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Jeffrey Miron

This article appeared on Substack on July 25, 2023

An interview in the Harvard Gazette with Professor of Medicine Allen Steere explains:

[T]here are currently no vaccines for humans, although there are three for dogs. One had been developed in the late 1990s and pulled off the market in 2002, in part due to a vigorous anti‐​vaccination movement.

Steere goes on to explain that concerns arose about a possible side‐​effect of the vaccine, but those concerns turned out to be invalid. Thus, general vaccine hesitancy, combined with a specific but misplaced fear about the early vaccine have meant no availability for humans so far.

The interview does not address one other factor: the FDA. Absent government restrictions on new medicines, people in earlier decades would have been able to access the initial vaccine, and the manufacturer or independent groups could have collected data on whether the alleged side effect was a genuine problem.

The good news is that a new vaccine is apparently near completion of its phase 3 trials, and an mRNA vaccine is also in the works. Still, many have suffered unnecessarily because of government restrictions on medicine.

Nicholas Anthony

Despite evidence that only a small fraction of cryptocurrency activity is associated with illicit activity and that cryptocurrency was not a chief source of sanctions evasion when the war in Ukraine started, a group of senators introduced the Crypto Asset National Security Enhancement (CANSEE) Act. Among other problems, this bill would continue the erosion of financial privacy that has occurred in the United States over time. The bill broadly defines terms to create sweeping surveillance, potentially violates the First Amendment, and gives the Treasury the authority to effectively prohibit cryptocurrency use in the United States.

Although the senators based some of their concerns on a money laundering risk assessment from the Department of the Treasury (Treasury), Sarah Roth‐​Gaudette, executive director at Fight for the Future, was quick to point out that the senators seemingly “missed where [the report] says that ‘the use of virtual assets for money laundering remains far below that of fiat currency and more traditional methods’”—an issue my colleague Jack Solowey pointed out as well. In fact, the Treasury has stressed this finding in other reports too. Rather than double down on the existing financial surveillance regime, policymakers should be working to craft a better future based on protecting financial privacy.

With that said, let’s consider some of the worst parts of the CANSEE Act to understand why it is the wrong approach.

Walking Through the Bill

The bill begins by recognizing that the decentralized nature of cryptocurrency poses an interesting challenge for lawmakers seeking broad surveillance. For in the absence of a third‐​party intermediary, officials cannot invoke the third‐​party doctrine as an end run around the Fourth Amendment. Unfortunately, however, the senators respond to this challenge by simply defining the term “control” as broadly as possible to essentially create third parties where they do not exist.

The term “control”, with respect to a digital asset protocol, includes the power, directly or indirectly, to direct a change in the computer code or other terms governing the operation of the protocol, as determined by the Secretary of the Treasury. Such power may be exercised through ownership of governance tokens, administrator privileges, ability to alter or upgrade computer code, or otherwise. [Emphasis added.]

Jerry Brito, executive director of Coin Center, described the problem well shortly after the bill’s introduction when he explained that “The bill gives virtually unbounded discretion to the Treasury Secretary to decide what it would take to designate one as having “control” of a protocol. … Indeed, the Senators’ deference to the executive branch is breathtaking, allowing the Secretary to define the scope of their power without any public process whatsoever.”

It gets worse.

Turning to sanctions violations, the bill would amend existing penalties to also include violations with cryptocurrency. A key problem here is that these penalties would apply to “digital asset protocol backers” and “digital asset transaction facilitators.” A “digital asset protocol backer” is defined as someone that invests over $25 million in a project. In their press release, the senators said that this definition is an attempt to effectively centralize decentralized services: “If nobody controls a DeFi service, then—as a backstop—anyone who invests more than $25 million in developing the project will be responsible for [facilitating a sanctions violation.]”

A “digital asset transaction facilitator,” however, is any person that “makes available an application designed to facilitate transactions using a digital asset protocol.” In other words, the bill would apply these sanctions penalties to anyone that merely publishes software code if that code is later used to violate sanctions by someone else. Given the arguments that publishing software code is a form of protected expression, Brito wrote that the CANSEE Act “would clearly violate the First Amendment” and Roth‐​Gaudette echoed the same.

The bill then seeks to make a relatively subtle change by amending 31 U.S.C. Section 5312 to include “digital asset protocol backers” and “digital asset transaction facilitators” as “financial institutions.” While not exactly eye catching at first glance, this change would effectively force said backers and facilitators to comply with the reporting requirements of the Bank Secrecy Act (e.g., currency transaction reports, suspicious activity reports, know your customer rules, etc.)—essentially doubling down on the mistakes of the Infrastructure Investment and Jobs Act of 2021.

Speaking of mistakes from the past, the bill also includes a familiar attempt to expand the Treasury’s special measures authority (31 U.S.C. Section 5318A) to allow the Treasury to prohibit transactions involving anyone outside the United States if there is a “money laundering concern.” To give context, the government considers anyone that moves more than $10,000 in one day to be a money laundering concern. As I warned last year, the Treasury could use this authority to prohibit U.S. banks from being involved with cryptocurrency since the borderless technology allows transactions to be validated by miners located outside of the United States.

The bill closes with a section on cryptocurrency ATMs that closely mirrors what Senator Warren proposed last year in the Digital Asset Anti‐​Money Laundering Act of 2022. Unfortunately, perhaps in the pursuit of brevity, the section proposed here is worse because it defines a cryptocurrency ATM as “a stand‐​alone machine that facilitates a virtual currency transfer.” Taken plainly, this could mean anything from a cryptocurrency ATM you might see in a convenience store to someone’s smartphone that has a cryptocurrency wallet app downloaded. This broad definition is so troubling because the bill would have operators of these “machines” verify and record the name and physical address of both parties before a transfer can take place.

Conclusion

It is unfortunate that policymakers seem to be gearing up to expand U.S. financial surveillance. There is much to say against this approach, but it might be best to simply remind policymakers of a community letter organized by Fight for the Future at the start of the 118th Congress. The letter warned: “Should cybercriminals successfully tempt the United States to abandon the human right to privacy and the U.S. Constitution, everyone will lose.”

Combatting the financial crimes of the Lazarus group, scammers, and the like does pose a challenge. But sacrificing the foundations that the United States was built upon is no solution.

Jennifer Huddleston

Much like little children who are losing a game, the Federal Trade Commission (FTC) and Department of Justice (DOJ) have decided to change the rules that govern when they engage in enforcement actions to intervene in mergers. These proposed changes follow several recent losses in court, and they are designed to increase the enforcers’ chances at deterring mergers. The draft of the DOJ/FTC merger guidelines released in July 2023 indicates concerning potential changes that would take the focus off objective economics and the consumer and, instead, place more emphasis on subjective political and policy preferences of enforcers to engage in more intervention in a variety of industries. This is because these guidelines rely on faulty policy presumptions about the nature of mergers based on selectively chosen case law and shift away from sound economics.

The changes in these draft proposed new guidelines are significant and will have a negative impact on companies of all sizes and consumers, as well as allow more government interference in the economy in general. While there is much more to dig into with the specifics of these new guidelines, at a high level they are particularly concerning for the shift away from a long‐​standing focus on consumers.

New guidelines shift away from sound economics

One of the most significant trends is that the new draft guidelines shift standards without providing much, if any, economic reasoning for such changes. This is most notable in the lowering of the threshold for concentration to be considered a potential issue in whether there is a harm to competition. The proposed guidelines are much more concerned about the potential number of players in a market and the share of any one player, but notably, such changes are not backed up by economics or past examples.

As Brian Albrecht points out, economics questions the idea that concentration correlates to an anti‐​competitive effect. Similarly, others have discussed how increased concentration does not mean higher prices for consumers. In fact, it would punish firms from improving efficiency in ways that lead to lower prices as such actions can lead to increased concentration due to consumer response to lower prices.

This shift in guidelines suggests that rather than relying on objective standards and looking to consumer welfare, enforcers at the DOJ and FTC are instead choosing the levels of concentration they believe will most likely allow them to succeed in the cases they want to bring. History shows that presumptions and predictions from regulators may miss what is actually occurring in a market, as well as what would play out if consumers were the ones to make the choices about products. Such a shift away from economic reasoning, however, is likely to result in the agency intervening more subjectively in a range of markets —including technology — and preventing mergers that would prove to be beneficial from occurring.

New guidelines selectively choose case law

The new merger guidelines rely significantly on case law, but not on sound precedent. In fact, the case law relied upon largely comes from the 1970s or even earlier and ignores more recent precedents. This illustrates how, once again, the FTC’s approach is not actually “updating” rules to handle a novel challenge, but a return to the past and its problems of more subjective standards.

These proposed revised guidelines are backed up by selectively drawing upon case law in ways that would position enforcers to be more likely to win cases regardless of their impact on consumers. This practice even extends to cherry‐​picking dictums from these cases. For instance, when attempting to implement a preemptive strategy to hinder mergers without apparent harm to competition, the FTC leans on dictum stemming from non‐​binding case law, such as United States v. Microsoft Corp. 253 F.3d 34, 79 (D.C. Cir. 2001). This reference stands out, given that it is a decision from the D.C. Circuit over two decades old and used to interpret the spirit of the Sherman Act.

As Gus Hurwitz tweets, while many of these cases are technically “good law”, this is largely due to the fact that previous guidelines for agency enforcement have led to more informal behavioral changes and settlements that meant courts have not had the opportunity to formally repudiate them in the past. The selective nature of the new guidelines is likely to meet skepticism from courts more familiar with the entire body of law and could, in fact, result in more formal repudiation of the cases on which the guidelines are based. Agency officials seeking to enforce under the new guidelines could find themselves worse off than they are now by providing courts a more formal opportunity to overturn these outdated precedents and diminish the courts’ view of the soundness of the agency’s guidelines.

The myth of the “kill zone” rises again

Proponents of stricter merger guidelines and deterring mergers and acquisitions, particularly in the technology sector, often point to the idea that large companies kill off nascent rivals through acquisitions. This, however, misunderstands the role mergers and acquisitions play and instead should serve as a reminder that new guidelines will harm small and large companies by limiting their options.

Making mergers and acquisitions more difficult eliminates one exit strategy for companies. Some small companies may be seeking to make an existing product better, and they find being acquired by that product’s original developer is the best way to reach a wider audience. Others may find that they enjoy being entrepreneurs or creating new products, but they have no desire to manage the many aspects that come with a growing company. Some may find that they do want to challenge existing giants and remain independent and eventually “go public” via an initial public offering (IPO). All of these should be considered valid strategies in different situations, but the added difficulty and scrutiny of the revised merger guidelines would make it more difficult for those small companies whose preferred strategy involves acquisition.

Beyond the reasons for exit, the idea of a “kill zone” — or any other justifications for changes to existing evaluations of mergers and acquisitions — neglects to consider the various benefits of these transactions in the market. In the tech sector, mergers are often about talent as well as product, a practice known as acquihiring. Consumers benefit from new collaborations not only from the products, but from the creative and talented individuals in charge of their creation and distribution. Of course, mergers can also create more solid competitors, which may provide consumers with broader access to a range of options.

Finally, the idea of a “kill zone” for new players in a given market has largely proven false, whether analyzed through new entry or investment.

The bottom line: the real losers in the new merger guidelines are the consumers

Much of the discussion around the new merger guidelines will focus on the impact on businesses, both large and small, and particularly how it relates to the ongoing debates around “Big Tech.” The bottom line is consumers are ultimately the ones that will feel the brunt of the negative impact if enforcement shifts away from sound economics and law and focuses more on competitors than consumers. Beyond this, new guidelines will likely stifle beneficial deals and result in costly litigation for taxpayers and businesses, ultimately passing along to consumers. While there are certainly consequences for the tech sector in such changes, this significant shift in enforcement guidance will impact a wide variety of industries and their consumers.

Alex Nowrasteh

The recent Supreme Court case about affirmative action in university admissions (SFFA v. Harvard) paralleled a broader social debate over meritocracy. Those opposed to affirmative action broadly say they are supportive of meritocracy. They believe individual achievement should be more prominent in university admissions, at least when the government is involved in university funding. The debate over affirmative action and meritocracy intersects with the immigration debate in two ways. First, immigration restrictions are the most destructive form of affirmative action. Second, immigrants and their descendants have been essential in reducing the scope of affirmative action in the United States over the last 30 years.

Meritocrats believe that individuals should rise or fall on their achievements. Those supportive of affirmative action are more skeptical of meritocracy, at least how it exists under the current system. They argue that meritocracy is bad, a myth, unfair, or that current means of identifying merit are insufficient because systemic rules or practices hold back some people in specific racial, ethnic, or other categories.

I’m a supporter of meritocracy, but a compelling point raised by skeptics is that the design of meritocratic systems can select wildly different types of merit. In other words, there’s a principal‐​agent problem whereby the most meritocratic people design methods of gauging merit that favor themselves and people like them.

This problem could be to the detriment of specific organizations relying on merit and, eventually, to the rest of society.

Hard work, fluid intelligence, crystallized intelligence, personality, luck, physical attractiveness, and other characteristics contribute to merit in different endeavors and extents. A one‐​size‐​fits‐​all approach across all organizations doesn’t make sense and is slightly less bad in organizations in the same industry. That doesn’t mean some of the factors listed above aren’t good predictors of merit in most endeavors, some certainly are, but their relative weights are important.

For instance, the combination of characteristics that make a successful film actor differs from those required to be a successful astrophysicist, CEO, or farmer. But that’s just the supply side of merit; there’s also a demand side. What consumers demand of people in different endeavors changes over time. Consumers want the best over time, but what they think is best changes.

That’s why I favor the “competitive meritocracy;” that is, the meritocracy of the market over alternatives like massive government examination systems that exist in other countries. Under competitive meritocracy, firms and individuals seeking to increase profits, economic efficiency, and consumer surplus under competitive market conditions are incentivized to develop means to identify meritorious individuals that deliver. Otherwise, firm profits shrink, they go bankrupt, and consumers are left unsatisfied.

One of the beneficial results of a competitive market system is the identification and use of merit. Of course, government rules and regulations reduce the effectiveness of new merit identification techniques, but the market is better at identifying and producing meritocratic identification methods than other alternatives because it best aligns incentives to do so on the supply and demand sides.

U.S. immigration restrictions are the most anti‐​meritocratic policies today, and they are intended as affirmative action for native‐​born Americans. Ignore the myriad ways that immigration laws disadvantage certain immigrants relative to others, such as with the per‐​country quotas that make immigrants from populous countries wait longer for green cards. Just peruse nativist websites, and you’ll see many arguments about immigrants taking jobs from more Americans who are more deserving because of where they were born. When people think of anti‐​meritocratic policies, they rightly jump to quotas, race‐​based affirmative action, or class‐​based affirmative action.

It’s true; those are all anti‐​meritocratic and likely wouldn’t exist in a free market outside of a handful of organizations in the non‐​profit sector. But U.S. immigration restrictions are worse. The U.S. population is about 4.2 percent of the global population. Immigration laws prevent the other 95.8 percent of the world from trying their hand in the U.S. market meritocracy. The cost of immigration restrictions is in the trillions of dollars, which makes the real costs of affirmative action seem small by comparison. Those who truly favor meritocracy and oppose affirmative action on principle should reject the anti‐​meritocratic affirmative action of American immigration laws.

Nativists agree with my analysis. They argue that the U.S. government exists to protect Americans from market competition, so it should do so with immigration restrictions. Nationalist affirmative action is still affirmative action. And lest you accuse me of hypocrisy, of working behind the protection of immigration restrictions while others labor exposed to the brutality of globalist labor competition, the sector of the economy where I labor is more exposed to legal immigrant competition than yours is.

One of the main arguments for immigration restrictions is to protect Americans. That makes sense when protecting Americans from criminals, terrorists, national security threats, or those with severe contagious diseases, because they could physically harm Americans or their property. It makes sense in the same way that the NYPD exists to protect the life, liberty, and private property of New Yorkers and shouldn’t be enforcing laws in North Dakota.

But protecting jobs and wages or shielding people from the market doesn’t make sense. On a purely principled opposition to preferences, meritocrats should oppose almost all immigration restrictions regardless of the wage effects. Immigration restrictions don’t even work well to protect American workers. Ironically, immigration restrictions do more to protect the wages of immigrant workers in the United States than native‐​born workers. Affirmative action likely helps the beneficiaries more than immigration restrictions help American workers.

The idea of shielding Americans from market competition to protect them under the theory that that would make them better is silly. Industries protected behind tariffs and trade barriers tend to stagnate because they have no incentive to innovate or improve. Why would they when the government removes competition by legal fiat? Americans similarly shielded from immigration have less of a reason to get more skills, improve their human capital, or be more productive. As I wrote in my review of Reihan Salam’s Melting Pot or Civil War?, labor protectionism incentivizes stagnation among American workers.

Salam fails to draw additional connections between wages and education. He worries about low levels of educational attainment among the descendants of immigrants but also favors restricting low‐​skilled immigration to raise the wages of high school dropouts. He does not explain how raising the wages for dropouts relative to other educational cohorts will incentivize workers to spend more time in school (hint: it won’t). Salam is worried that automation will destroy lots of jobs, so he wants to stop low‐​skilled immigration by raising wages for low‐​skilled Americans and immigrants already here, which will just make it more likely that their jobs will be automated.

Maybe you favor meritocracy in university admissions and affirmative action through immigration restrictions. You wouldn’t be the first person to have inconsistent policy opinions, but you support less meritocracy than you probably believe. Most people recognize that Texas’ “Top 10 Percent Law” is thinly disguised affirmative action because it guarantees admission to the University of Texas to all students in the top 10 percent of their high school graduating class. Since students are geographically clustered in Texas by race, this law advantages some students based on race who otherwise wouldn’t be admitted.

Harvard tried something similar when it adopted an admissions policy that accepted top‐​ranking students nationwide under geographic quotas rather than relying on admissions exam scores. The intent was to reduce Harvard’s Jewish population. The Harvard freshman class was 21 percent Jewish in 1922, up from about 7 percent in 1900. Harvard’s President Abbott Lawrence Lowell wanted to bring their percentage down to 15 percent and faced fierce opposition from Jewish students, the Boston press, and the meritocrats of his day. The geographic distribution system discriminated against Jewish students and reduced their numbers to 15 percent of the student body by 1931. Harvard later eased the geographic system and then ended it altogether. One should view the admissions policy as anti‐​Semitic, and the effect was identical to a policy that favored the admission of other groups like white Protestants. Regardless, the geographic admissions system was anti‐​meritocratic.

Despite restrictions on immigration, immigrants and their descendants are already indirectly improving meritocracy in the United States. Edward Blum, the attorney behind numerous challenges to affirmative action, including SFFA v. Harvard, lost a challenge to affirmative action in 2015 when he had a white female plaintiff. There are many reasons why that challenge failed, but afterward, Blum said, “I needed Asian plaintiffs.” Law and the Constitution always matter to the Court, but politics and optics also matter for major controversial questions. When the issues are controversial and Congress or the President don’t want to resolve conflicts or are otherwise at loggerheads, the Court steps in as a sort of super‐​legislature to decide the issue. Sometimes they rule to maintain their own institutional power in an environment where the power of Congress is declining, and that of the Presidency is increasing. Viewing the Court as a sometimes‐​super‐​legislature makes it clear that political narratives, public opinion, and other normal tools of political persuasion are important to ruling in a certain way. Without Asian American plaintiffs, it’s hard to see how SCOTUS would have struck down affirmative action this time. It may have happened eventually because the arguments are good, but sympathetic plaintiffs and damning facts are just as important.

Beyond the plaintiffs in SFFA v. Harvard, immigrants, their descendants, and the diversity they bring to the United States have greatly helped reduce affirmative action through politics. As I wrote in 2022:

Voters in California—the most diverse state and the one with the highest immigrant share of the population—first voted to ban affirmative action when presented with Proposition 209 in 1996. Since then, progressives in the state have attempted to revive the issue. But in 2011, Governor Jerry Brown vetoed a bill that would have weakened the affirmative‐​action ban. Another proposal to re‐​institute affirmative action failed in 2014 after several Asian‐​American state senators defected from the effort in response to opposition from their constituents. “As lifelong advocates for the Asian‐​American and other communities,” Democratic state senators Ted Lieu, Carol Liu, and Leland Yee wrote, “we would never support a policy that we believed would negatively impact our children.” In 2020, voters affirmed the state’s ban on affirmative action by a wider margin than the original vote to ban it 24 years earlier.

Asian Americans are the most likely to be foreign‐​born of any racial group. In 2019, two‐​thirds of Asian Americans in California were immigrants. As is clear to all after SFFA v. Harvard, Asians are the biggest losers in any race‐​based affirmative action system. Without them, it would be tougher to make the case that affirmative action is unjust. That’s an unfortunate commentary on the state of political debate in the United States because the arguments against affirmative action are convincing regardless of who wins or loses, but those are the facts.

Furthermore, states with a higher foreign‐​born share of the population are likelier to have banned affirmative action than states with a lower foreign‐​born share. Interestingly, the share of the non‐​citizen population is best correlated with a state banning affirmative action. According to a piece I coauthored a few years ago, a 1 percent increase in the share of non‐​citizens is associated with a 27–34 percent increase in the probability of the state banning affirmative action. The share of the white population is not statistically significant in any regression we ran, and the measure of population‐​wide diversity is only significant at the 10 percent level in the 3‑and‐​5‐​year lags.

Affirmative action is more politically stable when they are two groups, one of which is large and the other that is small. Malaysia has a Chinese minority punished by affirmative action and a Malaysian majority aided. Apartheid South Africa punished blacks and favored whites, which was then reversed after the end of apartheid. The United States, with blacks favored and whites punished before large waves of immigrants in the late 20th and early 21st centuries, are such cases.

Of the above examples, only the United States has a substantial immigrant‐​induced demographic change that upended that relatively stable institutional dynamic by adding mainly Asian and Hispanic immigrants. Suddenly, Asians became the biggest losers of affirmative action, whites the second biggest, and Hispanics moderate beneficiaries. The goals of affirmative action became murkier – why would the U.S. government help Hispanic immigrants and their descendants with a program designed to help the descendants of black slaves?

Even more so, competition between disadvantaged groups seeking affirmative action lessened the benefits. Worse for the supporters of affirmative action, the biggest victims became a large and growing immigrant group and their children, a group whose ancestors were also targeted by racist laws like the Chinese Exclusion Act of 1882, various Alien Land Laws that barred Asians from owning land, and Japanese Internment.

There are three significant motivations for supporting redistribution, of which affirmative action is a type. They are self‐​interest, compassion, and malicious envy. Self‐​interest and compassion are obvious. Malicious envy is hatred toward a group that has done better. Immigration weakens all three supports for affirmative action. Immigration weakens self‐​interest by spreading the benefits among more groups, it weakens compassion because new beneficiaries have dubious claims to racial preferences under the justifications for the schemes, and malicious envy is weakened because the biggest victims are no longer whites.

Immigrants weakened affirmative action in the United States by being the specific plaintiffs in SFFA v. Harvard and changing the politics of the issue. But a far more substantial and destructive apparatus of affirmative action operates today through our immigration laws that bar about 96 percent of the world’s population from participating in the American market meritocracy. Opponents of affirmative action should rest on their laurels by embracing just a touch more meritocracy just among Americans; they should embrace a true global meritocracy.

Kayla Susalla

In the 2019–20 school year – the most recent with federal data – 51.4 percent of public schools possessed an armed, sworn, law‐​enforcement officer. School Resource Officers (SROs) are police officers with a community‐​oriented approach intended to increase safety by mitigating crime, violence, and other anti‐​social behavior in schools. Some Americans view added police presence as an appropriate response to safeguard students, while others fear an increase in police misconduct. There is also growing concern SROs accelerate the “school‐​to‐​prison pipeline”: pushing students into the criminal justice system through excessive discipline and law enforcement contact.

With important concerns both for and against SROs, policymakers must ask: Do they do more harm than good?

SROs are relatively new, and there are yawning gaps in research. Studies are often limited to small samples and find contradictory outcomes on arrest rates and effects on school safety. Nevertheless, a common theme is the presence of SROs increase disciplinary actions, including punishments potentially carrying significant long‐​term harms.

Researchers Gottfredson, et al. compared schools with increased SRO presences to schools with no increase in SROs. They found that schools with increased SROs saw the number of drug and weapons‐​related offenses rise, as well as higher instances of exclusionary discipline by school administrators. Exclusionary discipline refers to measures that remove students from school, such as out‐​of‐​school suspensions. The study also concluded the increase in SROs did not improve school safety.

Researchers Sorensen, Shen, and Bushway found the presence of SROs in middle schools decreased serious violence, in contrast to Gottfredson, et al., making schools safer, but they also increased “out‐​of‐​school suspensions, transfers, expulsions, and police referrals.” The increase in suspensions was especially acute for Hispanic and Black students. A third study, comparing schools near police departments that did and did not qualify for SRO grants, had similar results, finding schools near departments above the threshold increased the number of recorded firearm offenses and decreased the instances of violent fights, but increased expulsions, referrals for arrest, out‐​of‐​school and in‐​school suspensions, and chronic absenteeism. Black students experienced the largest effect on out‐​of‐​school suspensions, over two times greater than white students, followed by students with disabilities and males.

Through exclusionary discipline, students miss the point of school – to be in the classroom learning – which can create lasting educational and socialization gaps. Additionally, the stigma surrounding the label of “criminal” can ostracize students from their social groups and remove support provided at school. But positive relationships are vital, particularly given the uptick of mental health disorders such as anxiety and depression among young Americans.

Another study, which compared schools with and without SROs in the same districts, found no effect on total arrests, but a 402.3 percent increase in the arrest rate for disorderly conduct. The null findings on total arrests suggest arresting students is not the most common form of correction by SROs, but the five‐​fold increase in disorderly conduct bears consideration. Disorderly conduct is cited when someone “disrupts the peace” and it is among the most discretionary – and possibly minor – actions potentially resulting in charges. For example, a student abruptly shouting in class could be charged with a misdemeanor or civil infraction, or in severe circumstances, a felony. The charge could depend on several factors: the teacher’s tolerance of the disruption, the student’s prior relationship with the teacher or SRO, or occurrences of interruptions in prior classes. The circumstances surrounding filing charges against a student can be subjective, leaving criminal justice system involvement largely open to SRO choice.

Criminalization of misbehavior can inhibit future education, employment, and housing opportunities, feeding the “school‐​to‐​prison pipeline.” Additionally, narrowing of options may lead to a higher likelihood of recidivism, as students are deprived of opportunities that increase individual capital. Weisburst found that increased police presence in Texas schools led to a 2.5 percent decrease in high school graduation rates and about a 4 percent decrease in college enrollment rates.

An alternative to SROs could be encouraging administrators or parent monitors. Both groups could benefit from gaining greater awareness of school issues by engaging with the larger student body. Monitor positions create positive connections for youth by bridging social gaps between staff, parents, and students. Administrations can highlight mediation practices when conflict arises between students, and hold interventions with families, emphasizing law enforcement as a last resort. Such negotiation and conflict resolution are essential life skills.

States are rapidly expanding SRO programs, federal grants enable local agencies to create positions, and Congress continues to propose bills expanding such programs. Given the paucity of good research and the mixed findings of what does exist, expanding SROs is something all levels of government—especially Washington, which has no constitutional authority to intervene—should be hesitant to do.

Michael F. Cannon

Health care in the United States is such an expensive mess, no one wants to take credit for it. Patients and their families go out of their minds dealing with it. Health care devours a growing share of workers’ earnings every year. Politicians in other countries use “American health care” as an epithet. Politicians in the United States either run against U.S. health care or run away from it.

How did things get this bad?

A new online publication explains that the root cause of the United States’ health care woes is not market failure or corporate greed or even World War II‐​era wage controls. “The Original Sin of U.S. Health Policy” explains that the blame lies with…the federal income tax.

When Congress created the (second) federal income tax in 1913, it did not foresee–it could not possibly have foreseen–that growth in medical innovation, incomes, and financial services would increase demand for medical care, medical insurance, or employer provision of both. Since Congress had been silent on the question of how the new income tax would treat employer‐​purchased medical care and health insurance, it fell to Treasury bureaucrats to answer. Sometime in the 1920s, those bureaucrats decided employer‐​provided group insurance would not be subject to the new tax. From that moment, the federal income tax effectively created a penalty on individual control of medical and health insurance decisions that continues to this day.

That implicit penalty causes or exacerbates every single problem that consumers and policymakers have confronted since. Medicare and Medicaid (1965), the HMO Act (1973), certificate of need regulation (1974), FSAs (1970s), COBRA (1985), HIPAA (1996), MSAs (1996), HRAs (2000s), HSAs (2003), SCHIP (1997), the HITECH Act (2009), the Affordable Care Act (2010), the No Surprises Act (2020), etc., are all efforts to fix problems that Congress itself created when it enacted the federal income tax. More often than not, these “solutions” exacerbate the very problems they attempt to solve, and thus ironically spur calls for even further government intervention.

The tax exclusion for employer‐​sponsored health insurance distorts labor markets, the financial sector, and the health sector. It compels workers to purchase coverage that is more likely to drop them when they are sick. It discriminates against low‐​wage workers, women, obese workers, older workers, and others with expensive medical conditions, on whom its implicit penalties fall hardest.

Restoring workers’ rights and making health care more universal requires cleansing U.S. health policy of its original sin.

Thomas A. Berry and Isaiah McKinney

Herring fishing is hard work on a crowded boat, but the federal government wants to make it even harder. Every inch of space on a small fishing boat is valuable room for supplies, fishers, and the catch. Space becomes even tighter when the government forces fishers to carry a monitor to track compliance with federal regulations. And profits become even narrower when the fishers are forced to themselves pay that monitor’s salary.

A federal statute lays out three specific circumstances in which the government may force fishers to pay a monitor’s salary. Outside of those three cases, the statute is silent. Yet the government nonetheless took that silence as permission, issuing a rule that forced herring fishers in New England waters to pay for their own monitors. The regulation will cost those herring fishers around $700 per day and reduce their profits by about 20%.

Several fishers sued to challenge this rule, including Loper Bright Enterprises, a family‐​owned fishing company that operates in New England waters. Because they did not fall within any of the three categories mentioned in the statute, they argued that the government did not have the authority to force them to pay their monitors’ salaries. Their challenge reached the D.C. Circuit, which held that the statute was ambiguous on this question of monitor salary. But under a precedent called Chevron v. NRDC (1984), that ambiguity meant the government won.

Now the Supreme Court has taken Loper Bright’s case to consider whether Chevron should be overruled. And Cato, joined by the Committee for Justice, has filed an amicus brief supporting Loper Bright and urging the Court to overrule Chevron.

Chevron sets out a two‐​step process that courts must follow when reviewing an agency’s interpretation of a statute. First, the court must apply the traditional tools of statutory interpretation and determine if the statute has a clear meaning. If the statute is clear, then the court must apply that clear meaning. So far so good. If, however, the statute is “ambiguous,” the court must move to the next step and defer to the agency’s interpretation so long as it is “reasonable.” The court must defer to an agency’s reasonable interpretation even if the court believes that the agency’s interpretation is not the best interpretation.

Chevron thus gives judicial power—the power to interpret the meaning of the law—to the executive branch. The Constitution, however, grants all judicial power to the judicial branch. And Chevron deference applies even when the agency demanding deference is also a party to the case. Chevron thus biases the courts toward government agencies, stripping the judiciary of impartiality and denying litigants basic due process.

In addition to these fundamental problems, our brief gives two further reasons why Chevron must be overruled: it is ahistorical and unworkable. Chevron is ahistorical because courts did not reflexively defer to the executive at the time of the Constitution’s framing or for a hundred years after. The nineteenth‐​century precedents that some have cited to support Chevron were all fundamentally different, such as when courts gave interpretive weight to long‐​held or contemporaneous executive interpretations. It was not until the New Deal era that the Supreme Court began to defer to the executive solely because it was the executive. And it was not until Chevron that deference to the executive became a binding rule for all federal courts.

Further, Chevron is unworkable because courts have failed to find a consistent definition of “ambiguous.” The Supreme Court itself has gone back and forth, sometimes applying all the tools of statutory construction rigorously at the first Chevron step and other times quickly deferring with little statutory analysis. Even as the Supreme Court has declined to defer over the last seven years, lower appellate courts have continued to find statutes ambiguous more than half the time. The failure to reach a consensus on the meaning of “ambiguous” itself demonstrates that Chevron is arbitrary and unworkable.

Loper Bright’s case exemplifies everything wrong with Chevron. The Court now has a perfect opportunity to overrule Chevron and reclaim the judiciary’s independence.

Adam N. Michel

I recently testified before the House Ways and Means Tax Subcommittee on the Organisation for Economic Cooperation and Development’s (OECD) Two Pillar proposal to increase corporate tax rates on multinational businesses.

You can read my full written testimony here and watch my opening statement here.

In my remarks, I explain how the OECD has lost its way in advocating for higher and more complicated taxes and detail the economic costs of its proposals. I conclude with thoughts on how U.S. policy should respond.

Two topics that came up in the hearing deserve additional attention. It was regularly asserted by Democrats and implied by some Republicans that the only path forward is continued engagement in the OECD process so that U.S. interests are fully represented. This strategy makes two poor assumptions. First, if the OECD’s inclusive framework successfully redistributes taxing rights, it will likely embolden future destabilizing unilateral actions. Second, the underlying motivation of the project—to increase global taxes—is at odds with U.S. interests and pro‐​growth policy.

New Forms of Instability

The administration’s witness, Michael Plowgian, claimed that the Two Pillar solution is necessary to ensure stability in the international tax system. In response to a question from Representative Randy Feenstra, Professor Mindy Herzfeld and I explained why the OECD project is instead likely to further destabilize the international tax system.

The Two Pillar framework gained steam when in the spring of 2019, the OECD released a work program outlining an accelerated rewrite of the international tax rules to address growing concerns over the taxation of the digital economy and unilateral digital services taxes (DSTs). France and a handful of other countries implemented or threatened to implement these taxes that were not so subtly designed to hit U.S. technology firms. The French DST is a 3 percent levy on revenue from sales of user data, digital advertisements, and online platforms run by companies with more than €750 million in global revenues.

President Trump threatened tariffs on French exports, and the DST‐​implementing countries used the resulting threat of escalating retaliatory tax and trade measures to move the OECD international tax rewrite forward. The success of using unilateral DSTs as a cudgel to force action at the OECD creates an unfortunate precedent that will likely encourage future destabilizing unilateral actions. Pillar One is intended to replace many DSTs, although the enforcement mechanism for such as agreement is uncertain.

The OECD’s proposal redistributes the global tax base so that some countries will end up with more revenue and others with less. Without the protection of physical presence and the arms‐​length standard—which both pillars undermine—there is no logical end to how best to divvy up corporate income among the 140 inclusive framework signatories. Now every country has a greater incentive and proven strategy to agitate for a larger share of the global tax base.

A Seat at the Table

Throughout the hearing, it was asserted that withdrawing from the two‐​pillar process would be a mistake because we would lose a seat at the table. The seat at the table is only valuable if policymakers think it is worthwhile to support the goals of the OECD project as pursued by the Biden administration’s negotiators.

If Congress is skeptical of the premise of the project—which I argue they should be—then the only possible role the U.S. can have as an active participant is 1) to give the process additional legitimacy, ensuring the project moves forward, and 2) to plead with the OECD to make their tax increases slightly less bad for American companies.

Treasury Secretary Janet Yellen has been clear that the administration’s goal is to advance to the OECD process as far as possible before 2025, when other U.S. tax expirations create a forcing mechanism for congressional adoption. The recent transition rule for UTPR facilitates this strategy. Treasury’s strategy at the OECD, to force their policy agenda forward without consulting Congress, gives members of Congress intent on setting their own policy only one choice: rescind U.S. participation in the OECD, removing Treasury’s authority to pursue their international tax deal.

As I noted at the hearing, the successive pleading of the Ways and Means members with Mr. Plowgian to protect the U.S. R&D credit through OECD guidance illustrates the broader structural problem of the OECD process, which cuts Congress out of the policymaking process.

Without U.S. participation, it is more likely that the project does not move forward. This may lead to some additional unliteral actions by other countries, but as described above, the OECD project is not likely to end these actions either.

If other countries decide to move forward without the U.S., they will primarily hurt their domestic economies by increasing the costs of locating in their country. Congress can increase the relative attractiveness of the U.S. by lowering our corporate tax rate and moving to a full territorial system that disregards income earned and taxes paid overseas. If necessary, Treasury can address violations of existing tax treaties if other countries attempt to tax the active U.S. income of U.S.-based multinationals.

As I’ve written before, the problem with the OECD proposals is more than just that GILTI was not grandfathered in or that UTPR will erode the U.S. tax base (although these are both legitimate problems). Simply fixing these oversights should not be Congress’ only goal.

The underlying problem is the last two decades of OECD tax work to end international competition on tax rates. Pillar Two is just the most recent iteration. The OECD’s tax work no longer primarily coordinates tax systems to eliminate double taxation. Instead, it proposes ever more complicated tax increases and reporting requirements to raise taxes at the expense of international investment.

Working with other countries through the OECD to lower tax and trade barriers is worthwhile and welfare‐​enhancing for all parties involved. When the goal is to collude with other countries in a scheme to increase taxes and reduce global investment, a seat at the table will only make the U.S. complicit in a destructive policy process.

My written testimony also addresses other key issues at the hearing, including how Pillar Two will shift tax competition from tax rates to subsidies and the myth of the “race to the bottom.”

In addition to raising effective tax rates, increasing compliance burdens, and reducing U.S. revenues, the OECD framework is likely to further destabilize the international tax system. Keeping our seat at the table only ensures the OECD project will continue full steam ahead. Instead, Congress should focus on improving our domestic laws to support investment and economic growth. We should encourage other countries to do the same.

Marc Joffe

Most state and local governments file their financial statements on time, but there are some notable exceptions. Among those are the last two cities to declare bankruptcy—Fairfield, AL and Chester, PA—as well as Puerto Rico, the largest municipal bond issuer to ever file a bankruptcy petition. Now another perennially late financial statement filer is getting attention from local media and its state government.

Hopewell, VA, a city south of Richmond, with about 23,000 people, is four years behind in producing audited financial statements. Further, its audits for the years 2015–2018 did not receive “clean” opinions from the Certified Public Accountants hired to review them, suggesting serious irregularities. The 2018 opinion was especially negative, with the auditor observing:

There were material differences between the Treasurer Office’s June 2018 bank reconciliation and the City and Component Unit School Board’s adjusted general ledger and financial statements. The City, Treasurer’s Office and Component Unit School Board were unable to provide sufficient appropriate audit evidence for these material discrepancies in cash transactions.

In connection with federal grant oversight, the auditor also assessed Hopewell’s accounting systems and procedures and found them to be inadequate. City management accepted these findings and attributed the problems to “staff turnover, minimal documented procedures/​guidelines.”

Hopewell last issued municipal bonds in 2011. At that time, it received strong ratings from all three of the major credit rating agencies. But the city’s mounting financial reporting challenges have compromised its credit. In 2017, both Moody’s and Standard and Poor’s withdrew their ratings due to Hopewell’s failure to provide timely disclosure. Fitch followed in 2018.

At a City Council meeting, Ward 1 Councilor Rita Joyner noted the lack of credit ratings and concluded that, as a result, the city could no longer fund capital expenditures. That is not necessarily the case. Many governments issue unrated bonds and Hopewell’s bonds traded in the secondary market multiple times (albeit at significantly elevated yields) in late 2022, suggesting that some investors are willing to shoulder the city’s elevated credit risk if the city chooses to issue “junk bonds”.

In recent months, the State of Virginia has been investigating Hopewell’s financial status and offering assistance. The state government took a largely hands‐​off approach to local government finance until the City of Petersburg suffered a financial crisis in 2016. (Petersburg is just a ten‐​mile drive from Hopewell.) In 2017, the state legislature directed the Virginia Auditor of Public Accounts (APA) to create a local fiscal distress early warning system.

But, although the state can now identify distress situations, its intervention options are limited. State law allows the governor to allocate up to $500,000 to provide technical assistance to distressed local government but cannot compel the governing body to accept this assistance.

After determining that Hopewell was in distress, the state hired the firm of Alvarez and Marsal to assess the situation and make recommendations. In May, the consultants issued a 161‐​page report with 27 recommendations including the establishment of a fiscal turnaround project management office, the development of a multi‐​year financial plan, and the creation of new monthly and annual accounts closing processes.

In July, Virginia Secretary of Finance Stephen Cummings sent City Council members a letter, offering to fund an interim City Manager and Finance Director to help implement the consultant’s findings if those individuals are approved by state officials. The Council rejected the state’s offer by a 4–3 vote. Without Hopewell’s cooperation, there is little more the state can do.

North Carolina has a much more aggressive local intervention law. If the state’s Local Government Commission determines that a local government’s finances have become unsustainable, it can take over “all of the powers of the council as to the levy of taxes, expenditure of money, adoption of budgets, and all other financial powers conferred upon the council by law.” Further, the Commission has the power to merge or dissolve local governments which lack a path back to sustainability.

Hopewell’s problems illustrate the need for Virginia to adopt a similar set of policies.

Joshua A. Katz

A civil society might require police, but a free society requires they be accountable for wrongdoing while on the job. Too often, though, the doctrine of qualified immunity protects officers who exceed their authority, such as by arresting citizens who criticize them despite that speech being protected by the First Amendment. Happily, the Tenth Circuit Court of Appeals recently denied summary judgment based on qualified immunity in just that circumstance. A unanimous panel, speaking through Judge David M. Ebel, took the step of finding an officer’s conduct to not only violate the Constitution, but also to be unprotected by qualified immunity.

John Jordan’s nephew, J.J., had a car accident while driving Jordan’s company truck. Jordan went to the scene to help. While officers questioned J.J., Jordan kept his distance and watched, but eventually grew annoyed with the way the officers were questioning J.J. He asked the officers if they were “taking a statement or…giving a statement.” The officers did not like their authority being questioned, and, after a brief verbal exchange, one of the officers forcibly arrested Jordan, whose face was pressed into the ground during the arrest. (Like the opinion, I am giving Jordan’s version, because that’s the relevant version at this stage.) Jordan was charged with obstruction of justice and resisting arrest, but the charges were dropped.

Jordan sued for unlawful arrest, malicious prosecution, excessive force, and violation of religious freedom, under 42 U.S.C. § 1983. A magistrate judge held the officers were protected by qualified immunity for the first three claims but not the fourth. The Tenth Circuit reversed on all three, holding the officers not entitled to qualified immunity.

The Court first held that there was no probable cause because Jordan had a First Amendment right to criticize. “[T]he First Amendment does not protect only quiet and respectful behavior towards police; it protects loud criticism that may annoy or distract the officer.” Based on Supreme Court caselaw, this was not a close question. Since the behavior was constitutionally protected, there was no probable cause for the arrest.

Next, it found that the officers violated clearly established law because there was not even arguable probable cause. The Supreme Court had clearly established just the right at issue. It also held, citing a Tenth Circuit case, that speech protected by the First Amendment cannot be the basis for probable cause. Then it found that Jordan’s speech was within the bounds of clearly established First Amendment law. Therefore, “no reasonable officer could have believed they had arguable probable cause for arrest.” So there was no qualified immunity for the unlawful arrest charge.

The magistrate’s only basis for finding qualified immunity for the malicious prosecution charge was the conclusion that the officers had probable cause, so the Court reversed this holding as well.

Finally, the Court held that the force applied was unconstitutionally excessive because the alleged crime was minor, there was no threat to the safety of the officers or others, and Jordan was not actively resisting arrest or attempting to flee (indeed, he was attempting to remain). It then held that the excessive force violation was one of clearly established law, citing to its prior caselaw establishing that physical force similar to that used here was unlawful when “the arrestee poses no threat, puts up no resistance, and does not attempt to flee.”

The Court was correct to hold the officers accountable for their abuse of power. Such pushback against the all‐​too‐​common grant of qualified immunity is welcome. Even more welcome would be a rethinking of this atextualist doctrine the Supreme Court has read into § 1983, or the passing of new legislation by Congress to do away with it.