As Pat Kossan reports in the Arizona Republic, the state of Arizona has averted a threatened civil-rights lawsuit from Washington by agreeing to stop monitoring teachers’ English fluency and pronunciation in the classroom. “In November, federal officials told Arizona that its fluency monitoring may violate the Civil Rights Act of 1964 by discriminating against teachers who are Hispanic and others who are not native English speakers.”

Does this strike you as perhaps a bit crazy? If so, it’s craziness with quite a pedigree. It was way back in the first Bush administration that the Equal Employment Opportunity Commission (EEOC) began filing lawsuits against employers for “discriminating” against employees with difficult-to-understand or heavily accented speech, the theory being that this served as an improper proxy for discrimination based on national origin. The scope for allowable exceptions was exceedingly narrow, too narrow to cover most teaching positions, as I wrote quite a while back when the issue had just come over the horizon in a Massachusetts case. Indeed, the National Education Association (I pointed out) had been prevailed on to pass a resolution “decrying disparate treatment on the basis of ‘pronunciation’ — quite a switch from the old days when teachers used to be demons for correctness on that topic.”

Don’t assume you can escape by choosing one of your local private schools. Their employment of teachers falls under the EEOC’s jurisdiction too.

Given America’s at best mixed record on free speech, I am usually reluctant to point fingers at other countries, but Thursday’s fining of two French women for wearing a full face veil was a little over the top. Don’t get me wrong, I’m no fan of the burqa — as it leaves far too much to the imagination for my tastes — but I am a fan of tolerance and religious freedom.

I’m still trying to decide which is more absurd, that the law in question allows an exemption for clown masks (more rulings like this should take care of that need) or that in addition to a fine, the two women will be required to take lessons on “tolerance”. It seems to me the whole experience has already provided them a pretty clear lesson on French tolerance.

In much better news, Saudi Arabia announced “that the nation’s women will gain the right to vote and run as candidates in local elections to be held in 2015.” While such a change is obviously long over-due, and one can reasonable ask why wait until 2015, it is a positive change and should be celebrated.

When asked to pick my most frustrating issue, I could list things from my policy field such as class warfare or income redistribution.

But based on all the speeches and media interviews I do, which periodically venture into other areas, I suspect protectionism vs. free trade is the biggest challenge.

So I want to ask the protectionists (though anybody is free to provide feedback) how they would answer these simple questions.

1. Do you think politicians and bureaucrats should be able to tell you what you’re allowed to buy?

As Walter Williams has explained, this is a simple matter of freedom and liberty. If you want to give the political elite the authority to tell you whether you can buy foreign-produced goods, you have opened the door to endless mischief.

2. If trade barriers between nations are good, then shouldn’t we have trade barriers between states? Or cities?

This is a very straightforward challenge. If protectionism is good, then it shouldn’t be limited to national borders.

3. Why is it bad that foreigners use the dollars they obtain to invest in the American economy instead of buying products?

Little green pieces of paper have little value to foreign companies. They only accept those dollars in exchange for products because they intend to use them, either to buy American products or to invest in the U.S. economy. Indeed, a “capital surplus” is the flip side of a “trade deficit.” This generally is a positive sign for the American economy (though I freely admit this argument is weakened if foreigners use dollars to “invest” in federal government debt).

4. Do you think protectionism would be necessary if America did pro-growth reforms such as a lower corporate tax rate, less wasteful spending, and reduced red tape?

There are thousands of hard-working Americans that have lost jobs because of foreign competition. At some level, this is natural in a dynamic economy, much as candle makers lost jobs when the light bulb was invented. But oftentimes American producers can’t meet the challenge of foreign competition because of bad policy from Washington. When I think of ordinary Americans that have lost jobs, I direct my anger at the politicians in DC, not a foreign company or foreign workers.

5. Do you think protectionism would help, in the long run, if we don’t implement pro-growth reforms?

If we travel down the path of protectionism, politicians will use that as an excuse not to implement pro-growth reforms. This condemns America to a toxic combination of two bad policies — big government and trade distortions. This will destroy far more jobs and opportunity that foreign competition.

6. Do you recognize that, by creating the ability to offer special favors to selected industries, protectionism creates enormous opportunities for corruption?

Most protectionism in America is the result of organized interest groups and powerful unions trying to prop up inefficient practices. And they only achieve their goals by getting in bed with the Washington crowd in a process that is good for the corrupt nexus of interest groups-lobbyists-politicians-bureaucrats.

7. If you don’t like taxes, why would you like taxes on imports?

A tariff is nothing but a tax that politicians impose on selected products. This presumably makes protectionism inconsistent with the principles of low taxes and limited government.

8. Can you point to nations that have prospered with protectionism, particularly when compared to similar nations with free trade?

Some people will be tempted to say that the United States was a successful economy in the 1800s when tariffs financed a significant share of the federal government. That’s largely true, but the nation’s rising prosperity surely was due to the fact that we had no income tax, a tiny federal government, and very little regulation. And I can’t resist pointing out that the 1930 Smoot-Hawley tariff didn’t exactly lead to good results.

We also had internal free trade, as explained in this excellent short video on the benefits of free trade, narrated by Don Boudreaux of George Mason University and produced by the Institute for Humane Studies.

My closing argument is that people who generally favor economic freedom should ask themselves whether it’s legitimate or logical to make an exception in the case of foreign trade.

In case anyone wonders why I haven’t posted for a while, it’s because I’m supposed to be working on my Little Fed Book. I say “supposed to be” because it isn’t the actual writing of that book that’s kept me from posting here. It’s the writer’s block that’s had me in its grip, as it does for a while each time I’m supposed to start a big project.

This time ‘round part of the problem is that I decided to begin by writing about an episode concerning which I knew relatively little: the story of the Second Bank of the United States. Once that was out of the way, I figured, the rest would be downhill. I hadn’t reckoned on the slogging it would take to get elevated in the first place.

I knew the basics well enough from teaching them: the post-1811 state banking boom and subsequent suspensions; the calls for a new Federal bank to see to a quick resumption of specie payments and to supply a “uniform” paper currency; Jackson’s famous veto aimed at foiling its supporters’ attempt to renew the Bank’s charter; and the subsequent “Bank War” in which Jackson and Biddle traded blows aimed in the one case at assuring the Bank’s demise and in the other at undermining the Bank’s opponents by making their actions appear responsible for plunging the country into a depression. I also knew where to look for evidence concerning the Bank’s actual conduct. But the more I studied those sources, the more I realized that I needed a better framework by which to understand the Bank’s relations with state-chartered banks. In particular, I needed to better understand why its relations with Northeastern banks tended to differ from those with banks elsewhere, as well as why its conduct toward other banks changed over time.

When, while straightening up the mess in my office (my favorite writer’s‑block therapy), I happened to come across a paper I wrote in grad school called “A Game Theory Illustration of Bank Competition,” it occurred to me that game theory might be a good way to come to terms with the Second B.U.S. In the paper I represented the banking “game” as one in which a player might choose either to cooperate with a rival by accumulating or reissuing the rival’s notes, or to defect by returning those notes for redemption in specie. When the players are equally privileged, the payoffs are symmetrical. Moreover, because mixed strategies (that is, those in which one bank cooperates while the other defects) involve persistent reserve gains by the defecting bank, and persistent losses by the cooperative “sucker,” the payoffs are those of a Prisoner’s Dilemma. All-around defection is therefore the unique Nash Equilibrium:

The banks end up, in other words, taking part in the routine (say, daily) exchange and settlement of claims, including checks as well as notes, with specie alone being treated as a reserve asset. The system’s capacity for expansion will then depend solely on the available stock of specie reserves and what banks determine to be their optimal specie reserve ratios.

To appreciate the strategies employed by the second Bank, it helps to first consider the situation faced by a “pure” currency monopolist, meaning a bank that enjoys an irrevocable, exclusive privilege of issuing paper money. Because the public ordinarily finds paper more convenient than gold, the privileged bank’s monopoly causes other banks to treat its notes and other claims against it that are readily convertible into its notes as superior substitutes, in “normal” times at least, to specie. The relative payoffs to the less privileged bank or banks for cooperating versus defecting are then more or less the reverse of those for the game involving equal rivals, giving rise to a mixed-strategy Nash Equilibrium in which the less privileged banks hold and reissue the privileged bank’s notes, perhaps even lodging their specie with it, while it nevertheless continues to redeem any items it collects from them:

In what ways did the situation confronting the Second Bank of the United States differ from that faced by our “pure” currency monopolist? First of all the Bank’s charter, rather than granting it irrevocable privileges, was to lapse after two decades unless renewed by a Congressional vote. That meant that the Bank had to take into account the political consequences of its actions, including the possibility that, by making life difficult for state banks, it might discourage legislators in the affected states from voting for its renewal. Concern about renewal prospects would incline the Bank to assign lower payoffs for defection than those a pure monopolist might anticipate. This change alone might suffice to give rise to a cooperative Nash Equilibrium, that is, one in which the state and Federal banks elect to “live and let live”:

Second, the Bank’s privileges did not include an outright currency monopoly. Instead they consisted mainly of its status as a government depository, together with its ability to establish branches anywhere, which allowed its notes to command the same value everywhere, and therefore to be uniquely useful in interstate commerce. The notes of state chartered banks, in contrast, tended to be discounted as they traveled beyond their place of issue.

State banks thus had some incentive for retaining and reissuing the Second Bank’s notes instead of redeeming them, just as in the pure monopolist case; but the strength of this incentive differed in different parts of the country. In particular, northeastern banks tended to treat B.U.S. notes as relatively poor substitutes for specie, which they were frequently called upon to supply for international transactions (and, starting in 1818, for Suffolk Bank settlements), while banks elsewhere tended to treat them as good substitutes, which (so long as they traded at par) could be readily employed to offset the (typically adverse) flow of trade with the northeast. Forbearance by the B.U.S. toward northeastern banks would therefore have made a “sucker” of it. Consequently a non-cooperative “hard money” equilibrium tended to be prevail between the Bank and northeastern state banks, while a cooperative “soft money” equilibrium tended to prevail elsewhere:

And so things went during the Bank’s first years, with its non-northeastern branches playing “live and let live” with neighboring state banks, and generously expanding their own lending, and its northeastern ones aggressively redeeming local notes, and having local banks redeem theirs just as aggressively.

Murray Rothbard offers an excellent summary of the situation in The Panic of 1819. Before the panic, Rothbard observes, the Bank on the whole served

as an expansionary, rather than as a limiting force. The expansionary attitude of the Bank was encouraged by the Treasury, which wanted the Bank to accept and use the various state bank notes in which the Treasury received its revenue, particularly its receipts from [western] public land sales… In New England, on the other hand, both the private banks and the branches of the Bank of the United States pursued a conservative policy.

The catch was that things simply couldn’t go on this way for very long. The general expansion led to rising U.S. prices, which eventually worsened the trade deficit, increasing the demand for specie, especially in the northeast. Also, because the Bank’s various branches were collectively responsible for receiving and redeeming its notes, regardless of where the notes came from, and with no arrangements for any eventual inter-branch reckoning, the Bank’s northeastern branches found themselves hemorrhaging reserves. Eventually specie was commanding a premium even relative to B.U.S. notes, reflecting the public’s doubts concerning its continuing ability to meet demands placed upon it.

At last the Bank of the United States had no choice but to take steps to stem its reserve losses, which it did by calling on its non-northeastern branches to abandon their live-and-let-live policy toward state banks while aggressively contracting their own lending. It was this inevitable reversal of the Bank’s politically-motivated policy of forbearance–a reversal that would continue under Biddle’s presidency–that triggered the Panic of 1819.

Apologists for central banks like to portray them as conservative institutions that serve to keep other (“commercial”) banks on tight leashes; and although central banking doctrine was hardly developed at the time, the same thinking played a prominent part in the decision to establish a new federal bank in 1816. But though the new B.U.S. was certainly capable of being a conservative presence that would help to rein-in reckless state banks, in practice the Bank followed the state banks’ lead, behaving conservatively only where state banks were themselves already inclined to be conservative, while fostering expansion elsewhere. The events leading to the Panic of 1819 suggest that competition among co-equal banks was both a sufficient and a necessary condition for the avoidance of excessive bank lending. The presence of a privileged federal bank, in contrast, appears to have been neither sufficient nor necessary. That presence was, on the other hand, uniquely responsible for the extent of excessive expansion that ultimately occurred. In light of such considerations the Panic of 1819 deserves to be regarded as the United States’ first central-bank inspired financial crisis.

In large part because of social media and consumer-level video technology, two Fullteron, Calif. police officers likely involved in the death of Kelly Thomas have now been charged with murder, manslaughter and excessive use of force. Reason.tv’s Paul Detrick has produced an excellent video detailing the events that led to the charges. Be warned: Some of the images presented here are quite disturbing.

Still many jurisdictions claim that they can arrest and charge individuals when they use video technology to document police engaged in their public duties, even when those people are documenting police abuse. Further, police agencies are often reluctant to use video documentation to show what happens in high-stakes police encounters like SWAT raids. Cato’s “Cops on Camera” video last year provides some context about how technology can be used by individuals and should be used by police to help document how police do their jobs.

Over at Downsizing the Federal Government, we focused on the following issues this past week:

• Interesting thoughts on reforming the U.S. Postal Service.
• If our bloated federal government is ever to be reined in, a return to fiscal federalism is a must. And if the states are to get their financial houses in order, state policymakers can’t be allowed to believe that a federal policy of “too big to fail” applies to them.
• Chris Edwards says that Warren Buffet’s tax story is bogus.
• Unless spending and deficits are cut, the United States is headed for economic ruin as growth falls and rising debt threatens further financial crises.
• There’s no point getting worked up about government waste if you’re also getting checks from the U.S. Treasury or demanding that the government solve society’s problems.

Follow Downsizing the Federal Government on Twitter (@DownsizeTheFeds) and connect with us on Facebook.

Elizabeth Warren’s recent remarks on class warfare, made during a campaign stop in her quest for a Massachusetts U.S. Senate seat, provide a nice microcosm of the broader philosophical views behind much contemporary political debate.

Here’s Warren:

The relevant bit that has her supporters so fired up goes like this:

I hear all this, oh this is class warfare, no! There is nobody in this country who got rich on his own. Nobody. You built a factory out there–good for you.

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory.

Now look. You built a factory and it turned into something terrific or a great idea–God Bless! Keep a Big Hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Fully exploring the thinking behind Warren’s remarks would demand a book at least. We might point out that most of the rich got that way by creating value for others, meaning they gave back in the process of getting rich. Or we might wonder if her thinking implies that, because the state is responsible in part for the environment in which all of us earned what we have, the state is the actual owner of what we have.

To spare you having to read that book, however, I’m going to instead address just two points I find particularly interesting. First, we can tease out the theory of political obligation Warren advances and see if it holds up to scrutiny. Second, we can ask whether her argument, even if we accept it on its own terms, supports a tax increase on high income earners.

In a 1955 essay, H. L. A. Hart articulated what’s come to be known as the “fair play” principle of political obligation.

When a number of persons conduct any joint enterprise according to rules and thus restrict their liberty, those who have submitted to those restrictions when required have a right to a similar submission from those who have benefited by their submission.

Framed in Warren’s language, “the rest of us” restricted our liberty by paying taxes for the creation of roads, the formation of police forces, the funding of fire departments, and so on. And the rich benefited from our submission to taxes by getting rich (in part) because of the existence of roads, police, and fire departments. Therefore, we have a right to a similar submission from the rich in the form of them paying an increased amount in taxes to fund roads, police, and fire departments, too.

So by her account, this can’t be class warfare because it’s a simple matter of obligation. But is that true? Does the so-called “fair play” account of political obligation work?

Not really. Robert Nozick famously knocked it down in Anarchy, State, and Utopia with a thought experiment about a neighborhood public address system. And A. John Simmons went even further—and did so more persuasively—in his 1979 classic, Moral Principles and Political Obligations.

But the basic response to “fair play” is pretty simple: It seems awfully weird to demand that we repay benefits we never had a choice about accepting in the first place.

Nobody approached the rich before they were rich and said, “Hey, we’re all pitching in to pay for roads and police, which we all think are pretty valuable. If you’d like to benefit from those things like we would, we ask that you pay for them. Are you up for that?” A (pre-)rich person might very well say, “Yes, I’m game.” In that case the principle of fair play would apply. But it would only apply if he had a meaningful choice about the matter. On the other hand, he might say, “Yes, I think we do need roads and police, but I also think they’d be better provided by an alternative cooperative scheme (the market, a different government, a different voluntary group, etc.) to the one you’re offering.”

Simmons calls this the distinction between “receiving” benefits and “accepting” them. The fair play principle creates obligations when benefits are accepted, but not when merely received.

With that in mind, Warren would have a difficult time arguing that any of us genuinely accepted the particular roads and police provided by the particular scheme she supports. We’ve received them, yes, and may rather like what we received—but we were never presented with an actual choice.

There may, of course, be plenty of other good reasons to feel obligated to pay our taxes—or to even pay more taxes than our neighbors—but fair play, at least in the form Warren presents it, doesn’t quite get us there.

Still, let’s set such concerns aside and grant to Warren that, if the rich did benefit from the particular services paid for by the rest of us, they have a duty to pay (more) for them. Would that allow us to justify asking the rich to pay more taxes today?

Again, probably not. Just look at the beneficial services Warren draws our attention to.

1. Roads
2. Police
3. Fire departments
4. Education

She tacks an “and so on” to the list, but there’s something striking about the concrete examples she does give. Namely, they’re all the kinds of things you’d expect even from a much smaller state than the one we have today.

In other words, the need to raise taxes at the present moment (if such a need exists) is precisely not to pay for roads, police, fire departments, and education. We had those—and they were functioning quite nicely—for a good while before the explosion of federal spending under the last two administrations.

If Warren’s claim is that the rich got rich because of certain benefits they received from government and so should pay more to provide those benefits to others, then the overwhelming bulk of government spending is completely outside the scope of her argument.

It’s not obvious that many rich people got to be rich because of Medicare, Medicaid, Social Security, or military expenses. (Those who got rich because of subsidies are another matter, but she doesn’t draw that distinction, nor is she calling for an end to government handouts to the wealthy and politically connected.) But those are where we’ve seen so much of the spending increases that now demand, according to Warren and her peers, that all of us pony up more cash to the federal government.

This means that an easy response to Warren is to grant her general philosophical point but then add that what it leads to is not increased taxes but cutting government back to those programs that do make people rich and only then worry about how much of what remains the rich should pay for.

Of course we might also point out that, even with the bloated leviathan we have in Washington—one that does far more than provide roads, police, fire departments, and schools (which are, after all, chiefly state and local matters)—the rich still pay for most of it. Certainly more than “the rest of us” pay. As the Wall Street Journal pointed out back in May, “the highest-earning 10% of the U.S. population paid the largest share among 24 countries examined, even after adjusting for their relatively higher incomes.” The top 20% of American income earners pay over half the federal taxes. Which means that “the next kid who comes along” already is getting his federal benefits from the rich. To Warren and her supporters, I ask, “How much is enough?”

If Warren’s moral case for increasing the tax burden of the rich doesn’t hold up, can she still maintain her claim that this isn’t class warfare? Probably not. By her arguments, the rich are not obligated to pay more than they already are. Nor will their paying more do much of anything to ameliorate America’s fiscal woes. That means it’s rather difficult to see her speech as anything but a ploy to fire up her base by attacking a disfavored minority.

If that’s not class warfare, I don’t know what is.

Update: I just finished a podcast on the subject of this post with Caleb Brown.