Clarence Thomas Questions Congress’ Power to Regulate Business Abroad

Is the United States the world commerce police?

In a recent opinion, in which he dissented from the Supreme Court’s refusal to hear a case, Justice Clarence Thomas suggested that Congress’ power to regulate international commerce may be broad, but not as broad as some lawmakers and judges would have it.

In his dissenting opinion in Damion St. Patrick Baston v. United States, Thomas stated that he is interested in having the court address the limits of Congress’ power to regulate the world economy, and provided new language with which to scrutinize statutes that purport to do just that, such as the Lacey Act.

How Far Is Congress’ Reach?

This question emerged after the successful federal criminal prosecution of Damion St. Patrick Baston, a Jamaican citizen who ran an international prostitution ring for sex trafficking.

Following Baston’s conviction, the trial judge ordered him to pay one of his victims $78,000 in restitution, which is the amount she earned working for him as a prostitute while in the United States, and an additional $400,000 in restitution, which is the amount she earned working for him as a prostitute while in Australia.

The question presented was whether the second restitution order, which covered economic activity that occurred completely outside the United States, was constitutional.

“The facts are not sympathetic, but the principle involved is fundamental,” Thomas wrote, concluding that the court should have granted review in the case to “reaffirm that our federal government is one of limited and enumerated powers, not the world’s lawgiver.”

Ultimately, the other justices did not agree with Thomas, leaving unanswered the question of whether or not the Foreign Commerce Clause permits restitution to Baston’s victims based on extraterritorial conduct.

The Foreign Commerce Clause found in Article 1, Section 8 of the Constitution states, “Congress shall have power to … regulate commerce with foreign nations.” The drafters of the Constitution included this provision as a limitation on the states’ ability to raise tariffs on goods from other countries, among other economic concerns, including those reflected in Article 1, Section 9.

Under the Articles of Confederation, states set tariffs on goods from other states as well as foreign nations. The Constitution, instead, placed that responsibility with the federal government.

In Board of Trustees of University of Illinois v. United States (1933), the court explained, “In international relations and with respect to foreign intercourse and trade the people of the United States act through a single government with unified and adequate national power.”

The Foreign Commerce Clause, however, was not written as an invitation for the federal government to get involved in or import the laws of foreign nations.

Several courts of appeals, including the court of appeals in this case, have written far-reaching opinions that interpret Congress’ power to regulate international commerce quite broadly. The government argued that these cases hold that “Congress’ power under the Foreign Commerce Clause includes at least the power to regulate … activities that have a ‘substantial effect’ on commerce between the United States and other countries.”

Thomas writes:

Taken to the limits of its logic, the consequences of the Court of Appeals’ reasoning are startling. The Foreign Commerce Clause would permit Congress to regulate any economic activity anywhere in the world, so long as Congress had a rational basis to conclude that the activity has a substantial effect on commerce between this nation and any other …

That power might sound fair when used to increase the amount of money damages to the victim in Baston v. United States, but in other contexts, it seems less so.

“Congress would be able not only to criminalize prostitution in Australia,” Thomas continues, “but also to regulate working conditions in factories in China, pollution from power plants in India, or agricultural methods on farms in France.”

The Founders, Thomas argues, did not intend for Congress’ power to extend so far. Instead, “whatever the correct interpretation of the foreign commerce power may be,” he writes, “it does not confer upon Congress a virtually plenary power over global economic activity.”

Although Thomas presents a hypothetical, the scenario is a real one. In fact, it may be worse than Thomas lets on.

The Lacey Act

Under the Lacey Act (1900), which regulates commercial trade in plants and animals, commerce abroad is not only regulated by U.S. and foreign law. It can also be a crime in this country for Americans to violate the laws of foreign countries, or even to contract with other parties who violate foreign law.

For example, the U.S. Department of Justice sent Lumber Liquidators, an American flooring retailer, a $13 million tab in criminal fines and penalties because, unbeknownst to them, a Russian timber company harvested more wood in remote regions of Russia than Russian law allowed.

The Russians sold that wood to a Chinese flooring manufacturer, who sold it to Lumber Liquidators, who imported it into the United States.

The Justice Department argued that Lumber Liquidators should have exercised greater “due care” to uncover the illegal harvesting in “the Russian Far East,” which the Sierra Club names as “the last refuge of the Siberian tiger.”An international organization known as the Environmental Investigation Agency helped “to bring Lumber Liquidators’ deception to light,” according to the Sierra Club. And Assistant Attorney General John C. Cruden, at the Department of Justice’s Environment and Natural Resources Division, said, “Now they will pay a price for this callous and careless pursuit of profit … [a] trail of corrupt transactions and habitat destruction.”

That scenario may be worse than the one that Thomas describes, as criminal sanctions are far more severe than civil fines or administrative penalties for regulatory violations.

As our colleague John Malcolm explains, criminal laws and penalties are “meant to enforce a commonly accepted moral code that is set forth in language the average person can readily understand and that clearly identifies the prohibited conduct.”

Holding a company criminally liable for the acts of a third-party supplier operating under foreign law at the beginning of a multi-national supply chain oversteps those bounds.

Instead, regulatory schemes, Malcolm writes, should “establish rules of the road (with penalties attached for violations of those rules) to curb excesses and address consequences in a complex, rapidly evolving, highly industrialized society.”

Clearly, Russian logging limits and foreign Siberian tiger populations belong in the latter category—if at all—in U.S. law.

Moreover, in United States v. Molt, the 3rd U.S. Circuit Court of Appeals wrote that the Lacey Act “simply limits the exclusion from the stream of foreign commerce to wildlife unlawfully taken abroad,” but the word “unlawfully” there means that a violation of foreign law is an element of a crime under the Lacey Act.

Thomas’ dissent could provide the impetus for the court to examine the scope of Congress’ power to regulate international commerce in a future case. None of the Supreme Court’s opinions, Thomas notes, “involve[d] legislation of extraterritorial operation which purports to regulate conduct inside foreign nations.”

It is unclear whether Thomas would find it permissible for Congress to take the additional step of reaching “conduct inside foreign nations” through the laws of foreign nations.

Pushing Back on Regulatory Overreach

Thomas’ dissenting opinion provides at least two insights into federal law on foreign commerce.

First, he is interested in scrutinizing Congress’ power to regulate activity under the Foreign Commerce Clause if and when an appropriate case arises.

Building on the Supreme Court’s past opinions on the scope of the Interstate Commerce Clause, lower federal courts have charted an expansive vision of Congress’ power to regulate foreign conduct—perhaps, according to Thomas, straying a bit too far from the Founders’ understanding of the reach of that clause.

Second, Thomas’ dissenting opinion provides new perspective into constitutional questions surrounding statutes that regulate conduct abroad.

One of those statutes is the Lacey Act, which our colleague Paul Larkin has argued is unconstitutional insofar as it makes otherwise law-abiding businessmen—from lumber merchants to lobstermen to guitar manufacturers—liable for violating the criminal laws of foreign nations without knowledge of their wrongdoing.

Americans who run afoul of the Lacey Act and other U.S. laws that regulate foreign commerce may find a useful guidepost in Thomas’ dissenting opinion in Baston.

COMMENTARY BY John-Michael Seibler and Elizabeth Slattery. Originally published at The Daily Signal.

Conservative Lawmakers Join Rally Against GOP Health Care Plan

A group of conservative lawmakers gathered Wednesday to criticize the Obamacare replacement plan offered by House Republican leadership, a bill one of them, Sen. Rand Paul, dubbed “Obamacare lite.”

“Stand firm,” Paul said. “Bring down the Paul Ryan plan.”

Paul was referring to House Speaker Paul Ryan’s championship of the American Health Care Act as the way to repeal and replace Obamacare.

At the FreedomWorks “Day of Action” rally, held in Washington to oppose the legislation, the Kentucky Republican said, “We don’t want anything to do with Obamacare subsidies, taxes, [or] mandates.”

Sens. Ted Cruz, R-Texas; and Mike Lee, R-Utah; and Reps. Mark Meadows, R-N.C.; David Brat, R-Va.; and Jim Jordan, R-Ohio, also spoke at the rally.

Paul went after health insurance companies and the idea of them getting a “bailout” from taxpayers.

“We don’t want to bail out the insurance companies, we want freedom to get lower prices and to get the insurance we want for our families,” he said.

Paul also claimed that insurance companies, under the proposed GOP health care law, tell small business owners to “kiss my boots, take it or leave it.”

“When the premiums continue to rise, the government will continue to pay you money to pay the insurance compan[ies] … this is not about you, this is about reimbursing a billion-dollar insurance industry,” he said.

In a reversal, Ryan told reporters late Wednesday that he realizes changes need to be made to the legislation to clear the House, not to mention the Senate.

“Now that we have our score … we can make some necessary improvements and refinements to the bill,” Ryan said, according to The Washington Post, referring to the Congressional Budget Office’s report Monday on the costs and effects of the House GOP’s plan.

Cruz said that if Republicans don’t repeal Obamacare completely while they are in power, they will be “rightly considered a laughingstock.” He said the American Health Care Act has “a lot of problems.”

Cruz noted recent meetings with President Donald Trump, Vice President Mike Pence, senators, and House members, and said: “The test for a Republican repeal of Obamacare is to bring down premiums and make health care more affordable. … We can do that, but only if we repeal the Obamacare mandates.”

Brat, who represents Virginia’s 7th Congressional District, said, “When you say you’re going to repeal Obamacare, does that mean the federal government is still in charge of your health care?”

“No,” he said. “That’s what we’re fighting for.”

“First we make government bigger, then we promise you free markets later,” Brat said of the House leadership’s plan.

“The Freedom Caucus is here to make sure that those forgotten men and women … know that we are here to stand with them, to make sure to take back this country, for the Constitution, for our God, and for our freedom,” said Meadows, chairman of the caucus of conservative House members.

Because of outspoken opposition to the Obamacare replacement plan from conservative activists and organizations, Meadows said, lawmakers were starting to work on legislation that “really repeals and really replaces Obamacare.”

“When we were campaigning, we didn’t say that we were going to keep part of it, we said we were going to repeal it all,” he added.

Paul and Jordan introduced bills in their respective chambers that are identical to the Obamacare repeal legislation that Congress passed in 2015 but President Barack Obama vetoed in January 2016.

Jordan, a former Freedom Caucus chairman, continued on the theme of keeping promises, saying, “Our job isn’t not to offend.”

“Our job is real simple: Do what we told the voters we were going to do,” the Ohio Republican said.

“It’s a revolution … we’re gonna have to offend somebody,” he said.

Report by The Daily Signal's Caleb Ecarma. Originally published at The Daily Signal.

CBO Takeaway: Full Repeal Would Insure More People than ObamaCare-Lite

A new Congressional Budget Office report projecting the effects of the House Republican leadership’s American Health Care Act weakens the case for the bill’s ObamaCare-lite approach, and strengthens the case for full repeal.

The CBO projects that over the next two years, the AHCA would cause average premiums to rise 15 percent to 20 percent above ObamaCare’s already high premium levels. The report raises the prospect that insurance markets may collapse under the AHCA, just as they are collapsing under ObamaCare.

It makes unreasonable assumptions about Medicaid spending; more reasonable assumptions could completely eliminate the bill’s projected deficit reduction. Finally, the CBO projects more people will lose coverage under the AHCA than under full repeal.

ObamaCare-Forever

The AHCA purports to repeal and replace ObamaCare. In reality, it would do no such thing.
In a previous post, I wrote:

This bill is a train wreck waiting to happen.
The House leadership bill isn’t even a repeal bill. Not by a long shot. It would repeal far less of ObamaCare than the bill Republicans sent to President Obama one year ago…
[It] merely applies a new coat of paint to a building that Republicans themselves have already condemned… If this is the choice, it would be better if Congress simply did nothing.”

The ACHA retains all the powers ObamaCare gives the federal government over private insurance, gives those powers a bipartisan imprimatur, and therefore gives them immortality. Its repeal of ObamaCare’s Medicaid expansion would likely never take effect. It fails to create real block grants in Medicaid, and preserves perverse incentives from both the “old” Medicaid program and the expansion. It would create an ongoing series of crises in the individual market, for which Republicans would take the blame and suffer at the polls, at the same time it would create pressure for more taxes and government spending. It’s hard to imagine what House Republicans were thinking.

Premiums and Market Stability

Full repeal, in particular repeal of ObamaCare’s health-insurance regulations, would cause premiums to fall for the vast majority of consumers in the individual market.

In contrast, the AHCA would increase premiums from their already high ObamaCare levels. “In 2018 and 2019…average premiums for single policyholders in the nongroup market would be 15 percent to 20 percent higher than under current law,” the CBO reported.

Premium increases of that magnitude could further destabilize ObamaCare’s health-insurance Exchanges. Adverse selection has already led to an exodus of insurers from the individual market. ObamaCare has driven every last insurer from the Exchange in 16 counties in Tennessee, leaving 43,000 residents with no health insurance options for 2018. In a thousand other counties around the country, the law has driven all but one insurer from the Exchange. Nearly 3 million people in those counties are just one carrier exit from being in the same position as those 43,000 Tennesseans.
The CBO posits that, nonetheless, “the nongroup market would probably be stable in most areas under either current law or the legislation.”
In most areas. Probably.

Supporters of the legislation note that the CBO projects the average premiums would then begin to fall after 2019. One reason is that the AHCA would end one of ObamaCare’s health-insurance regulations (actuarial-value requirements). Another is that the CBO predicts states would use the AHCA’s new Patient and State Stability Fund to subsidize high-cost enrollees.

There are reasons to doubt this prediction. First, it assumes the Exchanges survive the ensuing adverse selection and make it to 2020. Second, the Patient and State Stability Fund would not reduce premiums. Like ObamaCare’s reinsurance program, it would hide a portion of the full premium by shifting it to taxpayers. So even though the CBO reports that the portion of the premium that consumers see would fall 10 percent by 2026, it is not accurate to say premiums would fall. We don’t know if the full premium would fall or rise after 2019, because the CBO isn’t telling us.

Spending

On paper the AHCA cuts taxes and government spending. But it also sets forces in motion that could undo those gains.

The CBO projects the AHCA would reduce federal spending by $1.2 trillion over ten years and reduce tax revenues by $883 billion, for a total reduction in the deficit of $337 billion. That certainly makes the bill appear attractive. Until you look at the details.

Take the bill’s Medicaid provisions. The CBO projects the bill would reduce Medicaid spending by $880 billion. The reduction would come both from phasing out ObamaCare’s Medicaid expansion, and from changing how the federal government pays for each state’s Medicaid program.
I doubt these savings will materialize. In my previous post, I wrote:

When eventually we see a Congressional Budget Office score of the bill (House leadership has numbers, but they’re not sharing them), it may show a reduction in federal spending on the Medicaid expansion after 2020. I would not bet on that happening.”

True enough, the CBO bases those projected spending reductions on assumptions I do not find reasonable.

For instance, the CBO assumes that under current law, some number of the 19 states that have refused to implement ObamaCare’s Medicaid expansion would do so. The AHCA reduces the cost to states of implementing the expansion. But rather than assume even more states would implement the expansion under the AHCA, however, the CBO assumes no states would. That makes no sense.

The AHCA would reduce the risks to states of implementing the expansion. Prior to or absent the AHCA, states face the risk that Congress might reduce the enhanced federal funding ObamaCare provides states for Medicaid-expansion enrollees. Such a change would mean states would go from paying 10 percent of the cost of the expansion to paying 50 percent of the cost. A five-fold increase.

The AHCA eliminates that risk by holding expansion states completely harmless with respect to Medicaid-expansion enrollees who enroll prior to 2020. It would guarantee states would continue to pay only 10 percent of the cost for every Medicaid expansion enrollee, even after the bill would “repeal” the expansion by barring new enrollments starting in 2020.

The cost of expanding Medicaid would go down, yet fewer states would do it. And here I thought demand curves slope downward.

If I’m correct that more states would expand Medicaid and go on an enrollment binge prior to 2020— and especially if those decisions pressured Congress to scrap “repeal” of the expansion—the CBO’s projected savings from the AHCA would prove too optimistic. If just half of the projected Medicaid savings fail to materialize, that would wipe out all of the AHCA’s presumed deficit reduction.
If states game the new per-enrollee matching grant system of federal Medicaid funding, even more of those presumed spending reductions would evaporate.

Likewise, if the AHCA were to create even more instability in the individual market, it would create even more pressure for additional taxes and government spending to stabilize the market. Even more of the AHCA’s projected savings would disappear.

Coverage Levels

In January, the CBO projected that completely repealing ObamaCare, without a replacement, would increase the uninsured by 23 million people by 2026. The agency projects the AHCA’s non-repeal approach would increase the uninsured by even more—24 million people. As my colleague Josh Blackman notes, there is ample reason to believe the CBO models overstate the coverage gains achieved by ObamaCare’s individual mandate, and the coverage losses the agency projects would follow its repeal.

Even so, the CBO score confirms the folly of the House Republicans’ approach, and that there is no reason not to repeal ObamaCare in full. Like it or not, the CBO’s estimates of coverage impacts are the ones ObamaCare’s defenders and the media will cite. If Republicans are going to take the same amount of heat either way, they might as well do the right thing and do a full repeal.

Republicans could then repurpose the $361 billion they planned to spend on tax credits on expanding tax-free health savings accounts—a reform that would drive down health care prices for the poor, that Congress can enact via reconciliation, and that does not divide ObamaCare opponents like tax credits do, not least because HSAs do not subsidize abortion like tax credits do. They could convert Medicaid into an actual system of block grants, giving states the flexibility to target Medicaid funds to those who still could not afford the care they need.

Reprinted from Cato.

Michael F. Cannon

Michael F. Cannon is the Cato Institute’s director of health policy studies.

This article was originally published on FEE.org. Read the original article.

Medical Entitlements Make Care Expensive

Senator Rand Paul has introduced an alternative bill to what he calls, “Obamacare Lite,” a.k.a. the American Health Care Act, introduced by House Speaker Paul Ryan. Paul’s criticism of Ryan’s bill was mild compared to Rep. Thomas Massie’s. Massie called Ryan’s bill a “stinking pile of garbage.”

While Paul’s plan is more free-market oriented than Ryan’s, no plan is addressing the one elephant in the room that must be slain before anything resembling a free market in health care can emerge: entitlements.

Distorting Supply and Demand

While Medicare and Medicaid’s effect on the federal budget is generally acknowledged, seldom mentioned is the percentage of overall healthcare spending that is tax-subsidized and the effect that has on prices. A study by the Georgia Institute of Technology found that of over $2.5 trillion in total U.S. health care spending in 2014, Medicare, Medicaid and “Other Public Insurance” accounted for 44% of it. By comparison, spending by private insurance companies accounted for only 33%, with out-of-pocket spending a mere 13%. Most of the remaining 10% was attributed to “other payers.”

In other words, almost half of all health care purchases in the United States occur free from the two strongest price-limiting market forces: the freedom not to purchase and finite demand.

Yes, the patients have a choice of which medical services they utilize. But they don’t buy them; taxpayers do. And the taxpayers don’t have a choice.

Also, “demand” means not only the desire but the ability to purchase a product at a given price. I may want to purchase a Rolls Royce. But if I don’t have enough money, I don’t represent demand for a Rolls Royce.

Price is determined by the intersection of supply and demand. By adding over $1 trillion to total funds available for health care spending, government healthcare programs significantly increase demand. When demand significantly increases, supply and other factors being equal, prices go up. It’s Economics 101.

If half of all automobiles were purchased by government programs, the price of automobiles would behave just as health care prices do now. And politicians and other “experts” would be wringing their hands over how to solve the automobile crisis and ensure everyone has the opportunity to exercise their fundamental right to drive to work.

Entitled Providers

Anyone who points out these rather uncontroversial economic realities can expect to be answered with, “What? You want to let my grandmother just die because she can’t afford health care? Do you believe only rich people should be treated for sickness and injuries and everyone else should just be left to suffer?”

Invariably, opponents of these programs take the bait and respond as if government healthcare programs were solely entitlements for consumers. They’re not. They’re much more entitlements for providers, who believe they are entitled to fees their markets won’t bear.

Having worked in a past life with physicians, hospitals, and other providers for over a decade, I had a unique opportunity to understand their thinking (Disclosure: much of this time was spent in management positions at two of those “evil” HMOs). And while there are many exceptions to what I’m about to say, there are two things I found to be true about most physicians: One, they are among the most generous and compassionate people in society. Two, they share academia’s absolute contempt for the free market.

This results in a kind of Jekyll-Hyde approach to reimbursement. On one hand, a physician who encounters a patient with no verifiable ability to pay will nevertheless care for that patient, if the need is serious, without hesitation. Physicians and hospitals provide a considerable amount of care every year for which they are not paid, without complaint.

Yet the moment there is a payment avenue, that same physician suddenly loses not only his compassion but all connection with reality. Many were the times when a physician would say to me words to the effect of, “I’m entitled to higher compensation in return for the years of training I completed and the money I spent acquiring it.”

No, doc, you’re not. It is true that your skills are scarce and will fetch a higher price on the market than skills that are less scarce. But you’re only entitled to what others have agreed to pay you, like everybody else.

Free from Market Influence

This culture of entitlement extends throughout the healthcare industry. How many times have you spoken with the billing manager for a hospital or medical practice who makes some form of this passive-aggressive complaint: “Our billed charges for this procedure are $835.00, but your insurance only pays $520.”

I’ve taken to responding, “Yes, I know how you feel. My billed charges to my employer are $1,000.00 per hour, but my paycheck is only for what he agreed to pay me.”

I’m not suggesting physicians’ salaries necessarily must be cut to restore price reality to medicine. A free market may give them a haircut; it may not. But there are many costs other than the physician’s salary in delivering health care and there is no real pressure to improve efficiency in any of them.
As just one example, think about how many times you provide your health insurance information to your doctor’s office. They get it from you on the phone before even agreeing to make an appointment. Then, you have to write it on a paper form when you get to the office, sometimes more than once, on more than one form. Why? They’ve already captured that info on the phone. It’s in their billing system. Who’s reading, filing and otherwise processing the paper form(s) and why?

Many medical practices run the way they did in the 1950s for one reason: they don’t have to change. Half their revenues are guaranteed, at any price, by a customer base that can’t say no. Grocery stores, which provide products even more vital to human survival than medical care, operate on razor-thin margins. Their prices behave normally when adjusted for inflation. No one seems curious about why that is.

Deflating Healthcare Prices

From time to time, proposals are made to phase out Medicare and Medicaid, the assumption being that there can be no major market disruption. That’s just another manifestation of the strange notion that medical care is in some sacred and holy category that more important goods and services don’t occupy.

While there are plenty of government interventions on the supply side that artificially inflate health care prices, the most effective way to normalize pricing would be to abolish Medicare and Medicaid tomorrow. That would cut demand for those services immediately by over $1 trillion per year. With a significant decrease in demand comes a significant decrease in prices.

And guess what? There would still be doctors, hospitals, pharmaceutical companies and other providers who want and need to deliver care and make profits. Only they’d have to adjust their business models to deliver their products at prices their customers could afford. This may sound scary, but industries have demonstrated their resilience to disruption over and over throughout history. And we’re talking about one composed of people at the far right of the bell curve. All experience says the turmoil would be far briefer and less harmful than the hysterical predictions we can expect from those benefiting from the current system.

Abolishing these programs won’t cut off granny. It will cut off McKesson, Merck and a lot of very wealthy physicians (who’d still be wealthy afterward) from the government till. We’d all be treated much more like customers by the people whose medical services we purchase and health insurance premiums would plummet.

Proposals like Senator Paul’s will produce positive results on the margin, but until the entitlements are abolished, they won’t succeed in restoring normalcy to the health care market.

Tom Mullen

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.

This article was originally published on FEE.org. Read the original article.

Garbage In, Garbage Out at the Federal Reserve

The monetary matadors at the Federal Reserve have stared into the eyes of mild price inflation for years. They didn’t move a muscle for years and have finally twitched ever so slightly, a couple times in the last few months, with a promise of more.

It is the view of Fed Chair Janet Yellen that signs of overheating in the broader economy are “scarce.” The indispensable Grant’s Interest Rate Observer isn’t so sure and devoted its front page and then some of its March 10 issue to inflation and how it’s measured. After all, the price level is the North Star of central bank policy.

Grant’s sent its Harrison Waddill to tag along with a “government inflation scout” who was sampling prices for the Bureau of Labor Statistics (BLS) at a New York supermarket. The BLS price sleuth told Waddill, “Sometimes, an item that I’m supposed to price isn’t on the shelf when I arrive.” Remember, there is an army of PhDs waiting at the Eccles Building and other Fed forts to plug price data into their models so as to make the secret sauce that creates our prosperity.
Our man from the BLS related a story about a store no longer carrying the prepared salad he was to price, so he made the executive decision to substitute a fruit salad, and finally “found prepared prices of fruit.”

Unfortunately for our part time price picker, his substitution didn’t pass muster with the BLS brass, “not enough nuts or croutons,” they said. He was given “a list of different items (not salad) to price instead.”

Grant’s admits the BLS has a difficult job. “But we wonder about the margin for conceptual error in the processing of the statistics so carefully gathered.” Add CPI and PCE to sausage and legislation as things you don’t want to watch being made.

Ignorance is Bliss at the Federal Reserve

The Fed’s employees, themselves, are blissfully unaware of changes in the price level of things like, say, food. Danielle DiMartino Booth lists the creature comforts afforded central bank employees in Dallas in her insightful new book Fed Up. In addition to a subsidized cafeteria, there is a separate executive dining room.

DiMartino Booth described how some employees would come early, work out in the Fed’s on-site gym, shower, dress, have breakfast and then “Four hours later they headed to the executive dining room for competitive discourse on the latest iteration of their models over long lunches.”

The ex Wall Streeter and financial journalist took a job at the Dallas Fed as the housing bubble was ramping up. She remembers her days on Wall Street when traders ate expensive steaks at their desks, not wanting to miss any market action.

In contrast, Fed employees, had no interest in financial news. They scattered for lunch. The cafeteria was fine for DiMartino Booth. As she writes, “The food was darn good and so cheap some people even bought dinner to take home to the spouse and kids.”

Job perks at the Fed are impervious to the business cycle, while Wall Street benefits come and go, she explains. And the only “hustle and bustle [at the Fed]: 5 p.m. on the nose.”

DiMartino Booth, with only two master's degrees, worked directly with three dozen PhD economists who didn’t take her seriously, while they ignored financial news.

The economists were satisfied parsing backward-looking data to predict future events using their mathematical models. Financial data in real time were useless to them until it had been “seasonally adjusted,” codified, and extruded into charts.

Richard Fisher, who headed the Dallas Fed at that time, actually talked to business people operating in the real economy. “He had real problems with the Fed’s designated measure of inflation, ‘core’ personal consumption expenditure (PCE), which ignores the prices of food and energy and thus did not reflect inflation’s true level.”

Grant’s quips, “As a rule, the PCE prints lower than the CPI, which some count a merit in its own right.”

Garbage In, Garbage Out

Oskar Morgenstern, described by Grant’s as the father of game theory, was more than skeptical of those who placed any trust in numbers, gathered by the likes of the BLS part timers mentioned earlier, and “ground out in so many steps, operations, computations, etc. all based on a great deal of theory.” Morgenstern believed, “the idea that as complex a phenomenon as the change in a ‘price level’ itself a heroic theoretical abstraction, could at present be measured to such a degree of accuracy is nevertheless simply absurd.”

The Fed is said to be “data dependent” and that data includes the price of salads, or whatever, when available. For the moment, its much-watched PCE, “remains quite tame” at 1.9% writes Amey Stone for Barron’s.

Grant’s, citing PriceStats, which gathers prices offered online, believes, “consumer prices are in fact accelerating.”

Meanwhile, the Fed’s PhD army will see what it wants to see and believe what it wants to believe. Trusting the view of someone who has been there, Ms. DiMartino Booth, we should remember the Fed is “an arcane, complex, and peculiar decision-making apparatus that is virtually opaque to outsiders.”

As for the current Chair, back when she headed the San Francisco branch, “Top corporate leaders in Yellen’s district--even bankers on her own board of directors--thought she was a clueless academic more interested in labor issues than the dilemmas of those running businesses,” writes DiMartino Booth.

Ludwig von Mises believed there to be no validity in the idea of price levels.

"What is fundamental to economic theory is that there is no constant relation between changes in the quantity of money and in prices. Changes in the supply of money affect individual prices and wages in different ways. The metaphor of the term price level is misleading."

What we know for sure, is what the Fed does is mislead entrepreneurs with ill-conceived monetary monkey business. Sadly, while they rest on their PhDs, they don’t know what they don’t know.

Douglas French

Douglas French is an Associated Scholar at the Johnson Center at Troy University and adjunct professor at Georgia Military College. He is the author of three books: Early Speculative Bubbles and Increases in the Supply of Money, Walk Away, and The Failure of Common Knowledge.

This article was originally published on FEE.org. Read the original article.

Five Forgotten Champions of the Total State

Most people are aware of the influence of Karl Marx and his ideological compatriots in building 20th-century totalitarianism. But there is another tradition of thought, dating from the early 19th century and continuing through the interwar period, that took a different route in coming to roughly the same conclusions regarding the place of the state in our lives.

As opposed to Marx’s “left-Hegelians,” these thinkers are part of the “right-Hegelian” movement who dispensed with the universalism of Marx to applaud nation, race, and war as the essence of life.

These thinkers also loathed commercial society and capitalism in particular. They saw enterprise as soulless and culturally destructive, lacking in the higher meaning that only centralization and planning could provide.


Instead of trying to create some mythical future based in some fantasy of a new socialist man, they sought to beat back capitalism by clinging to the old order of government power, privilege, hierarchy, nationalism, and racist control. Their imagined future looked like the pre-capitalist past they idealized.

These five thinkers appear in chronological order. In the prehistory of the alt-right, I mapped the big thinkers. Here we have some more minor and eccentric players in the evolution of an anti-capitalist right.

Johann Fichte (1762-1814) was the philosophical founder of German idealism, writing and teaching a generation before George Friedrich Hegel, and the first of a long line of obscurantist philosophers whose ideas somehow land with one solid political application: build a huge state led by one heroic dictator. It was he, and not Hegel, who first posited a meta-narrative of historical waves that could be characterized as thesis, antithesis, and synthesis.

In politics, he was a huge fan of Napoleon, but found himself devastated by the crushing victory of France over German territories, which motivated his “Addresses to the German Nation” (1808), the most influential lecture series on education to appear in the modern world. Here was the first complete outline of what German nationalism should look like.

The new education system should have “an absolutely new system of German national education, such as has never existed in any other nation.” The purpose is to educate a “new race of men” with a system that “must first be applied by Germans to Germans.” Its goal is to inculcate “the true and all-powerful love of fatherland, the conception of our people as an eternal people and as the security for our own eternity.”


Part of the point is to train for work so that “no article of food, clothing, etc., and, so far as this is possible, no tool is to be used, which is not produced and made” inside Germany. In other words: autarky. Germany should aspire to be “a closed commercial State” that rejects “our idolatrous veneration of coined metals.”

His template for what became fascist (right-Hegelian) thought is entirely predictable: statism, nationalism, loathing of the merchant class, and protectionism, spiced up with the inevitable doses of misogyny ("active citizenship, civic freedom and even property rights should be withheld from women, whose calling was to subject themselves utterly to the authority of their fathers and husbands”) and anti-Semitism (granting rights to Jews requires we "cut off all their heads in one night, and to set new ones on their shoulders, which should contain not a single Jewish idea”).

John Ruskin (1819-1900) is inexplicably revered to this day as an aesthete, artist, and champion of small crafts, whereas in truth he was an absolute hater of commercial capitalism, laissez faire liberalism, and the modern world. A hugely influential thinker of the Victorian period, he romanticized a mythic England from the past, in which art and good taste prevailed over commercial frenzy and wealth-making. “I was, and my father was before me, a violent Tory of the old school,” he said. In his view, he completely agreed with his friend Thomas Carlyle that the forces unleashed by Adam Smith and the Scottish Enlightenment generally had destroyed the artistic sensibilities of generations, and they needed to be recaptured through a strong planning state.

His most political book is Unto This Last (1862) which took aim at the division of labor itself. Riffing off the Parable of the Vineyards, he finds it outrageous that the vineyard owner himself was in a position to decide pay at all. 

The entire book is a long and tedious screed against merchants for their lack of loyalty, their obedience to impersonal market forces, and absence of a moral reason for existence. The merchant, he said, is “the man who does not know when to die, does not know how to live.”

Like other critics of classical political economy (he compared it to “alchemy, astrology, witchcraft”), he denied that exchange alone could produce any value or profit. “It is only in labor there can be profit,” he declared. He had a particular beef with John Stuart Mill, and critiqued his price and wage theory, showing near-zero competence in economic theory at all. For Ruskin, economics was not a science but an aesthetic. He summed up his outlook on political economy as follows: “Government and cooperation are in all things the laws of life; anarchy and competition the laws of death.” It's no wonder that Ludwig von Mises said that Ruskin was "one of the gravediggers of British freedom, civilization and prosperity."

Houston Stewart Chamberlain (1855-1927) is an exceedingly strange figure in the history of politics and ideas: a British-born German whose influence bled into Germany and back again to his home. As son-in-law to the famed composer Richard Wagner, he became a dear friend and fanatical admirer of Adolph Hitler and the most aggressive proponent of virulent anti-Semitism ever to come out of England.

He had decided early in life to locate the source of all political and economic evil in the Industrial Revolution, preferring his own made-up vision of what he called “Merry Old England” consisting of a beautiful aristocracy, hard-toiling and thrifty peasants, and patriotic citizens dedicated to preserving the language and race against the commercial forces of modernity. Under these conditions, unlike the demographic mess unleashed by capitalism, women were submissive to the wills of their fathers and husbands, devoted only to furthering the superior race.

His weird 1899 book The Foundations of the Nineteenth Century became a bestseller, many times over, throughout the Continent. Heavily influenced by the racial typologies that were increasingly popular, he described the Jews as mindlessly materialistic and the source of most evil in the modern world.

The Jews, he said, caused the downfall of Rome, for example. He argued that Jesus cannot possibly have been a Jew since all good in the world emanates from the pure Aryan race. Instead, he was “of exceptional beauty, tall and slim with a noble face inspiring respect and love; his hair blond shading into chestnut brown, his arms and hands noble and exquisitely formed.” It was in this book that he laid out his theory that a Jewish plot was afoot to wipe out the Aryan race and turn all Europe into a race of “pseudo-Hebraic mestizos.”


His book, which was printed in eight editions in the first ten years of its publication, and eventually sold as many as 250,000 copies by 1938, catapulted him into the status of a celebrity intellectual. And so his every utterance became gospel for his followers, even his proclamation that the Great War, which he believed the Jews had started, had led England “totally into the hands of the Jews and the Americans” and capitalist machinery.

It was in the midst of his fame that he reached out to an emergently powerful Hitler. Hearing that both Hitler and Joseph Goebbels could be counted among his fan base, he wrote Hitler in 1923:

“Most respected and dear Hitler ... It is hardly surprising that a man like that can give peace to a poor suffering spirit! Especially when he is dedicated to the service of the fatherland. My faith in Germandom has not wavered for a moment, though my hopes were – I confess – at a low ebb. With one stroke you have transformed the state of my soul. That Germany, in the hour of her greatest need, brings forth a Hitler – that is proof of her vitality ... I can now go untroubled to sleep ... May God protect you!”

After Hitler’s conviction of high treason following the Beer-hall putsch, Chamberlain stuck by him and kept hope alive. Hitler was touched, and, following Hitler’s release from prison, Hitler paid a visit to Chamberlain in Bayreuth in 1927, accompanied by Goebbels. Chamberlain assured Hitler that he was certainly “the chosen one,” thereupon lifting Hitler’s spirits. The leading Nazi in-house philosopher, Alfred Rosenberg, was perhaps an even greater fan of Chamberlain. An ailing Chamberlain died in 1927, never knowing of the Nazi attempt to deal with the “Jewish problem” he had dedicated his life to exposing.

Giovanni Gentile (1874-1944) might be the most clownish and ridiculous of all the figures mentioned here, but he was a big shot in his time. He aspired to be the Marx of fascism, a leading theorist of the idealist tradition who finally put together the essential pieces of a thorough-going non-Marxist statism. His writings enjoyed some degree of fame in America in the interwar period, working on his own writings and ghost-writing for Benito Mussolini who was frequently solicited for American-published academic writings in the 1920s.

Most familiar to American readers was Gentile’s 1922 book The Reform of Education published by Harcourt, Brace, and Company. The book contains the usual call for education to be compulsory, militarized, and nationalistic, rooted in a view of the heroic enterprise of nation building. For the most part, the book consists of pseudo-scholarly blather of the insufferably ponderous sort, but it does contain his theory of the state, as a kind of warm up to the educational material:

A nation can under no circumstances exist prior to the form of its State ... a State is always a future. It is that state which this very day we must set up, or rather at this very instant, and with all our future effort bent to that political ideal which beams before us, not only in the light of a beautiful thought, but as the irresistible need of our own personality. The nation therefore is as intimately pertinent and native to our own being as the State, considered as Universal Will, is one with our concrete and actual ethical personality.

And so on for 250 pages. Despite the relentless statism of his vision, and his love of centralized power and planning, Gentile’s writings lacked some features that characterized other works in this genre. It is mercifully free of racism, perhaps because of his region of origin. He was Sicilian, and thereby belonged to a people who had been demonized by American thinkers as dysgenic since the 1880s. Indeed, if it is possible to talk this way, Gentile was a relative liberal among the fascists of the period, having criticized German anti-Semitism and having met his death at the hands of an anti-fascist mob having returned from arguing for the release of anti-fascists from prison.

Nonetheless, his signature contribution, signed by many Italian intellectuals, was the “Manifesto of the Fascist Intellectuals.”

The opposition of individual and State is the typical political expression of a corruption so deep that it cannot accept any higher life principle, because doing so would vigorously inform and contain the individual's feelings and thoughts. Fascism was, therefore, a political and moral movement at its origins. It understood and championed politics as a training ground for self-denial and self-sacrifice in the name of an idea, one which would provide the individuals with his reason for being, his freedom, and all his rights. The idea in question is that of the fatherland. It is an ideal that is a continuous and inexhaustible process of historical actualization. It represents a distinct and singular embodiment of a civilization's traditions which, far from withering as a dead memory of the past, assumes the form of a personality focussed on the end towards which it strives. The fatherland is, thus, a mission.

Reading his brand of fascism, you can see why it went down easier with the American public than the English or German models. It was no more or less than the celebration of the state as the center of life, and a proclamation of the death of old-world freedom and democracy. In short, Gentile struck a chord in US political life for his description of the prevailing ethos of the New Deal itself.

TS Eliot (1888-1965) seems like an implausible candidate for inclusion in this gallery of rogues, simply because this paragon of civility and erudition is so widely championed in the annals of anti-liberalism. The American-born Anglophile is the author, after all, of the most famous and revered poem of the 20th century, "The Waste Land" (1922). Its impenetrable narrative captures the post-WWI despair of the English-speaking world, giving the impression that it was not only the war that civilization should regret but the whole of what life had become in the age of mass commerce. Nothing is salvageable, and everything is corrupt. 

C.S. Lewis, who regarded Eliot’s work as nothing short of “evil,” said of this poem: “no man is fortified against chaos by reading the Wasteland, but that most men are by it infected with chaos.” What is that chaos? It is the dark longing for some long-dead past and a conviction of the irredeemability of the present, an attitude which is anathema to the classical liberal tradition that sees hope and wonder in what freedom can achieve. It is not a stretch to see Eliot’s literary contribution as part of the entire Modernist literary project in England to put down and condemn everything that capitalism had done for the world. For Eliot in particular, the cost was the integrity of culture itself.

In "Notes Toward a Definition of Culture," Eliot takes hard aim at the entire liberal/Hayekian view of culture as a spontaneous evolution extending from the gradual emergence of norms, tastes, and manner of a free people. For Eliot, the right kind of culture must emanate from an elite, chosen from excellent educational institutions. Everything about industrialization wars against culture, even the advances in publishing. “In our time,” he declared, “we read too many new books… We are encumbered not only with too many new books: we are further embarrassed by too many periodicals, reports and privately circulated memoranda.”

A growing amount of scholarship has taken Eliot to task for his sympathies for the Eugenics movement and his consistent worry about the rising birth rates among the lower classes in English culture. But this should not be surprising at all. It is but a small step from regretting the advance of mass consumerism to decrying the rise of mass population expansion made possible by prosperity.
In the end, the problem with Eliot is not nearly on the scale you find in the other writers in this tradition. He nowhere defends totalitarianism or anything like it, though you do pick up a hint of authoritarianism. But what he represents is an underlying problem that is universal among this strain of anti-capitalist writers.

The problem comes down to an intractably aristocratic snobbery that feeds a deep suspicion against freedom and tempts intellectuals to imagine that if we only constrained that freedom and replaced it with wise controls over our social, cultural, and demographic destiny, we might be saved from the decay and corruption into which the liberalism of the 18th century plunged us. Despots thrive off just such convictions. 

The Fork in the Road

What you find in this tradition is a very different template from Marx and his school for criticizing the freely evolving society celebrated by the liberal tradition of Adam Smith and Frederic Bastiat. The non-Marxist version has no fundamental objection to religion, nation, family, and even property, provided everything is directed toward the single goal of fortifying the collective.
What they share in common is a conviction that the freely evolving commercial society is unsustainably corrupt; society does not contain within itself the capacity for its own self-ordering; and human relationships are not capable of achieving universal harmony absent conscious design by states, powerful leaders, and intellectuals.

Their vast influence over the bloody politics of the 20th century is strangely forgotten, and the tradition of thought they represent papered over during the Cold War, which rerendered the only political conflict as the West vs. Communism. The ideas of a rightist form of totalism was lying in wait for the moment to re-rear its ugly head.

Knowing this helps us understand the new politics of our time. Freedom is threatened from two ends, the right and left. The idea of liberty really does represent a third way, a path lit by the hope in the kind of civilization that can be built not from the top down but from the bottom up, not through the force of power but by voluntary associations of regular people who aspire to live better lives.
(A final note of recognition that this essay would not have been possible without the breadcrumbs left by Ludwig von Mises in his masterful 1947 essay, "Planned Chaos.")

Jeffrey A. Tucker

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

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Ten Classic Films with a Libertarian Twist

1. Star Wars: The Empire Strikes Back (1980)

A tyrannical Empire threatens the freedom of its people and uses mind control, torture, propaganda, and force (including The Force) to destroy their way of life and even an entire religion. There’s no way this could happen on our planet, only in a faraway galaxy… right?
Empire won Best Sound Mixing and a Special Achievement Academy Award; other films that have received this award include Superman, Raiders of the Lost Ark, and Toy Story.

2. All Quiet on the Western Front (1930)

For countless generations, young people have been taught that fighting and dying for their country is the most glorious thing a citizen can do. Two millennia ago, the Roman poet Horace opined, “Dulce et decorum est pro Patria Mori” — how sweet and honorable to die for the fatherland!

In All Quiet on the Western Front, a soldier repudiates the professor who planted this idea in his head, recounting the horrors of the Great War to a new class of young students. “We used to think you knew; the first bombardment taught us better. It’s dirty and painful to die for your country. When it comes to dying for your country, it’s better not to die at all! There are millions out there dying for their countries, and what good is it?”
All Quiet won Academy Awards for Best Director and Outstanding Production in 1930.

3. Schindler’s List (1993)

“He who saves one, saves the world,” says the Talmud. In Schindler’s List, one selfless man spends his entire fortune to protect German Jews during the Holocaust, employing them in his factory making pots and pans. His act of mercy and defiance would have been considered treasonous at the time, but history has shown Schindler’s subversion of the Nazi state to be one of World War II’s greatest acts of heroism.
Schindler’s List won Best Picture in 1994.

4. Gandhi (1982)

“If they kill me, then they will have my body, but not my obedience.” This is how Gandhi explained his principle of nonviolent resistance to a crowd of people who wanted nothing more than to use violence to free India from the grip of the British empire. His strategy eventually paid off and led the British to leave India in 1947.
Gandhi won bet Best Picture in 1983.

5. Paths of Glory (1957)

During the depths of World War I, in an attempt to produce a positive story for the press, a group of Allied generals order their troops to charge a fortified German position. Despite protests from subordinates that the mission is both hopeless and pointless, the battle proceeds — ending, predictably, in meaningless carnage.
In this film, director Stanley Kubrick shows how wars are planned by people who do not bear the costs of their mistakes: “Perhaps it was an error of judgment on our part. On the other hand, if your men had been a little more daring, you might have taken it. Who knows? Why should we have to bear more criticism and failure than we have to?”
Paths of Glory received, surprisingly, zero Oscar nominations.

6. Lawrence of Arabia (1962)

Set during the First World War, this film shows the seeds of conflicts that are still raging in the Middle East today. T.E. Lawrence, a black sheep British officer, helps the Arab Bedouins to unify their territory and drive out the Ottoman Empire, but following the war, the British betray them with a giant colonialist land grab. These disputes over land, borders, and (you guessed it) oil help trace the roots of conflicts that are still shaping the politics of the region over a century later.
Lawrence of Arabia won Best Picture in 1963.

7. Papillon (1973)

Starring Steve McQueen (a motocross racer who insisted on doing all his own stunts), this film is based on a true story about a man wrongfully accused of murder and his attempts to escape a French Guiana labor prison camp. It shows the conditions of the French penal system at the time (solitary confinement, the guillotine) and life in the brutal island prison.
Papillon was nominated for Best Music, but it’s also one of Dustin Hoffman’s best supporting roles. (If you find you like Steve McQueen prison break movies, then you’ll also like The Great Escape, where Steve McQueen shows off his motocross skills.)
8. Mr. Smith Goes to Washington (1939)
Jimmy Stewart plays an earnest man of the people, appointed as a U.S. Senator by his state’s crooked political machine, which hopes to manipulate the inexperienced Mr. Smith.

The senator has just one goal: to build a small camp for boy scouts in his hometown. But it doesn’t take long for him to realize that the only way to get anything done in Washington is to bribe and threaten people. In the end — armed with nothing but a sack lunch, coffee, and an apple — he launches an epic filibuster to expose corruption and turn the tide against the Washington political machine. If only it were that easy…

Mr. Smith won Best Story in 1940.

9. The Deer Hunter (1978)

You’re probably noticing a theme here: war is terrible, and governments are responsible for it. The Deer Hunter begins with the story of a group of friends hunting deer in their small hometown, later to be drafted and sent off to fight in Vietnam. The terrors of war leave a permanent mark on all the characters, and most of them, including Christopher Walken, slowly slip into despair, losing the innocence and careless joy they had at the start.
The Deer Hunter won five Oscars, including Best Picture and Best Director.

10. Lagaan: Once Upon a Time in India (2001)

If a single sentence could summarize this film, it would be: “Taxation is theft!” One small town in India must compete in an absurd cricket match against local British officers or else face a triple tax on their land, known as the Lagaan. Caste ranks are broken down as the town unites to defeat their oppressors in a Remember the Titans-style moment, and in the end, everyone is left singing in the rain.
Lagaan was nominated for Best Foreign Language Film in 2002.

Republished from Learn Liberty

Charles Blatz

Charles has been a video producer for 7 years. In 2014, he co-founded, Bonsai, a virtual reality production company, and holds 2 patents (wearable EEG headset + and cinematic 360 VR camera rig).

This article was originally published on FEE.org. Read the original article.