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Updated: 58 min 34 sec ago

Trump’s Iran strategy needs much improvement - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

4 hours 33 min ago

From Saad Hariri’s resignation as Lebanon’s prime minister to the Houthi missile attack on Saudi Arabia, the Middle East is again in uproar, thanks to the acute Iranian threat America’s regional partners perceive. Without a U.S.-led initiative to limit Iran’s regional sway, U.S. allies will act on their own and escalate regional crises.

That’s why the Iran policy the Trump administration rolled out last month is important. It’s an effort to forge a comprehensive strategy. Its smartest aspect is that it recognizes that merely curbing Tehran’s nuclear ambitions won’t end its aggressive behavior across the region. But there are good and bad ways to push back against Iran, and the administration so far seems focused on the bad. Syria and Iraq are the places to execute an Iran strategy effectively—not Yemen or Lebanon, and certainly not over the nuclear deal.

Iran has gone all-in on Syria, and while it is winning, it is also badly overexposed. It cannot afford to let the Assad regime sink, risking the demise of Hezbollah and the dissolution of Tehran’s hard-won position in the northern Levant.

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No, the House tax bill won’t destroy graduate education - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

4 hours 37 min ago

The tax reform bill passed by Republicans in the House of Representatives on Thursday contains a provision that would, according to various news outlets and op-ed writers, “bankrupt graduate students,” “be a disaster for PhD students,” and “hit grad students with a massive tax hike.” To modify a saying dubiously attributed to Mark Twain, predictions of the death of graduate education have been greatly exaggerated.

On the chopping block in House Republicans’ bill is section 117(d) of the Internal Revenue Code, which exempts qualified tuition waivers from taxation. Many graduate students work as teaching or research assistance while completing their studies; universities often waive their tuition and provide a small living stipend as compensation. The House plan would treat these tuition waivers as taxable income, which graduate students fear could lead to annual tax hikes of several thousand dollars.

Anxiety among graduate students and those considering graduate education is understandable. But what the narrative around this provision has missed is that the House bill does not touch another provision of the tax code: section 117(a).

This section provides that scholarships used to pay tuition and fees are not considered taxable income. The catch is that universities which provide these scholarships cannot stipulate that students work as teaching or research assistants as a condition of receiving them. This is the main difference between scholarships and qualified tuition waivers: universities can require students to work as a condition of receiving the latter, but not the former.

Under current law, both scholarships and tuition waivers are not taxable. But the House bill draws a distinction between the two. Under the proposal, universities can still reduce their students’ tuition bills without incurring tax consequences. However, if graduate students work as teaching or research assistants as a condition of getting that tuition help, then the amount of tuition reduction would be considered taxable income.

Universities that wish to avoid saddling their graduate students with large tax bills therefore have an easy way out. They can reclassify their qualified tuition waivers as scholarships, and avoid incurring any tax consequences. Because schools have this alternative method of providing tuition help, it is unlikely that many graduate students will see tax hikes if the House bill becomes law.

To be sure, universities could no longer force graduate students to work as teaching or research assistants in order to receive the scholarships. But many graduate students would work in these positions anyways in order to receive a living stipend. (Those stipends are already taxable under current law.) Universities, wanting to attract talented graduate students, will structure their aid packages in such a way as to minimize the tax consequences for students.

True, this could alter the current model of graduate education. But it would not destroy it.

All this raises the question of why, if universities and graduate students can so easily avoid the tuition waiver tax, House Republicans decided to include it in their bill at all. At some level, the provision makes sense: since graduate students receive tuition waivers as a condition of work, the waivers should be considered income for tax purposes. Since scholarships are not conditioned on work, they are more analogous to buying a product at a discount and thus should not be taxed.

The problem with that justification, though, is that the tax reform bill ignores other untaxed benefits that employers provide their workers, such as health insurance. It’s logically inconsistent to tax small, niche benefits such as tuition waivers, but ignore massive, widespread benefits such as employer-provided health insurance. If Republicans want to treat fringe benefits as taxable income, fine—but they should be consistent about it.

House Republicans have yet to offer a convincing justification for their proposal to tax tuition waivers. On the other hand, though, critics of that proposal are vastly exaggerating its consequences. The House proposal to tax tuition waivers won’t destroy graduate education. That doesn’t mean there’s a good reason for it.

Why won’t the Trump administration do anything about dodgy Indian drugs? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

4 hours 42 min ago

It is somewhat surprising to see that the Trump administration can be strategic, given the almost daily knee-jerk responses of the commander-in-chief.  But when it comes to geopolitics in Asia it knows what it wants — kind of.

US President Donald Trump holds a bilateral meeting with India’s Prime Minister Narendra Modi alongside the ASEAN Summit in Manila, Philippines November 13, 2017. REUTERS/Jonathan Ernst

While North Korea is volatile, China is the real challenge, some would say threat, from intellectual property (IP) theft and economic fights to saber-rattling over Asian security. So while India strains corporate relations due to IP theft and risks health due to dodgy quality medicines (see my latest paper out today), it is increasingly the strategic partner of choice in the region. After all, it’s hard to sustain tension with the two most populous countries in the world at the same time.

Prime Minister Modi may be a bully, who uses criminal defamation to silence opponents, but he talks a good game when it comes to the partnership with the US. In fact, he echoes our own president in prioritizing rhetoric over reality. He has many supporters within the White House and in Congress who overlook the relatively minor issues the US has with India, at least as far as they are concerned, defending such actions as strategic thinking.

This week we’ll see whether the Trump administration can publicly combat bad Indian policy. The Indian Government and the World Health Organization are cosponsoring an event on medicines and IP. This event timed over Thanksgiving is designed to beat up on innovator drug companies and their expensive medicines. Most of the research and development for these medicines is done in the US, and the best defenders of them will not be in attendance due to the Thanksgiving holiday.

Even more than India’s Government, the WHO is a truly socialist organization. And like many socialists it is hypocritical. The first to demand taxpayer-funded health care for all and high taxes, many of its staff avoid paying any federal taxes. But the WHO’s largest funder is the US taxpayer. The new head of the WHO, Dr. Tedros Ghebreyesus, has backtracked on one policy (of making despotic Zimbabwean President Robert Mugabe an ambassador) due to donor pressure and could possibly do so again. The White House should complain about the content and timing of this major conference and stress that funding for its socialist agenda will be stopped immediately.

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America’s national debt will never, ever go down - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

4 hours 45 min ago

Democrats think they have the GOP’s big plan all figured out. First, Republicans pass a big, fat tax cut that worsens budget deficits. Then, expressing alarm about worsening budget deficits, Republicans try to slash entitlements. Fiendishly clever, yes?

“This is a nasty two-step strategy that has long been the Holy Grail for hard-right Republicans,” Senate Minority Leader Chuck Schumer (D-N.Y.) told The New York Times.

It isn’t crazy conjecture. If made law, the new Senate Republican tax bill could boost the national debt to nearly the size of the entire U.S. economy by 2027, with levels heading even higher if expiring individual tax cuts get made permanent. And top Republicans such as House Speaker Paul Ryan and House Ways and Means Chairman Kevin Brady are already saying entitlement reform is next. As an influential GOP economist recently wrote in The Wall Street Journal, “The challenge for the Congress after the next election will be to start reversing the rise in the debt.”

But they are not going to reverse the rise in America’s national debt. No one is.

If Republicans really cared about deficits and debt — during the Obama years they claimed the big federal budget gap could spark another financial crisis — they could have flatly rejected any tax plan that reduced government revenue. To now count on entitlement reform to make up the difference is hardly a second-best solution. Messing with Medicare and Social Security is even more politically treacherous than the failed attempt to repeal ObamaCare, given the GOP’s dependence on older voters.

Moreover, President Trump has repeatedly put those programs off limits. Sure, White House economic adviser Gary Cohn recently said that reforming “welfare” could be on the agenda — but only after fixing regulation, taxes, and infrastructure. So more of a tomorrow thing, if ever, because nothing will likely happen without strong presidential leadership. And Donald “I’m the king of debt, I love debt” Trump has given little indication that he has evolved into a budget hawk. Finally, it is hardly likely that congressional Republicans will have more political power after the 2018 midterm elections than they do right now.

Now consider this: It’s a realistic possibility that after eight years of Trump — more often than not, presidents win re-election — a Democrat takes office in 2025 at a time of trillion-dollar budget deficits and a historically high national debt. What would that Democratic president do? Show the fiscal rectitude Republicans didn’t and reduce the debt? Of course not. Unless financial markets force them, Democrats will likely make up for lost time and spend big on their priorities, whether free college tuition or a universal basic income or high speed rail. They might tax the rich a lot more, but that probably won’t be enough to reverse that rising tide of red ink. What’s more, a growing number of progressive wonks really don’t think high debt levels are much of a problem as long as that borrowed money is being spent on programs they think effective. So don’t fixate on debt-GDP ratios.

In other words, Washington simply doesn’t care about cutting the debt burden. Did it ever? Sure. Back in the 1990s, both parties saw slashing debt as a fiscal imperative. Today, though, both parties are preparing to run an economic experiment on the world’s largest and most advanced economy. Most economists, however, would say this is an unnecessary gamble that will likely end in tears — and much higher taxes.

The GOP is right to ignore pay-as-you-go - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

6 hours 16 min ago

The Congressional Budget Office (CBO) reported last week that the GOP plan to cut taxes by $1.5 trillion over 10 years would trigger automatic spending cuts under the Statutory Pay-As-You-Go Act. This includes a $25 billion reduction of what Medicare pays providers for medical services. Republicans are right to ignore, for now, this potential effect of their tax legislation, as they had no role in the enactment of the pay-as-you-go law in the first place and can fix the problem later. It was House and Senate Democrats who rammed the pay-as-you-go legislation through Congress in 2010 just as they were about to lose their supermajority.

Democrats today complain about the partisan approach Republicans have taken on health care and taxes. They seem to have forgotten how they ran Congress in 2009 and 2010.

During the first months of the Obama administration, the Democrats had a supermajority of 60 votes in the Senate. That sizeable majority allowed them to pass legislation, including the Affordable Care Act (ACA), without any Republican votes. But then the unthinkable occurred. On January 19, 2010, Republican Scott Brown stunned the political world by winning a special election to serve out the remainder of Sen. Ted Kennedy’s Senate term. Kennedy, who passed away in August 2009, had been replaced on a temporary basis in September 2009 by Paul Kirk, who was appointed by then-Massachusetts Gov. Deval Patrick, also a Democrat.

After Brown’s victory, the Obama administration and congressional Democrats knew they would soon lose their supermajority in the Senate. That would mean they could no longer pass legislation under regular order without securing some Republican support. With 41 votes, Republicans would be able to filibuster bills they disliked, except for legislation passed using budget reconciliation legislation, which requires only a simple majority.

Although Brown was elected on January 19, he wasn’t sworn in and seated until February 4. In the interim, Sen. Kirk continued to serve in the Senate. This delay wasn’t unusual, but it proved to be important.

On January 20, just one day after Brown’s victory, then-Senate Majority Leader Harry Reid called up legislation to increase the federal debt limit by $1.9 trillion.  That legislation was then amended to include the Statutory Pay-As-You-Go legislation before it passed in the Senate on January 28. The legislation was considered under “regular order,” meaning it was not a budget reconciliation bill. (Budget process changes cannot be passed easily through reconciliation because they generally do not directly affect federal spending or revenue, which means they are vulnerable to removal from those bills under the Byrd Rule.) Statutory Pay-As-You-Go passed in the Senate on January 28 with all 60 Democratic Senators, including Sen. Kirk, voting in favor of it. All Senate Republicans voted against the legislation. The House took up the bill a few days later and passed it, again without any Republican support.

The pay-as-you-go legislation of 2010 put into statute a budget process rule that has been operating off and on since 1990. The premise of the law is that Congress should be precluded from passing legislation that increases federal budget deficits above the levels that would otherwise occur. So, for example, if members of the House and Senate want to pass a bill increasing spending by $100 billion over 10 years, they must include offsetting spending cuts or tax increases equal to or exceeding $100 billion.

In 1990, Congress put the first pay-as-you-go rule in place as part of a five-year budget agreementstruck between President George H.W. Bush and the Democratic majorities in the House and Senate. The rule was enforced with a “sequester.” The way the sequester works is that the Office of Management and Budget (OMB) assesses the budgetary effects of all legislation passed each year in Congress. If Congress passes bills during the year that, in total, increase the deficit, then the OMB is required to impose an across-the-board spending cut on unprotected programs to generate savings sufficient to cover the breach.

Unlike earlier versions of statutory pay-as-you-go, the 2010 legislation was permanent and was not put in place to enforce a budget framework. In 1990, President Bush and Congress created the pay-as-you-go concept to lock in place a mix of spending cuts and tax increases intended to reduce the budget deficit. Initially, pay-as-you-go was limited to the five-year period of that budget agreement (1991–1995). The 2010 law, by contrast, was enacted by Democrats to preclude a future GOP-controlled Congress from passing an unfinanced tax cut. In other words, that law was aimed squarely at trying to prevent Republicans from passing a tax cut just like the one that is now moving through Congress.

Democrats sometimes argue that pay-as-you-go is nonpartisan because it is equally tough on unfinanced spending and tax cutsBut that is not quite right. Pay-as-you-go is fine if there is an agreement between the parties on the overall level of taxes and spending. But sometimes there is a legitimate disagreement about the size of government. Democrats often want to increase the size of government, and they are happy to do that by increasing both taxes and spending, which is consistent with pay-as-you-go. Republicans believe a more circumscribed government is better for economic growth over the long-run, and sometimes the best approach to limiting the reach of government is by lowering the overall level of taxation, accompanied by spending restraint. (Although that spending restraint may be less than the tax cut and may come in appropriation bills that are not counted under pay-as-you-go.) President Reagan’s tax cut in 1981 was aimed at promoting economic growth and restraining government. If the Democratic party had its way, statutory pay-as-you-go would preclude future congresses from ever again passing a Reagan-style tax cut. Republicans will never agree to that — and shouldn’t.

The irony is that the pay-as-you-go law passed by Democrats in 2010 might give the GOP new leverage in the budget process over the coming months. If Republicans succeed in passing a 10-year, $1.5 trillion tax cut, the enforcement of pay-as-you-go will require across-the-board spending cuts to eliminate the added annual deficits from lower federal revenue, starting with cuts in funding in 2018. (The GOP cannot undo the pay-as-you-go implications of the tax bill with a simple waiver provision, because under reconciliation rules, the waiver would be subject to the Byrd Rule and would thus need 60 votes to survive.) These spending cuts will hit Medicare and other unprotected programs, including the operating budgets of many federal agencies. Congressional Democrats will not want these cuts to go into effect. But they can’t stop them without Republican cooperation.

The net effect, then, of passing an unfinanced tax cut in the era of pay-as-you-go may be to create added pressure for bipartisan spending restraint to partially offset a Republican-inspired tax cut. That is surely not what Democrats had in mind when they rushed the pay-as-you-go law through the Senate in the early days of 2010.

The impact of legislative change on reported domestic violence against women in India - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

6 hours 35 min ago

Abstract: This paper investigates whether two legislative changes aimed at empowering women did in fact lower the risk of domestic violence for women in India. We use the National Family Health Survey, a nationally representative household dataset to explore this issue. We exploit a legislative change geared at improving the political representation of women by reserving at least one-third of seats in the local Panchayats for women. The change to representation was implemented at different dates depending on the timing of elections. The second change is a natural experiment wherein five states made amendments to their inheritance laws allowing daughters equal status as sons in the right to inherit the joint property of the father. We use this arguably exogenous variation to study whether the improvement in women’s autonomy in these states as a result of the passage of this law had any impact on the likelihood that they report being victims of domestic abuse. Our results suggest that improved representation increased the reported probability of violence. There are two competing explanations for these results. First, women may have experienced retaliation by men who feared the erosion of their power and opposed the policy change. Second, the policy change may have made women more willing to report violence to interviewers.


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Should Washington break up Big Tech? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

8 hours 7 min ago

The past year has seen a strange convergence of left and right on one topic: growing fear of Silicon Valley’s leading firms. A few headlines will tell the tale. From Axios: “Tech’s new Washington problem: Democrats.” From The Intercept: “Steve Bannon Wants Facebook and Google Regulated Like Utilities.” Vox: “Elizabeth Warren wants the government to crack down on technology giants.” Breitbart: “Tucker Carlson: Google should be regulated like the public utility it is.”

Twitter Acting General Counsel Sean Edgett, Facebook General Counsel Colin Stretch and Google Senior Vice President and General Counsel Kent Walker are sworn in before the House Intelligence Committee to answer questions related to Russian use of social media to influence U.S. elections, on Capitol Hill in Washington, U.S., November 1, 2017. REUTERS/Aaron P. Bernstein

I could go on. The point is the momentum behind those calling for government to take some sort of action against Big Tech is palpable, which is odd when you consider public opinion on this issue. As I wrote in a recent column in The Week, most Americans remain pretty friendly toward the tech titans.

As noted by Wired, Amazon, Facebook, and Google continue to have high favorability ratings, according to public opinion surveys. Research firm Morning Consult finds Google with an 82 percent net favorability rating, Amazon 77 percent, and Facebook 60 percent. That’s not even frenemy territory. Those companies are also among the most widely admired by Americans aged 18-34. What’s more, there’s been no apparent change in the “brand health” of Big Tech over the past year, as measured by the YouGov BrandIndex. All that despite a year of terrible headlines, whether it’s Russians using Facebook to influence the US presidential election, sexism at Uber, free speech issues at Google, or more existential concerns that artificial intelligence and robots will destroy the human job market.

In other words, the fervor for targeting these companies remains mostly an elite-level phenomenon, at least for now.

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Which isn’t to say it’s unwarranted. The most common objections to these tech titans have some prima facie appeal: Critics may argue that the sheer size of these firms harkens back to the robber barons of the last century, or that their market dominance may be stifling innovation, or that Google’s and Facebook’s ubiquitous presence in our lives suppresses free speech. And then of course there are the worries about Russia: Maybe these firms are a danger to something more fundamental than just innovation or a more equal income distribution. Perhaps they’re a threat to American democracy itself.

Those are some of the prominent gripes against Big Tech, anyway. But I’m not necessarily sold yet. As I’ve argued elsewhere, looking at the past decade, about the only thing that seems to have really gone right in the US economy is what’s happening in Silicon Valley. The success of these big companies has brought amazing products and services to consumers, and we’ll want further innovations from them in the future. So maybe the government should hold their fire. Better to tread carefully than have politicians mucking about highly innovative and evolving business models they don’t fully understand.

This debate is the topic of an upcoming event here at AEI on November 27, beginning at 1:30 PM. Joining me for a panel conversation will be MIT’s Andrew McAfee, research scientist and co-author of Machine, Platform, Crowd; Luigi Zingales, director of the Stigler Center at the University of Chicago; Ryan Hagemann, Director of Technology Policy at the Niskanen Center; and Michael Strain, John G. Searle Scholar and Director of Economic Policy Studies here at AEI. You can find more details and RSVP at this link, here. We hope you can join us.

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India’s Dodgy Pharmacy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

14 hours 6 min ago

Key Points

  • The quality of medicine today is much less reliable due to several factors: Western regulators have difficulty overseeing foreign plants, domestic regulators lack the interest to oversee these plants, and generic companies are unable to differentiate their products except by price. This is not limited to a single group, company, or country. However, in this paper I primarily address India.
  • The rapid rise of India’s pharma industry has not been matched by quality production. The Indian government protects its industry at all costs, and corruption is widespread.
  • Change is required in both India, which must update its laws and improve its regulator, and the US, which must better identify and punish quality infractions. Additionally, the biggest lie in the pharmaceutical market, that all generics are the same quality, must end.

Read the full PDF.

Executive Summary

Thirty years ago, most medicines consumed in rich nations were made there. Today most of the ingredients and nearly half the finished products come from India and China. India and China have low costs, which have driven the three-decade change. Both nations have capable chemists and businesses that can make high-quality products, but they also have a lot of slipshod producers (not unlike the West of the mid-20th century).

Western regulators’ difficulties in overseeing these plants, domestic regulators’ lack of interest in overseeing them, and generic companies being unable to differentiate their products (due to prescribing practices, limits on advertising, and so forth), amid the fiction that all generics are equal, mean that quality, which should be more assured, is more hit-and-miss today than before. This is not a problem limited to a single group, company, or country. However, in this paper I primarily address India.

The rapid rise of India’s pharma industry has not been matched by a sufficient capacity to regulate legal medicine production. India is far from unique in exhibiting this problem, but it is the worst protected of the major exporting nations. Like other nations, policing medicine counterfeiting is at least attempted in principle, but unfortunately in India it is almost nonexistent in practice. Additionally, widespread corruption enables all sorts of bad actors to endanger patients by exposing them to a wide variety of inferior-quality medicines. Most worrying is increasing evidence that not all, or even the majority, of legal Indian manufacturers are operating to acceptable standards.

Any manufacturer, even well-known Western companies, makes mistakes. But in countries with robust rule of law and effectual regulation, infractions are noticed and remedies made, either by the federal government or through the threat of private litigation. Manufacturers know that repeated negligence will lead to plant closures, massive fines, civil damages, and even bankruptcy, and so they happen rarely.

This was certainly not the case historically. For much of the 20th century, manufacturers in the US and Europe operated with little oversight, and in response, reputable companies differentiated their brands by ensuring quality or purity, which nurtured trust, reputation, and brand loyalty. Rigorous regulation slowly followed, and an iterative process of quality production and stricter regulation has evolved. Undoubtedly this process has improved quality in the West.

India is, in many ways, in a similar situation to the West of 60 to 70 years ago. India currently lacks regulatory oversight and exhibits legal weaknesses that encourage substandard drug producers to flourish, often crowding out better producers, which cannot compete on price with those cutting corners. While Europe and America faced this problem in the mid-20th century, at that time it was easier to differentiate products based on branding and advertising, whereas today, all “generic” products are assumed to be interchangeable, and advertising is often illegal. This means companies can often distinguish themselves only on lower price and reliable delivery.

Additionally, the plethora of substandard products is worsened by the Indian government’s price-control policy, which drives low prices for government contracts to supply pharmaceuticals—prices so low, some manufacturers simply cannot make good-quality medicines and cover costs.

Furthermore, some Indian producers seem to be consistently and intentionally making poorer-quality products for certain domestic and foreign markets where quality control and consumer discernment are perceived to be weak. But companies sometimes send poor-quality medicines to markets with good oversight, too, and occasionally get caught as a result. Increasingly, Western regulatory agencies are identifying failing Indian companies and sanctioning them—most infamously, the pharmaceutical company Ranbaxy paid a $500 million settlement in 2013, as the company admitted to fraud and supplying substandard medicines. Since then, dozens of other Indian companies have been reprimanded or fined by the US Food and Drug Association (FDA) or limited in their ability to export their products to the US. But the Indian government continues to deny it has a problem, to the chagrin of foreign regulators and drug producers and of increasing concern to some American physicians and patients. Perhaps most striking, India’s regulators never even bothered to investigate Ranbaxy following the US case.

As a result, Indian regulators are increasingly isolated from the rest of the world. Indian producers may also be isolated in the future; US congressional committees are investigating drug quality, and President Donald Trump is pushing for more production in the US. But at the same time, the president wants cheaper drugs, and no producers can beat India on price.

We may be approaching a crossroads for Indian medicines. If India does not shape up, resulting in tragedy to US patients, a US boycott of Indian drugs could devastate India’s pharmaceutical industry—the good with the bad. It may also double the price of medicines in the US and lead to shortages. It is in nearly everyone’s interest that India sort out its medicine business.

This paper explains the problems with Indian medicines, while acknowledging the vital role they play, and then discusses some of the methods by which quality can be improved, using a mixture of carrots and sticks.

Several options are available to fix the lack of consistent quality. The simplest is to be open about quality differences and allow the market to adapt. Allowing generic manufacturers with spotless records to advertise this fact, pointing out how their products are more reliable than their competitors, would probably drive demand by patients for those products and drive drug wholesalers and pharmacists to deliver demanded products based on such differentiation. The knock-on effects would be significant: If Indian or Chinese companies are exposed as making shoddy products, they would lose business, and some, maybe most, would change practices as a result.

A more likely political approach would be for the US to enact legislation that prevents all Indian and Chinese products from being imported, unless they are certified to the highest standards. This means not just passing an initial FDA inspection, but passing ongoing private-sector audit requirements, with stringent penalties such as marketing prohibition if a producer fails in these audits.

Price increases and shortages would be an inevitable result of such an approach, but whatever path is taken, there are only imperfect real-world policies with trade-offs that affect patients and entrenched interests. It is ironic that an overreliance on the cheapest sources of chemicals and finished products is caused by the near impossibility of differentiating products based on quality.


The pharmaceutical industry is one of the most heavily regulated in the world, yet medicine manufacturing is often opaque, even to the very regulators charged with protecting consumers from ineffective and potentially dangerous products. Furthermore, patients and even physicians are often ignorant of the products they take or prescribe every day.

Regulation is slow to change, often for good reasons, since business dislikes uncertainty and invests more when the rules of the game are set. But as industry has changed, its practices, notably its procurement practices, have changed so radically in the past three decades that the regulatory environment is no longer capable of overseeing consistent product quality. With no effective regulations and with opaqueness from most of the supply and distribution system, quality problems were almost inevitably going to arise.

A key change has been geographic. India has developed a reputation of producing cheap generic drugs, making it the pharmacy to the world. It is a well-deserved reputation since Indian drugs dominate pharmacy sales in every part of the developing world and increasingly in the West.

This paper is split into three sections. The first discusses publicly available data and stories about Indian drug-quality flaws and provides a brief analysis of legal institutions and organizations charged with addressing quality problems. The second section addresses my own efforts to assess the problem from a decade of drug procurement of Indian medicines. The third section deals with actual and potential policy responses to the problems identified in the first two sections.

Read the full report.

Towards a Hindu Pakistan? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 11/18/2017 - 14:17

Is India in danger of becoming a Hindu Pakistan? In Washington this question, once too ludicrous to contemplate seriously, has lately acquired currency. For an Indian, it’s a query that can trigger a powerful emotional response. At one extreme stand those who greet it with bilious outrage. At the other are those for whom it evokes quivering concern.

Let me start by stating the obvious: the odds of the officially secular republic of India ever fully mirroring the Islamic republic of Pakistan are vanishingly small.

To begin with, look at demographics. About one-fifth of Hindu-majority India’s population consists of religious minorities; the Pew Research Center predicts that this will rise slightly to nearly one-fourth by 2050. By contrast, Pakistan is 96% Muslim. The only minority group of note is the beleaguered Shia community, estimated to number between 10% and 15% of the country’s 208 million people.

Founding principles matter too. India was born as a secular republic in 1950. Indira Gandhi only wedged the word “secular” into the Constitution’s preamble in 1976, during Emergency, her infamous suspension of democracy. But right from the start India’s Constitution guaranteed equality before the law and freedom of worship, and prohibited any religious test for office.

By contrast, as early as 1949 the Objectives Resolution passed by Pakistan’s Constituent Assembly declared that “Muslims shall be enabled to order their lives in the individual and collective spheres in accord with the teachings and requirements of Islam as set out in the Holy Quran and the Sunna.”

In ‘Purifying the Land of the Pure’, a compelling history of Pakistan’s religious minorities, Farahnaz Ispahani argues that this was the first step towards the country’s further Islamisation over the decades. In Pakistan, by law only a Muslim can become president or prime minister.

Nor do Indian secularists face the ideological challenge faced by their counterparts in Pakistan. The Sangh Parivar’s Hindu nationalism may look upon Muslims and Christians with suspicion, but it lacks both the global organisation and the overarching ambition of Islamism, the quest to order all aspects of the state and society according to the tenets of Islamic orthodoxy.

Islamists can fall back on vast jurisprudence and relatively recent historical memory to make their case for a state governed by sharia law. Luckily for India, even the most rabid Hindu fanatic does not seek to reorder 21st century life by the ancient laws of Manu.

All this is for the good, but suggesting that India’s record on minority rights will likely always be better than its western neighbour’s is not really saying very much. Once we get beyond the false question of equivalence, we’re left with an unpleasant truth. In some ways India has already begun to copy some of Pakistan’s worst aspects.

Take, for instance, impunity for violence against members of a religious minority. A string of high profile lynchings of ordinary Indian Muslims by Hindu cow vigilantes has yet to lead to a single conviction. In some cases, as in the 2015 murder of Mohammad Akhlaq in Uttar Pradesh, powerful politicians have instead demanded an investigation of the victim’s family.

Or consider the gradual ghettoisation of concerns about minority rights. Increasingly, India’s secularists appear almost as inconsequential as their Pakistani counterparts. They can draw attention to outrages, such as the roadside lynching of dairy farmer Pehlu Khan in Rajasthan this year. But their ability to sway public opinion has withered.

Chief minister Vasundhara Raje may well receive a thrashing from Rajasthan voters next year. But it won’t be on account of her failing to protect the lives of Pehlu Khan or Ummar Khan, another alleged victim of cow vigilantes, or to swiftly bring their murderers to justice.

In parts of India, cow vigilantism has come to resemble Pakistan’s notorious blasphemy law. Merely the accusation carries with it the implicit threat of mob violence. Earlier this month, Reuters reported on vigilante gangs in BJP-ruled states that seize cows from Muslims with impunity. Apparently, Prime Minister Narendra Modi’s calls to end cattle-related violence have not worked.

Given what has come to pass already – with little effective pushback – it’s not hard to imagine things taking an even darker turn.

Take the term Islamophobia, described by one wag as “a word created by fascists, and used by cowards, to manipulate morons.” A new generation of Hindu activists has begun to actively promote the related term Hinduphobia. While framed as a tool to fight discrimination, it will likely have the same malign impact as its Islamic equivalent – of shutting down critical inquiry and fostering a destructive culture of conspiracy theories and self-pity.

From here it’s only a short hop, skip and jump to a Hindu version of takfirism, the dangerous Islamist innovation that allows radicals to declare fellow Muslims as apostates. I grew up in an India where a person who seldom visited a temple and was known to enjoy a fine steak was no less a Hindu than anyone else. It’s fair to wonder whether in the promised new India this will remain the case.

In sum, it’s absurd to claim that India will turn into a Hindu Pakistan. But the readiness of some Hindu nationalists to pilfer the worst ideas from Islamism suggests that fears about India’s trajectory are not entirely misplaced.

The original article can be read here, through The Times of India 

Let’s restart the adoption movement - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 11/18/2017 - 02:00

Giving to charity makes you happier, healthier and even richer.

That’s what I found in my research for a book I was writing back in 2003. Data clearly showed that giving and volunteering have a positive impact on givers’ health, wealth and life satisfaction — especially when we can see the faces of the people we are helping. Was this the secret to building a better life and happier world?

Excited by these findings, I discussed them with my wife, Ester. Always practical, she suggested that we put my research to the test in our own lives. “I just read that there are millions of abandoned little girls in China,” she said. “I think we should adopt one of them.”

My immediate response: “Hey, it’s only a book!”

Many people are anxious about adoption, although the source of those anxieties has changed over the decades. In a study in the 1980s, the sociologist Charlene E. Miall surveyed a large group of childless women. Many of the interviewees reported a widespread perception that the lack of biological ties must hurt the parent-child bond. They feared that society saw adopted children as second-rate, and adoptive parents as not “real” parents.

But today the most common concerns about adoption have shifted from cultural worries to financial and logistical ones. According to the National Foster Care Adoption Attitudes Survey, by 2013 the top two of eight potential concerns for those considering adoption were coping with paperwork and expense.

This shift in concerns is excellent news, however, because it means the government can help provide solutions. That is what President George W. Bush sought to do when he signed a 2001 bill raising the maximum adoption tax credit to $10,000 from $5,000 to help offset what often costs families three times that amount, especially those adopting from abroad.

Foreign adoptions by American families were already increasing in 2001, and with an assist from the new policy, the number hit a high in 2004. According to the State Department, 22,884 children were adopted that year from overseas, compared with almost 6,000 a year in the early 1980s and about 16,000 in 1999.

Like thousands of others in that wave, and over my initial objections, Ester and I started the process of adopting a child from China. That meant we would be adding a daughter to our brood, because girls made up 95 percent of the Chinese children who were waiting to be adopted.

In the summer of 2004, along with nine other families, I boarded a plane to China to pick up our daughter from an orphanage in Fujian Province. While the rest of the group was made up of couples, I was traveling alone. One of us had to stay back with our young children, and Ester was not yet an American citizen (and thus could not legally execute the adoption).

To complicate matters, I had been warned by the orphanage that our 16-month-old daughter — whom I had never seen, except in a grainy photo sent a couple of weeks earlier — was especially shy and afraid of men. They told me not to be surprised if she panicked as soon as she saw me; she typically screamed in fear any time a man entered the orphanage.

When the moment of truth came, my name was called, I entered the room, and a Chinese official plopped a baby into my arms. I braced myself, and — nothing happened. She didn’t cry. She didn’t scream. She just held onto my shirt with her tiny fists and stared up at my face. To me it was as if we had been together since the moment of her birth.

Back in the United States with our new daughter, Ester and I felt we were part of a foreign adoption movement. We were sure that enlightened public policy would continue to loosen regulations, which would make for more and more miracles like ours. Blended international families of choice were the wave of the future, we thought, and a reflection of an increasingly shared belief in a radical solidarity that transcended borders and biology.

We were wrong. The year we adopted turned out to be the high-water mark in foreign adoptions and the number has dropped ever since. By 2016 it had fallen 77 percent from its peak, to 5,372. This is the lowest total in three and half decades.

What happened? The answer is not a lack of need. Indeed, according to the Christian Alliance for Orphans, there are more than 15 million children around the world who have lost both of their parents.

Part of the reason is the policies of foreign governments, which have made foreign adoption harder, both for both nationalistic reasons and because of worries about corruption and human trafficking. Our own government has contributed as well: Foreign adoption plunged all through the Obama administration as the State Department imposed new hurdles in the name of curbing abuses, which are a significant worry for parents adopting from some countries (although not China, where virtually all the children, like my daughter, were abandoned at birth).

Motivated by good intentions or not, these changes have left thousands of orphans unadopted. This is too high a price to pay for bureaucratic screw-tightening.

Meanwhile, while it may or may not materially affect the foreign-adoption statistics, adoption has been vilified by the political fringes in the United States. Alt-right social media light up with attacks on transracial adoption. And some on the far left attack “the propaganda put out by the mega-billion-dollar adoption industry that there are thousands of orphans ‘languishing’ in orphanages waiting to be rescued or saved.” Big Adoption, corporate villain.

Today, my daughter is a freshman in high school. She spends too much time on Instagram but is killing it in her classes. And what about our giving experiment? In truth, I don’t know or care what my daughter has done for my income or health. But my happiness? It spikes every time she looks at me and I remember the magic day we met.

That’s something more dads, moms and especially kids deserve in this unhappy world.

From North Korea to Venezuela to Zimbabwe: When terrible government destroys a country - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 17:14

It’s especially compelling when reality makes your economic and and political points vividly clear and intellectually inescapable. Nothing like a natural experiment to drive a message home.

Unfortunately, the fellow traveler in these cases is sometimes vast human misery. At unification, West German living standards were more than twice those in the communist East (and are still a third higher despite $2 trillion in fiscal transfers over the years). Venezuela shows what happens when full authoritarian populism gets put into action. And who hasn’t seen the stark image of the two Koreas at night, the prosperity of the South glowing brightly.

Then there’s the case of Zimbabwe, which just saw a coup removing dictator Robert Mugabe after nearly four decades in power. From The Economist:

There are two morals to draw from Mr Mugabe’s long, ignominious career. The first is that bad policies, corruptly implemented, can wreck a country with alarming speed and go on wrecking it long after you would have thought there was nothing left. Venezuela has little in common with Zimbabwe culturally, but has also achieved disastrous results by embracing a Latin version of Mugabenomics. By contrast, Botswana, Zimbabwe’s culturally similar but well-governed neighbour, was roughly as rich in 1980 but is now seven times richer.

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The outlines of Trump’s Asia strategy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 16:47

During its long and eventful trip, the Trump Administration laid down important markers as it fashions its strategic approach to Asia. While North Korea is the most urgent issue the region faces, strategic competition with China is the most important. On the former count, Trump is working with Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in to develop a long-term approach that contains and rolls back the threat. On the latter count, Trump began to outline his vision for a free and open Indo-Pacific.

The anchor of a “grand strategy” for Asia is Japan. President Trump and Prime Minister Abe enjoy a warm relationship akin to that between George W. Bush and Jun’ichiro Koizumi. If the two stay close, the visions they outlined have a real chance of succeeding.

North Korea

The first order of business for the United States and Japan was solidifying their common approach to North Korea. While “maximum pressure” appears to be affecting both North Korea and China, the policy needs more time. Many more Chinese and North Korean individuals and entities need to be sanctioned, and Beijing must see that its worst fears of a full-blown trilateral alliance between Tokyo, Seoul, and Washington will become a reality. At the same time, the Japanese and the Americans have to agree on possible strategic end states for the peninsula and on reactions to a host of contingencies should North Korea decide to use force.

You can read the full article here at The American Interest.

Yemen: Would breaking up the country end the civil war? | In 60 seconds - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 16:25


Before 1990, Yemen was two countries. As a civil war wages, will peace be achieved by dividing the country into northern and southern halves? AEI Research Fellow Katherine Zimmerman offers her analysis.

Frivolous ‘Ambition’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 14:07

Every state has now submitted to the Department of Education a plan spelling out its goals for school performance, in accord with the 2015 Every Student Succeeds Act. Along the way, states have paid heed to the chorus of self-proclaimed reformers urging them to ensure that plans be “ambitious.” This has resulted in a curious quandary: The problem with the plans is not a lack of ambition but the feckless embrace of it. The irony is that the law was motivated in large part by the recognition that “ambitious” but fanciful targets have been bad for students, educators and educational accountability.

A little history is useful here. Back in 2002, the No Child Left Behind Act set a goal that 100 percent of America’s students would be “proficient” in reading and math by 2014 – and mandated interventions for schools that failed to meet that bar. That legislation was celebrated by supporters for its ambitious, healthy aspiration. It turned out, though, that grandiose goals didn’t deliver grand results. Rather, they taught educators to see accountability as unserious and political.

The full article will be available on on November 24, 2017. You can continue reading this piece here.

The great irony of reforming 529 college savings plans - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 13:56

The Republican-controlled House on Thursday passed a far-reaching tax reform bill that would, among other things, make several changes to 529 college savings plans. House Republicans seek to leverage 529 plans to both promote school choice and hand a symbolic victory to pro-life activists. Naturally, these proposals have incensed Democrats. However, both sides of the debate have misjudged how the reforms would play out in the real world.

529 plans are tax-preferred savings accounts that families can use to pay college tuition and related educational expenses. Unlike other tax-preferred vehicles such as health savings accounts, contributions to 529 plans are not deductible on one’s federal tax return. Rather, the earnings on contributions to 529 plans are not taxed when families withdraw the funds to pay educational expenses. The longer earnings accrue, the greater the tax benefit.

The House version of the tax bill would allow families to start saving in 529 accounts from the date of their child’s conception (currently, they can start saving from birth). In addition, they would allow families to use 529 funds to pay tuition at private K-12 schools. The Senate version of the bill strips out the K-12 provision, but still allows families to start saving on behalf of unborn children.

At first glance, this provision seems like a minor change. It allows pro-life activists to claim a moral victory and a statutory precedent for treating unborn children as people. Critics have attacked the provision for inserting abortion politics into a tax reform bill. But everyone seems to agree that the change is a symbolic one, which was undoubtedly Republican lawmakers’ intent. By contrast, allowing families to use 529 plans for K-12 education seems much more substantive: it appears to deliver on President Trump’s campaign promise of a major federal investment in school choice.

But this narrative has it exactly backwards. Allowing saving in 529 plans from conception is a substantive change to how these accounts operate, while expanding the accounts to cover K-12 educational expenses is largely a symbolic one.

Imagine that a generous grandma opens a 529 account on the day her grandchild is born. She deposits $200 into the account every month as the grandchild grows up. Through the miracle of compound interest, that $200 per month will become $76,200 by the time the grandchild is ready for college. The federal subsidy for that account is $6,100: the amount of tax avoided on the account’s earnings.

Now imagine that grandma can start saving from her grandchild’s conception. She can make an extra eight months of contributions, and the interest on those contributions has an extra eight months to compound. (N.B.: I’m assuming the pregnancy is not detected for a month after conception.) By college age, the account will have $80,400 in it—an extra $4,200 for college expenses. The federal subsidy for the account will rise to $6,700.

Source: author’s calculations. Note: all scenarios assume a 5% annual rate of return on investment.

It is true the extra federal subsidy from the conception provision is only meaningful if families have the means to contribute hundreds of dollars per month. That is one reason that only 6% of families with school-age children use 529 accounts. But the conception provision will deliver real benefits to some families, unlike the other major piece of House Republicans’ proposed reforms to 529 plans.

Ostensibly to expand school choice, Republicans would allow families to use 529 plans to pay private school tuition at the K-12 level. This may appear to introduce a new federal subsidy for school choice, but it is an empty gesture: families who withdraw their 529 funds early to pay for K-12 education will see a smaller federal tax benefit than those who let the funds accrue until college age. In other words, using 529 plans for K-12 tuition instead of college is a bad deal for families.

A family who makes $200 monthly contributions will see $6,100 in federal tax subsidies if they wait until college age to withdraw funds from the 529 account. But if they instead decide to withdraw funds starting in high school, their benefit will shrink to $4,500. Start withdrawing in elementary school, and the benefit shrinks to just $1,000. The conception provision does not come close to canceling out these losses.

Source: author’s calculations. Note: all scenarios include a $200 monthly contribution and assume a 5% annual rate of return on investment.

Remember the miracle of compound interest: families who wait longer to withdraw their funds will accrue more earnings on their contributions, and thus derive a greater benefit from the tax preferences for 529 plans. Withdraw the funds early, and the comparatively little earnings that have accrued will not generate a very large tax break. To make using 529 accounts for elementary worth it financially, the family in the above example would need to increase their monthly contributions from $200 to $525. That’s a tall order, even for wealthy households.

Most families will be better off paying for private K-12 school tuition out of pocket and saving their 529 funds for college, meaning that the 529 expansion will do basically nothing to expand school choice. While proponents of school choice have hailed the measure, it is almost purely symbolic.

House Republicans’ efforts to reform 529 plans have produced a policy enigma. A provision meant to be symbolic is in fact substantive, while a provision meant to be substantive is actually symbolic. Who would’ve thought that tax reform could produce such great situational irony?

A duopsony built around rent-seeking - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 13:45

A recent Senate Banking Committee hearing explored “The Status of the Housing Finance System After Nine Years of Conservatorship.” The title pretty much says it all — Congress has done nothing substantive on housing finance reform in almost a full decade.

Given the spectacular failure of Fannie Mae and Freddie Mac that led to the 2008 financial crisis, the fact that these Government-Sponsored Enterprises (GSEs) remain in government conservatorship might seem surprising. After all, during the crisis, Fannie Mae and Freddie Mac transformed from political untouchables in housing finance to pariahs.

The Fannie Mae headquarters is seen in Washington November 7, 2013. REUTERS/Gary Cameron

Rather than seize that moment to shut down the GSEs to protect taxpayers and housing finance markets, Congress succumbed to an onslaught of special interests lobbying and fear-mongering aimed at protecting the GSEs’ duopsony — a market condition where there are only two large buyers for a specific product or service.

See also:

In virtually the blink of an eye, groups such as the Mortgage Bankers Association and the National Association of Home Builders convinced members of Congress that the housing finance market couldn’t function without some form of government backing. The worst propaganda was that only government guarantees could prevent interest rates from skyrocketing, home values from plummeting, and long-term fixed-rate mortgages from disappearing.

Now that the Trump administration has indicated it wants to reinvigorate the private housing finance system, it is facing the same resistance Congress did in 2008.

Americans have an enormous stake in the outcome. Federal taxpayers currently cover more than $6 trillion (60%) of single-family residential housing mortgage debt, and they’ve had to shell out billions over the years to keep these enterprises afloat.

The Housing Lobby argues for either a continuation of the status quo with the addition of an explicit government guarantee or some close hybrid. Supporters also incorporate an “affordable housing cookie jar” in an effort to get buy-in from progressive lawmakers and lobby groups. But these groups ignore the three major problems with our nationalized housing finance system.

  • Americans have more debt than ever
  • After 50+ years of “affordability” policies, homes are more expensive than ever, and
  • Notwithstanding trillions of dollars in subsidies, the current 63.9% homeownership rate is statistically no different than the average rate of 64.3% since 1964 (excludes bubble years).

Homeowners and taxpayers have little to show for the federal government’s largesse, except for mountains of mortgage debt and GSE bailout IOUs.

An even bigger problem with defending the status quo is that the GSEs are not currently helping Americans of modest means buy homes. Data from 2016 clearly show that the bulk of the GSE business focuses elsewhere.

The nearby chart shows that while the GSEs accounted for two-thirds of government agency business in 2016, only 7% of total agency activity (comprising 11% of total GSE activity) served buyers of more modest homes with moderate downpayments.

Note: POO: Primary Owner Occupied, SOO: Secondary Owner Occupied or second homes, and NOO: Non-Owner Occupied or investment properties.

The rest went to cash out and no cash out refinancings (56% of total GSE activity), second homes and investor properties (6% of total GSE activity), purchase loans with downpayments of 15% or more (20% of total GSE activity), and higher priced homes with downpayments of less than (7% of total GSE activity).

The housing lobby cannot hide from these figures. The bulk of GSE activity simply is not doing anything to help make moderately-priced homes more affordable.

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The First Amendment and net neutrality’s end game - The First Amendment and net neutrality’s end game

Fri, 11/17/2017 - 11:00

For most of the past decade, there has been very little interest in discussing the First Amendment issues raised by the Federal Communications Commission’s (FCC) various proposed net neutrality rules, but things have recently taken a long-overdue turn. These issues have always been in the background, but attention has been focused on foreground issues like reclassification and common-carrier exemptions. Only a few brave souls, like Brent Skorup and Fred Campbell, have delved into the First Amendment issues implicated by the FCC’s rules in substantial depth.

Via Twenty20

These First Amendment issues are now getting long-overdue attention. They have been briefed in detail in one of the many petitions asking the Supreme Court to review the DC Circuit’s affirmance of the FCC’s rules. In the DC Circuit’s review of those rules, both the court and the FCC recognized that the rules face important First Amendment limitations. And First Amendment issues are likely to figure prominently on the FCC’s Restoring Internet Freedom proceeding.

Most of these discussions have come from critics of the Commission’s Open Internet Order. One of the most comprehensive discussions by net neutrality proponents can be seen in an ex parte notice recently filed by Public Knowledge. And what a discussion it is!

Net neutrality proponents embrace the fairness doctrine

The heart of Public Knowledge’s argument that net neutrality regulations are not problematic under the First Amendment is that Red Lion is still good law. Red Lion is the 1969 case in which the Supreme Court upheld the fairness doctrine. Under the fairness doctrine, the FCC could compel broadcasters to provide coverage of political topics that were, in the estimation of the FCC, politically balanced. This is a doctrine that many today view as anathema to First Amendment principles. It is a doctrine under which, for instance, the Republican or Democratic majority of the FCC’s commissioners could require broadcasters (say, for completely random example, NBC affiliates) to provide more positive coverage of a president.

Needless to say, it is troubling that the starting point of Public Knowledge’s argument in support of net neutrality rules is the proposition that the FCC can require broadcasters to engage in compelled political speech. It is perhaps a sign of the general weakness of its arguments that Public Knowledge relies upon Red Lion to support its view that net neutrality regulations are not problematic under the First Amendment.

Net neutrality proponents ignore the law?

Even more surprising, however, is that the Public Knowledge ex parte ignores far more recent, far more relevant cases like Turner I and Turner II. The Turner cases involved Congress’s must-carry rules, under which cable companies were required to carry local broadcast stations on their networks. The issue here is more similar to net neutrality than the issue in Red Lion, relating directly to carriers’ decisions about what third-party content to carry and on what terms.

So why does Public Knowledge ignore the Turner cases? Probably because these cases suggest an analysis based on Red Lion is wrong, and that net neutrality rules will face an uphill First Amendment battle.

To start, Turner tells us that “the mere assertion of dysfunction or failure in a speech market, without more, is not sufficient to shield a speech regulation from the First Amendment standards applicable to nonbroadcast media.” In other words, you can’t regulate speech if there aren’t clear problems in the market. This could be game, set, and match for most net neutrality rules — those rules, after all, being a solution in search of a problem. Neither the de minimis and hypothetical harms adduced in the 2015 Open Internet Order nor the triple bank shot theories about promoting broadband deployment amount to the sort of harms the Supreme Court is likely to find satisfactory to justify comprehensive speech regulations.

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What is more, the Turner cases unsurprisingly take Red Lion into consideration — and they strongly distinguish the cable industry from the broadcast industry. In the cable industry, there are relatively few entrants due to high capital costs but relatively ample opportunity for those firms who may seek to enter the market. The story in Red Lion, however, was different: There were many individuals and firms seeking licenses for broadcast spectrum from the FCC, but a scarcity of spectrum limited how many could enter the market. The market for internet access providers is far more akin to the cable industry (directly analogous, in fact, given that much internet access is provisioned over a cable architecture).

Most importantly, the Turner cases found that cable companies are First Amendment speakers, such that any regulation of their speech (including the content that they choose to transmit on their conduits) is subject to heightened scrutiny. This does not mean that the regulations are necessarily improper. The must-carry regulations that were at issue in the Turner cases, for instance, were ultimately affirmed by the court. It does, however, mean that the FCC will need to put forth something more than abstract theories about virtuous circles supported by tenuous readings of the Communications Act — it will need to demonstrate to the courts’ satisfaction that those rules are needed to mean an important or compelling government interest and do so in a narrowly-tailored way.

Net neutrality proponents drink prune juice

A final telling argument advanced by Public Knowledge is that the Supreme Court’s 1980 opinion in PruneYard Shopping Center v. Robins supports the idea that the government can treat private property as public fora, requiring private owners to allow the public to use that property for their own speech. In PruneYard, the Court affirmed a California requirement that the owner of a shopping center allow the public at large to use the shopping center to engage in political speech. But PruneYard is a bête noire of First Amendment law, predating the development of contemporary analytic frameworks in ways that give proponents of speech regulation hope that they can escape the Court’s probing heightened scrutiny.

In practice, PruneYard does little to advance Public Knowledge’s arguments. Even in 1980, the Supreme Court read important limitations into its holding. For instance, and “[m]ost important, the shopping center, by choice of its owner, … is open to the public to come and go as they please [such that] views expressed by members of the public … will not likely be identified with those of the owner” (emphasis added). This limitation goes to the heart of the First Amendment concerns raised before the DC Circuit: whether an ISP can choose to offer a curated internet package under the Open Internet Order, and whether doing so removes that ISP from the ambit of the rules.

Additionally, PruneYard was predicated upon the idea that the owner of the shopping center could “expressly disavow any connection with the message [that state law required it allow to be communicated] by simply posting signs in the area.” In other words, the speech compelled in PruneYard was permissible so long as the owner of the shopping center could actively and visibly disavow and disparage it. There is no equivalent to this in the context of internet access. Almost any “equivalent” would require allowing ISPs to redirect web queries, for instance. Or, perhaps, allow ISPs to give preferential treatment (that is, prioritize) their own preferred content. Of course, either of these requirements runs directly counter to the basic principles of net neutrality.


Net neutrality has always been the thin end of the wedge. It contains in itself no limiting principle. Once we accept that we can require ISPs to treat data traversing their networks “neutrally,” we accept both that similar neutrality can be required of other platforms and that the government is a proper arbiter of “neutrality.” Proponents of net neutrality have always resisted this characterization, knowing that it is a political loser. But when push comes to shove — as it has in recent weeks — these proponents are forced to acknowledge net neutrality’s endgame. Tech neutrality, the fairness doctrine, and commandeering private property as public fora are all on the table to net neutrality’s proponents.

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Episode 8: Predators, real and imagined - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 05:00

Breaking away from the shackles of the guest-interview format, our host discourses on the sexual misconduct wave moving through Washington.

You can subscribe to The Remnant with Jonah Goldberg on iTunesGoogle PlayStitcher, and TuneIn. You can also download this episode here.

This podcast published by National Review.

Vladimir Putin isn’t interested in helping America - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 11/17/2017 - 05:00

Toward the end of his twelve-day trip to Asia, President Trump tweeted, “When will all the haters and fools out there realize that having a good relationship with Russia is a good thing, not a bad thing. There [sic] always playing politics — bad for our country. I want to solve North Korea, Syria, Ukraine, terrorism, and Russia can greatly help!”

Trump has a point. Russia can, in theory, “greatly help.” But it probably won’t, at least not “greatly.” It won’t help because Vladimir Putin and his regime don’t think helping America is in their national interest.

Putin, a former ghoul of the KGB, subscribes to a theory of statecraft with deep roots in both Russian and Soviet history.

During WWI, Vladimir Lenin advocated “revolutionary defeatism.” The idea was that winning the war was pointless since it was a battle between competing capitalist ruling classes. It would be better if everyone — including Russia — lost. The masses, he hoped, would then wage a civil war to overthrow their masters. The idea was derived in part from 19th-century revolutionary socialist Nikolay Chernyshevsky, who coined the phrase “the worse the better” — which Lenin often quoted.

This basic strategy worked well enough for the Bolsheviks. Lenin became the founding father of the Soviet Union, which brutalized and enslaved its own people and its neighbors for 70 years.

The Soviet Union, despite its military might, was always a weak country. Any nation that has to rule by fear is by definition weak. If the Soviets could have invaded and defeated Western Europe and America, just as they had Eastern Europe, the Caucasus, and Central Asia, they would have. It’s what Marxist-Leninism demanded, after all.

But they couldn’t. So they adapted. Before they could export revolution, as Leon Trotsky wanted, they first had to export revolutionary defeatism. And so for a half-century, the Soviets did what they could to undermine the West by sowing discord and strife. The idea was, as Marxist theorists had long put it, to “heighten the contradictions” of capitalism to force it to collapse.

They developed a wide array of methods. Their propagandists fed conspiracy theories to gullible journalists and intellectuals in the 1930s and 1940s. In the 1960s, the Soviets tried to discredit Martin Luther King Jr. because his message of tolerance and nonviolence was inconvenient to their cause. The KGB wanted the violent radical Stokely Carmichael to become the leader of black America. It disseminated leaflets in black communities claiming that right-wing groups were “developing a plan for the physical elimination of leading figures in the Negro movement in the U.S.,” as Darien Cavanaugh of the website War is Boring recently recounted. In the 1980s, the Soviets spread lies about America inventing AIDS to kill blacks.

This is the world Putin grew up in. He was a KGB foreign-intelligence officer for 16 years. He’s called the demise of the Soviet Union one of the 20th century’s greatest tragedies. But he’s not a Marxist. In fact, it’s been speculated that he may be the world’s richest man.

But he is the man the KGB made him.

Forget about America for two seconds. Putin’s social-media army has been mucking around in Western Europe for years. He supports fringe radical groups — or creates fake representatives of them — on both the left and the right. They use WikiLeaks, and the useful idiots who love it, to undermine Western governments in the name of democracy and transparency.

The goal isn’t primarily to get a particular politician in power, but to sow chaos and doubt, to heighten the contradictions, and to weaken the strong countries and alliances that Putin thinks are holding down Russia. The Russians helped push for Brexit, not because Brexit was good for Britain (which I think it might be), but because it was bad for the European Union.

Some want to believe that Putin saw in Trump a useful ally, and that Trump volunteered for service. Again, that’s possible. But I think the answer is more straightforward and obvious. The Russians just wanted to cause trouble and wound the presumptive winner, Hillary Clinton. That’s why WikiLeaks encouraged Donald Trump Jr. to claim the election was stolen. But then the elder Trump won.

Trump believes that every country should follow its own narrow self-interest. That’s a defensible position. The only problem is that Russia’s — or at least Putin’s — definition of self-interest is at war with ours.


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