It doesn’t create a lot of confidence in Europe that tiny little Cyprus, with a GDP less than Vermont, is now causing immense turmoil.

Though to be more accurate, events in Cyprus aren’t causing turmoil as much as they’re causing people to examine both government finances and bank soundness in other nations. And that’s causing anxiety because folks have taken their heads out of the sand and looked at the reality of poor balance sheets.

Looking closer at the specific mess in Cyprus, an insolvent financial sector is the cause of the current crisis, though the problem is exacerbated by the fact that the government has dramatically increased the burden of government spending in recent years and therefore isn’t in a position to finance a bailout.

But that then raises the question of why Cyprus is bailing out its banks? Why not just let the banks fail?

Well, here’s where things get messy, particularly since we don’t have a lot of details. There are basically three options for dealing with financial sector insolvency.

1. In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
2. In a system with government-imposed deposit insurance, taxpayers are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
3. And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

As far as I can determine, Cyprus wants to pick the third option, sort of akin to the corrupt TARP regime in the United States. But that approach can only work if the government has the ability to come up with the cash when banks go under.

I’m assuming, based on less-than-thorough news reports, that this is the real issue for Cyprus. It needs taxpayers elsewhere to pick up the tab so it can bail out not only depositors, but also to keep zombie banks operating and thus give some degree of aid to shareholders and bondholders as well.

But other taxpayers don’t want to give Cyprus a blank check, so they’re insisting that depositors have to take a haircut. In other words, the traditional government-imposed deposit insurance regime is being modified in an ad hoc fashion.

And this is why events in tiny Cyprus are echoing all over Europe. Folks in other nations with dodgy banks and unsound finances are realizing that their bank accounts might be vulnerable to haircuts as well.

So what should be done?

I definitely think the insolvent institution should be liquidated. The big-money people should suffer when they mismanage a bank. Shareholders should lose all their money. Then bondholders should lose their money.

Then, if a bailout is necessary, it should go only to depositors (though I’m not against the concept of giving them a “haircut” to save money for taxpayers).

But Cyprus apparently can’t afford even that option. And the same is probably true of other European nations. 

In other words, there isn’t a good solution. The only potential silver lining to this dark cloud is that people are sobering up and acknowledging that the problem is widespread.

Whether that recognition leads to good policies to address the long-run imbalances – such as reductions in the burden of government spending and the implementation of pro-market reforms – remains to be seen.

A couple of months ago I warned about the dangers of having government gather and publish growing reams of information in the name of making education better. Sure, it sounds great – help people get as informed as possible! – but the dangers are legion. You can read about several such pitfalls in that old post. You can also get a sense of the great wealth of data already out there in this op-ed. What I haven’t discussed – and what might concern many Americans more than anything else – is the threat that massive data collection poses to our privacy.

Articles over the last week or so have started to draw significant attention to the growing education-information complex and its connection to long-standing efforts – especially federal – to accumulate information on Americans from birth to boardroom. Gaining particular traction has been a story about how student data collected in New York could be sold to companies or other entities outside of school districts. Even more concerning is a story by Joy Pullmann in the Orange County Register about lots of data collection and mining that is either already happening or under consideration nationwide.

What’s especially troubling to some people, including Pullmann, is that not only is there ever-growing centralization of curricula such as the federally backed Common Core, as well as centralized testing of knowledge, but there are also moves to assess students’ “affect” that could include wiring them to “facial expression” cameras and “skin conductance sensors.” Contemplating such things, it’s hard not to conjure up images of A Clockwork Orange.

When you read the federal report that proposes using “affective computing methods” such as skin sensors, it doesn’t appear that the authors have nefarious, big-brother intentions. The object of the report is to examine how students’ “grit” and perseverance can be improved, and that is a reasonable goal. Similarly, furnishing information about the academic status of incoming freshmen at a college, the amount they learn while in school, and how well they fare after graduation, is driven by good intentions.

But we must never feel content with good intentions. We must care primarily about the effects of the policies stemming from our golden goals, and as I’ve written previously, there are likely big, negative, immediate effects that would go with empowering more government data collection. There are also potentially even worse long-term consequences, including that government would begin to try to adjust students’ feelings and attitudes if doing so might produce better test scores or some other, politically determined, outcome. Indeed, such affect-engineering arguably already takes place with huge increases in ADD and ADHD diagnoses that lead to personality-altering drug-taking.

It’s easy – and almost always innocent – to say that we need more information so that we can make things work better. But with that comes very big potential dangers we must never ignore.

Cross-posted at seethrue​du​.com

With thanks to Mark Thompson at Time’s Battleland for calling this to my attention, the discussion yesterday on CNN’s “Reliable Sources” concerning the decision to invade Iraq was more interesting than the others that I’ve seen or read. 

Host Howard Kurtz noted that editors at the New York Times had admitted to having “printed too many credulous claims about Saddam and Iraq.” Kurtz explained that Len Downie, then the editor of the Washington Post, had admitted “he had made a mistake of not putting more skeptical stories on the front page. Even the people who ran the news organizations seem to acknowledge that they had fallen short.” Given all this, Kurtz asked the panelists, “Didn’t most of the media…get rolled by the Bush administration during this run-up to war?”

The panel, which included Thompson, and Fred Francis, formerly with NBC, explained why the press got the story wrong: Saddam fooled a lot of people, including his own people and his neighbors. He fooled many people in the U.S. government, too.

But the Washington Post’s Rajiv Chandrasekaran properly looked past the distractions of phony Iraqi connections to 9/11 and Iraq’s nonexistent nuclear weapons. Chandrasekaran agreed with Kurtz that “there was far more that we all could have done. You could go to Iraq. I was in Iraq for the bulk of the six months leading up to the war. What you couldn’t really do is get an independent assessment of what Saddam really had.”

But, he continued:

it wasn’t just the issue of weapons of mass destruction. It was the broader questions. What is the political transition plan? Truth squadding the White House’s claims that Iraq could pay for it, the reconstruction of its country, the questions of the long simmering tensions between the principal religious and ethnic groups in the country. These were questions that were all easily reportable. They should have had more coverage. We didn’t do enough in really aggressively looking at all of that.

Chandrasekaran (who will be speaking at Cato in a few weeks) is right. The greatest argument against launching a war to overthrow Saddam Hussein was what would come after him. The advocates for the war hyped the threat of Saddam’s weapons, and what he would do with them, to build a case for the benefits that would obtain from the war. We now know that they exaggerated these benefits because Saddam didn’t have nuclear weapons. But the claim that Saddam would use the weapons, or give them to terrorists, was also dubious, and was noted as such at the time (and well before) by some of the leading opponents of the war.

But the war hawks also downplayed the costs of invading Iraq by claiming that there would be no need for a long-term U.S. troop presence, and certainly not as large as Army leaders had estimated. They dismissed the overwhelming evidence that Iraq was beset by ethnic and sectarian divisions. Bill Kristol famously dismissed the notion that “somehow the Shia can’t get along with the Sunni” as so much “pop sociology.” I suspect that they were aware of these divisions, because it would have been far harder to convince the American people to support a conflict if they knew that it was going to be long and costly, instead of the “cakewalk” that the war’s supporters claimed.

I cannot prove the war hawks knew the truth about Iraq and concealed it. I’m certain that they should have known. But they weren’t trying to stop a war; they were trying to start one.

And that is why those who should have known better and did not speak up, or who lent their credibility as experts to the side making the case for war, deserve special scorn on the 10-year anniversary of the start of the Iraq war. They failed to stop the war. The news media’s coverage was inadequate and lazy. In retrospect they should have paid more attention to the vocal few who raised serious objections. But reporters cannot be blamed for not finding experts who did not speak publicly. Or at all.

That is where Colin Powell comes in. He is likely to be remembered for his crucial role in making the case for war at the United Nations on February 5, 2003. But Powell should also be remembered for his words of caution six months earlier, in August 2002.

It is known today as the Pottery Barn principle–“If you break it, you own it.” But what Powell actually said reflects a deep appreciation for the folly of regime change and preventive war: “You are going to be the proud owner of twenty-five million people,” Powell warned the president. “You will own all their hopes, aspirations, problems.… It’s going to suck the oxygen out of everything.”

We know about this exchange from Bob Woodward, and Powell was probably the veteran reporter’s source, so the words could be dismissed as self-serving, or simply invented after the fact. But they shouldn’t be. Because what Powell allegedly said to Bush then could just as easily have been said by Condoleezza Rice in 2007 with respect to war with Iran, or by Hillary Clinton in 2011 regarding Bashar al-Assad in Syria, or by John Kerry in response to North Korea’s latest antics today. And even if Powell never said them, the sentiment is spot on. I only wish he had said them in public.

Whenever reporters, scholars, academics–or anyone in the public at large, for that matter–hears someone making the case for preventive war, the Pottery Barn principle, Powell’s unspoken warning from a war that never should have happened, should be burned in their brain. I think that it is. And that explains why Bill Kristol’s modern-day Project for a New American Century has proved far less effective than its predecessor.

I sincerely wish that we didn’t have to suffer the loss of blood and treasure, the thousands of American dead, and tens of thousands wounded, to learn these lessons. But I especially hope that we’re not already forgetting them.

Nearly two years ago, I wrote about an intriguing Commerce Clause case involving the Montana Firearms Freedom Act. To wit, Montana enacted a regulatory regime to cover guns manufactured and kept wholly within state lines that was less restrictive than federal law. The Montana Shooting Sports Association filed a claim for declaratory judgment to ensure that Montanans could enjoy the benefits of this state legislation without threat of federal prosecution. The federal district court ruled against the MSSA.

On appeal to the Ninth Circuit, Cato joined the Goldwater Institute on an amicus brief, arguing that federal law doesn’t preempt Montana’s ability to exercise its sovereign police powers to facilitate the exercise of individual rights protected by the Second and Ninth Amendments. More specifically, for federal law to trump the MFFA, the government must claim that the Commerce and Necessary and Proper Clauses give it the power to regulate wholly intrastate manufacture, sale, and possession of guns, which is a state-specific market distinct from any related national one.

The lawsuit’s importance is not limited to Montana; a majority of states have either passed or introduced such legislation. The goal here is to reinforce state regulatory authority over commerce that is by definition intrastate, to take back some of the ground occupied by modern Commerce Clause jurisprudence.

Well, after much delay — in part due to the Ninth Circuit’s waiting for Supreme Court instruction on the Commerce Clause in the Obamacare litigation — MSSA v. Holder finally saw oral argument two weeks ago. The Goldwater Institute’s Nick Dranias, who was the principal author of our joint brief, was able to get 10 minutes of argument time and sent me this report afterwards, which I reprint with his permission:

The Montana Firearms Freedom Act came under fire before the Ninth Circuit [March 4]. Appellants Gary Marbut, the Montana Shooting Sports Association, and their attorney Quentin Rhoades advanced the unusual strategy of declaring they should lose under current Supreme Court precedent. Victory would consist of nothing short of overturning the decades-old case law underpinning the federal firearms regulatory regime that conflicts with the Montana Firearms Freedom Act’s declaration that firearms may be freely manufactured and sold within the state primarily from components that originate from the state. The goal was to force a loss in the Ninth Circuit so that they would be able to petition the Supreme Court for certiorari to reconsider and overturn its expansive post-New Deal Commerce Clause precedent, including Gonzales vs. Raich and the infamous Wickard vs. Filburn.

Appellants’ argument was quite a gamble; and an admirable one if only for its Western State gutsiness. But it is debatable whether the gamble was a wise one. The panel consisting of two conservative jurists and one liberal jurist—a rare composition for the Ninth Circuit—looked perplexed when one judge asked Attorney Rhoades almost rhetorically if the hearing were merely a way station on to the Supreme Court.

The Goldwater Institute and the Cato Institute took a different approach as amici curiae. In an unusual move, the Ninth Circuit allowed the amici 10 minutes of additional time to argue in support of the constitutionality of the Montana Firearms Freedom Act. We seized the opportunity.

Our argument opened with the observation that the case presented a question of first impression and one that should prevail under current Supreme Court precedent—especially in view of the Court’s emphasis in NFIB vs. Sebelius that the “letter and spirit” of the Constitution limits claims of implied power under the Commerce Clause, as confirmed by the Necessary and Proper Clause. Based on Federalist Nos. 28, 31, 33 and 51, we contended that the Ninth and Tenth Amendments were meant to work in tandem to confirm that the states may exercise their reserved powers to secure constitutional liberty against federal overreach. In other words, the Founders fully intended for the people to resist federal usurpation through their state representatives passing laws such as the Montana Firearms Freedom Act to protect freedoms guaranteed by the Second and Ninth Amendments. Consequently, the “letter and spirit” of the Constitution prohibited preemption of the Montana Firearms Freedom Act to the very extent that such preemption was premised on implied power under the Commerce Clause.

We also argued that any exercise of implied power under the Commerce Clause should be subjected to heightened judicial scrutiny. Relying on Fourteenth Amendment enforcement clause precedent, such as Horne vs. Flores, we contended that the scrutiny should ask whether the claimed exercise of power is proportionate to and congruent with regulating a problem involving actual interstate commerce to ensure that the exercise of power did not exceed the principal Commerce Clause power to which it was supposed to be merely incidental. At the very least, the case should be allowed to proceed through discovery to assess whether the manufacturing of firearms under the Montana Firearms Freedom Act would, in fact, have a trivial or substantial effect on the illegal trafficking of guns across interstate lines.

In response, the ever-ironically-named Department of Justice ably presented the standard defense offered by the federal government to just about any constitutional challenge—the argument that Appellants did not have standing to bring their case. Eventually, however, the DOJ urged the Court to rule on the merits and affirm the dismissal of the lawsuit, arguing that comprehensive federal firearms regulations should preempt the Montana Firearms Freedom Act for the same reasons that comprehensive federal drug regulations preempted medical marijuana laws in Raich.

Although dancing away from the question implies a nimbleness that was absent from its argument, the federal government pointedly never grappled with our key argument that Congress’ implied power under the Commerce Clause cannot override state laws that exert powers reserved under the 10^th Amendment in order to protect constitutional liberties guaranteed by the Second and Ninth Amendments. Nor did the DOJ address the need for heightened scrutiny to ensure that any claim of implied power under the Commerce Clause truly is incidental to the main power of regulating actual interstate commerce. Hopefully, the unusual majority-conservative panel will address these issues—even if the Ninth Circuit does prove to be a way station to the Supreme Court after all.

You can listen to the oral argument here. Thanks to Nick for all his efforts in the case on our behalf. We expect a ruling in the next few months.

The Fund for American Studies has long done excellent work educating students on the principles of individual liberty and free-market public policy. Many Cato scholars and interns have been involved with its programming over the years, including Roger Pilon and Randy Barnett in the legal field. I now have the privilege of serving on the Board of Visitors of TFAS’s Legal Studies Institute (along with Randy and others who are familiar to those who follow Cato’s work), and heartily recommend its summer program for law students looking for a DC experience that includes an internship, class credit, mentoring, high-level briefings and panels, and career development. The application deadline has now been extended to April 3. Here are the details:

LEGAL STUDIES INSTITUTE 

May 23 – August 2, 2013 

Washington, D.C. 

PROGRAM COMPONENTS

• Legal Internship: Participants will be placed in a 9‑week summer legal internship where they will work full-time and gain substantive experience in the legal profession. Internship sites include law firms, courts, public interest organizations and the legal departments of trade associations, corporations and government agencies.

• Briefings and Activities: Participants will attend private briefings at institutions of the judicial, legislative and executive branches and will meet with prominent judges, lawyers and judicial scholars. Previous guest speakers have included; Supreme Court Justice Antonin Scalia, Former Attorney General Michael Mukasey, U.S. Court of Appeals, Ninth Circuit Chief Judge Alex Kozinski and D.C. Federal Court of Appeals Judge Douglas Ginsburg among others.

• Career Development Activities: Workshops will be held to help prepare participants for success in their law careers, and planned networking events will facilitate professional interaction. 

• Attorney Mentor Program: Each participant will be matched with an experienced lawyer who will serve as a professional mentor during and after the program. 

• Constitutional Law Course for Credit: You will be enrolled in a constitutional law course titled “Originalism and the Federalist Papers.” Classes will be held at Georgetown University Law Center. Students will receive credit from Ohio Northern University Pettit School of Law, or for an additional fee from Georgetown University Law Center. The course will be taught by Federalist Society lecturers, Professor John Baker, visiting fellow at Oriel College, University of Oxford and Visiting Professor at Georgetown University. Professor Randy Barnett, the Camack Waterhouse Professor of Legal Theory at Georgetown University Law Center and Professor Roger Pilon of the Cato Institute will also lecture. 

• Housing: Students will live in fully-furnished apartments in downtown Washington, DC and are matched with other Institute participants. The apartments provide easy access to the DC metro transportation system. 

• Scholarships: 75% of students receive scholarship awards based on financial need and merit.

APPLICATION INSTRUCTIONS

Applications will be accepted until the extended deadline of April 3, but applicants are encouraged to apply as early as possible. Visit www​.DCin​tern​ships​.org/LSI for more details and to begin an application. Questions may be directed to Jennifer Fantin, LSI recruitment and admissions assistant at admissions@​tfas.​org or 202.986.0384.

It can be very frustrating to work at the Cato Institute and fight for small government.

Consider what’s happened the past couple of days.

Congressman Paul Ryan introduces a budget and I dig through the numbers with a sense of disappointment because government spending will grow by an average of 3.4 percent annually, much faster than needed to keep pace with inflation.

But I don’t even want government to grow as fast as inflation. I want to reduce the size and scope of the federal government.

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I want to shut down useless and counterproductive parts of Leviathan, including the

Department of Housing and Urban Development, the Department of Education, the Department of Energy, the Department of Transportation, the Department of Agriculture, etc, etc…

I want to restore limited and constitutional government, which we had for much of our nation’s history, with the burden of federal spending consuming only about 3 percent of economic output.

So I look at the Ryan budget in the same way I look at sequestration – as a very modest step to curtail the growth of government. Sort of a rear-guard action to stem the bleeding and stabilize the patient.

But, to be colloquial, it sure ain’t libertarian Nirvana (though, to be fair, the reforms to Medicare and Medicaid are admirable and stem in part from the work of Cato’s healthcare experts).

But my frustration doesn’t exist merely because the Ryan budget is just a small step.

I also have to deal with the surreal experience of reading critics who assert that the Ryan budget is a cut-to-the-bone, harsh, draconian, dog-eat-dog, laissez-faire fiscal roadmap.

If only!

To get an idea of why this rhetoric is so over-the-top hysterical, here’s a chart showing how fast government spending is supposed to grow under the Ryan budget, compared to how fast it grew during the Clinton years and how fast it has been growing during the Bush-Obama years.

I vaguely remember taking the SAT test in high school and dealing with questions entitled, “One of these things is not like the others.”

Well, I would have received a perfect score if asked to identify the outlier on this chart.

Bush and Obama have been irresponsible big spenders, while Clinton was comparatively frugal.

And all Paul Ryan is proposing is that we emulate the policy of the Clinton years.

Now ask yourself whether the economy was more robust during the Clinton years or the Bush-Obama years and think about what that implies for what we should do today about the federal budget.

At the very least, we should be copying what those “radical” Canadians and other have done, which is to impose some genuine restraint of government spending.

The Swiss debt brake, which is really a spending cap, might be a good place to start.

This week, Michael Moore took to his blog to ask someone to publish the assuredly horrific pictures of the Sandy Hook Elementary School crime scene. Like the horrific pictures of 1955 lynching victim Emmett Till, whose mom wanted the photographs published, or the heart-wrenching images of the Vietnam War, Moore believes that the pictures will finally galvanize people to meaningful gun control. He writes:

I believe someone in Newtown, Connecticut—a grieving parent, an upset law enforcement officer, a citizen who has seen enough of this carnage in our country—somebody, someday soon, is going to leak the crime scene photos of the Sandy Hook Elementary School massacre. And when the American people see what bullets from an assault rifle fired at close range do to a little child’s body, that’s the day the jig will be up for the NRA. It will be the day the debate on gun control will come to an end. There will be nothing left to argue over. It will just be over. And every sane American will demand action.

This is a horrible suggestion, obviously. I do, however, have some pictures for Michael Moore:

The first picture is of Sgt. Lisa Castellano. Two days after the Newtown tragedy, Sgt. Castellano was off-duty and working security at a movie theater. A gunman walked in and began firing. She stopped the gunman after he had shot one man.

The second picture is of Jeanne Assam. In 2007, Assam stopped what could easily have been the largest mass shooting in U.S. history at the New Life Church in Colorado Springs. A severely deranged man, who had already killed two people at a youth mission in northern Denver the night before, entered the church with the same armament as Newtown killer Adam Lanza and began shooting. At the time, approximately 7,000 people were in the church. Assam stopped him after he had killed two and wounded three.

These are the people we should be remembering, not the Adam Lanzas of the world, whose name we should all try hard to forget. But, as the saying goes, reporters don’t cover buildings that don’t burn down. After these incidents there were no Piers Morgan specials, “national conversations,” or Michael Moore blogposts. And these incidents are just two of the many times mass shooters have been stopped by responsible gun carriers, in addition to the many times responsible gun users stop more typical criminal activity. (Check out Cato’s study on defensive gun use, Tough Targets, as well as our ongoing interactive map of defensive gun use.)

In his post, Michael Moore reminds us that “2,600 Americans have been killed by guns since Newtown.” I’d like to remind him that, using the lowest estimates of the number of defensive gun uses per year, guns have averted between 27,000 and 207,500 crimes in the three months since Newtown.