Mark Changizi, Daniel Kotzin, and Michael Senger were frequent Twitter users who often wrote with skepticism or criticism of the government’s approach to COVID-19, such as questioning the effectiveness of masks or vaccines. At various times, they had posts removed by Twitter for allegedly violating its misinformation policy. Eventually, they were each banned or suspended from Twitter altogether.

All three have sued, but they aren’t suing Twitter to be reinstated. Instead, they’re suing various federal government agencies and officials. They allege that Twitter was coerced by multiple formal government actions, such as the Department of Health and Human Services sending Twitter a “Request for Information” on COVID-19 disinformation. They also allege that Twitter was illegally influenced by federal officials’ various public statements, such as President Biden’s remark that social media companies are “killing people” by allowing misinformation. In their lawsuit, the plaintiffs are asking that the federal officials be prevented from making similar statements in the future and that the formal actions be revoked.

The district court rejected the plaintiffs’ argument and dismissed the case for lack of standing. The court found there was no evidence that the federal actions and statements had caused Twitter to deplatform the plaintiffs, given that Twitter had removed others for disinformation before any of the government actions at issue. The court also suggested that the plaintiffs’ injury could not be remedied by a court order, since they are not suing Twitter and would not necessarily be reinstated if they win. The plaintiffs have now appealed to the Sixth Circuit where NetChoice, joined by the Cato Institute and the Pelican Institute, has filed an amicus brief supporting neither party.

In our brief, we focus not on who should win this particular case, but rather on the larger principles at stake in how the Sixth Circuit decides this case. First, we urge the court to acknowledge that government pressure against speakers or platforms, known as “jawboning,” raises serious First Amendment concerns. All too often, government agencies and officials attempt to suppress speech informally when they could not legally do so formally. At a certain point, as the Supreme Court held in Bantam Books v. Sullivan (1963), such pressure becomes so coercive as to violate the First Amendment.

Whether applied to old media like book publishers or new media like online platforms, such pressure should be discouraged, and courts should vigorously police its permissible boundaries. And contrary to the district court’s suggestion, a request to stop government pressure asks for a sufficient remedy, whether or not the absence of pressure would change the platform’s behavior. Jawboning lawsuits vindicate not the right to be platformed, but rather the right to have platforming decisions be made in the absence of government coercion.

At the same time, courts should also make clear that such pressure does not transform platforms like social media companies into “state actors.” Publishers and social media networks do not become the government even when they fall under intense pressure from the government. They are unlike private “company towns” that function like local governments for all intents and purposes. Checks upon government discretion, like the First Amendment, do not apply to private entities like social media platforms. Courts should thus make clear, when reviewing jawboning claims, that the government itself is the proper defendant, not the private platforms. If courts instead erroneously allowed suits to be brought against private platforms to enforce public First Amendment standards, it would ironically lead to a loss of the private speech rights of those platforms to choose what speech they publish.

Jawboning cases like this one are likely to reach the courts with increasing frequency in the social media age. When reviewing these cases, courts should be careful to strike an approach that protects the speech rights of both social media platforms and their users.

The Brookings Institution recently released a report seeking to “debunk” the idea that cryptocurrencies may help with financial inclusion. Yet, the report closes with an unnecessarily strict conclusion—arguing the government alone is best suited for helping financial inclusion.

Tonantzin Carmona, the report’s author, deserves credit for noting early that “it is crucial to emphasize that crypto’s current state and its potential are very different, including when it comes to financial inclusion claims.” More so, Carmona deserves credit for distinguishing between the different groups that are often considered when discussing financial inclusion and for cautioning people against making sweeping claims.

Unfortunately, however, the report goes awry in concluding: “[R]ather than endorse crypto as a tool for equity, we should instead promote and explore policy solutions that can more directly and impactfully achieve and bolster financial inclusion.” In doing so, the report recommends government initiatives like FedNow, Postal Banking, and Fed Accounts as “more direct ways to address financial inclusion.” And therein lies a twofold problem: not only are those policies unlikely to aid the unbanked, but also this proposal overlooks that the government itself has made financial services harder to acquire.

FedNow, Postal Banking, and Fed Accounts

As Aaron Klein, Brookings’ Miriam K. Carliner Chair for Economic Studies, has argued alongside Cato’s own George Selgin, “Payment delays are a hidden driver of income inequality in America” and “the [Federal Reserve (Fed)] itself deserves much of the blame for the slow pace of clearing U.S. payments.” For example, in 2017, it was the private sector that finally began to develop a faster system (the Real-Time Payments Network) for the country, but the Fed interrupted its progress in 2019 when it stepped in to introduce its own faster payments service (FedNow). In doing so, the Fed stalled the development of faster payments as banks waited to see which network would be the best to join. The Fed has only compounded this issue with the recent announcement that when FedNow goes live in mid-2023, it will be using its authority to underprice the market—further undermining private sector developments. So thus far, FedNow has only succeeded in worsening the situation by undermining and stalling meaningful changes that could have occurred years ago.

Postal banking is likewise a misguided policy. Only six people used the service when a pilot postal banking program was performed in four cities in 2021 and 2022. And these abysmal results make sense when considering why the unbanked are unbanked in the first place. Postal banking proponents often cite the network of post offices as offering a much-needed solution to the closing of bank branches. Yet, when surveyed by the Federal Deposit Insurance Corporation (FDIC), the unbanked rank “inconvenient bank locations” as the third least important reason for being unbanked (Figure 1). In other words, financial inclusion may be a problem, but postal banking is certainly no solution.

Finally, Fed Accounts are no solution either. For those that might be unfamiliar, the general idea is to open the doors of the Fed and turn it into the people’s bank by allowing anyone to open an account at the Fed—an idea similar to central bank digital currencies, or CBDCs. While there are many issues with such a proposal, the FDIC survey cited above offers another insight into why this proposal is unlikely to be received well among the unbanked. The three most cited reasons for being unbanked are a lack of funds, a concern for privacy, and a distrust of banks. Although advocates may argue subsidized accounts could alleviate the first concern, lack of income is a broader economic problem that is unlikely to be fixed by lowering the costs of bank accounts. Separately, it’s unclear what the federal government can do to help with the second two concerns. Considering the federal government regularly violates financial privacy and so many Americans distrust the government, it is unlikely that Fed Accounts will be a solution for the unbanked. In fact, it’s likely that many unbanked Americans will actively avoid Fed Accounts.

The Government Itself Deserves Much of the Blame

Even more broadly, it’s important to recognize that the government itself has made financial services harder to acquire. Just as the Fed bears responsibility for the long overdue update to America’s payment system, the U.S. government at large bears responsibility for why so many Americans have left the banking system.

Part of the reason that avoiding banks provides more privacy for the unbanked is because the government has effectively deputized banks and other financial institutions as law enforcement investigators. The history of the Bank Secrecy Act has been a history of the federal government forcing financial institutions to report more and more information on their customers.

Yet, the Bank Secrecy Act regime has not just been a cost to one’s financial privacy. It is also responsible for some of the costs people face when using financial services. It is estimated that complying with the Bank Secrecy Act in 2019 cost the U.S. financial industry $26.4 billion. And this number shouldn’t be shocking since the surveillance regime requires financial institutions to have compliance officers, use specialized software, investigate clients, and file millions of reports—all for little practical benefit.

Looking beyond the factors affecting the unbanked and more broadly to racial exclusion, the Federal Housing Administration (FHA) was one of the chief architects of historic redlining. As noted by Kristen Broady, Mac McComas, and Amine Ouzad in a 2021 Brookings Report, “In tandem, the FHA and HOLC [(a government-sponsored corporation)] helped lock in existing patterns of racial discrimination in the U.S. housing market.”

While this description only scratches the surface, it should make it clear why the government should not be considered as the only solution for financial inclusion, if at all.

Closing Thoughts

Cryptocurrencies are not panaceas to the world’s troubles, but they do offer many solutions that shouldn’t be dismissed. Even in a market that seems to be dominated by nothing but bad news, the fact remains that cryptocurrencies can assist with the needs of the unbanked through lower startup costs, stronger financial privacy protections, and the opportunity to remove centralized intermediaries. The report does well to point out that there are some challenges with these factors, but those challenges do not warrant abandoning what cryptocurrency can offer.

In fact, I’d simply caution readers with a quote from the report itself: “it is crucial to emphasize that crypto’s current state and its potential are very different…” Rather than abandon the potential for cryptocurrency—as the report concludes—to solely focus on fixing the legacy financial system, Congress should seek to fix the existing system and welcome new alternatives.

History has already shown how decades of restrictive policies have failed the unbanked. Restricting the market further will only continue this history of failure.

My last post argued that, despite what Diamond and Dybvig’s famous theory suggests, bank runs have seldom proven fatal to otherwise sound banks. Instead, when people run on a bank, it’s usually because it’s already in hot water.

In response to that post, a Twitter correspondent wondered whether the Panic of 1907—the proximate cause of the reform efforts culminating in the Fed’s establishment—was an exception to my claim, and therefore evidence of the inherent vulnerability of fractional reserve banking. The gist of my two-tweet reply was that it wasn’t. But since 560 characters hardly allowed me to elaborate, I do so here.

A Quick Review

Before we look into the 1907 episode, let’s quickly go over Diamond and Dybvig’s theory of runs along with the alternative, “information-based” theory. If you want to know more about them, have a look at my previous post linked above, and (if that doesn’t suffice) at an earlier pair of posts I wrote about Diamond and Dybvig’s work.

In essence, that work treats runs as results of sheer panic: all it takes to inspire depositors to rush to withdraw their money from a bank is the fear that other depositors might do so. It follows that sound banks are as likely to be a target of runs as unsound ones, and that a run can itself cause a bank to fail.

In contrast, the theory that runs are information based holds that depositors only run on a bank when they have reason to believe that it’s already in trouble, owing to some shock to its investments, to unwise investment decisions, or to willful misconduct. Runs thus tend to expedite the closure of unsound banks, without compelling sound ones to close. However, because depositors generally lack complete knowledge of their banks’ undertakings, the tendency is only that: even information-based runs can become “contagious,” spreading from unsound to sound banks. But in practice such contagions tend to be limited: typically they only affect sound banks that operate in the same area as those known to be unsound, or that have business connections to those banks.

An Unfalsifiable Theory

Because a Diamond-Dybvig run can be triggered by anything, or nothing at all, the Diamond-Dybvig theory can’t be tested or falsified: instead, it’s consistent with any run, or set of runs, under any circumstances in which depositors face some risk of loss, if only because they panic. In contrast, as Gary Gorton explains, the hypothesis that runs are information-based is testable: it suggests that runs should display a pattern at least roughly consistent with “movements in variables predicting deposit riskiness.” The theory that runs are information-based also implies that runs on sound banks should be relatively rare even in banking systems lacking insurance or a public lender of last resort.

It follows that, no matter what I tell you about the Panic of 1907, I can’t claim that any of it disproves the Diamond-Dybvig theory. I can only hope to convince you that the evidence, which is bound to be consistent with their theory, is also fully consistent with the alternative, information-based theory of runs, with its very different policy implications. I leave it to you to decide whether evidence consistent with the information-based alternative is a good reason for preferring it, or just a remarkable coincidence from which no practical conclusions can be drawn.

A Trust Company Panic

Although Kerry Odell argues convincingly that the stage for the Panic of 1907 was set by a string of events starting with the great San Francisco earthquake of April 1906, its proximate cause was a failed mid-October, 1907 attempt by the Heinze brothers, Otto and Frederick, and their associate, Charles W. Morse, to corner the market in shares of the United Copper Company. The idea was to put a bear squeeze on speculators who’d been selling the company short. If the squeeze succeeded, the short sellers would have to buy back the shares they’d borrowed and sold at an inflated price. But it didn’t: after rising sharply in mid-October, United Copper’s share price collapsed even more precipitously, ruining the schemers. Their comeuppance coincided with runs on various banks and trust companies, culminating in a general restriction of bank payments on the 26th. Before the dust settled a month later, 42 trust companies failed.

So much for the bare facts. But was the “Panic” of 1907 truly a case of bank and trust depositors’ “sheer blind, unreasoning fear,” as Edwin Lefevre put it in an oft-repeated remark from a 1908 article? The answer, in brief, is no. As Lefevre himself understood, “there were reasons why there should have been a panic, and why it should have been exactly the kind that it was, and also why it should have raged at the time when it did and not much earlier and not much later.” He might have added that there were also reasons why it affected certain banks and trust companies more than others.

That the panic affected financial institutions at all is itself easy to explain: after making his way from the copper mines of Montana to New York City at the start of 1907, Frederick Heinze went into the banking business along with Morse; and when United Copper collapsed, both were serving on the boards of numerous banks and trust companies, including the Mercantile National Bank, which they controlled, with Heinze serving as its President. That their roguery and downfall should have raised serious concerns about the financial institutions they were associated with is hardly surprising. But if runs are information-based, those concerns shouldn’t have spread very far beyond those institutions.

In fact, as Carola Frydman, Eric Hilt, and Lily Zhou showed several years ago, the runs triggered by United Copper’s collapse “were strongly influenced by any observable connection to Charles Morse or the other speculators involved in the failed corner.” The Mercantile National Bank was, naturally enough, the first to face the music, on October 16. Other banks associated with Morse and Heinze were attacked soon after. But the runs ended when the New York Clearing House affirmed their solvency. It also helped free up some of their reserves by authorizing their employment of clearing house “loan” certificates in lieu of conventional (that is, fully legal-tender-backed certificates) as means of settlement.

The banks having thus been spared for the time being, trusts alone remained vulnerable. But though many suffered runs, these were anything but indiscriminate. The stampede started with a run on the Knickerbocker Trust on October 21st, which came fast on the heels of two bits of bad news. The first concerned Knickerbocker’s president, Charles Barney, who had just been ousted because of his connections with Morse and Morse’s banks. The second was that the National Bank of Commerce was no longer willing to serve as Knickerbocker’s clearing agent. Two days later, the Trust Company of America, which had Barney among its directors, “endured the heaviest bank run in America up to that time” (Frydman et al., p. 911). Some weeks later, the disgraced former bank president shot himself.

In the meantime, runs spread to other trusts, but the pattern stayed the same: five had either Otto Heinze or Morse, or both of them, among their directors, while three had at least two directors in common with one of those five (ibid., p. 909). Trusts with direct or indirect connections lost more than twice as many deposits, through runs or otherwise, as others between August and December 1907. In short, the runs and deposit withdrawals trusts faced were clearly information based, where the relevant information concerned the extent of trusts’ “personal connections” to men implicated in the copper scandal.

A Flawed Arrangement

For banks, the story is more complicated. As we’ve seen, action by the New York Clearing House temporarily spared its members from runs of the sort trusts were subjected to. But the story didn’t end there. Instead, as A. Piatt Andrew reported,

The closing months of 1907 were marked by an outbreak of fright as wide-spread and unreasoning as that of fifty or that of seventy years before, by the suspension of cash payments on the part of a very large proportion of our sixteen thousand banks, by the issue of private and unauthorized currency in multitudes of towns and cities, and by the appearance and continuance during two months of a considerable premium upon legal money.

That sure sounds like the sort of panic Diamond and Dybvig’s theory predicts. And so it was, in some respects. Yet it doesn’t follow that Diamond and Dybvig’s theory explains why the panic broke out, or that their favorite solution—deposit insurance—could have prevented it. To see why, it’s necessary to look beyond the panic itself to several circumstances lurking in the background.

Of those circumstances, four were especially important. The first consisted of the fact that the demand for paper currency spiked during the autumn “crop moving” season. The second consisted of peculiar U.S. regulations, dating from the Civil War period, that made it difficult for banks to accommodate that seasonal demand. National bank notes had to be fully backed by specific U.S. government bonds, which became increasingly scarce, and costly to acquire, during the decades following the war. And even if it managed to acquire the necessary bonds and sent them to the Comptroller of the Currency, it could take up to two months for a bank to acquire more notes in return, during which time its investment would be a dead loss to it. State banks, on the other hand, were altogether deprived of their ability to issue banknotes by a prohibitive tax that went into effect in August 1866.

The third circumstance consisted of barriers to branch banking. Most banks couldn’t even have branches within a single state; and while a few state laws did allow branching, neither state nor federal laws allowed banks to branch across state lines. These barriers to branching stood in the way of the development of a truly nationwide banking system, especially by denying most banks direct access to the major money markets, and especially to the central money market of New York City. Instead, banks had to access those markets indirectly, through correspondent banks located in them. The result was a three-tier arrangement: “country” banks kept balances with “reserve city” correspondents, and those correspondents in turn kept balances with major New York banks. The National Banking Acts themselves encouraged these arrangements by allowing national banks’ correspondent balances to satisfy a portion of their minimum reserve requirements, that is, to be treated as equivalent to so many gold coins or greenbacks.

The fourth and final circumstance consisted of New York banks’ tendency to invest funds received from their correspondents in the city’s call loan market, where they financed the purchase of stocks on margin. Ordinarily, the fact that these loans were callable on one day’s notice made them quite liquid, so that the New York banks had no trouble meeting correspondents’ requests to draw on their balances. But when heavy withdrawals coincided with a bear market, the same banks might be prevented from calling enough loans to meet them, in which case they’d have to resort to other expedients. One of those expedients, which was resorted to only when others failed, was a restriction of cash payments.

A Currency Panic

The circumstances just described, which (apart from the fluctuating demand for currency) were unique to the United States, amounted to the currency-market equivalent of a primed powder keg. Under the wrong set of conditions, including a falling stock market, the keg could explode. And conditions proved very wrong indeed in 1907.

During the first nine months of that fatal year, as the harvest season approached, shares fell by almost 25 percent, putting country bankers on the qui vive. As Robert Bruner explains (pp. 3–4), they had “learned from past experience that, during a panic, withdrawing deposits from reserve city banks could be difficult.” The keg having thus been primed, it only remained for United Copper’s collapse to light the fuse, triggering not only runs on trusts and banks that were more-or-less directly involved in that collapse, but a rush by country and reserve-city banks to withdraw their correspondent balances. When, on October 26th, the New York banks found their own reserves approaching minimum requirements, the clearinghouse allowed them to restrict payments. News of New York’s restriction in turn “triggered a national wave of hoarding currency and gold,” driving paper currency to a premium, and confronting safety deposit companies there and elsewhere with more box rental requests than they could handle.

Yet mad as it was, this scramble for paper money was no Diamond-Dybvig-type run: it was not, Piatt Andrew (p. 294) notes, “attributable, as is so often implied, to women, clergymen, and other timid small depositors.” Instead, the participants were mainly “large business interests” seeking “to provide for any possible contingency which might prevent their meeting their regular obligations in the usual way,” including manufacturing firms determined to be able to pay their workers at a time when pay-envelopes hadn’t yet given way to paychecks. The scramble was, in other words, a scramble to get hold of a particular type of payments medium, rather than one to avoid being left holding the bag if one’s bank failed.

And that difference was of crucial importance. It meant that deposit insurance, had it existed, wouldn’t have made any difference. It also meant that panic could instead have been avoided simply by allowing bankers complete freedom to swap their own paper IOUs for any amount of deposit credits. It was only because they couldn’t do so that banks had to meet exceptional demands for currency by drawing on their reserves, including their correspondent balances. And that’s why the United States experienced a currency panic not just in 1907 but in 1893 and, to a less severe extent, on some previous occasions. Although the solution actually chosen was a “decentralized” central bank capable of serving as a lender of last resort, it was chosen only after special interests and their Capitol-Hill cronies scuttled legislation that might have solved the problem, and solved it more reliably, by means of deregulation.

Evidence

Economists are so used to equating increases in the demand for currency with a general loss of confidence in banks that many will find it hard to believe that national and state banks themselves might have prevented panics using nothing other than their own paper promises. Yet there’s plenty of evidence supporting that claim, starting with the many “asset currency” reform proposals that took its truth for granted.

There’s also the fact, noted by Joseph French Johnson (p. 455), among others, that, although it broke out in the wake of a general crisis that was itself “felt in all the countries where gold was the standard money,” the 1907 panic itself was “confined to the United States.” Piatt Andrew (pp. 290–91) draws particular attention to the lack of any currency panic or premium in England, France, and Prussia; but because these places all had central banks, their avoidance of panics isn’t itself telling. Far more revealing is Canada’s experience, for Canada also avoided panics, and it did so, not by relying on a central source of emergency reserves, but simply by letting its commercial banks issue paper currency on terms roughly identical to those governing their creation and administration of deposits. The result was a perfectly “elastic” currency stock, meaning one that responded automatically to the public’s changing needs.

In a brilliant paper that deserves more attention, Bruce Champ, Bruce Smith, and Stephen Williamson modify Diamond and Dybvig’s model so as to capture the implications of either allowing or not allowing banks to issue their own redeemable paper currency, where the need for such currency fluctuates. They compare U.S. and Canadian seasonal and cyclical movements in interest rates, reserves, note circulation, and other variables, and then show that their modified model does a good job explaining both those patterns and the fact that the United States experienced occasional banking panics, while Canada didn’t.

A final body of evidence suggesting that U.S. banks might have fended for themselves, and avoided currency panics, simply by issuing notes backed by their general assets, consists of the successful employment of “emergency” currencies during those panics. On several occasions when U.S. banks restricted cash payments, a substantial part of the public’s currency needs was met by various temporary expedients, including small-denomination clearinghouse loan certificates, round-denomination cashiers’ checks, and local scrip; and that was never more the case than in 1907 when, according to Piatt Andrew, some $500 million of such ersatz currency was issued. This was about $150 million more than the total outstanding value of national banknotes. “For two months or more,” Andrew says,

these devices furnished the principle means of payment for the greater part of the country, passing almost as freely as greenbacks or bank-notes from hand to hand and from one locality to another (ibid., p. 515).

Like national banknotes, but unlike greenbacks, these temporary currency substitutes weren’t legal tender. What’s more, they were of doubtful legality, if not plainly illegal. Yet “no one thought of prosecuting or interfering with its issuers,” and “in default of any legal means of relief, it worked effectively and doubtless prevented multitudes of bankruptcies which otherwise would have occurred” (ibid., p. 516). As the late Steve Horwitz observes, in his own excellent analysis of the 1907 panic, if such ersatz currencies could do that, it’s hardly a stretch to suppose that, had they been free to issue proper banknotes, backed by their general assets, national and state banks might have been as safe from panic as their counterparts in the Great White North. Horwitz’s supposition was in fact shared by many contemporary authorities, including Joseph French Johnson (p. 466), a great admirer of the Canadian banking and currency system who observed, after the 1907 panic had ended, “That our banks should have had the legal right to do what they did outside the law during the panic is now pretty generally admitted.”

Pretty generally admitted; but, alas, never acted on.

The Freedom Fix

Saying that the United States might have avoided panics just by repealing laws that prevented banks from issuing more of their own paper banknotes isn’t saying that other reforms wouldn’t have been helpful. As Champ et al. (p. 860) note, while their model suggests that “a system of unrestricted banknote issue backed by general assets could…function fairly well,” it abstracts from “other organizational problems,” including barriers to branch banking, that can also contribute to instability. While freedom of note issue worked well in Canada, its success may have depended on the fact that Canada also allowed its banks to branch nationwide. Consequently, merely expanding U.S. banks’ ability to issue banknotes might not have sufficed to fully cure the United States’ currency and banking ills.

Nor were U.S. proponents of asset currency unaware of this. Instead, all championed various other reforms, often including the elimination of barriers to branch banking. They were especially anxious to make sure that, once they were no longer needed by the public, banknotes would be promptly returned to their sources for redemption. So, although freedom of note issue alone might not have been a viable alternative to a central bank, it was a crucial component of a viable set of mostly liberal banking reforms.

It follows from all this that, instead of serving as evidence that unregulated fractional reserve banking systems are inherently unstable, as both conventional wisdom and Diamond and Dybvig’s model suggest, the Panic of 1907 really demonstrates something quite different, to wit: that while in theory regulations make banking systems more stable, in practice they can do just the opposite.

[Cross-posted from Alt‑M.org]

California is often seen as a model for bad housing policy, with exclusionary zoning practices, environmental rules, and other regulations driving up the cost of housing until it is unaffordable for many state residents. Unfortunately, the Golden State is no longer an outlier. Other states are increasingly following California’s route to unaffordable housing.

In a Policy Analysis released today, Keeping North Carolina’s Housing Affordable: A Free Market Solution, I look at one such state. Like California 20 years ago, people are being drawn to the Tar Heel State by a combination of good weather and strong economic growth. Unfortunately, new housing construction has failed to keep up with North Carolina’s rapidly growing population. Since 2010, the price of a house has increased by 31.5 percent, while rents have risen by 14.6 percent. The average fair market rent, which represents the 40th percentile of gross rent, for a two-bedroom apartment in North Carolina now exceeds $960 per month, or more than $11,500 per year. 

While no single factor is responsible for North Carolina’s scarcity of housing, many communities in the state have exacerbated the problem by making it difficult to build enough housing to meet demand. Restrictive zoning limits the type and amount of housing that can be built. These regulations include prohibiting multifamily housing, setting minimum lot sizes and parking requirements, mandating setbacks, and limiting the height of houses. Basic economics suggest that artificially restricting supply in the face of growing demand will lead to higher prices.

Exclusionary zoning imposes consequences on North Carolinians that extend far beyond the boundaries of the local jurisdictions that create those regulations. The state’s economic growth is slower than it might otherwise be. Poverty is more concentrated and more difficult to escape. Landlord-tenant relationships are disrupted. And the state is more racially segregated than it would otherwise be.

If North Carolina hopes to avoid a Tar Heel version of California’s dysfunctional housing market, it needs to dismantle exclusionary zoning practices and make it easier to build more housing. A few local jurisdictions, notably Raleigh and Durham, have taken modest steps toward reform in recent years, but NIMBY forces remain powerful. In the absence of local action, the state legislature should intervene. Bipartisan legislation to reform zoning statewide was introduced last year. While not perfect, it provides a starting point for debate in the 2023 session.

I will be talking about this and more at an event on December 8th co-hosted with the John Locke Foundation. The event will be live-streamed, and you can sign up here.

Live Online Special Event

Keeping North Carolina’s Housing Affordable

December 8, 2022 • 12:30 PM — 3 PM EST

With North Carolina’s population boom, keeping housing affordable is more critical than ever before. This year, tens of thousands have decided to call North Carolina home. But will they be able to afford one? Join the Cato Institute and the John Locke Foundation for this essential and watershed discussion. We will hear from experts, stakeholders, and legislators on the solutions we can pursue to keep North Carolina a place that people call home.

Event Details

People who should know better — who surely do know better — keep misstating the legal issue in the cases brought by individual creators who don’t want to be forced to create cakes, floral arrangements, photography, or websites for same-sex weddings. The question in Monday’s argument before the Supreme Court, as the Court defined it, was “Whether applying a public-accommodation law to compel an artist to speak or stay silent violates the Free Speech Clause of the First Amendment.” That is, the issue is compelled speech.

But distinguished legal scholars and journalists keep misstating the cases as whether a service provider can refuse service to certain types of people, such as gay people. For instance:

In the New York Times, David Cole — who taught for 26 years at Georgetown Law School before becoming national legal director of the ACLU — writes, “The right question is whether someone who chooses to open a business to the public should have the right to turn away gay customers.” But Lorie Smith doesn’t want to turn away gay customers. She only wants to decline requests to create websites for gay weddings. She says she happily serves LGBTQ customers who come to her for other sorts of websites.

In the Los Angeles Times Erwin Chemerinsky, dean of the UC Berkeley law school, says Smith will be in violation of a “Colorado law [that] prohibits businesses that sell or offer services to the public from discriminating based on disability, race, creed, color, sex, sexual orientation, marital status, national origin, or ancestry.’ ” But again, Smith doesn’t want to discriminate against any person. She just doesn’t want to design websites that promote what she sees as offensive ideas. Presumably she would turn down a straight man who wanted her to create a website for the same-sex wedding of his friends.

In the Washington Post Robert Barnes connects Smith’s case to that of another Coloradan, Jack Phillips of Masterpiece Cakeshop, who several years ago declined to create a cake celebrating a gay wedding. A wedding which, by the way, had been held in Massachusetts because the state of Colorado refused to allow gay people to get married at the time. Barnes notes that Phillips “is currently in [new] litigation over his refusal to create a cake for a transgender customer.” But that again is wrong. There’s no evidence that Phillips would refuse to create a cake for a transgender person; he did decline to create a cake that celebrated her gender transition.

In all these cases the issue is whether being required to use your creative abilities to celebrate an event that you regard as immoral constitutes “compelled speech” under current law. The distinction between refusing to serve gay customers, and refusing to participate in a particular celebration requested by a gay customer, may not be obvious to laypeople. But it’s an important distinction, and one that is not obscure to legal scholars and journalists. They should state the position of the bakers, website designers, and other creators accurately.

A northern California transit agency has voted to use its power of eminent domain to displace three San Jose small businesses and eight residential tenants to build a new subway that is not expected to begin operations until 2034.

The Santa Clara Valley Transportation Authority (VTA) is planning a six-mile extension to the Bay Area Rapid Transit (BART) system from North San Jose through the city’s downtown and to neighboring Santa Clara. As I discussed in a recent op-ed, the proposed $9.3 billion project is unlikely to attract sufficient new transit ridership to justify its high cost.

The proposed subway would be built deep underground to minimize disruption along East Santa Clara Street, downtown San Jose’s major east-west thoroughfare. But the planned destruction of a mixed-use building housing the residents and businesses shows that even a deep subway will adversely impact the community. According to VTA, the building must be removed to provide egress from and ventilation to the future Downtown San Jose subway station.

Among the businesses that will be forced to close is Mexico Bakery, a minority-owned business that employs ten people and has been serving the community for almost two decades. Also facing closure are Enso Nightclub and 3^rd & Bourbon, a new lounge and restaurant.

According to VTA staff, the building needs to be removed by early 2024 to avoid impacting its construction schedule, but the project has yet to receive a Full-Funding Grant Agreement (FFTA) from the Federal Transit Administration. Lacking an FFTA and the billions of dollars in federal grants that would follow, VTA does not have enough money to complete the project.

Despite this funding uncertainty, VTA staff were anxious to seize control of the property. Consequently, they recommended that the agency’s board adopt a Resolution of Necessity at its December 1, 2022 board meeting. This resolution authorizes staff to initiate an eminent domain action unless the property owner agrees to sell.

The board gave VTA staff unlimited time to present its case for condemning the building. It then recognized the building owner to make his case against eminent domain but cut him off after five minutes. It then voted for the Resolution unanimously (with one abstention).

It is hard to understand the rush to take over this building, kick out the residents, and close the businesses given the length of the proposed project. Although VTA’s project web page suggests a 2030 opening date, a Federal Transit Administration review anticipates an opening date in June 2034.

But even that date may be optimistic given previous project results. Phase I of the BART Silicon Valley extension, consisting of ten miles of above ground track broke ground in 2012 with a planned completion date of 2016. Service along the line did not begin until 2020. Other Bay Area transit projects, including the San Francisco Central Subway and the Salesforce Transit Center also experienced long delays.

VTA plans to deprive downtown San Jose of three businesses and eight homes on the promise that maybe, one day in the next decade residents will be able to use a subway instead of a bus for certain transit needs. While VTA’s threatened use of eminent domain technically satisfies the Fifth Amendments “public use” requirement, members of today’s public do not stand to benefit.

It was on this day in 1886 that the journalist and author Rose Wilder Lane was born in a little house on the prairie that she and her mother, Laura Ingalls Wilder, would later make famous. A brilliant, moody, and independent spirit, Rose was eventually to become one of the most important voices of American liberty, and in 1943, published The Discovery of Freedom, a pathbreaking book that helped spark the revival of interest in free markets and individualism in the later 20^th century.

Ironic, then, that she started out as a socialist.

Lane grew up hating the life on the farm, and decided at an early age to become a journalist and traveler. In the 1920s, she went to Europe to report on the Red Cross’s efforts to help refugees in the wake of World War I, but during her travels, she was horrified by what she witnessed in the new Soviet Union. Bolshevik chiefs had begun confiscating food and forcing the people of Armenia and Georgia into manual labor to get it back. “We intend to redistribute it to the neediest,” one Soviet soldier told her. “We will see that they are the most needy by making them work for it.” After witnessing collectivism in action, Rose returned to the United States prepared to rethink everything she thought she had known about economics and politics.

In 1926, she arrived back at her parents’ farm, and dove into works on politics and history. In a letter to the journalist Dorothy Thompson, whom she had met in Paris, Lane described how her studies opened her eyes to the uniqueness of American freedom. America was criticized for “its lack of form,” she wrote. But now she saw that formlessness—in other words, its social and economic fluidity—as a great blessing: “It’s exactly stability which America discards.… Is it possible for a civilization to be wholly dynamic? Wholly a vibration, a becoming, a force existing in itself, without direction, without an object for its verb? A civilization always becoming, never being, never never having the stability, the form, which is the beginning of death?”

What Lane was describing was the dynamism of a free society, in which individuals are free to discover their own paths—both metaphorically and literally. In her book Give Me Liberty, published in 1936, Lane would explain how the freedom to choose enabled people to establish their own rules of social interaction, and accomplish their own purposes, without being dictated to by the state. She used a simple illustration, comparing the way people leave a theater at the end of a show to the way in which a teacher maintains order in a classroom. “No crowd leaves a theater with any efficiency,” she wrote, “yet we usually reach the sidewalk without a fight.” By contrast, any classroom instructor “knows that order cannot be maintained without regulation, supervision, and discipline.” That distinction underlined the difference between two kinds of societies: that in which people are at liberty to pursue their own goals, and that in which an authority figure controls people’s behavior in order to accomplish some single collective goal that they themselves might not share. Years later, the economist F.A. Hayek would label this the difference between “spontaneous” and “constructed” orders. Simply put, people don’t need an authority figure to tell them how to live—or, as Lane liked to put it, the very idea of Authority with a capital “A,” whether it be in the form of socialism, Nazism, or anything else, is fallacious: wealth, social harmony, and other blessings are not created by kings, dictators, or presidents. They are the result of individual initiative. And if that initiative is stifled by government intervention, the results can be wasteful, foolhardy, or even catastrophic.

As I detail in my new book, Freedom’s Furies, this and other discoveries helped make Lane—along with her friend and mentor Isabel Paterson, and another of Paterson’s admirers, Ayn Rand—one of a trio of women who would help revolutionize Americans’ conception of liberty in the age of the Depression and World War II. In 1943, all three of them published books—Lane’s The Discovery of Freedom, Paterson’s The God of the Machine, and Rand’s The Fountainhead—that helped spark the modern liberty movement. The journalist William F. Buckley later called them “the three furies of modern libertarianism.”

I spoke about Lane and her friends at a book forum at the Cato Institute last week, on a panel that included Reason magazine’s Elizabeth Nolan Brown, the Libertarian Party’s Carla Howell, and Cato’s Kat Murti and Paul Meany. You can watch that here:

Along with her own novels, Lane helped incorporate arguments for self-reliance and freedom into the Little House novels that she co-wrote with her mother. And she always remained an adventurous and rebellious spirit. Months after The Discovery of Freedom appeared, she wrote an angry postcard to a political commentator in which she criticized Social Security. In response, the FBI dispatched police officers to her home to question her about her “subversion.” To one officer’s questioning, she angrily replied, “I’m as subversive as hell!”—and demanded an apology from J. Edgar Hoover. (The FBI continued to surveil her, however.)

Lane remained a rebel until her death. In 1963, she published The Woman’s Day Book of American Needlework, which combined her lifelong interest in textile arts with her love of America’s culture of liberty. The arts of embroidery, crochet, and quilting, she argued, revealed how American women had found the freedom to express themselves and provide for their families, in ways unprecedented in history. Two years after that, Lane traveled to Vietnam to report on the war for Woman’s Day magazine. In 1968, she died at her home in Danbury, Connecticut, at the age of 81.

Lane was a pioneering feminist figure, and a fascinating personality—as well as being one of the Founding Mothers of our ideas of individual liberty. We would do well to remember her fascinating life story, and appreciate the ideas she helped preserve for us.