My new op-ed at The Hill discusses the disastrous rise in federal government debt as profligacy dominates both parties in Washington. With the far-left lurch of the Democrats and the complete abdication of responsible budgeting by Republicans, I don’t see how the nation escapes from a damaging and protracted economic crisis down the road.

It does not have to be this way, as my article discusses. Canada escaped a similar debt spiral in the 1990s as a left-of-center government imposed and sustained sharp spending cuts. We can and should do that here, now, yet virtually all members of Congress appear uninterested in reform. 

An excerpt from The Hill:

So while debt projections already look scary, we’ll probably be hit by surprises that make the outlook even worse, such as recessions, wars, higher interest rates or a new president in 2021 who wants spending on a Green New Deal or Medicare for All.

We are on a budget death spiral similar to what Canada faced in the 1990s. As deficits soared, interest costs began devouring their federal budget—rising from 10 percent of total spending in the mid-1970s to 30 percent by the mid-1990s. The high debt scared away investors and the economy struggled. Canada’s federal debt was downgraded by the ratings agencies, and a Wall Street Journal editorial called the country a “basket case” and “an honorary member of the Third World” for its bleak outlook.

The Canadian story has a happy ending because leaders were jolted to their senses and made gutsy decisions to slash spending. They cut defense, business subsidies, farm aid, welfare, grants to lower governments, federal jobs and much else. Federal debt plunged from 67 percent of GDP in 1996 to 34 percent by 2006. Defying Keynesian predictions, the large spending cuts revived the economy and launched the nation on a long boom.

American leaders used to know how to reduce debt. Debt spiked during every war over the past 230 years but was always paid down afterwards. After the Civil War, for example, the government ran surpluses 28 years in a row, causing debt to plunge from 31 percent of GDP down to just 7 percent.

Today we are at peace yet the debt is soaring. The profligacy is so scary because our leaders don’t seem to have the guts to make tough spending decisions like Canada did. We’re marching into a fiscal crisis and few of our leaders seem to care about debt or know how to tackle it.

This study puts government debt in historical perspective and explains why it is so harmful.

This chart shows the history of federal debt and CBO’s baseline projection, which is an “optimistic” forecast if Congress does not make spending reforms.

Image Credit: Congressional Budget Office 

The federal government spends $14 billion a year on subsidies for local rail and bus transit. This spending should be zeroed out in the next federal transportation bill because it induces cities to own and run monopoly transit systems that are unionized and mismanaged.

Federal transit aid has mainly covered capital costs, not operations and maintenance. That has encouraged cities to purchase rail systems with big up-front costs, rather than cheaper, safer, and more flexible bus systems.

One consequence of the bias toward rail is that cities get stung by huge maintenance costs down the road. Rail systems across the nation are suffering from breakdowns, delays, and safety hazards. Subway systems in New York City, Washington D.C., and Boston are in poor shape, yet those cities are induced by federal aid to keep expanding them.

A New York Times investigation of that city’s subway system found lavish spending on new projects at the same time as a shocking neglect of maintenance. Meanwhile, Washington’s Metro is building a boondoggle $5.8 billion rail line to Dulles airport, even though the system suffers from maintenance and safety failures, smoke in tunnels, crashes, and declining ridership.

It is a similar story with Boston’s rail system, as discussed in the Wall Street Journal today:

Bostonians are losing patience with their transit system.

In June, a 50-year-old subway car left its track and smashed signaling equipment, just days after a trolley derailed underground. The resulting commuting chaos, along with a July 1 fare increase and a plan to limit summer service for repairs, combined to overshadow the aging system’s slow-moving rehabilitation.

The Massachusetts Bay Transportation Authority, a state agency that runs the system, estimates it will take about $10.1 billion and 13 more years to modernize it, with costs expected to rise as equipment ages. 

… Nationwide, it would cost at least $100 billion to address the backlog of transit-system upgrades, said Paul Skoutelas, chief executive of the American Public Transportation Association, which represents transit agencies. “It’s difficult, once you go any number of years—and in some cases it’s decades of that underinvestment—it’s very difficult to dig your way out of that hole,” he said.

… The MBTA suffered widespread failures during a brutal winter in 2015, just as Mr. Baker, a Republican, took office. He found a system beset by neglect and financial problems, including an inability to spend available resources quickly enough. The Baker administration says the extended timeline for MBTA upgrades reflects the challenges in addressing long-running problems.

… “Digging out from decades of neglect doesn’t happen overnight, not on a system that must continue to operate every single day,” [Baker] said.

Why has there been “decades of neglect?” Why is there a $100 billion “backlog?” Why is the Boston system “beset by neglect and financial problems?” Why are all these transit systems so shoddy? Because they are unionized monopolies owned by governments, and there is little incentive for efficiency, innovation, and improvement. Federal subsidies encourage bad behavior and bad choices by states and cities.

The federal government should end subsidies and the states should privatize. Before the 1960s, most U.S. urban transit systems were private, and they should be private once again. Hong Kong privatized its metro system in 2000, and the reform has been a big success. Government transit has been a failure, so it is time to give entrepreneurs and markets a chance.

More on these issues here, here, and here.

Back in 2017, tax expert Professor Michael Devereux claimed that digital services taxes being proffered in Europe were “Marxist.” Not because they were socialist or communist ideas. No, he didn’t have good old Karl Marx’s theories in mind. A limited tax on certain firms’ sales, with those burdened being determined by arbitrary thresholds and industry definitions, instead echoed the spirit of Groucho Marx. He who famously said: “those are my principles, and if you don’t like them, well I have others.”

European countries have long adopted the principle that profits should be the basis for corporate taxation. Those corporate profit taxes are supposedly levied in the country where the profit making takes place. Yet with murkiness about where true profit-making activity occurs for digital firms, given intellectual property and firms’ ability to shift headquarters between countries, the European polities looked willing to throw out their principles altogether upon disliking its results. Their aim instead was higher government revenue from certain firms, and if new, highly targeted secondary tax bases were needed to achieve it, so be it.

That, sadly, is the new reality in France and soon the UK too. The French this week passed a law such that any digital company with worldwide revenue of more than $844 million (and at least $28 million from France) will face a new 3 percent tax on sales generated in France. The UK tax is likewise introducing a 2 percent tax on revenues from intermediate (not retail) sales for “search engines, social media platform or online marketplaces” for those with worldwide revenue exceeding $628 million, and at least $31 million from UK activity.

If this seems arbitrary and highly targeted at companies such as Google, Facebook, and Amazon, that’s because it is. There are big, evident challenges for the current corporate tax system. But rather than debate wholesale change, such as whether a destination-based tax system might be preferable to the status quo (explicitly changing the central principle from taxing where profits are made to where sales occur), the UK and France are instead undergirding their existing approach with a new revenue stream explicitly directed at large, American businesses.

Implementation is almost certain to lead to a reaction from President Donald Trump. Since Europe isn’t blessed with many home-grown tech giants, these digital services taxes are a bit like tariffs. The odds of a tit-for-tat reaction from a US President who self-identifies as “Tariff Man” must therefore be very short. But in truth, these measures won’t just hit existing firms and their consumers. They could have chilling effects on tech innovation too, especially in Europe.

It will be future digital giants – those fast growing, initially low profit-margin (or even loss-making) digital businesses – who will suffer most from a revenue tax. Think Amazon a decade ago. Businesses in those positions may find they have to raise funds just to pay their tax bills. That’s why the UK is already thinking about an exemption for very low profit companies, making the policy even messier. On the margin, still, such taxes could deter firms scaling up or serving new markets due to the compliance cliff-edges. This problem will be much worse if there are very different taxes operating across different countries. It’s almost a fatalistic admission that Europe is completely giving up on ever becoming a breeding ground for successful digital giants.

Sadly, as I’ve written before, new taxes for digital companies are politically popular, and supported by bricks and mortar retail competitors to Amazon, especially in the UK. These firms and prominent politicians have effectively popularized the line that it’s unfair that businesses such as Amazon are not burdened by local business property taxes, unlike “High Street” stores. The result, it is said, is “unfair competition” caused by an “uneven playing field.”

This, of course, completely misunderstands the nature of the competitive process. Companies such as Amazon have developed business models that explicitly avoid the need for high-cost, inner-city premises. That’s one reason why they can offer consumers low prices. To punish them for that with a new revenue tax would be a bit like imposing extra revenue taxes on companies that found ways to automate certain activities to save on labor costs.

That is the key point. The French and UK governments are not thinking through their tax codes from first principles, or trying to develop a neutral framework updated for modern challenges. They are, Groucho Marx-like, trying to justify the revenue grab from large foreign firms by adding new principles to their already hideously complex tax laws.

Writing in the Washington Post, Kate Cohen says, Let the extreme right have the “Betsy Ross flag,” and “the left wing can just take back that boring ordinary flag we all use every day.” Why would anyone want the Betsy Ross flag, she asks:

I mean, honestly, if you’re into the Betsy Ross flag, I assume it’s because America was great back in 1777, when only white male landowners could vote and slavery was legal in all 13 colonies.

Well, I can’t speak for the extreme right. But speaking as an American history major and a lover of America’s libertarian roots, that’s not how I see it. I think the flag with 13 stars and 13 stripes represents the people who launched the first great national liberation movement to throw off their distant imperial overlords and did so with the argument that all men were created equal, endowed with the inalienable rights of life, liberty, and the pursuit of happiness. True, that promise was very imperfectly realized, and is still imperfect, but we’ve made progress in ensuring that all people are equal in the eyes of the law, with their rights guaranteed and protected. And that Declaration served as a guidestar for that progress. As Andy Craig wrote last week on July 4, those words were used by Frederick Douglass and Abraham Lincoln and Martin Luther King Jr. to challenge the nation to make good on its promissory note. And by the feminists at Seneca Falls to insist that “all men” must include women, too. And he could have added, by the advocates of equal liberty for gay people.

That’s not a flag that liberals — people who believe that the role of government is to protect everyone’s rights and freedom — should give up.

And by the way, people who don’t believe that all people are created equal? They shouldn’t fly the flag of the American Revolution. There are plenty of flags of monarchic, theocratic, ethnic, fascist, or communist states to choose from.

In recent years, housing prices and rents have increased dramatically in the cities of the Northeast corridor and the West Coast. Leading Democratic presidential candidates have proposed plans to address this issue and, fortunately, most of these proposals recognize that public policy (i.e., local zoning and land use regulations) has limited the construction of new housing. As Edward Glaeser and Joseph Gyourko observed in a 2002 Regulation article, local and state laws have restrained housing supply from keeping pace with demand. While the willingness of Democrats to admit the importance of constraints on private supply is an important step away from an exclusive focus on public provision of housing or subsidies, a more direct and local option would be to establish a framework for developers to pay localities to alter their zoning constraints.

A recent New York Times editorial outlines Senator Cory Booker’s, Julian Castro’s, and Senator Elizabeth Warren’s plans to incentivize local governments to relax land-use laws and allow more housing development. Booker and Castro would require local governments to institute land-use reforms before they can obtain existing federal infrastructure subsidies while Warren would attach the land-use reform requirement to a new $10 billion spending program for governments that comply. Booker and Castro have additionally proposed increasing subsidies to tenants through tax credits or expanded housing vouchers. (Senator Kamala Harris also has proposed increasing tenant subsidies but without a parallel incentive to increase the housing supply.)

For the most part, Booker’s, Castro’s, and Warren’s plans eschew traditional, deleterious alternatives such as rent regulations and subsidies for developers. Last month I discussed how New York State’s recently tightened rent control regulations will decrease housing supply and harm both current and future renters. And, while not ideal, tenant-based assistance is more efficient and equitable than project-based assistance, such as housing tax credits.

It is encouraging that the proposals have managed to avoid those types of interventions and identified the harmful effects of zoning laws, but the proposals’ downside is that they tie land-use reform to federal subsidies for infrastructure. As a recent Regulation article argued, “although there are some reasons for higher-level governments to provide some local infrastructure projects … it is preferable for users to pay whenever that is feasible.”

In the current issue of Regulation, law professor Christopher Elmendorf proposes an alternative. Instead of incentivizing jurisdictions to relax zoning laws with federal money, state and local governments can independently create systems for developers to pay incumbent homeowners for the right to build more and denser housing. Fundamental to Elmendorf’s proposal is the recognition that zoning rules have become de facto property rights. Currently, local governments hold these rights and capture value from them by imposing impact fees, mandating that developers offer communities in-kind benefits (such as affordable housing requirements), or, most commonly, by zoning for less development than needed and extracting benefits including money, land for parks, and affordable housing from developers on a project-by-project basis (Roderick Hills and David Schleicher describe the negative consequences of this ad hoc exaction in their Fall 2015 Regulation article). The negotiations between developers and politicians are often behind the scenes and the benefits extracted do not always clearly go to incumbent homeowners.

Elmendorf’s alternative is for localities to transparently and directly sell developers the right to upzone. As he explains,

Development rights would be auctioned in the form of tradeable “development allowances” roughly analogous to the emissions allowances that are now bought and sold under cap-and-trade regimes for greenhouse gas emissions. Each allowance would permit its owner to build, say, 100 square feet of housing in excess of the baseline, up to a maximum defined by the new zoning map. To illustrate, imagine a parcel of 5,000 square feet that had been zoned for a floor-to-area ratio of 2:1, i.e., 2 square feet of housing for every square foot of lot size. After upzoning, the maximum floor-to-area ratio is 8:1. This means that the owner of the parcel, who previously could build no more than 10,000 square feet, may now construct as many as 40,000 square feet. But to obtain a permit to build 40,000 square feet, she would have to acquire and redeem 300 development allowances ([40,000 – 10,000] ÷ 100 = 300).

The local governments would be able to take the proceeds they receive and put them towards building new parks, infrastructure projects, tax reductions, or direct compensation of incumbent residents.

I have made similar proposals to resolve conflicts over Airbnb and conventional air pollution, which are rooted in economic theory developed by Nobel Laureate Ronald Coase. Allowing those with initial property rights to negotiate with entities who wish to purchase those property rights leads to trade and conflict resolution as long as transaction costs are low. In regard to the aforementioned examples and zoning rights, those who wish to offer their homes up for short-term rental, emit air pollutants, or develop new housing can purchase the right to do so and thus reimburse the initial property rights holders for any costs imposed.

Though the theory supporting Elmendorf’s idea is sound, there are pragmatic concerns. In a comment on Elmendorf’s article, economist William Fischel, one of the originators of the concept of exchanging zoning rights, notes that there will still be significant interests opposed to new development. The same incumbent homeowners that currently fight each building project and the unions and other interest groups that attempt to capture some of the producers’ surplus from development, will still attempt to influence the local politicians who will retain control of the zoning rights auctions. In fact, Fischel contends that because a zoning rights auction confers an abstract right to increase a plot’s floor-to-area ratio, as opposed to a tangible building plan that interests groups can directly address in zoning hearings, Elmendorf’s proposal actually may increase homeowners’ perceived risk of land-use change. 

But if the compensation for change is high enough and directed specifically to incumbent homeowners, change occurs. For example, Northern Virginia was once dominated by single-family homes. Between the late 1980s and early 2000s, developers bought up neighborhoods for redevelopment, often paying homeowners more than double the listed price of their houses. The Ballston corridor now has 22-story apartment buildings.

Allowing local governments to convert the current in-kind, opaque, underground market for zoning change into an explicit legal exchange of cash for density would facilitate the development of housing and address affordable housing shortages.

Written with research assistance from David Kemp.

Facebook has pledged to remove misinformation about the Census from its platform. Inevitably this removal involves suppressing speech that would be protected by the First Amendment if uttered in a public forum. After all, there is no misinformation exception to the First Amendment. However, Facebook may remove the speech because as a private firm, it is not obligated to enforce the First Amendment. Nonetheless, we might ask: why speech about the Census? What’s different about misinformation about that project? I see four possibilities as to why speech about the Census might merit closer attention by content moderators.

Facebook might feel obligated to protect basic political institutions. For example, Facebook tries hard to combat misinformation around elections including the 2018 American midterms. The Census and elections are mentioned in the U.S. Constitution, with authority over the latter largely given to the states. But so are Congress, the presidency, the courts, and the Post Office. I doubt anyone expects Facebook to remove misinformation about all these institutions.

And the slope might be slippery. Facebook faces pressure to adopt an expansive, militant understanding of “democracy” in Europe. It has largely resisted doing so, relying on account authenticity, advertising transparency, and fact-checking to support election integrity. Facebook’s restraint makes sense. An expansive agenda of protecting institutions might lead to suppression of speech that should be seen.

The distinction between facts and opinion offers a second general justification for treating “Census speech” differently. “Misinformation” would contravene clear, not controversial, facts. This justification appeals to many. Consider an election example. Polls in a district are open for a set period that is public and easily confirmed. Spreading the wrong hours for voting is incorrect beyond doubt. In contrast, opinions about who should win and hold office cannot be confirmed by some external authority. Disagreements about that question are why we have elections.

Some questions about the Census are clearly not facts. One might believe that ours is a Constitution of No Authority, that the more efficient exercise of state power is deleterious of freedom, and that, as James C. Scott writes, to be made legible is to be governable. From this perspective, the census is a dangerous tool of control. Whatever you may think of this position, it is coherent, internally consistent and plausible even if ultimately wrong. Articulations of this belief ought not be thrown out with the bathwater of misinformation.

Some propositions look like facts but are really contestable claims (i.e. opinions). Consider the apparently factual claim that “the census will help the government deport illegal immigrants.” The government denies this. Some say that this is misinformation intended to depress census completion rates. Notice this is a “fact” about the future. Perhaps the past might inform our assessment of this “fact.” While census data may not be legally shared with law enforcement, this prohibition was lifted during the Second World War to allow the FBI to more efficiently apprehend Americans of Japanese ancestry. In other words, the past suggests a reasonable person might have doubts about future uses of census data. The government’s future use of census data is more a matter of trust than of hard facts. Facebook cannot use the “clear facts” criterion to side with the government here. 

Political science suggests one important difference between “census speech” and other social media talk. Organized groups and the Census Bureau are concerned about misinformation on Facebook about the Census. Misinformation that matters little to organized groups or the government may be overlooked by social media content moderators. But Facebook should avoid at all costs acting in response to specific demands of organized groups. The more Facebook is seen to cater to specific demands, the more demands will be made of it. And being responsive to interest group campaigns may delegitimate Facebook’s content moderation in general.

The Census Bureau seems to be different. Facebook generally enforces local laws criminalizing speech. The law requires responding to the Census which itself, as mentioned, is constitutionally required. But speech misinforming the public about the census is not illegal in the United States. The Bureau is asking Facebook to help facilitate law enforcement regarding the census. And the law requiring answers to the census is, in fact, a constitutional exercise of legislative power under the necessary and proper clause (John Marshall edition). The same can be said of laws criminalizing sodomy prior to Lawrence v. Texas. Would Facebook have facilitated enforcing Texas’s law prior to Lawrence? Something that might seem as simple as helping the Census Bureau turns out to require Facebook to take sides on controversial political questions.

Facebook might do better by distinguishing between misinformation about the Census that can be dealt with by “more speech” and misinformation that cannot. Most errors about the Census may be corrected by “more speech.” After all, unlike elections, the census does not take place on one day at determinate places. The government and its allies can make their case against misinformation, disinformation, and controversial claims. There is time for “more speech” to bring about the best outcome for the society.

Elections may be different. Let’s say it’s widely and wrongly reported that a candidate has dropped out of a race. That’s a hard fact though perhaps temporarily unclear. It matters a lot whether the report circulates two days or two weeks prior to election day. “More speech” can handle the latter; avoiding harm to the candidate might be much harder two days before the voting. Speech inciting violence may be criminalized because in limited situations there is no time for “more speech” to rebut the appeals to force.

But there’s an important difference between the two harms, violence and false beliefs about elections. I cannot avoid being punched in the nose as a result of incitement. I can avoid false beliefs by modest research regarding facts. Here’s a (hardly obscure) place to start. Our freedom of speech does require that citizens take some responsibility for their beliefs and the reasons for them. Facebook should not protect us from our sloth.

Senator Joe Manchin (D‑WV) and Mike Braun (R‑IN) are still trying to address the fentanyl and heroin overdose crisis—soon to be joined by a methamphetamine and cocaine overdose crisis—by denying chronic pain patients access to pain relief. They have just introduced a bill they call The FDA Opioid Labeling Accuracy Act, which would “prohibit the Food and Drug Administration (FDA) from allowing opioids to be labeled for intended use of ‘around-the-clock, long-term opioid treatment’ until a study can be completed on the long-term use of opioids.”

Set aside the fact that most pain specialists agree that, in some cases, long-term opioid therapy is all that works for some chronic pain patients. The 2016 guidelines on opioid prescribing put forth by the Centers for Disease Control and Prevention have already been misinterpreted and misapplied by legislators and regulators, leading to forced and rapid tapering off of opioids in many chronic pain patients, causing many to resume lives immobilized by pain, and in many cases, seek relief in the black market or by suicide. It has gotten so bad that the CDC recently issued a “clarification” in April, reminding regulators that the guidelines were only meant to be suggestive, not prescriptive, and did not in any way mean to encourage the rapid tapering of patients on chronic opioids for pain management. Johns Hopkins bioethicist Travis Rieder, PhD delves deeply into this subject and relates his own experiences in his book, In Pain.

What the senators fail to recognize is that patients are not one-size-fits-all. Different patients respond to pain and to pain management differently. Their proposed legislation, if passed, will only serve to exacerbate the unnecessary suffering of patients in pain that the CDC is trying to undue with its guideline clarification.

Meanwhile, they should take a look at the government’s own numbers. The data show there is no correlation between the number of prescriptions written and the incidence of non-medical use of prescription opioids or prescription pain reliever use disorder. And less than 10 percent of opioid-related overdose deaths in 2017 involved prescription pain relievers unaccompanied by other drugs such as cocaine, heroin, alcohol, or fentanyl.

The continued war on patients by politicians and regulators will not get one IV heroin user to take the needle out of their arm. Senators Manchin and Braun need to recognize that the overdose crisis has been on a steady, exponential increase since the 1970s and shows no signs of stopping—and that its ultimate cause is drug prohibition. 

If they want to get serious about addressing the problem, they should switch their focus to harm reduction. A good way to start would be to repeal the “Crack House” statutes that prevent cities and states from establishing overdose prevention sites called “safe injection facilities.”