Friday, June 30, 2017

With Bank Bailouts, Italy Secures Moral Hazard

Over the past weekend, two more Italian banks were forced to close due to insolvency.

As is often the case, bad loans were the cause of the downfall for both banks. They made too many risky bets on borrowers that didn’t pay off.

Banca Populare di Vicenza SpA and Veneto Banca SpA are the two banks that failed in this case. Their loans and deposits will be taken over by another bank, Intesa Sanpaolo SpA, for the grand total of 1 Euro. More specifically, Intesa is only acquiring the good assets. Meanwhile, the excessive losses on the bad loans will be absorbed by the Italian government, which is putting up $19 billion in support for the deal.

The end result is a good deal for Intesa, which acquires income-generating assets without meaningful risk. It’s also a great deal for the investors and creditors of the failed banks. In a true bankruptcy, they would have lost much or all of their money. But under the state-assisted sale to Intesa, these creditors and investors–who willingly took a risk–will be protected from loss.

The unequivocal loser is the Italian taxpayer, who will be forced to bail out two banks, even though the taxpayers themselves bear no responsibility for the failure and never volunteered to put their money at risk.

On its face, this is a perverse outcome. And even if we could ignore the plain immorality of taxing a random third-party (the taxpayer) to protect the interests of a few, there’s still another problem–the problem of moral hazard.

In economics, moral hazard refers to the idea that people tend to take more risks when they do not bear the full potential negative consequences.

So, when football helmets were adopted, players felt emboldened to use their head as a weapon–concussions became commonplace and the rules had to be changed. When seat belts were implemented, car drivers apparently felt safer, drove faster, and caused pedestrian fatalities to go up.

And when banks get bailed out, other bankers are encouraged to behave recklessly. After all, they aren’t on the hook if a risky loan doesn’t pay off; the taxpayer is.

It doesn’t have to work this way.

In fact, Europe implemented banking rules that were supposed to limit this problem. The new rules require a “bail-in”, in which investors and creditors would lose some of their own money before any government entity stepped in with additional funds. The rules have even been applied successfully once, in the recent failure of a Spanish bank name Banco Popular.

However, in this case, the authorities chose to ignore their rules and allow Italy to conduct a normal bailout.

The reason given for the exception was that the banks were sufficiently small and unimportant. But if anything, this should be an extra argument against bailouts. It’s strange to argue simultaneously that 1) a bank is too small to threaten the overall financial system and 2) it is vitally necessary for the government to rescue it and shield investors. One of those doesn’t fit.

Perhaps a more compelling explanation is that governments are scared of what might happen if bank investors and creditors really believe their assets are in jeopardy in a bank failure. Most likely, those investors would start asking more questions about the bank’s practices to evaluate the risk. The creditors might also demand higher interest rates to compensate for the risk or demand safer lending practices to protect themselves from a default.

These would be great outcomes. They’re the opposite of moral hazard behavior, and they promote more prudent choices in banking. But such a change in perception also risks a panic at the outset as investors adjust to the new reality. This is what politicians want to avoid–even if it means bigger problems later. And in the most recent case, the politicians prevailed. The taxpayers will suffer now, and likely, everyone will suffer more in the long run as a result.

When the Italian government opted to bail out the two latest banks, it didn’t just secure depositors. It also ensured the moral hazard problem remains alive and well in the financial system.

Monday, June 19, 2017

Teen Convicted of Manslaughter for Text Message

In Massachusetts, a teenager was found guilty of involuntary manslaughter for sending a malicious text message to her ex-boyfriend. Over at Reason.com, Sarah Rose Siskind has the story.
The victim in the case was Conrad Roy III, 18, who killed himself by locking himself in a running car and inhaling carbon monoxide fumes. His ex-girlfriend, Michelle Carter, 17, had sent him a series of goading text messages leading up to the suicide, telling him he just needed to do it.
This is not what Carter was ultimately prosecuted for, however. During Roy’s suicide attempt, he apparently got out of the car and contemplated calling it off. At this time, Carter sent him another text message to “get back in”. According to the judge, the fact that Carter encouraged the suicide created a duty for her to either call someone to help Roy or attempt to dissuade him from going through with it. She did not do either.
It’s not in dispute whether Carter sent the messages in the case. It’s also relatively clear she knew the car was filled with toxic fumes when she told Roy to “get back in”.
The question is whether any of that qualifies as a crime. As it was a bench trial, the judge made the decision. And he decided that it constituted involuntary manslaughter, which can carry a sentence of up to 20 years.
The implications of this decision are extraordinary and terrifying. It’s the latest development in the public debate over whether speech can be violence. But in a way, this ruling goes even further than most radical anti-speech positions.
Ordinarily, the push for regulating speech aims to crack down on particular unsavory types of speech, described as “hate speech”*. This would be achieved by creating new laws that outlaw said hate speech. Indeed, several European countries already have laws like this that make certain types of speech illegal.
Since the case above took place in the US, no such laws exist. The defendant wasn’t convicted for violating a law regarding hate speech or bullying or anything of the sort. Instead, the judge effectively decided that mean text messages literally killed Roy. The text messages were regarded as a deadly weapon like any other.
In turn, this means that the victim was found to have no independent agency at all. Roy didn’t decide to kill himself. Rather, he was forced to do it by text messages and, implicitly, had no say in the matter. This is the theory in spite of the fact that he faced no physical threat at all. His ex-girlfriend was not present, and no harm would have come to him for disregarding her horrible instructions.
If it holds, this ruling could be extrapolated in a number of harmful ways. Note that, in this case, Carter was found guilty for inducing the victim to commit suicide. Thus, she became responsible for actions he committed. But why should this principle be limited to suicide?
What if I insult someone and they get so infuriated that they attack me? Are they responsible for committing the crime of assault against me? Or, since my words led them to attack me, perhaps I should be guilty of committing assault against myself? These are the absurd considerations that this ruling makes possible.
*I put hate speech in quotes above because it’s a term that has no set definition. If one wishes to make laws against hate speech, a prerequisite is to have the law define precisely what counts as hate speech. Thus, the decision will ultimately be made by politicians, and it’s entirely likely that unpopular political opinions will somehow get placed on the prohibited list as well. Indeed, this is already happening.
UPDATE: A reader pointed out the judge’s exact reasoning for the verdict was somewhat more complicated than the way I summarized. CNN reported an exact quote from the judge, noting that he didn’t convict solely for the text messages. Rather, the judge claimed the text messages created a duty for Carter to seek help or dissuade the victim. However, in general, there is not a legal obligation to help someone in need, even if there may be a moral one. Thus, the judge was still treating the text messages as if they caused literal harm to victim that the defendant had an obligation to mitigate.
As such, the rest of the analysis above still stands, and this is an unprecedented and dangerous ruling criminalizing speech as violence. The details of the article above have been updated to reflect the judge’s reasoning more precisely.

Thursday, June 15, 2017

On Congressional Baseball Shooting, Don’t Blame Political Opponents for the Crimes of an Individual

On Wednesday morning, in the suburbs of Washington, DC, a gunman opened fire on a group of Republican Members of Congress.
The Republicans were reportedly holding baseball practice for the annual charity game, and the shooter opened fire while they were on the field. The incident ended after the gunman was shot by Capitol Police, and the shooter later died of his injuries. Multiple people were wounded in the attack, including Majority Whip Steve Scalise (R-LA), but fortunately none of the victims had died as of this writing.
Of course, it is still early in the investigation, so the details may change. But as it stands, the shooter has been identified as James Hodgkinson of Illinois.
Attack Was Politically-Motivated
There’s no indication that Hodgkinson is Muslim, so naturally, the US media is not describing the event as terrorism. That said, the motivation for the attack does appear to be political in nature–given both the choice of target and the strong political statements expressed by the alleged shooter.
As Zero Hedge and The Hill have reported, Hodgkinson had an active political presence on social media. His views seem to line up with standard progressive positions, and he was a supporter of Senator Bernie Sanders in the last election cycle. His Facebook posts suggest that he fully bought into the Trump traitor narrative offered by Democrats. Consequently, he had also called for Trump’s impeachment on social media.
At least from what I’ve read, the views he expressed publicly do not appear to have been uniquely radical or violent.
However, further evidence of a political motive can be found in the fact that, according to at least two sources, the shooter asked bystanders whether the people practicing were Republicans or Democrats before opening fire.
Even if this last report didn’t exist, it would be an extraordinary coincidence if the shooter decided to commit a random act of violence, in a city he didn’t live in, at a baseball field that happened to be hosting a Congressional baseball practice for an event that happens once a year. It’s technically possible, but not very likely.
Assigning Collective Blame
So it’s safe to say the attack was political. And for conservatives, a useful narrative almost writes itself: a self-identified leftist accepted the Democratic talking point that Trump and the Republicans are traitors and decided to take matters into his own hands.
It’s understandable how Republicans could gain from this tactic, and it should come as no surprise that some of them are already trying it out. For example, Rep. Rodney Davis (R-IL) blamed the attack in part on the Democrats’ “hateful rhetoric”, describing their post-election conduct as “political rhetorical terrorism”.
This narrative serves as a convenient rebuttal to the numerous reports that emphasize the threat Americans face from right-wing terrorism. In such reports, it’s all but inevitable that President Trump’s behavior will be deemed responsible for extremist violence perpetrated by individuals. Similarly, in Davis’s version, the Democrats’ vitriolic speech against Trump is to blame for a random individual shooting at Republicans during baseball practice.
The arguments are mirror images of each other. And they rely on the same basic fallacy of collectivism.
To be clear, the only person responsible for Capitol Baseball shooting is the shooter himself.
All Democrats are not to blame. Neither are Bernie Sanders supporters nor progressives. The shooter himself may have identified with one or more of these labels, but that doesn’t make other members of those groups guilty by association.
It’s true that Hodgkinson demanded raising taxes on the rich. But from this, it does not follow that everyone who supports tax increases is just steps away from going homicidal.
The same observations hold for attackers with some type of right-wing ideology. For example, the only person responsible for the racially-motivated stabbing on the University of Maryland campus is the attacker himself. Trump supporters and conservatives are not at fault for senseless acts of violence committed by an individual.
This extends to the leaders of these groups as well. We might learn later that the latest Russia segment by Rachel Maddow or John Oliver was the last straw that finally convinced Hodgkinson to take violent measures. But even if that’s the case, Maddow and Oliver still would not be responsible for the shooter’s actions. No doubt hundreds of thousands of other people would have consumed the same segment without deciding to shoot up a baseball field.
Threat to Free Speech
Outright blaming opinion-makers and politicians for inspiring violent acts is incorrect because it ignores the agency of the actual attacker to make independent decisions. It’s also extremely dangerous from a free speech perspective.
The free speech protections in the First Amendment have proven to be remarkably resilient. That said, judging from the illiberal state of many college campuses, many Democrats and progressives are now open to the idea of regulating “hate speech”. Fortunately, most Republicans are unlikely to go along with that. This might be a matter of principle for some, but it’s also likely driven by disinterest in the latest social justice priorities. Either way, the Republicans currently serve as a decent bulwark against legislative efforts to circumvent the First Amendment.
However, if the Republicans adopt the narrative that the Democrats’ hateful rhetoric is causing violence, then the dynamic described above could change. For Republicans, restricting free speech would no longer be just about appeasing illiberal college progressives. Why, it would be a matter of national security instead.
In turn, this creates a dangerous pathway for a bipartisan consensus to emerge around restricting free speech–with Democrats doing it for social justice and Republicans doing it in the name of terrorism and national security. This would not be a positive development.
Conclusion
In the wake of an attack like this, assigning collective guilt is the default reaction for many American politicians and journalists. Most commonly, this blame is placed on Muslims, but it happens in other cases as well.
The problem is that it’s not actually true. Arbitrary groups don’t commit crimes; individuals do. And they are the only ones that should be blamed.

Tuesday, June 13, 2017

Good News on North Korea; Rodman is Returning

Former NBA basketball star Dennis Rodman is on his way to North Korea to meet with Kim Jong Un. That’s good news for Kim, since he’s a fan. It’s also good news for fans of peace.
According to Bloomberg, the trip is going to be Rodman’s fifth to the country, and he has met Kim previously. Rodman is also personal friends with President Donald Trump, which could put him in a unique position to be a liaison.
Officially, Rodman is going as just a private citizen rather than as part of some formal diplomatic mission. And the experts consulted in the Bloomberg piece expressed doubt that Rodman is being used to establish a backchannel between Trump and Kim.
Even so, the development marks a rare spot of good news in a tense conflict that Trump has escalated considerably since taking office. While other issues have been dominating headlines lately, the relationship between Trump and Kim very nearly reached a boiling point earlier this year.
Rodman’s visit offers at least some chance at improving relations and moving the conflict further away from the oft-discussed military “solution”–which is almost certain to have disastrous consequences for all concerned, including civilians in North Korea and South Korea, and the roughly 30,000 US troops stationed on the peninsula.
As Sheldon Richman has persuasively argued, diplomacy is the only option in North Korea. Richman’s essay also shows that previous diplomatic efforts with North Korea actually produced useful results–until the US unilaterally sabotaged each one.
Now, it may be up to the eclectic Rodman–who was notoriously antagonistic and short-tempered in the NBA–to play the role of peacemaker and mark the first step back toward diplomacy.
But improbable as it sounds, it’s a positive development that any American will be meeting on friendly terms with the North Korean leader. Also positive, Rodman’s idea of a “bank shot”doesn’t involve regime change.

Monday, June 12, 2017

More Foreign Policy Continuity as Trump Affirms NATO Mutual Defense

Last Friday, President Trump reaffirmed the US commitment to Article 5 of NATO, which commits the US to come to the defense of any other NATO member.
Trump’s decision is in keeping with the US’s traditional position on the topic. However, it is somewhat at odds with the position advanced by Trump when he was a candidate.
On the campaign trail, Trump often criticized NATO and suggested it was obsolete. However, his criticism was not grounded in principle; instead it often centered around the idea that other countries weren’t paying their fair share.
At one point in the campaign, Trump implied that the US would only honor the mutual defense part of the agreement for countries that were spending the required 2% of GDP on their own military forces. Given that most members of NATO do not meet this threshold, such a stance would have had the effect of largely nullifying the US’s mutual defense commitment.
With last Friday’s announcement, however, Trump has abandoned his controversial position from his campaign and fallen back in line with US foreign policy orthodoxy. Unfortunately, this pattern has proven to be a common one for Trump.
On Syria, Candidate Trump was often critical of the idea of regime change, expressing a preference for focusing on ISIS. By contrast, President Trump has already launched direct cruise missile against the Syrian government, and US-backed forces have clashed with Syria-backed forces as well.
Similarly, on the campaign trail, Trump blamed Saudi Arabia for the 9/11 Attacks and called for the release of the “28 Pages” that reported on links between Saudi government and the 9/11 hijackers. As president, Trump has showered praise on the Saudis as a vital partner in countering extremism.
Candidate Trump also often suggested it would be nice if US-Russia relations improved. President Trump has taken no concrete steps toward this goal–and the aforementioned bombing of the Russia-backed Syrian government was a significant setback.
Far from bringing a radical and necessary change to US foreign policy, Donald Trump has shown remarkable continuity with past administrations. If anything, he has managed to exacerbate the worst effects of US foreign policy by giving the military a freer hand and producing more casualties. But the few useful changes he suggested during the campaign trail are difficult to spot.
Indeed, in most respects, Trump’s foreign policy has been the same as Obama’s, just with worse rhetoric and even more bombs.

Friday, June 9, 2017

Key Takeaways from the Comey Senate Testimony

The Comey Senate hearing has finally come and gone. And from a quick look at the media headlines covering the story, it appears just about everyone got what they were hoping for–namely more support for whatever conclusion they previously held.
Here’s a quick round-up of the leading stories from last night:
So in other words, it’s about what you’d expect. The major media outlets that have generally criticized Trump emphasized the most inflammatory aspects of Comey’s testimony. And, Fox, which tends to be sympathetic to the Republicans, emphasized the aspects of the hearing that were favorable to Trump.
Reading those headlines, one might almost think these reporters are just cherry-picking quotes to support their position. And indeed, that’s largely what happened.
But having said that, we actually did get a surprising amount of useful information and direct answers from the Comey hearing. And since we have the transcript, we don’t need to rely on the objective summaries of WaPo or Fox. I’ve summarized some of the most important takeaways below:
Comey did say Trump lied, but it wasn’t about anything important
As we saw above, many news outlets ran with the quote where Comey described Trump’s statements as “lies”. He really does say this, and it happens in his opening remarks.
But context matters. Comey said Trump was lying about his reasons for firing Comey–specifically saying that the FBI was in disarray, poorly led, etc. In other words, Comey said that Trump’s disparaging remarks about Comey himself were lies. Fair enough, but clearly, this isn’t a very big piece of the story–basically, Comey disagrees with Trump about Comey being a terrible leader. Not surprising and not important. But nice for writing headlines.
Outside of that section, Comey contradicts smaller details about things Trump has said. For instance, Trump at one point said Comey asked to have dinner, but Comey claims that Trump initiated the dinner. But the point where Comey directly describes Trump’s statements as lies, is the context noted above.
Trump was not personally under investigation by the FBI
This was clarified at several points in the testimony. As Trump claimed, Comey explicitly told the president on three separate occasions, that he was not being personally investigated. Trump apparently thought this should be said publicly for strategic reasons. However, Comey and the FBI leadership disliked this idea because it would then create a “duty to correct” if Trump subsequently became under investigation. Thus, this is the first time we’ve gotten explicit confirmation Trump himself was not being investigated, at least through the date of Comey’s firing.
Comey took Trump’s Flynn comments as a “direction”
In his testimony, Comey released the exact phrase, as he recalls it, that Trump used in the controversial comment surrounding Mike Flynn’s investigation. That quote from Trump went as follows:
I hope you can see your way clear to letting this go, to letting Flynn go. He is a good guy. I hope you can let this go.
This came a day after Flynn’s firing, and Comey said he interpreted it as a “direction” by Trump to intervene in that investigation on Flynn’s behalf. However, in the testimony, Senator Risch emphasized the exact phrasing and suggested to Come that no one has ever been prosecuted for hoping an outcome occurs. Comey agreed that he was unaware of a prosecution for hoping, but the conversation was a bit theoretical.
In some ways, this exchange proved inconclusive. The phrasing is in line with what had been released previously, but it’s not obvious the courts would stick to a purely literal reading. Still, this is the exchange that Republicans would most likely cite if they claim that Trump is free and clear based on the proceedings.
My own view is that nothing really changed here. It was never likely that Trump was going to be actually prosecuted for obstruction of justice, so this aspect seems to get more attention than it deserves. No matter how disliked he is, he’s still a very powerful politician and this is America. Prosecuting powerful politicians isn’t something we typically do here.
Moreover, impeachment is more about politics than criminality in any case.
Per Comey, the Flynn request was only about Flynn, not about the overall investigation
This is an important detail because it is often claimed that Trump’s comment about Flynn may have been motivated by a desire to shield Trump himself from the Russia investigation. But in Comey’s prepared opening statement, he explicitly says this was not his understanding. The relevant segment is below:
I immediately prepared an unclassified memo of the conversation about Flynn and discussed the matter with FBI senior leadership. I had understood the President to be requesting that we drop any investigation of Flynn in connection with false statements about his conversations with the Russian ambassador in December. I did not understand the President to be talking about the broader investigation into Russia or possible links to his campaign. I could be wrong, but I took him to be focusing on what had just happened with Flynn’s departure and the controversy around his account of his phone calls.
This is relevant to the question of whether Trump was trying to obstruct justice and possible impeachment charges. For better or worse, the president does have the authority to intervene in random federal cases. A presidential pardon is one method, but technically, they can directly order an investigation canceled as well. The latter is considered improper for good reason, but it probably wouldn’t be illegal.
By contrast, if Trump was intervening in an investigation about himself (not a third-party), that’s a much bigger issue. That makes Comey’s parsing here important.
Former Attorney General Loretta Lynch intervened in Clinton email case messaging
One unexpected bombshell from the day’s proceedings concerns former Attorney General Lynch. Here’s the relevant section (emphasis mine):
The Clinton campaign at the time was using all kinds of euphemisms, security matters, things like that for what was going on. We were getting to a place where the attorney general and I were both going to testify and talk publicly about it I wanted to know was she going to authorize us to confirm we have an investigation. She said yes, don’t call it that, call it a matter. I said why would I do that? She said, just call it a matter. You look back in hindsight, if I looked back and said this isn’t worth dying on so I just said the press is going to completely ignore it. That’s what happened when I said we opened a matter.
So AG Lynch told Comey to use language about an active investigation that was clearly intended to downplay its significance. Comey later said the episode gave him “a queasy feeling”.
Trump wanted Russia investigation to be swift, but also wanted aides properly investigated
One source of confusion in the testimony is Trump’s sentiments on the Russia investigation. On the one hand, Trump clearly implies he wants it to be wrapped up for PR reasons; he describes the investigation as “a cloud”. However, Trump also doesn’t seem terribly concerned about it finding​ anything incriminating about him personally. At one point, according to Comey, Trump was even considering ordering the FBI to investigate him directly, effectively to clear his name. Comey apparently advised against this because  “it was very difficult to prove a negative”.
Another interesting revelation is that Trump was apparently fine with his associates being investigated. This is how Comey described it in his prepared remarks:
The President went on to say that if there were some “satellite” associates of his who did something wrong, it would be good to find that out, but that he hadn’t done anything wrong…
The way this reads, Trump seemed to be perfectly fine to have an investigation of his orbit. The only possible ambiguity here is that he doesn’t say exactly what he’d want to see happen to his “satellites” if they did in fact do something wrong. It sounds like he would be content if all of the relevant information came out, and, implicitly, any wrongdoing gets prosecuted. But a more narrow reading is also possible.
What’s important here is that these sentiments do not appear to fit well with the theory that Trump was trying to shut down the investigation entirely.
Comey has no doubt Russia hacked the election, but there’s a catch
Several times in his testimony, Comey made it clear that he believed the Russians did deliberately interfere in the election. He was certain both that the alleged hacking occurred and that the Russians were responsible.
However, he also confirmed that the FBI never got access to the Democratic National Committee servers that were hacked. Instead, they got all of their information secondhand from the “high class” cybersecurity firm, Crowdstrike, the DNC hired to look into it.
This would be a bit weird in any case. However, it’s especially troubling here given that the same cybersecurity recently published a false / exaggerated report on, wait for it, Russian hacking. The firm ultimately had to issue a  correction when their error was discovered.
Regardless, Comey asserted he has no doubts about the overall Russian hacking story being true.
Comey gave a delightfully frank explanation of why anonymously sourced stories are often wrong
This is a minor detail in the scheme of things, but was a great quote from Comey. At one point, Senator Risch mentions a New York Times story alleging the Trump campaign colluded with Russia. Comey had apparently previously suggested this story was incorrect, and he reiterated that in his testimony. But he went farther, and explained why anonymously sourced like that can often be wrong (emphasis added):
In the main, it was not true. And again, all of you know this. Maybe the American people don’t. The challenge, and I’m not picking on reporters about writing stories about classified information, is the people talking about it often don’t really know what’s going on, and [the people that know what’s] going on are not talking about it. We don’t call the press to say, hey, you [got] that thing wrong about the sensitive topic. We have to leave it there.
Needless to say, this is a very interesting explanation. In essence, he’s saying that usually it’s the people on the periphery that leak to the press, not the high-level people. It’s tough to say whether he’s right about that, but it has some appeal to it. This could explain why so many of these stories end up being wrong, without assuming bad faith on the original sources. (And it tends to be a good idea not to rest your arguments on bad faith, in my opinion.)
This was something of an aside from the overall testimony, but it was an interesting one. Also, notably, Comey did not deny the general idea that the Trump campaign might have colluded with the Russians; he took no position on that question. Above, he’s just saying this particular story was not correct.
Where does that leave us?
Ultimately, after hearing Comey’s testimony, we’re pretty much in the same place we started. There’s still no smoking gun showing wrongdoing by Trump. And it’s not at all clear how Democrats could move forward from here without new information coming to light.
On balance, the testimony was probably favorable for Trump. But the issue still isn’t settled, and no doubt, it will continue to dominate the news.

Wednesday, June 7, 2017

UK PM Theresa May Offers More Bad Ideas on Fighting Terrorism

UK Prime Minister Theresa May Continues to show how not to respond to terrorism in the wake of recent attacks in Manchester and London.
First, she advocated for cracking down on the Internet, and now she has suggested that human rights laws could get in the way of security measures she’d like to pursue.
May’s particular problem with human rights laws appears to be that they prevent the government from detaining people before they have actually done anything wrong–or at least before the government has sufficient evidence to prosecute them.
So if the government suspects a person is up to something, but they can’t prove it and/or no laws have actually been broken, they cannot prosecute them.
Incidentally, this is how it should be. It’s actually quite odd that the issue is being framed as a question about “human rights laws”, which make it sound as though this is a fringe or novel concept. In fact, it’s a pretty central idea. Individuals cannot be arbitrarily detained or have their rights restricted by government without due process. That due process, to be meaningful, necessarily involves the government presenting evidence against them.
Of course, governments don’t like these inconvenient steps. And since it is often the case that the people that become terrorists were investigated by authorities previously, these legal hurdles provide an excellent scapegoat–“Well, we could have protected all of you if we’d been allowed to summarily detain people without charges, just as a precaution,” or so the argument goes.
To at least some marginal degree, this claim is likely true. A proper police state probably would be safer from terrorism–and you would be probably be personally safer if you never left your house, never traveled, etc. It does not follow, however, that these are desirable courses of action or desirable policies. A free society entails risk, and it’s worth it. Moreover, most of us willingly subject ourselves to far more probable risks than terrorism in our day-to-day lives.
The problem with May’s solutions is that they start from the implicit premise that total security from terrorism is possible. This is plainly untrue–and obviously so. Total security would imply that the government has been able to anticipate every possible attack and every would-be attacker in advance and implement the correct countermeasures to address them. That’s what “success” would require. Meanwhile, “success” for an attacker just means finding any single vulnerability and exploiting it. There’s an asymmetry here that’s impossible to overcome if any freedoms are to be preserved.
Thus, any policy that has that goal in mind is doomed to failure. And undoubtedly, each time a new measure fails, it will be a justification for even more extreme measures, and the cycle repeats.
A far more mature solution would be to honestly discuss the relatively small risk that terrorism presents in Western countries like the UK. Terrorism is a tragedy that claims several innocent lives when it occurs. But by itself, it is not an existential threat to society, no matter how many politicians claim otherwise. A better domestic approach to terrorism would require acknowledging this and admitting that a world with total security is probably impossible and certainly undesirable.
Until that conversation happens, political leaders like May will ironically continue multiplying the damage caused by terrorism. The terrorists kill innocent victims when they attack; then the government reaction takes away liberties and erodes the rule of law–creating more innocent victims in the process.

New Assertions, But No New Evidence, on Russian Hacking in NSA Leak

This week, there was a new, aggressively reported story on alleged Russian hacking, based on anonymous leaks from the US intelligence community.
The latest story is different in some respects, but it still follows the normal script of this genre. New assertions are made by the intelligence community. No evidence is presented to support the assertions, nor any discussion of what the classified evidence might be. Russia is conclusively blamed anyway. And then speculation is entertained on how the crafty (yet seriously indiscreet) Russians might have used their hacking success and whether it impacted the results of the 2016 election.
The Story
The Intercept received an internal intelligence analysis from the NSA, which discusses a previously unreported hacking episode. According to the analysis, the hackers used a spear-phishing campaign to target a private software company, surmised to be the company VR Systems, that sells electronic voting software and equipment. Spear-phishing is a technique where victims are sent spam emails that appear to be from a legitimate website and attempt to get users to enter their login credentials in a bogus form.
Then, once the hackers gained access to some user accounts at VR Systems, they used them to send emails to election officials. The apparent purpose for this was to get access to individual election office networks. In theory, this could then be used to download sensitive information like voter registration lists.
Importantly, the company targeted does not actually sell the voting systems themselves. Thus, the article suggests that none of the hacking operations posed a direct threat to vote tallies by manipulating the software. Instead, it indicates that by compromising VR Systems, the hackers might have been able to modify voter registration databases and, assuming they had an accurate estimation of voter sentiments and which states / precincts could be key, they could then selectively purge the registrations to influence the outcome.
However, even if someone was deleted from a voter registration lists, the article notes that voters might still be able to file a provisional ballot that just has to be rechecked for eligibility prior to counting–it’s a hassle for voters and could deter some but probably wouldn’t outright prevent voting.
It should be clear that all of this suggests a very indirect and uncertain mechanism for influencing election results. The hackers had to know which states mattered most, which people were likely to go which way, and then they still had to penetrate the systems that gained them access to this information. The analysis does not conclude whether they were successfully able to do this. Accordingly, it also does not weigh in on whether these actions successfully impacted the election outcome.
The Differences
While the story is similar to ones we’ve heard before, there are some important differences.
Perhaps the most important distinction is the news outlet that broke the story. Most of the high-profile allegations against Russia have been first reported by the major mainstream media outlets–primarily The Washington Post. However, this latest leak was reported by The Intercept, the online progressive media outlet co-founded by Glenn Greenwald.
Greenwald initially made a name for himself by reporting on the Snowden leaks and has been generally been skeptical and adversarial toward the government–under both Republican and Democratic administrations–the way journalists should be. Greenwald’s ethos has also been evident in much of The Intercept’s work, making it one of the more reliable outlets on matters of foreign policy and national security. This has included pushing back on the rush to judgment on Russian interference and  general McCarthyite urge that has descended on Washington.
Thus, it is surprising for them to present a story on this issue that sounds almost as if it could have been written by The Washington Post. One of the primary virtues of The Intercept’s reporting has been its skepticism of unproven government assertions. Unfortunately, this characteristic was not very evident in their most recent piece.
To their credit, the authors (which do not include Greenwald) do note near the beginning of the story that the leaked analysis doesn’t include any raw intelligence. However, most of the story seems to set this disclaimer off to one side while framing the new allegations in very dire terms. A significant portion of the story effectively accepts the premise that Russia was responsible for this hack and others, and then speculates on the strategy of the attack, its possible (as yet unknown) impacts on the election, and potential policy options to prevent future breaches.
Another important difference in this story is that The Intercept published photos of the leaked documents in this case. Presumably, this was done to bolster the credibility of the story and not just be another anonymously sourced Russian hacking story. An admirable goal perhaps, but it had the unfortunate side effect of outing the otherwise anonymous leaker. Specifically, The Intercept shared photos of printed out documents. But it’s a little-known factthat printed out documents often contain nearly invisible microdots that indicate where they were printed. This document was no exception.
Using The Intercept’s photos, the authorities were apparently able to a) verify the document had been printed and b) identify where it was printed. They were able to narrow their search to six people who had printed this specific analysis. One of these individuals had also contacted The Intercept via their work email, and so the authorities were able to figure out the source. The leaker was named as NSA contractor Reality Winner and was arrested earlier this week.
The Case for Skepticism
Ultimately, this story brings forth new assertions from the intelligence community about Russian wrongdoing, but it still doesn’t present new evidence. Thus, in our view, skepticism is still the best default position on the overall Russian hacking story, including this latest allegation.
To be clear, the case for skepticism does not rest on any affinity for either Vladimir Putin or Donald Trump. Rather, it rests on the fact that virtually no evidence has been presented. Additionally, multiple high-profile stories surrounding the Russia interference narrative have been so unsubstantiated that they resulted in retractions or corrections by their initial authors (herehere, and here, for example).
Here’s a useful summary of all the public evidence that existed to support the Russian hacking charge as of December 2016–compiled, incidentally, by The Intercept itself. At that time, they concluded correctly that the evidence was inadequate, noting that “the refrain of Russian attribution has been repeated so regularly and so emphatically that it’s become easy to forget that no one has ever truly proven the claim.”
Indeed, the public evidence listed includes a few things that are either inconsequential or absurd. My personal favorite is the fact that the name of founder of the Soviet secret police, Felix Edmundovich, was found in the metadata of the malware.
Obviously, there’s no reason a hacker would have occasion to cite a random historical figure in the metadata–so it’s not as if someone just forgot to take it out. It had to be put there deliberately. So you have to ask yourself,  is it a single bluff, or a double bluff, or a triple bluff, or… the hackers are trolling everyone. Clearly, this is not the kind of thing that should count as compelling evidence.
Since the time that evidence summary was published by The Intercept in December, the US government came out with a formal assessment which also assigned blame to the Russian government. However, even this report still failed to provide actual evidence, as journalist Robert Parry has pointed out. So we still have no proof.
Of course, Russia might have done everything they stand accused of. The point is that the unclassified evidence released to date does not prove they did it. All we have are assertions and assessments offered by the intelligence community. And given the US government’s established track record of misleading the public to justify belligerent foreign policy actions, government assertions are not enough.
The newest NSA leak story does nothing to change this state of affairs. It adds one more assertion to the list. And it tells us that at least some internal assessments at the NSA adopt the same confident tone that Russia carried out the hacks. This is interesting, but it isn’t much to go on. It’s also not much different in character than The Washington Post stories that preceded it.
Additionally, the report notes that the techniques used were not terribly sophisticated. You don’t need to be a nation-state to carry out a spear-phishing campaign. Given this, the reader is left to wonder exactly why this particular attack was attributed to Russia.
Also according to the new analysis, there were some apparent election targets that don’t fit too well with the Russian hacker theory. Specifically, The Intercept reported that one plot targeted offices in American Samoa–a territory that has no electoral college votes and therefore no ability to influence the presidential election. Is it likely that a nation-state planned a high-risk campaign to influence a foreign election and didn’t even bother to figure out how the electoral college system works?
And finally, there’s the questionable premise that always underlies the Russia hacking theory. If we believe the popular narrative, then the Russian government penetrated many different US networks and its hacking operations are highly-sophisticated. But on the other hand, these same highly-sophisticated hackers are sufficiently careless or inept that all of their plots were conclusively identified. In essence, the narrative requires the Russian government to be simultaneously omnipotent and incompetent.
Conclusion
All things considered, The Intercept makes a new significant allegation against Russia. But like the previous accusations, no meaningful evidence has been released to support it. Until that changes, it does not make sense to accept the official narrative as fact. And it is clearly reckless to have unproven accusations drive US foreign policy decisions on Russia.

Tuesday, June 6, 2017

California Is One Step Closer to Single-Payer Healthcare

Last Friday, the California’s state senate passed a bill called the Healthy California Act that would institute a single-payer healthcare system in California. It still has to get through the Assembly and get signed by the governor in order to become law, but it has passed a major milestone on the path to implementation.
In my view, this is actually good news. But I have a major bias–because I don’t live in California.
The Proposal
Writing in opposition to the new bill, the editorial board of The Sacramento Bee offers a fair critique on the proposed law. The title is harsh and so is the analysis:
What makes the Bee’s position particularly interesting is that they are not approaching it from a pro-market or limited government position at all. They actually close with some praise for Obamacare.
Their opposition to the single-payer bill is on purely pragmatic grounds. Among other pitfalls, the law is expected to have a price tag of $400 billion per year–$200 billion of which California would have to raise in brand new revenues. This is likely to prove challenging since California’s entire budget is only $184 billion per year.
So in other words, in order to pay for the bill and not create massive deficits, California would have to more than double its current level of taxation. And that assumes the cost estimate is correct–but of course, massive government programs have a tendency to run overbudget.
The Good News, Sort of
All of the above probably sounds like a disaster. And if the economics on central planning work out like normal, it probably will be.
But while the policy may not prove beneficial to the actual taxpayers involved, it will be an invaluable economic experiment for the rest of us.
Also, it’s worth noting here that most Californians and indeed, most Americans, appear to support a single-payer system. That doesn’t mean it’s a good idea of course, but it does mean they are less like lab rats and more like participants in a sketchy drug trial. Or at least, that’s the case for 58%-70% of Californians that support it.
For the remaining third that oppose it, unfortunately they are the lab rats in this analogy, and they deserve our sympathy.
In any case, here’s a few reasons the California single-payer experiment will be educational if it gets through.
Single-payer as “Honest” Redistribution
One of the goals of the Affordable Care Act was to force the healthy and relatively well-off subsidize the sick. It was always structured to redistribute income. It just went about it in a very convoluted way that still preserved most superficial features of the private insurance system.
Forced redistribution still occurs in the Obamacare model. But the primary mechanism for this is not through an actual tax. Instead, the redistribution effectively takes place through the insurers themselves. Insurers were required to offer expensive new benefits to everyone, and to pay for this, premiums rose disproportionately for everyone. To the extent that healthcare premiums on healthy people exceeded their expected cost to insurers, this was, for all intents and purposes, a tax. To the extent that premiums for unhealthy people were lower than their expected cost, this was a subsidy.
One of the problems with this indirect system is that blame for the high costs falls in the wrong place. The high “tax” here was caused by the government policy. But because the private insurers are the ones raising the prices and collecting the money, it may not be readily apparent that government is at fault. Instead, fingers will often get pointed at insurance companies and their well-heeled executives. People focus on a symptom of the problem instead of its root cause.
One virtue of a single-payer system is that most of these causality complications are removed. If costs are high and access is poor under single-payer, there should be much less doubt about who is to blame. In this way, it’s a much more “honest” redistribution policy.
And when it likely fails, it will offer more compelling evidence that government is not the solution to healthcare.
A True Test of Single-payer in the US
One recurring problem in economic arguments is the inability to conduct controlled experiments. Instead, economists must rely on natural policy experiments that play out in the real world.
In theory, these experiments should be able to provide persuasive evidence. This requires people to agree on what is a true test of a certain policy, and which episodes are compromised by confounding circumstances that prevent drawing conclusions.
In practice, this tends to result in an endless cycle of goalpost-moving and cherry-picking. You say the present-day hellscape of Venezuela proves the failure of socialist economic policies? Nope, that’s only happening because they didn’t implement socialism correctly.
You say that raising the minimum wage will lead to a weaker labor market and harm poor people? Well, then how do you account for Card and Krueger 1994 (a study that found no adverse impact from a raising the minimum wage)? I belabor the point, but you get the idea.
So this trend applies to healthcare as well. But one hopes that both sides could agree single-payer in California really would be a fair test. After all, California by itself has the 6th largest economy in the world, meaning it could readily achieve the requisite economies of scale. This also means California’s GDP is much larger than many countries that have a single-payer model that progressives often praise–like Sweden or Canada. And given that California leans very far to the left, it’s unlikely the opposing party would be able to sabotage the law politically if and when it does get implemented.
Limited Collateral Damage
Finally, if single-payer does get implemented in California, the consequences are confined to its borders. If the policy turns out poorly, only a subset of Americans will be affected instead of everyone. We will get all the informational value that can be had from an economic experiment in single-payer, and the scope of the adverse consequences is capped.
Just as important, anyone who suffers under the law has a realistic option to move if single-payer is limited to California. If single-payer was implemented nationwide, one would have to relocate outside the country to get away, which is a much larger obstacle.
Summary
If I lived in California, the educational value of the single-payer experiment probably wouldn’t convince me to give up 15% more of my paycheck. But for those of us on the outside, this policy could have a very positive impact on the healthcare debate.

Monday, June 5, 2017

4 US Actions More Embarrassing than Leaving the Paris Agreement

Last Thursday, President Trump declared that the United States would be withdrawing from the Paris Agreement on climate change. The move sparked widespread condemnation and outrage. Many Americans said they were embarrassed by Trump’s decision.
It’s worth debating whether Americans should feel responsible for the decisions of the US government. But, assuming embarrassment is ever an appropriate response, here are four presidential policies that are far more cringe-worthy than leaving the Paris Agreement.
And to be nonpartisan about it, we’ve included some of the greatest (worst?) hits from the Trump and Obama administrations.
1. Trump’s Warm and Erroneous Speech in Saudi Arabia on Countering Extremism
This unpleasant episode occurred just last month when Trump made his first foreign trip. In Saudi Arabia, he made a speech ostensibly about terrorism, but it made several important errors. The most serious of these was the implication that Iran was somehow aligned with Isis and Al Qaeda, in spite of the fact that Iran is actually war with both groups.
The speech also included praise of Saudi Arabia for its alleged efforts to counter extremism. In reality, Saudi Arabia has been one of the largest exporters of extremism in recent years. Indeed, the Kingdom was identified in a released US intelligence analysis as one of the lead backers of the rebel movements that eventually became Isis. Additionally, a Saudi foreign minister reportedly admitted backing Isis to then-Secretary of State John Kerry.
2. The US’s Alliance with Pedophilic Warlords in Afghanistan
This story broke headlines in late 2015. Years earlier, a US Special Forces soldier, Dan Quinn, beat up an Afghan militia leader who kept a young boy chained to his bed as a sex slave. In response, the US military discharged Quinn, and in 2015, the military was working to terminate another soldier who participated in the beating.
The reason for their terminations is that they attacked an ally. The fact this particular ally was a child molester did not change things from the government’s perspective.
The US military had, and presumably still has, an unofficial policy to look the other way on the child abuse of its Afghan allies. So the US is allied with pedophilic warlords in Afghanistan, and US soldiers that try to stop it get disciplined.
This quote from Quinn adequately sums up the absurdity and tragedy of the situation:
The reason we were here is because we heard the terrible things the Taliban were doing to people, how they were taking away human rights. But we were putting people into power who would do things worse that worse than the Taliban did — that was something village elders voiced to me.
Indeed, he was sadly right about that. As Justin Raimondo of Antiwar.com noted, the Taliban actually came to power in part because they were able to put a stop to the rampant pedophilia of the warlords. When the US overthrew the Taliban, our government allied with some of those same people and effectively put them back in positions of power, where they remain now.
There’s also no silver lining here. The US is currently considering how many additional troopsthey are going to put into Afghanistan to prolong the war.
3. Trump Bragging about Bombing Iraq, er, Syria over Delicious Chocolate Cake
After Trump ordered illegal cruise missile strikes against a Syrian airbase earlier this year, he discussed the decision in an exceedingly disturbing interview with Maria Bartiromo.
At the time the strikes were ordered, China’s President Xi was on an official visit to the US. So Bartiromo asked Trump when he told Xi about the strikes.
Apparently Trump gave the news after the dessert, but it was not just any dessert–it was “the most beautiful piece of chocolate cake that you’ve ever seen”. Then, when Trump described the strike itself, he initially said the missiles were going to Iraq, not Syria. The host had to correct him.
The episode was instructive for two reasons. First, one might like to think the decision to escalate a war is taken a bit more seriously than, say, whether or not to have coffee after dinner. And second, Bartiromo acts almost starstruck or giddy throughout the proceedings–acting as if the entire conversation they’re having is wholly normal.
As long as we’re feeling embarrassed about the actions of other Americans we can’t control, her conduct could probably fit the bill too.
4. Obama Backing the Devastating Invasion of Yemen to Placate the Saudis
It doesn’t get much press, but the worst humanitarian crisis in the world right now is found in Yemen. Millions of people are suffering from malnutrition and face potential starvation after two years of war.
Recently, the problems have gotten even worse as it suffers from its first cholera outbreak in history, and parents have resorted to selling their daughters off to marriage in order to afford food, according to the Times.
These problems are all inextricably linked to the Saudi-led war against Yemen. The Saudis invaded Yemen back in 2015 in an effort to reinstall an unpopular dictator that had been overthrown. The US, under President Obama, decided to back the war effort–not because there were any US interests at stake–but in order to “placate the Saudis“, as the Times put it.
The Saudis were upset with the US because of the nuclear deal with Iran. One might think the Saudis would like that agreement, since it further ensured their Iranian rivals would not acquire a nuclear weapon. Instead, the Saudis were furious because it would mean a less isolated Iran and might cause the Saudis to lose some influence in the Middle East.
Thus, the Obama Administration decided to make it up to them by supporting their war to the south–and millions of Yemeni civilians are suffering as a result. But what’s a needless famine amongst friends, right?
Trump has continued the Obama-era policy and increased the number of direct US missions there.