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Walter Olson

Missouri Attorney General Andrew Bailey, a conservative, has sent a letter to left‐​leaning advocacy group Media Matters notifying them that he has placed them under legal investigation for having published criticisms of X, the Elon Musk social media site formerly known as Twitter, in such a way as to cause the site to lose advertisers. In doing so, Bailey would appear to be following in the ignoble footsteps of other elected officials who’ve sought to investigate and punish private advocacy on issues of public interest.

Longtime readers of this site will recall the disgraceful episode in the 2010s in which liberal attorneys general from a number of states investigated supposed wrongful advocacy by nonprofits and businesses on climate change issues, the First Amendment notwithstanding. (The enforcement action that went furthest, against Exxon over claimed misstatements to investors, fell flat on its face in a New York courtroom.) The campaign also included harassing subpoenas directed at nonprofit groups that had supposedly put out misleading or one‐​sided studies on climate matters.

What law does Bailey think he has on his side? While Elon Musk himself may have standing to file a civil suit claiming that his business was defamed, a state has no standing (nor should it) to file its own piggyback libel actions on behalf of celebrities it may admire.

Instead, Bailey writes, “I have reason to believe that your firm’s alleged actions may have violated Missouri consumer protection laws, including laws that prohibit nonprofit entities from soliciting funds under false pretenses.” Under this theory, supposedly wrongful advocacy by a private nonprofit on issues of public concern becomes a matter for state criminal enforcement, if the nonprofit repeats the claims in its fundraising.

Bailey thus evinces concern for the well‐​being of Media Matters donors, whom he paints as the victims on behalf of whom he is acting. This is every bit as convincing as former New York AG Eric Schneiderman’s insistence that in bringing a securities fraud case over Exxon’s climate statements he was deeply concerned for the welfare of Exxon’s shareholders. 

In the most risible bit of the letter—better than satire, really—Bailey claims to be standing up for free speech by menacing his private target with legal punishment for its speech.

You really have to wonder, though, whether Bailey has thought even one step ahead in the “What if the other side tries this?” calculation. By information and belief, groups on his own conservative side of the culture war raise a large volume of revenue from direct‐​response campaigns, which frequently repeat assertions that some future unsympathetic law enforcer could portray as misleading or flat wrong. Does Bailey really want to start down a road in which states crack down on fundraising by right as well as left advocacy groups this way?

Nicholas Anthony

The Bretton Woods Committee has released a new call for the United States to launch a central bank digital currency, or CBDC. In fact, the report also calls for the Bank for International Settlements (BIS) and the Financial Stability Board (FSB) to take the lead on establishing CBDC rules and standards around the world.

But like other advocates, the Bretton Woods Committee fails to adequately explain why a CBDC is needed in the first place.

The Same Debunked Arguments

To begin, the report makes the same arguments as others, claiming that a CBDC could increase the use of one currency over others in international trade, preserve monetary sovereignty, and achieve financial inclusion.

My Cato colleague, Norbert Michel, and I have addressed (at length) why these points are misguided. In short, the success of any currency on the world stage is not dependent on whether it is a CBDC. Rather, that success depends on the strength of the economy, the rule of law, and economic freedom.

To the same end, if a government is worried about preserving monetary sovereignty, it should focus on fixing the factors that are core to its success. The note on financial inclusion is similarly misplaced. How a CBDC is supposed to operate through the banking system (the report’s recommendation) but also reach, as the report notes, “those who operate in the informal economy and have no or limited access to traditional banking and payment services” is a mystery.

The report goes on to argue that a CBDC would be better than cash because it is digital. Going further, the report argues that a CBDC would also be better than existing digital money (e.g., bank money, cryptocurrency, etc.) because a CBDC “sponsored by a nation’s central bank could facilitate greater trust and acceptance as a medium of payments, given the historical role of central banks in national payments regimes and their perceived safety as a counterparty.”

Again, as Norbert and I have explained, “digital money” is far from an innovation in 2023. While there are certainly technical distinctions to be made between the different money supply measures and liability statuses, the report’s proposal for an intermediated CBDC with transaction caps and no interest payments is effectively a prepaid card with additional identity verifications more than anything else.

Furthermore, the idea that central banks are trusted over the private sector is not a safe assumption. Pew Research reports that even in the United States, public trust in government is at historic lows (Figure 1). Likewise, a Cato Institute survey found that 79 percent of Americans trust the private sector to handle their money more than the government.

Conclusion

The Bretton Woods Committee report calls for governments and international organizations to push forward on CBDCs, but it fails to first make the case for CBDCs. Yet, this problem isn’t a complete surprise—establishing what problems are not being addressed by the private sector already and what problems can only be solved by a CBDC may be the greatest challenge for CBDC proponents. The lack of clear benefits is why 78 percent of Americans and 85 percent of Canadians said they would not use a CBDC if issued. And the lack of benefits is partly why 94 percent of Nigerians do not use the CBDC that has been issued.

Yet, even if benefits that can be substantiated do emerge, then there are still the risks of CBDCs that proponents must contend with. As it stands, the evidence is clear: CBDCs present a net negative for society. Governments around the world are pushing forward with CBDC development, but it’s time to reverse course.

Colleen Hroncich

“A match made in heaven,” is how Rabbi Isaac Melnick describes the partnership that resulted in Shorashim Academy in Plantation, Florida. Previously, Isaac ran a large Judaic afterschool program at an English‐​Hebrew Charter School. His Shorashim co‐​founder, Rabbi Dr. Gur Berman, served as principal at two of the charter school’s campuses.

“In August of 2021, I decided that I wanted to start a school. I didn’t really know what I was getting into,” explains Isaac. “I have a nonprofit that dates back to 2014 with the mission to promote Judaic education. So I thought, what better way to do that than starting a private school? I’d be able to build the school of my dreams.”

Isaac took out a small business loan, but the further he got down the path, the more he realized how difficult it would be. During that first year of planning, he learned about The Drexel Fund. He originally planned to open the school in August of 2022. But when he saw how complicated it was going to be, he decided to postpone for a year and apply for The Drexel Fund. He says being accepted was “very important in bringing our dreams to fruition.”

The school launched this year with 33 students. “That isn’t bad for a start‐​up,” says Isaac. “We went with the mantra, if you build it, they will come. We hired really great teachers. We took a gamble of a lifetime, and our gamble paid off. We’re at 66 now—we doubled in two months.”

Shorashim has a mix of full‐ and part‐​time teachers. There are three periods of Judaic teachings each day, including Hebrew language classes. The other four periods are secular classes with an emphasis on math and language arts. The school currently welcomes only K‑4 students but plans to grow to include upper grades over time, starting with fifth grade next year.

Florida’s new universal education savings account has been instrumental in enabling Isaac to open Shorashim and make it accessible to families. “Without school choice, we wouldn’t have even dared to dream of starting,” Isaac says. “Our tuition is more expensive than what you would typically find in other startups that are not religion based because we have to pursue dual curriculum. So we have to hire a lot more staff.” All but two students at the school are using the scholarships.

Isaac has two key pieces of advice for anyone looking to start a school. “Number one, cash flow is extremely integral for success,” he emphasizes. He’s seen other prospective founders not succeed because they didn’t have enough money to get their effort off the ground. Without start‐​up money, you won’t be able to hire the teachers you want or buy the equipment you need.

“My second thing is that anybody who’s looking to make a school has to be extremely resilient. There are just so many things that will go wrong,” he says, including the challenge of finding a location. “Once we found the location, then we went through just a tremendously difficult time finding the right students to come to the school. Every day there are so many existential challenges that will confront any founder. It’s inevitable.”

Florida’s universal education savings accounts have helped the state become a hub for diverse educational options. By allowing funds to follow students to a variety of learning environments, families are increasingly able to choose schools that fit their values and their children’s needs.

Marc Joffe

The North Carolina Department of Transportation joined the high‐​speed rail gravy train last week with the announcement of a $1.09 billion federal grant for the initial phases of a new line connecting Raleigh, NC, to Richmond, VA, known as R2R. The initial rail lines average about $70 million per mile and the entire project could hit $11 billion. 

The grant covers construction south of the Virginia/​North Carolina state line only. In fact, NCDOTs successful execution of the grant will only establish a passenger rail link between Raleigh and a new station in Wake Forest, which is about 18.7 miles away. According to a federal project profile (on page 10 of this document), the total cost of this initial project is expected to be $1.4 billion, including a state contribution. That works out to be over $70 million per mile (although the governor’s announcement indicates that some of the funds will be spent to prepare other sections of R2R for future construction). At that rate, building the full 162‐​mile R2R line could cost $11 billion.

Compared to California High‐​Speed Rail, this is a bargain.

In the Golden State, the 171‐​mile Central Valley segment is expected to cost around $33 billion. The R2R initiative benefits from the fact that it is being built on an existing freight rail right‐​of‐​way owned by CSX and often called the S‑Line. California High‐​Speed rail has required considerable land acquisition from farmers and businesses.

While more expensive, the California project promises higher speeds (assuming it is completed). California High‐​Speed Rail is designed to top out at 220 mph compared to just 110 mph for the R2R project.

The slower speed means that the time‐​saving benefits of the project are reduced. A 2015 Environmental Impact Statement (EIS) said that travel time between Richmond and Raleigh on the completed line would be 2:14. This is faster than 2:45 when travelling by car, but, in many cases, the time savings will be offset by time spent getting to and from each train station.

The modest time savings translates into modest ridership projections. The EIS forecasted 1.1 million additional annual riders when the full system is completed, and that may be optimistic given the reduction in rail ridership that occurred during the COVID-19 pandemic. Total Amtrak ridership in federal fiscal year 2023 was still 13.6 percent below FFY 2019 levels.

A final concern with the project relates to construction time. The federal summary for the Wake Forest portion of the project gives a 2033 completion date, but that will leave many more segments to build. It is possible to build multiple segments concurrently, but to do this, North Carolina and Virginia will require additional federal grants in the next few years. With dozens of other intercity rail projects across the county in the pipeline that may not be possible.

R2R is far from the worst project the Federal Rail Administration could be funding (that distinction continues to belong to California High‐​Speed Rail). But given the long construction time, modest travel benefits, and limited projected ridership, R2R does not appear to be an effective use of taxpayer money.

Mustafa Akyol

On Dec 14, 2023, I joined an international conference on the 75th anniversary of the UN’s Universal Declaration of Human Rights held at Princeton. Co‐​organized by the James Madison Program of Princeton University, Indonesia’s largest Islamic organization, the Nahdlatul ‘Ulama, and the Center for Shared Civilizational Values, the event brought together religious and intellectual leaders from around the world for a consultation on the future of human rights.

These were my remarks on “Islam and Human Rights”:

If this conference was held back a few centuries ago, there would not be much need for anyone to speak about any rethinking in Islam with respect to human rights. It was a time when Christendom was haunted by religious zealotry and sectarian violence, whereas Islamic lands seemed only more tolerant. Hence minorities persecuted in Europe, such as Jews, repeatedly fled to those lands, especially the Ottoman Empire, to find safety and freedom.

Yet much has changed since then. Christendom changed for the better, and the Islamic world changed for the worse. That is why today minorities often escape from the latter, fleeing violence, persecution, or discrimination. And while these ills sometimes have secular causes, there are religious ones as well. They include severe verdicts on blasphemy or apostasy, legal inequalities, so‐​called morality policing, religious justifications for authoritarianism, and, on the extremes, even for terrorism. 

I believe these are serious troubles that call for a major renewal in Islam. The core issue is giving up coercion and violence in the name of religion. It means reconceptualizing the Sharia not as a law to be enforced by the state, but as a tradition to be practiced by faith. It also means reconceptualizing the state as the protector of not the true faith and its believers, but of all faiths and all individuals.

How to make an Islamic case for this end is a big question, but here is the crux of it: It is about separating the eternal truths of Islam from the historical conditions in which they emerged.

We all know that the Prophet Muhammad, peace be upon him, began to preach Islam in the year 610 in the city of Mecca. It was a monotheist campaign in an idolatrous society. It was also clearly peaceful and non‐​coercive. “You are only a preacher,” the Quran told the Prophet, who told the polytheists, “To me my religion; to you, yours.”

If the Meccan polytheists heeded this call, the history of Islam would be quite different. But they kept on persecuting Muslims, and the latter had to repeat an Old Testament template: an exodus, followed by a theocratic state, which fought battles and conquered territories. Then, under the “caliphs,” or successors of the Prophet, Muslims expanded the template, building a religious empire that stretched from India to Spain.

The Islamic tradition was formed under these medieval imperial conditions, whose norms and constraints influenced that tradition. Meanwhile, Islam often brought major improvements to those conditions, which we can see as contextual applications of universal ethical principles — or natural moral laws.

Most Muslims have already realized this distinction on an important theme: Slavery, which was seen as a part of the Sharia until the 19th century, when efforts for abolition finally began. Today, many religious leaders agree that slavery was just some preexisting ill that Islam found in its historical context, mitigated it, only to get rid of it when possible — because the Qur’an encourages manumission, which points to an ethical direction. So, why not make the same argument for other themes in the traditional Sharia that curtail human liberty?

These are some of the questions we Muslims need to discuss in the 21st century. And trust me, we are discussing them. Among those who lead the conversation are Indonesia’s Nahdlatul Ulama, and its chairman Pak Yahya, with whom I am honored to share this platform today.

Meanwhile, there needs to be another discussion, which is the last point I will make. It is not about whether Muslims should fully accept universal human rights, but whether those rights fully extend to Muslims themselves.

That is because many Muslims around the world today feel that while they are being constantly asked to respect the freedom of other people, their own freedom to live as pious believers and traditional families may not be equally respected. For worse, many of them look at bloody conflicts around the world, especially the Middle East, where Western powers that often champion human rights at times seem to consider the very lives of Muslims less valuable, if not expendable. These blatant double standards breed deep skepticism, if not rejection and resentment, in their receiving end.

In other words, the struggle for human rights is truly a universal one today. In some contexts, it is a struggle to persuade people to affirm them. In other contexts, it is a struggle to persuade people to be honest and principled about them. And unless we strive on both fronts, we may have little hope for the future of our troubled world.

Daniel Raisbeck and Gabriela Calderon de Burgos

Mixed Signals

Following his election as Argentina’s new president, Javier Milei surprised markets by naming Luis Caputo as his finance minister. Caputo, who held the office under former president Mauricio Macri, has spoken out against dollarization in the past, whereas Milei’s flagship campaign proposal was the full dollarization of Argentina’s economy, together with the permanent closure of its central bank.

Specifically, Caputo said that the new government’s priority should be to implement an “orthodox stabilization plan,” so that dollarization will not be immediate. He also purportedly told a group of Argentine bankers that dollarization was off the table. Nonetheless, on November 26, the president-elect’s office issued a statement to affirm that the closure of the central bank and dollarization were non‐​negotiable parts of his agenda. The messaging regarding dollarization, in other words, has been mixed.

Yesterday, Caputo announced the government’s initial—and much anticipated— economic measures: a slew of emergency policies meant to improve the precarious fiscal balance as rapidly as possible. Crucially, Caputo also updated the official exchange rate from 400 to 800 pesos per dollar. As of this writing, the so‐​called “blue” dollar, the black‐​market mechanism that most closely resembles the free market rate, rose to 1,150 pesos per dollar from a level of below 1,000 last week. Caputo also remained silent on dollarization during his televised address.

Some opponents of dollarizing the economy have interpreted both Caputo’s appointment and the government’s first set of economic measures as signs that the dollarization plan is dead. However, Milei could well intend to dollarize still. In which case it is fitting to ask when is the optimal moment to do so.

Leliqs

According to one theory, getting rid of the Argentine peso is unfeasible as long as the central bank remains saddled with its liquidity note or Leliq problem. These are short‐​term bonds issued by the central bank, which have constituted roughly 40 percent of commercial banks’ assets. Leliqs, which pay well over 100 percent in interest per annum, but only through the issuance of new short‐​term bonds, are a monetary and fiscal time bomb with a very short fuse.

For years, the main source of profit for Argentina’s private banks has not been their normal, commercial operations, but rather the interests received from Leliqs, which mature in 28 days at the most. Thus, the fate of the national banks became tied to that of the central bank, all while the latter was financing the government’s deficits. As things stand, the central bank must issue pesos to keep the banks solvent.

This is why the Leliq scheme, which was originally meant to strengthen the peso by reviving demand for the local currency, ended up having precisely the opposite effect: it drastically increased the monetary base, boosted inflation, and weakened the peso to the lowest level vis‐​à‐​vis the dollar in its history. 

Since the Argentine central bank has no assets with which to pay interests on its liabilities, so the thinking goes, the Argentine state itself has insufficient dollars with which to dollarize. This is a false assumption, as we discussed here. Nonetheless, Milei’s government will have to address the liquidity note problem—urgently—with or without dollarization.

In this sense, it is noteworthy that, in the weeks since Milei’s election, the market itself largely swept away the Leliqs. Banks quickly redeemed them and turned instead to “Pases Pasivos,” which offer slightly lower interest rates but are renewed every 24 hours. At the moment, Pases make up 74 percent of the central bank’s interest‐​bearing liabilities.

The large accumulation of Pases is still unsustainable. These contain the same essential flaw as the Leliqs: they are financed only through the issuance of more of the same (ultra) high‐​yield instruments. Caputo seems to recognize as much. According to media reports, he plans to convert the Leliqs and Pases into treasury bonds. Although the terms of said bonds (if they are issued) are not yet known, the measure would be logical.

As we wrote in July, the issue at stake is that the Argentine state must pay its obligations. Given the Leliqs’ explosive nature, holders will have to accept a restructuring of some sort. This is precisely what the conversion into treasury bonds—especially bonds with longer maturity terms—would mean.

Some fear that converting Leliqs and Pases into treasury bonds might affect the banking system’s liquidity. But such a restructuring would increase the value of banks’ assets, especially if they are denominated in a stable currency and the government offers a credible payment plan.

If said conversion takes place, it will be evident that there was no need to “rescue” the entire amount of Leliq debt at a moment’s notice. Hence, the argument that Argentina could not dollarize due to Leliq and Pases debt will be revealed as spurious. In fact, insofar as dollarization is the most rapid method to reduce inflation, the corresponding reduction in interest rates will ease the future payment of all debt.

Make no mistake: Argentina’s debt problem is severe. In fact, with debt levels of 80 percent of debt to GDP, the largest debt burden of any country to the International Monetary Fund, and large, impending payments to service the interest on the latter, Argentina is facing—as Milei has said—what is arguably the worst debt crisis in its history. And Argentina’s history is largely a history of debt crises.

Rather, the point is that not dollarizing now presupposes that monetary stimulus is at least part of the solution to Argentina’s current fiscal and debt problems. This is obviously not the case in terms of the country’s dollar‐​denominated debt; the Argentine central bank cannot print US dollars to pay its creditors or those of the central government. On the other hand, the growth of the Leliq pyramid scheme suggests quite clearly that the central bank’s ability to print pesos led to the current disaster in the first place. This is why Milei and Caputo should ask themselves what the price of delaying dollarization can be.

The Ecuador Model

The case of Ecuador provides the most relevant parallel. Towards the end of 1998, inflation soared and Ecuadorians continued to flee from the sucre, the national currency, by buying dollars. The exchange rate stood at 6,700 sucres per dollar, compared to 4,400 sucres per dollar at the end of 1997. A few individuals suggested that the government should recognize the monetary reality—that is, that fewer and fewer people were willing to hold any sucres at all— and officially dollarize. Nonetheless, most economists held that dollarization was an overly harsh measure and that the central bank did not have enough dollars to dollarize, save at an extremely high exchange rate. Thus, the political class stalled as the situation rapidly worsened.

In March 1999, with an exchange rate of 10,000 sucres per dollar compared to 7,200 two months prior, there was a run on the banks as savers sought to redeem their deposits. The exchange rate crisis had become a banking crisis. Then‐​president Jamil Mahuad responded by freezing all bank accounts for five days. By the first week of January of 2000, the exchange rate had reached 24,000 sucres per dollar and Mahuad’s government was crumbling.

In an attempt to hold on to power, Mahuad dollarized—defying the wishes of the IMF and the consensus among economists—at a rate of 25,000 sucres per dollar.

Though overlooked, the ensuing history of dollarization in Ecuador has been a resounding success, especially since the country has maintained one of the lowest inflation levels in Latin America (along with dollarized peers Panama and El Salvador).

The relevant lesson for today’s Argentina, however, is that there is a price to pay for delaying dollarization. Had Mahuad dollarized Ecuador some 18 months before January 2000, he would have saved Ecuadorians who held sucres a 78 percent loss of their purchasing power vis‐​à‐​vis the dollar. The price of allowing the market to force dollarization upon you is steep indeed.

Root and Branch Financial Reform

In terms of the much‐​needed, root and branch reform of Argentina’s entire financial system, dollarization would ensure that the crooked partnership between the political class and the big banks—the foundation upon which the Leliq pyramid was built—cannot be reestablished. Once again, Ecuador provides a blueprint.

Beginning in the early 1980’s, the Ecuadorian government constantly bailed out private banks by paying their dollar‐​denominated debts to foreign creditors. Banks were then able to repay the central bank in chronically devalued sucres. Once Ecuador dollarized and there was no lender of last resort, politicians could no longer bail out banks, whose profitability no longer depended on their political connections. Rather, banks had to compete among themselves to satisfy their customers. With a hollow central bank, which does not issue its own currency, politicians’ inclination to spend far above the state’s means stopped infecting the rest of the economy.

The new dynamic proved to be a blessing for banks’ customers, but also for the banks themselves. While the latter were practically bankrupt in early 2000, the mere announcement of dollarization produced a confidence shock in the banking system and a subsequent, successful “bail in.” That is, Ecuadorians saved the banks with a deluge of deposits, their cash previously having been kept outside the formal banking system or held abroad. Ecuador also saw a large increase in foreign direct investment; the country suddenly came to be seen as a favorable destination to invest due to its absence of exchange rate risk.

In Argentina’s case, Caputo’s assurance to Argentina’s largest banks—to their relief— that the dollarization option was off the table is telling. As in Ecuador in the late 1990’s, Argentina’s bankers are among the most vocal opponents of dollarization. But there is little harmony with the interests of ordinary, peso‐​holding Argentines.

While Caputo’s measure to bring the official exchange rate far closer to the “blue dollar” is the correct step to have taken, Ecuador’s experience suggests that, when getting rid of a national currency, it is far better to act sooner rather than later. Indeed, delaying Argentina’s dollarization may not be as prudent an option as many now think.

Krit Chanwong

Disproportionate share hospitals (DSH) serve a disproportionate share of Medicaid and uninsured patients. The federal government requires states to provide DSHs with payments on top of what these hospitals get for treating low‐​income patients. The rationale for these DSH payments is that they keep hospitals with a high proportion of nonpaying/​inadequately paying patients from closing. In fiscal year (FY) 2021, federal and state supplemental payments to DSH facilities totaled $16.9 billion, or 2.3 percent, of all Medicaid expenses. The federal government covered 64% of these expenses.

The federal government’s design of the DSH program is outdated and leaves ample room for fraud. To alleviate this, the federal government should recalculate state‐​level DSH allocations, limit states’ usage of abusive hospital/​provider taxes, and crack down on existing hospital/​provider tax loopholes.

The 1980s Tax Loophole and Current‐​Day Policy Implications

Current‐​day DSH funding allocations are based on the degree to which states exploited a federal financing loophole in the late 1980s‐​early 1990s. As such, they are incompatible with modern healthcare realities.

From 1965–1981, states paid Medicaid providers the same prices they paid Medicare. However, in 1981, Congress eliminated this requirement in an attempt to reduce Medicaid expenses. States were now given the flexibility to experiment with cost‐​containing policies, like enrollment in managed care plans (we now know that these cost‐​containing experiments were failures). However, some legislators thought that lowering Medicaid payment rates might negatively affect the financial health of DSHs. To remedy this, Congress also asked states to consider additional payments to such hospitals.

In the early 1980s, states disregarded this suggestion and did not make any DSH payments. To remedy this situation, Congress tried to boost DSH payments in 1986 by removing federal reimbursement caps. States could spend unlimited amounts on DSH payments and still get federal reimbursements. This change did not increase DSH payments. So, in 1987 Congress simply required all states to provide DSH payments. To maintain financing flexibility, the federal agency that administers Medicaid (whose name is now the Center for Medicare and Medicaid Services, or CMS) issued a 1987 guidance that allowed states to raise taxes on hospitals and counties to fund Medicaid.

States soon found a way, illustrated in Fig. 1, to use hospital/​county taxes to obtain more federal funds. And since there was no limit to DSH payments, states used the DSH program as a loophole to scam the federal government of millions of dollars. This resulted in a rise in hospital/​county taxes being used to fund a state’s Medicaid share, as seen in Fig. 2. This also increased federal DSH spending from $1.4 billion in 1990 to $17.5 billion in 1992—a 1,150 percent increase.

In 1993, Congress decided to buck this explosive trend by specifying that DSH payments to hospitals cannot exceed the expenses of uncompensated Medicaid and uninsured care. The federal government also imposed tighter restrictions on the usage of hospital/​provider taxes. These reforms led to federal DSH spending decreasing 5 percent from $17.5 billion in 1992 to $16.6 billion in 1993. However, the federal government did not change state‐​level DSH allotments, which were maintained at 1992 levels. This policy continues to this day. As Fig. 3 shows, there is a reasonably strong correlation (ρ = 0.63) between the amount of hospital/​county taxes used to fund a state’s Medicaid share in 1993 and 2021 DSH allotment per Medicaid beneficiary.

This obsolete allocation mechanism means that state‐​level DSH allocations do not reflect states’ costs of uncompensated care for low‐​income patients. This is why the Medicaid and CHIP Access and Payment Commission (MACPAC) has repeatedly concluded that current DSH funding levels “bear little relationship to objective measures of need.” Healthcare economist Brian Blase, in a 2019 briefing paper, also found: 

The correlations between the percentage of uncompensated care provided by state hospitals [the main provider of uncompensated care] and federal DSH funding per uninsured (ρ = ‑0.31) and federal DSH funding per low‐​income individual (ρ =-0.16) are both negative. This means that less federal DSH funding is going to states with higher rates of uncompensated care, further evidence that the allocations across states are illogical.

Hospital‐​level DSH allocations also bear little relationship to a hospital’s financial health. For example, in FY2017, St Vincent Hospital & Health Care in Indiana had a net revenue of $268 million. It also received $26 million in DSH payments, amounting to 2% of its total revenue for that year. Another example is OhioHealth Corporation Grant Riverside, which in FY2018 had a net revenue of $527 million. Yet, in FY2018 this hospital system also received $43 million in DSH payments, or 1 percent of its total revenue for that fiscal year. Neither payment was necessary for the continued financial viability of both hospital systems. As such, these subsidies reduce the funds available to support DSHs who are struggling financially.

Possible Reforms

Congress needs to reform the DSH program to minimize waste and fraud. They have three policy options to achieve this aim:

Congress should start by recalculating state‐​level allocations. Specifically, Congress should solely link DSH funding levels with the amount of uncompensated Medicaid and uninsured care. This reform would ensure that more DSH funds are going to states that need them.
Current federal legislation specifies that states must use their general funds to finance at least 40 percent of their nonfederal Medicaid share. This means that states could use hospital/​provider taxes to finance (at most) 60 percent of their nonfederal Medicaid share. Congress should increase this general revenue threshold to 100 percent. This would ensure that states pay for the care they receive and do not abuse federal matching rules.
Current federal laws allow states to ensure hospitals receive full or partial reimbursement of taxes if the tax amount is below 6 percent of net patient revenue. A 2021 MACPAC analysis found that 32 states levied hospital/​provider taxes that were between 5.5–6 percent of total net patient revenue. This shows that states are still taking advantage of the 6 percent loophole to convince hospitals to pay taxes and thus obtain more federal funds. Congress should eliminate this loophole.

These proposed policy changes would ensure that the DSH program becomes more effective at helping financially struggling hospitals. Moreover, these (modest) proposals would also produce substantial cost savings: the Committee for a Responsible Federal Budget estimates that the latter two policy changes could produce $1.4 trillion in savings over ten years. In times of exploding federal deficits and deteriorating fiscal health, such policies may be financially prudent.

Ultimately, Medicaid needs to be turned into a block‐​grant program. According to my colleague Michael F. Cannon, block‐​granting Medicaid would “eliminate the perverse incentives that induce dependence, favor Medicaid and CHIP spending over other priorities, lead states to tolerate widespread fraud, and encourage states themselves to defraud federal taxpayers.”

David Inserra

On December 6, the New Civil Liberties Alliance announced it was suing the Department of State for censoring two right‐​of‐​center media outlets, the Daily Wire and The Federalist. The suit alleges that the State Department’s Global Engagement Center (GEC) funded, supported the development of, and encouraged the adoption of blacklist tools that sought to discredit and strip advertising revenue from US media organizations—including the Daily Wire, The Federalist, the New York Post, Reason Magazine, Real Clear Politics, and more—that were deemed to be high‐​risk spreaders of disfavored viewpoints and misinformation.

With another censorship by proxy case, Murthy v. Missouri, now before the Supreme Court, there is a growing amount of evidence pointing to secretive government abuse of the First Amendment rights of Americans.

The Washington Examiner first broke the story of GEC funding the suppression of American media in February 2023, but the plaintiffs’ lawsuit indicates even deeper involvement by the State Department. The lawsuit claims that GEC hid a $3‑million grant to a for‐​profit organization known as Disinfo Cloud and Park Advisors that directly managed several of GEC’s initiatives. The State Department Inspector General discovered this grant, noted that GEC “funded and supported” Disinfo Cloud, and failed “to ensure contractors did not perform inherently governmental functions.”

Indeed, in GEC presentations, Disinfo Cloud is listed as a GEC initiative. Disinfo Cloud served as a repository for “over 365 tools and technologies” that would counter disinformation. Disinfo Cloud also managed other GEC initiatives, such as a technological testbed used to refine and improve tools that suppress disinformation. The GEC directly encouraged social media and other corporations to make use of the various tools, two of which are even more deeply entangled with the State Department, the Global Disinformation Index and NewsGuard.

Both of these organizations try to “defund disinformation” and “sources of harmful misinformation” by creating “risk” or “exclusion” blacklists, or by labeling certain organizations as “unreliable.” They provide these lists to major advertising associations and companies that want to pay for their services, including notable large organizations like Oracle and Microsoft’s Xandr. 

Now if these organizations were merely providing a private sector service with no funding or promotion by government, that would be fine. NewsGuard is an American business and the Global Disinformation Index is a British organization; they have the right to create whatever lists they want, describe others as risky or unreliable, and sell their opinions and products to whomever will buy them. 

The problem is that the government has absolutely no business promoting the suppression of American speech or American media.

GEC is alleged to have directly funded the Global Disinformation Index and NewsGuard—as well as several other anti‐​disinformation organizations—supported their development through their testbed, and strongly encouraged the private sector to use these services through regular public endorsements and industry liaisons.

Having the government fund, test, and promote services to suppress any American’s protected speech or press rights is wrong. Focusing such suppression on right‐​of‐​center, libertarian, or any organization skeptical of prevailing narratives further reeks of viewpoint discrimination. If this behavior is allowed to stand, then a Republican administration would effectively have a green light to run programs with and funnel funds to organizations working to drive advertisers from the New York Times, the Young Turks, or CNN as “fake news.” This lawsuit need not be a right vs. left issue but an American rejection of government attacks on free expression.

And just to add to GEC’s problems, it isn’t even authorized to engage in domestic speech. The State Department has a role in countering foreign propaganda, such as through Voice of America or Radio Free Europe, Radio Free Asia, and Radio Liberty that seeks to reach those living under repressive regimes. But it is way beyond its remit to focus on American media organizations. Indeed, the lawsuit notes that Congress specifically forbids the GEC from using any of its funding “for purposes other than countering foreign propaganda.”

The case against GEC seems strong. It showed a pattern of inducing and promoting the suppression of American news organizations, in violation of the explicit limits placed on it by Congress, not to mention the First Amendment. 

The major flaw in the lawsuit is that Texas joined as a co‐​plaintiff by alleging that it was harmed because its law, HB 20, is supposed to stop removals and suppression of online content. HB 20 is currently before the Supreme Court in what is known as the NetChoice cases. As such, these cases have been and will continue to be hotly discussed. But in short, the problem with HB 20 is that it compels private companies to host speech that they may not wish to host. It is similar to forcing a baker or a website designer to create art or messages they disagree with or forcing a private club to allow certain types of speech or members that don’t abide by the club’s rules.

By mixing State Department‐​funded suppression of speech with Texas’s policy forcing private companies to host speech, the lawsuit’s otherwise clear defense of the First Amendment is muddied.

Putting aside this problematic co‐​plaintiff, the case by the Daily Wire and The Federalist raises serious concerns about how government is funding efforts to suppress American media and speech. But this isn’t the only ongoing case in which the government has been accused of funding and supporting censorship of disfavored ideas.

Consortium News, a generally left‐​of‐​center news organization that is critical of US foreign policy, has sued other elements of the government for supporting and funding NewsGuard’s ratings. In Murthy v. Missouri, several organizations that worked to research and police online speech are mentioned as grantees of the National Science Foundation or the Department of Homeland Security. As more examples of clear or potential government funding of censorship emerge, policymakers must grapple with the possibility that other government grants and contracts are significantly supporting the suppression of American speech. More research and investigations are necessary to uncover and root out such abuses of government power.

And while it may be difficult for courts and policymakers to write a standard that governs exactly what kind of requests the government can and cannot make of private sector actors as seen in the Missouri case (and thus why transparency and sunlight is the best first step), Congress can exercise its power of the purse to dictate funding restrictions. Additional transparency requirements around grants and contracts could be helpful, but Congress may wish to double down on the First Amendment by prohibiting any government agency from using any funding, either directly or through its grants and contracts to third parties, to remove, suppress, or otherwise limit First Amendment protected speech or journalism. And given that the GEC has been hiding some of its grants and was already prohibited from engaging with American media, there likely needs to be more meaningful punishments for government employees that violate new or existing transparency and funding requirements. 

Americans, regardless of political party, should be concerned by the GEC’s efforts to suppress free expression and a free press. The government has vast sums of money and bully pulpits with which to persuasively make the case for its perspective without silencing disfavored viewpoints. This lawsuit is important as it will likely increase clarity around this abuse of government power and may help provide some needed sunshine on this concerning trend.

Ian Vásquez

On Sunday Javier Milei assumed the presidency of Argentina promising a radical change to the economic and social model that has ruined his country. His challenge is enormous, but the new president has made a politically astute start.

Unlike what Argentines have become accustomed to from their political leaders, in his inauguration speech Milei treated them as adults. He presented a clear vision. The collectivism into which Argentina long ago headed, he declared, has failed. “For more than 100 years, politicians have insisted on defending a model that only generates poverty, stagnation and misery,” he explained.

He said that it is necessary to return to what made Argentina one of the richest countries in the world more than a century ago: classical liberalism. He again repeated what he meant by using liberal thinker Alberto Benegas Lynch, Jr.’s definition: “Liberalism is the unrestricted respect for the life project of others based on the principle of non‐​aggression and the defense of the right to life, liberty, and private property.” And he made clear that that is “the essence of the new social contract chosen by the Argentines.”

“This new social contract,” added Milei, “proposes a different country, a country in which the state does not direct our lives, but rather safeguards our rights.” In practice, he proposed nothing less than undoing the corporatist legacy of Peronism that has led the country from crisis to crisis and replacing it with institutions and policies that limit political power.

Milei was brutally honest about the difficulties facing the country. “I prefer to tell you an uncomfortable truth rather than a comfortable lie.” He described the legacy left by the outgoing government and that, as a result, economic activity, poverty, wages, and unemployment will get markedly worse before they get better. The fiscal deficit is around 15 percent of GDP; the monetary emission of the previous government will continue to create inflation for 18 to 24 months with the potential to reach up to 15,000 percent annually if things stay on the same path; the public debt has reached $100 billion; there is a lack of access to foreign markets; poverty afflicts 45 percent of the population and indigence 10 percent. The new president also described the calamitous conditions in which public security, education, and infrastructure find themselves.

For these and other reasons, it was not an exaggeration for the Argentine daily La Nación to declare that the outgoing president has been the worst in Argentine history. That is also why Milei explained there is no alternative to a strong adjustment: quite simply, “there is no money.” The priority will be fiscal adjustment and Argentines do not have the luxury to implement gradual reform.

Citing Argentine history, Milei showed that gradualism does not work. He could have cited the European post‐​communist experience as well, as countries that reformed quickly and in a coherent manner grew at higher rates and achieved lower inflation, greater levels of foreign investment, and the development of stronger institutions.

Also unlike past experience, the coming adjustment, Milei clarified, will fall almost entirely on the state and not on the private sector. Cleaning up public accounts in such a way is consistent with the most successful international practices and with Milei’s liberal vision. As the former professor rightly insisted, “the only way out of poverty is with more freedom.”

In the days and weeks to come, we will have more details about how the new government proposes to get out of the hole in which the country finds itself. Just yesterday evening, the new finance minister announced a series of measures that intend to close the fiscal deficit by 5 percent in the coming year. They include cuts to energy and transportation subsidies, an end to new infrastructure spending, a devaluation of the official exchange rate of about 50 percent, and a reduction in federal transfers to the provinces among other measures that, by and large, point the country in the right direction. The economic pain will be deep.

There is no doubt that Milei will face political resistance from the Peronists and their allies, and that the challenge will be even greater given the new leader’s lack of a majority in Congress. But Milei has a popular mandate to bring about a paradigm shift and, as the crisis worsens, he is counting on the people to continue to understand who should be held responsible for Argentina’s mess.

Note: This article is based on a version that was originally published in El Comercio (Peru) on December 11, 2023.

James Bacchus

The Select Committee of the House of Representatives on the Strategic Competition between the United States and the Chinese Communist Party has just issued its report, which is entitled “Reset, Prevent, Build: A Strategy to Win America’s Economic Competition with the Chinese Communist Party.”

This report includes some excellent recommendations, such as investing in US innovation, creating tax incentives to encourage private US investment, creating transparency in US supply chains, and more. Unfortunately, its recommendations on trade are based in part on the false premise that China’s economic system “is incompatible with the WTO.”

There is, to be sure, much to criticize in China’s economic system. It is founded on an authoritarian (and increasingly totalitarian) mix of communism and state capitalism that is in most respects the very opposite of what a free market should be in a free country. And numerous Chinese practices that affect trade are, to say the least, suspect under the rules of the World Trade Organization.

The committee is correct in reporting that China has often violated WTO rules and that it “uses an intricate web of industrial policies, including subsidies, forced technology transfer, and market access restrictions, to distort market behavior, achieve dominance in global markets, and increase US dependency on PRC imports.”

It is equally correct in contending that “the PRC has failed to live up to its World Trade Organization (WTO) commitments by empowering its state‐​owned enterprises, massively subsidizing its domestic industry, and closing its markets” while “at the same time, the CCP has pursued extensive industrial policies that provide low-cost—often free—capital and regulatory support to PRC companies, which puts US companies at a severe disadvantage globally.”

The committee is, though, a bit too clever in saying that, in response to the many cases brought and won in the WTO by the United States against China in the past twenty years, “even if the PRC changed the specific practices at issue, it did not change the underlying problem.” The record is clear that when China has lost a case before the WTO, in almost every instance it has complied with the WTO ruling in a reasonable period.

For many of the reasons set out in the report, most WTO scholars and practitioners—including this one—would agree with the committee that “the PRC’s state‐​led economic system is antithetical to the founding principles of the WTO.” But this is not the same as saying that the Chinese economic system is “incompatible” with the WTO, which implies that it is inconsistent with the WTO treaty and thus constitutes a violation of international trade law. 

Nothing in the WTO treaty requires that the 164 member countries of the WTO‐​based multilateral trading system structure their domestic markets around free private enterprise—as desirable as that would be. The WTO treaty establishes a framework for freeing trade and opening markets, but it in no way mandates it. For the most part, the WTO treaty simply obliges WTO members not to discriminate between and among traded products irrespective of how their domestic economies may be structured.

For example, state restrictions on trade to safeguard the balance of payments of a WTO member are permitted under Article XII of the General Agreement on Tariffs and Trade, which is one of the multilateral trade agreements that comprise the WTO treaty. In addition, state trading enterprises are allowed under Article XVII of the GATT and many governmental subsidies are permissible under the WTO Agreement on Subsidies and Countervailing Measures.

Although China is the most extreme example, China is far from alone among WTO members in having an economy that is in numerous respects directed by the state. Brazil, India, and South Africa, though democracies, are far from being paragons of free market principles. The same is true of quite a few other WTO members. Indeed, in their protectionist industrial policies, both former President Donald Trump and current President Joe Biden have moved in the direction of China by having the state, directly and indirectly, dictate decisions that would better be left to the free market.

Some of the recommendations on trade in the report could constitute violations by the United States of its own WTO treaty obligations. For one, “moving the PRC to a new tariff column” separate and apart from all other US trading partners could set the stage for any number of violations of the “most favored nation” rule of non‐​discrimination among traded products that is one of the most basic rules of the WTO‐​based multilateral trading system.

But one place where the report is right is in recommending that the United States and like‐​minded countries should make better use of the WTO dispute settlement system instead of continuing the current Biden policy of largely abandoning it. The report urges Congress to:

Direct USTR to bring a comprehensive WTO dispute against the PRC’s subsidization, support for state‐​owned enterprises, and non‐​market economy policies and practices with a broad coalition of countries documenting how the PRC has undermined a world trading system ‘based upon open, market‐​oriented policies’ and impaired the benefits that many Members expected to receive from expanded trade relations with the PRC.

Along with my Cato colleagues, I have long recommended that the United States and other WTO members harmed by China’s errant trade policies bring such a broad‐​based case against China in the WTO. Congress should take this advice. So, too, should the Biden administration. But this case should be based on specific Chinese violations of its WTO obligations, and not on the mistaken belief that the Chinese economic system as a whole is “incompatible” with the WTO. That would not be a winning legal argument in WTO dispute settlement.