why even relatively small steps in that direction “can curtail legitimate speech and give the government power it’s likely to misuse.”

Fortunately, this indictment doesn’t do that. One reason there’s a lot of dust in their air is that two seemingly opposite factions unite in promoting the notion that convicting Trump would penalize “disinformation”—Trump advocates, who aim to ring civil liberties alarm bells, and also various commentators on the left who would like to push the law into criminalizing more election denial than it does now. This piece by the New York Times’s Thomas Edsall generously conveys the views of left‐​leaning commentators who want to crack down on some currently lawful election speech, while also quoting some other voices on the left who (to their credit, in my view) resist that idea.

What matters in this case is not what outside experts might wish, but whether Jack Smith and his colleagues are in fact asking the courts to alter First Amendment law to make it less friendly toward election‐​related speech. Across the 45‐​page indictment, it’s hard for me to see where they argue for any such alteration. They appear to believe Trump can be squarely convicted on the current state of First Amendment law.

The right‐​to‐​vote charge is based on an 1870 law enacted in response to the outrages committed by groups like the Ku Klux Klan. But there is no claim of racial intimidation here, is there?

The conspiracy against rights provision, which you can read here, never mentions race and by its terms forbids conspiracy to prevent “any person” from exercising civil rights such as the right to vote. Courts have long ruled that conspiracies to overturn legitimate election outcomes by fraud can violate section 241 by impairing the rights of persons who voted for the side that the conspiracy aims at defeating. Check out, for example, the 1984 case of United States v. Olinger, in which a Seventh Circuit panel found that a vote‐​stealing scheme by Chicago Democrats violated the 1870 civil rights law. Race was not an issue in the case.

So the legal side of the new Trump case, as distinct from the proving of disputed facts to a jury’s satisfaction, is clear sailing for the prosecutors, then?

No, it isn’t. As I suggested in my last post, Trump is likely to have at his disposal non‐​frivolous arguments that if successful might narrow if not quash the charges. For example, he could contest whether the electoral vote count before Congress is a “proceeding” covered by section 1512, or challenge whether the prosecutors have sufficiently proved the elements of coordination toward a common purpose needed to prove each alleged conspiracy, or obtain favorable rulings on whether and how the actions of the pretend electors were illegal. This is not a slam‐​dunk case.

What about the Kelly case, in which the Supreme Court threw out the conviction of New Jersey officials for closing a bridge exit for improper motives, or the McDonnell case, in which the Supreme Court threw out a Virginia governor’s “honest services” conviction? Don’t those help Trump?

Not in the way he might like. Both cases were unanimous at the high court. The Kelly case confirmed that the federal wire fraud law does not reach misconduct by state officials that does not involve money or property, and stands as part of a series of cases declining to interpret a variety of federal fraud statutes to reach deprivation of “honest services” at the state government level. But 18 U.S.C. 371, which bans conspiracy to defraud the federal government, is worded quite differently from the federal laws overseeing private and state‐​level misconduct, and has accordingly been interpreted by courts quite differently. To begin with, its terms are sweeping, banning conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” And unlike garden‐​variety federal fraud statutes, it lacks language referring to property gain or enrichment. Courts have accordingly long interpreted it to reach much conspiracy that is aimed at securing improper government action by deceit whether or not it is meant to accomplish a transfer of money or property. The most that can be said is that some legal thinkers would like the Supreme Court to read an implicit property requirement into the 371 statute as well. Doing so would require the Court to overturn a long list of old precedents.

In the McDonnell case the Court took a narrow view of what “official act” means for state‐​level bribery purposes. It is not clear that this issue will be important in the Trump prosecution.

I’ve heard that many key issues in the case depend on whether Trump held certain beliefs in good faith. How could your right to speak or advocate for your own interests ever depend on whether you are doing so in good faith?

Legal outcomes regularly hinge on good faith belief versus deceit — whether you genuinely believed a bicycle you rode off with was yours, for instance. Judges and juries regularly determine this question.

I’m indebted to a colleague for the following analogy: you have a constitutional right to petition the government for redress of grievances, yet you may not file a bogus claim for veteran’s benefits. In the “stolen valor” case of United States v. Alvarez, the Supreme Court controversially took the view that you might even have a constitutional right to lie about your war record to gain undeserved social status. Yet lying about that same war record to obtain government benefits can be made a crime without controversy. And in both instances the law might reasonably distinguish criminal from merely mistaken untruth by reference to whether you held a reasonable good‐​faith belief in the truth of your speech or petition.

There are dangers in prosecuting ex‐​Presidents, though, aren’t there?

Yes, there undoubtedly are. Exactly one year ago I published a piece in The UnPopulist outlining my concerns about these dangers, and explained why I had concluded that in some circumstances the dangers of not prosecuting genuine and serious crime by the nation’s chief executive can be even greater.

Vanessa Brown Calder

Federal legislation on government‐​supported paid family leave has stalled for the time being. But in the meantime, paid leave policies have been adopted by 13 states, most recently Maine, and are being considered by others.

Privately provided paid family leave is a boon to many employees, both male and female. Employers providing paid family leave to employees often constitutes a valuable benefit. However, unforeseen tradeoffs frequently accompany government‐​provided family leave benefits.

Because governments around the world have adopted family leave policies, evidence of many of these tradeoffs is already available. And because U.S. state and local governments have implemented government‐​supported family leave, domestic evidence is emerging.

Many tradeoffs associated with government‐​supported family leave are detailed here. But in recent years, further evidence has come to light. For instance, a Harvard study from earlier this year finds that the introduction of state and federal unpaid family‐​leave policies contributed to the stagnation in the rate of gender wage convergence for women in the United States, with “the introduction of family‐​leave policies reduced the rate of gender wage convergence by 76%–96%.” The authors calculate that, if it weren’t for these leave policies, wage parity could have been achieved as early as 2017.

They conclude:

“A key lesson from our work is that legally‐​mandated labor market flexibility can have the un‐​intended effect of stymieing gender wage convergence, notwithstanding the increasing evidence that flexibility which arises endogenously in the labor market through technological innovation, or from firms changing their own policies, can lead to reduced gender wage gaps.”

Although the Harvard study considers the consequences of government‐​mandated unpaid family leave, a study of government‐​supported paid family leave policy finds similar effects. A study of a three‐​month paid family leave expansion in Sweden indicates that the gender wage gap grew in industries with greater exposure to the policy, while promotion, hiring, and starting wages of childbearing‐​age women declined following the reform.

Unfortunately, adverse employment effects are not limited to Sweden. A significant study evaluating California’s paid family leave policy likewise finds adverse consequences for mothers’ employment and wages. Under California’s policy, new mothers’ employment fell by seven percent, and annual wage earnings fell by eight percent over 10 years.

Although one of the prominent arguments for government‐​supported paid family leave is that paid leave will increase women’s labor force attachment, the California study finds that the policy did not increase mothers’ attachment to their employers.

It is well‐​known that higher‐​educated, higher‐​income women are more likely to have access to paid family leave. Consequently, many advocates argue that government‐​supported leave is necessary to ensure coverage for low‐​income workers. Less well‐​known is that low‐​income women are less likely to utilize government‐​supported leave and that these policies frequently regressively redistribute from low‐​to middle‐ and upper‐​income women.

This is partly because payroll taxes generally support paid leave programs. So, low‐​income women pay into the program along with other workers but are less likely than other workers to claim benefits. In 2020, the California Budget and Policy Center found that “workers earning between $80,000 and $99,999 annually had a utilization rate that was nearly four times higher than for workers in the lowest wage bracket.” Just 0.6 percent of eligible workers in the lowest wage bracket utilized the benefit.

Similarly, San Francisco has their own city‐​wide leave policy, and a 2019 Berkeley paper finds that 79 percent of new moms with household incomes above $97,000 received paid leave benefits from the government, compared with just 36 percent of moms with household incomes under $32,000. This regressive, redistributive effect is not limited to California; a review of New Jersey’s paid leave policy found that low‐​income parents were disproportionately less likely to receive paid leave benefits, and as noted elsewhere, research on international paid leave policies is also critical.

Unfortunately, most advocates and many policymakers are not interested in grappling with the costs of government‐​supported family leave and are exclusively interested in espousing the benefits. But they should be careful to avoid overselling the benefits of government‐​supported leave policies, particularly as it pertains to improving employment outcomes and helping lower‐​income women. Building evidence suggests that these policies do quite the opposite.

Jordan Cohen

American weapons aiding coups and then being dispersed to terrorists is a tale as old as time. In Niger, the U.S. pursued short‐​term goals of fighting terrorism and completely disregarded the risk of transferring weapons to Niamey. Nonetheless, at the end of July, a military armed with U.S. weapons led a coup in Niger and ousted their democratically elected leader, Mohamed Bazoum. General Abdourahamane Tchiani, the commander of Niger’s presidential guard, currently leads the country.

The U.S. State Department refuses to acknowledge this is a coup so they can continue sending weapons to Niger. Ironically, previous military assistance increased risks of coups and weapons dispersion.

Since the start of the Trump administration, the United States has delivered over $158 million in arms sales and $122 million in security assistance to Niger. These weapons transfers allowed Niger’s military to oust one of the only democratically elected presidents in West Africa.

In the future, Niger’s already‐​limited control over its weapons is likely to worsen. A 2019 study from Conflict Armament Research found significant amounts of loose weapons in Niger’s Diffa region and terrorist groups like Boko Haram arming themselves with this dispersed weaponry. With the coup weakening the government’s control over armaments, Niger will become a likely location for even more weapons dispersion.

The Cato Institute’s 2022 Arms Sales Risk Index analyzes the risk of U.S. weapons recipients misusing and losing weapons. Niger is in the top‐​fifth of risk for potential U.S. weapons recipients and has become riskier every year since 2018.

The reasons for this score are because of terrorism, state fragility, and lack of freedom from the state. Niger has the 10th worst score in Vision of Humanity’s Global Terrorism Index, the 24th most fragile state in The Fund For Peace’s Fragile State Index, and is only the 110th most free country in the Cato Institute and Fraser Institute’s 2022 Human Freedom Index.

Using these metrics, the Arms Sales Risk Index predicted that Niger was a country at risk for destabilizing events like coups and weapons dispersion.

Policymakers historically do not consider risk before selling weapons abroad. The result is instability in regions where Washington is committing resources to create stability. Niger is just the latest example of U.S. arms sales undermining U.S. goals.

Romina Boccia

Following the Fiscal Responsibility Act’s passage, many legislators remain rightfully concerned that the May 2023 debt limit deal doesn’t do nearly enough to rein in out‐​of‐​control federal deficits and debt. Now Fitch Ratings has given them a wake‐​up call by downgrading the U.S. credit rating from AAA (the highest possible rating) to AA+. The good news: some members are grappling seriously with fiscal governance issues and voicing support for an independent fiscal commission to address the growth in public debt. Critics charge that relying on an independent commission, especially one whose recommendations would be fast‐​tracked, would be an abdication of Congress’s fiscal responsibilities. This view is misguided.

Within mere days of the debt limit deal crossing the finish line, House Speaker Kevin McCarthy (R‑CA) floated the idea of a BRAC‐​like fiscal commission to address the critical part of the federal budget that was left completely out of debt limit negotiations: rapidly growing entitlement spending. BRAC stands for Base Realignment and Closure and refers to a particular commission structure that helped Congress overcome gridlock in closing military bases. Congress completed five rounds of BRAC from 1988 to 2005, closing more than 100 defense facilities as a result. BRAC offers a powerful model for helping Congress resolve challenges in another politically fraught area: entitlements. According to Rep. Steve Womack (R‑AR), who supported the idea:

“We need to get as much of the politics out of it as we can and just give us the facts… And the facts are that 70% of this whole federal budget is on autopilot right now.”

A BRAC‐​like fiscal commission is a promising idea for overcoming political obstacles to entitlement reform. To increase the commission’s odds of success, it should be composed of independent experts, tasked with a clear and attainable objective, such as stabilizing the growth in the debt at no more than the GDP of the country, and empowered with fast‐​track authority, such that its recommendations become self‐​executing upon presidential approval, without Congress having to affirmatively vote on their enactment.

That last part, that the commission proposal be self‐​executing unless Congress objects, is key for giving legislators political cover to vocally object to reforms that will create inevitable winners and losers, without re‐​election concerns undermining an outcome that’s in the best interest of the nation. According to Colton Campbell in his book, Discharging Congress: Government by Commission:

“Congress occasionally uses an ad hoc commission to distance itself from a politically risky decision. Members struggle when local interests collide with larger policy needs. They may want to see things go well for the nation, but they also want to get reelected. Typically, these conflicting preferences are such that no one can reconcile them, because most congressional representatives see themselves as agents of their constituents and are therefore unwilling to sacrifice their districts to the collective good… [A commission] mechanism paradoxically enables affected legislators to become advocates for their constituents rather than bearers of bad news. They can passionately plead the case for their constituents but also confront a national policy need.”

Legislators may have legitimate concerns about delegating extensive legislative responsibility to an independent commission, including that such a mechanism would reduce democratic accountability. Unelected officials do not represent constituents in the way members of Congress do. And that’s exactly the point of empowering a commission to make fiscal reforms which have repeatedly eluded Congress.

Discussions concerning the original Base Closure and Realignment Commission are telling in this respect. The late Senator McCain (R‑AZ), in responding to Senator Cohen’s (R‑ME) objection that Congress is abdicating its responsibility to decide over the funding for military bases by delegating the task to a commission, argued:

“The Congress has probably abdicated its responsibilities… However, I would like to point out that it is very clear that we are at a condition of gridlock as far as base closings are concerned…history indicates that we are incapable of acting in any other way because of the enormous political repercussions which result in each of our States as a result of a move to close a base or a military installation.”

Others worry that an expansive fiscal commission with fast‐​track authority could violate Congress’s constitutional Article I power that “All legislative Powers herein granted shall be vested in a Congress of the United States.” Legislators can make sure to design a BRAC‐​like fiscal commission such that it respects Congress’s legislative powers.

Congressional delegation is constitutionally acceptable so long as Congress establishes clear directives, such as tasking the commission with achieving a specified outcome (i.e. stabilizing debt at no more than 100 percent of GDP within the 10‐​year budget window), and puts in place oversight functions (i.e. reporting requirements), and for as long as Congress retains ultimate legislative say (i.e. the ability to reject the commission proposal). As the Supreme Court noted in Yakus v. United States, “Congress is not confined to that method of executing its policy which involves the least possible delegation of discretion to administrative officers.”

Contrary to what some legislators and their staff seem to believe, there’s no need for Congress to take an up‐​or‐​down vote on a fiscal commission proposal. Whether Congress decides to empower a fiscal commission with fast‐​track authority is a way to assess whether legislators are serious about tackling the country’s fiscal challenges or kicking the can down the road with yet another fig leaf commission. According to J.D. Foster, a former Heritage Foundation economist who previously served as chief economist for the Office of Management and Budget under George W. Bush:

“A distinguishing feature between a useful and a useless deficit commission is whether Congress is required to vote on its recommendations. Unless Congress expressly legislates to the contrary at the outset, a presidential commission’s recommendations are little more than dust in the wind.”

BRAC discussions in the House of Representatives during the 100th Congress reflect a similar view. As Representative Jon Kyl (R‑AZ) stated:

“I do not think we are fooling anyone when we say we are all for closing obsolete bases, but then we attach so many preconditions to it that we know we are never going to end up closing the bases. One of these is the difference between automatic closure and the provision that would require Congress to affirmatively act. Who among us believes that we will actually close bases if we have to affirmatively act?”

It’s difficult to believe Congress would find it any easier to affirmatively vote for entitlement benefit changes than for base closures. Prudent legislators must confront the political reality of complete gridlock on the entitlement spending issue and act accordingly. With Medicare and Social Security responsible for 95 percent of long‐​term unfunded obligations, according to the Treasury Financial Report, there’s simply no way that any serious fiscal reform effort can leave these programs untouched.

Congress long ago decided to abdicate its fiscal responsibilities by putting large and far‐​reaching government programs on autopilot, without any meaningful requirement for regular review. Entitlement programs like Social Security and Medicare have grown without course correction for decades. It becomes clear to even casual observers of congressional budget battles that legislators seem paralyzed in addressing exploding entitlement spending. Few legislators—or presidential candidates—are even willing to talk about the need to reform programs like Medicare and Social Security.

At least a few legislators are beginning to consider a new mechanism for forcing action on the growing debt issue. Delegating debt stabilization to an independent commission with fast‐​track authority is a sign of Congress taking responsibility for correcting the fiscal course, it is not an abdication of duty. And addressing the unsustainable growth in Medicare and Social Security spending is also the one meaningful way to restore the U.S. credit rating for the long‐​term.

Michael F. Cannon

Earlier this week, the press shop at the U.S. Department of Health and Human Services (HHS) spent taxpayer dollars to host a live‐​tweet, in the voice of the HHS building, to respond to press reports that HHS’s building is the ugliest in in Washington, D.C.

If I worked in that shop, I too might spend taxpayer dollars on gimmicky stunts to distract attention from the harms the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC), and Centers for Medicare & Medicaid Services (CMS) do to patients.

When I read the live‐​tweet, it was even worse than I expected. HHS staff made the shameless claims that the department recently “insured a record number of people with quality, affordable health care coverage” and “provided the tools to fight COVID for free.” These claims are a jaw‐​dropping mockery of the hundreds of millions of patients whom HHS has harmed and whose earnings the agency has wasted.

“Quality…health care coverage”?

They can’t mean Medicaid. The most reliable evidence that exists on the quality of Medicaid coverage comes from the Oregon Health Insurance Experiment (OHIE). The OHIE was a randomized, controlled trial, which means that if you believe something other than what it shows, you should abandon that belief. The OHIE “did not find evidence that Medicaid coverage improved physical health,” even though “the[] physical health measures were chosen explicitly because clinical trials have shown that they can respond to medication within this [study’s] time frame.”

They can’t mean Medicare. As I detail elsewhere, Medicare has repeatedly shut down life‐ and cost‐​saving quality innovations. Medicare’s price‐​control commission—officially, the Medicare Payment Advisory Commission, or MedPAC—has complained for decades that the program penalizes high‐​quality care and encourages low‐​quality care:

2003: “[Medicare] generally fails to financially reward higher‐​quality plans or providers. Medicare’s beneficiaries and the nation’s taxpayers cannot afford for the Medicare payment system to remain neutral towards quality. Change is urgently needed…[Medicare] is largely neutral or negative towards quality. All providers meeting basic requirements are paid the same regardless of the quality of service provided. At times providers are paid even more when quality is worse, such as when complications occur as the result of error.”

2006: “Evidence shows beneficiaries do not always receive the care they need, that too often the care they do get is not of high quality, and that in some places where they receive more care there are also poor outcomes…Patient safety also continues to present a troubling picture.”

2021: “There is also substantial use of low‐​value care…that has little or no clinical benefit or care in which the risk of harm from the service outweighs its potential benefit. We estimate that, in 2018, between 22 percent and 36 percent of beneficiaries in traditional FFS Medicare received at least one low‐​value service…Low-value care has the potential to harm patients by exposing them to risks of injury from inappropriate tests or procedures and can lead to a cascade of additional services.”

They can’t mean ObamaCare. Its supposed preexisting‐​conditions provisions are encouraging “poor coverage” for patients with costly illnesses, costing them thousands. As I report elsewhere:

Economic research provides evidence that these “protections” are forcing insurers to engage in such discrimination against patients with multiple sclerosis, infertility, substance abuse disorders, hemophilia, severe acne, nerve pain, and other conditions. Patient advocacy groups have alleged such discrimination against patients with cancer, cystic fibrosis, hepatitis, HIV, and other illnesses. Across all Obamacare plans, choice of doctors and hospitals has grown narrower, and drug coverage has gotten skimpier…

Indeed, this form of discrimination against preexisting conditions is arguably worse than the kind it (mostly) displaced. Unlike discrimination in pricing and enrollment, discrimination in plan design harms all consumers. It not only “undoes intended protections for preexisting conditions” but creates a marketplace where even “currently healthy consumers cannot be adequately insured.” Patient‐​advocacy groups insist discrimination in plan design “completely undermines the goal of the ACA.”

They can’t mean short‐​term plans. The Congressional Budget Office (CBO) says short‐​term plans often “have lower deductibles or wider provider networks than plans in the [Obamacare] market.” HHS is currently trying to reduce the quality of short‐​term plans by forcing insurers to cancel them after four months, leaving sick enrollees with no coverage for up to one year. The CBO estimates HHS’s proposal would leave half a million U.S. residents with no health insurance at all.

“Affordable health care coverage”?

HHS can’t mean Medicare. Despite the trillions HHS spends on Medicare, effective medical care is still unaffordable for many enrollees. As I report elsewhere:

11 percent of Medicare enrollees overall, 20 percent of enrollees “in fair or poor self‐​assessed health,” and 23 percent of Black enrollees report “delaying getting medical care because of cost, needing medical care but not getting it because of cost, or problems paying or inability to pay any medical bills.”

Medicare is so unaffordable, Congress has had to increase the Medicare tax 28 times since its inception. That’s an average of one tax increase every two years.

It still hasn’t been enough to keep up with runaway Medicare spending. How do we know?

HHS can’t mean Medicare or Medicaid. These two programs are almost solely responsible for the federal government’s long‐​term debt problem. They are the only major category of federal spending consuming a rising share of GDP. Net interest on the federal debt is rising as a share of GDP because Medicare and Medicaid are growing.

Most of that growth is Medicare. The CBO writes, “Spending on Medicare is projected to account for more than four‐​fifths of the increase in spending on the major health care programs over the next 30 years.”

They can’t mean ObamaCare. ObamaCare plans are so expensive, Congress is subsidizing enrollees earning up to $600,000 per year. No, that’s not a typo.

They can’t mean short‐​term plans. The CBO says short‐​term plans provide lower deductibles and wider provider networks than ObamaCare at premiums “as much as 60 percent lower than premiums for the lowest‐​cost [ObamaCare] plan.” HHS is trying to destroy quality, affordable health insurance and force people into low‐​quality, unaffordable health insurance.

“Provided the tools to fight Covid‐​19”?

HHS can’t mean the FDA. For several months in 2020, the FDA blocked the use of safe, effective COVID-19 diagnostic tests. Epidemiologists called the move “insane.”

They can’t mean the CDC. When the FDA finally stopped blocking all COVID-19 diagnostic tests, it approved only one: the CDC’s. The CDC promptly contaminated its test kits with the coronavirus, rending disease containment efforts “useless.”

Conclusion

When HHS boasts about its track record of quality and affordability, remember Colette Briggs.

Colette is a little girl with cancer. If HHS had just left her alone, she would have had affordable, secure health insurance coverage. Instead, we saw headlines like, “Parents of 4‑Year‐​Old with Cancer Can’t Buy ACA Plan to Cover Her Hospital Care.” Why?

The benevolent U.S. Department of Health and Human Services cancelled the Briggs family’s health plan, forced them into an ObamaCare plan, increased their premiums, and pushed the providers Colette needed out of their ObamaCare plans. What happens inside the HHS building left Colette’s well‐​to‐​do family desperate and scrambling to get a little girl with cancer the medical care she needed. The flaks who staged this live‐​tweet stunt should try explaining to Colette and her parents how HHS offers “quality, affordable health care coverage.” I would be happy to arrange the meeting.

The outside of the HHS building is ugly, but not as ugly as what happens on the inside.

Vanessa Brown Calder

Late last year, Congress passed the Pregnant Workers Fairness Act (PWFA) as part of the sprawling 2023 Consolidated Appropriations Act. The PWFA requires that employers provide reasonable accommodation to pregnant workers, and in June, the Act went into effect.

Ensuring pregnant workers are accommodated appears a worthy goal, and Democrats and many Republicans supported the legislation. Nonetheless, there are some reasons to worry about the legislation’s effects.

Pregnancy discrimination is already illegal due to the 1964 Pregnancy Discrimination Act, but the PWFA goes a step further and requires that employers provide accommodations to pregnant workers. In this way, PWFA is similar to the Americans with Disabilities Act (ADA).

The PWFA even uses the same “reasonable accommodation” definition as the ADA. Under this definition, reasonable accommodation requires employers and employees to engage in an “interactive process” to determine what constitutes an acceptable accommodation to the employee. It is subsequently unlawful for the employer to accept an alternative arrangement.

The similarity between the substance of the PWFA and ADA is significant because evidence suggests that the ADA’s reasonable accommodation language has harmed, rather than helped, its target population. For example, research suggests that the ADA reduced the employment of disabled men and women, with one study estimating ADA reduced employment rates for men with disabilities by 7.2 percentage points.

Additional research finds further adverse effects on employment. One study finds that the passage of the ADA was “associated with lower relative earnings” and “slightly lower labor force participation rates” for people with disabilities, and more recent research finds that the ADA reduced the firing of disabled workers but also reduced disabled workers’ ability to find a job.

What drove these unintended effects? One study indicates that the reasonable accommodation requirement in the ADA is particularly problematic and resulted in initial employment declines, with the requirement producing an estimated 10 percent decline in disabled employment in the years following its enactment. This is especially worrisome given PWFA includes the same reasonable accommodation requirement. Yet another study examining the ADA 20 years after its passage concluded that “unclear expectations on what constitutes appropriate accommodations for people with disabilities is likely having a chilling effect on the employment prospects of the disabled population… Reflecting an all too common irony in social policy, the ADA might be having the exact opposite effect of the intent of the legislation.”

Despite ADA’s initial effects, employment has been ticking up and unemployment has been ticking down for disabled workers in recent years. Unfortunately, that positive development is unlikely to have much to do with ADA, which is now more than thirty years past. Instead, improvements in the broader post‐​pandemic labor market recovery and the increasing availability of flexible or remote jobs are likely driving this effect. For example, remote jobs allow people with disabilities to avoid lengthy or inaccessible commutes, manage their work environment, and meet medication or other medical needs privately, among other advantages.

Ideally the PWFA will not result in adverse employment effects for pregnant workers, but evidence on the consequences of ADA suggest uncertainty. For pregnant workers, policies that support a strong labor market and permit flexible and remote work are a much better bet to increase opportunity and improve work life.