Yesterday, Joe Nocera penned an extraordinary column expressing his bafflement at the Trump administration’s drive to release Fannie Mae and Freddie Mac, two firms that purchase and guarantee around half of single-family mortgages in the United States, from government conservatorship. Nocera argues against such a move, writing that “if it ain’t broke, don’t fix it … Fannie Mae and Freddie Mac ain’t broke.”

The piece is disconcerting from start to finish. Nocera writes that Fannie and Freddie make the 30-year fixed-rate mortgage, a product common only in the U.S., possible and thereby “help more people attain the American dream of homeownership.” Nocera neglects to mention that the U.S. homeownership rate, at 64 percent, is the same as it was in the late 1960s, long before mortgage securitization. This rate is lower than those of other Western countries (Table 1) and particularly low for minority Americans.

Table 1. Homeownership Rate, Selected Countries

Source: Eurostat; Statistics Canada; Statistics Japan; U.S. Census Bureau. 2013 data for Japan, 2016 data for Canada, 2019 data for all other countries.

Nocera is correct that the 30-year fixed-rate mortgage probably wouldn’t exist without Fannie and Freddie, which are only (barely) going concerns today thanks to U.S. taxpayers. But countries without this product seem to do a better rather than worse job of promoting homeownership.

Nocera also repeats the dubious assertion that the U.S. government earned a “healthy return” on its bailout of Fannie and Freddie. Yes, since it funneled around $190 billion into the two firms in 2008, the government has collected around $300 billion in dividend payments. But those dividends are contingent on an essentially unlimited government backstop. Furthermore, Fannie and Freddie have had virtually no capital since 2008 and continue to operate merely because the government stands behind them. In short, were Fannie and Freddie private concerns, they would have been forced into receivership long ago.

The bailout of Fannie and Freddie was not a good investment. The Congressional Budget Office, in fact, estimated a return adjusted for the enormous risk Uncle Sam took on when it rescued the two firms of minus $311 billion. Other, more recent, academic evaluations also show a negative return.

Fannie and Freddie owe their continued existence to a gigantic and ongoing taxpayer subsidy. There are beneficiaries, of course, including large asset managers who deal in the mortgage-backed securities Fannie and Freddie issue. As of 2019, there are close to $10 trillion such securities outstanding, with $1.3 trillion issued in 2018 alone. Asset managers therefore have a large economic stake in our subsidized mortgage market. But claiming that this sweet deal benefits all Americans, as Nocera does, is of no service to the public interest.

“Any objective observer,” says Nocera, “would have to concede that Fannie and Freddie have done a very good job since the 2008 crisis.” Yet an examination of the evidence suggests otherwise. Conservatorship was designed to be a temporary (read: 6‑month) arrangement, not an 11-year-long commitment with no end in sight. During this time, Fannie and Freddie’s role in the mortgage market has actually increased, and they’ve expanded their purchases of high-risk mortgages as the credit cycle matures. These facts supply ample grounds for concern.

Finally, concerning what caused Fannie and Freddie to go belly-up in 2008, Nocera writes:

What got Fannie and Freddie in trouble was not the government mandate, but their public company impulses. In the years before the crisis hit, they abandoned their historically sound underwriting standards because they were losing market share to the mortgage originators that were writing all those subprime loans that came a cropper when the bubble burst. As government wards, Fannie and Freddie no longer have any incentive to act foolishly.

Famous last words, as they say. In any event, and while there’s a debate around the relative role of government intervention and speculative frenzy in the last years of the housing boom (2004–2006), Fannie and Freddie’s ill-fated lowering of underwriting standards began much earlier, in the late 1990s. The government played a key role in fomenting this decline of credit standards by steadily ratcheting up the share of high-risk mortgages that Fannie and Freddie must purchase. Fearing that failure to comply would prompt Congress to allow competitors to challenge their duopoly, Fannie and Freddie obliged, with terrible consequences for vulnerable homeowners, and the U.S. economy as a whole.

Housing finance in America is a tangled web of cross-subsidies, public guarantees, government mandates, and competitive restrictions. Those features make it exceptional around the world, but not in a good way. Those who believe Fannie and Freddie are the best invention since sliced bread might ask themselves why, after so many decades, no other country has been inclined to look to the United States for inspiration about how to run its mortgage market.

[Cross-posted from Alt‑M.org]

Yesterday, Vox’s Ian Millhiser posted an interesting article on how President Trump’s judicial nominees are changing the federal courts.

I’ve no argument with Millhiser’s underlying thesis: A lot of (great) judges have been appointed during Trump’s administration.

The causes for this are obvious. There’s a Republican in the White House, and Republicans control the Senate, so the appointment process is well-oiled. In addition, past Senates (under both parties) changed the body’s rules so as to ease the confirmation of a president’s nominees.

Where I take issue with Millhiser is with his understanding of the judicial power. He writes:

In an age of legislative dysfunction, whoever controls the courts controls the country … [Judges] have become the most consequential policymakers in the nation … The judiciary is where policy is made in the United States.

This can’t be right.

By its nature, the judiciary is weaker than either of the political branches. As Hamilton wrote in Federalist 78, courts have “no influence over either the sword or the purse,” unlike Congress and the president. Approvingly, Hamilton quotes Montesquieu’s assertion that “Of the three powers … the judiciary is next to nothing.”

Millhiser might reply: “Well, ‘next to nothing’ in the judiciary is more than ‘doing-nothing’ in Congress.”

And, perhaps, he’d have a point. But he’d still be mistaken overall, because the president is the undisputed policymaker-in-chief in modern American government.

Last week, in The Hill, I used the ongoing impeachment proceedings to make this very point:

Why have the House and Senate, through the impeachment process, become willing cogs in the oily machinery of the 2020 presidential contest?

The answer involves a tectonic shift in American government, from a functioning separation of powers to one that is out of whack … Over the last century, Congress has given away, or “delegated,” much of its policymaking initiative to the executive branch … Through these grants of authority, Congress created an alphabet soup’s worth of regulatory agencies collectively known as the administrative state.

As … Congress lost the capacity to oversee its delegations … modern presidents have seized undisputed supremacy over the administrative state by increasing control over agency budgets and regulatory management.

Policy now flows from the White House.

Congress couldn’t pass immigration reform, but President Obama achieved the same results with DACA. Congress denied President Trump funding to build a border wall, but then he exercised his delegated authority to declare an “emergency” and funded the wall unilaterally.

In this context—where the president calls the shots and Congress is beholden to party leadership—half the legislature always is unbothered with unbound executive authority whenever “their guy” occupies the White House.

It’s a vicious feedback loop. The more powerful the president becomes, the more our party-centric Congress rationally believes that the Oval Office is the most efficient means to implement the planks of a given party’s platform.

The full article, titled “This Isn’t Your Founding Fathers’ Impeachment,” is available here.

There’s much to hate in the National Defense Authorization Act (NDAA) for FY2020, which passed out of conference committee late yesterday evening (story here, summary in .pdf here). I suspect my colleagues will unpack or attack some of the details, but I’m generally annoyed by the top line – $738 billion – at a time when the annual federal budget deficit surpasses $1 trillion. The utter failure of elected officials in both parties to come to grips with our fiscal catastrophe, and align our overly ambitious strategy with our obvious resource constraints is frustrating in the extreme. If this NDAA passes, which seems all but certain, it will be yet another sign of how U.S. foreign policy is writing checks that Americans dare not cash.

But another part of the NDAA is utterly infuriating – the decision by the conferees to strip out two provisions that would have compelled Congress to revisit the 18-year old Authorization for Use of Military Force (AUMF) passed after 9/11, and the Iraq war AUMF of 2002, and a separate but related provision stipulating that that authority did not grant the White House carte blanche for initiating a war with Iran, something that senior Trump administration officials have suggested. Both measures were passed in the House version of the NDAA, and with bipartisan support. The Senate, however, especially Senate Republicans, refused to consider such measures.

The oath of office that every member of Congress takes is not so dissimilar to that taken by members of the military: most importantly, they pledge to “support and defend the Constitution.” And that Constitution clearly states that the nation’s war powers are vested in the Legislative branch, not the Executive. In short, members of Congress who have refused to revisit the AUMF are, in effect, engaged in a dereliction of duty. But those who have blocked any consideration of the question, as has just happened, are guilty of a far greater breach of trust: they are actively subverting the Constitution. Shame on them.

This brazen attempt to prevent public oversight of America’s longest war might again pass unnoticed, were it not for the shocking revelations contained in a blockbuster Washington Post report yesterday. The report reveals that U.S. officials have been engaged in a protracted campaign to mislead the American people. Under three successive presidents — George W. Bush, Barack Obama, and Donald Trump — who all promised to avoid getting sucked into an open-ended nation-building mission, civilian and military leaders, writes the Post’s Craig Whitlock “failed to tell the truth about the war in Afghanistan…, making rosy pronouncements they knew to be false and hiding unmistakable evidence the war had become unwinnable.”

Such revelations are not all that surprising, sadly. Drawing on an important Cato study that he co-wrote with John Mueller earlier this year, John Glaser explains how U.S. leaders, “have rather persistently depicted a rosier picture than the facts warranted,” and he concludes that “this dishonesty, in fact, is a big part of why the war persists.”

There may be a ray of hope on the horizon, however. While at least some of their fellow senators are actively engaged in a campaign to thwart meaningful oversight of this never-ending war, New York Senator Kirsten Gillibrand and Connecticut Senator Richard Blumenthal yesterday declared that the Post’s revelations compelled public hearings. They are correct. But, as minority members on the Armed Services Committee, they can’t force such an inquiry. Who among the many GOP senators who have, in the past, spoken eloquently about the need to claw back the war powers will take up the mantle? Who else in the Senate believes that the American people deserve to know the truth about the war in Afghanistan? Who is this generation’s J. William Fulbright?

Thomas Philippon’s The Great Reversal is an important book in which he warns of the decline of competition in many U.S. product markets. Not having studied antitrust issues for some time, I will leave criticism of his general thesis—that competition has indeed declined and that this is owing to lax antitrust enforcement—to my Cato colleagues writing about that issue. (You can start here.)

But I do want to take issue with Philippon’s argument that finance is one of the industries in which competition has declined. Philippon devotes a whole chapter of the book to the financial services industry, giving it the punchy title, “Why Are Bankers Paid So Much?,” while Martin Wolf, in his Financial Times review of the book, called finance a “rent-extraction machine.”

There are two serious problems with this view of U.S. finance. The first is that two central pieces of evidence Philippon cites in support of his general thesis, high concentration and rising profit rates, are simply missing in the financial sector. Another popular symptom of market power, namely slowing entry, is present in banking but directly attributable to regulators’ actions following the financial crisis.

The second problem is that Philippon’s argument on finance relies heavily on a 2015 paper reporting that the costs of financial intermediation had been largely unchanged for 130 years. From this, Philippon concludes that “improvements in information technologies do not appear to have led to a significant decrease in the unit cost of intermediation.” But because the 2015 paper does not break costs by category, it is not clear whether the mix of costs has also remained stable over the years, or whether (as I suspect) there has in fact been a decline in “market operating” costs, thanks to technology and economies of scale, that has been offset by rising regulatory (including lobbying) costs.

Philippon’s diagnosis of uncompetitive markets may therefore be accurate for U.S. finance, but for reasons to do with government intervention rather than the absence of competitive enforcement by government.

Concentration in Banking Has Increased but Remains Low

The United States has historically had many more banks, relative to its population, than other developed countries. As recently as 1984, we had nearly 15,000 banks and an additional 3,500 savings institutions. Several thousand credit unions also competed with these.

The primary reason for the large number of U.S. banks was states’ policy of restricting branching, which federal regulators allowed for decades. Most banks couldn’t have branches in their own state, let alone other states. Even in the early 1980s, no state allowed interstate banking and only a few tolerated intrastate branching. Things only began to change in the 1980s and 1990s, as states gradually liberalized their branching regulations, signing compacts with other states to reciprocally allow each other’s banks to enter their markets. Finally, in 1994 Congress passed the Riegle-Neal Act, allowing interstate banking throughout the country.

Branching has since ushered in an enduring cycle of consolidation: There are now fewer than 5,000 commercial banks and only a few hundred savings institutions. Small banks, in particular, have dwindled. The number of banks with (inflation-adjusted) assets under $100 million has fallen by 82 percent since 1992, while the number of banks under $1 billion has dropped by nearly half. Consolidation, however, has not resulted in a decline in bank presence or proximity. In fact, the number of bank offices (including branches), at 82,731, is near its all-time high and much higher than the 57,227 bank offices of 1984. The number of offices per capita is also higher than at any time before the passage of Riegle-Neal.

Thanks to longstanding branching restrictions, concentration in American banking has historically been exceptionally low. But that was hardly a good thing. Rather, most U.S. banks have been inefficiently small for decades. Until recently, most of them could not take advantage of economies of scale, could not adequately diversify their loans and product offerings, and therefore could not help being vulnerable to changes in their local economies. Branching restrictions impeded competition and gave banks monopoly power. So effective were these competitive restrictions at making bankers’ lives easier, that it seems bankers had lower mortality rates than other company executives of similar age! Of course, competitive restrictions made everyone else worse off.

What all this means for Philippon’s argument is that, while U.S. banking has indeed become more concentrated over the last 25 years, it is still by no means a concentrated industry. The Department of Justice, in its merger guidelines, uses the standard Herfindahl-Hirschman Index (HHI) to assess market concentration. Markets with an HHI above 2,500 are “highly concentrated,” those with an HHI between 1,500 and 2,500 are “moderately concentrated,” while those below 1,500 are “unconcentrated.” Table 1 shows bank deposit HHIs for the ten most-populated metropolitan statistical areas (MSAs) in the country as of 2019. There are values for 1994, 2018, and 2019. Out of these ten markets, only two (Houston and Philadelphia) are moderately concentrated by the DoJ standard, while another (Boston) met that criterion in 2018 but not 2019. Not a single market is highly concentrated, with most MSA HHIs well below the threshold for moderately concentrated.

Table 1. Herfindahl-Hirschman Index for the Top Five Banks by Local Deposits in the Largest U.S. MSAs

Source: FDIC, Summary of Deposits, Q2 2019. An asterisk indicates the market is “moderately concentrated,” according to the Department of Justice’s merger guidelines.

Even the European Commission, to whose approach Philippon is more sympathetic, says in its own merger guidelines that it “is unlikely to identify horizontal competition concerns in a market with a post-merger HHI below 1000 [and] in a merger with a post-merger HHI between 1000 and 2000 and a delta [change in HHI following the merger] below 250, or a merger with a post-merger HHI above 2000 and a delta below 150, except where special circumstances … are present.” The Europeans, whom Philippon holds up as a model of competition policy, tolerate much higher concentration in banking and have a policy framework that would not be concerned with the changes America has experienced since the mid-1990s.

Nationwide, the U.S. banking market has also seen a significant consolidation of deposits, with the top three bank holding companies jointly accounting for 31 percent of customer deposits in 2019, compared to around 8.5 percent in 1994 (Table 2). But those figures still point to a very unconcentrated market by the DoJ’s merger guidelines.

Table 2. Nationwide Deposit Market Share of Top 10 Bank Holding Companies

Source: FDIC, Summary of Deposits, Q2 2019.

Profit Rates in U.S. Banking

Philippon also points to the share of corporate profits in GDP as evidence of growing firm market power. He writes that:

over fifty years the profit share remain[ed] stable … around 6 or 7 percent, from the end of World War II to the end of the twentieth century. Over the past two decades, however, … the after-tax profit share has increased to around 10 percent. (p. 54)

But here again, as in the case of market concentration, the banking sector does not mirror the rise in profit rates apparent in other parts of the U.S. economy. Banks’ return on assets (ROA) and return on equity (ROE), two commonly used measures of their profitability, have remained remarkably stable over the last three decades (Table 3). Between 1992 and 2006, the average ROA of FDIC-insured banks and thrifts was 1.18 percent. From 2011 until the third quarter of 2019, it averaged 1.07 percent. For ROE, the respective figures are 13.54 percent and 8.8 percent. Banks of all sizes have returned less on shareholders’ capital since the end of the financial crisis than before it. Given the proliferation of new regulations, including stiffer capital requirements, after 2010, that should not come as a surprise. Post-crisis regulations may also have reduced bank risk, thereby lowering banks’ required return, but that relationship itself would suggest competitive conditions prevail in banking.

Table 3. Average Return on Assets (ROA) and Return on Equity (ROE), by Asset Size

Source: FDIC, Quarterly Banking Profile, Q3 2019.

Other measures of bank earnings also contradict Philippon’s claim of growing market power. Listed banks’ average price-to-book-value ratio, a proxy for the market’s confidence in a firm’s future profitability, is 1.1—a figure well below the market-wide average of 2.66. For the largest U.S. retail banks by assets, which presumably have been best able to adapt to the post-crisis environment thanks to their scale and too-big-to-fail status, price-to-book measures are much lower than before 2008, with the sole exception of JPMorgan Chase (Table 4).

Table 4. Ratio of Bank Stock Prices to Book Values, 2006 and 2019

Source: Macrotrends.

Philippon himself allows that value-added (profits plus wages) in the financial services sector as a share of financial assets has stayed constant, rather than increased, for 130 years. According to his own calculation, the financial services industry’s share of income in intermediated assets declined from around 1.8 percent to around 1.4 percent between the mid-1990s and the mid-2010s, and is now where it was in the mid-1970s. (Philippon’s original paper only goes up to 2012, but in his book he extends the series to 2016. The unit cost of intermediation stayed at late-1970s levels long after the recovery from the financial crisis began.)

Table 5. Philippon’s Estimate of the Unit Cost of Financial Intermediation, 1886–2012

Source: Thomas Philippon, “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation,” American Economic Review Vol. 105 No. 4 (April 2015), 1412. Author’s edit in red.

Bank profitability has been a headache for bank shareholders and managers for some years, but it should not (for now) worry antitrust regulators.

Bank Entry Has Declined, but Not Because of Market Power

Philippon also worries that low rates of entry, and high rates of incumbency, are another symptom that the market power of U.S. firms has increased, to the detriment of consumer welfare. And there has indeed been little entry into banking since the financial crisis. However, the causes of this appear to be quite different from those Philippon posits—namely, low interest rates and much tighter chartering rules by financial regulators.

Low interest rates since 2008 have squeezed bank profits by narrowing the margin that banks earn from lending funds borrowed from depositors. The net interest margin is especially significant for small and new banks because, unlike larger banks, they have few other sources of revenue. Researchers at the Richmond Fed attribute 75 percent of the decline in new (de novo) bank charters in the years after the crisis to low interest rates.

The FDIC also made it costlier to start and operate a new bank between 2009 and 2016. During that time, de novo banks were subject to higher capital requirements and more frequent examinations for their first seven years of operation, rather than the three years previously provided for. (The FDIC rescinded the seven-year rule in 2016.) Higher capital requirements, other things equal, mean a lower return to shareholders per dollar of loans, while more frequent examinations slow down business and raise compliance costs. While this extra caution may have been justified, it also impeded entry into banking.

Why Is the Unit Cost of Financial Intermediation Stable?

Philippon’s 2015 AER article finding that the unit cost of financial intermediation has remained stable for more than a century has received a great deal of scholarly and media attention. The finding puzzles those who would assume information technology, globalization, and increasing competition put downward pressure on the prices financial intermediaries can charge. It also contradicts the anecdotal evidence from retail asset managers, whose fees have dropped steadily with the advent of online trading platforms and passively managed funds.

Philippon’s methods are painstaking. His adjustments for changes in the risk associated with financial intermediation, as startups and lower-income households gained access to capital, are particularly impressive (Table 6). They suggest a moderate decline in costs since the 1990s but no long-term trend of decline.

Table 6. Quality Adjustments Lower the Unit Cost of Intermediation in Recent Years

Source: Philippon, “Has U.S. Finance Become Less Efficient?,” 1433.

My concern is with Philippon’s interpretation of his findings. In particular, he dismisses regulation as a countervailing force keeping costs from declining. “Regulatory barriers to entry,” he says, “have been reduced in banking since the 1970s and yet this is when the unit cost goes up.” In his book, Philippon does not dismiss regulation quite so laconically. But there he relates rising compensation for financial sector workers to a supposed deregulation that began in 1980. He adds: “When an industry is deregulated, wages and prices usually fall. In finance, they seem to rise.” (p. 214)

But there’s much more to regulation in banking than rent-seeking by financial firms, which may have increased in the last few decades, and branching and investment-banking restrictions, which disappeared in the 1990s. Since 1970, regulations on credit intermediation have increased rapidly. According to the Mercatus Center at George Mason University, credit intermediaries are subject to six times as many mandates and restrictions as they were 50 years ago. Rules on securities, derivatives, and fund managers have also mounted since 2000. The Dodd-Frank Act alone added more than 27,000 new regulations to the books. Other proxies for bank regulatory compliance costs, such as non-interest expenses for salaries, legal fees, and other activities have increased significantly since the financial crisis.

The basic problem with Philippon’s findings on the unit cost of financial intermediation is that he does not break costs down by type. Financial intermediaries have operating (personnel and capital) as well as financial (cost of capital) expenses. They also face significant costs of compliance with government regulation. Technological innovation can particularly lower operating costs, though better information processing and tech-enabled competition may also reduce funding costs. But innovation has a harder time lowering regulatory costs, because regulatory requirements tend to be fixed and rigid. Indeed, regulation often acts as a barrier to innovation.

What Philippon Gets Right

Although the evidence suggests that the thesis of The Great Reversal does not hold in the case of banking, Philippon is right to claim that competition in this sector is less than it might be. As Table 2 illustrates, any examination of bank rankings by deposits and assets cannot fail to show a remarkable persistence among the largest institutions. Where other sectors, such as retail, telecommunications, and even the auto industry have seen significant turnover in the last quarter-century, the leading names in banking as of 2019 would ring familiar to anyone living in 2006 and even 1992 (if not 1907!).

Here again, regulation seems to be the chief contributor to this state of affairs. The dominant firms in other sectors tend to have entered the market relatively recently. In banking, entry since 2008 has been minimal. Furthermore, regulation has encouraged consolidation because many of the costs of regulatory compliance are fixed. Finally, and more controversially, the government’s readiness to rescue large financial institutions encourages size and promotes incumbency. Citigroup would not be around today were it not for Uncle Sam.

Philippon is also right to complain about America’s unusual separation of commerce and banking, passed into law by the 1956 Bank Holding Company Act. Not only is there little logic to this legal prohibition, “as if debit cards and savings accounts were magical products that a retail firm could not provide,” (p. 216) but it helps to entrench the largest financial institutions in their dominant positions by preventing similarly sized outside firms from challenging them. When Walmart applied for an industrial loan company (ILC) charter, the one banking charter that nonfinancial companies are allowed to hold, in 2005, resistance from banks was so fierce that Walmart eventually relented two years later. Now that Japanese e‑commerce and financial services firm Rakuten has applied for an ILC charter, banks large and small have again responded with vociferous opposition.

America’s strange segregation of commercial and financial companies is also bad for financial inclusion. Contrary to the popular understanding, the reason millions of Americans lack a bank account is not that they are far away from branches, but that they find bank accounts expensive and do not trust banks. But many of these Americans recognize and regularly patronize businesses like Walmart and other retailers. Moreover, some of these businesses have specialized precisely in serving people on tight budgets. Allowing commercial companies to provide a range of basic financial services could therefore help to reduce America’s unbanked problem.

We Need a Great Reversal in U.S. Banking

Philippon’s book has rightly gained a lot of attention since its publication. He raises important questions about trends in corporate concentration and market power, and the government’s role in them, in recent decades. But U.S. banking has different problems. Regulatory accumulation has made financial intermediation costlier. America’s longstanding fragmentation due to restrictions on mergers and branching means many banks are inefficiently small. The post-crisis environment of low interest rates and increased compliance costs have made banks significantly less profitable. Regulators are not helping to increase competition when they block entry. The best legislators can do to promote efficiency and innovation in banking is tear down the wall between commerce and finance.

These changes will constitute not just a great, but a long-overdue reversal in the direction of better financial markets in America.

[Cross-posted from Alt‑M.org]

The Washington Post has obtained a huge cache of internal government documents containing hundreds of interviews with U.S. officials on the war in Afghanistan. The documents reveal a broadly shared official view that America’s longest war has been a failure, essentially from the start. Over the years, official assessments of the war were consistently positive, optimistic, hopeful, and confident in the progress being made on the ground. But behind closed doors, official assessments were starkly different. Post reporter Craig Whitlock writes:

Several of those interviewed described explicit and sustained efforts by the U.S. government to deliberately mislead the public. They said it was common at military headquarters in Kabul — and at the White House — to distort statistics to make it appear the United States was winning the war when that was not the case.

“Every data point was altered to present the best picture possible,” Bob Crowley, an Army colonel who served as a senior counterinsurgency adviser to U.S. military commanders in 2013 and 2014, told government interviewers. “Surveys, for instance, were totally unreliable but reinforced that everything we were doing was right and we became a self-licking ice cream cone.”

…[The] interviews contain numerous admissions that the government routinely touted statistics that officials knew were distorted, spurious or downright false.

A person identified only as a senior National Security Council official said there was constant pressure from the Obama White House and Pentagon to produce figures to show the troop surge of 2009 to 2011 was working, despite hard evidence to the contrary.

“It was impossible to create good metrics. We tried using troop numbers trained, violence levels, control of territory and none of it painted an accurate picture,” the senior NSC official told government interviewers in 2016. “The metrics were always manipulated for the duration of the war.”

I would like to say that I was surprised by such shameless and cynical manipulation, but I wasn’t. Earlier this year, I published a Cato Policy Analysis with my co-author John Mueller, entitled Overcoming Inertia: Why It’s Time to End the War in Afghanistan. National leaders, we wrote, “have rather persistently depicted a rosier picture than the facts warranted.” This dishonesty, in fact, is a big part of why the war persists “despite the telltale signs of mission failure.” Our paper also included criticisms of the very issues – aid distribution, corruption, the failure of the train and equip mission, confusion about objectives, etc. – at which these mostly anonymous officials took aim.

The Post story draws on interviews conducted by the Office of the Special Inspector General for Afghanistan Reconstruction (SIGAR). John Sopko, the Special Inspector General, admitted to the Post that the documents show “the American people have constantly been lied to.” When asked why he refused to include the damning interviews in SIGAR reports, Sopko explained, “My job and my people’s job was to try to get the information to try to come up with best practices.” In other words, he viewed his job as scrutinizing the war effort only in the service of informing policymakers on how to better carry it out, not whether it should be, or even could be, carried out.

A senior National Security Council official fleshes this out a bit: “Bad news was often stifled. There was more freedom to share bad news if it was small — we’re running over kids with our MRAPs [armored vehicles] — because those things could be changed with policy directives. But when we tried to air larger strategic concerns about the willingness, capacity or corruption of the Afghan government, it was clear it wasn’t welcome.”

Again, minor tactical criticisms were acceptable. Raising questions about “larger strategic concerns,” not so much.

Apparently, two considerations outweighed the public’s interest in knowing the truth about the war. According to the NSC official, lying about the progress of the war “went on and on for two reasons…to make everyone involved look good, and to make it look like the troops and resources were having the kind of effect where removing them would cause the country to deteriorate.”

To review: (1) narrow self-interest discourages anyone from blowing the whistle; (2) only operational criticism, not strategic criticism, is welcome; and (3) the U.S. government’s top priority is to uphold the erroneous idea that withdrawing from Afghanistan is not a viable option. Together, these imperatives made systematic lying about the war a virtual inevitability.

On Afghanistan policy, as on many issues in Washington, DC, people often talk past each other. On the one hand, the publicly available evidence has long convincingly demonstrated that the war cannot be won and is in many ways illegitimate. And yet, critics of the war tend to face an impenetrable wall of reality-denying officials and their non-governmental counterparts, most of whom toe the line about how we’re making progress. They are willing to continue to expend taxpayer dollars and human life for a lost cause. It doesn’t make for constructive policy debate.

CNN’s Jim Sciutto called this latest document reveal “a Pentagon Papers moment.” In a sense, he’s right. The Pentagon Papers revealed that government officials systematically lied to the American people about the Vietnam War and the prospects for victory. But as Micah Zenko put it in reaction to the Post story: “US civilian and military officials have misled the public for every war I’ve studied (Kosovo, Iraq, Afghanistan, Libya, Syria, ‘non-battlefield’ drone wars).” Which is to say, the key lesson here is not just that officials consistently lied to the public in order to continue a war in Afghanistan that they privately acknowledged looked like a failure, but rather a broader point: credulously accepting official justifications for war goes against the advice of history.

T‑Mobile and Sprint, the #3 and #4 wireless carriers, would like to combine so as to more effectively compete with Verizon and AT&T, the two dominant players in the cellular service market. Various states went to court against the merger, arguing (dubiously) that the combination would harm consumers and drive up prices. And now, via Reuters, this:

Also on Monday, Nevada said it would withdraw from the lawsuit in exchange for early deployment of the next generation of wireless in the state, creation of 450 jobs for six years and a $30 million donation to be distributed by Nevada Attorney General Aaron Ford and aimed at helping women and minorities, Ford’s office said.

How blatant can you get? The best touch, of course, is the $30 million fund with which to ingratiate lucky beneficiaries around the state. (“The recipients of these grants for the use of the charitable contribution will be at the discretion of Nevada’s attorney general” — that is, the same AG Ford who filed and settled the state’s case, and from whose press release is excerpted that sentence.) It looks a lot like the familiar cozytown set-up in many cities in which permission to build a large development or win a public contract just might call for a hefty donation to a local nonprofit with ties to the mayor and council.

Notwithstanding the best efforts from some quarters to develop per se rules in hopes of generating clear and predictable legal outcomes, antitrust law remains a world of subjective interpretation in which government office-holders are left with great discretion regarding how and against whom to wield enforcement power. Whether you want to call it logrolling or use a less flattering term like “extortion,” the temptation is to trade off antitrust leniency for some of the other sorts of favors business might be able to render government actors.

All of which brings us to presidential candidate Elizabeth Warren’s and other candidates’ new proposals for antitrust, which a CNBC headline accurately reports (as to Warren’s) “would dramatically enhance government control over the biggest U.S. companies.” In particular, the proposals would invite the government far more deeply into oversight of business practices, including refusal to share “essential” facilities with competitors, pricing goods below the cost of production, and much more, as well as mergers and acquisitions.

It’s hard to know whether Sen. Warren sees all this new arbitrary discretion as a bug, or a feature, in her enormous plan. Either way, an accumulation of power that tempting will sooner or later attract appointees seeking either a political whip hand over the U.S. corporate sector, a source of payouts like that in Nevada, or both.

The Washington Post has just published a deep dive into the war in Afghanistan, including the war on opium. These newly released documents expose in stark terms the dramatic failures of our century-long war on drugs. Of all the aspects of the Afghan quagmire, the war on opium has been among the most indefensibly foolish. Metaphorical wars against inanimate objects (drugs, alcohol, etc.) or vague ideas (crime, poverty, etc.) have an extensive history of failure. Continuing to pursue them is nonsensical at best, and deadly at worst.

U.S. opium poppy eradication efforts have cost nearly $9 billion since 2001. In 2001 US airstrikes targeted “a network of clandestine opium production labs that U.S. officials said was helping to generate $200 million a year in drug money for the Taliban,” but aerial efforts were abandoned after “many of the suspected labs turned out to be empty, mud-walled compounds…[and] the U.S. military concluded it was a waste of resources to keep blowing up primitive targets with advanced aircraft and laser-guided munitions.”

American officials struggled with the question of how to address Afghanistan’s status as the world’s leading opium supplier. According to the Washington Post article, military leaders under the Bush administration “saw [fighting opium production] as a distraction or hindrance to their primary mission of fighting terrorists.” Under the Obama administration officials began recognizing the role of opium profits in funding insurgents but were also concerned that acting “could alienate poppy farmers…or U.S.-friendly warlords who profited from opium trafficking,” which would alienate US allies on the ground.

The tipping point in the war on poppies came when US military and intelligence officials began to perceive drug trafficking as a financial boon for terrorists. The drugs themselves were not a cause of terrorism, but prohibition made them a highly profitable and lucrative source of income for the US’ enemies. Therefore, in the eyes of US officials, fighting opium and fighting terrorism were intrinsically linked.

One striking illustration of the folly of strategies developed by the US and its allies was paying farmers large sums to destroy opium crops. The Post reports:

“In the spring of 2002, British officials…agreed to pay Afghan poppy farmers $700 an acre — a fortune in the impoverished, war-ravaged country — to destroy their crops.

Word of the $30 million program ignited a poppy-growing frenzy. Farmers planted as many poppies as they could, offering part of their yield to the British while selling the rest on the open market. Others harvested the opium sap right before destroying their plants and got paid anyway.

In a Lessons Learned interview, Anthony Fitzherbert, a British agricultural expert, called the cash-for-poppies program “an appalling piece of complete raw naivete,” saying that the people in charge had “no knowledge of nuances and [I] don’t know they really cared.”

U.S. officials said the British wanted to be seen as doing something, even though they had little confidence the program would work. Michael Metrinko, a former U.S. diplomat who served in the embassy in Kabul at the time, said the results were predictable.”

Years of failed policy have proven that victory in the war on drugs, as with the war on terror, will not come easily. But one approach will unlink drugs and terror: legalize the production, sale, and use of drugs. Competition in legal markets will drive prices down, thus eliminating drug trafficking as a means to fuel terrorism. The U.S. has no reason to continue a costly, ineffective prohibition when history has shown, time and again, that it does not work.