Today we have yet another example of Republicans and Democrats teaming up to protect a special interest at the public’s expense. A few hours ago the Senate voted 50–46 to kill an amendment from Sen. Jeanne Shaheen (D‑NH) that would have phased out subsidies and supports for the sugar industry.

A Cato essay on agricultural regulations and trade barriers explains what 50 senators just voted to defend:

The big losers from federal sugar programs are U.S. consumers. The Government Accountability Office estimates that U.S. sugar policies cost American consumers about $1.9 billion annually. At the same time, sugar policies have allowed a small group of sugar growers to become wealthy because supply restrictions have given them monopoly power. The GAO found that 42 percent of all sugar subsidies go to just 1 percent of sugar growers. To protect their monopolies, many sugar growers, such as the Fanjul family of Florida, have become influential campaign supporters of many key members of Congress.

U.S. food industries that buy sugar are harmed by current sugar policies as well. The employment in U.S. sugar growing is 61,000, which compares to employment in U.S. businesses that use sugar of 988,000. Thus, one small industry benefits from current sugar regulations, while industries that are more than 10 times larger are damaged…

Another problem is the environmental damage caused by U.S. sugar policies. Large areas of the Florida Everglades have been converted to cane sugar production because of artificially high sugar prices. These wetlands have been greatly damaged by land drainage, habitat destruction, and the phosphorous in fertilizers used by sugar farmers.

Of the 48 Democratic senators who voted, 32 voted to kill the amendment. And here I thought Democrats were supposed to be concerned about the environment and creating jobs. The Republican side did better with “only” 16 out of 46 voting to kill the amendment. Of note, Marco Rubio (R‑FL), a tea party favorite and potential running mate for Mitt Romney, was one of the 16. An obvious sop to the powerful Florida sugar lobby, Rubio’s vote in favor of maintaining the federal government’s Soviet-style sugar racket is an all-too-common example of a politician choosing parochialism over principle.

The Obama campaign’s “Life of Julia” ad is a disturbing sign. It suggests that political strategists, pollsters, and campaign advisers must think that the people living off government are getting to the point where they can out-vote the people paying for government.

If that’s true, America is doomed to become another Greece — which would be an appropriate fate since, for all intents and purposes, Julia is the fictional twin of a real-life Greek woman who thought it was government’s job to give her things.

In general, I think the best response to Julia is mockery, which is why I shared this Iowahawk parody and this Ramirez cartoon.

But we also need a serious discussion of why dependency is a bad thing, which is why I’m glad the Center for Freedom and Prosperity has produced this new “Economics 101” video.

It’s narrated by Emily O’Neill, who contrasts the moocher mentality of Julia with how she wants her life to develop. To give away the message, she wants the kind of fulfillment that only exists when you earn things.

Emily’s view could be considered Randian libertarianism, conventional conservatism, or both. That’s because there’s a common moral belief in both philosophies that government-imposed coercion and redistribution erode the social capital of a people.

This is perhaps the key issue for America’s future, which is why I hope you’ll share this video widely. Otherwise, we my face a future where this Chuck Asay cartoon becomes reality. Speaking of Asay, this cartoon is a pretty good summary of what the Julia ad is really saying.

Earlier this week University of Chicago Professor Luigi Zingales offered an interesting, although I suspect commonly held, reason for his conversion to supporting a new “Glass-Steagall.” For those who don’t follow banking, Glass-Steagall, passed as part of the New Deal, mandated the separation of investment and commercial banking. This reason? Professor Zingales asserts that Glass-Steagall “helped restrain the political power of banks.” More fully, he argues:

Under the old regime, commercial banks, investment banks and insurance companies had different agendas, so their lobbying efforts tended to offset one another. But after the restrictions ended, the interests of all the major players were aligned. This gave the industry disproportionate power in shaping the political agenda.

Perhaps I’m just a little slower than the good Professor, but that seems far from obvious to me. Unfortunately he offers no evidence. Recall Glass-Steagall was finally repealed in 1999. I served on the Banking Committee staff from 2001 to 2009, with a year’s break. While I don’t have the best memory, I can recall no major legislation between 1999 and 2009 that either deregulated or gave massive benefits to the largest banks. There were, however, several pieces of legislation that hurt the banks. Highlights include Sarbanes-Oxley, financial reporting requirements under the Patriot Act, and the Fair and Accurate Credit Transactions Act. None of those were favorable towards banks. You could argue bankruptcy reform in 2005, but its hard to imagine anything beyond that.

I suspect Zingales’s views are colored by his growing up in Italy, a parliamentary system. Ours, however, is a system of geographic representation. What matters most for politicians is their constituents. Under a system of geographic representation, a system of small banks is likely to have more political pull than a system of large banks. Why? Because a small banker will have more pull with his congressmen than a large out-of-state bank. Anyone who thinks that say JP Morgan has a lot of pull has never gone up against the Independent Community Bankers of America (ICBA). Believe me, from having been in those fights, ICBA makes JP Morgan look politically weak (just read all the small bank exemptions in Dodd-Frank).

Perhaps the most compelling evidence to me is that most of the really bad features of our financial regulatory system were the result of lobbying efforts by small banks. Such disasters as Fannie Mae, Freddie Mac, the Federal Home Loan Banks, the FDIC, or restrictions on branch-banking (thankfully now gone) all came about from the demands of small banks. The large banks (and FDR) for instance opposed the creation of the FDIC.

Zingales also ignores that in practical politics, you can only “go to the well” so many times. The larger the number of issues a bank cares about, the actual less leverage it has on any of them. From my experience, if a Congressman has done something once for an industry, they feel less obligated to help on another issue. The most politically powerful industries are the ones with just a single issue of importance.

Now Professor Zingales may be correct, but as someone who’s spent his career fighting political battles with financial firms, it would be helpful to have some evidence.

Senate Majority Leader Harry Reid’s (D‑Nev.) announcement yesterday of upcoming Senate action on cybersecurity legislation coincides nicely with reporting that the recently discovered Flame virus has similarities to Stuxnet. You see, the best example of a cyberattack having kinetic effects—causing physical damage—is Stuxnet. It targeted Siemens industrial software and equipment used in Iran’s nuclear program, causing damage to some centrifuges used in that program.

Stuxnet is widely believed to be a product of the U.S. and Israeli governments. Flame’s kinship with Stuxnet adds to the story: Our government is a top producer of cyberattacks.

The methods used in these viruses will be foreclosed as researchers unpack how they work. Our technical systems adapt to new threats the way humans develop antibodies to disease. But in the near term the techniques in Stuxnet and Flame may well be incorporated into attacks on our computing infrastructure.

The likelihood of attacks having extraordinary consequences is low. This talk of “cyberwar” and “cyberterror” is the ugly poetry of budget-building in Washington, D.C. But watch out for U.S. cyberbellicosity coming home to roost. The threat environment is developing in response to U.S. aggression.

This parallels the United States’ use of nuclear weapons, which made “the bomb” (Dmitri) an essential tool of world power. Rightly or wrongly, the United States’ use of the bomb spurred the nuclear arms race and triggered nuclear proliferation challenges that continue today. (To repeat: Cyberattacks can have nothing like the consequence of nuclear weapons.)

Senator Reid has gone hook, line, and sinker for the “cyber‑9/​11” idea, of course. Like all politicians, his primary job is not to set appropriate cybersecurity policies but to re-elect himself and members of his party. The tiniest risk of a cyberattack making headlines to use against his party justifies expending taxpayer dollars, privacy, and digital liberties. This it not to prevent cyberattack. It is to prevent political attack.

Politics is well understood by the authors of the letter Senator Reid cited in his statement about bringing cybersecurity legislation to the Senate floor. They are mostly from the party opposite his. Several of them participated at some level in developing our nation’s cyberbellicose world posture. And several now make their living in consulting and contracting firms that respond to the danger they helped create.

They are:

• Michael Chertoff, Homeland Security secretary under President Bush, is now co-founder and Managing Principal of The Chertoff Group, which “provides business and government leaders with the same kind of high-level, strategic thinking and diligent execution that have kept the American homeland and its people safe since 9/11.”
• Mike McConnell, former director of the National Security Agency and National Intelligence under President Bush, is now Vice Chairman of Booz Allen Hamilton.
• Paul Wolfowitz was a deputy defense secretary under President Bush, now a visiting scholar at AEI.
• General Michael Hayden, former director of the NSA and the CIA under President Bush, is now a principal at the Chertoff Group, and in January 2011 was elected to the Board of Directors of Motorola Solutions, which “provides business- and mission-critical communication products and services to enterprises and governments.”
• Gen. James Cartwright, former vice chairman of the Joint Chiefs of Staff, is on the board of advisors of TASC, Inc. TASC “provides advanced systems engineering, integration and decision–support services to the Intelligence Community, Departments of Defense and Homeland Security and civilian agencies of the federal government. We deliver honest counsel, forward–thinking engineering and advanced technologies that help our customers protect Americans at home, in the air, on the battlefield and in cyberspace.”
• Hon. William J. Lynn III, former deputy defense secretary, is now Chairman & CEO of DRS Technologies, a Defense and Security Electronics Division of Italian industrial group Finmeccanica. DRS Technologies is “leading supplier of integrated products, services and support to military forces, intelligence agencies and prime contractors worldwide.”

The ACLU has issued a related report here.

This blogpost was co-authored by Trevor Burrus.

A seemingly complicated legal case that has caught Cato’s attention, CCA Associates v. United States, boils down to a simple constitutional question: If the government reneges on a contract and forces a property owner to rent apartments at below-market rates for longer than originally agreed, does it constitute a taking under the Fifth Amendment (which would require the government to pay just compensation)?

In 1961, Congress amended the National Housing Act to create incentives for private builders to supply housing to low- and moderate-income families. Builders were given below-market mortgages backed by the federal government and, in return, the owners agreed to certain restrictions from the Department of Housing and Urban Development, the most relevant being limitations on raising rent. Owners were also given the right to pre-pay the 40-year mortgage after 20 years, however, freeing them at that time from their rent-control obligations.

In 1990, as one 20-year period came to a close, Congress took away the owners’ right to pre-pay their mortgages. In 1996, however, Congress returned the property owners’ right to pre-pay. Therefore, between 1991 (when the original 20-year period would have lapsed) and 1996, the property owners were forced to rent at below-market rates.

CCA Associates is one of many similarly situated property owners who are suing the federal government for its clear act of duplicity. CCA Associates’ case, among many others, has been bouncing back and forth between the Court of Federal Claims and the Federal Circuit for many years.

One of the key questions is how to determine the degree to which the government’s actions economically affected CCA Associates’ property. One view is that there was substantial economic impact during the five-year period between when Congress eliminated and then restored the pre-pay right — CCA Associates lost approximately 81% of the property’s possible value during those five years. Another view looks at the impact during the five-year period as fraction of the entire life of the property, not just the diminished value during the five-year period. Under this calculation, CCA Associates only lost 18% of the total value of the property.

The Federal Circuit adopted the latter formula and held that 18% is not a substantial enough economic impact to constitute a Fifth Amendment taking. Cato has joined the National Federation of Independent Business, the Center for Constitutional Jurisprudence, and Professor Steven Eagle of George Mason University Law School on an amicus brief urging the Supreme Court to take CCA Associates’ case.

We argue that adopting the Federal Circuit’s answer to the so-called “denominator question” — that is, whether the denominator in the “economic impact” fraction should be the entire life of the property or the shorter (here five-year) period during which the government temporarily took the owners’ right to rent at the market price — could preclude all possible claims that the government committed a “temporary taking.” By choosing a big-enough denominator, courts can always characterize an economic impact as being below the constitutional threshold.

We also argue that, in applying the Supreme Court’s factors in the famous 1978 Penn Central case (which set up the analytical framework for regulatory takings), the Federal Circuit incorrectly treated the factors as a magic formula and ignored other relevant factors. Finally, we point out how courts are obviously confused about the proper standards to apply in these cases, thus creating a perfect time for the Supreme Court’s guidance.

The Court will decide this fall whether to hear CCA Associates v. United States.

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP: Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.