Free Market Assumptions in Healthcare

I’ve encountered an unexpected concept when debating and discussing healthcare solutions in the United States.

Healthcare in the United States contains both public and private actors, but it’s most important characteristic for a libertarian critique is its lack of price signals. Healthcare is not purchased in an open market. Patients select healthcare providers based on reputation and what their insurance covers, but most patients do not choose their insurance provider. That is usually done by their employer or the government (in the case of Medicare and Medicaid). Conversely, healthcare providers do not charge patients, they charge insurers where prices can differ by provider and by procedure. EconTalk recently had Christy Ford Chapin on to discuss the history of American healthcare and I would highly recommend the episode.

The libertarian position (and mine) is that healthcare could be improved with prices. There are many ways to do that, you do not necessarily need patients to pay those prices, but you need them involved in the decision making process. Otherwise, there is no downsloping demand curve, and therefore there is no incentive to improve efficiency in the market. Thus, we see higher prices over time instead of the usual results of technological innovation: higher diversity of choices, higher quality goods, and lower prices.

This post is not a defense of whatever Republican healthcare bill is now being floated to replace or repeal Obamacare. This is only an argument that having known prices and price transparency would allow for demand and supply curves in the health care market. Such a characteristic could be part of a host of possible healthcare policy landscapes, and I’m only saying that a landscape that has prices is likely better than one that does not. Today, and for most of the history of healthcare in America, the healthcare industry has not been governed by an openly priced market.

Such a libertarian critique is separate from the argument that a “free-market” system with prices would hurt the poor. This is a valid critique that could be addressed with direct cash grants or other form of government subsidy that avoids having healthcare prices set by the government (refundable tax credits, health savings accounts, etc).

The remarkable argument I’ve heard is that if we allowed healthcare to be purchased in a market with prices, it would fail because you “can’t have” a free market in healthcare. It’s hard to nail down exactly what these people imagine would happen, but it seems that they believe prices themselves would not obey the laws of demand and supply. I will now list some arguments I have heard, some of them several times, and why they are incorrect. Certainly these arguments are poor and perhaps I am wasting time with them, but apparently they are common enough that I have run into them several times and therefore must be addressed.

“Healthcare Demand is Inelastic”

This is by far the most common point I’ve heard. It’s not usually stated in economic terms, but more like “if you are in need of emergency medical care, you’ll pay any amount, and this breaks normal market assumptions”.  However, I’ve also heard it stated that evidence of competitive markets working in elective procedures (Lasik or plastic surgery) does not apply to regular medicine because of demand inelasticity.

Firstly, the assumption that demand for medicine as a good is totally inelastic (i.e. quantity would not respond at all to price) is obviously wrong. That would imply there are no unnecessary procedures done ever.  Yet we all are aware that because doctors are often paid per procedure, they are often incentivized to conduct tests because there is very little downside (i.e. it costs neither the patient nor the doctor anything to run the extra test). If there is no elasticity, then there is no room for reducing the amount of procedures done by doctors. I doubt that.

Nonetheless, let’s grant the assumption, or at least let’s say that demand elasticity is very low.  That means at higher prices, you’re likely to consume a similar amount of medicine. That sounds more reasonable; if you’re sick, it’s not your choice.

Ok well…so what? We can have competitive markets with marginal revenue very close to marginal cost even if demand elasticity is low. Gasoline is a classic example of an inelastic good, yet the gasoline market is highly competitive. Prices work without issue here. Again, we’re not saying that poor people would be really happy with prices, we’re just saying that prices would exist if patients could purchase healthcare in a market.

Another related point is that if you have a medical emergency, you’re not really in a position to negotiate prices. This, however, is not just due to demand inelasticity, but also monopoly pricing.  If you’re injured, you can’t just go to a different hospital, so the ER you arrive at is pretty much the only place you can go. This is a fairly good argument for government intervention in the ER. However, insurance is also a pretty good solution; if you won’t be able to make a choice in the moment, you buy insurance so that when the moment comes, you are already prepared. There is no economic reason that medical emergency insurance could not be purchased in a free market. Additionally, medical emergencies are a small part of the medical industry. The vast majority of medical procedures are not emergencies, and so for most situations, monopoly pricing is not an issue.

“Knowledge is imperfectly distributed in medicine”

Again, the fact that market actors have imperfect knowledge does not mean a market cannot exist. It may mean there are market failures, but government interventions are subject to government failures which may or may not outweigh the benefits of trying to fix the market failure. Moreover, this proves way too much, as it implies that you can’t have any market with imperfect knowledge, yet all markets suffer from this, and plenty are functioning just fine. In fact, I’d argue that prices are the single best way to spread knowledge.

Imperfect knowledge is usually fixed through regulation, like accreditation or inspections. You don’t have the knowledge to know that your airplane doesn’t have mechanical problems. Nonetheless, you are quite capable of comparing the prices of different airplane tickets, and you’ll likely respond to market forces when purchasing a ticket. Certainly imperfect knowledge is an argument for regulation, and I’m sure I’d disagree with plenty of people on how much regulation is necessary, but there is no world in which it then makes sense to argue that imperfect knowledge precludes a functioning price system.

“People are irrational”

First, people don’t have to be economically rational, nor do markets have to be free from regulation in order to create accurate economic modeling. To make the claim that economic analysis can’t be done with healthcare because the market is not perfectly competitive, or actors are not perfectly rational, again proves too much; economic analysis would be “fatally flawed” in all markets. The only question that needs to be asked is whether it’s possible patients might call two different places for a quote on a chest CT or an MRI. If some of them would do this, there would be competitive pricing, even if most don’t know what an MRI actually does.

“Healthcare is too expensive for a market to function”

This point sort of ignores the thesis that we are arguing, as all I’m trying to say is that prices can exist in the healthcare market. However, this is related and while it’s a bad argument, I want to address it briefly.  Healthcare is pretty expensive, although I suspect that it would be cheaper if market prices were used. The obvious answer to me would be to imagine if the government gave a large amount of money to an individual to pay for their healthcare for a year. That would fix the endowment issue where the poor are excluded from the market. In this hypothetical, my thesis suggests that there would be a variety of options for healthcare spending, such as paying out of pocket, buying a high deductible insurance plan, subscribing to a doctor network, etc. All of these would be examples of functioning markets in healthcare. Additionally, if recipients were allowed to roll over funding into the next year, they’d be incentivized to find good deals this year.

My thesis is not that the government should stay out of healthcare, but that interventions that keep prices in place are preferred.

“Morally, patients should not have to pay for healthcare”

Again, this isn’t really an argument against my thesis, but I have heard it. It’s a bad argument, so I’ll address it briefly.

If we take a consequentialist utilitarian moral standpoint, there is no a priori humanitarian reason why patients should not pay for part of their healthcare. In other words, if patients paying for part of their healthcare creates benefits for all of society, including almost all patients and future patients, then the moral thing to do (from a utilitarian perspective) is to have patients pay for some of their healthcare.

So would there be benefits if patients paid for healthcare? Well, first you have to establish that prices can exists. We’ve done that for the theoretical, but how about the empirical?

Empirical Data

The first point is that in the area closest to healthcare where there are transparent prices, elective procedures, we see functioning markets with costs going down over time.  Highlights include:

1. For the top ten most popular cosmetic procedures last year, none of them has increased in price since 1998 more than the 45.4% increase in consumer price inflation (the price for the hyaluronic acid procedure wasn’t available for 1998), meaning the real price of all of those procedures have fallen over the last 18 years.

2. For three of the top five favorite non-surgical procedures in 2015 (botox, laser hair removal and chemical peel), the nominal prices have actually fallen since 1998 by large double-digit percentage declines of -25.2%, -43.8% and -23.5%. That is, those prices have fallen in price since 1998, even before making any adjustments for inflation.

3. Most importantly, none of the ten cosmetic procedures in the table above have increased in price by anywhere close to the 93% increase in medical care services since 1998. The 23.2% average price increase since 1998 for last year’s top five most popular surgical procedures, isn’t even close to half of the 93% increase in the cost of medical care services over the last 18 years.

However, there are some doctors who just take cash for normal, non-elective procedures. These would be procedures where there is “inelastic demand”. What happens to these doctors? Do they go bankrupt immediately? Is everyone confused and bewildered? Not really, it just works like any other market. They post their prices online, and people come and pay for their procedures directly, without insurance. The Oklahoma Surgery Center is one of the more well known health centers with this approach:

The Surgery Center would charge $19,000 for his whole-knee replacement, a discount of nearly 50% on what Villa expected to be charged at his local hospital. And that price would include everything from airfare to the organization’s only facility, in Oklahoma City, to medications and physical therapy.

And once that happened, lots of groups were incentivized to send their patients there, making other Oklahoma hospitals compete.

While no organization keeps track of how many cash-based medical centers have cropped up nationwide in recent years, Smith and Lantier say they’ve witnessed an explosion. In Oklahoma City alone there are roughly three dozen centers that are all or partly cash based, specializing in everything from radiology to oncology.

The RAND institute ran an RCT in the late 70s that found patients who cost shared saw a reduction in unnecessary procedures. Obviously it’s pretty old, but I’m doubtful human nature has changed that much from the late 70s; if people have an opportunity to save money, they will do so. Healthcare policy should utilize that.

More recently, in 2008, Oregon had a Medicaid experiment, where several people were given access to Medicaid based on a lottery. Thus, a study was conducted to determine what the affects were of having access to Medicaid. As you would expect, patients with Medicaid coverage were much more likely to utilize healthcare generally, and more likely to go to the ER. The price of medical care went down when this group was enrolled in Medicaid, and consumption of medical care went up. This supports the notion that healthcare has a downsloping demand curve…just like every other market that has ever existed.

Finally, there was a study done in 2015 looking at the healthcare system and it’s lack of prices. It found that transaction prices, that is prices negotiated between hospitals and insurers, still accounts for much of the differences in private inpatient healthcare spending. It also found that even after controlling for several different variables, hospital monopoly power was responsible for higher prices. This seems to indicate to me that if we had significantly more price transparency in a functioning market, hospitals and patients would respond to those incentives, creating incentives for lower prices and better, more efficient care.

Conclusion

This isn’t revolutionary by any means, but there’s seems to be plenty of empirical and theoretical reasons that if we had transparent pricing systems in the healthcare industry, it would function similarly to prices everywhere else in the economy. Certainly the use of insurance complicates things, but the way we use medical insurance is a result of the unique way we created the medical payments system as detailed in the EconTalk episode mentioned at the top of the post. There is no technical reason we need to retain that system, and I think transitioning towards more procedures having known prices would be beneficial, whatever that system would be.

 


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Links 2017-7-16

The Libertarian Web Directory has been updated with some more interesting people, notably Ben Shapiro and Kmele Foster.

At the end of June, the libertarian academic world was alight in condemnation of Duke Professor Nancy MacLean’s book, Democracy in Chains. The book tries to tie James Buchanan, the Nobel laureate economist who essentially founded Public Choice Theory (an important part of how I’ve defined postlibertarianism) to racist segregationists, the Koch brothers, and Donald Trump. It’s poorly researched, takes quotes out of context, and implies guilt by several degrees of separation. As it turns out, Duke University’s Political Science Department is perhaps the world’s best place to learn about Public Choice Theory with several presidents of the Public Choice Society teaching there, including James Buchanon’s frequent co-author Geoffrey Brennan. Professor MacLean decided against talking to any of them, favoring instead to try and fabricate a grand right-wing conspiracy. The reason I know this is because Duke Political Science Professor Michael Munger wrote a devastating response to MacLean’s book that I highly recommend reading. It’s not just great for inter-academic drama, but the piece does excellently summarizes and discusses the important parts of Public Choice Theory, and how James Buchanan created and utilized this model of government.

Speaking of defining postlibertarianism, I’ve amended my explanatory article to be version 2.0, since technically former blogger Joshua Hedlund defined postlibertarianism pretty well 6 years ago. We’ll call that 1.0.

The Economist has a nice short piece on the benefits and deficiencies of Medicaid, which apparently covers some 80 million Americans, and about 100 million people some time during each year. Republican efforts to target Medicaid back towards actual poor people now makes much more sense to me.

Towards the end of the month, developments will happen in Bitcoin. Either BIP 91 will be activated through the SegWit2x agreement, or SegWit2x will fail and BIP 148 will start to orphan blocks on August 1. Either way, it seems Segregated Witness has a high chance to be activated. If you have no idea what I’m talking about, this is a useful guide to the upcoming months.  If you have no idea why Bitcoin would need activate anything, read my last post on Bitcoin here.

Google has collected a group of “classic papers”, which are papers that were highly cited in the subsequent 10 years. These papers are from a vast array of subjects and areas. Whatever area you are interested in is there.

I’m sure I’ve been one of the libertarians disappointed by Rand Paul’s support of many of President Trump’s initiatives and ideas. Matt Welch writes for Reason both acknowledging that politicians will always disappoint us, but also arguing that we should not give up on libertarian politicians when they drop a small bit of ideological purity.

This post at the blog Otium defending individualist culture was really long, but very good.

Scott Alexander discusses whether elections are decided by turning out your own base or by winning over voters from the other side. There isn’t a ton of good data on it, but he still makes a pretty compelling case that a small but important segment of the population are really “swing” voters that switch sides. One of the more interesting studies simulates RCTs by looking only at elections where a politician wins a primary by a very small percentage (like less than 0.1%). This means the chances of the more extreme candidate having won the primary are essentially random. In those cases, there is a significant difference between general election popular vote percentage depending on whether the moderate or more extreme candidate won the primary. Very cool.

The Fifth Column podcast from the week Donald Trump Jr.’s Russia emails came out is excellent. I recommend listening every week, but this episode is especially good. Besides my own blog about it, Politico has a nice summary by Jack Schafer, The LA Times had an interesting point about how Robert Mueller’s investigation pushed this information out in the open, and the Washington Post points out that the President approved of Trump Jr.’s Sunday statement which blatantly lied about the meeting last June.

Julia Galef has a good rundown of the most important disagreements between NIMBYs and YIMBYs, specifically on whether San Francisco should allow more housing to be built.

Trump Junior and Russia

This weeks’ Fifth Column Podcast had an excellent discussion of Donald Trump Jr. and his attempt to get opposition research from the Russian government.

I have been pretty skeptical that the Trump administration and campaign actually did anything wrong with regard to Russia. I thought Trump was a poor candidate because he seemed very comfortable with authoritarians like Putin, which together with many positions he’s taken made me concerned about authoritarian policies he’d implement. Some of that concern has been well founded (e.g. appointing Jeff Sessions, removing an FBI Director he didn’t like), but in other places it has not. Trump seems to be bothered by criticism and a free press, but it’s clear the press is as robust and independent as ever.

I also thought Trump surrounded himself with really bad people, some of them with obvious terrible connections to the Russian government, like Paul Manafort, Roger Stone, and Michael Flynn (all of whom were fired). Again, this points to his friendliness with authoritarians and perhaps his incompetence with whom he surrounds himself with, not that he’s had contact with the Russian government itself.

I thought the intense media scrutiny over Russia wouldn’t provide anything, and it was dragging on for far too long. I thought the worst thing we would find would be that Trump fired FBI Director Comey for investigating his ties to Russia, not for any connections to Russia itself. But I was wrong. The New York Times reporting on this was so impressive that Donald Trump Jr., the target of the Times‘ article actually felt it would be better if he published these emails himself!

Thus, I’m literally typing these word for word from Trump Jr.’s twitter account. He got an email saying “…and in their meeting offered to provide the Trump campaign with some official documents and information that would incriminate Hillary and her dealings with Russia and would be very useful to your father. This is obviously very high level and sensitive information but is part of Russia and its government’s support for Mr. Trump”

Trump Jr’s response: “…if it’s what you say I love it especially later in the summer”.

I don’t know if this is illegal, as Trump Jr. has some amorphous relationship with the Trump campaign and allegedly isn’t involved in the administration at all, despite regularly going on TV to defend the administration. However, it’s at the very least unpatriotic and seems pretty unethical. If agents of a foreign government are reaching out to you to attack political opponents, your response should be to forward it to the FBI, not to set up a meeting as soon as possible. Trump was elected to “drain the swamp”.  I thought that meant that many legislators are too close to special interests or are lobbied by large companies to pass favorable legislation. This is certainly problematic, but actively trying to get help from foreign governments to get into office seems at least as bad. Donald Trump Jr. is a swamp monster if ever there was such a thing.

Additionally, just like Hillary Clinton lied constantly about her email scandal (she didn’t have a private server; ok she did but there was nothing classified; ok it was classified but it was secure…), it turns out Trump Jr. and many other campaign members just straight up lied about having pursued Russian opposition research. Trump Jr. stated in a March interview that he had met people that were Russian but not meetings “…that were set up. None that I can think of at the moment. And certainly none that I was representing the campaign in any way, shape or form.” Here’s a full timeline, it’s pretty damning. This is the undermining of democracy that I thought Trump supporters claimed he was there to fight.

I wish all presidents were subjected to this sort of scrutiny. We had wall to wall media coverage for months with very few real stories until this week. The Obama administration crushed leakers and transparency, blocking FISA requests in an unprecedented manner. They brought government secrecy to a new level, while waging wars in several middle eastern countries without Congressional approval. Trump has only been in office for 6 months, and so it’s not hard to argue that the Obama administration was much worse in terms of doing illegal things, murdering civilians, spying on Americans and journalists, etc. Yet, media coverage has been much more aggressive on Trump (at least from the left, while the right-leaning media has often been at least as sycophantic as anything we saw under Obama on the left).  I guess it’s better late than never, but the media needs to be far more adversarial in the future long after Trump is gone.

 

Urbanization and Free Markets

I’m not an environmentalist. I find global warming problematic because it will likely make living on Earth more expensive for humans. Preservation of natural resources is not inherently important to me because I don’t find it morally wrong to consume these resources at high levels. Nonetheless, it could be valuable to preserve natural resources if there is a tragedy of the commons where resources are underpriced by the market and are thus being inefficiently overconsumed. I also think humans tend to enjoy at least visiting and observing pleasant natural land and seascapes, but it only makes sense to preserve them to the extent of which the value of observing these natural areas outweighs their economic value in improving human lives through development.

Unfortunately, I find a lot of the arguments for urbanization tend to emphasize the environmental benefits. These types of arguments will not do well in convincing libertarians that they should also promote urbanization. The goal of this post is to present an argument for libertarians, classical liberals, and free market economists on why they should be interested in urbanization and urban policy.

Cities

Cities are a vital part of human civilization due to specialization, economies of scale, and network effects. You can’t build a hospital with specialized departments and research facilities in a town of 100 people. You can’t make an engineering startup in a town without stores that sell specialized equipment. You can’t teach specific niche courses in cryptography if your city can’t support a university large enough to have advanced Math and Computer Science departments.

Cities also provide more for their inhabitants to consume due to economies of scale. Cities have more diverse food and cultural entertainment like museums, concerts, or festivals. These experiences are also in constant competition, spurring innovation. We think of cities as being more expensive than living in the country, but that’s somewhat misleading; diverse experiences are available in cities rather than rural areas because they can only be provided cheaply in cities. The selection of products is much narrower in less densely inhabited areas. In cities, supply chains can focus on getting tons of varied products to a single location where everyone lives, rather than transporting fewer standardized products across a giant area. The internet is a mitigating factor to some of this, but it’s also true that you can’t get continued technological innovation without concentrating innovators in cities!

There’s another important point about cities from a libertarian or postlibertarian perspective: they offer anonymity and individuality. Cities pack enough people into an area that you can make choices about your social interactions. Unlike a small town where your personal relationships are limited by geography to the few people in the town. It is far more likely you can meet with others that share your obscure interests in a large city rather than a small town. You’re not forced to conform to what your few neighbors believe are acceptable social behavior or beliefs. Diverse cities allow for varied cultural norms, and I’d argue increased tolerance.

The policies and discussions surrounding urbanization and urban planning have mostly been driven by those on the political left. Their political enemies, the Red Tribe (for more explanation, see section IV of I Can Tolerate Anyone Except the Outgroup), is often identified by its opposition to rich urban elites. Libertarians themselves have streaks of this disdain for progressive cities and yearning for an idealized Jeffersonian yeoman farmer nation, where everyone lives on their own separate plots of land and does as they please. But postlibertarians and the Grey Tribe should not cede urban policy to the left so easily; cities are largely vital for the economic reasons I’ve put forward. While today they are often bastions of progressive politics, cities are too important to be left to be governed by the ideas of a single political group.

Dense Cities

Since there are benefits to people who live in cities as described above, it seems to follow that denser cities might emphasize those benefits to a greater degree.

The economic argument seems to make sense here: if cities concentrate people, denser cities should concentrate logistical costs. That means less investment cost in infrastructure per person and less cost to deliver a larger amount of physical goods to the same people. There should be better economies of scale for transportation when cities are packed together. Another interesting benefit might be that with locations closer together, fewer people would use cars, so there would be less total hours wasted in traffic for a city of similar size but lower density. Perhaps this would be offset by longer total transportation time since walking is slower than driving. Certainly it seems that fewer people would die in car accidents at least.

Another benefit specifically for libertarians might actually be fewer road square footage per person. Roads are expensive, are often centrally managed by the city, and so don’t respond to price signalling. Optimal road work is thus not easily achievable, leading to poorly timed construction (overabundance of construction due to road opportunity cost not being priced) or not enough road repairs (too little construction due to no consumer payment for roads). Narrower streets specifically would essentially privatize space in a dense city, space that is highly valuable.

There is also a little bit of anecdotal evidence for cultural benefits of dense cities too. For example, we might expect denser cities to have more people from an odd subculture willing to meet than the population of the city might suggest (due to close proximity). As an example, let’s use Slate Star Codex’s series of local meetups earlier this year. If we expected SSC meetup populations to be based solely on total population, we’d see it match the US Census’ Core Based Statistical Area ranking: New York, Los Angeles, Chicago, Dallas, Houston, Philadelphia, Washington, Miami.

If we expected denser cities to show the social/cultural benefits to a greater extent than spread out cities, we should expect the SSC meetup populations to more closely match the population density of top cities. Unfortunately there’s no exact definition for a dense city. The simple way to define it is total population within a city’s political borders divided by the land area under that polity. However, cities usually extend beyond the political boundaries specifically because those municipal governments get in the way. If we go by this definition, the top US cities should be New York, San Francisco, Boston, Chicago, Philadelphia, and Miami. Now this actually matches the top SSC American cities pretty well, with the exception of Miami which didn’t meet the 10 person minimum despite being in the top seven cities in both total population and density. Another way we can represent density is through the number of high density areas in each metropolitan area. This yields in order: New York, Los Angeles, Philadelphia, Miami, Boston, Chicago, San Francisco.

There are obviously other factors at work in the SSC meetups including culture of the city (Silicon Valley/startup culture is probably the best predictor of SSC readers, as we see small Silicon Valley towns like Mountain View on the list) as well as a number of English speakers (explains why dense foreign cities are not high on the list), and college degrees. This last point is interesting. This article discusses how denser cities only seem to realize productivity gains in high human capital situations. Finance, technology, and other professional industries requiring higher education stand to gain from higher density cities. One question then is whether college graduates are attracted to dense urban cores or whether urbanization simply occurs around where college graduates tend to be (around universities?). To me it seems that cities clearly predate modern universities and college graduates. The establishment and growth of cities seems fairly organic, emergent, and spontaneous.

Too Dense?

This brings us to the next point: cities don’t require urban planning to exist. Humans are completely capable of decentralized self-organization of urban areas, and cities existed and continue to exist without strong municipal governments, zoning laws, building codes, etc. Nonetheless, with close quarters comes externalities, and so governments arguably have a lot of benefits to offer residents of cities over not having governments. Yet, as urban economist Issi Romem writes, American cities tend to expand outwards, and those cities that don’t expand geographically see large cost of living increases. Relatedly, as this Forbes piece points out, many of the highest density cities in the world (Dhaka, Delhi, Karachi, Mumbai)  are also relatively poor. Cities can be rich, but density doesn’t seem to be a requirement for being rich. In the U.S., most new housing comes from urban expansion, not density increases. This seems to beckon that it is not only cheaper to expand at the outside of cities than it is to expand the interior of cities, but more desirable to residents. Given the benefits of cities and density, how could this be?

One possibility is that it could be more expensive to bring goods into a city center than we thought. Maybe economies of scale don’t work as well due to increased traffic. I don’t have much evidence for that, but I guess it’s possible. This seems unintuitive though, as living in the suburbs means dealing with much more driving and traffic anyway.

However, some goods don’t need to be transported into the city…like housing. Once it’s there, it is consumed slowly over time. Yet rent is fairly correlated with density.  I don’t have good data on it, but I took at look at padmapper.com in a couple cities that I knew the general density of. I took the price slider and noted where the high priced places were compared to the low priced areas. It wasn’t a perfect correlation, but it did match my general feeling that more density was associated with higher prices. So if we assume that a housing market is in equilibrium, differences in price for dense and non-dense areas indicate on the demand side that there are plenty of people who would prefer to live in urban dense cores over suburbs given the same price.

Next, on the supply side, differences in price between dense and non-dense areas indicates higher marginal cost in dense areas compared to less dense areas. So what is driving that cost?

Certainly more complex tall structures are needed for dense living, although part of that cost is spread over many more inhabitants. Additionally, there is more reliance on public transportation infrastructure than is needed in the suburbs, which might lead to higher taxes to pay for it. However, other infrastructure costs are lower per person in the city than in the suburbs (lower fixed costs to build water, sewage, electrical, internet, and roads because they scale largely with horizontal distance, which is minimized in a city). Additionally, if cities are supposed to help make people more productive then we might hope similar tax rates would bring higher revenue in dense cities than suburbs.  It’s hard to know then whether tax burdens should be higher in cities, but it seems colloquial wisdom believes they are (high density cities don’t seem like low tax areas). I did find this 2005 paper from Harvard indicating that multi-family buildings (apartments) had a higher tax incidence than individual family homes. Moreover, as Stephen Smith at Market Urbanism pointed out, much of that local tax money goes to roads and schools, things denser urban dwellers likely use at lower rates than suburbanites. Finally, the federal mortgage interest tax credit further makes housing cheaper for suburbanites over urban core residents.

Free Market Perspectives

So while it’s possible to say that it simply costs more to live in a dense city, it’s also true that government seems to cost a lot in cities. Perhaps that’s a necessary part of living in cities, but if we leave urban policy as the sole domain of the Left, there will be no counterbalancing philosophy that understands market forces. Without that check, government will cost more than its benefits.

Moreover, raising tax revenue and providing services are not the only functions of municipal governments: they also create regulations, which are another way they contribute directly to the cost of living in cities. Here it seems there is little nuance to be had: most high productivity cities have far too restrictive housing regulations. This has reduced the ability of labor to relocate to more productive areas of the economy, and according to this NBER paper, has allowed for massive missed opportunities in economic growth. And this makes intuitive sense; over time, technology should allow us to build denser and denser cities more cheaply, yet new housing in some of the most productive cities has not kept pace with demand. The explanation must be regulatory hurdles on new housing.

Such an outcome squares well with the common opposition to urban development known among the urban policy community with the pejorative NIMBY (not in my backyard), and it applies not just to housing, but to any development in a city. Elected municipal governments are responsible to the people who live in the city at present, not to possible future citizens. While this may seem just, it is emphatically a net negative in a utilitarian calculation; improvements in human lives should not be discounted based on where that human lives. Policy that makes it harder for people to move to a city to make it denser, when those people want to move there, creates worse outcomes than we would otherwise have.

Finally, let’s take a step back: I’m not saying that people have to live in dense urban cores; people should live wherever and however they would like to. I’m saying that governments can mismanage urban policy in ways that prevent people from moving to where they would actually want to go. Bad policy changes the nature of cities and reduces the potential benefits they can bring. Because urban policy tends to rely significantly on some state intervention, I find that there is not a plethora of free market urbanists. Nonetheless, cities are an important part of the modern human experience and they will continue to be in the future. Libertarian perspectives have much to offer urban policy and it would be a shame to abandon it to the left.

 


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Metacontrarian contributed to this post.

Unpopular Net Neutrality Opinions

Net neutrality has benefits, and regulation has a role in ensuring its continuing existence, but there are several problems inherent in FCC telecom policy and the debate about net neutrality.

History

The new FCC chair (and Trump appointee) Ajit Pai has proposed reclassifying internet service providers as not “common carriers” under Title II of the 1934 Communications Act, thus reducing the available regulatory options for the FCC.

Net neutrality is the concept that all internet traffic should be treated identically by Internet Service Providers (like cable companies) or governments regardless of content, protocol, users, destination, sources, etc. It means that loading a webpage from this blog would not cost you more than loading a webpage from a large company, assuming the content size is similar.

The FCC has broadly promoted net neutrality in the past. Around 2008, the FCC blocked Comcast from slowing the speed of its users who were utilizing BitTorrent to download videos. Comcast appealed and won, with an appellate court ruling that the FCC did not have the anciliatory jurisdiction over Comcast’s network (Comcast v FCC). The FCC next tried to issue an Open Internet Order in 2010, but in Verizon v FCC, that order was largely vacated, as the same appellate court ruled that the FCC could not regulate ISPs unless it classified them as common carriers under Title II of the 1934 Communications Act. In 2015, the FCC classified ISPs as common carriers under Title II and enforced net neutrality rules.

Problems with Title II

A big problem with Title II is that it was written in 1934, 21 years before Tim Berners-Lee, the inventor of the world wide web, was born. In fact, the vast majority of Title II is so useless that when Tom Wheeler proposed ISPs be classified as common carrier, he said that of the 61 Title II sections, the FCC would forebear from applying the entire title except six sections (201, 202, 208, 222, 254, and 255).

One question I cannot answer without more specific legal expertise is whether Wheeler’s rule only allows the application of those sections, or if in the future the FCC can unilaterally decide (without a vote) to apply other sections of Title II, now that ISPs are seen as common carriers. For example, Section 224 of Title II relates to pole attachments. Can the future FCC regulate broadband providers’ pole attachments if they wanted to under Wheeler’s rule? Even if they cannot, they can certainly write a new rule that applies all of Title II with a full vote of the commission.

Perhaps a better solution would be for Congress to pass a new law allowing the FCC to regulate net neutrality, but bar the FCC from regulating ISPs under Title II otherwise. This would narrow the FCC’s focus officially to what consumers care about. Of course, that would require nuanced Congressional action which is likely impossible given the many competing interests in both houses.

Is Title II regulation overwhelming and innovation killing? Ajit Pai has argued so. The New York Times editorial board disagrees, but their argument seems quite lacking.  They dismiss Pai’s claim that broadband capital investment declined since Title II classification as “alternative facts”, but a simple Google search reveals why they found numbers that conflict with Pai. The source, the Free State Foundation, calculated a trend line of broadband capital expenditures since 2003. They calculated the expected expenditures after the Title II regulation as compared with the actual. So while capital expenditures actually increased after the regulation, they increased less than the trend line indicates they should have.

Is it misleading for Pai to say capital expenditures decreased? Yes, or at the very least it’s imprecise. Is it misleading for Title II proponents to say there has been no effect? Probably, although trend lines are tricky. Additionally, the Times argues that the pattern of increased consolidation in the telecoms industry is a symptom of a healthy economic sector. This is a non sequitur. Mergers and acquisitions could be symptoms of profitable or unprofitable companies, depending on who is buying who, but ultimately to me it seems more indicative that economies of scale exist. One possible explanation for recent increase in economies of scale could be an increased regulatory burden. I don’t know if that’s the case, but to suggest that Charter’s purchase of Time Warner is a symptom of a healthy telecoms sector is the Times projecting their own political views onto market actions.

Problems with Net Neutrality

Ajit Pai has argued (in this Reason interview) that ISPs were not favoring some internet traffic over others. This seems incorrect. Comcast v. FCC was specifically about Comcast reducing the speed of some types of traffic. John Oliver points out that Google Wallet was not allowed to function on phones on the networks of AT&T, Verizon, and Sprint since it competed with a joint electronic wallet venture of those companies. On the other hand, Google Wallet still out-competed the networks’ own payment system despite being banned on those platforms. Consumer response was so positive on other networks that the consumers demanded it on AT&T and Verizon. Eventually the joint venture folded and got absorbed by Google Wallet/Android Pay.

Moreover, a few phone networks have run afoul of net neutrality rules by giving consumers free data for certain services, e.g. T-Mobile allowing streaming music to not count against a customers’ data cap. If the service provided by the content producer is so profitable that it can afford to pay for its own bandwidth, is it wrong to give that bandwidth to customers free of charge?

The economics here is complicated. In a perfectly competitive market, content producers could only charge for the marginal cost of producing more content while ISPs could only charge the marginal cost of additional bandwidth. Consumers would pay each company for their respective consumption of their products.

But we don’t have a competitive market, either for content producers (only HBO has Game of Thrones, only Netflix has Stranger Things) and especially not for ISPs. Since cable ISPs are state granted monopolies, there is a solid argument for regulating them, as they have leverage over content producers. That argument does disappear though when there is competition, such as in the case of wireless broadband.

It is also worth pointing out that the importance of “neutrality” towards content is only narrowly valid. For example, bandwidth at certain times is more valuable. The Economist has suggested electric power be charged at different rates when used at different times. Similar arguments could be used for internet usage. It is also undeniable that some internet traffic really is more important, and consumers would be willing to pay more to have their bank notifications or business calls come through faster than YouTube videos, which they might be ok with allowing to buffer. Certainly we would want consumers making this decision and not ISPs, especially when there is little ISP competition for most end users. Additionally, such prioritization could be done by software on the consumer/LAN side of the router, and ISPs should likely just be dumb pipes that deliver what we tell them to.

Finally, we should be cautious about locking in rules even if they make sense today. Markets change over time, and there is a possibility that past rules will restrict innovation in the future. Since competition itself can defend against bad ISP behavior (perhaps even better than the FCC), having the FCC focus on increasing competition seems at least as vital as net neutrality. Interestingly, this is what Ajit Pai has argued for (see Reason interview above).

Conclusion

Today it seems likely that a policy of net neutrality by cable ISPs is more beneficial than not. It also seems likely that to protect that idea today, some form of regulation is needed on cable companies that are state granted monopolies in a given area. Such regulation is not as clearly necessary in wireless providers, and we should always be reviewing the importance of FCC regulations in order to avoid a curtailment of innovation. Additionally, any regulation should come from new Congressional legislation, not a law written 80 years ago. However, the benefits of net neutrality should not be taken as given. Variations in the consumer value of content priority as well as bandwidth scarcity during peak hours are perfectly acceptable ways to prioritize internet traffic. The problem arises when monopoly ISPs are doing the prioritizing rather than consumers.

 


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A Few Thoughts on Bitcoin

I have been aware of Bitcoin’s existence for a while, and while I was excited about it a few years ago, it had somewhat dropped off my radar. Perhaps because over the past few months, Bitcoin has seen a big increase in value, I started to revisit it and analyze it as a technology. My experience has been nothing short of breathtaking.

A few years ago, Bitcoin was pretty cool. I even wrote a paper about it, discussing the huge potential of the technology and decentralized, autonomous transactions could totally upend the banking industry. But back when I first got into Bitcoin, I was also interested in Austrian Economics, which I’m largely over now. Their focus on control of the money supply and dire warnings about the Federal Reserve weren’t really borne out by the rather mundane economic growth of the last few years.

Nonetheless, the Bitcoin community has been working on without me, and it has paid off: you can now use Bitcoin to purchase from all sorts of retailers, including Dell, Overstock.com, Newegg, and more. You can also buy all sorts of internet specific services, which to me seems like the clearest use case. These include Steam credit, VPNs, cloud hosting, and even Reddit gold.

The price has jumped up to over $1000 at the end of April 2017 (that’s over $18 billion in total market value of all Bitcoins), and it was briefly even higher a month ago on speculation the SEC would allow for a Bitcoin ETF. The ETF was rejected, but the potential of the currency remains. And technologically, Bitcoin is far more impressive than it was, most notably with a concept called the Lightning Network.

This technology would allow for instantaneous Bitcoin transactions (without having to accept risky zero confirmation transactions). These transactions would have the full security of the Bitcoin network, and would also likely allow massive scaling of the Bitcoin payment network. Drivechain is another project with great potential to scale Bitcoin and allow for applications to be built on top of the Bitcoin blockchain. It would create a two-way peg, enforced by miners, that allowed tokens to be converted from Bitcoin to other sidechains and back again. This would allow experimentation of tons of new applications without risk to the original Bitcoin blockchain.

Hivemind is particularly exciting as a decentralized prediction market that is not subject to a central group creating markets; anyone can create and market and rely on a consensus algorithm to declare outcomes. If attached to the Bitcoin blockchain, it also wouldn’t suffer from cannibalization that Ethereum blockchains like Augur can suffer from.

Mimblewimble is another interesting sidechain idea. It combines concepts of confidential transactions with (I think) homomorphic encryption to allow for completely unknowable transaction amounts and untraceable transaction histories. It would also do this while keeping the required data to run the blockchain fairly low (the Bitcoin blockchain grows over time). It would have to be implemented as a sidechain, but any transactions that occur there would be completely untraceable.

And there are even more cool projects: Namecoin, JoinMarket, the Elements Project, and of course other cryptocurrencies like Ethereum, Monero, and Zcash. This really makes the future of Bitcoin and cryptocurrencies seem pretty bright.

However, we’ve skipped a big point, which is that most of these cool innovations for Bitcoin can’t be done with Bitcoin’s present architecture. Moreover, the current number of Bitcoin transactions per block has just about maxed out at ~1800. This has resulted in something called the Scaling Debate, which centers about the best way to scale the Bitcoin blockchain. Upgrades to the blockchain must be done through consensus where miners mine new types of blocks, institutions running nodes approve of those new blocks, and users continue to create transactions that are included in new blocks (or else find another cryptocurrency). Before any of that can happen, developers have to write the code that miners, validation nodes, and users will run.

Right now, there is a big political fight that could very briefly be described as between users who support the most common implementation of the Bitcoin wallet and node (known as Bitcoin Core) and those who generally oppose that implementation and the loose group of developers behind it. I certainly am not here to take sides, and in fact it would probably have some long term benefits if both groups could go their separate ways and have the market decide which blockchain consensus rules are better. However, there is not much incentive to do that, as there are network effects in Bitcoin and any chain split would reduce the value of the entire ecosystem. The network effects would likely mean any two-chain system would quickly collapse to one chain or the other. No one wants to be on the losing side, yet no side can convince the other, and so there has been political infighting and digging in, resulting in the current stalemate.

There will eventually be a conclusion to this stalemate; there is too much money on the line to avoid it. Either the sides will figure out a compromise, the users or the miners will trigger a fork of the chain in some way and force the issue, or eventually a couple years down the road another cryptocurrency will overtake Bitcoin as the most prominent store of value and widely used blockchain. A compromise would obviously be the least costly, a chain split would be more expensive, but could possibly solve the disagreement more completely than a compromise, while another cryptocurrency winning would be by far the most expensive and damaging outcome. All development and code security that went into Bitcoin would have to be redone on any new crytocurrency. Nonetheless, Litecoin just this week seems to have approved of Segregated Witness, the code piece that is currently causing the Bitcoin stalemate. If Bitcoin’s stalemate continues for years, Litecoin is going to start looking pretty great.

Obviously it’s disappointing that even a system built on trustless transactions can’t avoid the pettiness of human politics, but it’s a good case study demonstrating just how pervasive and pernicious human political fights are. Ultimately, because cryptocurrencies are built in a competitive market, politics cannot derail this technology forever. And when the technology does win out, the impact on the word will be revolutionary. I just hope it’s sooner rather than later.

 


Bitcoin featured picture is a public domain image.

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What is Postlibertarianism? v2.0

When I started blogging here about 18 months ago, I knew that I was having trouble identifying myself as exactly “libertarian”, despite that being my primary blogging perspective for years before that. I’ve mapped out important parts of this “new” position in previous posts, but now I think it would make sense to put everything in one place. This post is labeled “2.0” since former postlibertarian.com blogger Joshua Hedlund defined it pretty well in 2011. This is a more in depth analysis.
Continue reading What is Postlibertarianism? v2.0

Links 2017-02-25

How about this for a defense of free speech? Popehat’s Marc Randazza offers the argument for legalizing child pornography. The article makes a good point that abusing children is quite a distinction from possessing indecent photos of children. Moreover, obscenity can already be banned by the state without a need for an additional legal category. He also makes a good case that the slippery slope is in fact already happening, where parents’ baby pictures are technically child porn, and so are teenagers’ sexting. Very few people are willing to make any sort of case for state overreach in this area, so it makes sense that there would be evidence of overreach. It’s definitely an interesting read.

Also from Popehat, skepticism is an important tool to have when reading the news now, and this is a guide to reading the news like a search warrant application.

This is a cool voting simulation discussion. Each chart displays political candidates as fixed points on a two dimensional voting plane. The shaded areas indicate which candidate would win for every conceivable voter population makeup, and they change based on the five voting systems simulated. Notice that in a plurality voting system, in almost every possible candidate geography, the middle or moderate candidate loses out. Interestingly, this is also true of the the second most popular vote type, Instant Runoff Voting (noted as Hare in the link). The conclusion:

The following images visually demonstrate how Plurality penalizes centrist candidates and Borda favours them; how Approval and Condorcet yield nearly identical results; and how the Hare method yields extremely strange behaviour. Alarmingly, the Hare method (also known as “IRV”) is gaining momentum as the most popular type of election-method reform in the United States (in Berkeley, Oakland, and just last November in San Francisco, for example).

The Electronic Frontier Foundation has a Surveillance Self Defense page that details basic internet security concepts as well as tutorials on how to use several important security software apps, like PGP, OTR, Signal, Tor, etc. Absolutely the best introduction for anyone first learning about security.

Scott Alexander had an interesting review of Eichmann in Jerusalem, which talked about the trial of a former Nazi official in Israel some decades after the Holocaust. Eichmann’s reasoning is bizarre in that he seemed to try and get the audience to sympathize with his hard work and lack of luck while in the Nazi bureaucracy. There are also interesting discussion of the varying success of societies resisting the Nazi regime.

Scott also reposted his Anti-libertarian FAQ, which is still one of the better arguments against extreme libertarianism, detailing the shortcomings of an anarcho-capitalist or minimalist state. It is one of the reasons this blog is postlibertarian, and not libertarian-all-the-way.

Bryan Caplan on limited government as insurance, and his related point that one way to limit government is to have an additional veto chamber legislation must pass through. To be effective, the chamber would have to be populated by government policy skeptics–i.e. libertarians.

Has Trump actually done a ton of things? Well, if you take a look at the VIX volatility index, market volatility is at a relative low at present compared to the last 3 months, pretty low of the last 6 months, and right around its lowest level of the last 5 years. Marginal Revolution muses on explanations for this phenomenon.

This Politico article discusses Curtis Yarvin, a.k.a. the well known Neo-reactionary Mencius Moldbug. Yarvin disputes having any connection with Steve Bannon, but this would actually make me less nervous about Bannon as a person if it were true.

There was a big nomination fight for Betsy DeVos. I didn’t get it at all, as school choice is a pretty good idea, adding some very limited market accountability to public schooling. Reason does a good job explaining the benefits of school choice here.

Supply chains are more efficient because they are international. Additionally, supply chains must be international if they want to compete.  This is undeniable. Here we have another article on international supply chains. Trying to create protectionism in international trade is trying to centrally plan complex international supply chains. Central planning doesn’t work.

Bryan Caplan and Ed Dolan of the Niskanen Center had a long discussion of the Universal Basic Income. Ed Dolan’s blog has the whole back and forth, but it’s not the greatest formatting. If you want to see it all with individual links, here is the list. 

Caplan also debated Will Wilkinson at ISFLC about the UBI, and here is his opening statement. Overall, I find Caplan somewhat more convincing, because we just don’t know how many people will reduce their labor output once they can get a UBI. I would like to see federal funding where a state can only take the money if they do a randomized control trial when implementing the program for several years.

Jeffrey Tucker’s old article on Libertarian Brutalism is fascinating to think about nowadays. He divides libertarianism into both a freedom to cooperate and a freedom to say “screw you and leave me alone”. The first type says that the civil rights movement succeeded because people rebelled against the restrictions the state put on people, and while they are wary of using state power to fight prejudice, prejudice itself is obviously wrong. The second says that state imposition of ideas is wrong in every context, and if people want the freedom to discriminate, they ought to do it.

Related: Richard Spencer showed up at ISFLC, and Jeffrey Tucker was seen on camera telling him fascists weren’t welcome at an anti-fascist conference. I’m pretty much ok with this. No one was punched, no physical altercations took place, and many libertarians seemed to express their will to not associate with unsavory people. Bleeding Heart Libertarians covers the incident with the important point that it is no longer a thought experiment of what we should do when Nazis show up to protest our events.

Another simple argument about immigration restrictions: SpaceX can’t hire foreigners because their technology is classified as weaponry. Therefore, they can’t hire the best people to come to the United States and make our private space program better than other countries’ public ones. That’s pretty disappointing if you are even vaguely interested in space travel, free markets, or even American exceptionalism.

I’m not sure what’s going on with Bitcoin. Apparently it’s being pushed higher on the talk of a possible Bitcoin ETF in the works? Either way, I had become really disinterested in Bitcoin at the beginning of last year as the community fight about block size had totally lost me. Yet, now it seems the network is no longer under heavy load. All my recent transactions have gone through pretty quickly. Of course, there are still apparently even tech writers who have no clue what Bitcoin is or why it is useful. Remember, if you like what we do here, you can donate to Postlibertarian with the Bitcoin address at the bottom of the sidebar!


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Flynn and the Deep State

I was listening to the most recent Reason podcast with Nick Gillespie interviewing Eli Lake about Michael Flynn’s ouster as National Security Adviser. I had a couple thoughts on it.

  1. Flynn talking to the Russians about sanctions as lame duck Obama imposes sanctions. This just isn’t that scary to me. Maybe it’s a violation of the Logan Act, but maybe that’s another reason the Logan Act is dumb, not a reason Flynn is bad.
  2. Flynn lying to Mike Pence about what was discussed. This seems pretty bad. However, they must have had transcripts of the conversations, so who knew what and when? Did the President know they had discussed sanctions when Pence told the press they had not? Did Pence know? Flynn took the fall, but he may not have been the real problem. Certainly at some point the President found out and waited until the story was public before sacking Flynn.
  3. Intelligence agencies using information they gathered while spying to conduct political activity and attack political enemies. Really, really bad. This is basically the worst case scenario for how mass surveillance can be misused. Yes, in this case, the spying was done on a line most people would know is tapped, but these intelligence agencies are operating without oversight. Sure, it was nice of them to leak information that Trump was keeping from the public, but what’s to stop them from leaking information on the personal activities of political enemies of the FBI, NSA, and others? Was their interest in the public good or their own political objectives? It seems that a better system where whistleblowers could reach out to (as an example) members of Congress without retribution would be much better, assuring only information relevant to public discourse is released.

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Only One President Has Defied the Courts

It’s not Trump.

Or, I should say, it’s not Trump yet. However, given this administration’s…broad view of executive power, it’s worth looking at how past presidents have interacted with a court system that opposed them. Most presidents, as you would expect, reacted to an unfavorable court ruling by obeying the courts’ directive, with only a few real exceptions.

From history class, I recalled that Chief Justice John Marshall had ruled against Andrew Jackson’s interest in dealing with the Native American populations. But upon further inspection, it appears that despite the famous quote of Jackson’s “John Marshall has made his decision; now let him enforce it!”, the ruling in Worcester v Georgia was actually not a constitutional crisis. The quote itself seems apocryphal.

Marshall ruled that Georgia did not have the ability to regulate the interaction between Georgians and the Cherokee; instead, only the federal government has that power. Georgia complied and they freed the plaintiff, Worcester, eventually, but Andrew Jackson had nothing to enforce, since the federal government was not a party to the suit. Moreover, the Indian Removal Act had already been passed, and so the removal of native tribes on the Trail of Tears continued, with Marshall’s ruling changing nothing.

In 1942, German sabateurs were captured on American soil. President Franklin Delano Roosevelt issued an executive order declaring they would be tried by a military tribunal, and they appealed that the President could not try them under a military tribunal, and they petitioned for a writ of habeas corpus under the 1866 decision Ex parte Milligan which stated that civilians in the U.S. could not be denied habeas corpus and their right to trial. In Ex parte Quirin, the Supreme Court ruled against the Germans, siding with the President. Pretty straightforward, except according to Newt Gingrich (couldn’t find it anywhere else), Roosevelt threatened the Court that he would ignore their ruling and refuse to issue a writ of habeas corpus if the justices decided against him. So not a constitutional crisis, just the threat of one.

In 1952 there was a famous case of Truman seizing control of steel mills during the Korean War. In Youngstown Sheet & Tube Co. v. Sawyerthe Supreme Court ruled against Truman, stating that the powers the president claimed to have under the Taft-Hartley Act were not present. One of the concurring opinions was that of Justice Robert Jackson who divided presidential power into three categories: (1) Powers explicitly granted or implied by Congress, (2) Powers that Congress has not stated a position on, and (3) Powers that Congress has explicitly or implicitly rejected from giving to the president. This has become the standard way of analyzing presidential versus congressional power. Of course, at the conclusion of the case, Truman immediately returned control of the steel mills to their owners. Again, the Court’s decision was respected.

Perhaps the most famous case of executive action gone overboard is the Watergate scandal. A special prosecutor obtained a subpoena ordering Nixon to turn over certain conversations he had recorded. Nixon argued that the special prosecutor had not proven the tapes were important to the investigation, that the courts did not have jurisdiction over this “internal” executive branch matter, and that the President has absolute executive privilege of communications between high government officials. The Supreme Court ruled unanimously against him on all three counts. However, in United States v Nixon, Nixon did comply and turn over the tapes, despite it likely ending his presidency. This was a major moment, as I detailed in “Against Trump“, several months ago. If he had refused, would the court have been able to hold him in contempt and have U.S. Marshals arrest him? Technically, the marshals are part of the Justice Department, so that seems problematic, as the Justice Department answers to the President. Regardless, we have gone through almost all the famous cases, and the President has basically never gone against an explicit court decision.

Going further back than any of these presidents, it’s possible that Jefferson was the first to have actually defied the courts. In 1807, Thomas Jefferson signed the Embargo Act which was meant to punish Britain and France during the Napoleonic Wars for their attacks on American shipping. It was a pretty miserable failure, and apparently in Gilchrist vs Collector of Charleston, Justice William Johnson ruled against the government’s authority (although this was a congressional action, not just executive action). The New Yorker says that despite this ruling, the policy remained in place until 1809, but it was so early on in American history that I’m having trouble finding any sources to validate that claim.

But we can do better than an alleged delayed repeal of an unconstitutional act of Congress from 200 years ago! The best example of defiance on record belongs to Abraham Lincoln in the aftermath of Ex parte Merryman, and it is quite unrepentant.

In 1861, Chief Justice Taney (in the capacity of a Circuit Court) ruled that President Abraham Lincoln had unconstitutionally suspended the right to the writ of habeas corpus during the Civil War. The court ruled only Congress has that power. Lincoln and the army defied the order. Their argument was hilariously reminiscent of Trump, stating that Taney had not actually ordered them to release Merryman. Of course, they didn’t stop there as several newspaper owners and editors were also detained by the federal government, as well as eventually the Baltimore police chief, the Baltimore mayor, and even 30 members of the state legislature! A Maryland state judge was not only arrested, but beaten unconscious by federal troops, and then held without being charged for six months.

Even after the judge’s ruling, Congress did not vote to authorize Lincoln’s suspension of habeas corpus, until two years later, in the 1863 Habeas Corpus Suspension Act.

So what are the takeaways? One is that it’s fairly common for presidents to claim they have more power than they do. Obama, for example, lost in the Supreme Court more often than any modern president. It is, however, highly uncommon for presidents to actually defy the courts and continue to use their claimed powers when the courts have ruled against them. If Trump were to do so, by my estimate he would be the only person to do so not during a civil war.

Another interesting point is that in terms of abuse of power and constitutional crises, Trump has done nothing in comparison to Lincoln. Certainly President Lincoln faced extenuating circumstances and a secession crisis that may have made further constitutional crises seem minuscule in comparison. Nonetheless, it seems clear in hindsight that suspending habeas corpus did not improve support for the Union in Maryland, nor was jailing critical members of the press really necessary for victory. Interestingly, according to author Marc Neely, Lincoln was able to get away with these civil liberties abuses because they were largely aimed at three groups with little political power: residents of southern states who had been stuck on the wrong side of the border when war broke out, residents of border states where Lincoln had little political backing anyway, and foreigners.

Of course, if anyone was justified in taking extreme actions on civil liberties, it would be the president during the civil war, but unfortunately, every executive targets politically vulnerable groups and justifies it under national security reasoning (AdamsWilsonFDR, NixonGeorge W. Bush). And as you’d expect, Lincoln’s actions have become a precedent for other abuses. This essay from the Heritage Foundation in 2004 cites Lincoln’s actions in justifying President Bush’s holding of “enemy combatants” without a trial, equating the war on terror with the dangers of the Civil War. Trump has used related rhetoric words to describe threats from immigration. Were he to ignore a court order in the future, it’s virtually certain to be under national security justifications.

Finally, regardless of Lincoln’s accomplishments, we should be very concerned with any presidents who cite Lincoln’s extreme wartime actions as justification for their policies. Lincoln’s circumstances were extreme, and even then I would argue his defiance of court rulings was questionable. Any test for when it is acceptable to suspend civil liberties should be equally extreme in rigor. For example, unless states have actually seceded and there currently exists a newly elected second president of those seceded states, Congress should not even consider curtailing civil liberties, much less the President alone. Nonetheless, the long history of executive overreach by American presidents is likely to continue under Trump. We can only hope it never reaches the unprecedented event of peacetime court defiance.


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