Welcome to the Defense Download! This new round-up is intended to highlight what we at the Cato Institute are keeping tabs on in the world of defense politics every week. The three-to-five trending stories will vary depending on the news cycle, what policymakers are talking about, and will pull from all sides of the political spectrum. If you would like to receive more frequent updates on what I’m reading, writing, and listening to—you can follow me on Twitter via @CDDorminey. 

1. “Warren, Smith introduce bill to bar US from using nuclear weapons first,” Joe Gould. Two Democratic leaders just introduced a bill, “The No First Use Act,” to make it the stated policy of the United States not to use nuclear weapons first in a conflict. This is in direct competition to the administration’s Nuclear Posture Review that reserved the right to use nuclear weapons in response to “significant non-nuclear strategic attacks.” 
2. “Lawmakers renew challenge to Trump over Yemen, Saudi Arabia,” Joe Gould. A bipartisan coalition in Congress is reintroducing a resolution in both the Senate and House to withdraw American support for Saudi Arabia’s war on Yemen. A similar piece of legislation, SJ Res 54, passed the Senate 56–41 back in December but the House did not vote on the issue. 
3. “Mike Pompeo to speak at Missouri-Kansas Forum amid Senate bid speculation,” Rachel Frazin. Rumors are circulating that Secretary of State Mike Pompeo may be leaving his post to run for the seat that Pat Roberts (R) of Kansas will vacate in 2020. 
4. “Great Power Competition, Part I,” Emma Ashford, Trevor Thrall, & Joshua Shifrinson. This episode of the Power Problems Podcast addresses the emerging era of great power competition and features an in-depth discussion on the rise of China. 

So it has come to pass. In his recent press conference, Chairman Jerome Powell has at last made official the Fed’s plan to stick to its post-crisis “floor” system of monetary control, which uses changes in the interest rate paid on banks’ excess reserve balances, rather than routine open-market operations, to keep the federal funds rate at its assigned target. Powell has also affirmed previous reports that the Fed may stop shrinking its balance sheet well before it reaches $3 trillion — the (itself still hefty) minimum it might reach if the Fed kept to its original unwind plan. The unwind might even end before the Fed’s assets fall below $4 trillion, or not far from where they are today.

Although he’s generally not one for making forecasts, yours truly has long anticipated both developments, in writings here on Alt‑M and elsewhere. He has said as well that the Fed is likely to start Quantitatively Easing again at the first hint of another crisis. I’ll add here the prediction that it will do so before, or instead of, setting its IOER rate back to zero, just as happened during the last crisis. In short, I repeat my belief that it’s quite possible that Jerome Powell will have the dubious honor of becoming the Fed’s first “Six Trillion Dollar Chairman.” And because, under a floor system, the size of the Fed’s balance sheet has no direct bearing on the level of short-term interest rates, there’s practically no limit to how big it might get without interfering with the Fed’s ability to hit its interest-rate targets.

Fed officials insist, of course, that the advantages of this brave new regime outweigh any dangers it poses, and that they’ve only decided to stick to it after carefully weighing its pros and cons. Perhaps. But I have my doubts.

There are, first of all, powerful bureaucratic motives favoring the change — motives that have nothing to do with the general public’s well-being. For starters, the new regime makes life easy for the folks at the New York Fed, who are freed from having to study and anticipate changes in the demand for reserves, and “autonomous” changes in the stock of reserves, in order to plan and then undertake open-market operations aimed at offsetting those changes. Were that reduced labor load to translate into a reduced New York Fed staff, the bureaucratic gain it entails would be a gain to the general public as well. But until I hear of desk staff packing up their belongings, I’m inclined to regard that as a hypothetical possibility only.

If former Cato Chairman Bill Niskanen’s budget-maximizing model of bureaucrats has any merit, Fed officials have a second important motive for favoring a floor system and the larger balance sheet that system helps them to rationalize; namely, a larger budget consisting of the additional revenue generated by a substantially increased asset portfolio. Finally, Willem Buiter has argued that Fed officials have reason to resist a more complete balance sheet unwind because such an unwind “is likely to reveal the true extent of the central bank’s quasi-fiscal activities during the crisis and its aftermath.”

The Fed’s official reasons for keeping its floor system are, of course, unrelated to any of these bureaucratic motives. Instead they point out that the new system enhances banks’ liquidity. They also claim that the greater volatility since the crisis of “autonomous” reserve-balance determinants — including the size of Treasury General Account balance — now make it very difficult, if not impossible, for the Fed to gauge and offset those autonomous factors. Yet it would have to do that to keep interest rates stable were it to return to a corridor system.

Are such arguments decisive? Hardly. For whatever their merits (and they have less merit than their proponents claim), they represent but one side of things. A floor system also has disadvantages compared to a corridor system — disadvantages that Fed officials consistently choose to overlook.

A floor system does away with unsecured interbank lending on the Fed funds market, eliminating that important venue for interbank monitoring. It involves a greater degree of Fed interference with private-market resource allocation, and particularly so when the Fed’s portfolio consists of longer-term or risky assets, violating the long-standing Fed principle that it should “Structure its portfolio and undertake its activities so as to minimize their effect on relative asset values and credit allocation within the private sector.” A floor system also exposes the Fed to all sorts of pressure to expand or otherwise alter its portfolio for reasons unconnected to monetary policy, as Charles Plosser has eloquently explained. Corridor systems, or “tiered” arrangements that blend features of both corridor and floor arrangements, are also widely favored over strict floor systems among central banks around the world. Finally, the ECB’s Ulrich Bindseil, who has written more than anyone else about the relative merits of alternative central bank operating systems, concludes after a recent assessment of them that “best approach to steer [a central bank’s policy rate] in normal times…still seems to be the symmetric corridor approach.”

Despite these observations, is it still possible that a fair weighing of all the pros and cons might justify the Fed’s decision to retain it’s floor system? I doubt it, and I’ve written an entire book explaining why. But what I know for certain is that the merits of the Fed’s floor system should be among the main topics of the Fed’s ongoing, comprehensive review — informed by outsider input — of its “strategies, tools and communication practices.” By suggesting in yesterday’s press conference that the Fed has already made up its mind about its operating framework, Chairman Powell appears to have all but struck “tools” from the list of subjects up for discussion. If that’s not his intention, I hope he’ll say so. And if it is, I hope he’ll tell us why.

[Cross-posted from Alt‑M.org]

Baltimore’s top prosecutor, State’s Attorney Marilyn Mosby, announced on Tuesday that her office will stop pursuing prosecutions against individuals charged with marijuana possession, saying: 

“We need to get serious about prioritizing what actually makes us safe, and no one who is serious about public safety can honestly say that spending resources to jail people for marijuana use is a smart way to use our limited time and money.”

While this is a positive step forward, resistance remains. The interim police commissioner has promised that, “[Marijuana arrests will continue] unless and until the state legislature changes the applicable laws.”

Despite the protests of marijuana opponents, progress continues. In the past three years, six states have legalized recreational marijuana and thirteen others have legalized the use of medical marijuana and CBD products. Maryland already has a legal system for medical marijuana, and perhaps Ms. Mosby’s stance will push state legislators to act.

Erin Partin co-authored this post.

Michael Kinsley memorably quipped, “A gaffe is when a politician tells the truth — some obvious truth he isn’t supposed to say.” Sen. Kamala Harris (D‑CA) recently committed a gaffe when she admitted that Sen. Bernie Sanders’ (I‑VT) Medicare for All proposal would oust close to 200 million Americans from their existing health insurance arrangements, a prospect that causes public support for Medicare for All to plummet from 56 percent to 37 percent. Harris thus helpfully illustrated why Sanders’ proposal is, to be kind, so pie-in-the-sky bonkers that it would never pass Congress.

Indeed, the only way Medicare for All could happen is if free-market advocates focus all their fire on that proposal rather than the incremental and thus more politically feasible steps toward a single-payer system that Medicare for All supporters are offering. I am speaking in particular about the various proposals they are offering to create a so-called “public option,” usually by expanding eligibility for Medicare or Medicaid.

In 2009 and 2010, the Left used a public option as a stalking horse for ObamaCare. The Left demanded a public option and lured free-market advocates into focusing their fire on that proposal, only to have congressional Democrats drop the idea and pass ObamaCare as some sort of moderate or compromise measure.

That went so well—or let’s just say, the bill passed—the Left is now using Medicare for All as a new stalking horse for the old stalking horse. Savvy Democrats are hoping that if Sanders whips up the base over Medicare for All, congressional Democrats will be able to pass a public option (e.g., a Medicare/​Medicaid “buy-in,” or “Medicare X”) again as some sort of moderate or compromise measure.

A public option is merely a slower and more politically feasible way to achieve the destruction of private health insurance than what Sen. Harris proposes. Supporters say they merely seek a level playing field where a public option may compete with private insurance. Of course, a level playing field between government and private insurers is impossible. It has never happened. It will never happen. It cannot happen.

If you want to know how serious Democrats are about letting private insurance compete with a public option on a level playing field, look at how they are treating a free-market alternative to ObamaCare: short-term, limited duration health insurance. The Obama administration prohibited short-term plans from offering crucial consumer protections; it crippled them by unilaterally decreeing that enrollees in such plans must face medical underwriting more often than federal law requires. Democrats have decried the Trump administration’s decision to allow short-term plans to shield sick enrollees from medical underwriting, and are trying to *rescind* those consumer protections because they are not provided by the government. Senate Democrats voted to kick patients with preexisting conditions out of their short-term plans, leaving those patients to face up to 12 months of expensive medical bills with no insurance coverage whatsoever. Illinois Democrats passed a similar law over Gov. Bruce Rauner’s (R) veto. California Democrats completely banned short-term plans — and thereby gave real teeth to ObamaCare’s 10-month rationing period.

How is any of that a “level playing field”?

Supporters of a public option don’t want open competition. They don’t want to give you just one more choice. They want to destroy private insurance. They want a public option to be your only option. They want you to have no choice.

In the end, a public option is even more dangerous than the Sanders bill. Unlike Sanders’ frontal assault, a public option could actually deliver Medicare for All.

One major negative of drug prohibition is that it causes riskier ingestion methods. Prohibition raises drug prices, which encourages injection to get a big bang for the buck. Prohibition also fosters restrictions on clean syringes, which means users exchange dirty needles, increasing the transmission of HIV and other diseases.

Prohibition also increases overdoses, since potency is difficult to assess in a black market.

Hence the Church of Safe Injection:

Lewiston, Maine: On an 11-degree night here this month, an unconventional mass was held outdoors, next to a 2017 Honda parked on a street corner.

The altar took the form of the small car’s hatchback trunk. The not-so-typical communion: sterile needles, the overdose antidote naloxone, and the rubber tourniquets used prior to drug injection. For shooting and mixing heroin hygienically, alcohol swabs and sterile water. For the cold, hand warmers and socks, and for the hungry, granola bars.

At the center of it all was Jesse Harvey, 26, a Portland-area peer recovery coach who is the founder of the Church of Safe Injection.

The congregation lends structure to a rogue coalition of harm-reduction advocates who work to distribute thousands of syringes — possessing more than 10 is illegal in Maine — as well as hundreds of doses of naloxone. Members of the “church” don’t take that title lightly.

Such organizations are a small but sensible step toward reducing the harm from drug use. Better still, opiods would be legal, thereby reducing the incentive to inject or share needles and making it easier for users to determine potency.

Until then, however, safe needle exchanges and other harm reduction measures (like Methadone Maintenance) are steps in the right direction. Cato’s Jeffrey Singer makes a compelling case for harm reduction here. And Cato will host a conference on harm reduction on March 21st in Washington, DC.

There is good news for taxpayers regarding federal disability programs. The strong economy and administrative reforms have begun reducing caseloads for the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) programs. These are huge programs—SSDI cost $144 billion in 2018 while SSI cost $55 billion.

The Wall Street Journal reports the good news here. The themes in the story dovetail with analyses of SSDI and SSI at Down​siz​ing​Gov​ern​ment​.org. Tad DeHaven noted that many marginally disabled people who should be working instead decide to go on disability, especially when the economy is poor. DeHaven also called for greater quality control on SSA case decisions to limit benefit awards, and it appears that there have been moves in that direction.

SSDI and SSI still have major problems of bureaucracy, excess utilization, and the disincentivizing of work, but the WSJ story indicates that progress is being made.

Mr. Mort is part of a wave of disabled Americans joining or returning to the U.S. labor force, breaking a long-running trend that had pushed millions to the sidelines of work. These workers have benefited from a tight economy with a very low overall unemployment rate—3.9% in December, just above lowest level since 1969—as employers in many sectors tackle a shortage of available workers by becoming more creative about whom they recruit.

The number of American workers receiving federal disability benefits dropped to 8.5 million in December from a peak of 9 million four years earlier as the share of disabled Americans in the labor force rises. 

… Two factors are at play. First, the tight labor market is causing employers like Gordon Food Service to expand their search for job candidates. Second, Social Security disability benefits—which for many became a de facto second form of unemployment insurance after the last recession ended in 2009—have become harder to access.

When the disability-benefits system found itself on shaky financial footing a few years ago as its rolls swelled, the Social Security Administration pushed new training guidelines to administrative judges who decide which claims will be granted, with the aim of producing more consistent rulings. Before those efforts, judges in some states approved claims at unusually high rates. 

… The share of applying workers whose disability claims were allowed following a medical review in 2016 fell to 48.0%, according to the latest available data from Social Security. That was the first time the rate was below 50% on records dating to 1992. Allowances peaked at 62% in 2001.

… Most people exit the Social Security disability system because they either qualify for retirement benefits or die. 

… But people like Mr. Mort are no longer a rarity. In 2017, according to the latest data available, 51,302 people left disability because they found “gainful” employment. That is the most on records dating to 2002 and nearly 30% higher than in 2011.

… The tighter labor market is delivering opportunities to a broad swath of workers who were disproportionately affected by the last recession. Unemployment has fallen sharply for blacks, Latinos, younger workers and those without a college education.

More information can be found at the Down​siz​ing​Gov​ern​ment​.org page for the Social Security Administration.

This month, the newly minted Democratic Congresswomen from New York, Alexandria Ocasio-Cortez (D‑NY) suggested levying a 70% tax rate on the rich. After stagflation in 1970s, many had assumed we’d reached a consensus that extraordinarily high marginal tax rates are unsustainable. So why do these ideas keep popping up? Social psychology may help explain why. A recent academic study finds that support for redistribution by taxing the rich to give to the poor is likely driven by several psychological motives including not only compassion but also envy.

In an interview with Anderson Cooper on 60 Minutes Rep. Ocasio-Cortez explained:

You know, it— you look at our tax rates back in the ’60s and when you have a progressive tax rate system. Your tax rate, you know, let’s say, from zero to $75,000 may be ten percent or 15 percent, et cetera. But once you get to, like, the tippy tops—on your 10 millionth dollar— sometimes you see tax rates as high as 60 or 70 percent. That doesn’t mean all $10 million are taxed at an extremely high rate, but it means that as you climb up this ladder you should be contributing more.

Rep. Ocasio-Cortez says the money would be spent on the “Green New Deal” to end use of fossil fuels within 12 years. This would be an ambitious goal, particularly since about 80% of the energy we all currently use in the U.S. comes from fossil fuels. Raised revenue could also go toward her proposal for government-supported health care, and government-paid college. Paul Krugman blessed the idea with his New York Times piece, “The Economics of Soaking the Rich,” saying he believed such a high rate was “optimal.”

What motivates these beliefs of “Soaking the Rich”? Of course, no one can know with certainty what are Rep. Ocasio-Cortez’ true motivations. However, social psychologists in “Support for redistribution is shaped by compassion, envy, and self-interest, but not a taste for fairness,” investigate broadly what motivates people to support income redistribution. In short, they find that envy, compassion, and self-interest drive support for high taxes on the rich. Notably, they find that people who are compassionate are significantly more likely to support redistribution and give charitably. However, envious people support income redistribution but are not more likely to give charitably. This suggests that one way to know if a person’s desire to soak the rich is due to altruism or resentment is to find out if they choose to volunteer or give charitably in their private lives.

The researchers measured support for income redistribution using agreement with statements like “wealth should be taken from the rich and given to the poor” and “the government should increase taxes to give more help to the poor” and “inequality in the distribution of wealth is unjust.” Participant answers to these questions were averaged together to create an average preference for redistribution.

Envy

Then the researchers asked people the extent to which they agreed or disagreed with a series of statements like “It is so frustrating to see some people succeed so easily,” “I feel envy everyday,” or “frankly, the success of my neighbors makes me resent them.” Notice this conception of envy isn’t just about material possessions, but could include envy over others’ perceived social status, prestige, as well as their social accolades. To illustrate how the rhetoric of this might work, consider the opening paragraph in Sam Adler-Bell’s recent article in which his resentment of the rich isn’t necessarily about their material possessions but the fact that Americans like them so much: “Americans have insufficient antipathy toward the extraordinarily rich.…We like them too much.…Americans persist in seeing extreme wealth as a virtue–a sign of integrity, intelligence, merit. Those who have it garner respect and deference, even reverence.” Thus envy doesn’t always have to be about wanting other’s people’s money, but it could be about wanting their prestige.

The study found that people who were more frustrated with other people’s success and felt more envious of others were significantly more likely to want to increase taxes on the rich and implement redistributive social welfare policies. Perhaps this is why Winston Churchill famously said: “Socialism is…the gospel of envy.” [emphasis added] 

Some might point out that antipathy toward the rich is only against the “unmerited, accumulation of riches,” as Emmanuel Saez and Gabriel Zucman put it, not legitimately earned wealth. This may certainly explain the motivations of some people. However, the fact that the study used generic survey questions about if respondents “feel envy everyday” or feel resentment toward the “success” of generic neighbors shows that for some envy isn’t about frustration with corruption, it’s about resentment.

The researchers ran several follow-up experiments to examine how envy might inform attitudes about increasing taxes on the rich. First, they asked people if they would prefer a scenario in which the rich paid a relatively higher amount in taxes but that generated less tax revenue for the poor OR two, a scenario in which the rich paid a little more in taxes, but less than in scenario one, but that it generated moret ax revenue for the poor. Here is the question wording:

Would you rather (1) have the wealthy pay 50% more in taxes if that generated $100 million for the poor or(2) have the rich only pay 10% more in higher taxes if that generated $200 million for the poor.

Who picked the option that made not only the rich worse off but also the poor? Envious people. Compassionate people were no more or less likely. This finding held in studies they conducted in the United States, India, and the United Kingdom. 

Is this an unrealistic scenario? Not necessarily. In a 2008 Democratic primary debate, then-candidate Barack Obama pledged to increase the capital gains tax. One of the debate moderators, Charlie Gibson, pointed out “…in each instance, when the [capital gains] rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28%, the revenues went down.” This did not dissuade Mr. Obama. Instead he responded, “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.” Obama cited that hedge fund managers that year had made a lot of money, that income and capital gains tax rates were different, and that he wanted to implement social programs. But Mr. Gibson further pressed: “But history shows that when you drop the capital gains tax, the revenues go up.” [emphasis added] Obama responded: “Well, that might happen, or it might not.” His mind was unchanged. What’s fascinating about this exchange is Mr. Obama did not contest the history or contend that this time would be different. Instead, he reaffirmed his commitment to increasing capital gains taxes, which are associated with taxing rich people, regardless of the effects.

Compassion 

The researchers also found that compassion contributes to support for income redistribution. This is not particularly surprising, as this is what advocates of redistribution explicitly say they are about. The researchers measured compassion by asking people the extent to which they agreed or disagreed with statements like: “I suffer from other people’s sorrows” or “I feel sympathy for those who are worse off than myself.” Indeed, people who are compassionate are significantly more likely to support income redistribution.

This might lead some to think that those who oppose income redistribution must lack compassion. However, research showsthat conservatives, who are the most opposed to income redistribution, are the most likely to give charitably to both secular and religious causes. This result holds even when accounting for demographic factors like income. Indeed, the researchers also found that people who are highly compassionate were significantly more likely to have voluntarily given money, food, or other material resources of their own to the poor in the past 12 months. This implies that one doesn’t have to support income redistribution to be compassionate.

This suggests that compassion may have two different effects: It may motivate a person to support government-enacted income redistribution, but it might not. Alternatively, it might lead someone to roll up their sleeves and choose to do their part in caring for others. It might lead them to support both.

Further undermining the link between compassion and redistribution is that support for redistribution does not significantly predict giving charitably. This means that people who favor income redistribution are no more likely to personally give charitably, despite their professed support for social welfare programs. Thus, endorsement of the welfare state is not by itself evidence of one’s sincere compassion for the poor.

Putting this altogether: people who are compassionate are significantly more likely to give charitably or to support redistribution for social welfare programs (or both). However, those who support income redistribution are not more likely to personally give aid to the poor. Only compassion predicts giving charitably. The authors write, “compassion, but not envy, predicts personally helping the poor. Envy, but not compassion, predicts a desire to tax the wealthy even when that costs the poor.”

What Doesn’t Motivate Redistribution: Desire for Fairness

Many supporters of higher taxes on the wealthy contend their motivation is “fairness,” as President Obama said in his debate. However, the researchers found that one’s taste for fairness was not a significant predictor of support for redistribution after controlling for the effects of compassion, self-interest, and envy. 

Since people define fairness differently, the researchers defined it in two different ways and measured the impact of both. First, they measured how much a taste for “distributional fairness,” defined as wanting people to have more equal outcomes, predicted support for redistribution. Next, they measured how much a taste for “procedural fairness,” or the desire for every individual be treated the same under the law, predicted support for taxing the wealthy. Across multiple studies, rarely were either conceptions of fairness strong predictors of attitudes toward redistribution. Instead, compassion, self-interest, and envy were the best predictors of how people feel about raising taxes on the wealthy.

Is Taxing the Wealthy More About Resentment or Altruism?

In the previous study, the researchers did not disentangle support for “aid to the poor” versus “taxing the rich.” However, in a dissertation by Spencer Piston submitted to the University of Michigan in 2014, he separates these out. He finds that resentment of the rich strongly and largely predicts support for (1) increasing taxes on those earning more than $250,000 a year, and (2) redistribution by taxing the rich, and (3) reducing the gap between rich and poor. However it has little effect on support for (4) aiding the poor or (5) aiding the homeless. Conversely, sympathy to the poor largely predicts support for giving aid to the poor and homeless, but is not that predictive of taxing the rich. His research implies that support for income redistribution through very high taxes on the rich is more about resentment toward the rich rather than compassion for the poor.

Implications

New York Mayor Bill de Blasio in his State of the City address this month declared “Here’s the truth. Brothers and sisters, there’s plenty of money in the world. There’s plenty of money in this city. It’s just in the wrong hands.” Is this motivated by deeply felt compassion and love for the needy, marginalized, and vulnerable? Or is this really about something darker, rooted in envy and bitterness?

How does one know if a person who advocates for dramatically increasing top marginal tax rates, the estate tax, capital gain rates, etc. is motivated by sympathy for the poor or resentment of the rich? 

We can’t know for certain what’s in a person’s heart. But this research suggests that one should look at what that individual does in their personal life to help others. Do they simply post noble slogans and platitudes on social media about their commitment to justice? Or when no one is watching are they visiting someone in the hospital, bringing a meal to a new mother and father, visiting the elderly, contributing to a local community organization, or babysitting for their neighbor’s kids? Answers to these questions might reveal a lot about whether a person is motivated by altruistic concern for others or resentment of the successful. 

Why should we care about motivations? Because public policy rooted in envy leads to sub-optimal policy outcomes or worse. Envy can lead to bitterness and resentment, and with that can come the rationalization of dehumanization of entire classes of people. And thus quite clearly, can lead to unwise public policy.

Marshall Steinbaum, research director at the progressive Roosevelt Institute recently tweeted, “It’s increasingly clear that having wealthy people around is a luxury our society can no longer afford.” We don’t know for certain what Steinbaum truly meant by this. But it’s not hard to imagine how this kind of rhetoric can turn dark and could be used to justify dehumanization. 

The gospel of envy, as Winston Churchill put it, motivated a great deal of havoc and at times horrific violence throughout the 20th century under the banner of fairness and equality. Compassion is noble and should be encouraged. Envy is not.