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Alex Nowrasteh

During the 2020 campaign, Joe Biden said, “Milton Friedman isn’t running the show anymore.” It was incredible for a presidential candidate to mention the name of an economist who had died 14 years earlier. After reading Jennifer Burns’ new book, Milton Friedman: The Last Conservative (Farrar, Straus and Giroux, 592 pages, released November 14, 2023), however, I found that Biden’s statement is more understandable in Friedman’s case than for any other economist. Even John Kenneth Galbraith said, “In the history of economics, the age of John Maynard Keynes gave way to the age of Milton Friedman.” Burns’ book makes a convincing case for why Galbraith was correct about Friedman’s impact (but not much else).

Jennifer Burns, an associate professor of History at Stanford University and a research fellow at the Hoover Institution, makes clear in Milton Friedman: The Last Conservative that Friedman had a significant impact on the world and deserves the attention he receives even years after he passed away. Friedman was a brilliant economist who upended paradigms in macroeconomics, inspired a new generation of macroeconomists (rational expectations), made significant contributions to our understanding of microeconomics, advised policymakers, wrote and co‐​authored several popular books, spread his ideas widely, and so much more.

Burns’ book gives an excellent and readable account of Friedman’s life, contributions, and times. It’s readable, sympathetic, and fair. The Economist put Milton Friedman: The Last Conservative on their Best Book of 2023 list for good reason.

CSPAN After Words invited me to interview Burns about her new book (video below). My biggest problem with her book is the subtitle, The Last Conservative. Friedman described himself as a liberal, a classical liberal, a radical, a small “L” libertarian, and a Republican. But he bristled at the suggestion that he was a conservative. I asked Burns about this at the end of the interview. Here’s her answer:

You know there’s a couple different reasons I did and I’m very aware that Friedman did not call himself a conservative and would probably not like the title of the book. He didn’t go as far as F.A. Hayek did to write an essay, “Why I’m Not a Conservative,” and maybe if he had written that essay, I would say, “I can’t move forward with this title,” but I kind of mean it in two ways.

One is when you look at his, the people he interacted with, the people he gave his ideas to within American politics, those who found him most compelling, most of those people called themselves conservatives, and conservatism in the United States is different than conservatism in other countries, in large part because it incorporates what in other countries is called “liberalism” or “neoliberalism,” a celebration of the market and celebrating capitalism, which is a dynamic economic system, is in some ways in tension with being conservative because it drives a lot of social change.

Nonetheless, in the United States, you have this sort of hybrid political movement of people who are socially or religiously conservative with economists dedicated to the free market with, during the Cold War era, people who felt very strongly Soviet Russia needed to be combated. These people come together, they call themselves “conservative,” they’re called by others “conservative,” and Friedman is part of this movement, so that’s just sort of empirically a reason to call him that.

The other way, that is maybe even more substantive, came from understanding his approach as an economist, which was to look at ideas, traditions and approaches that had defined the discipline that were really being left behind in a postwar era. And then say, like, “hold on a second. There’s something here worth conserving,” and so I do see him as someone who conserves the kind of inherited wisdom of his discipline.

Monetarism is based on the quantity theory of money, an older idea that most economists in the 50s said, “it’s not really relevant anymore.” Likewise, the very practice of doing empirical historical research was very out of fashion, and so I think that was his intellectual orientation, I think within American society was his political orientation.

In terms of The Last [Conservative], I mean, that’s really gesturing a little bit to the current state of affairs where conservatism is very much in flux and, I think, contested, and up for grabs and the type of conservatism that Friedman represented, that synthesis of free market capitalism, religious traditionalism, and an aggressive foreign policy, and a sort of orientation to global markets and to global influence. That synthesis and the pieces are all there, but they don’t come together in the same coherent way they did when Friedman was at the height of its influence. I think it’s sort of a provocation and sort of an invitation. We don’t know if he’s the last conservative or not. It might look like that right now. For some people that will be cause for celebration, for others cause for loss, but the book is not yet written. So with my book I want to give people resources to think about kind of how we got here and to think, “what in our past do we want to carry with us into the future?”

I recommend the book to anyone with an interest in Friedman, how the economics profession changed from about 1930 to the 1970s, the rise and fall of different economic paradigms during that time, and the intellectual history of big political questions during those years. Last but not least, Burns writes well and explains complex ideas accurately and in a way that intelligent laypeople can understand – a rare gift.

Being in the interviewer’s chair for a change was different, but I enjoyed it. The goal of an interviewer is to steer the conversation, allow the interviewee to explain their ideas, and add some thought‐​provoking questions to get the interviewee to reveal the unexpected. The interview was not about me or my ideas but about Burns and her new book, so I had to crush my ego and hand it over to her. I did well, but not as well as I could have, and I learned some lessons that will help me in future interviews. Hopefully, you will enjoy my interview with Jennifer Burns about her new book, Milton Friedman: The Last Conservative. More importantly, I hope you pick up her book.

Neal McCluskey

Today, the National Center for Education Statistics released its latest data on private school enrollment, as well as lots of other private schooling numbers. The most important finding is that K‑12 enrollment in private schools rose from 4,652,900 in 2019 to 4,731,300 in 2021. That is consistent with what Cato’s Center for Educational Freedom found as it undertook survey work to keep tabs on the health of private schooling: enrollment decline at the beginning of the COVID-19 pandemic, increases thereafter as private schools tended to reopen to in‐​person instruction faster than public.

Note that the NCES press release says enrollment “held steady” between the 2019–20 and 2020–21 school years, rounding the start and end numbers to 4.7 million, and perhaps considering statistical margin of error (it does not say if it did) to indicate no change. But the difference between reported numbers is 78,400, or a 1.7 percent increase. On the flip side, factor in pre‑K —which NCES did not do in its press release—and private schools did experience enrollment loss, dropping from 5,485,800 to 5,473,540. That’s a 12,260-student dip, or 0.2 percent.

When it comes to the number of private schools, NCES reports a net loss, which we also found, continuing through the 2021–22 school year. There were 30,490 private schools in 2019 and 29,730 in 2021, a 2.5 percent reduction.

Of course, these data are pretty old: We are now in the 2023–24 school year. That lag is why Cato’s Center for Educational Freedom has tracked private school closings and openings since the start of the pandemic, and undertaken annual private school enrollment surveys. It is important to continually monitor the health of private schooling, which is especially vulnerable to economic and other shocks because it must compete against “free” government schooling. That forces many schools to constantly walk a tightrope between keeping charges low and remaining financially viable.

With that in mind, check out our Private Schooling Status Tracker, and look for the results of our latest survey soon!

Jeffrey A. Singer

Next Tuesday, the Senate Committee on Health, Education, Labor, and Pensions (HELP) is scheduled to consider S.644, the Modernizing Opioid Treatment Access Act (MOTAA). The bill is sponsored by Senator Edward Markey (D‑MA) and co‐​sponsored by Senators Rand Paul (R‑KY), Bernie Sanders (I‑VT), Mike Braun (R‑IN), Cory Booker (D‑NJ), and Maggie Hassan (D‑NH). It would expand access to methadone treatment for people with opioid use disorder (OUD) by allowing board‐​certified addiction specialists to prescribe methadone to patients in their offices or clinics. This would provide people with an alternative option to the current system that segregates and stigmatizes people with OUD by making them queue up daily at government‐​approved opioid treatment programs (OTPs).

As I wrote here, the bill doesn’t go far enough—there are not nearly enough board‐​certified addiction specialists to meet the needs of people with OUD. However, as I wrote here:

The Modernizing Opioid Treatment Access Act is the first serious attempt in many years to remove unnecessary government barriers to methadone treatment. The bill also helps to destigmatize people with OUD by treating them as suffering from a medical condition.

As Sofia Hamilton and I explain in a recent Cato policy analysis, methadone has been proven as an effective treatment for addiction and dependency since the 1960s. Before Congress passed the Drug Abuse Prevention, Treatment, and Rehabilitation Act of 1972,  primary care clinicians in the US would prescribe methadone, an opioid agonist, to patients and follow them in their office practices.

That all ended in 1972 when the federal government segregated people with opioid use disorder from people with other health conditions that doctors treat in their offices, requiring them to often travel miles each day to take a daily dose of methadone in front of OTP staff. In the UK, Canada, and Australia, primary care clinicians working with community pharmacies have always prescribed methadone, and people in those countries thus have much greater access to methadone treatment.

Ideally, Congress should allow primary care clinicians to prescribe methadone to people with OUD in the office setting, as they do in the countries above. Clinicians can already prescribe another opioid agonist medication, buprenorphine, in the office to treat OUD. And we doctors can legally prescribe methadone to treat patients’ pain in the office setting. There is no good reason for the government to apply different rules for prescribing methadone to treat OUD.

Most objections to allowing clinicians to prescribe methadone emanate from the operators of the OTPs. This comes as no surprise. It is reminiscent of the objections raised by the taxi cartels when Uber and Lyft emerged as competition. They argue that allowing clinicians to prescribe take‐​home methadone—and pharmacists to fill the prescriptions—would result in methadone getting “diverted” to the black market for sale to non‐​medical drug users. But the evidence doesn’t back up those claims.

Critics of allowing clinicians to prescribe buprenorphine raised similar concerns about diversion. But research in 2018 by Washington University’s Theodore Cicero and others shows:

The most common reasons for illicit buprenorphine use were consistent with therapeutic use: to prevent withdrawal (79%), maintain abstinence (67%), or self‐​wean off drugs (53%)… Among respondents who had used diverted buprenorphine, 33% reported that they had issues finding a doctor or obtaining buprenorphine on their own. Most (81%) of these participants indicated they would prefer using prescribed buprenorphine, if available.

The researchers concluded, “Diversion was partially driven by barriers to access, and an unmet need for OUD treatment persists.”

In March 2020, the Substance Abuse and Mental Health Services Administration (SAMHSA) temporarily liberalized methadone take‐​home rules for OTPs, allowing “stable” patients to take home up to a 28‐​day supply. The program was such a success that SAMHSA has extended the rule and is “working toward a permanent solution.” Researchers at the Centers for Disease Control and Prevention and the National Institute on Drug Abuse evaluated the impact of the relaxed take‐​home rules and wrote in JAMA Psychiatry in July 2022, “Monthly methadone‐​involved overdose deaths remained stable after March 2020.”

The National Institutes of Health reported that same month that “the percentage of overdose deaths involving methadone declined between January 2019 and August 2021.”

Interestingly, the National Institute on Drug Abuse stated in December 2021:

Methadone diversion is primarily associated with methadone prescribed for the treatment of pain and not for the treatment of opioid use disorders. In one survey, giving methadone away was identified as the most common form of methadone diversion, which aligns with other findings that 80 percent of people who report diverting methadone did so to help others who misused substances. (Emphasis added.)

Keep in mind that the law has always permitted clinicians to prescribe methadone for the treatment of pain.

Thus, it appears that, as with buprenorphine, the majority of people who use diverted methadone are using it to avoid withdrawal as they attempt to taper off of an illicit opioid they’ve been using. This is because they cannot get access to the scarce number of methadone OTPs.

As I pointed out here, ”Expanding access to OUD treatment would reduce the number of people who seek drugs in the dangerous black market and, in turn, reduce the risk and incidence of overdose deaths.”

Last September, I moderated a policy forum at the Cato Institute examining ways to expand access to methadone treatment that featured Rep. Donald Norcross (D‑NJ), a sponsor of the House version of MOTAA. You can view it here.

As the Senate HELP Committee starts to mark up the bill, lawmakers should dismiss unsubstantiated concerns about diversion that incumbent OTP operators would like to raise. On the contrary, based on the data, one can argue that the most effective way to minimize methadone diversion is to increase access to methadone treatment.

Justin Logan

Senator Rand Paul (R‑KY) has introduced a bill calling for the withdrawal of US forces from Syria unless Congress authorizes them to be there. A perverse set of events has brought this all to a head, but good constitutional hygiene and careful strategy are their own rewards. Because of Congress’s abdication, US troops in Syria have no military mission beyond serving as targets for regional militias. Our men and women in uniform deserve a clear and achievable mission, always and everywhere. They do not have one in Syria. (See my November Reason article for more on this.)

To recap: despite repeated pledges there would be “no boots on the ground” in Syria as part of the anti‐​ISIS campaign, President Obama put boots on the ground in Syria as part of the anti‐​ISIS campaign. In December 2018, President Trump noted that ISIS, having lost 99 percent of the territory it held during its vaunted caliphate, had been defeated, and pledged that there would be a “full” and “rapid” withdrawal of US forces from the country. Trump’s defense secretary and counter‐​ISIS czar (who is now President Biden’s point man on the Middle East) resigned in protest, and the officials who didn’t resign successfully worked to sabotage Trump’s decision to withdraw US forces.

Since the Israeli assault on Gaza in response to the October 7 Hamas terror attack, US forces in Syria have served as little more than shooting gallery targets for regional militias backed by Iran. Contrary to their ostensible purpose, they are not fighting ISIS. As noted in the most recent Inspector General report for the counter‐​ISIS campaign, US forces stationed at the major US base in Syria had “no kinetic engagements” with the enemy during the previous three months. Whatever rump ISIS faction exists in Syria, local incentives and capabilities exist for dealing with it. Handily.

As the former US Ambassador to Syria Robert Ford recently observed, the “real (but unstated) reason the US is there is to block Iran from using a road coming from Iraq into Syria.” But the Iranians simply take a somewhat longer route, and the cost we pay for making them do this has been regular rocket fire, the primary defense against which has been luck. This is a disservice to our servicemembers.

Congress should find the commensurate courage to debate this mission, and should they decide on war with Syria or Iran, the Constitution provides them the option of declaring war on Syria or Iran. Barring that, these troops have no lawful or coherent mission, and they should be brought home.

Ian Vásquez

“It is a breeze of fresh air for a country that has suffered so much in recent years.” That’s how Felix Maradiaga described last month’s victory of Nicaraguan Sheynnis Palacios in the Miss Universe 2023 pageant.

Maradiaga should know. He was a presidential candidate in 2021, for which he was imprisoned and, after more than a year and a half in jail, released, stripped of his citizenship, and exiled. He and Nicaraguans inside and outside of their country recognize that Palacios’ coronation represents much more than winning a beauty contest.

It did not take long for the spontaneous celebrations in Nicaragua’s streets and on social networks to be interpreted by Daniel Ortega’s dictatorship as a threat. First lady and vice president Rosario Murillo denounced them as an attempt to conduct a “destructive coup.” Last week, the regime charged the director of the local Miss Universe franchise, who remains outside of the country, with treason and has detained her husband and son.

In fact, Palacios’ victory not only succeeded in unifying a country fractured by the dictatorship. The opposition to the regime—read the Nicaraguan people—identified itself with Palacios upon learning that she participated in the mass, anti‐​government protests of 2018. “The authorities and their accomplices repressed those demonstrations, killing at least 328 people, injuring some 2,000, and detaining hundreds.… Many protesters were detained for months, subjected to torture and other ill‐​treatment including electric shocks, severe beatings, fingernail removal, asphyxiation, and rape,” according to Human Rights Watch.

The situation has only worsened since then. As the United Nations denounced in a report this year, the regime is committing “widespread and systematic human rights violations that amount to crimes against humanity.” The dictatorship has exiled hundreds of citizens and stripped them of their citizenship; it has closed down thousands of NGOs and dozens of media outlets and universities. In the Human Freedom Index, Nicaragua ranks 123rd out of 165 countries. When Ortega took power in 2007 it ranked 72nd.

Maradiaga is right when he says that Sheynnis embodies the spirit and odyssey of the Nicaraguan people. She comes from a humble background, graduated from a university shuttered by the regime, and evidently aspires to a modern and prosperous Nicaragua.

Most striking was Sheynnis’ answer to a question asked of her during the pageant competition, which seems to have assured her the victory: When asked who would be the woman in whose shoes she would like to spend a year, she replied: Mary Wollstonecraft because of her feminist struggle.

Who was Wollstonecraft? She was an English author who lived in the second half of the 18th century and who wrote A Vindication of the Rights of Woman, considered a foundational text of feminism. Wollstonecraft advocated for equal rights and freedoms between men and women. She said that women were not inferior, that they were rational beings, and deserved the same education and opportunities as men. She was a radical for her time.

Wollstonecraft was an Enlightenment thinker. Her circle included prominent classical liberals such as Thomas Paine and William Godwin. She opposed slavery and believed in the use of reason and the freedom of the individual. She was an enemy of monarchy, which she considered a form of tyranny.

Wollstonecraft was much more than a feminist; she was a liberal who wanted to limit the power of the state and promote values that she considered universal. Seen in that light, Palacios’ response to the pageant question appears quite astute.

Both for the people of Nicaragua and for the regime—which censored Palacios’ image when an attempt was made to paint her on a mural—Miss Universe has become a symbol of freedom.

Note: This article is based on a version that was originally published in El Comercio (Peru) on November 28, 2023.

Jeffrey A. Singer

The Washington Post reports today that the Biden administration will delay a decision on banning menthol cigarettes and cigars until March 2024, after receiving complaints from such organizations as the American Civil Liberties Union and several civil rights groups that a menthol ban might fuel a black market, which can exacerbate criminal justice disparities.

As I wrote here, these groups’ concerns about exacerbating criminal justice disparities are well‐​founded. According to the National Survey on Drug Use and Health, in 2020, 81 percent of Black and 51 percent of Hispanic smokers preferred menthol‐​flavored cigarettes. We must never forget the tragic story of Eric Garner. New York City’s exorbitant taxes on cigarette packages generated an underground market in untaxed individual cigarettes, called “loosies.” In 2014, police infamously encountered 43‐​year‐​old Eric Garner selling loosies on a street corner, and a policeman’s chokehold led to his death as he repeated, “I can’t breathe.” This happened without a menthol ban.

With menthol cigarettes more popular among Blacks and Hispanics, expect police to focus their attention on minority communities. The last thing this country needs is yet another reason for law enforcement to engage with minorities they suspect are committing the victimless crime of selling menthol cigarettes in the black market.

The European Union’s experience with a menthol ban suggests that the proposed product standard will not work and will likely foster a menthol cigarette black market. A recent EU survey finds 40 percent of menthol smokers switched to non‐​menthol, and only 8 percent quit smoking. More importantly, however, 13 percent reported getting menthol cigarettes from “other sources.”

A black market for smuggled menthol cigarettes has emerged. A major source is Belarus, where menthol brands such as Minsk, Fest, and Queen are smuggled into EU countries. The UK press reported that such “illicit whites,” as they are called, are smuggled into the country by gangs and can be purchased “under the counter” from small British tobacconists for the right price. More recently, researchers from Yale and Duke universities reported similar developments where states banned menthol tobacco in the Journal of the American Medical Association.

Proponents of a menthol ban believe that people who smoke menthol cigarettes have a harder time quitting tobacco. However, a 2022 study reported in the Journal of the National Cancer Institute found menthol smokers have no greater difficulty giving up smoking than non‐​menthol smokers. Moreover, FDA researchers have reported that there is “evidence of lower lung cancer mortality risk among menthol smokers compared with non‐​menthol smokers among smokers at ages 50 and over in the US population.” And a prospective cohort study involving more than 85,000 participants in twelve southern states, reported in the Journal of the National Cancer Institute in 2011, concluded that “menthol cigarettes are no more, and perhaps less, harmful than nonmenthol cigarettes.” Perhaps this is because menthol smokers tend to smoke fewer cigarettes per day.

The Food and Drug Administration also plans to order a dramatic reduction in the nicotine content of tobacco products. While nicotine is the addictive component of tobacco smoke, it is not nicotine but rather the other components of tobacco smoke that produce harm. Nicotine, like caffeine, is a stimulant that improves focus. Unlike caffeine, nicotine increases the production of beta‐​endorphins that relieve anxiety, which may explain why some tobacco smokers light up when they want to calm down.

Nicotine can be quite addictive, but regular caffeine consumption can also be addictive and lead to “Caffeine Use Disorder.” Aside from nicotine’s addictive potential, the drug is relatively harmless. It can raise blood pressure in some people, but so can caffeine. Both can be toxic if consumed at high dosages. And, as I wrote here, recent studies suggest that nicotine normalizes cognitive deficits, called “hypofrontality,” in people with schizophrenia and may improve short‐​term memory.

Rather than risk fueling a black market in higher nicotine cigarettes, the FDA should make it easier for people to obtain nicotine‐​containing e‑cigarettes, a proven form of tobacco harm reduction. Alas, the agency has been going in the other direction.

The delay of a decision on the menthol ban and nicotine reduction until next spring allows the Biden administration to consider the unintended consequences before it makes a public health mistake.

Jack Solowey and Jennifer J. Schulp

November 28 was “Giving Tuesday,” but that didn’t stop the Treasury Department from asking Congress that day for additional anti‐​money laundering (AML) powers over cryptocurrency activity. The best that can be said of the Treasury’s wish list of bad ideas is that at least it bothered to ask Congress rather than simply assert feigned authority.

The fact that Treasury had to ask, though, is telling. The ask reveals what we and others have grown hoarse from shouting: that existing regulatory frameworks designed for centralized financial intermediaries do not suit the reality of decentralized crypto technologies. This substantive mismatch between the legacy AML regime and the nature of crypto technology cannot be papered over with legislative power grants, and regulators’ insistence to the contrary risks damaging both Americans’ liberty interests and America’s national interest.

One of the primary ways that Treasury has asked Congress to expand the agency’s crypto AML authority is by designating a series of core crypto technologies as “financial institutions” under the Bank Secrecy Act (BSA). Thereupon, these tools would become subject to the type of “requirements to which banks and other financial institutions are already subject.”

But most of the crypto tools that the Treasury would like to see covered under the BSA do not resemble traditional banks and financial institutions in meaningful ways. As we’ve pointed out, and as Treasury itself acknowledges, the parts of the crypto ecosystem that do resemble more traditional financial intermediaries—such as centralized crypto exchanges that custody customer funds—already are subject to the BSA regime, as they’re typically considered covered “money services businesses.” Treasury, however, would like to expand this coverage to include other parts of the crypto ecosystem: decentralized finance (DeFi) service providers, noncustodial wallet providers, miners, and validators.

Absurdly, Treasury’s request would require crypto technologies (such as miners, validators, and DeFi protocols) that do not directly interface with transacting counterparties to collect those users’ personal information and verify their identities as part of know‐​your‐​customer (KYC) programs.

Validators and miners are crypto’s backend infrastructure: computers running software to confirm the authenticity of transactions and secure cryptocurrency networks. DeFi protocols—likely covered by Treasury’s vague reference to DeFi service providers—also do not directly face users, and the applications used to access them can vary based on users’ own choices. Requiring crypto infrastructure to implement KYC programs would be as inappropriate as asking a bank’s IT contractors—from cloud computing to hardware providers—to identify the bank’s customers.

Such unworkable compliance requirements would amount to de facto bans on US crypto activity. And where crypto infrastructure providers did seek to somehow comply, it would only increase cybersecurity risk by creating—in the words of entrepreneur and Columbia Business School Professor Austin Campbell—“the least secure, biggest honeypot, most information‐​exposing ecosystem possible.”

Noncustodial (or self‐​custody) wallets—the providers of which Treasury would declare financial institutions—directly interface with crypto users. However, subjecting wallet providers to the AML/KYC regime is problematic for separate reasons. Conceptually, noncustodial wallets more closely resemble physical wallets holding cash than traditional digital payment apps. Fundamentally, a noncustodial crypto wallet is simply a tool for safeguarding the credentials (private keys) for accessing a user’s own crypto holdings.

The most basic form of a noncustodial wallet is merely a piece of paper recording a user’s credentials (or a mnemonic phrase for recovering them). Even where crypto credentials are stored via software or hardware tools, subjecting the providers of those tools to AML/KYC requirements still would be like subjecting the manufacturer of a leather wallet to rules designed for banks. In both cases, the maker of the wallet (for cash or crypto) is essentially giving the user a tool for controlling her own funds and is not inherently responsible for the broader payment ecosystem.

If Treasury nonetheless believes its proposed invasion of one of the last two redoubts of financial privacy—self‐​custodied cash and crypto—is justified because noncustodial crypto wallets present a greater illicit finance risk than cash wallets do, then it must make that argument. But that argument likely would be a loser because—by Treasury’s own repeated admission—traditional assets are more often used for illicit finance than crypto is.

Simply stating, as Treasury does in its ask to Congress, that Hamas has used “unhosted wallets,” ignores that when it comes to terror finance, “Crypto is currently a very small part of the puzzle,” as the former chair of the Israel Money Laundering and Terror Financing Prohibition Authority, Dr. Shlomit Wagman, recently told Congress.

Even if Treasury could persuasively make the case that noncustodial crypto wallets presented a compelling risk requiring an AML intervention, Treasury would still have to justify applying the legacy KYC regime. Speaking at the Blockchain Association’s Policy Summit last week, Deputy Treasury Secretary Wally Adeyemo urged the crypto ecosystem to “design new tools, and pursue new ways to protect digital assets from being abused.” But Treasury’s insistence on imposing legacy regimes that require comprehensive KYC programs would stand in the way of applying innovative solutions that may combat illicit finance risk.

Emerging crypto technologies like zero‐​knowledge proofs offer the ability to, for example, confirm that an individual is not a sanctioned terrorist without having to divulge that individual’s identity and complete set of personal information. It’s far from clear, however, that regulators would consider such innovations to satisfy existing prescriptive KYC rules that call for verifying customer identification and collecting specific personal information, unless those rules were reformed.

Treasury’s wish list similarly proposes draconian solutions for US Dollar‐​denominated stablecoins (crypto tokens designed to maintain a 1:1 peg to the Dollar) that would jeopardize the benefits those stablecoins can bring to the Dollar’s status as the world’s reserve currency. Treasury asks Congress for jurisdiction over USD‐​pegged or denominated stablecoins even where such “stablecoin transactions involve no US touchpoints.”

Even putting aside arguments that this assertion of extraterritorial jurisdiction is unprecedented and raises a host of questions, the Treasury Department loses the plot by conceiving USD‐​denominated stablecoins as a threat rather than an opportunity. As Campbell testified before the House Financial Services Committee earlier this year, “[S]tablecoins are a key to expanding the reach of the dollar”:

The United States runs a significant deficit we must fund. Simultaneously, the dollar, thanks to the strength of the American economy, the solidity of our legal system, and the core rights that come with that, is demanded globally. In the world of blockchain and crypto, the preferred fiat currency is, unsurprisingly, also the dollar. The only thing that could stop that would be the interdiction of usage of the dollar on blockchains, meaning that if the United States embraces the innovation of stablecoins, then as the usage of blockchains and crypto grows, the reach of the dollar will also grow commensurately. US Dollar stablecoins expand the reach of the dollar into a new, rapidly growing market, cementing the usage of the dollar for global trade.

When US regulators look askance at stablecoins, they shouldn’t be surprised if stablecoin users around the globe begin to consider alternatives to USD‐​denominated options.

The AML authorities on Treasury’s wish list are not the first examples of US regulators’ allergy to crypto technology. Part of that allergy stems from a tendency of US regulators to miss the forest for the trees on crypto, and whether it’s “los[ing] sight and focus from the big picture” when it comes to crypto’s relatively narrow role in illicit finance to date or ignoring the potential of crypto technology to serve America’s economic interests at home and abroad, it all leads to overreach and counterproductive interventions.

On our crypto policy wish list this year (and every previous year) is for US regulators to get out of Americans’ way. That policymakers respect financial privacy, base their interventions on evidence, and allow innovation to solve problems really should not be too much to ask for.

Vanessa Brown Calder

Last weekend, conservative commentator Guy Benson and his partner announced the birth of their new son following the help of a gestational surrogate. A significant portion of the response in conservative circles both on Twitter and elsewhere was critical. The response mirrored the reaction to an announcement by conservative commentator Dave Rubin that he and his partner had conceived twins with the help of two surrogates last year.

Although gay couples’ use of gestational surrogacy is often the specific focus of conservative animus, certain conservative critics are also against surrogacy in its entirety. Their complaints about surrogacy alternately focus on the alleged exploitation of gestational carriers, risks to gestational carriers’ health and psychology, and risks to children’s health and psychological outcomes. Critics have also implied that surrogate pregnancies are frequently terminated, referencing unrepresentative news stories.

However, these criticisms exaggerate or are not in line with available facts. As described in the new study Defending Gestational Surrogacy: Addressing Misconceptions and Criticisms, common critiques of surrogacy do not reflect recent research or they indicate an unfamiliarity with the reality of surrogacy.

Despite suggestions to the contrary, existing evidence indicates that US surrogates are not exploited based on objective measures, nor do they feel exploited. Evidence indicates that gestational carriers voluntarily enter surrogacy contracts after being informed of risks, there is little evidence of post‐​surrogacy regret, gestational carriers are well compensated, and many would consider becoming surrogates again.

Moreover, although pregnancy and fertility treatment are not risk‐​free, medical outcomes for gestational carriers resemble the general population of women utilizing IVF. Evidence indicates that both gestational carriers and resulting children experience predominantly positive long‐​term psychological outcomes and do well in the years following birth.

Suggestions that surrogacy results in frequent abortions may be the most off‐​base. Surrogate pregnancies are substantially less likely to be terminated than conventional pregnancies because they are planned rather than accidental, the product of significant time and financial investment, and frequently prescreened for major medical abnormalities.

Notably, in their quest to highlight the perceived harms of surrogacy, critics systematically minimize the substantial value of creating life. For most couples, surrogacy is the last stop on their journey after a hard‐​fought battle with infertility. Most children produced via surrogacy would not be alive without it.

It is puzzling and unfortunate that critics exaggerate the risks of gestational surrogacy while minimizing the undeniable benefits. For further details on surrogacy, read more here.

Jai Kedia

With the COVID-19 pandemic (hopefully) in the rearview mirror, it is time to reevaluate the Fed’s broadened mandate. While many policymakers want the Fed to fix everything from inflation and financial instability to unemployment and climate change, this article explains why the Fed should do less, not more.

At the onset of the pandemic in 2020, the Federal Reserve committed itself to achieving “broad‐​based and inclusive” employment. Presumably, this implies not just stabilizing the economy‐​wide unemployment rate, but also using policy tools to affect distributional employment across a variety of socioeconomic factors.

Leaving aside the question of why a government agency tasked with benefiting all US citizens should pick winners and losers in the labor market, there is no clear tool the Fed possesses to affect such distributional outcomes.

Even its effect on the overall employment rate is debatable. For years, the Federal Reserve itself insisted that the “maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market.”

As I showed in a recent CMFA working paper, the Fed has historically only accounted for 10 percent of inflation and 20 percent of output at peak efficacy. As Figure 1 below shows, if output growth (inversely related to the unemployment rate) is broken down into its constituent factors from 1960 to 2019, the Fed’s actions barely accounted for 10 percent of GDP fluctuations.

Most of the output growth (and thereby the unemployment rate) was determined by productivity shocks or demand factors such as changes to consumers’ risk preferences and fiscal spending.

So how does the Fed hope to achieve its distributional goals? A recent Reuters article evaluating the Fed’s pandemic policymaking offers an answer—keep labor markets tight since tight labor markets correlate with a narrowed race gap in unemployment. In other words, by (somehow) ensuring that there are more jobs than workers, the Fed should “produce more “equitable outcomes,” where “the unemployment rate gap between Blacks and whites” narrows. There are several problems with this approach.

Firstly, to keep labor markets artificially tight, the Fed must keep its policy stance overly loose. And that’s what the Fed did starting in 2020, when rates were near zero despite economic conditions warranting adjustments. In usual times, this may not have had severe effects. However, the Fed’s hesitancy to raise rates with rising inflation (which it labeled “transitory”) led to a major discrepancy between its “broad‐​based” goals and its mandate to achieve price stability. As another CMFA working paper shows, actual interest rates and their “optimal” values drastically diverged during the Powell administration. The Fed was 20 months too late in raising its rate target. Consequently, the target rate was over 800 basis points away from optimal in 2021. Undoubtedly this was a factor that entrenched inflation.

Additionally, tight labor markets have negative effects on the economy overall. Most importantly, they can lead to a shortage of workers and an overheated economy, adding further upward pressure to an already high and entrenched inflation rate. (This problem is aside from a built‐​in bias of the economy reverting to its natural unemployment rate regardless of the Fed’s attempts, with only inflation remaining high.)

Good economic outcomes for consumers across all demographics is a desirable goal. But to purposely try to overheat the economy, with little reason to think that doing so will help either a subgroup or the wider population, is not the solution. The Fed is aware of this problem. As former vice‐​chair Don Kohn recently stated:

• Probing for maximum employment can have considerable advantages, but it deliberately runs inflation risks.

• The new 2020 monetary policy framework and its implementation in forward guidance embodied “probing”; the framework is deliberately asymmetric toward probing.

• But they also illustrated the potential costs by inducing the FOMC to wait too long to raise interest rates, contributing to the extent and persistence of inflation in 2021, 2022, and 2023.

• The 2024–25 re‐​examination of the framework needs to look closely at the costs and benefits of probing and to address a broader range of possible economic circumstances than did the 2020 framework.

Don Kohn’s advice is correct and mirrors our recommendations at CMFA. The Fed should do less, not more. Its policymaking should be clear, concise, and objective, none of which has been the norm for the Fed.

Jennifer Huddleston

Whether or not Section 230 applies to Artificial Intelligence (AI) is a hotly debated question. Somewhat surprisingly, the authors of Section 230 claimed it did not apply, but it is likely more complicated than just a simple yes or no answer. Section 230 has been critical to how the internet has expanded free speech online by creating a market that provides opportunities for users to speak, as well as reflecting core principles about the ability of private platforms to make decisions about their services.

Legislating an AI carveout from Section 230, however, would have much deeper consequences for both online speech as we already experience it as well as the future development of AI.

A Refresher on Section 230 and What It Tells Us About the Debate on If It Applies to AI

The basic text of Section 230 reads, “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” In analyzing whether Section 230 applies to AI, we should go back to the text as drafted.

Generative AI likely is an interactive computer service but there may remain some debate on who is the speaker when a generative AI produces content. (A debate that is also playing out involves questions about the application of certain intellectual property principles.) However, these questions won’t often be of concern. Most questions about AI and Section 230 are not about the mere production of content or an image, but rather involve a user reposting the content on other platforms or are otherwise connected to the content generated by a user.

Removing Section 230 for AI Would Have Far More Significant Consequences

While generative AI services like DALL‑E and ChatGPT gained popularity in 2022, AI has been used in many ways, including popular user‐​generated content features, for much longer. As a result, attempts to remove Section 230 protection for AI through legislation would likely impact much more content than the narrower subsection of generative AI services.

AI, including generative AI, is already used in many aspects of online services such as social media and review sites. AI can help identify potential SPAM content and improve search results for a specific user. Beyond that, it is also already used in many popular features.

For example, removing protection for AI could eliminate commonly used filters on social media photo sites and even raise questions about the use of certain features that could help generate captions for videos. This would be considered the type of user‐​generated content and creativity supported by Section 230. But an AI exception would likely lead many platforms to disable such tools rather than risk opening themselves up to increased liability.

An AI exception to Section 230 also undermines much of the framework and solution intended by the law. First, it would shift away from the American approach that has encouraged innovators to offer creative tools to users by punishing the same innovators for what others may do with those tools. This undermines the basis of Section 230 and hampers innovation that could be beneficial. It also misguidedly moves the responsibility from bad actors to innovators. 

Conclusion

Some critics may still debate how Section 230 applies to specific elements of generative AI services, but a Section 230 AI carveout would bring more problems than solutions. AI already interacts with a wide array of user‐​generated content and such a loophole would have a broad impact both on the current experience of users on the internet and on the future development of AI.