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James A. Dorn

China’s strong economic growth following its shift from state‐​led development (central planning) to marketization in 1978, and its drive to join the World Trade Organization (WTO), are testaments to the idea that widening the range of choices open to people—via internal and external trade—is a winning strategy. This blog post draws on my essay, “China’s Post‐​1978 Economic Development and Entry into the Global Trading System,” which is part of Cato’s Defending Globalization series.

From Plan to Market

Under Mao Zedong, private property was outlawed, private entrepreneurs and landlords were treated as criminals, and Soviet‐​style central planning dominated economic life. Industrial policy and central planning under Mao proved to be a massive failure; they did not bring about sustainable economic growth or widespread prosperity.

Deng Xiaoping recognized the failure of state‐​led development. He took a pragmatic approach to reform. If open markets could help improve life for the Chinese people, then it made sense to try that option—even in a socialist state. His mindset was that, “It doesn’t matter if a cat is black or white, as long as it catches mice.” The Chinese Communist Party’s (CCP’s) primary focus became economic development rather than class struggle.

The impetus for marketization came from those who were harmed the most under Mao’s disastrous policies—namely, people in rural households who had been forced into communes and suffered from the Great Famine. Some farmers began to contract with local authorities to gain rights to lease land from the collective and sell produce in private markets once official quotas were met. As the informal contracting system gained popularity, it was eventually sanctioned by officials. In 1982, Deng recognized the new institutional arrangement and labeled it, “the household production responsibility system.” See Kate Xiao Zhou, How the Farmers Changed China: Power of the People (1996: 3–4).

The essence of the household responsibility system, as Zhou points out in her book, is that it arose spontaneously as farmers sought to gain autonomy in their everyday lives and improve their standard of living. When farmers became richer, they began to create township and village enterprises (TVEs). While some of the TVEs were associated with collectives, the most dynamic ones were de facto privately owned. In 1978, at the beginning of the reform movement, there were no legally registered private TVEs, but by 1985 there were 10 million (Huang 2012: 154).

As individuals “jumped into the sea of private enterprise,” the nonstate sector grew, and market pricing spread. At the beginning of 1978, prior to the development of a market economy, most prices were still either guided or fixed by the state. However, by 1999, 95 percent of retail commodity prices, 83 percent of agricultural commodity prices, and 86 percent of producer goods prices were set by the market, not the plan (Lardy 2002: 24–25).

In October 1987, the CCP officially recognized the role of private enterprises in spurring development—referring to them as a “supplement” to the “socialist economy.” The following year, that recognition was reflected by amending the Constitution of the People’s Republic of China (see Zhang 2015: 17).

Top‐​down privatization was not the path to marketization in China. Rather, as Barry Naughton points out in Growing Out of the Plan: Chinese Economic Reform, 1978–1993 (1995: 8–9), China grew out of the plan by allowing development of the nonstate sector. In 1984, top officials agreed to keep planned output targets fixed along with resources allocated to the planned sector of the economy. As productivity in the market‐​oriented sector grew, the contribution of the plan to national output declined.

It is striking that in 1978, state‐​owned enterprises (SOEs) accounted for nearly 80 percent of gross industrial output, but by 2016, their share had declined to 20 percent (Lardy 2018: 333).

After mass protests erupted in Tiananmen Square during the spring of 1989, the reform movement stalled. Economic growth slowed until 1992, when Deng took his famous Southern Tour of the special economic zones (SEZs), which he helped establish in the early 1980s. Deng’s main message on his tour was that, “It doesn’t matter if policies are labeled socialist or capitalist, so long as they foster development” (see Naughton 2007: 99).

Opening to the Outside World

Prior to joining the WTO in 2001, China unilaterally liberalized its foreign‐​trade sector (see Drysdale and Hardwick 2018). Domestic prices became more market‐​oriented as firms were subject to foreign competition and the international price system. Resources were more efficiently allocated, and more open markets meant the Chinese people could benefit from both greater consumption opportunities and the exchange of ideas.

Nonstate enterprises were the driving force in foreign trade. As trading rights were expanded, the number of domestic firms engaged in foreign trade increased from 12 in 1978 to more than 5,000 a decade later. By 2001, the number of domestic firms engaged in foreign trade reached 35,000 (Lardy 2002: 41). After accession to the WTO, the general tariff level fell to 9.8 percent in 2007, compared to 16.4 percent in 2000 (Wang, Fan, and Zhu 2007: 35). Marketization reached new levels and the foreign trade share of GDP accelerated. Today, China is the world’s largest trading nation.

Although much progress has been made in integrating China into the global economy, much remains to be done (see Packard 2023). The lack of an independent judiciary; overreliance on SOEs, which are about 20 percent less productive than private‐​sector firms (IMF Staff Report 2021: 12); financial repression; and abusive practices, such as cyberhacking into commercial networks and repression of free speech, threaten future progress.

Conclusion

China became an economic powerhouse by opening its markets, recognizing the nonstate sector, and allowing individuals to lift themselves out of poverty. Attempts at industrial policy, under the State‐​Owned Assets Supervision and Administration Commission, failed (Lardy 2018: 335–36). The lesson for China is to continue on the path of marketization and liberalization, not to revert to destructive state control and repression.

China can learn from its own history as well as from the West that economic and social harmony cannot be imposed from above. The challenge is to allow a free market for ideas, as well as for trade in goods and services, by institutional reform that protects both economic and personal freedom.

Anastasia P. Boden

It’s the most wonderful time of the year! Last week, on the first Monday in October, the Supreme Court reconvened for a brand new term. It’s slated to be another big one—with cases involving guns, regulation of social media platforms, and several doctrines that have enabled our behemoth administrative state. Here’s a quick recap of the Court’s first week back and the first three oral arguments of the year.

The Court first heard oral arguments in Pulsifer v. United States, which involved a question only the government could love: whether “and” means “or.” In 2018, Congress passed the First Step Act to reduce judges’ reliance on mandatory minimum sentences, which are known to result in arbitrary and unfair punishment. The Act allows judges to depart from minimums when the defendant does not have (A) more than four criminal history points, (B) a certain kind of prior offense, “and” (C) a second kind of offense.

Pulsifer pleaded guilty to distributing at least 50 grams of meth and is therefore subject to a mandatory minimum of fifteen years in prison unless he qualifies for a departure from the minimum. He had more than four criminal history points, had a prior offense under (B), but had not been convicted of an offense under (C). His attorneys argued that he qualified for departure because he did not have (A), (B), and (C). The government, however, argued that “and” means “or,” and a defendant does not qualify for departure from the minimums if he or she has (A), or (B), or (C).

It’s true, of course, that words must be read in context and there really are times when “and” is meant to indicate “or.” As Justice Kagan noted during the argument, if your doctor tells you that, to get a blood test, you should not “eat food, drink any liquids, and smoke,” you would know that your doctor means you should not eat food, drink liquids, or smoke. In that case, what your doctor is trying to communicate by selecting the word “and” is that you should not eat food, you should not drink any liquids, and you should not smoke.

Here, Justice Kagan observed, there’s some reason to think Congress meant “or” when it said “and.” For example, it would be bizarre for Congress to think it’s more disqualifying to have A, B, & C than to have several B offenses, which are more serious. It would also mean that defendants would prefer to be convicted of a higher point crime under (B) than be convicted of a lower point crime under (C), if doing so allowed them to qualify for departure from the minimums. But as Pulsifer’s attorney argued, the justices aren’t permitted to overturn laws merely because they think them odd.

The government argued that judges must assume Congress is an “intelligent drafter” of laws, and an intelligent Congress would have meant “or.” But, of course, Congress very often writes arbitrary, if not irrational, statutes all the time. And as Justice Gorsuch noted, Pulsifer’s interpretation may be odd, but it’s not absurd. Justice Gorsuch also noted that the government didn’t adopt this reading of the statute until late in litigation, casting doubt on its authenticity.

Justice Kagan and Justice Jackson both appeared to have little sympathy for the government’s invitation to deviate from the ordinary meaning of the text. Justice Kagan said that where there’s two permissible interpretations and “where liberty is on the line,” she’d interpret the statute in a way that favors the accused. Similarly, Justice Jackson noted that this was a criminal statute “with huge implications,” and so where there are two textually grammatically possible readings, that should weigh against the government.

While Justices Kagan and Jackson found the case’s criminal context important, there’s good reason to extend the same principles to other enforcement actions. Administrative proceedings, for example, can have tremendous consequences for people’s livelihoods. The Court is slated to hear at least one case involving deference to administrative agencies’ interpretations of law this term. Hopefully, judicial independence and a presumption of liberty will reappear in that context as well.

The second case to be heard, Consumer Financial Protection Bureau (CFPB) v. Consumer Financial Services Association, is one of several cases the Court has taken up this term that has the potential to roll back the sprawling administrative state. But if oral argument is any guide, this challenge won’t be successful.

In 2010, Congress created the CFPB through the Dodd‐​Frank Act and authorized it to enforce a new prohibition on “any unfair, deceptive, or abusive act or practice.” To make CFPB “independent,” Congress allowed it to choose its own annual funding in perpetuity subject to a $750 million cap, with unspent funds rolled over each year.

Unlike most other agencies, which are subject to an annual appropriations process, the CFPB director simply requests whatever amount he or she believes is “reasonably necessary.” And even then, the director doesn’t ask Congress, but instead requests money from the Federal Reserve (which is itself outside the normal appropriations process).

Congress also made CFPB’s director unremovable by the president except for cause. But the Supreme Court invalidated that limitation a few terms ago on the basis that it violated the president’s power to remove officers. In other words, the Court recognized that the Bureau had gotten a little too independent.

The plaintiffs in this case similarly argue that it’s funding mechanism has made it too independent. They sued to challenge CFPB’s payday lending rule, which bans lenders from making preauthorized attempts to collect loan payments after two consecutive denials based on insufficient funds. They say allowing CFPB to choose its funding subject to only an illusory cap, in perpetuity, violates the Appropriations Clause. That provision requires all appropriations to come from Congress and plays an important role in keeping unelected bureaucrats accountable to elected officials.

Arguing for the CFPB, Solicitor General Elizabeth Prelogar made the case that CFPB’s structure is grounded in constitutional text and practice. When the Founders wanted to limit Congress’s appropriations authority, she said, they did so explicitly—as they did in the case of the Army Appropriations Clause (which limits appropriations to a two‐​year duration). And since the founding, Congress has funded agencies through standing appropriations that give agencies significant discretion over how much money they use. The CFPB’s funding structure, she said, is not materially different.

This broad interpretation of the Appropriations Clause caused Justice Thomas to ask whether there are any limits on how Congress can appropriate funds. The Solicitor General answered that Congress must provide funding for specific purposes from specific sources and it cannot give away its authority entirely, by say, giving a quadrillion dollars to the president to use as he likes.

Prelogar’s heavy reliance on historical practice might have been a consequence of the Court’s recent ruling in New York Pistol Association v. Bruen. In that case, the Court ruled that restrictions on the Second Amendment will only be upheld if an analogous law existed at the time the Amendment was passed. But as Justice Kagan noted, there’s no exact historical analogue to the way Congress has funded CFPB. She therefore asked whether it’s more important that the Court find a historical analogue or that it extrapolates principles from the examples it can find. That’s a question the Court will continue to grapple with as it builds on Bruen.

I’ve argued before that the Court has become too reliant on historical practice. After all, the Constitution enshrines principles, not practices. Practices can inform the meaning of certain words or phrases in the Constitution, but they should not be considered determinative of whether a modern practice is constitutional.

Arguing for the challengers, former Solicitor General Noel Francisco made the case that in funding CFPB, Congress has effectively given away its appropriations power entirely, since the cap is so high that CFPB essentially gets to pick its own budget. Justice Kagan responded that perhaps the fact that CFPB hasn’t met its spending cap suggests that it should be doing more.

The most interesting part of the argument was an exchange between Francisco and Justice Jackson, who asked him where in the Constitution’s text he derived his suggested limits on the appropriations power. Justice Jackson has been said to employ “Progressive Originalism” when interpreting the Constitution, and it will be interesting to see how she develops this methodology as a challenge to the Originalism employed by some of the other justices.

All of the justices seemed to agree there must be some limits to Congress’s ability to delegate away its appropriations power, but most appeared to believe CFPB hadn’t crossed them. So while the case is yet another example of the continuous erosion of the separation of powers and Congress’s propensity to give its power away to unelected, unaccountable agency bureaucrats, it seems unlikely the Court will deem CFPB’s funding mechanism unconstitutional.

The last case the Court heard in its first week back involves the perennial question of “standing,” or what kind of injury a plaintiff must sustain before bringing a lawsuit. Standing disputes take up a surprising amount of lawyers’ time, especially when it comes to constitutional lawsuits, in which government attorneys try to avoid defending laws on the merits and instead get cases dismissed based on procedural technicalities.

In Acheson Hotels v. Laufer, the plaintiff was a woman who surfed hotel websites to see whether they provided disability access information, even though she had no intention of visiting the hotels. “Disability testing” has become something of a cottage industry, with plaintiffs suing hotels for violations of the Americans with Disabilities Act and then settling the lawsuit despite having no interest in visiting the location, and thus no possibility of experiencing disability discrimination. The lower courts ruled that Laufer had standing to sue the hotel, but after the Supreme Court agreed to take up the case, Laufer dismissed her claims against the hotel and argued the Court should deem the case moot. In fact, by the time of oral argument, the case was (in the words of Justice Kagan) “dead, dead, dead.” The hotel had changed hands, its website was fully compliant, and the plaintiff had dismissed her case.

That meant that much of the oral argument centered around whether the Court should still decide the standing question. While several justices suggested the lawsuit was moot, Chief Justice Roberts observed that courts generally must determine whether the plaintiff has standing to bring a claim before determining whether that claim has become moot, and thus there’s nothing odd about taking up the question now.

Justices Thomas and Jackson questioned whether it might be “easier” to just dismiss the case as moot, vacate the court decision below, and wait for a live case to come back to the court at a later time, but Justice Barrett noted that such a path would require more resources in the long run, since it would require entirely new (and duplicative) briefing at a later date. The Chief Justice also noted that a case might never come back to the Court, since a plaintiff could follow the same course of action as Laufer and dismiss his or her claim any time a defendant successfully appealed to the Supreme Court.

After discussing mootness, the Court moved on to whether Laufer had sustained an injury sufficient to bring a lawsuit, asking both attorneys several hypothetical questions related to whether a plaintiff would have standing to sue if they were mere bystanders of racial discrimination.

Justice Jackson, for example, compared Laufer to someone who sees a sign on the door of a restaurant across the street indicating it discriminates, but who never intends to frequent that restaurant. Laufer’s attorney responded that going to the website was not the equivalent of looking at the sign, but instead the equivalent of going to the restaurant and actually being subject to discrimination. In her view, going to the website inflicted a “dignitary harm,” because it deprived Laufer of information “for a reason that conveys that [she has] inferior status in society.” But as Justice Kavanaugh pointed out, all observers of the website are treated the same. The discriminatory treatment doesn’t happen until a person actually gets to the hotel.

It would, at least on the front end, be easier for the Court to kick the can down the road by calling this case moot. The safe bet is that’s exactly what it will do. But at some point the Court will have to clean up standing doctrine, which has become unmoored from the text of the Constitution and is inconsistently applied. At times, courts have applied standing principles too loosely, allowing uninjured plaintiffs to secure huge settlements from innocent businesses. At other times, courts have applied standing too strictly, succumbing to government attorneys’ gamesmanship and kicking civil rights plaintiffs out of courts. Standing doctrine needs a serious clean‐​up, but this likely won’t be the case to do it.

The coming weeks will see increasingly consequential cases. If last week was this much fun with cases involving semantics and standing, we anxiously await the rest of the term.

Jeffrey A. Singer

The New York Times reports today about a flood of illicit e‑cigarettes arriving from China “in Barbiecore colors and fruit, ice cream and slushy flavors,” accounting for a “major share of the estimated $5.5 billion e‑cigarette market in the United States.” This “never‐​ending influx of vapes” comes despite the Food and Drug Administration authorizing only a handful of e‑cigarettes for sale to persons over age 21.

The Times reports that many of these vapes contain 5,000 or more puffs per device and have nicotine levels that sometimes exceed those in tobacco cigarettes. Many are being sold in convenience stores even though the FDA has sent them warning letters threatening store owners with fines as high as $19,000 per violation.

The goal of policymakers and the FDA was to curtail the use of flavored vapes. Many states and some cities have enacted bans on in‐​store and/​or online sales of flavored vapes.

According to the CDC, these prohibitionist efforts have backfired, resulting in a surge in flavored vape sales, from 11 million per month in early 2020 to 18 million per month in June 2023.

The Times reports that seven years since Congress granted the FDA regulatory authority over e‑cigarettes in 2016, 40 percent of e‑cigarette users are 25 or younger. And while the FDA has authorized only a couple of dozen e‑cigarette products, vapers find access to more than 2,000 of them. The Times article states:

There are few places where the problem feels more pressing than in high school bathrooms, where students crowd the stalls between classes to get a nicotine fix.

Nevertheless, teen vaping rates have fallen from their peak of 28 percent in 2019 to roughly 14 percent in 2022.

The failure of e‑cigarette prohibition was predictable—as is the advent of more potent and puff‐​packed forms of nicotine vapes now sold on the black market. Though prohibitionists never seem to learn, the “iron law of prohibition” is inescapable. A variant of what economists call the “Alchian‐​Allen Effect,” put simply, the iron law states, “the harder the law enforcement, the harder the drug.”

Prohibition incentivizes purveyors of prohibited substances to find more potent forms of the banned substance so it can be smuggled in smaller sizes and subdivided into more units to sell. During alcohol prohibition, for instance, bootleggers smuggled whiskey and other hard liquors, not beer or wine.

The iron law of prohibition is why cannabis THC concentration has grown over the years. It is what brought crack cocaine into the cocaine market. And it made fentanyl replace heroin as the primary cause of overdose deaths in the United States.

In the 21st century, law enforcement’s crackdown on diverted prescription opioids (the drug of choice for nonmedical users at the time) led to their replacement with heroin. By 2012, heroin dealers began adding the synthetic opioid fentanyl to heroin so they could smuggle it in smaller sizes and subdivide it into more units to sell. By 2016, fentanyl‐​related deaths eclipsed deaths from heroin and diverted prescription pain pills. By 2017, fentanyl was found in more than 50 percent of opioid‐​related overdose deaths. By 2022, it was involved in roughly 90 percent of deaths.

Policymakers are now discovering that tobacco and e‑cigarette bans are not exempt from the iron law. Whether these prohibitionists reverse course before causing more harm remains to be seen.

Chris Edwards

The federal government’s debt is massive and growing rapidly. How massive? Federal debt held by the public of $28.5 trillion is eight times larger than the combined debt of all state and local governments of $3.3 trillion.

Not only is state and local debt much smaller, but the states have more justification for accumulating debt than the federal government. That is because a larger share of state‐​local spending is for capital investment, which is partly financed by debt. State‐​local debt is matched by large holdings of return‐​producing assets such as highways.

By contrast, federal debt generally funds consumption—such as entitlement programs—not capital investment. And while federal borrowing during crises and recessions is reasonable, the debt should be paid back when the economy is growing.

The chart below compares federal debt as a percent of U.S. gross domestic product to the state‐​local debt of each state as a percent of state GDP. Federal debt of 98 percent in 2023 compares to the simple average of state‐​local debt of 13 percent. (The state ratios are from Census data for 2021, but total state‐​local debt has changed little since then).

Also consider that most state‐​local debt consists of “revenue bonds,” which will be paid back from revenues for facilities such as utilities, colleges, and hospitals. “General obligation” bonds backed by taxes account for a minority of state‐​local debt. Thus, not only is state‐​local debt much smaller than federal debt, but less than half of it will be paid back by taxes.

For these reasons, federal debt is a far larger threat to taxpayers, young people, and the economy than state‐​local debt. Whether for reasons of political culture or lack of constitutional or statutory rules, federal policymakers have been much more fiscally irresponsible than their state‐​local peers.

That said, there is substantial variation between the states. States such as Wyoming, Idaho, and North Carolina show that modern governments can be run using very little debt. Policymakers in Kentucky, Hawaii, and New York should learn fiscal lessons from these low‐​debt states—and so should the federal government.

Note: I have argued that state and local governments should keep debt to an absolute minimum. They should use taxes or other current charges to fund infrastructure, or they should privatize it. Krit Chanwong contributed to this post.

Scott Lincicome

As I mentioned last month, Cato’s Defending Globalization project will publish new content every other week throughout the fall and into 2024. Today we’ve published three new essays:

Globalization: A race to the bottom – or to the top?, by Johan Norberg, debunks the myth that expanded trade and investment have caused a “race to the bottom” in which countries progressively lower their labor and environmental standards to attract global capital.
China’s Post‐​1978 Economic Development and Entry into the Global Trading System, by Jim Dorn, traces how China’s market‐​oriented reforms fueled the nation’s breathtaking economic growth since the 1980s.
China’s Economic Headwinds, by Clark Packard, explains how China began moving away from markets in the 2000s and today faces serious economic challenges (many of its own making).

These essays join the eleven others that we’ve already published on the main Defending Globalization project page. Be sure to check it all out, and stay tuned for more to come. 

Andrew C. Forrester

Around the time that Cato published my estimates that the Middle Eastern or North African (MENA) population is around 3.8 million in 2021, the US Census Bureau found similar results from the 2020 enumeration that counted 3.5 million MENA people. Census’ numbers come from detailed responses to the 2020 Census race question, which allowed respondents to write‐​in additional detail about their background (such as “Lebanese” or “Egyptian”) along with their race.

With the detailed race data from the 2020 Census enumeration available, we therefore have a direct source of data on the MENA population to evaluate the quality of Cato’s estimates of the MENA population, which were based on survey data from the American Community Survey (ACS). The recent Cato estimates hold up extremely well next to the Census estimates, but I want to explain some of the differences.

Using data from the Demographic and Housing Characteristics‑A (DHC‑A) data file, I compare the 2020 enumeration results with my data tabulated using the 2021 American Community Survey (ACS) from IPUMS. The DHC‑A file provides population data broken down by detailed age, sex, and race. The detailed breakdowns include MENA both “alone” and “alone or in any combination.” Since these two data points cover slightly different populations, there are a few caveats to note before I compare the Cato survey estimates with the enumeration.

The key distinction between the two measures is that they serve as upper and lower bounds for the MENA population. “MENA alone” measures the fewest number of people who identified as MENA in the enumeration and covers those who responded “White only” and wrote in a MENA background. Since respondents could select more than one race, a more comprehensive count is “MENA alone or in combination,” which adds individuals who reported a MENA background in addition to another race.

For my analyses, I used both birthplace and country of birth to identify the MENA population in the ACS. This means that my measure of the MENA population covers anyone in the ACS who reported a MENA background. Accordingly, this concept aligns more closely with the “MENA alone or in any combination” definition. I therefore opt to compare my survey‐​based estimates with “MENA alone or in any combination” to match each definition as closely as possible. To compare the 2020 enumeration with the ACS estimates, I overlay the age and sex distributions from each dataset in the two following plots.

Figure 1 overlays the age distribution between my ACS‐​based data and the 2020 enumeration results, capturing the share each age group makes up of the total MENA population. While the age distributions are visually similar, the survey‐​based estimates from the 2021 ACS showed a slightly older MENA population when identified as MENA alone or in any combination.

Figure 2 breaks down the age distribution down further by sex. Notably, the ACS‐​based estimates show that both men and women in the MENA population tend to be older than those counted in the 2020 enumeration. This is especially true for young men in their 30’s, who represent a larger share of the MENA population compared to the 2020 enumeration.

One remaining question is whether the two age distributions are statistically different. Running a rudimentary Kolmogorov‐​Smirnov test, I find that there is no statistically significant difference between the MENA age distribution from the ACS compared to the 2020 enumeration (p = 0.78). Despite the 2020 showing a slightly younger MENA population, the difference isn’t significant when spread across age and sex.

Despite the slight differences in the age distribution, it’s comforting to see that the Cato survey‐​based estimates are very close to the 2020 enumeration results. Since retiring the “long‐​form” census, the ACS is the most comprehensive source of demographic and social information available. It’s therefore reassuring that the methods are at least sound regardless of whether the government should create such a new racial category. The high quality of Cato’s survey‐​based estimates also likely confirms my general finding that MENA Americans are highly educated and have high incomes.

For those interested in more information and data, be sure to check out the recent Cato briefing paper, other Cato analyses of MENA and the proposed changes to race and ethnicity data collection, and the US Census Bureau’s analysis. All codes for this analysis are available on GitHub.

Travis Fisher

The Inflation Reduction Act (IRA) offers a master class in implementing expensive, counterproductive, and highly partisan energy policy. In previous posts, I discussed 1) how the electricity generation subsidies in the IRA could cost taxpayers $2.5 or $3 trillion and 2) why policymakers should remove those subsidies before expanding the high‐​voltage transmission system. As we count the reasons why repealing the energy subsidies in the IRA is a good idea, let’s also consider their interaction with the Environmental Protection Agency’s (EPA’s) proposed power plant rule.

It is technically true that, as Senator Joe Manchin has said, “[n]either the Bipartisan Infrastructure Law nor the IRA gave new authority to regulate power plant emission standards.” However, the IRA did provide the foundation upon which the EPA has built its power plant regulation by subsidizing the technologies that enable the new standards. Consequently, lawmakers who oppose the EPA’s overreach should consider repealing the energy subsidies in the IRA.

What is the EPA’s New Power Plant Rule?

Proposed in May of this year, the EPA’s new power plant rule looks a lot like the Clean Power Plan (CPP), which was struck down by the Supreme Court last year in the landmark case West Virginia v. EPA. Some have referred to the new rule as CPP 2.0, which is a much shorter name than the 39‐​word title the EPA gave it (“New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel‐​Fired Electric Generating Units: Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel‐​Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule”).

Many analysts believe, as I do, that CPP 2.0 ultimately will be struck down or rescinded for at least three reasons: 1) it will cause electricity prices to skyrocket, 2) it will exacerbate a looming grid reliability crisis (according to grid operators), and 3) it is a regulatory overreach just like CPP 1.0. (For a more thorough examination of the flaws in the CPP 2.0 proposal, see this set of joint comments submitted in the EPA docket.)

Although a final rule has not yet been published, I have no faith that the EPA will heed any of the recommendations offered by commenters on the proposal. After all, the EPA was rebuked just last year by the Supreme Court, yet its next action under the same statute—section 111 of the Clean Air Act (CAA)—once again violates the Major Questions Doctrine, the same doctrine invoked to invalidate the EPA’s CPP 1.0.

In other words, if the EPA won’t listen to the Supreme Court, what are the odds it will listen to commenters?

How EPA Established the Proposed Standards in CPP 2.0

Close followers of the CAA are familiar with the alphabet soup involved in federal air regulations. For the uninitiated, the acronyms and initials may be daunting, but the fundamental concepts are easy to understand. The energy team at the law firm Van Ness Feldman aptly explained the process of regulating pollution under section 111 of the CAA as follows:

CAA section 111 directs EPA to establish standards for controlling air pollutants for categories of major stationary sources, which include electric generating units (EGUs). Section 111 outlines a two‐​step process for establishing a standard of performance for emissions from EGUs. Under the first step, EPA determines the “best system of emission reduction” (BSER) for the relevant pollutant that is “adequately demonstrated,” taking into consideration cost, any non‐​air quality health and environmental impacts, and energy requirements. EPA then sets a standard that quantifies the “degree of emission limitation achievable through the application” of the BSER. Sources subject to the standard of performance can use any system of reduction to meet the limit; they are not required to use the system EPA determined is the BSER.

In the case of CPP 2.0, the EPA selected two technologies as the BSER used to establish greenhouse gas (GHG) reductions in the electric power sector—carbon capture and sequestration/​storage (CCS) and low‐​GHG hydrogen. With CCS and low‐​GHG hydrogen as the BSER, power plants across the country will have to 1) apply one or both of those technologies or 2) meet the same level of emissions reductions enabled by these technologies in some other way, most likely by simply shutting down power plants.

The CPP 2.0 proposal would impact all power plants that use fossil fuels to generate electricity, chiefly the coal‐​fired and natural gas‐​fired plants that together provided about 60 percent of the energy on the power grid last year (20 percent from coal and 40 percent from natural gas).

Why the Definition of ‘Adequately Demonstrated’ Matters

The fact that the EPA must choose the BSER using technologies that are “adequately demonstrated” is important because it’s one of the main ways the EPA is held to some measure of realism in crafting its rules. To be clear, CCS and low‐​GHG hydrogen are nowhere near “adequately demonstrated” according to the plain meaning of those words. Neither technology is available presently on a commercial scale, and both suffer from severe limitations.

For example, CCS requires a vast network of new pipelines to transport carbon dioxide (CO2) from places where fossil fuels are combusted to places where CO2 can be injected and stored in suitable geologic formations. Given the forceful protests that nearly all linear infrastructure projects face, it is unclear whether that network can be built at all under current law, let alone on the EPA’s timeline. Energy realist Robert Bryce offered the following observation:

[T]he amount of gas involved is staggering. A bit of simple math shows that sequestering 600 million tons of CO2 per year (the number the EPA published in its May 11 press release) would require creating an industry capable of handling a mass of CO2 that’s equal to about 12 million barrels of oil per day. In other words, the EPA’s proposed CCS plan if enacted, would require creating the U.S. oil industry in reverse. (U.S. oil production is now about 12.5 million barrels per day.)

However, under precedent established by the Court of Appeals in the DC Circuit, the EPA can choose as the BSER the technologies it reasonably expects to become available in the relevant timeframe. An “adequately demonstrated” technology is, according to the DC Circuit in Essex Chemical Corp. v. Ruckelshaus (a case cited in the proposed rule at page 33272):

[O]ne which has been shown to be reasonably reliable, reasonably efficient, and which can reasonably be expected to serve the interests of pollution control without becoming exorbitantly costly in an economic or environmental way.

CCS fails the test outlined above because it has not been shown to be reliable, efficient, or cost‐​effective. Ditto for low‐​GHG hydrogen, which is not only exorbitantly costly but may not be viable without CCS. That’s because 95 percent of the hydrogen produced in the United States today comes from natural gas via steam methane reforming. CO2 is a byproduct of that process, so the vast majority of hydrogen produced would only be “low‐​GHG,” if the carbon dioxide byproduct is captured and stored.

Only 1 percent of domestic hydrogen is produced via electrolysis, which does not directly emit GHGs but could rely on electricity from GHG‐​emitting sources. (The remaining 4 percent of domestic hydrogen is produced by partial oxidation of natural gas via coal gasification.)

As of 2021, there were over 2,000 natural gas‐​fired power plants in the United States. So even if we assume every coal plant will simply close, reconfiguring all the natural gas plants in the U.S. is no small task. Those 2,000 natural gas‐​fired power plants provided about 40 percent of the electricity generated in 2022, making natural gas by far the largest energy source on the grid. Whether power plant operators choose CCS or low‐​GHG hydrogen to comply with the CPP 2.0, the effort would be something between Herculean and impossible. In no way are the BSER technologies “adequately demonstrated.”

The IRA Allows EPA to Disconnect its Rules from Reality

The energy subsidies in the IRA enable the EPA’s overreach because they allow the EPA to set unrealistic standards. In the CPP 2.0 proposal, EPA relied explicitly on the subsidies in the IRA to claim that the BSER technologies—CCS and low‐​GHG hydrogen—are “adequately demonstrated.”

If the technology were actually “adequately demonstrated,” why are the subsidies required in the first place? Presumably, technology that functions as intended and is economically efficient wouldn’t require subsidies to be “adequately demonstrated.” Specifically, the EPA said in the CPP 2.0 proposal:

The legislative history of the IRA makes clear that Congress was well aware that the EPA may promulgate rulemaking under CAA section 111 based on CCS and explicitly stated that the EPA should consider the tax credit to reduce the costs of CCUS (i.e., CCS).

To reiterate the reliance of widespread CCS adoption on IRA subsidies, EPA stated the following on page 33373 of CPP 2.0:

EPA is projecting approximately 12 GW of coal‐​fired generation will likely retrofit with CCS in order to meet the proposed January 1, 2030, compliance date for affected long‐​term coal‐​fired steam generating units. These and other CCS projects that are likely to be occurring in response to the IRA may take up a significant amount of the capacity to plan and build CCS between 2023 and 2030 [emphasis added].

The same analysis applies to low‐​GHG hydrogen. Contrary to the observed reality that low‐​GHG hydrogen only comprises 1 percent of domestic production, the EPA claims on page 33310 of CPP 2.0 that:

Given the incentives provided in both the IRA and [Infrastructure Investment and Jobs Act] for low‐​GHG hydrogen production and the current trajectory of hydrogen use in the power sector, by 2032, the start date for compliance with the proposed second phase of the standards for this rule, low‐​GHG hydrogen may be the most common source of hydrogen available for electricity production.

In essence, the EPA claimed low‐​GHG hydrogen would transform itself from 1 percent of the domestic hydrogen market to the majority of the market based on lavish subsidies. This is fanciful thinking applied to environmental regulation—the EPA can establish whatever standards it wants if the BSER technology is sufficiently subsidized.

This is a harmful precedent and does not accurately reflect reality. The standard in the CAA that the BSER be “adequately demonstrated” is instead becoming a standard that the BSER be “adequately subsidized.”

Conclusion

The energy subsidies in the IRA provide the foundation upon which the EPA built the CPP 2.0. The BSER established in the EPA’s new power plant regulation is only “adequately demonstrated” by the heavy subsidies in the IRA. Consequently, lawmakers who oppose the EPA’s overreach and want to see a reliable and cost‐​effective power grid in the United States should consider repealing the energy subsidies in the IRA.

Jeffrey A. Singer

When the California legislature passed a bipartisan bill one month ago that would decriminalize possessing and personally using certain plant‐​based psychedelic drugs, I welcomed the action as building momentum toward full legalization of a class of drugs with great potential to treat depression, post‐​traumatic stress disorder, addiction, and a host of other mental health disorders. Alas, over the weekend, California Governor Gavin Newsom vetoed the bill.

The legislation would have effectively allowed people to possess small amounts of psilocybin or psilocin (found in so‐​called “magic mushrooms”), DMT (found in ayahuasca), and mescaline (found in peyote and other cactus plants) but explicitly would not have legalized the sale of these products, or allowed psychotherapists or “facilitators” to administer them to people for psychedelic‐​assisted psychotherapy. The bill did not decriminalize possessing ibogaine (found in the iboga shrub) or synthetic psychedelics such as LSD or MDMA.

In vetoing the bill, Governor Newsom stated:

California should immediately begin work to set up regulated treatment guidelines—replete with dosing information, therapeutic guidelines, rules to prevent against exploitation during guided treatments, and medical clearance of no underlying psychoses. Unfortunately, this bill would decriminalize possession prior to these guidelines going into place, and I cannot sign it.

The governor’s veto message is simultaneously a non sequitur and a “catch‐​22.” First, the bill didn’t decriminalize psychedelic‐​assisted therapy, only personal possession. So, the governor’s concerns about “dosing information, therapeutic guidelines, and rules to prevent exploitation during treatments” do not logically connect to the language or intent of the law.

Second, there is no way clinicians can develop dosing information and therapeutic guidelines for psychedelic‐​assisted therapies when the drugs remain illegal and essentially off‐​limits to clinical research. Yet that’s how medical science works: clinical researchers perform trials using varying doses and treatment modalities, report their findings, and thus develop and refine dosage and therapeutic guidelines.

Despite decades of clinical research providing evidence of psychedelics’ therapeutic potential, the Drug Enforcement Administration decided that psychedelics have “no currently accepted medical use.” It classified them as Schedule 1 drugs, another example of “cops practicing medicine.”

By placing psychedelics on Schedule 1, the DEA erected many regulatory obstacles for researchers wishing to conduct clinical trials that could yield information regarding the efficacy, dosage, and therapeutic guidelines of plant‐​based or synthetic psychedelics. Additionally, plant‐​based psychedelics, as well as synthetics such as LSD or MDMA, are off‐​patent. While pharmaceutical companies can still patent the processes by which they extract or synthesize psychedelics, they have little incentive to seek DEA approval for clinical psychedelic research.

One example of a DEA and Food and Drug Administration‐​approved clinical trial is the phase 2 trial of psilocin (the active component of psilocybin found in certain mushrooms) reported in the August 31, 2023 issue of the Journal of the American Medical Association. Researchers published the results of a multi‐​center, six‐​week randomized, controlled placebo‐​based trial with 104 adults who met diagnostic criteria for major depressive disorder (MDD). Participants were given either 25 mg of pharmaceutical‐​grade psilocin or 100 mg of niacin (as a placebo) and psychological support. The researchers followed the participants for six weeks after one treatment session. The result:

Psilocybin treatment was associated with a clinically significant sustained reduction in depressive symptoms and functional disability, without serious adverse events. These findings add to increasing evidence that psilocybin—when administered with psychological support—may hold promise as a novel intervention for MDD.

This means psilocybin or psilocin combined with psychological support might eliminate the need for many patients to continually take antidepressants, many of which have side effects and require gradual tapering to avoid withdrawal symptoms. Findings like this might provide another explanation for why many pharmaceutical manufacturers lack the incentive to seek permission from federal law enforcement to conduct clinical research on psychedelics.

This is not the first time Governor Newsom struck a blow against harm reduction and drug policy reform. A year ago, he vetoed a bill that would have allowed certain state urban areas to establish overdose prevention center (OPC) pilot programs. Despite a wealth of evidence showing OPCs have reduced deaths and disease since the 1980s (New York City’s two city‐​sanctioned centers saved over 1000 lives in a little over a year), Newsom echoed drug‐​war zealots who criticize this proven harm reduction strategy by expressing in his veto message unfounded concerns that OPCs would encourage illegal drug use.

Meanwhile, Californians seeking psychedelic‐​assisted therapy will need to travel to Oregon or Colorado. Oregon recently announced the first functioning legal system under which patients may obtain psilocybin‐​assisted psychotherapy, the result of Measure 109 that Oregon voters passed in 2020. That same year, Oregon voters decriminalized personal possession of all federally‐​illegal drugs.

In November 2022, Colorado voters approved Proposition 122, authorizing the state to establish a regulatory system resembling Oregon’s by the end of 2024. It has the added feature of creating a “gray market” in psychedelic‐​assisted psychotherapy, in which people can give away or share psychedelics and offer “services” or “support” to people who personally possess and use psychedelics independent of the state regulatory scheme. Colorado’s law decriminalizes more than psilocybin or psilocin. It also decriminalizes ibogaine, DMT, and mescaline.

As clinicians and facilitators gain experience with psychedelic‐​assisted therapies in those states, the body of knowledge about dosing and therapeutic practice standards will grow organically despite a dearth of DEA or FDA‐​approved clinical trials.

Several cities in the United States have also decriminalized or reduced penalties for people who possess psychedelics for personal use. The city council of Santa Cruz, California, for instance, passed a resolution in 2020 instructing local law enforcement to assign the lowest priority to enforcing laws against the personal possession of plant‐​based psychedelics.

With a federal election just over a year away and Governor Newsom increasingly taking to the national stage, it is reasonable to suspect that political considerations played at least as much of a role as his stated concerns about dosages and clinical practice standards in his decision to veto the bill.

In seeking to exercise their fundamental right to self‐​medicate, voters in Oregon and Colorado went around their governors and legislators by approving ballot initiatives. On the other hand, Californians relied on their representatives and their governor in Sacramento. Perhaps people in California and elsewhere will draw a lesson from this.

David Boaz

Authoritarian—and not just authoritarian—governments typically see national history as an important way to shore up support for the regime. China is probably the most prominent example of that right now, as Xi Jinping and the Chinese Communist Party reinforce their efforts to teach every Chinese citizen the glories of the party’s history and to conceal the truth about such crimes as the land‐​reform campaigns of the early fifties, the Cultural Revolution, the Great Leap Forward, and the Tiananmen Square massacre. But a new book reveals the efforts of unofficial historians to make sure the truth is not lost.

The book by Ian Johnson is Sparks: China’s Underground Historians and Their Battle for the Future. Ian Buruma has a long and informative review in the New Yorker:

Johnson’s underground historians are mostly concerned with unearthing and keeping alive forbidden memories of the past. Official Party history, imposed on China’s population, is also a matter of official forgetting. Many people born in China after 1989 have never heard of the Tiananmen massacre. Many of the young people who lived through the Cultural Revolution, in the nineteen‐​sixties and early seventies, would have had limited knowledge of the Great Leap Forward, in the late fifties and early sixties, when Mao’s crackpot schemes for industrial and agricultural transformation caused tens of millions of deaths from starvation. And many of those who starved may not have been fully aware of the land‐​reform campaigns of the early fifties, when vast numbers of people were murdered as class enemies, because they owned some land (as Mao’s father did, but that is a fact Party ideologues prefer to keep quiet).

The book’s title comes from a secretly mimeographed magazine, Spark, that began in 1960. It lasted only two issues, “and some of the contributors were executed as ‘counter‐​revolutionaries’ after spending years in prison under horrifying conditions.” But it inspired “the writers, the scholars, the poets, and the filmmakers who found the courage to challenge Communist Party propaganda.”

Johnson describes efforts over many decades and also ongoing work today. Of course, “None of this work can be released in China.… But Johnson’s underground historians are mostly concerned with unearthing and keeping alive forbidden memories of the past. Official Party history, imposed on China’s population, is also a matter of official forgetting.”

It’s an inspiring story. And of course China is not the only country trying to craft an official history that may veer far from the truth. The Soviet Union pioneered official history and official forgetting before Mao came to power and before George Orwell wrote Nineteen Eighty‐​Four. After the fall of the USSR the dissident and human rights activist Vladimir Bukovsky, who late in life was a Cato senior fellow, devoted much of his efforts, along with organizations as Memorial, to exposing the crimes of the Communist Party.

Of course, history is a concern of liberal and democratic countries as well. Shakespeare wrote plays that promoted the claims and the achievement of the Tudor dynasty, which was most pleasing to Queen Elizabeth I. The American Founders believed that the study of history is our best guide to the present and the future. The authors of the Federalist Papers wrote of history as “the oracle of truth” and “the least fallible guide of human opinions.” From their study of history they learned of the ancient rights of Englishmen, the importance of individual virtue in preserving freedom, and the dangers of power and thus the necessity of constraining and dividing it.

History helps us to understand the development of our civilization, including the ideas that shape it. Often the ideas that we now regard as universal principles arose in response to particular circumstances. Magna Carta and similar medieval charters reflect the struggle to constrain the power of kings. From such guarantees of specific liberties, eventually liberty developed. The rights guaranteed in the Bill of Rights reflected particular historical experiences: with religious wars, censorship, confiscation of property, the Star Chamber, and the constant tendency of government to seek more power.

People get much of their understanding of government and policy from history. The way we view the Constitution, slavery, Jim Crow, the industrial revolution, the robber barons, the New Deal, and other historical events shapes our view of the present. And in a liberal society we’re not always going to agree on the lessons or even the facts of history.

Scholars such as Frances Fitzgerald have written about past battles over how to tell the American story. And of course we’re having heated disputes today over how to understand and teach American history.

But for now I want to focus on the courageous efforts of Chinese citizens who have given so much to keep the truth alive. And I’ll also note that we at the Cato Institute have done our very little bit to introduce dissident ideas into China.

During the post‐​Mao opening Cato held conferences on liberty, limited government, and free markets in China in 1988,1997, 2000, and 2001. The 1998 conference, featuring Milton Friedman, numerous Chinese scholars, and a Friedman meeting with Premier Zhao Ziyang, was surely the first conference on market liberalism in Chinese history. Papers from the conference were published in both English and Chinese (English title Economic Reform in China), as were papers from the 1997 conference (China in the New Millennium). Several Cato books have been published in China: my Libertarianism: A Primer (later updated as The Libertarian Mind) in 2012, Johan Norberg’s books In Defense of Global Capitalism and Progress, Randal O’Toole’s Gridlock and The Best‐​Laid Plans, and just last month the Cato Handbook for Policymakers.

Ian Johnson is telling an important story of heroic Chinese people who for more than 60 years have been making sure historical truth is not lost in a great country.

Colleen Hroncich

Matt Barnard was a long‐​time public school math teacher. As he saw things he didn’t agree with happening at his school, he and his wife, Amy, decided to begin homeschooling their son. They partnered with friends from church, Amanda and Ryan Zaring, who had also decided to begin homeschooling. Amanda covered English and history during the day while Matt covered Math in the evenings.

They realized other Christian families needed affordable educational options beyond the public school. They felt called by God to start a new Christian school. At the same time, a local church was looking for ways to use their building to help advance their mission. It was a perfect match. Refine KC opened in Kansas City on August 29, 2022, with 15 students ranging from grades 1–11. This year, the school has more than doubled, with 40 students from pre‑K through 12th grade.

The small size allows each student to have a personalized experience. “Refine KC has given students a school community where they feel like they belong,” says Matt. “Students are placed in coursework not based on a grade level or age, but based on their current abilities. This allows students who struggle academically to go back and truly master learning objectives, especially in reading and math. It also gives students the opportunity to move forward in more challenging coursework if they are ready. Students are really taking ownership of their learning and becoming better advocates for themselves.”

This approach is attracting students that don’t necessarily fit the mold of other schools. Some of the them are very advanced for their age and others are struggling. It was hard for their parents to find a school that would meet their needs—until they found Refine KC. “Our families feel like they truly have a partnership with us as we all work together to equip these children both academically and spiritually,” Matt explains.

Refine KC meets Monday‐​Thursday for regular academics, such as English, math, science, history, Bible, physical education, and music. Most of the students are full‐​time, but there are a couple of homeschooled students who only come for certain classes. Every other Friday, the school operates in the morning for enrichment activities, extra academic support, and community service projects.

A typical school day at Refine KC starts with a group lesson followed by small group time for more individualized support. Students must show mastery of a topic before moving on. This approach is meant to help students become advocates in their own learning and develop strong critical thinking skills.

Matt notes that they often get referrals from other schools because Refine KC is so unique with its size and personalized approach. He says they want to keep the school small because that’s part of its character. But if interest continues to grow, he’d be happy to see other Refine KC schools open. Along those lines, they’re very intentional in creating school policies so they can use their experiences to help other school founders down the road.

For anyone who is considering starting a new school, Matt has encouraging words. “Every school startup has its own story, its own mission, and its own niche. If starting a school has been put on your heart, seek wisdom from others who may have already been in the same position. Share your heart with others and form a small team of people who are committed to the mission in your area. It will take many long nights and in‐​depth conversations to make the vision a reality. What you envision for your startup might not be exactly what you dreamed; therefore, the ability to be flexible as founders and as a staff is essential.

“Founding and running a school becomes your life. In the end though, it’s worth it as you seek to change the lives of the children and families that will come together. We have also seen God move at Refine KC as He has provided so much. Through our journey, it has been so important to have people pray for the mission as this has truly been a leap of faith for all of us.”

Refine KC is a unique school and wouldn’t be the right fit for everyone. But the year‐​to‐​year growth indicates many families are drawn to this model. Plus, I was able to tour the school recently and meet with the teachers. They indicated how much they enjoyed teaching in such a personalized, faith‐​filled, and family‐​friendly school. That’s the beauty of having more options in education—it allows families and teachers to find the environment that works best for them.