TIMLYNCHRestraining our overgrowncriminal code

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CATOJOURNALThe controversysurroundingimmigration

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Capitalism, Peace, and the Historical Movement of Ideas

ver the last few centuriesthere have been remarkablechanges in many major ideasabout the way societies andthe world should be arranged.

For example, there have been notable declinesin formal slavery, capital and corporal pun-ishment, torture, vendetta, blood feuds,monarchy, and smoking, and there hasbeen the rising acceptance of humane pris-ons, pornography, abortion, racial andclass political equality, women’s rights,labor unions, environmentalism, gay rights,and the determined application of the sci-entific method.

Important in this process are the exer-tions of idea entrepreneurs. Beginning inthe late 19th century, for example, groupsbegan to market the notion that war—or atleast war among developed countries—is abad idea. Despite many setbacks, their effortsseem to have been at least partly responsiblefor the historically unprecedented absenceof major war for most of a century now.Over the course of the last couple of cen-turies other idea entrepreneurs sought tomarket the ideas that democracy is the mostdesirable form of government and that free-market capitalism is the best way to organ-

ize the economy—with what looks today tohave been a fair amount of success.

A focus on idea entrepreneurs recom-mends itself because it is often difficult tocome up with material reasons to explainthe historical movement of ideas. For exam-ple, one might be inclined to argue that theremarkable decline in war among devel-oped states is due to the increasing costs ofsuch wars. But medieval wars were oftenabsolutely devastating, while within a few

years after a terrible modern war, WorldWar I, most of the combating nations hadsubstantially recovered economically. Democ-racy began to take root in substantial coun-tries by the end of the 18th century eventhough it had been known as a form ofgovernment for millennia and even thoughthere seem to have been no technologicalor economic advances at the time that impelledits acceptance.

BY JOHN MUELLER

Continued on page 6

The recent backlash against legislation intended to curb online piracy garnered widespread attention for theCato Institute’s position on the issue. While articles throughout major media outlets highlighted the libertari-an roots of the response, lawmakers like Rep. JOHN CULBERSON (R-TX) cited Cato’s scholarship directly.PAGE 16

JOHN MUELLER is a senior fellow at the Cato Instituteand senior research scientist with the Mershon Center forInternational Security Studies at Ohio State University.This article is excerpted from International Interactions, aninterdisciplinary academic journal where it originallyappeared.

March/April 2012 Vol. XXXIV No. 2

VICENTE FOXThe troublewith Mexico’s drug war

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2 • Cato Policy Report March/April 2012

Chairman’s Message

BY ROBERT A. LEVY

“The top 1 percent ofincome earn-ers—personsearning morethan $343,000in 2009—paid38 percent ofincome taxes. By contrast,

more than halfof Americanhouseholds paid zero

income taxes.

sraeli president Shimon Peres reminds us: “Byand large, those in the world who placed free-dom above equality have done better by equalitythan those who placed equality above freedom

have done by freedom.” That observation, apparent-ly lost on the Occupy Wall Street crowd, has a moralcomponent as well: It is more just to reward effort,even if it cannot be proven to benefit the least afflu-ent, than it is to reward the least affluent, even if theyexert little effort to improve their status. Moral supe-riority does not entail punishing the industriouswealthy to sustain the indolent poor.

Yet some people are economically deprived dueto circumstances beyond their control. Even AynRand, a radical laissez-faire capitalist, condones“helping other people, if and when they are worthyof the help and you can afford to help them.” ButRand would certainly not interpose the state tocoerce more equal distributions of wealth. It may bemorally right to help the poor; but in a completelyfree society we would have a political right not to doso—even if sometimes, the exercise of that rightmight be considered heartless. Put differently, a the-ory of justice is not always congruent with a theoryof politics. One can condemn ignoble conduct—lying, infidelity, and so on—without empoweringgovernment to take remedial action. “Governmentsare instituted among men,” wrote Jefferson in theDeclaration, to secure “certain unalienable Rights”including “the Pursuit of Happiness.” Notably, it isthe right to pursue, not necessarily attain, happi-ness that the social contract secures.

Advocates for greater income equality cite statis-tics purporting to show growing disparities.Disingenuously, the data end in 2007, although2009 information is available. Internal Revenuereports that total income of individuals in the top 1percent fell more than 30 percent from 2007 to 2009.During that same period, income of the bottom 90percent fell less than 3 percent. Here’s the paradox:Equality improves during recessions because thewealthy, who take more risks and rely heavily oninvestments, lose the most. Understandably, no onepromotes economic decline to redress inequality.Earnings gaps will tend to grow as the economygrows. Moreover, the Organization for EconomicCooperation and Development reports that inequal-ity has grown faster over the past 30 years in Sweden,Germany, Israel, Finland, and New Zealand thanhere, despite their liberal welfare systems. Besides,wealth in the United States is relatively mobile. ANovember 2011 Federal Reserve study found thatone-third of the richest 1 percent in 2007 were nolonger in the richest 1 percent in 2009.

Further, the top 1 percent of income earners—persons earning more than $343,000 in 2009—paid 38 percent of income taxes. And that doesn’treflect the nondeductibility of capital losses, thetax on illusory gains due to inflation, and the dou-ble tax paid indirectly by shareholders on corpo-rate profits before they’re distributed or impound-ed in stock prices. By contrast, according to theCommittee on Joint Taxation, more than half ofAmerican households paid zero income taxes.Those numbers are astonishing. Even persons whoembrace progressive taxation are hard-pressed toargue that the tax code is insufficiently discrimina-tory. How far must progressivity extend to satisfythe left’s notion of fairness?

Yes, payroll taxes are regressive; although SocialSecurity, in theory, was supposed to dispense bene-fits in rough relationship to contributions. Thathasn’t happened—mostly because poor and minori-ty workers have shorter life expectancies. Ironically,resistance from the left has foreclosed inheritableprivate accounts, which would have neutralized thelife expectancy problem.

Perhaps most important, fans of Occupy WallStreet fail to distinguish between two strikingly dif-ferent groups of upper-income individuals: first,persons producing wealth by supplying goods andservices that satisfy market needs; second, crony cap-italists seeking bounty from D.C. bureaucrats, whobestow their largesse on the politically influential.

Finally, not all inequalities are reflected in mone-tary outcomes. Some rich people are sickly, short,fat, and stupid. Some poor people are athletic, glam-orous, and intelligent. Yet Occupy Wall Street’s pro-posals for distributive justice are based solely onincome or wealth. Paraphrasing Bill Niskanen,Cato’s former chairman: One young man is healthyand handsome, spends his days on the beach, andchooses to earn minimum wage by busing tables atnight. Another young man is confined to a wheel-chair. Distracted by few of life’s other pleasures, hemakes $500,000 a year in various entrepreneurialactivities. Who should redistribute what to whom?Indeed, which of the two men is creating jobs for anunemployed nation? And which of the two is beinggreedy—in the worst sense of that tainted word—bydemanding something to which he has no moral orlegal claim?

”

IReflections on Inequality

SOPA IS MY WASHPOTThe remarkable downfall of the quixotic effort to regulatethe Internet in the name of fighting piracy drew attentionfrom all corners of the globe. In the midst of the debate,Stephen Fry, a British actor and author of the bestsellingMoab Is My Washpot, posted a message on Twitter directingreaders to research fellow Julian Sanchez’s Cato@Libertypost entitled, “Internet Regulation and the Economics ofPiracy.” Fry has more than 3.8 million followers.

WASHBURN JOINS BOARD OF DIRECTORSKathryn Washburn, a nonprofitadviser, has joined the CatoInstitute’s Board of Directors.Kathryn was married to the lateWilliam A. Niskanen, distinguishedsenior economist and chairmanemeritus of the Institute.

THE MOGUL’S CIRCLEMoguls as well as actors have been writing about Cato’swork. In a recent weekend edition of the Wall Street Journal,founder and executive president Edward H. Crane penned an op-ed entitled “Why Ron Paul Matters.” In no time, NewsCorporation chairman and CEO Rupert Murdoch tweetedabout Crane’s piece—one of the media mogul’s very firstmessages after joining the Twittersphere. “Great oped in WSJ today on Ron Paul,” it read. “Huge appeal of libertarianmessage.”

Earlier in the month, entrepreneur Richard Bransonblogged about a recent trip to Portugal where he investigat-ed the country’s drug policies firsthand. He noted that crit-ics of Portugal’s decision to decriminalize all drugs predict-ed disaster. “The recently realised results of a report com-missioned by the Cato Institute,” Branson wrote, “suggestotherwise.” Branson went on to detail the April 2011 whitepaper—”Drug Decriminalization in Portugal”—and concludedhis post by arguing, “It is time to end the war on drugsworldwide.”

THE SOCIAL NETWORKThis fall, the Cato Institute crossed a threshold on its offi-cial Facebook page, achieving more than 100,000 “likes.”The page is part of our ongoing efforts to provide instantanalysis of breaking news through the Institute’s expandednew media capabilities. Please visit our page for up-to-the-minute updates, as well as pictures, polls, featured videos,and much more. You can also join our nearly 125,000 follow-ers on Twitter and download our new iPhone and Droid appsto stay up to date when you’re on the run.

March/April 2012 Cato Policy Report • 3

Cato News Notes

Since 2004 there has been a fivefold increase in the number of law-suits filed by nonpracticing entities (NPEs) against U.S. firms. Inthe latest issue of Regulation, James Bessen, Jennifer Ford, andMichael J. Meurer of Boston University School of Law consider

whether or not this trend is problematic. NPEs are businesses thatacquire patents and license them to others, instead of producing goodsor services. The authors find that, despite the benefits of technologymarkets in general, NPEs destroy incentives for real innovation. “It’s hardto believe,” they con-clude, “that markets canbe somehow improvedby having thousands oflawsuits that incur hun-dreds of billions of dol-lars in losses.”Timothy Sandefur, a

principal attorney at thePacific Legal Foundationand author of The Right to Earn a Living, tells the story of Michael andChantelle Sackett, a cou-ple ordered by the Envi-ronmental ProtectionAgency (EPA) to teardown the house they werebuilding because their Idaho property had been deemed a federal wetland.The case—which has now gone to the U.S. Supreme Court—is one of themany examples of how “a bureaucracy is essentially a law unto itself.”Economists Erwin A Blackstone, Larry F. Darby, and Joseph P. Fuhr,

Jr., note that “many policymakers speak as if concentrated industries areautomatically bad.” After examining duopolist sectors from aircraftmanufacturing to adhesive tape, the authors maintain that “while con-sumers are in general made better off with more choice,” forcing moreoptions will not necessarily increase welfare. Gerald R. Faulhaber of theUniversity of Pennsylvania analyzes the Federal Communication Com-mission’s recently enacted broadband Internet rules and determinesthat “the economic evidence does not support prophylactic net neutral-ity regulation.”Other features in this issue include brief columns on “The Flood

Insurance Fix,” “Third-Party Litigation Funding,” “Why Greece Default-ed—and Others Will Follow,” and “Shareholder Say-On-Pay, So Far.”The Winter 2011–2012 issue includes reviews of books on energy

and security in the modern world, the case for a progressive consump-tion tax, and the trouble with early medical diagnosis. It wraps up witheditor Peter Van Doren’s survey of recent academic papers—as well as alesson about the nature of markets from columnist A. Barton Hinkle. nRegulation is available by subscription or online at www.cato.org/regulation.

EPA compliance, duopolies,and net neutrality in Regulation

The Social Costs of Patent Trolls

4 • Cato Policy Report March/April 2012

C A T O E V E N T S

I

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C

AA

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None of this is to suggest that the effortsof idea entrepreneurs invariably succeed.Many, probably most, promoted ideas meetwith far more failure than success. Indeed, ifextensive purposeful promotion could guar-antee acceptance, we’d all be driving Edsels.Or, put another way, anyone who can accu-rately and persistently predict or manipu-late tastes and desires would not be writingabout it, but would move to Wall Street tobecome in very short order the richest per-son on the planet.

Many of the ideas that have grown inacceptance over the last few centuries relateto one another, and sometimes they havebeen promoted by the same idea entrepre-neurs. However, although the ideas havetaken parallel—and often overlapping—tra-jectories, it is not clear that they are necessar-ily dependent on each other. It is quite possi-ble, for example, for people who stronglyoppose abortion on moral grounds to acceptcapital punishment. In fact, they may beappalled by those who have the oppositepredispositions.

Similarly, although the idea strands ofpeace and free-market capitalism have under-gone parallel and substantially overlappinghistorical trajectories, support for capital-ism does not on its own necessarily implywar aversion or support for peace. In fact,for people to embrace the slogan “Makemoney, not war!” as proposed by Nils PetterGleditsch, they must not only embrace cap-italism as an economic system, but mustlogically accept at least three underlyingideas. They must take economic prosperityas an economic goal; they must see peace asa better motor for progress than war; andthey must believe that trade, rather thanconquest, is the best way to achieve theirchief goal.

PROSPERITY SHOULD BE A DOMINANT GOAL

For capitalism to have an effect on waraversion, it is necessary, first, to convincepeople that getting rich is an importantgoal—for the world to come to value eco-nomic well-being above passions that areoften economically absurd. In other words,

it is necessary for the single-minded pur-suit of wealth to be unashamedly acceptedas behavior that is desirable, beneficial, andeven honorable.

The general acceptance of capitalism—the notion that the economy should bearranged to allow for the free exchange ofgoods and services with minimal govern-ment intervention—will be of little conse-quence to those who do not think achiev-ing wealth is an important goal. Tradition-ally, the notion that one should give favorto people who are acquisitive has been repul-sive to those who aspire to values they con-sider far superior—such as honor, altruism,sacrifice, piety, and patriotism. In contrast,economic motives have been routinely con-demned as crass, materialistic, cowardly,and selfish. Thus, as Simon Kuznets haspointed out, the quest for otherworldlyeternity and the quest to maintain inborndifferences as expressed in class structurehave often been taken to be far superior toeconomic advancement.

An important area in which noneco-nomic values have commonly dominatedis war. For centuries, many great thinkershave held peace to be immoral, materialis-tic, and base. Prussian General Von Moltkedeclared “perpetual peace” to be “a dreamand not even a beautiful one. . . . Withoutwar, the world would wallow in material-ism.” Aristotle held that “a time of warautomatically enforces temperance andjustice: a time of the enjoyment of prosper-ity, and license accompanied by peace, ismore apt to make men overbearing.” Andfive years before writing his treatise “Per-petual Peace,” Immanuel Kant maintainedthat “a prolonged peace” tended “to degradethe character of the nation” by favoring“the predominance of a mere commercial

spirit, and with it a debasing self-interest,cowardice, and effeminacy.”

Thus, whether war does or does not advanceeconomic well-being has often been of nointerest whatever because the people prose-cuting the war do not value economic devel-opment.

An important reason economic devel-opment issues have traditionally playedsuch a limited role in war initiation is thatfull recognition of the notions that eco-nomic growth is possible and that wealthcan be “created” are fairly new. Over thecourse of most of history, wealth has rou-tinely been held to be a zero-sum game: ifone person becomes rich, some other per-son must become poorer.

This lack of appreciation of the notionof economic growth is understandablebecause, throughout most of history, eco-nomies have, in fact, not grown. In 1750, ascan best be determined, all areas of theworld were fairly equal economically—equal-ly poor by contemporary standards. Eco-nomic historian Paul Bairoch estimatesthat the ratio in per capita wealth betweenthe richest and poorest countries was thenno more than 1.6 to 1. However, beginningin the 19th century, and accelerating there-after, an enormous gap opened when NorthAmerica, Europe, and, eventually, Japanbegan to grow significantly. In more recentyears, growth from historic levels has begunto take place worldwide.

Whatever the reasons for this remarkabledevelopment, until pretty much the end ofthe 19th century, the idea that economiescould actually grow could scarcely have beenappreciated by most people because, in fact,during just about the whole of the previouscourse of human development, none had.

Michael Howard notes that at one timethe developed world was organized into“warrior societies” in which warfare wasseen to be “the noblest destiny of mankind.”This was changed, he suggests, by industri-alization which “ultimately produces veryunwarlike societies dedicated to materialwelfare rather than heroic achievement.”The main problem with this generalizationis that industrialization spoke with a forkedtongue. The developed world may have

“For centuries, many great thinkers

have held peace to be immoral, materialistic,and base.”

Continued from page 1

experienced the industrial revolution, butif this experience encouraged some peopleto abandon the war spirit, it apparentlypropelled others to fall more fully in lovewith the institution. Howard himself tracesthe rise of a militaristic spirit that becamewedded to a fierce and expansionist nation-alist impetus as industrialization came toEurope in the 19th century. And, of course,in the next century industrialized nationsfought two of the greatest wars in history.Thus, industrialization can inspire belli-cism as much as pacifism.

The remarkable economic developmentof the 19th century was accompanied by arising anti-war movement, particularly inits last decade. However, this set of ideaentrepreneurs remained a small, gadflyenterprise, and it took the cataclysm ofWorld War I, perhaps embellished by itseven more violent successor 20 years later,to fully undercut the appeal of the martialvirtues. Capitalist economic developmentalone, no matter how impressive, was clear-ly insufficient to do that.

PEACE IS BETTER THAN WAR FOR PROMOTING PROGRESS

Even if one accepts free-market capital-ism and holds prosperity to be a dominantgoal, it does not necessary follow that peaceis the best engine for development and pro-gressive innovation. Many who have accept-ed the importance of innovation and devel-opment have also argued that war is a moreprogressive engine than peace—that war,and the preparations for it, act as a stimu-lus to economic and technological innova-tion and to economic growth.

In 1908, for example, H. G. Wells, whowas by no means a warmonger, found com-mercial advances to be “feeble and irregu-lar” compared to the “steady and rapiddevelopment of method and appliances innaval and military affairs.” He noted thatthe household appliances of his era were“little better than they were fifty years ago”but that the “rifle or battleship of fiftyyears ago was beyond all comparison infe-rior to those we now possess.” Wells washardly alone: the argument that war was animportant stimulus to technological devel-

opment was common in his era.Taking the consideration further, many

have found war to be a key element in pro-moting civilizational and evolutionaryprogress more generally. The Prussian his-torian Heinrich von Treitschke proclaimedthat “the great strides which civilizationmakes against barbarism and unreason areonly made actual by the sword” and that“brave people alone have an existence, anevolution or a future; the weak and cow-ardly perish, and perish justly.” GeneralFriedrich von Bernhardi maintained thatwar was a “powerful instrument of civiliza-tion” and “a political necessity . . . fought inthe interest of biological, social and moralprogress.” He warned that “without warinferior or decaying races would easily chokethe growth of healthy budding elements,and a universal decadence would follow.”

Treitschke and Bernhardi were reflect-ing the views of some social Darwinists likethe British statistician Karl Pearson: “Thepath of progress is strewn with the wreckof nations . . . who found not the narrowway to great perfection. These dead peopleare, in very truth, the stepping stones on

which mankind has arisen to the higherintellectual and deeper emotional life oftoday.” In 1891, Émile Zola declared that“it is only warlike nations which have pros-pered: a nation dies as soon as it disarms.”In America, Henry Adams concluded thatwar “called out the qualities best fitted tosurvive in the struggle for existence.” In likemanner, Russian composer Igor Stravinskyonce declared war to be “necessary for humanprogress.”

WEALTH IS BEST ACHIEVED THROUGHEXCHANGE, NOT CONQUEST

In 1795, reflecting a view of Montesquieuand others, Immanuel Kant argued thatthe “spirit of commerce” is “incompatiblewith war” and that, as commerce inevitablygains the “upper hand,” states would seek“to promote honorable peace and by medi-ation to prevent war.” However, this notionis incomplete because, as 19th-centuryBritish historian Henry Thomas Bucklepointed out, “the commercial spirit” hasoften been “warlike.”

Buckle did, however, see this changing,and he hailed Adam Smith’s Wealth of Nationsas “probably the most important book thathas ever been written” because it convincing-ly shows that true wealth comes not fromdiminishing the wealth of others, but ratherthat “the benefits of trade are of necessityreciprocal.” These conclusions are elementaland profound, and, as Buckle suggests, theyhad once been counterintuitive. Buckle wenton to conclude that Smith’s key economicdiscovery was the “leading way” in which the“warlike spirit” had “been weakened.”

The problem is, however, that, even if oneembraces material well-being as a dominantgoal, even if one rejects the notion that war isbetter than peace as an engine of progress,and even if one accepts the notion that wealthcomes from exchange, it does not necessarilyfollow that war—and particularly conquest—is a bad idea.

Indeed, an important reason why “thecommercial spirit” has so frequently been“warlike” is that it is entirely possible thatmilitary conquest can be economically bene-ficial. As free traders would stress, the UnitedStates owes much of its prosperity to the fact

“This lack of appreciation of thenotion of economicgrowth is under-

standable because,throughout most ofhistory, economieshave, in fact, not

grown. In 1750, as can best be deter-mined, all areas

of the world were fairly equal eco-

nomically—equallypoor by contempo-

rary standards.”

March/April 2012 Cato Policy Report • 7

8 • Cato Policy Report March/April 2012

that it is the world’s largest free-trade zone.But its enormous size was quite notably estab-lished by various forms of conquest—victoryin a war with Mexico and with a series ofthem against Indians.

Particularly in the early years, West Euro-pean populations conquered by the Nazisduring World War II, while deeply resentingthe occupiers, kept out of trouble by cooper-ating in the sense of carrying out their nor-mal occupations and functions. This, as Nor-man Rich has observed, “kept the routinebusiness of government and the economygoing and thereby enabled the Nazis to rule,and to exploit, the occupied countries with aminimum investment of German person-nel.” Indeed, the Germans often found thatoccupation could be quite profitable. Thepeople of the occupied territories continuedto turn out products necessary for Germany’swar, and the occupiers levied taxes, charged“occupation costs,” and engaged in otherfinancial devices to obtain revenue. The sumsreceived were far higher than the actual costsof maintaining the occupying army.

Thus, commerce becomes, in Kant’s phrase,“incompatible with war” only when it is accept-ed that wealth is best achieved through exchangerather than through conquest. It was withthat goal in mind that anti-war idea entre-preneurs, such as the English journalist andeconomic writer Norman Angell, sought toundercut the appeal of empire by convincingpeople that trade, not conquest, is the bestway to accumulate wealth.

In 1908 he declared it “a logical fallacy toregard a nation as increasing its wealthwhen it increases its territory.” Adopting afree-trade perspective, he pointed out thatBritain “owned” Canada and Australia insome sense, yet did not get the products ofthose countries for nothing—it had to payfor them just as though they came “fromthe lesser tribes in Argentina or the USA.”The popular notion that there were limitedsupplies in the world and that countrieshad to fight to get their share was non-sense, Angell argued. Indeed, “the greatdanger of the modern world is not absoluteshortage, but dislocation of the process ofexchanges, by which alone the fruits of theearth can be made available for human con-

sumption.” Angell noted that a nation’s“wealth, prosperity, and well-being . . . dependin no way upon its military power,” notingthat the citizens of such war-avoiding coun-tries as Switzerland, Belgium, or Hollandwere as well off as the Germans, and muchbetter off than the Austrians or Russians.

Idea entrepreneur Angell helped to crys-tallize a line of reasoning that has been gain-ing in acceptability ever since, and this haslead to one of the most remarkable changesin world history: the virtual eradication ofthe ancient and once-vital notion of empire.Put another way, people came to accept thatfree trade furnishes the economic advan-tages of conquest without the unpleasant-ness of invasion and the sticky responsibilityof imperial control.

CONCLUSIONLogic suggests, then, that international

war is unlikely if people come to accept thesethree underlying ideas. But there is anotherconsideration. One of the curiosities aboutthe historical movement of ideas is that overthe last few centuries ideas that have success-fully filtered throughout the world havetended to do so in one direction—from Westto East. Indeed, the process has often beencalled “Westernization.” Thus, Taiwan hasbecome more like Canada than Canada hasbecome like Taiwan. This means there issomething of a standard geographic cluster-ing: countries that early embraced war aver-sion were also generally early to take up democ-racy, capitalism, science, pornography, gay

rights, and abortion, and early as well toabandon slavery, monarchy, blood feuding,capital punishment, and the church.

As suggested earlier, it may in general bebest to see each idea movement as an inde-pendent phenomenon—rather in the waythat skirt lengths are determined far more byfashion whims than by the availability ofcloth and thread. There will be a correlationbetween the acceptance of the ideas, but itmay be essentially spurious.

Moreover, insofar as there is a correlationbetween the rise of free-market capitalismand the rise of war aversion, any causal rela-tionship that might exist between the twodevelopments may be just the opposite ofwhat one might expect. It is not so muchthat free-market capitalism and the econom-ic development it spawns cause peace, butrather that peace better facilitates capitalismand its attendant economic development.

However, the relationship by which peacefacilitates market capitalism and economicgrowth is likely to be considerably strongerthan the one by which it may facilitate democ-racy. This presumably holds especially withrespect to international trade. The Cold Warcould be seen in part as a huge trade barrierand with the demise of that politically derivedand economically foolish construct, tradehas been liberated. And the long and histori-cally unprecedented absence of war amongthe nations of Western Europe has not beencaused by their increasing economic harmo-ny. Rather, their economic harmony hasbeen caused, or at least substantially facilitat-ed, by the long and historically unprecedent-ed peace they have enjoyed.

This line of thought also relates to stud-ies concluding that any democratic peace isconditioned by economic development. Asnoted, peace does probably facilitate demo-cratic development, but it likely facilitateseconomic development far more—hencethere is a closer relationship between peaceand capitalism than between peace anddemocracy. But the causal relationship isnot that democracy and/or capitalism causepeace. Rather, if other issues are in properalignment, it is peace that causes—facili-tates, makes more possible—democracyand capitalism. n

“Commerce becomes, in Kant’s

phrase, ‘incompatiblewith war’ only when it is accepted that

wealth is best achieved throughexchange rather than through

conquest.”

March/April 2012 Cato Policy Report • 9

RICHARD EPSTEIN: When I started writingDesign for Liberty, my original title for thebook was going to include only two elementsafter the semi colon: Private Property and theRule of Law. The original plan was to addresswhat I came to believe was the unique fitbetween those two elements. But as I contin-ued to write, it soon became clear that I hadto insert a nasty little element in the middleabout “public administration”—based onthe simple but critical insight that complexsocial institutions do not run on rules alone.

The first mission of this book is to under-stand how it is that the first two systems—private property and the rule of law—devel-op, and thereby illustrate what is commonlyobserved, namely the tight empirical connec-tion between them. The system of privateproperty starts with the usual assumption ofindividual autonomy: each person owns hisown body and is entitled to do with it whathe chooses, so long as he does not interferewith the liberties of others. This simpleproposition, it turns out, establishes the onlyacceptable starting point for understandinghow to allocate human talents andresources, both economic and personal.

The next major question, then, is, how dothese individuals come to own externalassets? Ownership is not an arrangement cre-ated by nature, but rather one created byhuman beings to achieve various social ends.Yet by the same token the most desirable of

these arrangements are so ubiquitous thatthey rightly travel under the name of naturallaw, given their pervasive reach across cul-tures and long durability within cultures.Every legal system—no matter what its philo-sophical commitments—rests upon privateownership based on the rule of first posses-sion. Once you possess something, it’s yours,and everyone else has to respect that.

The next two elements of the system areequally durable. First, the assets that all peo-ple have in labor or property must be pro-tected against others who would seek to cir-cumvent the system. This requires the devel-opment of the law of both crime and tort torespond to such aggressors. Second, bothlabor and external resources are of limitedvalue if their owner can only use or consumethem without any cooperation with otherpersons. The ability to dispose of these assetsthrough different cooperative arrangementstherefore requires the development of con-tractual rules, which essentially allow you tosell, lease, or pool your assets.

The central social task is to make this sys-tem of ownership and exchange work at lowtransaction costs by establishing at eachstage in the productive and cooperativeprocess who owns what. The combination ofthese basic rules does not increase the rightsthat people hold either alone or in combina-tion. But what the rules can do is to allowredeployment in ways that increase the value

by moving property from people who valueit less to those who value it more. The greatinstitutions of property and contract arewhat make these gains possible. The lowerthe frictions in the system, the more securethe transactions, the higher the overall levelof prosperity.

How then does private property meshwith the rule of law? Note first that the ruleof law does not seem to run into any seriousopposition from any part of the politicalspectrum, in large measure because all of itsvirtues turn out to be abstract in form. Forexample, if a government wishes to imposelegal obligations on private parties, it mustgive notice of those obligations to make pri-vate compliance and then public enforce-ment of the law both easy and reliable. Onemajor problem with modern criminal law isthat so many things become illegal that com-pliance is difficult even after consultationwith a lawyer—a luxury that most peoplecannot afford. The requirement of simplenotification, on the other hand, is one of thecore values associated with the rule of law.

The basic obligations of a system of pri-vate property do not present that problem.“Keep your hands to yourself” may provokeclever evasion, but the basic proposition isunderstood by all socialized individuals.Notice of the basic law is so clear that it neednot be specially provided. Next, this systemof rights is easily scalable: let a society expandfrom a thousand people to a million, andthe nature of the rights among randompairs of individuals does not change. Thelaw still requires forbearance amongstrangers. In addition, the basic rules areinvariant with wealth. The constancy of therules in good times and bad thus reduces thepressure to subject them to costly short-term adaptations. Fourth, strong propertyrights have the advantage of numerosity: inthin markets, comprised of a small numberof people, the ability to get accurate pricingis compromised. But as the number of indi-

The most profound domestic change in America over the past centuryhas been the massive surge in the size of government under the pro-gressive worldview. The signs are increasingly clear, however, that gov-

ernment is creaking under the enormous weight of its own expansion. In his newbook, Design for Liberty: Private Property, Public Administration, and the Rule of Law,Richard Epstein argues that the driving force behind this growth is an ambitioussocial agenda—one that introduces massive amounts of administrative discretioninto the political process. Epstein, the Laurence A. Tisch Professor of Law at NewYork University and an adjunct scholar at the Cato Institute, laid out the prob-lems with modern American governance at a Cato Book Forum in December.

Private Property, the Rule of Law, and the Perils of Political Discretion

P O L I C Y F O R U M

10 • Cato Policy Report March/April 2012

viduals increases—and markets becomethicker—trade becomes quicker and morereliable because competition tends to forceall vendors to a unique price. Taken togeth-er, these features reflect the very strongcoherence between the rule of law and a sys-tem of private property. In contrast, theadministrative state, with its broad system ofentitlements, never gains that kind of coher-ence. It is all too eager to create positiveclaims against the state, whose content is dif-ficult to define, hard to communicate, andsubject to constant fluctuation with changesin economic and social conditions. The costof transactions increase, their direction mis-fires, and the overall system is compromised.

One great challenge to the classical sys-tem of property rights is that it is not robustin all contexts. Nonetheless, what happens ifit is not possible to reach a competitive equi-librium when there are multiple players—when large numbers of individuals mustcooperate toward a single objective in orderto achieve their individual objectives? Suchis required with the renunciation of force.Once a stable society is formed, the creationand operation of roads and communicationsystems often have this characteristic. Take asociety of n people, in which all but one ofthem agree to surrender the use of force vol-untarily. The one person who remains out-side the social contract can disrupt the entirepolitical equilibrium. The only way to stopthis system breakdown is to qualify the sys-tem of individual property rights to allowthe regulated use of state force to raise therevenues needed to create public order. Toovercome this dire threat, all societies mustadd in two other kinds of institutions: taxa-tion, in order to get the revenues needed,and eminent domain, in order to secure par-ticular assets, like land. How do we constrainthe amount of administrative discretion inthese areas?

In designing a tax system, the last thingto worry about is the good fortune of thetop 1 percent. The much larger issue is howto create an orderly political use of power.Over the long run, the only solution thatachieves the needed stability is a flat tax. Likeprivate property rights, that is the one sys-tem that is invariant in structure, regardlessof the demands on the public treasury or the

level of wealth in society. This intrinsic sta-bility does an enormous amount to coun-teract the dangers of political favoritism. Italso leads to a simpler system of publicadministration—the middle piece in the tri-partite design for liberty.

The system of eminent domain limitsstate power by forcing the government topay for what it takes. Without that con-straint, the power to coerce takings leads toexcessive government action. The disciplineon government power is dangerously erod-ed by the modern distinction between aphysical taking and a regulatory one, whichrests on a fatally flawed account of propertyrights. The system of private property worksbecause property owners can divide wholesinto useful parts and protect them equallyonce the division takes place. A lease, a mort-gage, a covenant, or an easement are all enti-tled to strong legal protection. The law of

eminent domain must therefore follow thatlead by not allowing administrative discre-tion to pick off these private interests with-out compensation, lest political majoritiesgang up on vulnerable and isolated groups.

The limits of discretion are a key elementof any sound legal system. But it is impor-tant to ask why public administration formsa key part of the overall equation. There is agreat deal of uncertainty associated with theoperation of any legal system on such simplequestions as the truth of various accusa-tions. When dealing with murder, theft, orrape, there is often uncertainty as to who didit and under what circumstances they com-mitted the crime. The public must thereforetrust somebody to decide whether or not theevidence associated with a particular crimewarrants the case being brought.

The reason public administration isimportant, then, is that no society can relysolely on ex post intervention by the courts toaddress even this simple uncertainty. Asound society has to develop a strong civicsense of responsibility—an esprit de corps.Without these internal social norms, themanagement of key offices can slide intocynicism and confusion, such that the restof the system will collapse under the weightof repeated rights violations by faithless orincompetent public servants. Those risks arereduced under any sound system of proper-ty rights, where the level of discretionentrusted to public administrators can besmaller precisely because of the relativelyclear boundary lines between legal and ille-gal conduct. The fact-finding tasks onwhich these determinations rest can be cor-respondingly simplified.

The three pieces—private property, pub-lic administration, and the rule of law—thusneatly fit together. The broad claim that I’mmaking is that a traditional administrativestate—focused on, for instance, modestlicensing requirements—will do far betterthan a modern administrative state, wherethe discretion on how money is raised andspent is essentially unbounded. One greatchallenge that faces any society is that evenskilled individuals are very bad at makingdecisions under conditions of uncertainty.The modern tendency is to regulate too

P O L I C Y F O R U M

Richard Epstein

“Once upon a time, I was

confident that theforces of growth and

prosperity could maintain the upper

hand. I am no longer so sure.”

Continued on page 12

ROBERT GUEST: My book is about freedomof movement—about why the world is a bet-ter place when people are free to migratefrom one place to another. If you want tounderstand why this is so important, thebest place to start is somewhere where free-dom of movement is not allowed.

North Korea is the kind of place wherethey usually don’t let anybody in or out. Andif you shut out people, you shut out ideas.When I visited, I went to an exhibition ofNorth Korean technology. They showed methe Kim Il-Sung computer—which, theyassured me, was running on North Koreansoftware, the best technology in the world. Iwas a little bit skeptical. So I reached out andhit the off switch on the computer, and hit itagain to reboot it, and what flashed up onthe screen? “Texas Instruments.”

North Korea is 17 timespoorer than SouthKorea—which was actually poorer a coupleof generations ago—and it is among otherthings the country’s detachment—its isola-tion—that explains why people are nowstarving there.

Why does freedom of movement matter?When people move, they bring ideas andconnections with them. Over recent decades,there has been a fundamental change in thenature of global migration. First, more peo-ple are moving. There are now 215 millionfirst-generation migrants in the world.That’s an increase of 40 percent in the pasttwo decades. It’s about 3 percent of the

world’s population. If migrants were a coun-try, they would be the fifth largest one in theworld—and probably the most innovative.

When people think of China, they thinkof a large nation in east Asia. But if youthink of the Chinese people instead, a differ-ent picture emerges. There are 70 millionChinese people living outside of the main-land, which is more than there are Frenchpeople living in France.

The other big change concerns communi-cations. It used to be that, when migrants lefttheir home country, they would arrive inAmerica and lose contact with the place theycame from. At the beginning of the century, atransatlantic telephone call cost more than amonth’s wages, and cheap air travel hadn’tyet been invented. People lost touch. Now, assoon as the plane touches the tarmac,migrants can text their family members backhome, or Skype them for free, or catch up onvarious social networking sites. Migrantsthese days stay intimately and constantly con-nected. So they create networks, and thesenetworks have tremendous consequences forbusiness, technology, and politics.

When you want to conduct businessacross borders—especially with the emergingworld—it’s important to know people. Insocieties that lack the rule of law, for instance,it is important to know whom you can trust.The overseas Chinese understand Chinesebusiness culture very well, which is whyroughly 70 percent of the foreign direct

investment that flows into China flowsthrough the Chinese diaspora.

Consider the case of Cheung Yan, aChinese woman who came to America twodecades ago and noticed two things aboutthe country. She noticed that Americansthrow away enormous amounts of wastepaper—junk mail, old catalogues, unread edi-tions of the Sunday New York Times and soon. She also noticed that a lot of ships comefully laden from China to America, but theygo back half-empty because the productsthat America sends to China are oftenweightless. I’m talking about intellectualproperty, movies, IOUs from the govern-ment, and so on.

Ms. Cheung created a business fromthese observations. She began loading up allthat wastepaper onto those empty ships toChina. She had the contacts to help her setup a recycling factory there. She turned thepaper into cardboard boxes. Other Chinesefirms no doubt put televisions in those boxesand sent them back here. Ms. Cheung is nowone of the richest people in China—allbecause her outsider’s perspective enabledher to see an opportunity that everyone elsehad missed.

Migrant networks have an enormousimpact on technology as well. VivekWadhwa of Duke University found thatalthough migrants are only an eighth of theU.S. population, they make up a quarter ofthe founders of high-tech start-ups. Now,part of that is selection bias. The kind ofpeople who are prepared to leave the com-forts of home and seek their fortune abroadare a dynamic, creative bunch. But it’s notjust that. Living in exile—learning a new lan-guage, confronting novel situations, copingwith unfamiliar problems—forces you tothink outside the box.

Several studies have shown this. Forexample, William Maddux of INSEAD andAdam Galinsky of Northwestern Universitygot together a group of MBA students andasked them to solve a creativity puzzle called

March/April 2012 Cato Policy Report • 11

“As a tool for spreading wealth, open borders make foreign aid looklike a child’s lemonade stand,” writes Robert Guest, business edi-tor of The Economist, in his latest book, Borderless Economics: Chinese

Sea Turtles, Indian Fridges, and the New Fruits of Global Capitalism. In fact, affordabletravel and easy communication have allowed immigrants around the world tocreate powerful new cross-border networks. Having traveled through dozens ofcountries and 44 American states himself, Guest offers an insider’s perspectiveon how these networks create wealth, spread ideas, and foster innovation. At aCato Book Forum, he argued that America’s unique ability to attract and absorbmigrants lets it tap into the energy of diaspora networks around the globe.

Demography, Democracy, and Global Capitalism

12 • Cato Policy Report March/April 2012

P O L I C Y F O R U M

the Duncker candle problem. Each studentwas given a box of tacks, a candle and somematches. They were told to attach the candleto the wall and light it in such a way that itdidn’t drip wax on the floor. The solution isto empty out the tacks and pin the box to thewall, allowing it to act as a sconce for the can-dle. The interesting finding was that the stu-dents who had lived abroad were able tocomplete the task much more easily. Theirexperience enabled them, literally, to thinkoutside the box.

Migration creates cross-border networks.That makes cross-border collaboration easier,and that in turn boosts innovation. Let megive you an example. Hundreds of millions ofpeople in India currently don’t have any formof identification. They can’t prove they exist—which means they can’t get credit, open bankaccounts, or do business with strangers. TheIndian government wanted to create a bio-metric database to solve this problem, buthad no idea how to go about it. So they askedNandan Nilekani, an Indian software billion-aire, to help. He reached out to some of hisbrainy Indian friends in Silicon Valley. Soonthey were furiously Skype-ing each other.Before long , a number of them hopped on aplane to Bangalore and got to work buildingthe necessary system. Today, the Indian gov-ernment is registering millions of peopleusing the biometric database they created.Thanks to the power of collaboration, hun-dreds of millions of Indians may soon be ableto prove who they are.

There are lots of examples of how diaspo-ra networks influence politics. More than500,000 Chinese people have studied orworked abroad and then gone home—one ofthe largest foreign-study movements ever.The Chinese government has been encourag-ing this because they want their citizens tolearn skills such as engineering and medicine.

But, the thing is, the government wants toseparate these technical skills from the badideas these individuals might pick up in ademocracy—such as, for instance, democracy.And what they’re finding is that these thingsare impossible to disentangle.

When people are exposed to democracies

like the United States, they can’t help butnotice that the air is cleaner, the people arefreer, and political disputes are not solvedthrough civil war. And this huge cadre of edu-

cated elites are going back to China andassuming positions of influence. They runtechnology firms, think tanks, and universi-ties. They are rising within the CommunistParty itself.

In 2002 about 6 percent of the membersof the Central Committee of the CommunistParty were “sea turtles”—meaning they hadstudied or worked abroad and come back. Inthe next five years, that number more or lessdoubled to 11 percent—and Cheng Li of theBrookings Institution predicts that it will besomewhere between 15 and 17 percent in2012, when the country is due for a bigchangeover in personnel at the top.

The state is very strong in China, but it isalso brittle. There is widespread discontent,especially in rural areas. When a crisis comes,there will be pressure for reform. And it willthen make a huge difference that so many ofthe elite have seen at first hand how anadvanced democracy works. The sea turtleswill eventually turn China democratic.

I’d like to end with a thought aboutdemography. Europe is currently in themidst of a debt crisis because its citizens havestopped having enough babies. There won’tbe enough workers tomorrow to pay thepensions we were promised yesterday.Immigration could help. But our welfarestates pay immigrants not to work .

America is completely different. You can’tsubsist on welfare here as an able-bodiedyoung male. So immigrants work, whichmeans they quickly learn how to rub alongwith native-born Americans. That, in part, iswhy the American model is so robust. And asthe global population stabilizes, more andmore of a country’s economic strength willbe determined by where people want to live,rather than how many people are born there.I think that a lot of people will choose to livehere, if you let them. n

Robert Guest

“More and moreof a country’s eco-nomic strength will be determined bywhere people want to live, rather thanhow many people are born there.”

much too soon, instead of waiting for moreinformation to surface. When private proper-ty, public administration, and the rule of laware not in sync, governments tend by exces-sive regulation to destroy economic produc-tion at the bottom and transfer wealth fromthe top, which cannot be sustained.

Modern societies are thus locked into thisfatal contest between the soundness of theirpolitical institutions and the forces of tech-nological innovation. At one time, I was con-fident that the forces of growth and prosper-ity could maintain the upper hand againstthe excesses of state power. But in watchingthe recent flailing of political actors, and the

subsequent drift of our economic system, Iam no longer so sure. One hope is that my lit-tle book will offer some guidance on thesharp change of course that is necessary, bothin the United States and elsewhere, to correctthe encroachment of state power in areas thatshould be left to the voluntary choices of pri-vate individuals.n

Continued from page 10

If there is anything like a conventionalpath to becoming a scholar at the CatoInstitute, I rather doubt it’s the road I trav-eled. During college in the mid-1980s, Iclerked over the summer for my father, atrade lawyer whose clients included U.S.companies seeking protection from for-eign competition under U.S. trade laws. Itseemed obvious to me at the time that wehad a choice of protecting Americanindustry or learning how to say “I surren-der” in Japanese. That I have since becomea devout advocate of free trade has beendescribed by my father—tongue-in-cheekto be sure—as a prolonged manifestationof my teenaged rebelliousness.What drew me to Cato in October 2000

was not a profound commitment to liber-tarian ideas or any burning desire to com-mune with libertarians over big picturepolicy issues. In fact, I was not yet a com-mitted libertarian when I joined the Insti-tute. I had read and admired the works ofSmith, Hume, Locke, the founders, Bastiatand others from previous centuries, butbeyond Hayek, Friedman, and Rand, I hadvery little exposure to the works of con-temporary libertarian thinkers.What drew me to Cato was a belief in

the propriety of free trade and the oppor-tunity to expose the irrationality andcapriciousness of the protectionist anti-dumping law. That belief—and the expert-ise I had developed on antidumping mat-ters—was cultivated when I worked as an

economist for law firms representing for-eign companies and U.S. importersthroughout the 1990s (generically speak-ing, the targets ofmy father’s clients).I believed in free

markets primarilybecause I found the economic argu-ments appealing.But I had yet toreally appreciatethe freedom aspectof “free” markets.Back then, I charac-terized my politicalviews as economi-cally conservativeand socially liberal,without appreciating that those superfi-cially inconsistent preferences share a per-fectly consistent, libertarian view of gov-ernment—that its role and power shouldbe limited.During my first few years at Cato, it all

started coming together. The 9/11 attacks,the subsequent War on Terror, and the warin Iraq had opened the door to a massiveexpansion of the role and size of govern-ment, and that expansion was imperilingour liberties in real time. As one who naive-ly accepted the argument that the securityapparatus should be afforded almost ablank check to expand in the wake of the9/11 attacks and that invading Iraq was jus-

tifiable in the name of security, I was chas-tened (and a bit ashamed) that I didn’t seethe imminence of those consequencesbefore accepting the arguments in favor ofexpanding the state.The lessons I drew from that experi-

ence—as well as the exposure I have had atCato to some of the sharpest minds andmost coherent arguments in the policyworld—have been formative. In advocatingfree trade, my very first argument is now amoral one rooted in freedom rather thanan economic one rooted in efficiency. Inmy assessments of policy matters, general-ly, I have become deeply skeptical of ideasthat hint at expanded government orwould otherwise impose upon civil societyor personal freedom.

My “stint” at Cato as the chiefresearcher for what was called, in October2000, the Project on Antidumping Reformwas expected to last two years. I am veryproud of the fact that 11 years later, I amstill here with a broader mandate to coverthe full gamut of international trade poli-cy issues, and as the new director of theHerbert A. Stiefel Center for Trade PolicyStudies.I am also proud of the fact that I con-

vinced my father that Bastiat, Hayek, andFriedman have a lot to say about the prob-lems that afflict our country today. Heread and enjoyed each of the books Ibought him. n

Scholar Profile

Daniel J. Ikenson

March/April 2012 Cato Policy Report • 13

an Ikenson is the newly promoted director of Cato’s Herbert A.Stiefel Center for Trade Policy Studies, where he focuses onWorld Trade Organization disputes, regional trade agreements,

U.S.-China trade issues, steel and textile trade policies, and antidumpingreform. He is the author of many studies on trade policy and the coauthorof Antidumping Exposed: The Devilish Details of Unfair Trade Law. Ikenson has been involved in international trade for more than 20 years.

Before joining Cato in 2000, he was director of international trade planningfor an accounting and business advisory firm. Prior to that, he cofoundedthe Library of International Trade Resources, a consulting firm providinginteractive information access and international trade consulting. Ikenson holds an MA in economics from George Washington University.

He is married with three children.

D

14 • Cato Policy Report March/April 2012

C A T O E V E N T S

DECEMBER 7: Cato Club Naples:Social Security, Ponzi Schemes, and the Need for Reform

DECEMBER 8: Cato City Seminar(Miami)

DECEMBER 13: Congressional WarPowers after Libya

DECEMBER 14: PublicationPractices for TransparentGovernment: Budgeting,Appropriating, and Spending

DECEMBER 15: Design for Liberty: Private Property, PublicAdministration, and the Rule of Law

JANUARY 5–7: State Health PolicySummit (Albuquerque)

JANUARY 11: Cato Club Naples:

Trade and Global EconomicFreedom

JANUARY 12: Cato City Seminar(Miami)

JANUARY 17: FDR Goes to War: How Expanded Executive Power,Spiraling National Debt, and Restricted Civil Liberties ShapedWartime America

JANUARY 19: UnintendedConsequences of the RogueWebsite Crackdown

JANUARY 24: The Libertarian State of the Union

Audio and video for all Cato events dating back to1999, and many events before that, can be found onthe Cato Institute website at www.cato.org/events. Youcan also find write-ups of Cato events in Ed Crane’sbimonthly memo for Cato Sponsors.

CatoCalendarMILTON FRIEDMAN PRIZEPRESENTATION DINNER AND GRAND OPENING WEEKENDWashington lMay 4, 2012

CATO PAPERS ON PUBLIC POLICY CONFERENCEWashington l Cato InstituteJune 7–8, 2012Speakers include Jeffrey Miron, Douglas Irwin, Charles Calomiris, Steve Kaplan, and Carola Frydman.

CATO UNIVERSITY SUMMERSEMINARWashington l Cato InstituteJune 29–August 3, 2012Speakers include David Boaz, Tom Palmer, Steven Landsburg, and Robert MacDonald.

CONSTITUTION DAYWashington l Cato InstituteSeptember 18, 2012

CATO CLUB 200 RETREATAsheville, NC l Inn on Biltmore EstateSeptember 27–30, 2012

CATO INSTITUTE POLICYPERSPECTIVES 2012New York lWaldorf-AstoriaOctober 26, 2012

30TH ANNUAL MONETARYPOLICY CONFERENCEWashington l Cato InstituteNovember 15, 2012

25TH ANNUAL BENEFACTORSUMMITScottsdale, AZ l Four Seasons ResortFebruary 21–24, 2013

D

I n the midst of political turbulence, a presidential election, and so much more, our nation’s capital is theperfect setting for Cato University. This year’s program is being held at the Cato Institute’s newly expandedheadquarters, located in the heart of the city. The new building offers state-of-the-art facilities

where attendees will explore liberty, limited government, and the ideas and values on which the American republic was founded.

NO PRICE INCREASE FOR 2012 | To make this wonderful program as accessible to as many people as possible, we’ve kept the cost of Cato University at $995. This price covers all meals, re-ceptions, lectures, materials, books, and evening events, but not overnight room charges. How-ever, we’ve arranged low room rates for Cato University participants at nearby hotels. We hope you will be able to join us for this one-of-a-kind program.

16 • Cato Policy Report March/April 2012

C A T O P U B L I C A T I O N S

The controversy over America’simmigration policies has onlybecome more contentious in recentyears. In this special issue of the Cato

Journal (made possible by the Arthur N.Rupe Foundation), various experts consid-er the instrumental role immigration hasplayed throughout U.S. history. “Morethan any other major nation, we aredefined by our immigrant past, present,and future,” Daniel Griswold, Cato’s for-mer director of trade policy studies, writesin the introduction.In his lead article, economist Bryan

Caplan of George Mason University openswith a basic philosophical question: Shouldwe restrict immigration? Those who answeryes, he says, must first overcome “the moralpresumption in favor of open borders.” Thealleged ills that these restrictions prevent, inother words, should “be at least compara-ble to the injustice and harm that [they]impose.” But even this is not enough. Thenext threshold question is whether or notthere are better options than limiting thefree movement of people. Indeed, Caplanreveals a number of alternatives that areboth cheaper and more humane. “Whatev-er your complaint happens to be,” he con-cludes, “immigration restrictions are aneedlessly draconian remedy.”In light of the “continuing torpor of the

U.S. economy and mounting governmentdebt,” economist Gordon H. Hanson of theUniversity of California–San Diego consid-ers the impact of immigration on the sup-ply of labor, the pace of innovation, and theintegrity of public finances—and ultimatelyfinds that it benefits the country as a whole,not just those willing to take the risk ofmoving. Giovanni Peri of the University ofCalifornia–Davis added further clarity tothe economic debate by “consideringmigrants mainly as workers and analyzingthe gains and costs that they generate”within labor markets. Similarly, in examin-ing its contribution “to our overall econom-ic and demographic vitality,” scholars Joel

Kotkin and Erika Ozuna conclude thatimmigration has been “one of the country’sgreatest assets.” In fact, given decliningbirthrates, it “may prove more important inthe future than in the past.”With these benefits in mind, why has

public opinion recently been characterizedby such anti-immigrant hostility? “Formost of its history, the United States hadonly the loosest sort of border controls,”writes Edward Alden, senior fellow at theCouncil on Foreign Relations. Over the lastseveral decades, however, the governmenthas ramped up its border security initia-tive—an effort requiring “one of the mostambitious expansions of government pow-er in modern history.” Stuart Anderson,executive director of the National Founda-tion for American Policy, describes the inco-herent body of immigration law that hasevolved in the United States as a result. Oneof the latest iterations in the misguidedeffort at greater internal enforcement is E-Verify, an electronic employment eligibilityprogram. According to Jim Harper, directorof information policy studies at the CatoInstitute, E-Verify has the potential toexpand into a national identity system.Once in place, such a system would likely“metastasize”—laying the groundwork forgreater government control over virtuallyall areas of our lives.Other contributors focusing on the cur-

rent U.S. immigration system include PiaOrrenius and Madeline Zavodny on “TheEconomic Consequences of Amnesty forUnauthorized Immigrants,” Margaret D.Stock asking “Is Birthright CitizenshipGood for America?” and Daniel Griswoldanalyzing “Immigration and the WelfareState.”The issue concludes with two articles

calling for a better immigration system.Raúl Hinojosa-Ojeda, associate professorat the University of California–Los Ange-les, criticizes two decades of failure underthe status quo, in which the federal govern-ment’s policy has been “to step up its

enforcement-only strategy without creat-ing a path to legalization.” After analyzingvarious policy scenarios, he concludes thatcomprehensive immigration reform“would help lay the foundation for robust,just, and widespread economic growth.”Joshua C. Hall, Benjamin J. VanMetre, andRichard K. Vedder review the history of U.S.immigration policy and—in summarizingthe economic case for immigration—out-line an alternative system based on marketincentives rather than government quotas.The thread that runs continuously

throughout each of these articles—andwithin the social fabric of American histo-ry—is the intimate tie between freedom ofmovement and a system of natural liberty.An open policy toward migrants is one ofthe bedrock principles of a free society.“The United States is the light of theworld, a beacon of opportunity,” Hall,VanMetre, and Vedder conclude. “Immi-gration is both a cause and a consequenceof this reality.” n

All of these articles, as well as the three bookreviews in this issue of the Cato Journal, are avail-able online at www.cato.org.

The benefits of free movement, in a special issue of the Cato Journal

Is Immigration Good for America?

March/April 2012 Cato Policy Report • 17

The failed power grab behind SOPA and PIPA

On January 18, 2012, more than 7,000websites across the Internet experi-enced a “blackout.” Congressionalhomepages crashed after being over-

whelmed by online traffic. Switchboards onCapitol Hill became jammed. And millionsof people signed petitions challenging whatmany considered to be the latest example ofgovernment overreach.The response—an unprecedented act of

coordinated protest—reflected the stagger-ing opposition toward two recent pieces oflegislation: the Stop Online Privacy Act(SOPA) and the Preventing Real OnlineThreats to Economic Creativity and Theftof Intellectual Property Act (PROTECT IPAct, or PIPA). Intended to curb online pira-cy, the bills would in reality readjust theinner architecture of the Internet—to thechagrin of technology entrepreneurs, net-work engineers, and ordinary citizensthroughout the country.Cato research fellow Julian Sanchez

blogged persistently about the bills as thedebate heated up. On the day before theblackout, Sanchez joined Alexis Ohanian,cofounder of Reddit, and Craig Newmark,founder of Craigslist, on a panel to discussthe bills. At a Capitol Hill Briefing two dayslater, leading policy experts from the CatoInstitute, Heritage Foundation, BrookingsInstitution, Competitive Enterprise Insti-tute, and TechFreedom joined forces to dis-cuss the implications of the “rogue website”crackdown. Berin Szoka, founder and pres-ident of TechFreedom, noted that theprotests reflected a “consistent skepticismabout government meddling in the Inter-net,” particularly in the face of widespread“optimism about technology’s capacity toexpand our ability to choose for ourselves.”What brought on the skepticism? The

apocalyptic estimates of the economicharm from online piracy—numbers thatoften come directly from the content indus-tries pushing SOPA and PIPA—are wildlyexaggerated. There is little indication that,with the rise in piracy, output of copyright-ed content is in decline. As for signs ofdestroyed jobs, it is the bills themselves that

threaten jobs “by im-posing new burdens onU.S. startups and scar-ing investors away,” asSanchez wrote in theNew York Times.But even if these eco-

nomic numbers provedaccurate, SOPA andPIPA should be opposedbecause they are ineffec-tive mechanisms foraddressing the purport-ed problems. Onlineusers can easily circum-vent the proposedblocks. Shutting downwebsites does little todeter piracy. “No matterhow bad last season’scrops were, witch burn-ings are a poor policyresponse,” Sanchez wrote in Wired.Finally, blocking entire web domain

names would lay the foundation for amuch more sweeping technological archi-tecture of censorship. In essence, shuttingdown websites would interfere with legalspeech that coexists alongside infringingcontent. This would be a direct violationof the First Amendment. “Under the bet-ter view—the view of freedom—thesethings are not the government’s to regu-late,” Jim Harper, Cato’s director of infor-mation policy studies, wrote in the OrangeCounty Register.In short order, these arguments began

to resonate. “Libertarians, tech titans pokeold-school GOPers,” a front-page headlinein Politico announced—leading into a storythat highlighted the impact that classicalliberals had on more traditional conserva-tives. One such congressman, Rep. JohnCulberson of Texas, tweeted the next day:“I will oppose SOPA/PIPA bcz CATO iscorrect: the bills create architecture for cen-sorship & I hear 100% opposition frompeople contacting me.” Republicans aban-doned the bills more nimbly—winningcredit with the tech industry and clouding

the picture of Silicon Valley as a Democrat-ic stronghold. And elsewhere on the Web,two writers on the popular Freakonomicsblog discussed the real economic impact ofonline piracy. “Unlike stealing a car, copy-ing a song doesn’t necessarily inflict a tan-gible loss on another,” they wrote. The postcited two scholars in presenting itsresearch—Tim Lee and Julian Sanchez—both of the Cato Institute.Cato has long been a leading voice on

issues at the busy intersection of technolo-gy and civil liberties. Last year, Harperreleased an analysis, “Publication Practicesfor Transparent Government,” which not-ed that, despite political promises to thecontrary, transparency of public data hadfailed to materialize in any meaningful way. And while free-minded individuals

across the country cheer the remarkabledownfall of the latest attempt to regulatethe Internet, the battle itself should give uspause. SOPA was a law proposed amidutter ignorance of the relevant facts. It “wasnot the exception to the rule,” Aaron RossPowell, editor of Libertarianism.org, wrotein a blog post. “Instead, it was just howthings are done in Washington.” n

The Internet Is Not .gov’s to Regulate

At an interactive online forum on SOPA and PIPA, research fellow JULIANSANCHEZ (seated, second from left) joined a number of leading tech innova-tors, including DMITRY SHAPIRO of Veoh (upper left), JARED FRIEDMAN ofScribd (upper right), ALEXIS OHANIAN of Reddit (lower right), and CraigNewmark of Craigslist—who dialed in remotely to discuss the law’s implica-tions. Rep. DARRELL ISSA (R-CA), chairman of the Committee on Oversightand Government Reform (seated on table), also addressed the event.

18 • Cato Policy Report March/April 2012

C A T O S T U D I E S

The media rarely make a point ofreporting stories involving defensivegun use. “In this milieu,” the authorsof a new White Paper write, “where

criminal gun use makes the evening news,but self-defense cases get little to no cover-age, it is understandable why many peoplewould develop negative opinions concern-ing guns.” But in “Tough Targets: WhenCriminals Face Armed Resistance fromCitizens,” scholars Clayton E. Cramer and

David Burnettpresent their casefor reconsideringthis stance. Theybegin by giving anoverview of theacademic studiesof defensive gunuse—showing that“the survey datahas severe limita-

tions”—before supplementing it with thou-sands of news reports gathered over aneight-year period. These data offer a distinct

advantage in that they provide “a rich set ofinformation about motives, circumstances,victims, and criminals.” The authors go onto examine recent legal trends surroundingself-defense, before exploring the specificmanner in which people use guns to fendoff criminal attacks. “The overwhelmingmajority of defensive gun use stories,” theyfind, “involve ordinary and decent peopledefending themselves against criminals.”Cramer and Burnett offer dozens of casestudies in which everyday citizens exercisejudgment and competency when handlinga gun. In the end, they acknowledge thatbearing arms is clearly not always the solu-tion in criminal confrontations. However, itis impossible to deny that “a great numberof tragedies—murders, rapes, assaults, rob-beries—have been thwarted by self-defensegun uses.” They conclude that, despite thefears of many gun-control advocates, “gunowners stop a lot of criminal mayhem.”Please visit www.cato.org for an interactivemap displaying scores of documented sto-ries of defensive gun use.

Renewing Federalism“Every constitution requires change occa-sionally,” Michael B. Rappaport, professorof law at the University of San Diego, writesin “Renewing Federalism by ReformingArticle V: Defects in the ConstitutionalAmendment Process and a ReformProposal” (Policy Analysis no. 691).Unfortunately, the amendment method laidout in Article V of the U.S. Constitution suf-fers from a significant defect. In his analysis,Rappaport examines the roots of Article V,noting in particular that the national con-vention method—which allows state legisla-tures to bypass Congress—was put in place“to prevent a single government entity fromhaving a veto over the passage of an amend-ment.” This mechanism, however, has neverbeen used because, simply put, it doesn’twork. Rappaport explores the various prob-lems with the national convention method,noting that they each stem from uncertain-ty—“uncertainty about what the lawrequires and uncertainty about the actionsof the relevant political actors.” The result-

How Guns Stop Crimes

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CATO POLICY REPORTDavid Boaz............................................................................EditorDavid Lampo.......................................................Managing EditorDan Jackson........................................................Assistant EditorJon Meyers.................................................................Art DirectorSarah Gormley........................................................ PhotographerClaudia Ringel............................................................. CopyeditorMai Makled.......................................................Graphic Designer

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March/April 2012 Cato Policy Report • 19

ing overreliance on the congressionalapproval method has had an enormousimpact on an already far-too-centralized gov-ernment. “Thus, the increasingly nationalistcharacter of our constitutional charter maynot be the result of modern values or cir-cumstances, but an artifact of a distortedamendment procedure,” he writes.Rappaport offers a reform to correct thedefect and identifies a realistic path forenacting that reform. By returning power tothe states, he hopes to deprive Congress ofthe effective veto power it currently holdsover the amendment process, thereby “help-ing to restore the federalist character of ourConstitution.”

Fair Credit after 40 Years“Everyone is a potential victim of an inaccu-rate credit report,” Sen. William Proxmire(D-WI) declared on January 31, 1969, mark-

ing the introduction of the Fair CreditReporting Act (FCRA). While the bill wasintended to address the many informa-

tion issues stemmingfrom credit bureausat the time, thoseproblems have onlymultiplied in the 40years since it becamelaw. In “Reputationunder Regulation:The Fair CreditReporting Act at 40

and Lessons for the Internet PrivacyDebate” (Policy Analysis no. 690), JimHarper, Cato’s director of information poli-cy studies, explains why federal regulationhas failed to provide credit reporting that isaccurate, responsive, and confidential.Reputation systems such as credit reportingare “complex social mechanism[s],” Harper

writes, with a number of “conflicting valuesthat drive them”—including “identificationissues, contested notions of relevance, andthe surprisingly difficult problem of arriv-ing at ‘fairness.’” Regulators are ill-equippedto make such value-laden judgments, andinstead implement rules that have “protect-ed the credit reporting industry from com-petition, denying consumers the benefits ofinnovation.” Harper outlines the list ofabuses that initially led to the FCRA andexamines why contemporary complaintsclosely mirror them. The experience over thelast four decades suggests not only the diffi-culty in establishing a credit reporting sys-tem, but also “a caution about regulatingour information economy top-down.”“Deviating from our nation’s foundingprinciples of freedom is as much a mistakein the information arena as in any other,”Harper concludes. n

For further information and dinnerreservations: www.friedmanprize.org

T he Milton Friedman Prize

for Advancing Liberty,

named in honor of perhaps the

greatest champion of liberty in the

20th century, is presented every

other year to an individual who

has made a significant contribu-

tion to advancing human freedom.

Previous winners are the late British

economist Peter Bauer; Peruvian

economist Hernando de Soto; for-

mer prime minister of Estonia Mart

Laar; Yon Goicoechea, leader of the

pro-democracy student movement in

Venezuela; and Iranian writer and

journalist Akbar Ganji.

AND HOW ABOUT THE SECRETS AND LIESAND TWISTED DESIRES THAT ATTACH TOPOWER?Much of French literature is about thehypocrisies of bourgeois society. Thesecrets and lies, the twisted desires andthe bitterness, that attach to money are atthe heart of the drama.—Philip Gourevitch in the New Yorker,December 12, 2011

THE PANEL-MAKERS’ PETITION[SolarWorld CEO Gordon] Brinserclaims China is threatening that visionby flooding the U.S. with cheap solarpanels. He claims China subsidizes itssolar panel industry. . . . Brinser has peti-tioned the U.S. Department ofCommerce and the International TradeCommission to slap tariffs on importedChinese panels.—National Public Radio, January 19, 2012

FACT-CHECKERS DECLARED THIS STATEMENT “TRUE”I am not a libertarian.—Rick Santorum, ABC News/Yahoo!/WMURdebate, January 7, 2012

THE VERY POLITICAL ECONOMY OF GREEN ENERGYMeant to create jobs and cut reliance onforeign oil, Obama’s green-technologyprogram was infused with politics at everylevel, The Washington Post found in ananalysis of thousands of memos, compa-ny records and internal e-mails. Politicalconsiderations were raised repeatedly bycompany investors, Energy Departmentbureaucrats and White House officials. . . .

The documents reviewed by The Post. . . show that as Solyndra tottered, offi-cials discussed the political fallout fromits troubles, the “optics” in Washingtonand the impact that the company’s fail-ure could have on the president’sprospects for a second term. Rarely, ifever, was there discussion of the impactthat Solyndra’s collapse would have onlaid-off workers or on the developmentof clean-energy technology.—Washington Post, December 26, 2011

LETTING THE CAT OUT OF THE BAGThe [media] audience is so polarizedthat even when consumers look formore entertaining sorts of news, such astravel or sports stories, they tend tochoose sources that match their politi-cal leanings—conservatives to Fox Newsand liberals to National Public Radio,for example.—Washington Post, January 20, 2012

WHEN A FREEZE ISN’T A FREEZEThe paychecks of federal workers grewat the slowest pace in a decade this year,held down by a partial pay freeze. Butfederal employees still did slightly betterthan workers in the private sector or atstate and local governments, a USATODAY analysis found.

Federal pay rose an average of 1.3%for the budget year that ended Sept. 30.—USA Today,December 27, 2011

DID WE HAVE MUSIC, ART, AND BOOKSBEFORE THE UN?I cannot imagine a world withoutmusic, art, film, dance, theater and

books. It would be a dreary and colorlessexistence, with little cooperation andcommunication among citizens. Thearts are the glue that holds us together,the cultural fabric of our lives, and theysow the seeds for inventive, universallyshared experiences. . . . .

That is why U.S. engagement inUNESCO and the United Nationsmust continue.—Herbie Hancock, UN Goodwill Ambassador,in the Washington Post,December 2, 2011

HOW PRESIDENT OBAMA IS TRANSFORMING AMERICAAmericans’ concerns about the threat ofbig government continue to dwarf thoseabout big business and big labor, and byan even larger margin now than inMarch 2009. —Gallup Poll,December 12, 2011

PBS: BRINGING UPSCALE DRAMA TOUPSCALE VIEWERSViking River Cruises has signed on as“Masterpiece’s” corporate sponsor, fill-ing a five-year void that began whenExxon Mobil withdrew its support in2004. Viking will send mailers to cus-tomers pegged to the “DowntonAbbey” Season 2 premier. A corporatemessage will come on right after theshow’s host, Laura Linney, introducesthe program. “Our demographic isaffluent baby boomers, 55-plus,” saidRichard Marnell, Viking’s senior vicepresident of marketing. “We’d beenlooking for a broadcast partner thatreaches that group.”—New York Times, January 2, 2012

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