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Jack Solowey and Jennifer J. Schulp

For years, US regulators’ approach to crypto has been, frankly, unhinged.

The Securities and Exchange Commission (SEC), for example, has treated regulating crypto as beneath the agency’s dignity—effectively imposing de facto bans on US crypto activity by refusing to tailor old rules to new tools. Indeed, pushing crypto out of the US may even have been seen as a benefit.

Against this backdrop, a recent report on decentralized finance (DeFi) by the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee (TAC) was refreshingly sane.

That the report proposes undertaking normal regulatory process vis‐​à‐​vis crypto—accounting for both risks and benefits when evaluating policy, for instance—is commendable in the current climate of shoot‐​from‐​the‐​hip enforcement actions against DeFi projects.

Yet, paradoxically, the TAC DeFi report’s very normality is both its great strength and a source of some weaknesses. Specifically, the report reveals the shortcomings of the standard‐​issue financial regulatory playbook, in particular the assumption that financial regulators have both the mandate and capacity to achieve desired outcomes regarding nearly every problem under the sun—financial and non‐​financial alike.

At its best, the report recognizes tradeoffs and is wisely humble about regulators’ ability to optimize. At its worst, the report sees regulation as a uniquely capable tool for achieving optimal outcomes in DeFi and beyond.

The report deserves credit for getting many important things right. It recognizes that DeFi does indeed have use cases (e.g., decentralized crypto asset exchanges, decentralized governance, lending and credit, cross‐​border payments, and parametric insurance). It also warns—as we’ve long argued—that pushing DeFi offshore or pretending it will go away risks “longer‐​term erosion of US economic power and influence.”

Moreover, the report accepts that decentralization is a real phenomenon, can be relevant at multiple levels of the “technology stack” (e.g., the protocol, network, and application), exists on a spectrum (with some projects displaying greater decentralization than others), and offers potential benefits (e.g., reducing single points of failure, removing barriers to access, and promoting competition).

Yet, the report also overreaches at times. This isn’t a problem with the report itself so much as the financial regulatory framework within which it’s working. Invoking finance‐​specific regulatory objectives, including consumer protection and market integrity, is understandable, but the report also considers non‐​financial societal issues, including climate policy and nebulous notions of “equity” (not the securities kind), to be within financial regulators’ portfolios. (Heck, why not pursue DeFi rules for immanentizing the eschaton while you’re at it?)

Even the finance‐​related objectives that the report imports from existing regulatory priorities can contain the seeds of overreach. For example, the oft‐​cited financial policy objective of maintaining financial stability has tended to be a historic white whale in traditional finance, with the ill‐​defined term conferring broad discretion on regulators and risking increased moral hazard. At the very least, regulators should not require DeFi to demonstrate greater stability than the traditional financial system under the same circumstances.

When it comes to the core issue of DeFi itself—decentralization—the report is occasionally tempted by the hubris of the regulator as social optimizer. On the one hand, the report aptly recognizes that decentralization is a concept replete with tradeoffs. For example, “immutability” presents both cybersecurity opportunities—mitigating the risk of faithlessly reversed transactions—and challenges—potentially complicating software upgrades to patch vulnerabilities. Yet when it comes to navigating such tradeoffs, the report suggests that regulators might find a way to have our cake and eat it too:

[I]t may be possible for policymakers to determine the optimal nature, level, and location of decentralization, making it possible for them to design regulatory interventions designed to influence or dictate the structure of DeFi projects, enterprises, and ecosystems.

Reasonable readers might disagree as to whether optimal here means within the constraints of tradeoffs or something loftier. Either way, regulators’ ability to identify that optimum is, at the very least, questionable.

But there also are other, welcome areas where the text is clear about the limits of regulatory capacity. For example, the report articulates well the issues of unintended consequences and regulators’ knowledge problem:

[P]olicymakers will often not possess all of the relevant information needed to conduct complete or accurate risk assessments. Nor do they possess a crystal ball that would enable them to predict how a particular market, institution, industry, or technology will evolve over time, or the consequences stemming from the introduction of a given mitigation mechanism.

The same goes for the problem of onerous and counterproductive regulation: “poorly targeted or overly burdensome regulation poses risk to US competitiveness and innovation, along with its leadership in the realms of both finance and technology.” And lastly, the report appropriately recognizes that rules should be drawn such that compliance should be feasible, with interventions “grounded in a practical reality.”

Ultimately, the report’s impact will hinge on which parts regulators emphasize. Given a history of enforcement‐​first DeFi policy that ignores novel questions and risks “banishing innovation from US shores”—as CFTC Commissioner Summer K. Mersinger put it—regulators would do well to take away from the report an understanding of the pitfalls of pushing away technological advances, the importance of regular policy process that considers benefits and risks alike, and the limits of regulators’ ability to perfect outcomes.

Thomas A. Berry

The Fifth Circuit has had a mixed record lately on First Amendment issues (with the biggest lowlight being its decision upholding Texas’s unprecedented regulations of social media, a decision that Cato has urged the Supreme Court to reverse). But two recent Fifth Circuit decisions in First Amendment cases are worth noting and praising. Both decisions came in cases with charged and controversial backgrounds, and both decisions curbed First Amendment violations by state and local Texas officials. Not coincidentally, both opinions were written by Judge Don Willett, one of the most liberty‐​friendly federal appellate judges.

The first decision came in the case Netflix v. Babin. That case was set in motion in 2020 when Netflix began streaming the French film Cuties. The film follows an 11‐​year‐​old Senegalese immigrant, Amy, torn between her family’s conservative culture and a more progressive French society. In the film, Amy is shown joining a pre‐​teen dance group (the “Cuties”) whose sexualized routines are heavily influenced by social media.

The film’s message is critical of the influence of social media on young girls, but the film itself attracted significant controversy for its scenes depicting the dance group’s provocative performances.

One Texas prosecutor went beyond merely criticizing the film and chose to criminally prosecute Netflix for streaming the movie. Lucas Babin, the district attorney for Tyler County, Texas, first brought charges against Netflix under a Texas obscenity law. But during that prosecution, a Texas appeals court in a separate case held that the law Babin had charged Netflix under was itself unconstitutional.

Once this decision was issued, Netflix moved to have its case dismissed on the same constitutional grounds. But rather than drop the case entirely, Babin surprisingly changed his entire legal theory of the case. He dropped the charge against Netflix under the obscenity statute but then brought new charges against Netflix under a more serious child pornography statute. This prosecution made no sense because there is no underage nudity in Cuties, something the state of Texas itself had previously conceded to be a prerequisite for conviction under the child pornography statute.

Netflix then filed suit against Babin in federal court, asking for an injunction to stop Babin’s new prosecutions. While the general rule is that federal courts do not step in to stop state prosecutions, an exception exists when the state prosecution is brought in bad faith. A federal district court in Texas agreed with Netflix, finding that Babin brought the charges in bad faith and enjoined Babin from further prosecuting Netflix.

When Babin appealed to the Fifth Circuit, Cato joined a broad coalition of organizations that defend and advocate for First Amendment rights to file an amicus brief supporting Netflix. Our brief explained why it is important that federal courts remain available as a last resort to quickly end bad‐​faith state prosecutions that infringe First Amendment rights.

In a decision issued last month, the Fifth Circuit also agreed with Netflix and upheld this injunction. In his opinion for a three‐​judge panel, Judge Willett wrote that “While states certainly have a legitimate interest in the enforcement of their criminal laws, they have no such interest when the enforcement of those laws is carried out in bad faith.” The panel held that “the district court was best positioned to make the largely credibility‐​based determination of bad faith.”

The panel found plenty of evidence supporting bad faith, including Babin’s decision to show a grand jury only curated clips rather than the entire movie. As Judge Willett put it, “Babin’s refusal to show the grand jury the entire film (a mere 96 minutes) gives us reason to question the evenhandedness of his prosecutorial tactics.”

The panel also noted the suspicious timing of Babin’s new charges coming soon after Netflix had moved to dismiss the first charge: “The inflection point—Netflix’s assertion of its First Amendment rights—is difficult to overlook.” After recounting each of Babin’s questionable decisions, the panel could not “help but step back and conclude that the whole picture does not resemble what we would otherwise presume to be a good‐​faith prosecution.”

The second excellent Fifth Circuit decision came in the case Book People v. Wong. In 2023, Texas passed the “Restricting Explicit and Adult‐​Designated Educational Resources” (READER) Act. The READER Act applies to any bookseller that supplies books to Texas public schools. The law would force these booksellers to rate every book they have sold or plan to sell to such a school with one of three labels: “sexually explicit,” “sexually relevant,” or “no rating.” Booksellers would be required to submit these ratings to the Texas Education Agency (TEA), which would then post the ratings online.

A bookseller that refuses to comply would be banned from selling any books to Texas public schools. And the TEA would have the power to unilaterally change any submitted rating, with booksellers who refuse to accept the TEA’s “corrected” rating likewise banned from selling any books to Texas public schools.

A group of booksellers and organizations sued, arguing that the law violated the First Amendment. A federal district court blocked the law, finding that it likely violated the First Amendment by compelling booksellers to express ratings they may not agree with. The case was appealed to the Fifth Circuit, where Cato joined the Foundation for Individual Rights and Expression and the National Coalition Against Censorship in an amicus brief supporting the booksellers. Our brief explained that the law requires booksellers “to publish lists voicing value judgments they do not share about hundreds or even thousands” of books, making it a textbook case of impermissible compelled speech.

In an opinion issued just last week, Judge Willett again wrote for a three‐​judge panel and agreed with the booksellers, affirming the district court’s injunction. (Indeed, the makeup of this panel was identical to the panel in Netflix, with Judge Willett joined by Judges Jacques Wiener and Dana Douglas.) Judge Willett wrote that the law’s rating requirement forces booksellers “to ‘either speak as the State demands’ or suffer the consequences.” Judge Willett rejected the government’s argument that the compelled ratings are permissible under precedents that have upheld compelled disclosures of “purely factual and noncontroversial” information.

As Judge Willet noted, “Balancing a myriad of factors that depend on community standards is anything but the mere disclosure of factual information. And it has already proven controversial.” Judge Willett concluded that the booksellers are “thus likely to succeed on their compelled speech claim.”

For the second time in as many months, the Fifth Circuit has rightly stepped in to protect and affirm core First Amendment rights. As these cases show, elected officials can and do abuse their power. In these two cases, the abuses may have been motivated by the urge to score points in a perceived culture war. But whatever the reason, an engaged judiciary is absolutely necessary as a guardian against the abuses of prosecutors, legislators, and any other government officials who choose to put their own political and policy goals ahead of the Constitution.

Colleen Hroncich

After a string of holidays from October through December, January can seem like a letdown. Unless you’re someone—a parent, student, teacher, education entrepreneur, or engaged citizen—who cares about education. Because each year National School Choice Week (NSCW) falls towards the end of January and gives us a chance to celebrate the multitude of learning options that are meeting children’s needs every day.

NSCW includes all types of educational choice. In a growing number of states, there are scholarship programs that help parents send their children to private schools that better meet their needs. EdChoice’s School Choice in America Dashboard tracks these programs, and the list, which includes some programs that aren’t fully operational yet, has expanded rapidly in recent years. There are voucher programs that help parents pay private school tuition in fourteen states plus DC and Puerto Rico. Tax credit scholarships, which allow individuals and/​or businesses to receive a tax credit when they donate to a scholarship‐​granting organization, are in twenty‐​two states. And thirteen states now have educational savings accounts, which can be used for a variety of education‐​related expenses—helping parents customize their children’s learning journeys.

Most of these school choice programs were initially geared toward specific groups of students, like children with special needs or who were assigned to poor‐​performing public schools. But we’ve seen an uptick of universal programs that expand eligibility to all K‑12 students in a state. This is great news given the strong support for school choice across demographics and political parties.

Last summer, the American Federation for Children released a RealClear Opinion Research poll showing overall support at 71 percent, with 66 percent of Democrats, 80 percent of Republicans, and 69 percent of Independents expressing support. EdChoice’s monthly tracking poll similarly shows strong support across the board.

With interest in and access to education choice growing so much, it’s no surprise that this is shaping up to be the biggest celebration yet. According to Your Ultimate Guide to NSCW 2024, “This year, National School Choice Week is jam‐​packed with events nationwide including: 71 state flagship events across 45 states, planned by 66 nonprofit organizations, including 34 school fairs; 22 governors (and counting) proclaiming ‘School Choice Week’ in their state; 38 major landmarks across 21 states illuminating in yellow and red; and a total of 27,112 events across all 50 states.”

To find events in your area, you can head to the National School Choice Week’s participants page, click on your state, and choose the “Celebrations” tab. Feel free to share your own story or celebration on social media using #SchoolChoiceWeek.

Jeffrey Miron

A fundamental issue in debates over climate policy is that politicians and the public do not like the implications of the standard economic analysis.

The existing scientific consensus implies that carbon and other GHC emissions (henceforth, “emissions”) constitute an externality, meaning an effect of one person’s actions on other economic actors, in ways not mediated through prices. Air pollution from cars and factories, fertilizer runoff from farms, and loud noises from highways and airports are standard examples.

In the presence of externalities, free markets produce too much of the externality‐​generating good, and government can in principle improve economic efficiency.

The standard approach is a tax that raises the good’s price, which lowers its production and thus the externality. Measured economic output goes down, but true economic output—measured output minus the externality—goes up.

Emissions taxes, however, fare badly at the voting booth because they raise prices for heating oil, gasoline, and other goods and services.

Policymakers therefore suggest subsidizing “clean” energy sources like solar or wind. This reduces the price of such energy and so tilts utilization away from high‐​emission sources. Subsidized industries and energy consumers are happy because they face lower prices overall for energy.

By making energy cheaper, however, subsidies can raise emissions. EV subsidies, for example, might increase the number of cars, and because production of EVs will utilize substantial “dirty” energy for the foreseeable future, this might increase emissions. Worse, the energy that charges EV batteries often comes from burning coal or oil, which are more carbon‐​emitting than gasoline. A recent paper finds that the optimal subsidy for buying an electric vehicle should be a $742 tax rather than a $7,500 credit.

Thus clean energy subsidies are a mixed bag because they have potentially offsetting effects. Only emissions taxes unambiguously move the economy in the right direction.

A recent paper examines these issues empirically:

We study clean energy subsidies in a quantitative climate‐​economy model. … At standard parameter values, clean production subsidies increase emissions and decrease welfare relative to laissez‐​faire. … Even in [a] more optimistic scenario, a clean subsidy generates significantly higher emissions and lower welfare than a tax on dirty energy.

Exactly. Emissions taxes are likely the least bad way to reduce emissions. Exceptions are possible, but clean energy subsidies deserve careful scrutiny, even if political constraints make emissions taxes impossible. Sometimes doing nothing is better than the feasible alternatives.

This article appeared on Substack on January 22, 2024.

Walter Olson

Following the example of two years ago, I’ve compiled this catalogue of my writings (and a few podcasts) since early January 2022 on topics of election law and process:

“A Matter Of Legislative Principle” (Maryland gerrymandering; Jan. 10, 2022)
“Talking Maryland podcasts” (Free State Notes, most on redistricting, Jan. 15, 2022)
“How To Fix the Electoral Count Act” (Cato Daily Podcast with interviewer Caleb Brown, Jan. 20, 2022)
“Election Reform for Serious People” (Cato Daily Podcast with interviewer Caleb Brown, Jan. 21, 2022)
“Dos and Don’ts of Democracy Promotion” (The Bulwark “Beg To Differ” with Mona Charen, Jan. 21, 2022)
“The 2020 Wisconsin Presidential Election, Under the Magnifying Glass” (Jan. 31, 2022)
“No, Retaliatory Gerrymandering Isn’t Fair Play” (Feb. 8, 2022)
“A Flawed Letter Opposing Electoral Count Act Reform” (Feb. 12, 2022)
“Walter Olson on the Electoral Count Act” (Cato Audio with interviewer Caleb Brown, Mar. 3, 2022)
“Should Congress Regulate Redistricting?” (CQ Researcher, Mar. 4, 2022)
“The Rocky Road To Redistricting Reform” (Mar. 11, 2022)
“Cato Scholars on the Electoral Count Act” (Mar. 21, 2022)
“The Trouble With Universal (Mandatory) Voting” (Cato Daily Podcast with interviewer Caleb Brown, May 6, 2022)
“The Trouble With Ballot Harvesting” (May 12, 2022)
“Making Voting Compulsory Is a Bad Idea — and Wouldn’t Change Our Polarized Politics” (New York Post, May 15, 2022)
“A ‘No’ To Mandatory Voting” (May 17, 2022)
“ ‘All Employees Will Be Expected To Vote For This Year’s Bond’ ” (pressure on school district employees, Jun. 9, 2022)
“Walter Olson on Election Fraud” (The Great Antidote podcast with interviewer Juliette Sellgren, Jun. 2022, highlight)
“Mandatory Voting and Election Credibility” (Jun. 20, 2022)
“From the National Constitution Center: ‘Restoring the Guardrails of Democracy’ ” (“Team Libertarian” effort, Jul. 13, 2022)
“Kibbitzing with Kagan” (Maryland Sen. Cheryl Kagan podcast, redistricting and ranked‐​choice voting among topics discussed, Jul. 15, 2022)
“RealClearPolitics Looks at Trustworthy Elections: The Role of Redistricting,” (RealClearPolitics panel discussion video, Jul. 20, 2022)
“ ‘Lost, Not Stolen’: Prominent Conservatives Refute 2020 Election Myths” (Jul. 21, 2022)
“The Jan. 6 Committee’s Findings Have Met the Appropriately High Bar for Prosecuting Trump (The UnPopulist, Aug. 3, 2022)
“When (If Ever) Should Former Presidents Be Charged With Crimes?” (Cato Daily Podcast with interviewer Caleb Brown, Aug. 10, 2022)
“Alaska’s Promising Voting Experiment” (Aug. 16, 2022)
“Restoring the Guardrails of Democracy: A Libertarian View” (on National Constitution Center project; Reason “Volokh Conspiracy,” Aug. 29, 2022, followup Sept. 1, related Cato at Liberty post Aug. 29, and related Cato Daily Podcast, Sept. 19)
“Election Subversion: Why Gore 2000 Isn’t a Fair Comparison” (Sept. 8, 2022)
“ ‘Zuckerbucks’ Didn’t Throw the 2020 Election” (Sept. 12, 2022)
“A Good Idea Deserves A Tryout” (ranked‐​choice voting; Buffalo News and other papers syndicated through Inside Sources service, Sept. 29, 2022)
“Ranked‐​Choice Voting In Local Elections: A Case for Home Rule” (Oct. 5, 2022)
“Cumulative Voting: The Good and Bad of One Election Reform” (Oct. 19, 2022)
“Election Reform on the November Ballot” (Oct. 26, 2022, and post‐​election Cato Daily Podcast, Nov. 25)
“It Was a Boring Election Day—And That’s Good” (Nov. 10, 2022)
“Cato 2022 Handbook for Policymakers” (Nov. 2022; chapters on election law and redistricting)
“Toward a Faster Ballot Count” (Nov. 23, 2022)
“Ranked‐​Choice Voting: Some Notes On the Politics” (Nov. 29, 2022)
“To Strengthen the Electoral College, Enact Electoral Count Act Reform” (Dec. 19, 2022)
“Is Ranked‐​Choice Voting Constitutional?” (Dec. 30, 2022)
“The Election Crisis We Dodged” (proposals to refuse seating to House members based on “voter suppression” theories; The Dispatch, Jan. 12, 2023) 
“Montgomery County Could be the Next Jurisdiction to Embrace Ranked‐​Choice Voting — If the Legislature Stays out of the Way” (Baltimore Sun, Jan. 27, 2023)
“Truthfully, Be Careful What You Wish For” (proposals to ban more false speech about elections; Inside Sources syndication, Feb. 4, 2023)
“Frederick Should Consider Ranked‐​Choice Voting” (Free State Notes, Feb. 13, 2023, followup coverage May 4, Sept. 24, Dec. 2)
“More Cold Water Thrown On Some Alarmist Election Claims” (Feb. 21, 2023)
“Statement in Opposition to Utah HB 171, ‘A Bill Repealing the Municipal Alternate Voting Methods Pilot Project’ ” (Feb. 23, 2023)
“Evaluating Alaska’s First Run With Final Four Voting” (Mar. 3, 2023)
“General Bans On Election Untruths Would Violate the First Amendment” (Mar. 10, 2023)
“Is Proportional Representation On the Way?” (Reason, Apr. 4, 2023)
“A Handsome Settlement In the Dominion‐​Fox News Case” (Apr. 18, 2023 and Cato Daily Podcast, Apr. 19)
“Why Conservatives Shouldn’t Fear Ranked‐​Choice Voting” (Real Clear Policy, Apr. 27, 2023)
“High Court Sticks With Flawed Racial‐​Redistricting Standard” (Jun. 8, 2023)
“Moore v. Harper: Supreme Court Rejects Independent State Legislature Theory” (Jun. 27, 2023 and Cato Daily Podcast, Jul. 17)
“Sorting Out the Kinks In Ranked‐​Choice Voting” (The Dispatch, Jul. 18, 2023)
“ ‘Suppression’ Or No, Most Voting‐​Law Changes Don’t Alter Partisan Outcomes” (Jul. 21, 2023)
“Trump Indicted Over Attempt to Remain In Power” (Aug. 2, 2023)
“Seven Questions About the Trump Indictment” (Aug. 4, 2023)
“The Danger of Not Prosecuting Trump’s Jan. 6 Conduct: A Conversation with Walter Olson” (The UnPopulist “Zooming In” podcast with Aaron Ross Powell and Akiva Malamet, Aug. 14, 2023)
“Will Donald Trump Attack the Legitimacy of the Supreme Court?” (The Dispatch, Aug. 15, 2023)
“Does Section 3 of the Fourteenth Amendment Disqualify Trump?” (Aug. 25, 2023)
“Springtime for Demagogues” (The Bulwark “Beg To Differ” podcast with Mona Charen, Aug. 25, 2023)
“Vivek Ramaswamy’s Conditions for Allowing Elections” (Aug. 30, 2023)
“Republicans Will Encourage Voting Before Election Day” (Sept. 22, 2023)
“Election Law and Policy with Walter Olson” (Maryland Association of Counties Conduit Street Podcast with Kevin Kinnally and Michael Sanderson, Sept. 22, 2023)
“Ballot Measures: A Preview” (RCV on ballot; Oct. 13, 2023)
“Grading Maryland’s redistricting performance” (Free State Notes, Oct. 18, 2023)
“Don’t Blame Ballot Harvesting Scandals On Drop Boxes” (Oct. 20, 2023)
“Should Ranked‐​Choice Voting Be Adopted?” (“Future of Freedom” podcast with interviewer Scot Bertram, Oct. 20, 2023, highlight)
“Privacy, Transparency, and Individual Ballots” (Nov. 10, 2023)
“Should Election Authorities Publish the Records of Individual Voters?” (Nov. 29, 2023)
“Colorado Supreme Court Rules Trump Off Ballot” (Dec. 20, 2023)
“Florida Counts Votes Quickly, Other States Should Too” (Dec. 27, 2023)

I’ve included discussions of former President Trump’s legal entanglements when they bear closely on questions of election law, as with the federal and Georgia Jan. 6 prosecutions and the matter of his eligibility for office under Section 3 of the Fourteenth Amendment, but not otherwise.

David Boaz

The Washington Post reports:

[Maryland Gov. Wes] Moore is not close to accomplishing his moonshot goals — among them, eliminating child poverty and reducing the overincarceration of young Black men — but has faced little criticism for it. He heads into a second year with less‐​favorable financial headwinds and even more aspirations. Among them: growing the state’s economy, helping women who want to rejoin the workforce and fixing a yawning affordable housing crisis — complex problems that take time and deep resources to address.

Sigh. So many assumptions built into that last phrase, “complex problems that take time and deep resources to address.” Time, maybe. Change takes time. But more resources than the state of Maryland has? Not really.

Take a look at the problems:

eliminating child poverty. The best way to eliminate poverty is to eliminate the regulations that block investment, entrepreneurship, and economic growth. Growth means more and better jobs.
reducing the overincarceration of young Black men. Repeal laws against the use and sale of drugs, and other victimless crimes, and then you won’t be arresting and incarcerating so many young Black men. Save jail for violent or dangerous criminals. No new resources needed. Indeed, resources are freed up for other purposes. Also, Baltimore in particular has terrible schools. Give families, including poor families, a chance to choose better schools.
growing the state’s economy. Deregulation and lower taxes would help. Take a look at the policies of the states that score highest on economic freedom, New Hampshire, Florida, and South Dakota, or even number 18, Virginia.
helping women who want to rejoin the workforce. The deregulations noted above will mean more jobs for everyone.
fixing a yawning affordable housing crisis. Let. People. Build. More. Housing.

So many problems, and so many people whose immediate instinct is, “What new government program or agency can solve this problem that government programs have not solved in years?” Try asking, “Are there government programs that are preventing people from improving this situation?”

Nicholas Anthony

Financial privacy has been under fire for decades, but that hasn’t stopped government officials from trying to establish even more invasive approaches. As detailed in a new letter from Senator Tim Scott (R‑SC), there are now concerns that the Financial Crimes Enforcement Network (FinCEN) has “urged private financial institutions to surveil customers’ transaction‐​level data using politically charged search terms.”

Senator Scott’s letter centers around allegations that FinCEN instructed financial institutions to search for transactions that included terms like “MAGA” and “Trump” as well as transactions for the legal purchase of firearms. However, as Senator Scott noted, this problem is all too familiar. It was only a decade ago that the Department of Justice initiated “Operation Choke Point” under the Obama administration.

For those that might not be familiar, Operation Choke Point set out to go after so‐​called controversial businesses (e.g., state‐​licensed cannabis dispensaries, payday lenders, pawn shops, or gun shops) with the intent of, as one official described it, “choking them off from the very air they need to survive.”

Yet the problem here deals with only a small piece of a much larger system. While it’s a problem to see political motivations driving financial surveillance, it also shouldn’t be lost that this surveillance is a problem in and of itself.

Under the Bank Secrecy Act and the many expansions that followed, financial institutions were required to file over 26 million reports on customer activity to FinCEN in 2022. Worse yet, under the third‐​party doctrine, the government can also get access to most financial records without a warrant because the “Right to Financial Privacy Act” rarely actually establishes a right to financial privacy.

So, Senator Scott is correct in explaining that, “These allegations, if true, represent a flagrant violation of Americans’ privacy and the improper targeting of U.S. citizens for exercising their constitutional rights without due process.” Yet the problem runs far deeper than any one abuse of power.

It may not be easy to make changes during an election year, but affirming that the Fourth Amendment should protect people from warrantless government searches should not be a difficult decision.

When surveyed, 83 percent of the American people say that the government should need a warrant to access their financial records. It’s time for Congress to make that a reality.

Colleen Hroncich

For parents or teachers seeking a strong civics education, the Bill of Rights Institute is a one‐​stop shop. Founded in 1999, BRI offers a wide variety of resources that can “equip students and teachers to live the ideals of a free and just society.”

I first learned about the Bill of Rights Institute through our speech and debate league. After that, it became one of our go‐​to sources for civics and US history resources. Three of my children attended BRI’s Constitutional Academy, a week‐​long program for high school students held in Washington, DC They participated in seminars, debates, and visits to key historical sites. Speakers from across the political spectrum discussed civil discourse in American society and challenged the kids to think broadly.

It looks like Constitutional Academy has been replaced by a new Student Fellowship program that is similar but includes online meetings twice a month that incorporate readings, discussions, and writing assignments. The fellowship concludes with a capstone week in Philadelphia and day trip to DC to visit Capitol Hill.

The student resources also include a library of more than 300 videos on general US history, civics, and government as well as AP Government and AP US History. There is a convenient sidebar that allows you to filter for specific topics. The Think the Vote section gives students the opportunity to learn about and vote on various topics with the chance to win gift cards and cash prizes.

The Educator Hub, which includes more than 4,000 resources, including 650 lessons, 300 essays, and nearly 300 videos, is where BRI really shines. The lessons can be filtered by topics, founding principles, time periods, and virtues. Some are short, twenty‐​minute lessons. Others are more complete lesson plans on a particular subject that are designed to be taught over multiple days.

The primary sources section includes full texts of important documents in American history and can be similarly filtered as needed. There are hundreds of activities included that incorporate these documents and are designed to help students analyze them and think critically about their contents and the impact they had on society when they were written and now.

Last summer, BRI released a new mobile app that features its full library of digital resources. Like all BRI resources, the app is available for free for students and teachers. The resources can also be downloaded so those without reliable internet service can access them offline.

The amazing wealth of resources offered by the Bill of Rights Institute was recognized last fall when BRI was named a quarterfinalist in the Yass Prize. If you’re looking to beef up the civics or US history portion of your students’ education—or even get a refresher for yourself—the Bill of Rights Institute has you covered.

Daniel Raisbeck and Gabriela Calderon de Burgos

Libertarians around the globe have rightly celebrated Javier Milei’s election as Argentina’s president and his first measures in power. Certainly, Milei’s emergency decree to deregulate large swathes of the economy—from eliminating rent and price controls to instituting an “open skies” policy that liberalized the airline industry—will bring much‐​needed relief to a strangled private sector. The same applies to his “omnibus” bill, which would make all state‐​owned companies liable to privatization. The latter also includes sound electoral and political reforms, namely ditching proportional representation in favor of a “first‐​past‐​the‐​post” system and getting rid of expensive—and unnecessary— presidential primaries that are mandatory for all parties.

A fair critique of Milei’s emergency decree is that it could be largely undone in the future through a similar decree of a statist, interventionist bent. However, it remains a legal means to govern, requiring the ultimate ratification of Congress and the courts. Moreover, Argentina’s undoubted economic emergency certainly justifies extraordinary measures.

We fear, however, that the main threat to Milei’s agenda is not his legislative modus operandi, but rather his government’s monetary policy. Lest anyone forget, Milei’s flagship policy proposal as a candidate was the full dollarization of Argentina’s economy and the permanent closure of its central bank.

As we wrote on December 14, Milei’s appointment of financial expert Luis Caputo as his finance minister called into question the government’s commitment to dollarize. Caputo had opposed dollarization in the past and, some days before taking office, he purportedly told a group of banking sector representatives that dollarization was off the table. Since then, both Milei and Caputo have affirmed that dollarization remains a part of the agenda. Clearly, however, Caputo’s current plan to stabilize the economy does not involve dollarizing Argentina.

Instead, Caputo has kept currency controls and the official exchange rate vis‐​à‐​vis the dollar, which was nonetheless brought far closer to the black market or “blue dollar” rate (from ARS $400 to $800, compared to a blue dollar slightly above ARS $1,000 in early December). The adjustment also includes a monthly crawling peg of 2 percent.

Caputo converted the central bank’s outrageous liquidity note debt (Leliqs) into treasury bonds, a necessary measure that slashed the central bank’s interest‐​bearing liabilities, which it could pay only through expanding the monetary base. This debt now consists of notes with 24‐​hour maturity periods and far lower interest rates (of 100 percent per annum, compared to the Leliqs’ rate of 133 percent). The minimum annual interest rate for fixed‐​term deposits was also cut from 133 percent to 110 percent. Given the spread between the yield on Pases and the new rate on deposits, the Argentine Treasury issued short‐​term bonds (with 28‐​day maturities) yielding over 180 percent per annum and medium‐​term issues (1–3 years) indexed to inflation.

Caputo’s aim, in other words, is to dilute Argentina’s mountain of internal debt and eliminate the fiscal deficit by means of inflation levels that run far higher than official interest rates. Caputo announced that inflation would increase during his first public statements as the new finance minister (Milei was inaugurated as president on December 10).

According to official figures, the outgoing Peronist government left an annual inflation rate of 211 percent in 2023, the highest in Argentina since the hyperinflationary episode of 1989-1990.

The logic behind Caputo’s plan seems to be that, as several economists have argued—incorrectly, in our opinion—Argentina does not have enough dollars to dollarize. Hence, it is necessary to delay dollarization and the central bank’s closure until the economy is stabilized. Moreover, since paying for chronic deficit spending with monetary stimulus caused triple‐​digit inflation in the first place, it would follow that solving the fiscal problem must be a prerequisite for dollarization, even if this involves high inflation—to dilute the deficit—in the short to medium term.

One problem with this approach is that Milei’s election represented a radical political change, particularly concerning the need to attack the root causes of Argentina’s monetary chaos and tame inflation once and for all. Hence Milei’s proposal to dollarize and shut down the central bank.

Critics of dollarization who still recognize the inflationary problem—a result of governments monetizing chronic fiscal deficits through a subservient central bank—have argued that the better option is to have a serious, independent central bank in charge of Argentina’s monetary policy. As we have argued elsewhere, this argument is at best Panglossian in light of the country’s economic history. Even now, with a fiscally responsible government in charge of public finances, the central bank can hardly be said to be independent because it is being run by Caputo’s former business partner.

More concerning, the central bank is still issuing interest‐​bearing liabilities, which grew by 17.6 percent during the first month of the new government. Milei also confirmed that the central bank would soon begin to issue new bills worth ARS $20,000 and $50,000 respectively. Inflation is still increasing rapidly, with a rate of 25.5 percent during the month of December alone.

The inflationary aspect of Caputo’s “stabilization” plan points to its main flaw. In the words of economist Luis Secco, “We started with a high inflation rate, so that if inflation is part of the government’s program, we have a problem.”

To begin with, the government’s measures are already putting the peso under pressure after a 65 percent loss in its value against the dollar in 2023 (including a brief rally in the first days of Milei’s government). That is, Argentines are trying to protect their savings from the government’s strategy. As Bloomberg reported on January 6, “Some local investors are already heading for greenbacks,” causing the parallel rate to weaken. Due to the cut in interest rates, Bloomberg added, “Argentines have pulled money out of deposits and into their checking accounts, adding peso liquidity that stands to put pressure on the currency.” This scenario is already playing out.

At the time of writing, the blue dollar sells for ARS $1,225, with a notable increase in the spread with the official rate in the last five weeks. This is testing Caputo’s attempts to protect the peso by offering savers the life jacket of high interest rates on 30‐​day deposits and longer‐​term, peso‐​denominated bonds. Another attempt to strengthen the peso involves a new 5 percent tax on dollar withdrawals from the banking system for those who benefited from a tax amnesty announced in December.

From the perspective of savers, however, it is fully rational—and also legitimate—to seek shelter from inflation, a tax that was not approved in Congress.

In a recent interview, Caputo confirmed that the government does intend to honor Milei’s dollarization pledge, but only once his “stabilization plan” has been fully implemented. It is thus clear that Caputo regards dollarization as a far‐​off destination, not a point of departure. We believe this approach is mistaken and risks a far more painful dollarization than necessary in the future.

In fact, Caputo’s measures—maintaining capital controls and exchange rate restrictions while letting inflation run high—run directly counter to dollarization, as do all other remaining distortions of Argentina’s foreign trade, such as the dollar withdrawal tax and taxes on imports, which Caputo increased. As economist Alberto Acosta Burneo argues, these measures do little to create confidence and attract dollars into the formal financial system, which is what Argentina desperately needs.

Indeed, there seems to be an inherent contradiction between annual inflation levels headed towards 300 percent, a subsequently weakening peso, and the stated hope to accumulate $30 billion to stabilize the economy, which Caputo considers a prerequisite to dollarization.

In the midst of a much‐​needed deregulation spree, it is telling that Milei’s government has not removed trade operations from the control of the central bank, which continues to hold a monopoly on access to the dollars necessary to pay for imports. Ecuador, a country which dollarized in 2000, freed the market for dollars in 1992 by allowing importers to access foreign currency, thereby eliminating the central bank’s prior monopoly. Thereafter, it no longer mattered whether or not the central bank had enough dollars to pay for imports, since importers could acquire dollars on the free market. This did not solve Ecuador’s monetary problems because it kept a national currency for eight more years, but it is a necessary condition for dollarization.

Similarly, as positive as Milei’s elimination of price controls might be, he has not liberalized the exchange rate between the peso and the US dollar, which economist Steve Hanke has called “the most important price in an economy.” This despite the fact that, due to their currency’s volatility, Argentines already have the habit of making economic calculations strictly in dollar terms.

Milei’s opinion seems to be in line with Caputo’s insofar as he has stated that the government’s monetary measures are necessary to avoid a bout of hyperinflation. As economist Nicolás Cachanosky has countered, however, such a scenario can only come about as long as the peso is kept in place.

In fact, the means to avoid hyperinflation is the prompt adoption of the U.S. dollar, ideally with the corresponding closure of the central bank.

Like Caputo’s plan, dollarization can ease the debt burden insofar as it would rapidly bring down interest rates, but only as a result of drastically lowering inflation. Unlike Caputo’s plan, however, dollarization does not destroy people’s purchasing power, but rather has the contrary effect of protecting purchasing power in spite of fiscal profligacy.

As Ecuador’s example shows, dollarization solves the inflation problem promptly. According to World Bank data, the country experienced 96 percent annual inflation in 2000 after dollarizing in January of that year, only for the rate to drop to 38 percent in 2001 and 13 percent in 2002. In the last two decades, Ecuador has had one of the lowest average inflation rates in Latin America (along with Panama and El Salvador, two other dollarized countries). This is the type of turnaround Argentina would experience if dollarization is not delayed any further.

Given the state of Argentina’s economy, no stabilization plan will be painless. Dollarization, however, offers the quickest path to monetary stability. It also would bring a permanent end to Argentina’s constant bouts of double‐​and‐​triple‐​digit inflation. 

Without a doubt, Milei’s steps to deregulate and liberalize Argentina’s economy are not only welcome, but of the utmost necessity. But they could prove marginal if he fails to solve the monetary problem as quickly as possible. The clock is ticking.

Adam N. Michel

The federal government makes hiring a nanny or other household employee a labyrinthine nightmare of tax, labor, and immigration law. These rigid rules decrease childcare options and increase costs for families and childcare providers. Congress could add flexibility by allowing household employees to work as independent contractors, bypassing much of the complexity.

If a family pays a household worker—nanny, maid, gardener—$2,700 or more in 2024, they are considered “employers,” and the individual providing the service is an “employee.” That threshold is easily surpassed by hiring a babysitter for four weeks a year at the DC minimum wage of $17 per hour.

Triggering the IRS thresholds can come with requirements to pay, collect, and remit income, payroll, and unemployment taxes. It also requires registering as an employer with federal and state governments, collecting and retaining employment eligibility verifications, carrying a worker’s compensation insurance policy, and displaying Department of Labor employee rights notices in your home (yes, the same ones hanging in your lunchroom you’ve probably never read).

Not complying with these rules can trigger tens of thousands of dollars in fines and penalties.

These rules are ostensibly in place to protect the household employees. Instead, their cost and complexity push many parents and workers into the grey economy—often unknowingly opening them up to legal liabilities and tax penalties. The rules also incentivize the use of less flexible third‐​party service providers and institutional childcare that raises costs for families and lowers pay for providers.

To fix this, Congress could allow families and nannies the flexibility to bypass the formal employment rules by allowing them to elect independent contractor status. In 2020, Rachel Greszler proposed such a reform to allow more flexibility for families and workers, writing, “Congress should create a safe harbor to allow individuals performing household work to choose to be treated as contractors instead of household employees, if they prefer such treatment.” Households would still have to report wages exceeding $600 a year to the IRS. This is a much more reasonable requirement. Greszler explains that “this choice would allow individuals to receive higher base pay as contractors because of the compliance and tax savings for the household they serve.”

The complexity of household employment relationships is not unique. Existing definitions of employer, employee, and independent contractor are often ambiguous and contradictory under tax law, the Fair Labor Standards Act, the National Labor Relations Act, and as many as 25 other laws that cover employment arrangements. These definitions are ripe for reform—or at least standardization and clarification.

One such attempt is Senator Mike Lee’s 21st Century Worker Act, which creates a bright line test to determine a worker’s employment status and standardizes definitions across the major tax and employment laws. The bill also allows a safe harbor election for workers and employers to choose their legal status in ambiguous cases. If mutually agreed, similar safe harbor treatment should be afforded to individual households and their service providers.

In‐​home childcare’s tax and regulatory cost is only one small facet of a much broader policy discussion covering family affordability and declining fertility. For example, Ryan Bourne discusses how state and federal policies, more broadly, unnecessarily raise the cost of childcare. Vanessa Brown Calder and Chelsea Follett provide an excellent overview of fertility trends and reforms that would make family life easier for Americans with children. Alex Nowrasteh recently outlined how new proposed regulations could end affordable childcare services provided through the Au Pair Program.

As a new parent who considers himself relatively well‐​versed in tax law and adept at figuring out the arcana of government programs, I naïvely assumed that legally hiring in‐​home childcare would be reasonably straightforward. I was wrong. Even with a plethora of online payroll services, faithfully navigating state and federal tax and employment law is a nightmare.

The cost and complexity incentivize families to use formal center‐​based childcare and make it more likely that household employees operate in grey markets that expose families and workers to steep penalties and back taxes. Allowing an opt‐​out would benefit families and caregivers.