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Chris Edwards

The federal government’s debt is rising to dangerous and unprecedented heights. Compared to the size of the economy, the debt will soon reach levels never seen in our nation’s history.

Congress should change course and cut spending to reduce debt. Over the years, Congress has occasionally implemented new budget rules, but no effective restraint on spending or debt has yet been enacted. Congress is currently projected to add an astounding $19 trillion more in debt over the coming decade. This is fiscal insanity.

There is hope, however. A solution presents itself when we compare out‐​of‐​control federal debt to stable and legally constrained state debt. Federal debt is eight times larger than the combined debt of all state and local governments. Why is that, given that all elected officials have the same incentives to borrow and spend? The answer is that the states have extensive constitutional, statutory, and economic restrictions on deficits, debt, and spending that steer them toward fiscal responsibility.

That suggests that a way to tackle government debt is to devolve a large part of federal spending to the states, allowing them to fund it themselves. It is better to fund most government spending at the state level because state debt is restricted.

My new Cato study argues that to avert a debt crisis we should take advantage of America’s federal structure and decentralize most government spending. Such a reform would not only tackle debt but also strengthen democratic accountability and improve government efficiency and performance. The study includes a specific plan to stabilize federal debt as a share of the economy.

See “Reviving Federalism to Tackle the Government Debt Crisis.”

Walter Olson

Two years ago in Canada Prime Minister Justin Trudeau invoked the country’s Emergencies Act, a successor to what had been known as the War Powers Act, to break up trucker protests that had severely disrupted the capital city of Ottawa and temporarily blocked border crossings crucial to the national economy.

We took a highly critical view of Trudeau’s actions at the time, particularly of the “financial incapacitation” measures by which persons or businesses whose trucks were seen at the protest would be subject (it was announced) to bank account freezes and auto insurance cancellation decrees, all without a court order or even notice and a chance to respond. We cited critics who questioned whether Trudeau or deputy Chrystia Freeland had established that conventional law enforcement methods to quell the unlawful protests had been fully tried and shown futile.

Now a Canadian federal judge has agreed on every major point that the government’s actions were unlawful (opinion). The Canadian Civil Liberties Association, one of the complainants in the litigation, sums up the findings:

The Court concluded that:

The federal government’s decision to declare a public order emergency under the Emergencies Act in early 2022, as well as the associated regulations that it enacted, were unreasonable and were not justified on the facts or the law.

The regulations violated the Charter right to freedom of expression and the right to be secure against unreasonable search or seizure.

As I wrote at the time, the law need not and ought not to authorize or wink at the sorts of freeway‐​blocking, downtown‐​closing protest actions that upend the lives of unoffending third parties and block them from being able to get to their homes, churches, and places of work. But any resulting exercise of police powers must respect the limits set by (in Canada) the Charter of Rights or (here) the Constitution and Bill of Rights. Emergency declarations that purport to bypass or remove those safeguards are an extraordinary peril to liberty.

The CCLA puts it this way:

Emergency is not in the eye of the beholder. Emergency powers are necessary in extreme circumstances, but they are also dangerous to democracy. They should be used sparingly and carefully. They cannot be used even to address a massive and disruptive demonstration if that could have been dealt with through regular policing and laws. The threshold for invoking the Emergencies Act is extremely high.

We warned at the time that Americans should not be complacent about what was happening north of the border, because government could use many of the same methods here too.

That’s one reason, in amicus briefs and panel discussions and a dozen other ways, Cato scholars have warned for decades about the government’s accumulation of emergency powers.

In the Cato Handbook for Policymakers chapter on emergency powers, Gene Healy points out that infatuation with these powers is a bipartisan matter. The subject matter may differ from one administration to the next, from immigration rules and riotous protests to evictions during a pandemic or “climate emergency.” Loose talk of irregular executive action during the Trump administration often focused on the powers afforded the president by the dangerously vague Insurrection Act.

It’s a crying shame that there isn’t more of a bipartisan effort in Congress to revisit and tighten these emergency laws, which so often tempt presidents to bypass restraints on their power. Unneeded or obsolete emergency authorities should be identified and repealed, and both Congress (through time limits and sunsetting) and the judiciary, as appropriate, should be given a greater role in reviewing emergency declarations.

There should also be sanctions for abuse, with real teeth. As Healy writes, “The sooner, the better: you never know when a competent authoritarian is going to come along.”

Whether the Canadian actors in this drama count as competent authoritarians is a question we will leave to our northern readers. Freeland says the government intends to appeal.

Patrick G. Eddington

Do the lawyers representing former President Donald Trump in his classified documents abscondment case actually understand the Freedom of Information Act (FOIA) law, which they’ve used to try to circumvent the usual discovery process in a criminal trial? Their most recent filing on his behalf suggests the answer is “no.”

On January 16, Trump attorneys Todd Blanche and Christopher M. Kise filed a 68‐​page motion on Trump’s behalf repeating and expanding upon past claims that Special Counsel Jack Smith has not turned over all documents Trump has requested pursuant to the government’s discovery obligations. As the New York Times’ Alan Feuer observed:

While the 68‐​page filing was formally a request by Mr. Trump’s lawyers to the office of the special counsel, Jack Smith, to provide them with reams of additional information that they believe can help them fight the charges, it often read more like a list of political talking points than a brief of legal arguments.

I won’t subject you to the laundry list of political grievances and claims in the document, most of which you’ve likely heard before and come with no documentary evidence to substantiate them. What I do think is noteworthy is this claim by Blanche and Kise, which can be found on pages 4–5 of the motion:

New evidence, obtained via requests pursuant to the Freedom of Information Act (“FOIA”), reveals that politically motivated operatives in the Biden Administration and the National Archives and Records Administration (“NARA”) began this crusade against President Trump in 2021. There are 22 FOIA releases from DOJ and NARA attached as exhibits to this brief. Nearly all of these exhibits, though heavily redacted based on FOIA rules that have no application in a criminal case, represent discovery violations in which the Special Counsel’s Office failed to produce documents that support arguments and positions the defense has articulated since at least October 2023.

What caught my eye was the claim that “FOIA rules…have no application in a criminal case.…”

That’s a demonstrable, egregious, and easily discoverable falsehood.

For decades, the FOIA has had nine specific exemptions that federal agencies or departments can employ to withhold information from public release. The FOIA b7‐​series of exemptions includes one–b7A–that allows the executive branch to withhold “records or information compiled for law enforcement purposes, but only to the extent that production of such law enforcement records or information … could reasonably be expected to interfere with enforcement proceedings.”

In a 2018 FOIA case involving memos written by then‐​FBI Director James Comey that were sought by the Cable News Network (CNN), Judge James Boasberg upheld the FBI’s invocation of FOIA exemption b7A.

“In an ongoing criminal investigation such as the Special Counsel’s,” Boasberg wrote, “the Government must be somewhat obscure in its public filings about the effect of disclosure so as not to risk spilling the very information it seeks to keep secure.”

Indeed, federal courts have routinely upheld such b7A invocations by the FBI or other federal law enforcement entities in FOIA cases. Cato has received such FBI responses on numerous occasions and even has appealed some. Trump’s lawyers did not disclose whether they appealed those b7A redactions to DOJ’s Office of Information Policy, as is their right under FOIA.

I’m not unsympathetic to good faith arguments that federal FOIA offices frequently try to game the system to the detriment of requesters. Federal agencies and departments have been fighting the FOIA since it was first enacted during the Johnson administration. Its sponsor, the late Rep. John Moss (D‑CA) spent more than a decade before the law’s enactment in 1966 trying to pry even basic information out of the Defense Department and other executive branch components, which is why he authored the FOIA.

Agency and department recalcitrance in honoring FOIA requests is one reason why the law has been updated repeatedly since 1966 to try to stamp out or otherwise discourage agency or department gamesmanship of the statute.

I’ve encountered plenty of that kind of behavior in my own FOIA work here at Cato, including from the FBI. Indeed, most of Cato’s 30+ FOIA lawsuits since 2017 have been against the FBI for trying to hide from public disclosure evidence of questionable surveillance or other misconduct by FBI agents, among other things.

But Trump’s bloviations on Truth Social or other social media or press outlets about an alleged bias or conspiracy against him, or those of his lawyers in the aforementioned motion, do not count as evidence of bad faith by the FBI or the Department of Justice in this particular FOIA case. Trump’s lawyers provided no whistleblower allegations to that effect in their motion either.

One thing is very clear to me. Trump is not being well served by lawyers who either don’t understand the FOIA statute and its associated case law or are choosing to ignore it.

David J. Bier

In response to a question about restricting immigration, House Representative Yvette D. Clarke (D‑NY) recently stated, “I need more people in my district just for redistricting purposes.” When a Republican member of Congress asked whether this was the motivation for other Democrats, including President Biden, to oppose more extreme asylum restrictions during a committee hearing at which I testified last week, former head of Immigration and Customs Enforcement Tom Homan stated:

I certainly believe it’s probably associated with the decision to overturn the Trump Census rule, so now [immigrants] will be mandated to be counted in the Census. When we reapportionate [sic] seats, it’s going to have an effect.

Although former President Trump did attempt to exclude some noncitizens from the Census count and from House apportionment, multiple courts found those efforts to be illegal and unconstitutional. The Constitution is clear: “Representatives shall be apportioned among the several states according to their respective numbers, counting the whole number of persons in each state.” But does this provision of the Constitution—whatever its merits—give Republicans a good reason to oppose immigration?

No, the data are equally clear: recent immigration trends are benefiting Republicans in states where they control the legislature and manage redistricting. About 62 percent of the three‐​million increase in the total immigrant population from March 2019 to March 2023 has occurred in GOP states, according to the Current Population Survey Annual Social and Economic Supplement.

The American Community Survey (with a larger sample size but slightly older data) attributes 60 percent of the growth in the immigrant population to GOP states from July 2019 to July 2022. These percentages are also similar for the Latin American immigrant population growth.

What about noncitizens who might be excluded by a US citizen‐​only census? For them, an overwhelming 95 percent of the increase in the noncitizen population has been in GOP states from March 2019 to March 2023. Eliminating the growth in the noncitizen population from 2019 to 2023 would have cost Republican states 1.2 million people, or about two seats in Congress (the average congressional district has 760,367 people). Figure 1 shows the net increase in immigrant populations for states under GOP and Democratic control.

Table 1 shows the full data from the Current Population Survey’s Annual Social and Economic Supplement for March 2023 and March 2019. The Republican state leading this trend is Texas, which netted 515,970 noncitizens and 833,028 immigrants overall. Other Republican states experiencing significant growth in their immigrant populations include Kentucky (130,061 noncitizens and 146,790 immigrants), South Carolina (102,096 and 157,396), and Florida (102,055 and 178,052). It is certainly likely that these states are attracting immigrants because of their strong job growth.

The argument that recent immigration is boosting Democratic representation in Congress is unsubstantiated. In 2015, I rebutted this same claim about recent illegal immigration. I noted, “Illegal immigration from 2000 to 2010 netted the Republicans about six seats in redistricting. Democrats managed only about 4.5, giving the Republican states yet again more than a seat advantage.” Clearly, immigration has not helped Democrats in terms of apportionment for decades. Yet, this misconception has become so entrenched that the former president tried to unconstitutionally exclude some noncitizens from the Census count.

I have also explained how it is false that Republicans fare poorly during periods when the immigrant share of the population is high. Republicans have controlled at least one chamber of Congress 85 percent of the years when the immigrant share of the population exceeded 10 percent, while not controlling either chamber 83 percent of all other years. This is a staggering disparity that has been completely overlooked in current political discourse. Republicans should not fear immigration based on unfounded political concerns.

Jeffrey A. Singer

What is driving politicians’ irrational fear of nicotine? Earlier this week, Senate Majority Leader Chuck Schumer called for a crackdown on a nicotine pouch sold under the brand name Zyn. He claims the nicotine pouches are a danger to teens who use them as an alternative to e‑cigarettes.

E‑cigarettes are a proven and probably the most effective harm reduction strategy for people who want to quit tobacco smoke—more effective than nicotine patches, nicotine gum, or other smoking cessation tools. Nicotine is the addictive component of tobacco smoke. But the tars and other components of tobacco smoke are what cause cancer, cardiovascular disease, and lung disease.

Public Health England claims nicotine e‑cigarettes are 95 percent less harmful than tobacco. If tobacco smokers can get their nicotine using safer means, such as e‑cigarettes, it can make it easier for them to give up tobacco and avoid its harm.

For this reason, Britain’s National Health Service encourages doctors to persuade their patients who smoke to switch to e‑cigarettes. The NHS even places brochures about it in doctors’ offices.

Nicotine by itself is a relatively harmless drug. It is similar to caffeine, which can also addict people. Like caffeine, nicotine functions as a stimulant that enhances concentration. Unlike caffeine, nicotine boosts the production of beta‐​endorphins, providing anxiety relief. This may explain why individuals who use tobacco turn to smoking when seeking to relax or to calm down under stress.

There’s some research suggesting nicotine may help treat Parkinson’s disease. There is also evidence that nicotine can treat depression, Tourette’s Syndrome, Alzheimer’s’ Disease, and schizophrenia.

In fact, research estimates as many as 88 percent of people with schizophrenia smoke cigarettes, a rate much higher than in people with other psychiatric disorders and almost three times the rate of the general population. Recent studies suggest that nicotine normalizes cognitive deficits, called “hypofrontality,” in people with schizophrenia. There is also evidence that nicotine improves short‐​term memory in schizophrenic patients. Nicotine’s beneficial effects on schizophrenia have led many researchers to suspect that people with this disease are self‐​medicating.

People who use nicotine long‐​term can develop high blood pressure. Long‐​term nicotine may also contribute to the narrowing of blood vessels in some people. People who use caffeine long‐​term can develop ulcers, an irregular heartbeat, muscle tremors, and insomnia.

An FDA study found most lay people incorrectly think nicotine is very dangerous. Many people think nicotine causes cancer and is responsible for many of the harms of tobacco smoke. But Senator Schumer and many of his colleagues in Congress who like to “follow the science” should know better.

Ironically, politicians worked hard to take nicotine e‑cigarettes away from teens. In 2019, Congress made it illegal to sell e‑cigarettes to any person under age 21. Teen vaping rates have fallen from their peak of 28 percent in 2019 to roughly 14 percent in 2022.

It is hard to explain why politicians who are intent on keeping teens away from nicotine e‑cigarettes would be upset when teens switch to oral nicotine pouches like Zyn.

I can only think of one explanation: an unfounded and irrational fear of nicotine. I call it nicotinophobia.

David Inserra

At the end of last year, tolerant, modern, liberal Denmark decided it had seen enough violence. Violence was flaring in Danish and Swedish cities, both nations were facing significant diplomatic pressure, authoritarian regimes like Iran issued threats, terrorist groups were calling for attacks, and indeed both nations found their citizens and embassies attacked around the world. 

The reason for these threats? Danes had the right to non‐​violently protest by burning or desecrating books that they disagreed with. Quran burnings, mostly by far‐​right activists but at least some by immigrants from the Middle East, sparked widespread outrage across the Muslim world, and leaders in Scandinavia said they would look to stop such desecration of religious texts.

While Sweden has not yet capitulated on free expression, Denmark surrendered to threats of violence by terrorists and authoritarian states by implementing a sacrilege law that one would expect to find in Iran, the Spanish Inquisition, or ancient empires. Under this new law, Danes who peacefully express their disdain for religious teaching by desecrating a religious text will be sent to prison for two years for the mere crime of using their free expression in ways the government believes to be distasteful. At least a Danish prison is better than the Iranian gallows. 

One has to wonder if such a dramatic change will be truly popular in what has traditionally been held up as a model of a tolerant and liberal society. After all, no lawmaker from the governing coalition rose to defend the bill during its final debate and vote in Parliament. 

Now many may recoil at the sight of crude book burnings, seeing shadows of the Nazi’s mass burning of books in their consolidation of power and purging of “un‐​German” ideas. Others may worry about the impact of anti‐​Islamic or antisemitic behavior on traditionally marginalized groups.

But burning documents has also been a powerful and evocative form of expression across history. Danish free‐​speech expert Jacob Mchangama points out numerous examples:

Martin Luther burned the Papal bull that labeled him a heretic and called for the destruction of his writings.

Abolitionist William Lloyd Garrison burned a copy of the US Constitution for its acceptance of slavery as “a covenant with death,” and “an agreement with Hell.”

Anti‐​Vietnam War activists and pacifists burned their draft cards.

The US Supreme Court has upheld the right of Americans to burn the American flag, overturning a Texas law forbidding the “desecration of a venerated object.”

By outlawing such sacrilegious speech, Denmark empowers the violent, showing that even the most liberal and secular democracies will fold when faced with religious fury. Artists and former Muslims that want to criticize Islam, or its interpretation by totalitarians and terrorists, will go to jail while those threatening violence are accommodated.

As my fellow Cato colleague, Mustafa Akyol, has pointed out, this law also does not help Muslims at all. Forcing “respect” through threats of violence or legal censorship will likely only exacerbate conflict. In the midst of the Quran burnings, an Iranian burned copies of the Bible, Torah, and the Swedish and Danish flags in Copenhagen, and it barely even registered in the news. While Danes, Swedes, and other major religions tolerated such acts of expression, even the most liberal of Danes likely feels that Islam is too thin‐skinned—hardly a way to promote social harmony and respect.

But as if it weren’t enough to see Denmark backslide into blasphemy and sacrilege laws, Meta’s Oversight Board, an organization that has been referred to as a Supreme Court for Facebook with a stated goal of “ensuring respect for free expression,” has recently embraced similar policies online. 

Reaching this conclusion is not as obvious as Denmark’s clear retreat from free expression. Let’s first establish a few content moderation basics. The Oversight Board was empowered by Meta to make binding decisions on pieces of content and recommend how Meta’s policies should change. Under Meta’s hate speech policies, users can generally attack concepts and institutions but not people.

So, for example, one can call the Catholic Church “evil” or “scum” but not Catholics. The same applies to Germany vs. Germans, LGBTQ flags or lifestyles vs. LGBTQ people, whiteness vs. white people, etc. Now, often users post content that includes imagery or thumbnails of linked articles rather than just text. For determining when content with visual elements is attacking people rather than the concept or the idea, the policy takes “visual elements in the content into consideration.” (A lot more could be said here but Meta did not allow the Oversight Board to publish more specifics than this).

In practice, it’s this standard that allows users to criticize a religion through art or with pictures without Meta assuming such critiques are an attack on all followers of that religion. It’s an imperfect standard but one that at least tries to protect speech that targets concepts and institutions while being enforceable on millions of pieces of content posted every day.

Enter the recent Oversight Board decision. Concerned by a piece of content that praised transgender self‐​harm but only showed a shower curtain with the appearance of the transgender flag, the Board recommended that Meta no longer require that a person be targeted. Instead, attacks on flags related to gender identity will be considered the same as attacks on people. 

Should Meta decide to implement this decision, attacks that demean or criticize concepts or ideas of gender identity through flags and imagery will be considered hate speech. Yes, more hateful content like the awful content in this case will be removed, but so too will significant political and social commentary.

For example, sharing an article that argues that the belief in more than two genders is misguided or immoral and includes a picture of a trans flag could get one labeled as a spreader of hate speech. Burning, desecrating, or otherwise demeaning an object carrying the trans flag colors would likely violate the rule. Critically commenting about a news story on government transgender policies with a pride flag in the thumbnail could land you in Facebook jail (still far better than ending up in a Danish prison or on an Iranian execution list). Thankfully, the decision limits its recommendation to only flags related to gender identity, but the logic can be applied to any number of other symbols.

After all, why shouldn’t Meta also protect Muslims, Jews, Hindus, Israelis, Palestinians, Russians, Ukrainians, other LGBTQ groups, or any group of people when their flags, symbols, or institutions are criticized and attacked?

For a body that is supposed to be dedicated to free expression based on international human rights standards, its effective embrace of the logic of sacrilege and blasphemy laws is troubling. While the decision states “it does not seek to diminish Meta’s protection of challenges to concepts, institutions, ideas, practices, or belief,” this is exactly the effect this recommendation will have.

And it speaks to Nadine Strossen’s warning that hate speech codes, no matter how deliberate and carefully crafted, are inherently vague and overbroad, inevitably harming expression and equality.

As a private organization set up by a private company to help answer difficult content moderation questions, the Oversight Board can recommend whatever it wants. Likewise, Meta can adopt whatever standards it wants, and users are free to respond as they wish. But if it wants to “ensure respect for free expression” in the 21st century, blasphemy and sacrilege laws are about the last “solution” the Board should have reached for. 

At least users can respond to the inconvenience caused by increasing limitations on speech by social media platforms by switching to alternative platforms that better suit their needs. It is far more difficult and disruptive for citizens of Denmark to avoid being jailed for their speech as they will need to find a new nation to call home. 

And so as nations around the world, including liberal democracies like Denmark, increasingly limit free expression, the world is facing a worsening free speech recession. Those who care about liberty can no longer take free expression for granted but must remind the world that free expression is not the problem but rather the answer to today’s challenges.

Romina Boccia

It was a big week for advancing fiscal restraint in Congress. The House Budget Committee passed the Fiscal Commission Act of 2024 out of committee on January 18 with bipartisan support. This is a positive step toward bringing more attention to the nation’s rapidly deteriorating fiscal state and advancing proposals to address it.

The version of the bill that passed was introduced as a substitute, meaning committee members voted on a version that’s slightly different from the original Fiscal Commission Act of 2023, introduced last September.

The biggest differences include:

emphasizing the need for public education on the nature and scope of America’s fiscal crisis;
extending the deadline for stabilizing the US public debt at no more than 100 percent of GDP to 15 years, instead of 10;
reducing the number of commissioners, from each political party, that must be part of a simple majority to advance the group’s proposal from three members to two; and,
allowing a simple majority of the commissioners to vote on extending the reporting deadline from December 12, 2024, to May 15, 2025, thus pushing the commission’s proposal out of the lame‐​duck Congress.

In a promising sign of coordination between the two chambers, the extended deadline aligns the House version of the Fiscal Commission Act more closely with its Senate companion, introduced as the Fiscal Stability Act. The new version also emphasizes that any changes to programs governed by trust funds (Social Security, Medicare, and Highway) shall improve those funds’ solvency for at least seventy‐​five years. This may mean that Congress is moving closer to a bipartisan compromise in adopting the Fiscal Commission Act as part of government spending negotiations this spring.

Below is how the Fiscal Commission Act compares to a BRAC‐​like fiscal commission. You can also download this one‐​pager as PDF here.

Fact Sheet: A Fiscal Commission to Stabilize the Debt

The US debt is too high and growing too rapidly. An effective fiscal commission can support Congress in stabilizing the debt and avoiding a future fiscal crisis. The most promising approach would be modeled after the successful Base Realignment and Closure process. A BRAC‐​like fiscal commission would be independent, involve the president, and its recommendations would be expedited in Congress through silent approval. While it shares certain features with the Fiscal Commission Act of 2024, there are notable differences that legislators should consider closely.

Key Features of a BRAC‐​Like Fiscal Commission

Clear Objectives: The commission is tasked with generating policy proposals that would stabilize the debt at 100 percent of GDP within 10–15 years. Changes to programs governed by trust funds should improve 75‐​year solvency.
Independent Experts: All commissioners are independent experts nominated by Congress and/​or the president, and confirmed by the Senate.
Public Accountability: In a departure from the original BRAC commission, the commission would publish meeting agendas and minutes, provide public access to documents and data used in its work, and hold public hearings and community forums for public input. The commission would publish periodic reports on its findings and deliberations. Such transparency is important due to the wide‐​ranging reforms being considered.
Certified Results: Oversight agencies, such as the Congressional Budget Office, the Government Accountability Office, and the Social Security and Medicare Trustees certify that a reform package achieves debt stabilization and that any changes to trust fund programs improve 75‐​year solvency.
Fast‐​Tracked Authority: The president reviews the commission’s recommendations. If approved, they are sent to Congress as a comprehensive package. If rejected, the president provides detailed objections, allowing the commission to revise its recommendations.
Silent Approval: Upon presidential approval, the commission’s recommendations become self‐​executing after forty‐​five days. Congress has the option to pass a joint resolution rejecting the reform package using expedited procedures.

Key Differences: BRAC‐​like Fiscal Commission vs. Fiscal Commission Act of 2024

Commissioners: The Fiscal Commission Act relies primarily on legislators as commissioners, including experts only in a non‐​voting, advisory capacity. A BRAC‐​like commission is either composed entirely or primarily of independent experts, enabling a more objective assessment of policy solutions.
Approval: The BRAC‐​like commission uses silent approval, avoiding the need for an affirmative vote in Congress. The Fiscal Commission Act requires members to vote on the commission proposal before it can go into effect. While expedited procedures will help, such a vote will be politically risky and could undermine the commission’s success.

Recommended Resources

Not Just Any Fiscal Commission Will Resolve America’s Fiscal Crisis
A Fail‐​Safe Congressional Fiscal Commission to Fix Government Spending and Debt
With $34 Trillion in Debt, House Budget Committee Debates the Fiscal Commission Act

Nicholas Anthony

The Biden administration has not let up in its “war on junk fees,” or perhaps more accurately, its war on prices. The latest round of attacks came from the Consumer Financial Protection Bureau (CFPB) announcing a proposal to further restrict overdraft fees.

The idea of bringing down prices when inflation is still on everyone’s mind is likely to play well in headlines for President Biden’s re‐​election campaign. However, this initiative will do nothing to help consumers if these services are regulated out of existence. And if the administration refuses to let the market decide which fees are too high for overdraft services, that’s exactly what could happen.

Principles Matter

The history of price controls is mainly a history of government‐​created shortages. Republicans on the House Financial Services Committee were quick to correct promotional materials from the Biden administration to explain the reality of the situation. The problem is something that any student of Econ101 should recognize. Establishing a price control below the market price will result in demand exceeding supply—in other words, price controls create shortages. What comes next is where it can get complicated.

As Republicans on the House Financial Services Committee noted, these restrictions can result in a service being shut down completely. Although some banks have been able to afford to drop or reduce fees, others may not have the luxury. In practice, that means people will lose access to the service entirely once it becomes too costly to offer.

Yet that’s not the only consequence. The price controls could also result in banks increasing fees for other services in an attempt to recoup losses. So, options like free or low‐​cost checking accounts, travel rewards, and the like could become a thing of the past.

Although President Biden has been quick to label overdraft services as “exploitation” in a bid to rally support, policymakers should not lose sight of the extended consequences of these restrictions.

Rather, officials eager to enact change should take another path. My colleague, Norbert Michel, said it best last year when he explained that if politicians truly believe services are priced too high, then they should get into the business and undercut the competition. Doing so would avoid the mess of establishing industry‐​wide rules, create what is purportedly missing from the market, and mark the leading official as a pioneer in the industry—a win for everyone.

To be clear, there should be consequences if banks create fraudulent transactions to then initiate an overdraft fee that wouldn’t have otherwise occurred or if banks permit overdrafts after a person opts out of the service. However, so long as fraud is not occurring and people can freely opt into this service, the government should stay out of the equation.

Fees in Context

Aside from these principles, now is a particularly strange time to be going after overdraft fee revenue given that it has been steadily dropping for years. For example, researchers at Curinos found that overdraft fees fell by 68 percent between 2008 and 2023 (Figure 1). Likewise, researchers at Bankrate found that overdraft fees fell by 11 percent between 2022 and 2023. Even the CFPB has recognized this trend. In a May 2023 report, the CFPB found that revenue from overdraft and insufficient fund fees “for the fourth quarter of 2022 alone was approximately $1.5 billion lower than in the fourth quarter of 2019.”

What’s most interesting is that, according to the Federal Reserve Bank of St. Louis, “Competition—from other banks and nonbank providers such as fintech firms—arguably has affected overdraft practices more than anything else.” For example, researchers at Curinos also found that although consumers often knowingly use overdraft services and appreciate the option, new competitors (e.g., new banks and fintechs) that have improved overdraft services experienced higher customer acquisition than banks that failed to innovate.

In other words, competition has already been leading to more affordable services. In fact, many incumbent banks have changed their overdraft practices and even eliminated overdraft fees (Table 1).

Finally, to the extent that someone experiences problems with overdraft fees but does not wish to switch banks, there are many ways to avoid running into trouble. As noted above, people must opt‐​in and agree to use overdraft services, but it’s not a lifetime commitment. People can also later call their bank to opt out of the service.

Likewise, setting up automatic transfers from a savings account can help create an additional buffer. Finally, whether it is through automated alerts or routine accounting, monitoring one’s transactions can help ensure neither a declined transaction nor an overdraft fee comes as a surprise.

Conclusion

It’s a free and open marketplace that makes products and services more affordable, not ever‐​tightening restrictions. As the Consumer Bankers for America President and CEO Lindsey Johnson explained, “[The CFPB’s] proposal on overdraft price setting is just the latest in a myriad of unnecessary and costly regulations by this Administration that seems guided by political polling, rather than by sound policy created by what should be independent agencies.”

Whether it’s restricting overdraft fees or credit card late fees, the CFPB’s price controls are likely to succeed in only one thing: limiting the supply of financial services. If the proposal is enacted, the sudden price change may score political points in the short term, but consumers will suffer from the absence of services in the long term.

Eric Gomez

The backlog of US weapons that have been sold but not delivered to Taiwan is a hot topic, impacting policy debates related to the defense industrial base, support for Ukraine and Israel, and strategic prioritization.

Taiwan is waiting on roughly $19 billion worth of weapons that the US has sold but not delivered yet. While the price tag of the backlog is frustrating, Taiwan must also wait longer than other US arms sale recipients for the same capabilities.

To illustrate this problem, I searched the Defense Security Cooperation Agency (DSCA) list of major arms sales for three platforms: the HIMARS rocket launcher, F‑16V and F‑16 Block 70 (the Block 70 is a “new‐​build equivalent” to the V) fighter aircraft, and the Abrams tank. Taiwan and other countries are waiting to receive these weapons, allowing for an apples‐​to‐​apples comparison of delivery timelines.

After creating a list of all DSCA announcements for these capabilities, I searched for information on when the weapons would be delivered to the recipient, prioritizing official government announcements or news sources that quoted government officials, and sources that cited information from the arms sale contract.

To keep the comparison consistent, I removed weapons from the original list if I could only find the date of initial delivery but not complete delivery, and instances that had no delivery timeline because of how recently the arms sale was announced. Additionally, I did not include sales of equipment to upgrade existing platforms to a newer variant to focus the comparison on newly built capabilities.

After editing the data, I calculated the time between DSCA’s announcement of the arms sale and final delivery of the weapons. Then I compared the average delivery time to Taiwan against other recipients grouped by region (Europe, Middle East, etc.). Taiwan had the longest average wait time for HIMARS and Abrams, and the second longest wait time for the F‑16.

HIMARS

The High Mobility Artillery Rocket System (HIMARS) is a truck‐​mounted rocket launcher capable of firing several different types of guided rockets and missiles. HIMARS is a particularly valuable weapon for Taiwan because of its mobility, which makes it harder to locate and destroy. Washington has transferred 39 HIMARS launchers to Ukraine as of December 2023, providing Kyiv with the ability to strike valuable Russian targets behind the front lines such as command posts, logistics hubs, and aircraft.

Ukraine’s successful use of HIMARS has led to a surge in foreign interest and arms sales. Lockheed Martin, the system’s manufacturer, announced early last year that it would expand production to keep up with demand.

The DSCA announced an initial possible sale of 11 HIMARS launchers to Taiwan in 2020. In 2022, Taipei added 18 more launchers for a total of 29. The first order is scheduled to complete delivery in 2025, while the second will arrive in 2026, for an average wait time of 4.5 years. Compared to other regions, Taiwan has the longest average wait time for HIMARS. European recipients have an average wait time of 3.6 years, while recipients in the Indo‐​Pacific and Middle East are waiting for 4 and 3 years, respectively.

Of the three weapons platforms, however, HIMARS does come with the largest outlier: Poland. The DSCA arms sales announcements contain three sales to Poland with the earliest from 2017. Poland received its first HIMARS shipment in 2023, which would significantly increase the average European wait time. However, Poland is also pursuing servicing and co‐​production agreements, which could shorten the timeline of future deliveries while lengthening the wait for initial delivery. Additionally, Warsaw has ordered significantly more launchers and ammunition than other recipients. For these reasons, and the absence of a clear final delivery date, Poland is not included in the dataset.

F‑16V/​Block 70

The F‑16V, also known as the F‑16 Block 70, is the latest variant of the F‑16 that first flew in 1974. Taiwan operates just shy of 150 older variants of the F‑16 already. Taiwan’s purchase of 66 aircraft is the largest sale by a wide margin—the next biggest is 25 aircraft for Morocco. I did not include any US sales of equipment to upgrade older F‑16 models to the V standard, only new production aircraft. Additionally, I excluded sales of different variants of the F‑16.

DSCA posted Taiwan’s F‑16 Block 70 sale announcement in August 2019 and final delivery of the aircraft is expected in 2026, making for a seven‐​year waiting period. Bulgaria and Slovakia have an average wait period of six years, while Bahrain and Morocco have an eight‐​year gap between announcement and final delivery.

Regardless of the variant, purchasing more F‑16s is not an effective use of Taiwan’s limited defense spending. Manned fighter aircraft are both more expensive to acquire and maintain than unmanned systems, and both the F‑16 and the air bases that support its operations will be easy targets for China’s large missile and air forces.

Abrams Tank

While the United States has announced multiple sales of Abrams tank upgrade kits, ammunition, and spare parts, according to DSCA’s major announcements, there are only four sales that meet my criteria for inclusion. As with F‑16s, I do not include sales of upgrade kits or logistics support as these would not make for an accurate comparison of delivery timelines for fully built tanks.

A November 2023 sale of tanks to Romania is excluded because there is no accurate information on that sale’s delivery timeline given how recently it was announced. I excluded an April 2021 Abrams sale to Australia because it was unclear when delivery would be completed, though deliveries should begin this year. I also excluded a December 2022 sale of 116 tanks to Poland because it was unclear when delivery would be completed despite widespread press coverage of a first batch delivered in summer 2023. 

The three Abrams sales in my dataset are an August 2016 sale to Saudi Arabia, a February 2022 sale to Poland, and Taiwan’s July 2019 sale for 108 tanks. Taiwan has the longest waiting period of the three. Taiwan is scheduled to receive its last tank in 2026—a seven‐​year gap between announcement and delivery—while Poland only needs to wait four years. Saudi Arabia received final delivery of their Abrams order five years after DSCA announced the sale.

Abrams tanks are more useful for Taiwan’s self‐​defense than F‑16s—tanks are especially useful for attacking amphibious forces coming ashore—but they are still a traditional capability with a high price tag and large logistics footprint. Once the final delivery of the Abrams is complete in 2026, Taiwan’s military will hopefully focus its resources on expanding its stock of asymmetric capabilities, especially those that can target China’s amphibious forces at longer ranges.

Walter Olson

Three‐​quarters of the eggs sold in Maryland are raised in other states. HB0357 / SB0193, a bill in the Maryland General Assembly, presumes to impose “cage‐​free” standards not just on Maryland chicken farmers, but on farmers elsewhere who produce the other three‐​quarters of the supply, by making the sale of noncompliant eggs unlawful.

The Supreme Court’s closely divided decision last year in National Pork Producers Council v. Ross cleared the path for laws like these by making it less likely that courts would strike them down under the so‐​called Dormant Commerce Clause of the US Constitution, which courts have long read to disallow many state laws restraining interstate commerce.

The decision was split and not easily sorted out, but is widely read as giving a green light to a wide range of enactments of this sort. In particular, it apparently extinguished a former branch of Dormant Commerce Clause doctrine by which courts had identified and disapproved many extraterritorial applications of state law as such, rather than deciding on permissibility through the application of a sometimes‐​limp balancing test.

Whether or not laws like this would pass muster at the current court, they remain an aggressive and uncalled‐​for extraterritorial extension of state police power. A similar California law on pork was found to entail sending California agents to farms in other states, whose operators of course have no voice in the California electoral system.

Of course, there are also plenty of reasons to reject a bill like this on substance. An Arizona egg edict “doubled or tripled” egg costs for one restaurant operator, and by raising the price of eggs at the grocery store, the measures stand between poorer families and one of the healthy protein sources most in reach for them.

“By moving to a cage‐​free operation, the hen mortality rate increases significantly due to more bacterial habitat being introduced in the barn,” said a Maryland Farm Bureau official in his testimony at the hearing last year.

Consumers in Maryland are already free to shop for cage‐​free or non‐​battery eggs and pay a premium in pursuit of their values. This bill would commandeer the resources of others — consumers, farmers, restaurateurs, residents of other states — in support of values they would not have chosen to pursue.

(Adapted and expanded from a post at Free State Notes.)