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As The Wall Street Journal, The New York Times, and several other news outlets reported recently, although it has managed to avoid setting off another taper tantrum like that of 2013, the Fed is having a bad case of unwind jitters, thanks to unanticipated tightening in the market for fed funds.

That tightening has manifested itself in a considerable narrowing, since the Fed began unwinding in late October 2017, of the gap between the Fed’s IOER rate and the “effective federal funds” (EFF) rate — meaning the actual rate banks have had to pay other banks, or GSEs with Fed accounts, for unsecured, overnight funds.

In effect the narrowing IOER-EFF gap means that the Fed’s recent IOER rate hikes have ended up being more potent than was expected. As a step toward addressing the problem, the FOMC at its last meeting decided to redefine its funds rate target range upper limit. Now, instead of being equal to the going IOER rate, the upper limit is defined as the IOER rate plus 5 basis points. By itself the new definition is the sheerest of window dressings. But because the Fed, which had been contemplating raising its IOER rate to 200 basis points, could now raise it to just 195 basis points, whilst still sticking to its original rate move, as defined by the upper and lower bounds of its rate target range, the change marked a slight retreat from the Fed’s original tightening plans.

That the Fed risked over-tightening if it adhered to its original normalization plans is something Heritage’s Norbert Michel and I warned about, in an American Banker op-ed, a little over a year ago. “If the Fed keeps paying banks not to lend at the same time it starts slimming its balance sheet,” we said, “we could be in for very tight money.” That’s because the Fed’s plans called for it to  shrink its balance sheet at a predetermined rate, while also adhering to a schedule of rate hikes aimed at re-establishing a supposedly “normal” effective funds rate sometime in 2019. Last May the Fed anticipated getting the funds rate back to 3 percent; since then it has lowered that goal to 2.8 percent.

That raising the IOER rate tightens money is obvious enough. But why, in a system in which banks hold trillions of dollars in excess reserves, should shrinking the Fed’s balance sheet itself lead to further tightening? The short answer is that, instead of being spread evenly throughout the banking system, excess reserves have mostly piled-up in a small number of very large banks, and especially in a handful of foreign banks with U.S. branches. For various reasons these banks find the return on reserve balances especially attractive compared to what they might earn by parting with those reserves. When the Fed was gobbling-up assets, these banks were gobbling-up reserves, thereby keeping them from contributing to any general increase in lending.

Now that the Fed has begun selling assets in order to buy-back reserves, the same IOER payments that encouraged certain banks to hoard reserves in the first place are discouraging them from parting with them. Instead, banks that held relatively small reserve cushions are choosing to swap reserves for other assets, and to rely more on federal funds to stay liquid. That means competing harder for a relatively small pool of fed funds, now supplied exclusively by GSEs, and driving the fed funds rate up closer to the IOER rate. (That the EFF rate never goes noticeably above the IOER rate is easily explained by the fact that the supply of fed funds becomes highly elastic at rates at or above the IOER rate, for such rates will convince even the most aggressive reserve hoarders to disgorge reserves.)

The question remains whether, and how, the new circumstances will alter the Fed’s future plans. Should money market conditions continue to tighten, Fed officials will face two options. One is to reduce their planned IOER rate increases, either by reducing their announced target range increases or by further increasing the difference between the IOER rate and the range’s upper limit. The other is to renege on their promised balance sheet unwind.

Not surprisingly, Fed officials appear increasingly inclined to take the latter course, and to thereby abandon a large chunk of their long-promised normalization plan. As the NYT reported,

That narrowing gap between the federal funds rate and the interest on excess reserves, or IOER, has stoked a debate over whether the Fed’s reduction of its massive bond holdings, which started in October 2017, has made it more expensive for banks to borrow excess reserves to meet regulatory requirements or fund their daily needs, analysts said.

This outcome was also one I predicted a while ago. In a March working paper version of Floored!, my forthcoming book-length critique of the Fed’s post-crisis operating system, I wrote that

the Fed’s determination to raise its policy rate (or rates) to a preconceived “normal” level, and to do so within a relatively rapid span of time, seems imprudent, and may, if pursued obstinately, ultimately cause it to further delay its planned balance sheet reduction, or even to abandon it altogether.

Of course, the Fed could easily stick to, or even hasten, its balance-sheet unwind, while still providing for a plentiful supply of federal funds, by lowering its IOER rate enough, relative to other market rates, to encourage the handful of banks now holding 90 percent of all excess reserves to part with them. But that would mean abandoning the Fed’s “floor” operating system, and establishing a “corridor” system in its place. Alas, whether its because they subscribe to some dubious Fed economics or for other reasons, most Fed officials seem unwilling to entertain such a switch — despite having once planned on it, and despite the well-established advantages of corridor systems, and their corresponding worldwide popularity.

It may yet be possible to change those officials’ minds. Let’s hope so. For if not, as I warned in a previous post, the day may not be far off when Mr. Powell finds himself transformed into the world’s first Six Trillion Dollar central banker. That is perhaps a burden he’s willing to bear. But it shouldn’t be one we’re willing to assign, to him or to any other mortal.

[Cross-posted from]

Is an “excessive” fine constitutional if it’s levied against someone other than a human being? According to the Colorado Department of Labor and Employment, yes it is.

Mrs. Soon Pak manages Dami Hospitality, LLC, a company that runs hotels and motels in Colorado. Pak is a Korean immigrant with minimal proficiency in English. She relies on third-party professionals to assist her in maintaining compliance with the myriad of regulations that even native English speakers struggle to understand. Between 2006 and 2014, Dami’s insurance agent failed to renew the company’s worker’s compensation insurance, despite assuring Pak that Dami maintained full coverage.

In 2014, the Labor Department gave notice that Dami’s policy had lapsed, and Pak immediately secured coverage. A few weeks later, the Department imposed a fine of $841,200, including daily penalties the Department had allowed to accumulate for a full eight years before finally giving notice to the company. Put simply, the Department assessed nearly a million-dollar fine against a small corporation—which grosses less than a quarter of the total fine—for a violation that was solved immediately after notice was received, with no actual harm done to anyone. This fine is clearly excessive compared to Dami’s violation. To frame it in the worker’s comp context, if an employee is killed on a job, his dependent receives $250,000. That means the Department considers the results of Dami’s lazy insurance agent to be worse than three workplace fatalities.

We disagree. Unwilling to acquiesce to an attempt to justify excessive fines, Cato and the Independence Institute filed an amicus brief in support of Dami before the Colorado Supreme Court, to which the state had taken the case after the Colorado Court of Appeals set aside the fine as unconstitutionally excessive under the Eighth Amendment.

The Department argues that corporations have no Eighth Amendment protection, but this provision an absolute limit on what the government can do. There is no loophole that empowers a government bureau to impose excessive fines on selected defendants due to their organizational structure.

Regardless of who it is assessed against, no government has the lawful power to impose an excessive fine. By arguing that the Excessive Fines Clause can never apply to corporations, the Department is literally claiming the power to fine corporations excessively. The result would be contrary to our constitutional heritage, which comes from historical experience that governments with the power to impose excessive fines harm both people and the rule of law. Imposing an admittedly excessive fine would be a danger to the rule of law, ratifying the state’s ability to ruin persons who do not deserve to be ruined, by definition. The danger of such excessive power does not vanish because their targets have chosen to associate in a corporation. Any fine that is “excessive” necessarily exceeds the powers the people granted to a government bound by the law.

Any day now, the Trump administration will release a final rule allowing greater consumer protections in so-called “short-term, limited duration insurance,” a category of health insurance Congress exempts from federal health insurance regulations, including ObamaCare regulations. In 2016, the Obama administration arbitrarily prohibited certain consumer protections in these plans. It shortened the maximum duration from 12 months to 3 months; state insurance regulators complained this exposes sick consumers to underwriting and loss of coverage. It likewise prohibited “renewal guarantees” that could protect consumers who develp expensive illnesses from ever facing underwriting or losing their coverage. Last year, President Trump urged the Department of Health and Human Services to allow short-term plans to last 12 months and to allow consumers to bridge together consecutive short-term plans with “renewal guarantees” that protect them from being re-underwritten after they get sick. 

In comments I filed on the proposed version of the Trump administration’s rule and an accompanying Wall Street Journal oped, I explained some of the benefits of allowing these consumer protections. As ObamaCare premiums have been soaring and the consulting firm Avalere finds “substantial increases” in ObamaCare premiums for 2019, I wrote that these consumer protections would mean “consumers could purchase health-insurance protection for 90% less than the cost of the average ObamaCare plan.“ Renewal guarantees could also keep people with expensive conditions out of ObamaCare plans, thereby improving ObamaCare’s pools and reducing the cost of the law. Along the way, it would “increas[e] transparency in government and provid[e] voters and policymakers with better information about the cost of the ACA.” Thirty-five senators sent a letter to the Trump administration citing my regulatory comments and urging the administration to implement both changes.

My comments did not cover all the benefits of these consumer protections, however. What follows is updated and new infomation about the benefits of those changes.

Critics Agree: Expanding Short-Term Plans Would Cover More Americans

The American Action Forum has a roundup of economic projections of the impact of the proposed changes. Every organization that has modeled these changes, including those that oppose these changes, has found they would increase the number of Americans with health insurance.

These projections indicate expanding short-term plans would produce significant social-welfare gains. The Urban Institute, for example, projects 2.2 million consumers would leave ObamaCare plans for short-term plans because they would “prefer STLD to ACA-compliant plans,” which suggests a large increase in consumer welfare. Similar welfare gains would result from as many as 1.7 million previously uninsured Americans enrolling in short-term plans with the proposed consumer protections.

Protecting Conscience Rights

An often-overlooked benefit of allowing these consumer protections in short-term plans is they would free more consumers to avoid coverage they do not want, including coverage that may violate their religious convictions.

As Susan Marquis and colleagues note, “Purchasers derive value from having the range of choices that the individual market offers.” The range of health insurance choices will expand, and consumer welfare will increase, if the Trump administration allows short-term plans to last 12 months and offer renewal guarantees.

The fact that short-term plan premiums are lower than ObamaCare premiums for the vast majority of consumers because they often exclude such coverage captures much of this benefit. But there are additional welfare gains that premium levels do not capture, including those that come from freeing consumers to purchase coverage consistent with their views on contraception.

ObamaCare requires all health insurance plans to cover all FDA-approved forms of birth control. This requirement forces devout Catholics and others to choose between going without health insurance or paying to support a practice they believe is an offense against God. The Trump administration has taken steps that allow protect conscience rights for some employers. But these changes do not protect all employers, much less all consumers.

Short-term plans, however, are exempt from ObamaCare’s contraceptives mandate. Allowing short-term plans to offer 12-month terms and renewal guarantees would give Catholics and others full freedom to purchase secure health insurance without violating their their religious beliefs. A world of wanted coverage would make a world of difference.

Improving ObamaCare’s Risk Pools

Finally, renewal guarantees would improve ObamaCare’s risk pools by keeping potentially millions of patients who develop expensive conditions out of those risk pools.

There is a sizeable if underappreciated literature showing that renewal guarantees provide secure coverage to patients even after they develop expensive medical conditions. In “Guaranteed Renewability in Insurance” (Journal of Risk and Uncertainty, 1995), Mark Pauly, Howard Kunreuther, and Richard Hirth explain how renewal guarantees can provide patients secure insurance protection even after they get sick: 

Insurances of many types typically cover some risk for a limited time period. For instance, health insurance contracts conventionally provide coverage against loss for a year, although longer and shorter terms are possible. Over that time period, the premium is known with certainty. At the beginning of the next period, however, the factors which determine the level of the premium that an insurance purchaser is charged may change…

In the case of individual health insurance, for example, the discovery of an indicator of chronic disease can cause a person’s insurance premiums to jump substantially…

Effectively, [with a renewal guarantee,] the consumers initially prepay enough premiums to cover the excess losses of everyone who becomes a high risk.

In “Incentive-Compatible Guaranteed Renewable Health Insurance Premiums” (Journal of Health Economics, 2006), Bradley Herring and Mark Pauly explain: 

A person initially in good health who develops a chronic illness may expect to have above-average expenses in subsequent years. If the annual insurance premium is set proportional to expected expense in each year, someone who contracts a multi-year condition would face a substantial and unexpected jump in premiums—something public policy finds undesirable and something which a risk-averse person would prefer to avoid. A potential solution to this problem is for the insurance policy purchased when the individual is still in good health to contain a guaranteed renewability (GR) provision which stipulates that no insured’s future premium for the given policy will increase more than any other insured’s premium increases. Thus, people who unexpectedly become high-risk will pay the same premium as those who remain low-risk.

See also John Cochrane, “Time-Consistent Health Insurance” (Journal of Political Economy, 1995).

Researchers have found considerable evidence that, prior to ObamaCare, widespread renewal guarantees in the individual market did indeed provide secure, long-term insurance for those who develop expensive illnesses. In “Pooling Health Insurance Risks” (American Enterprise Institute, 1999), Pauly and Herring found that renewal guarantees make premiums affordable for high-cost patients: 

The overarching message from these data is that nongroup premiums do vary with risk, but not nearly as strongly as would be consistent with vigorous risk rating. Perhaps more important, they do not vary at all with risk as measured by chronic conditions…This is not to deny that some people pay very high premiums for their coverage, and that some of the people who do so are high risks. Apparently, however, many high risks do not pay higher-than-average nongroup premiums.

In “Individual Versus Job-Based Health Insurance: Weighing The Pros And Cons” (Health Affairs, 1999), Mark Pauly, Allison Percy, and Bradley Herring write:

In other words, there was substantial cross-subsidization of high-risk by low-risk persons in the individual insurance market in a period in which there was only minimalstate regulation. Premiums do rise with risk, but the increase in premiums is only about 15 percent of the increase in risk. Premiums for individual insurance vary widely, but that variation is not very strongly related to the level of risk.

From an economic viewpoint, the main problem with risk rating is…that the occurrence of an extended illness may subject buyers to the risk that their premium may jump, potentially by several multiples. While a thousand-dollar jump in one’s annual premium may seem trivial compared with the high medical bills the insurance will cover, risk-averse persons would prefer to avoid it. There is a simple way to do so: Buy insurance when healthy but pay extra for guaranteed renewability or protection from cancellation.

The evidence indicates that even before the Health Insurance Portability and Accountability Act (HIPAA) became effective in 1997, the majority of individual policies contained this feature. The intent of guaranteed renewability can be circumvented (for example, by canceling all policies in a class), but it usually is not, for the obvious reason that sale of this feature requires that it be effective most of the time…In recent years some states have required guaranteed renewability, but it is apparent that this was a common feature of individual (not small-group) policies even before it was required. The presence of guaranteed renewability may account in part for the moderate increase in paid premiums with risk, noted earlier.

In “How Private Health Insurance Pools Risk” (NBER Reporter, 2005), Pauly writes:

Although there have been some anecdotes about insurers slipping out of their policy provision to renew coverage at group average premiums for high risks by canceling the coverage entirely, we conclude that on average guaranteed renewability works in practice as it should in theory and provides a substantial amount of protection against high premiums to those high risk individuals who bought insurance before their risk levels changed. The implication is that, although there are some anecdotes about individual insurers trying to avoid covering people who become high risk (for example, by canceling coverage for a whole class of purchasers), the data on actual premium-risk relationships strongly suggest that such attempts to limit risk pooling are the exception rather than the rule.

Indeed, Pauly concludes, guaranteed renewability does such a good job at protecting the sick from higher premiums, regulations that prohibit charging higher premiums to the sick (i.e., community rating) doesn’t change much:

We find that regulation modestly tempers the (already-small) relationship of premium to risk, and leads to a slight increase in the relative probability that high-risk people will obtain individual coverage. However, we also find that the increase in overall premiums from community rating slightly reduces the total number of people buying insurance. All of the effects of regulation are quite small, though. We conjecture that the reason for the minimal impact is that guaranteed renewability already accomplishes a large part of effective risk averaging (without the regulatory burden), so additional regulation has little left to change.

In “Consumer Decision Making in the Individual Health Insurance Market” (Health Affairs, 2006), Susan Marquis et al. find renewal guarantees made the individual market “a source of long-term coverage for a large share of subscribers.” This occurs because enrollees who purchase coverage and then later become sick “are not placed in a new underwriting class.” The authors attribute this to renewal guarantees: “We also find that there is substantial pooling in the individual market and that it increases over time because people who become sick can continue coverage without new underwriting.” The authors also found that, despite underwriting, “a large number of people with health problems d[id] obtain coverage” in the individual market pre-ObamaCare. The authors conclude:

Our analysis confirms earlier studies’ findings that there is considerable risk pooling in the individual market and that high risks are not charged premiums that fully reflect their higher risk. Moreover, guaranteed renewal and underwriting only at initial enrollment appear to help promote pooling to some extent, and they protect subscribers from financial consequences associated with changes in their health status.

In “Risk Pooling and Regulation: Policy And Reality in Today’s Individual Health Insurance Market” (Health Affairs, 2007), Pauly and Herring found that as a result of renewal guarantees:

Analysis of new data on the relationship between and premiums and coverage in the individual insurance market and health risk shows that actual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated [i.e., guaranteed-renewable] individual insurance…

As the MEPS data show, the predicted high risks (above the median) had both high expected expenses (before the fact) and high actual expenses (after the fact); they were roughly four times higher compared with the bottom half. But the premiums that higher-risk people actually paid were only, on average, about 1.6 times those of lower-risk people…At least half of their higher expected expense appears to be pooled, even in the individual market…

Premiums were definitely far from proportional to risk, so there was a substantial amount of risk pooling present…Although in these data people of a given age and sex with chronic health conditions paid higher premiums than people without such conditions, individual insurance, through guaranteed renewability or some other device, pooled 84.5–88.5 percent of the risk…

Yet again in “Incentive-Compatible Guaranteed Renewable Health Insurance Premiums” (Journal of Health Economics, 2006), Herring and Pauly find “evidence that guaranteed renewability provisions appear to be effective in providing protection against reclassification risks in individual health insurance markets.”

Perhaps the strongest evidence that renewal guarantees will keep high-cost patients out of ObamaCare’s risk pools comes from “How Risky Is Individual Health Insurance?” (Health Affairs, 2008), in which Mark Pauly and Robert Lieberthal find that guaranteed-renewable, individual-market insurance often does a better job than employer-sponsored insurance of providing secure coverage to patients with high-cost illnesses. As the below graph shows, high-cost patients with guaranteed-renewable coverage are roughly half as likely to end up uninsured as high-cost patients with small-group coverage.

The more high-cost patients that renewal guarantees can keep from becoming losing their non-ObamaCare plans–including, as I discuss in my regulatory comments and Wall Street Journal oped, those enrolled in employer plans–the more stable and less costly ObamaCare will be.


Giving consumers the choice of purchasing renewal guarantees, either in conjunction with a short-term plan or as a standalone product protecting enrollees from underwriting in that market, would produce significant benefits well in excess of any costs. It would increase the number of Americans with health insurance, allow Americans to purchase insurance that respects their religious beliefs, and improve ObamaCare’s risk pools.

A fair reading of Food and Drug Administration Commissioner Scott Gottlieb’s “Sunday Tweetorial” on the opioid overdose crisis leaves one simultaneously encouraged and frustrated. 

First the encouraging news. The Commissioner admits that the so-called epidemic of opioid overdoses has “evolved” from one “mostly involving [diverted] prescription drugs to one that’s increasingly fueled by illicit substances being purchased online or off the street.” Most encouraging was this passage:  

Even as lawful prescribing of opioids is declining, we’re seeing large increases in deaths from accidental drug overdoses as people turn to dangerous street drugs like heroin and synthetic opioids like fentanyl. Illegal online pharmacies, drug dealers and other bad actors are increasingly using the Internet to further their illicit distribution of opioids, where their risk of detection and the likelihood of repercussions are seen by criminals as significantly reduced.

As I have written here and here, the overdose crisis has always been primarily caused by non-medical users accessing drugs in a dangerous black market fueled by drug prohibition. As government interventions have made it more expensive and difficult to obtain diverted prescription opioids for non-medical use, the black market responds efficiently by filling the void with heroin, illicit fentanyl (there is a difference) and fentanyl analogs. So policies aimed at curtailing doctors’ prescriptions of opioids to patients only serve to drive up deaths from these more dangerous substitutes, while causing patients to suffer needlessly, sometimes desperately, in pain. Gottlieb validates my argument in his “tweetorial,” providing data from the Centers for Disease Control and Prevention and the Drug Enforcement Administration. 

Now for the frustrating news. Gottlieb next reminds us, “No controlled substances, including opioids, can be lawfully sold or offered to be sold online. There is no gray area here.” He provides evidence of rampant illegal internet marketing of prescription opioids, with 95 percent of internet pharmacy websites selling opioids without a prescription, often conducting transactions with cryptocurrencies, and shipping these orders “virtually anywhere in the US.” This is also the way illicit fentanyl is flooding the market. 

Gottlieb states, 

Senate investigators found hundreds of transactions in more than 40 states, adding up to more than $750 million worth of fentanyl by its street value, from just six online sellers, resulting in several deaths. People are increasingly going online to illegally buy drugs like Vicodin or Percocet, but we believe they are often unknowingly getting pressed fentanyl – sometimes at lethal doses – given the lower cost and greater profitability of fentanyl for drug trafficking organizations 

So, Gottlieb provides more evidence that fighting the war on drugs is worse than a costly exercise in futility—it is the major cause of opioid overdose deaths in the US.  But does he suggest a reassessment of America’s longest war? Does he cite the success Portugal has had in saving lives while reducing substance abuse since it decriminalized all drugs in 2001? Does he propose redirecting opioid policies away from the number of pills doctors prescribe and toward an emphasis on harm reduction

No. Instead the Commissioner announces that the FDA is “increasing enforcement activities to crack down on the illegal sale of opioids, particularly drugs sold online and typically shipped through the mail.”  This week the FDA is convening “internet stakeholders” to help find new ways to crack down on illegally operated internet sites. In other words, more of the same.

Therein lies the frustration. It seems as if Dr. Gottlieb understands what is really behind the overdose crisis and that the present approach is misguided and is exacerbating matters. But he has yet to muster the will to challenge the prevailing narrative reverberating around policymakers. Hopefully, he will take that next step sometime soon. Until he does, don’t expect the death rate to slow.

In a page-one piece in yesterday’s New York Times, Supreme Court reporter Adam Liptak offered up a generally even-handed account, misleadingly headlined “How Conservatives Weaponized the First Amendment,” about how liberals and the left have increasingly abandoned the First Amendment’s protection of free speech. No less than Justice Elena Kagan invoked the weaponizing charge on the Court’s last day last week when she dissented vigorously from the Court’s decision that Illinois could no longer compel a public-sector non-union member to support union activity he opposed. “There is no sugarcoating today’s opinion,” she wrote.

[I]t prevents the American people, acting through their state and local officials, from making important choices about workplace governance. And it does so by weaponizing the First Amendment, in a way that unleashes judges, now and in the future, to intervene in economic and regulatory policy.

Only the day before, Justice Kagan objected similarly to the Court’s rejection of a California law that required religiously oriented “crisis pregnancy centers” to provide information to women about abortion options.

Like conservatives of old—Robert Bork argued that “constitutional protection should be accorded only to speech that is explicitly political”—many on the left today would allow a wide birth to legislatures to restrict speech, especially where they see it as harmful to interests they support—unions, as here, women (pornography), democracy (corporate campaign contributions), minorities (white supremacist marches), and, more broadly, consumers (commercial speech).

In a piece worth reading, Liptak points to areas where conservative judges have protected speech they abhor: violent video games, lies about military awards, and more. And he nicely captures the rationale for the shift on the left with a quote from Georgetown Law’s Michael Seidman:

When I was younger, I had more of the standard liberal view of civil liberties. I’ve gradually changed my mind about it. What I have come to see is that it’s a mistake to think of free speech as an effective means to accomplish a more just society.

Free speech as a means [toward progressive ends], not as an end in itself. Just which side today would weaponize the First Amendment?

Do arms sales cause war? Or do wars cause arms sales? Critics of arms sales often argue that selling weapons abroad fuels conflict. And indeed, one can point to one or more sides using American weapons in many recent conflicts including Syria, Yemen, and Iraq. Skeptics argue, on the other hand, that weapons don’t start the fire and that conflicts would arise whether or arms exporters like the United States sell weapons abroad.

The debate has important implications for foreign policy. If selling or transferring weapons abroad makes conflict more likely, or intensifies conflicts already in process, then the United States should rethink its long-held policy of selling weapons to pretty much any nation that wants them. If, on the other hand, arms sales have no impact on conflict or make conflict less likely, then the Trump administration’s intention of expanding arms sales should be seen as a positive move. 

As it turns out, several academic studies have looked at this question. The primary conclusion of these works is that although arms sales do not create conflicts out of thin air, they do make conflict more likely when the conditions for conflict are already present.

The basic logic behind this conclusion is fairly straightforward and has been noted in the academic literature for some time. In a 1998 article, “Arms Transfer Dependence and Foreign Policy Conflict,” David Kinsella argues that states that enjoy a steady flow of arms – especially from multiple countries – tend to pursue more aggressive foreign policies. The increase in the recipient’s military capability makes victory in a potential conflict more likely, which in turn raises the likelihood that the state will start disputes, demand concessions from its neighbors in those disputes, and to escalate to conflict if negotiations fail to produce the desired outcome. Using case studies from Israel, Egypt, Syria, Iran, Iraq, India, Pakistan, Ethiopia, and Somalia Kinsella finds that, when a country has more than one weapons supplier, arms sales drastically increase the chances of conflict.

In their 2002 article, “The Arms Trade and the Incidence of Political Violence in Sub-Saharan Africa, 1967-97,” Cassady Craft and Joseph Smaldone identify another mechanism by which arms sales can fuel conflict. They find that autocratic governments importing weapons are more likely to use those weapons to oppress/mistreat/kill their own citizens since they now have a greater coercive capability.

But despite the straightforward logic behind the arms sales/conflict connection, most work on the topic to date has relied on case studies, which are wonderful for highlighting potential causal mechanisms but not much use for establishing whether those mechanisms hold across the time and space. Until recently there had not been any work using statistical methods that would allow scholars to state with confidence which direction the causal mechanism actually flows – that is, do arms sales precede conflict or do impending conflicts lead to increased arms sales? Happily, the most recent article on arms sales by Oliver Pamp and his colleagues in the January 2018 issue of the Journal of Peace Research entitled, “The Build-Up of Coercive Capacities: Arms Imports and the Outbreak of Violent Intrastate Conflict,” uses a simultaneous equations model to overcome this problem. Looking at the relationship between arms sales and the outbreak of civil conflicts, the authors confirm the general thrust of previous research, concluding that:

“…while arms imports are not a genuine cause of intrastate conflicts, they significantly increase the probability of an onset in countries where conditions are notoriously conducive to conflict. In such situations, arms are not an effective deterrent but rather spark conflict escalation.”

This new confidence in the arms sales/conflict connection should compel serious revision to American arms sales policies. Since 2002 the United States has sold over $286 billion dollars of weapons to 167 countries. These exports have gone to numerous countries where the conditions were or remain ripe for conflict. U.S. arms transfers to an unstable Iraq preceded the emergence of the Islamic State, but wound up helping amplify the Islamic State’s military capability when it took vast quantities of American weapons from defeated Iraqi army units. U.S. arms sales over the past decade also helped prepare Saudi Arabia to launch its disastrous intervention in Yemen and enabled the Nigerian government to unleash more effective violence on its own citizens, just to list a few examples.

Academic research often gets a bad rap in policy making circles. In the case of arms sales and arms transfers, however, the scholarly literature has correctly pointed out the serious risks involved. If the United States is serious about preventing conflict and managing regional stability in trouble spots around the globe, it would do well to stop pouring gas on the fire.

This blog post was written with help from Jordan Cohen, a Ph.D. student in political science at the Schar School of Policy and Government at George Mason University.

The abolish ICE movement is spreading among mostly left-wing activists and politicians after the revelation of mass family separations along the U.S. border.  Immigration and Customs Enforcement (ICE) is the federal agency charged with enforcing immigration laws in the interior of the United States, not along the border, but public anger is focusing on them regardless.  Senator Elizabeth Warren (D-MA) said, “The president’s deeply immoral actions have made it obvious we need to rebuild our immigration system from top to bottom starting by replacing ICE with something that reflects our morality and that works.”  Senator Kirsten Gillibrand (D-NY) said, “I believe you should get rid of it, start over, reimagine it and build something that actually works.”

Many are attempting to portray the abolish ICE movement as a shadow campaign for open borders but, as those statements above show, it is largely political grandstanding without much substance yet.  Senator Richard Blumenthal (D-CT) is correct that abolishing ICE without changing policies wouldn’t accomplish much.  ICE was established in 2003 under the Department of Homeland Security (DHS) as part of the government’s post-9/11 reorganization.  The government deported illegal immigrants from the interior of the United States prior to 2003.  There is not much point in abolishing ICE if another government agency then gains the same power.  Furthermore, untangling ICE from the rest of DHS can be tricky without wholesale reform.   

If the goal is to limit interior immigration enforcement to serious criminals and remove the constant fear felt by otherwise law-abiding illegal immigrants, their American families, and businesses in the United States then there are two legal reforms that will functionally abolish ICE without disbanding the agency.  The first is to reform immigration law to change all crimes into civil offenses.  The second is to reorganize Homeland Security Investigations (HSI) by giving it some of the responsibility of Enforcement and Removal Operations (ERO) and then abolishing the latter agency.  Both reforms will substantially weaken interior immigration enforcement for non-criminals and abolish the worst part of ICE without removing its ability to deport serious criminals and national security threats. 

Abolish Immigration Crimes

Most violations of immigration law are civil offenses that are “remedied” through deportation.  Criminal offenses are punished with jail time and fines.  However, there are some immigration crimes like illegal entry that are misdemeanors with potential jail time as punishment.  Previous Congresses did not consider these crimes to be serious as they are only misdemeanors but, nonetheless, the people who violate them are criminals.  Transforming all criminal immigration offenses, or at least as many as possible, into civil violations guts much of the political rationale for cracking down on illegal immigration.  If none of them are criminal violators of immigration law then the arguments for sending ICE into their communities to harass them diminishes greatly.  This reform also will not prevent the deportation of illegal immigrants who commit other serious crimes. 

Abolish ERO and Revamp HSI

HSI investigates and enforces the most serious criminal violations committed by illegal immigrants and others in the United States involving national security and transnational crime.  ERO mostly partners with the Border Patrol and local law enforcement agencies to apprehend illegal immigrants who haven’t committed crimes worthy of the name.  Two-thirds of ERO’s arrests are for non-criminal offenses and victimless crimes while only 15.4 percent are for violent or property criminals and another 18.8 percent are for crimes with possible victims. 

ERO’s responsibility for apprehending and removing the one-third of its arrests who have committed crimes (broadest definition) should be transferred to HSI.  Thus, part of the resources allocated to ERO every year should be transferred to HSI.  Congress should then abolish ERO and claim a major victory against arbitrary and capricious enforcement of immigration laws.

This reorganization will focus immigration enforcement on criminals and national security threats.  Even better, it will give its proponents the cover to say that they have abolished ICE without removing its ability to deport serious criminals and to lift the specter of harsh immigration enforcement on otherwise law-abiding communities.  


Members of DHS have proposed spinning off HSI and ERO into different agencies because of their largely different responsibilities.  Those DHS bureaucrats believe that ERO’s bad reputation is hindering the ability of HSI to fulfill its more important mission.  The reform I propose above would accomplish the overall goal of protecting HSI’s important work, a DHS goal, while also offering up a bureaucratic sacrifice in the form of a disbanded ERO.  Combined with replacing all criminal immigration violations with civil infractions, these two reforms would largely accomplish the goals of the abolish ICE movement without the difficulty of abolishing ICE.  

It’s summertime and across the United States, children are away from school. The custom of long breaks in the school year dates to when most Americans worked in agriculture and often needed their children’s help on the farm. Of course, most children simply didn’t attend school, instead helping with housework and grueling farm labor year-round. In 1820, for example, primary school enrollment in the United States was just over 40 percent. That percentage rapidly shot upward in the coming decades, reaching 100 percent by 1870. But even then, many children didn’t make it past elementary school. In 1870, U.S. mean years of schooling stood at just 4.28. That number has risen steadily ever since. What changed? Technology, for one thing.

In his book Enlightenment Now, Harvard University professor Steven Pinker recounts how technology helped get boys off the farm and into the classroom. He quotes a tractor advertisement from 1921:

“By investing in a Case Tractor and Ground Detour Plow and Harrow outfit now, your boy can get his schooling without interruption, and the Spring work will not suffer by his absence. Keep the boy in school—and let a Case Kerosene Tractor take his place in the field. You’ll never regret either investment.”

As more farms adopted efficiency-enhancing agricultural devices like kerosene tractors, more boys attended school instead of working the fields. For girls, the huge time savings brought on by labor-saving household devices played a similar role. As running water, electricity, washing machines, and other modern conveniences spread, time spent on housework plummeted. Pinker’s book also contains a telling chart documenting the change.

Most of the work replaced by those technologies had traditionally fallen to mothers—and to their daughters. The time freed up by innovation enabled more girls to attend school.

Washing machines and tractors have accomplished more than just cleaning clothes and ploughing fields. They also freed America’s children to receive an education.

Today, there are still children kept from school by household labor requirements. The burden disproportionately falls on girls. According to the United Nations, data from 42 countries show that rural girls are more likely to be out of school than rural boys. In rural Sub-Saharan Africa, the U.N. data also shows that girls often spend more time gathering wood and water than boys—time that could be spent in a classroom instead.

Fortunately, access to running water and electricity is rapidly spreading across the globe. As more households gain access to modern technologies, more children will leave behind backbreaking physical labor for school books and studying.

A couple of recent New York Times articles discuss pregnancy discrimination in the workplace. In its most recent spread, the Times outlines a variety of stories of expectant mothers losing jobs or job responsibilities and cites the growing number of pregnancy-related Equal Employment Opportunity complaints to imply rates of pregnancy discrimination may be increasing.[1]

As a solution, the article’s authors propose pregnant women would be better off with additional government protection, perhaps similar to the protection afforded to Americans with disabilities. The Times should be careful what it wishes for.

While arguing for added protections for pregnant women, the Times forgets to mention that rights to accommodation for people with disabilities didn’t work out as planned. One study finds the Americans with Disabilities Act (ADA) of 1990 reduced “employment of disabled men of all working ages and disabled women under age 40.”

Other evidence finds the ADA reduced employment rates for men with disabilities by 7.2 percentage points and was “associated with lower relative earnings” and “slightly lower labor force participation rates” for people with disabilities.

Indeed, when ADA took effect in 1990, 28.4 percent of people with disabilities were employed (compared with 78.4 percent of non-disabled persons). In 2014, the employment rate for people with disabilities had fallen to 12.9, or less than half of the 1990 figure. The employment rate didn’t changed much for non-disabled persons, so the employment gap between disabled and non-disabled widened considerably during this period.

Figure 1: Employment Rate Through Time for Persons with and Without Disabilities, Ages 21-64

Data Source: Census Bureau’s Current Population Survey   Measuring disability prevalence accurately can be difficult, so some individuals take issue with these results. But other survey data that use different definitions corroborate these trends (e.g. NHIS and SIPP).   Moreover, disability prevalence did not decline in a way that might indicate ADA genuinely helped many persons with disabilities find jobs and left a more difficult-to-employ population behind. The proportion of Americans with a work-limiting disability has grown since ADA implementation.     Figure 2: Disability Prevalence Through Time, Ages 21-64    Data Source: Census Bureau’s Current Population Survey  

The government was trying to help people with disabilities, so why did ADA hurt their employment prospects?  A 2010 study examining the ADA 20 years after its passage concludes

The unclear expectations on what constitutes appropriate accommodations for people with disabilities is likely having a chilling effect on the employment prospects of the disabled population. Fears of costly litigation and administrative grievances are driving some employers to be suspect, if not downright hostile, to hiring workers with a disability. Reflecting an all too common irony in social policy, the ADA might be having the exact opposite effect of the intent of the legislation.

According to the Times, pregnant women should have the same accommodation rights. But if pregnant women knew about the impact of the ADA on disabled population, fewer might be interested in this form of government “protection.”

[1] Note that these figures don’t provide evidence of that per se.

Domestic and international politics surrounding the Trump administration’s planned summit with Moscow are largely overshadowing the tangible U.S. national interests at play. Trump’s frequently expressed esteem for President Putin, along with his apparent admiration for authoritarian strongmen from Kim Jong Un to Rodrigo Duterte, rubs much of Washington and many U.S. allies, particularly in Europe, the wrong way for two reasons. First, it suggests that Trump is abandoning America’s purported role as a global defender of democracy. Second, it suggests that Trump is unwilling to take a tough stance toward Moscow despite the U.S. intelligence community’s assessment that Russia meddled in the 2016 election and constitutes a major, continuing threat to America’s security and geopolitical interests.

But even if Trump is more brazen than his predecessors in his fondness for autocrats, the United States has a long history of showering brutal dictators with rhetorical praise and direct support. And while Trump has been rhetorically easy on Putin in a way that has made NATO allies, and the U.S. foreign policy community, uncomfortable, the nuts and bolts of U.S. policy toward Russia have not changed. The Trump administration has pushed to expand NATO, boosted U.S. troop deployments in the Baltics, conducted provocative military exercises with its alliance partners in various East European locales as well as the Black Sea, and refused to give ground to Russian interests in Ukraine or the Balkans. Indeed, the administration has even engaged in military exercises with Ukrainian forces and approved the sale of “defensive” arms to Kiev.

Proposals for a tougher approach toward Russia essentially amount to imposing more economic sanctions, which have not proven effective in changing Russia’s policies or strategic calculus, and retaliatory covert cyber operations, which would likely escalate tensions to little greater effect.  Moreover, some of the anger toward Moscow among politicians and pundits has generated a worrisome intolerance of those in the policy community who dare advocate a more conciliatory posture. Indeed, at times that shrill criticism is reminiscent of the excesses that Senator Joseph McCarthy and his followers exhibited. That development damages America’s political culture.

Contrary to much of the political commentary, meeting with adversaries, such as Putin and North Korea’s Kim Jong-un, is not tantamount to appeasement. Nor are sensible negotiations and a willingness to compromise. While Russian meddling in the 2016 election was a serious offense, we must avoid letting it drive U.S. policy into determined, unrelenting hostility. The two countries are already perilously close to a second Cold War, and it is imperative to keep the lines of communication and diplomacy open. 

The alleged threat from Russia, including the apparent election meddling, must be kept in perspective. The United States remains the world’s economic and military superpower and is remarkably insulated from external security threats. Meanwhile, Russia’s economy is approximately the size of Spain’s, it has limited conventional power projection capabilities, and it suffers from burdensome domestic problems, including corruption, as well as demographic trends that are likely to sap its power potential in future years.

A Trump-Putin summit is worthwhile, as there are a number of contentious issues that need to be addressed and require diplomacy to resolve. Those volatile disagreements include sharp differences over policy toward Syria, Iran, North Korea, and Ukraine.  Even a candid bilateral dialogue at the highest level may not resolve those differences, at least not quickly. But just as the Trump-Kim summit helped ease tensions and the risk of a dangerous confrontation, the summit meeting between Trump and Putin may help dampen the growing U.S.-Russian animosity. That would be useful, because it will be difficult to make even modest progress toward solving problems such as Syria, Ukraine, and North Korea without substantial Russian input and cooperation.

To achieve a bilateral détente, though, U.S. objectives must remain limited and realistic. It may be possible to induce the Kremlin to dial back its support for separatist rebels in eastern Ukraine or limit the Russian military presence in Syria. It is not an achievable objective to insist that Russia return Crimea to Ukraine. Moscow will no more do that than Israel will return the Golan Heights to Syria or Turkey relinquish occupied northern Cyprus to the Republic of Cyprus.

President Trump has yet to demonstrate the strategic acumen necessary to deftly engage in nuanced diplomacy with adversaries in a way that tangibly advances U.S. interests. The summit with Kim was a mixed bag. The achievement consisted primarily of changing the overall dynamics of the bilateral relationship in a less confrontational direction. Although that meeting did not deserve the knee-jerk negative response from Trump’s political opponents (or, for that matter, the knee-jerk positive response from his supporters), there also were few truly tangible gains.  Moreover, the president seemed more interested in stagecraft, rather than statecraft. He needs to improve that performance in his summit with Vladimir Putin.