A lot of the opposition to Hank Paulson’s plan (voted down yesterday by the House) stems from the perception that it amounts to fat cats on Wall Street raping the taxpayer. According to Larry Kudlow, that’s not quite right:

Let’s walk through this hypothetical for a moment. Through a market-driven auction, the Treasury will purchase some dollar amount – say $100 billion – of loans that banks will sell. The Treasury will then buy those loans at the prices that fill the auction, starting with the lowest prices and working up. Now, the Treasury will hold those bonds either to maturity or for a sale in the open market if rising prices in the market make that sale attractive. In other words, suppose the Treasury buys a bond package at 20 cents on the dollar. They hold it for a while, and if market conditions improve, they sell it for 50 cents on the dollar to some buyer (e.g., an investment fund, a private-equity fund, a hedgie). The Treasury will make the sale at the higher price in order to gain a profit for taxpayers.

In the meantime, as the Treasury holds the loans, the government will get monthly cash-flows coming in on the mortgages, or on any other loans that it owns. So it is win-win for taxpayers. First, taxpayers get the cash flow generated by the assets. (Something like a 10 percent interest rate.) Second, if the loan is sold for profit, the taxpayers will own that profit. And the new law must of course stipulate that all the cash flows and/or profits go for debt-reduction to protect taxpayers.

As Kudlow describes it, the plan isn’t so much a bailout as a method of price discovery. Markets need prices to work, and if nobody is buying the troubled assets (which are surely worth something), then the market is stuck.

A related problem, as many commentators have argued, is that in the current environment of market duress, mark-to-market accounting rules force companies to unrealistically write down the value of these troubled assets. Kevin Hassett explains that under these rules

… when a run on a risky asset occurs, driving its value down, accountants then value the firm that holds that asset’s financial position at the latest market price. As the value of risky assets plunges, firms are forced to sell into the declining market to raise cash. Those sales drive the prices down further, necessitating even more sales.

The Securities and Exchange Commission can suspend mark-to-market accounting rules on its own authority without an act of Congress—meaning this reform could be accomplished with zero political theater.

Update: The Dow closed 485 points higher today. While interpreting the Dow is a bit like alchemy, it is worth noting this report:

“News that the SEC is working with FASB [Financial Accounting Standards Board] on ‘fair value’ accounting rules that could delay implementation of the onerous mark-to-market provision are giving stocks fresh legs higher,” according to analysts at Action Economics.

It’s not all bad news from the world of finance, says the Wall Street Journal today. The Journal argues that the FDIC’s handling of Wachovia was a creative and proactive way of heading off a bank closure.

Yesterday, the FDIC coaxed Citibank into taking over Wachovia. In order to get Citibank to assume Wachovia’s portfolio of $312 billion, the FDIC agreed to take on the risk of any losses from those assets that exceed $42 billion. In exchange, the FDIC gets $12 billion in preferred stock and warrants. Meanwhile, “Belgian and Dutch regulators recapitalized Fortis Bank, while in the U.K. another mortgage lender, Bradford & Bingley, was seized and sold to Spanish bank Santander.”

The Journal calls these preemptive steps “signs of progress” and a better model for dealing with troubled banks. For the taxpayer, it certainly seems cheaper than cleaning up a full-blown bank collapse.

The New York Sun has decided to shut down. That is sad. The Sun was a great newspaper.

In a note announcing the decision to close, editor Seth Lipsky commented: “… among other problems that we faced was the fact that this month, not to mention this week, has been one of the worst in a century in which to be trying to raise capital, and in the end we were out not only of money but time.”

We especially enjoyed the Sun’s editorial page, which, as Lipsky remarked, stood for the principles of “limited and honest government, equality under our Constitution and the law, free markets, sound money, and a strong foreign policy in support of freedom and democracy.”

The Sun will be missed.

Joe Klein gets a star for today’s silliest argument in favor of earmarks:

I don’t blame John McCain for not rounding up enough Republican votes to get this bailout bill through the House of Representatives—he’s not a member of the House, he’s never held a leadership position and therefore doesn’t know how to whip votes and finally—well, uh—there is one tried and true method for getting members of Congress to vote aye and McCain opposes it: a sweetener, like say, funding for a bridge in their districts. That is one reason why we have earmarks. McCain is opposed to giving away baubles for the greater good.

Regardless of where one comes down on the Paulson plan (we happen to think credit markets are stuck and need some help from the government), it should be fairly obvious that baubles are an inducement to vote contrary to one’s judgment about what is good for the country—otherwise, why would one need the bauble? So in Joe Klein’s universe, Congress would do a better job if more of its members voted contrary their judgments about the greater good. Even we don’t have that low an opinion of Congress.

Philadelphia magazine’s October issue carries an article offering a sobering lesson for those who think that running a technology business is within the competence of government.

As reporter Dan Lee tells the story, plenty of alarm bells went off when Philadelphia started looking at the idea of turning itself into one big wi-fi hotspot. But in 2001 the administration of John Street undertook the project anyway, believing the hype that municipal wi-fi would close its “digital divide” and make Philadelphia one of America’s next great cities. The project was supposed to be completed by February 2006. This past June, the company hired to build the network and provide the service gave up on the project and cancelled the accounts of those who had signed up. The cancellations affected all of 5,942 subscribers, only 908 of which were from the underserved demographic that defines the “digital divide” problem. The network remains incomplete, even though its price has tripled from original estimates.

The city could have saved itself the grief, reports Lee, if it had listened to the advice of Comcast, whose views were dismissed as those of an incumbent company trying to avoid competition from city-provided service:

The Comcast critique now seems stunningly prescient: Much of the business model’s calculations were based on faulty numbers and unrealistic expectations (i.e., 85,000 subscribers would join in the first year), and it ignored the need for technicians or service. The wi-fi technology, designed to make a contained space wireless, wasn’t geared for an entire city; the frequency couldn’t penetrate thick walls, or heights, or other obstructions. There weren’t adequate security considerations. There was nothing protecting the city should EarthLink — the Internet company the city forged an unprecedented alliance with —­ abandon the plan. By the time the network was up and running, new, more powerful “WiMax” technology (which Comcast and other companies are now actively pursuing) would be rising.

Of course, there’s a corruption angle to this story, too. The city put one Dianah Neff in charge of the project, and paid her an annual salary of $193,800. She ended up leaving in 2006 to become a senior partner at Civitium, one of the leading consulting firms on municipal wi-fi. Civitium had received consulting fees worth $500,000 from Philadelphia—fees authorized by Dianah Neff.  

Lee concludes:

In the end, there’s no evidence that wi-fi has narrowed the digital divide, or will. If the goal truly was to spread Internet availability in impoverished areas, wouldn’t it have made far more sense to build computer centers in those neighborhoods, a plan bandied about in the early days of the administration but ultimately set aside for wi-fi? Could something so conventional, so unsexy, so obvious, actually have brought the city far closer to greatness?

Hat tip: Adam Thierer at Technology Liberation Front.

Some events that caught our eye:

Monday
• FIND OUT if the young folks these days are smart and engaged or stupefied and indifferent. Mark Bauerlein, author of The Dumbest Generation: How the Digital Age Stupefies Young Americans and Threatens Our Future; and Neil Howe, author of Millennials Rising: The Next Great Generation debate at the American Enterprise Institute.

Wednesday
• TAKE IN some films that celebrate American values at the American Film Renaissance Film Festival.
• LEARN the nuts and bolts of consumer-driven health care at the Heartland Institute’s Consumer-Driven Health Care Workshop.

Thursday
• EXAMINE the challenges that lie ahead in the war on terrorism. The Heritage Foundation hosts Kenneth L. Wainstein, Assistant to the President for Homeland Security and Counterterrorism.
• DISCOVER what you don’t know about federal spending. Duane Parde, president of the National Taxpayers Union, gives a talk at the Independence Institute.

Friday
• LEARN what discounting has to do with climate change policy. Cass Sunstein and David Weisbach discuss at the American Enterprise Institute.
• HEAR James Pierson reflect on Camelot and the cultural revolution. Host Ashbrook Center.

For more events, visit InsiderOnline’s Conservative Calendar.

Another stimulus bill will spend more money without improving the economy, says Rea Hederman:

A revival of the Fairness Doctrine would inject government into the programming decisions of broadcasters. How would that work out, you might wonder? Would government merely use this power to promote views it likes and discourage views it doesn’t like?

The Obama campaign provides a clue: Yesterday, various Web sites reported that the campaign had sent letters to Ohio and Pennsylvania radio stations urging them not to run an ad by the National Rifle Association. Obama general counsel Bob Bauer wrote: “This advertisement knowingly misleads your viewing audience about Senator Obama’s position on the Second Amendment.” Bauer advised the stations: “For the sake of both FCC licensing requirements and the public interest, your station should refuse to continue to air this advertisement.” [Emphasis added.] Bauer went on to say that stations that engage in false advertising will be putting their broadcast licenses in jeopardy.

So, anybody want to give the government even more power to control broadcast content?

Things are looking up for the Polar Bear. Earlier this year, the Department of the Interior designated Polar Bears a threatened species based on computer models that projected global warming would melt away the Arctic sea ice that the bears need to hunt for food. But the trend of shrinking ice has been reversed somewhat.  

Every year, Artic sea ice goes through a cycle of growth and shrinkage as the seasons change. This year, according to the National Snow and Ice Data Center, Artic ice reached its seasonal minimum on September 12, four days earlier than last year. The earlier arrival of the seasonal minimum reflects a cooler summer compared to last year. September 12 is actually the average date of the seasonal minimum from 1979 to 2000.

The 2008 minimum covered 4.52 million square kilometers, which is 9.4 percent more than the 2007 minimum, though still 33.1 percent less than the average coverage by seasonal minimums from 1979 to 2000.

Actic ice extent will reach its seasonal maximum sometime in March. Will it cover more area than the 2008 maximum? Make sure to check back with the National Snow and Ice Data Center.  

Hat tip: Julie Walsh at OpenMarket.org.

People who claim to lead eco-friendly lifestyles and who are more conscious of environmental issues take the longest flights, according to a new study reported by the Guardian.

According to the researchers, people who regularly recycle rubbish and save energy at home are also the most likely to take frequent long-haul flights abroad. The carbon emissions from such flights can swamp the green savings made at home, the researchers claim.

Stewart Barr, of Exeter University, who led the research, said: “Green living is largely something of a myth. There is this middle class environmentalism where being green is part of the desired image. But another part of the desired image is to fly off skiing twice a year. And the carbon savings they make by not driving their kids to school will be obliterated by the pollution from their flights.”

Some people even said they deserved such flights as a reward for their green efforts, he added.

The article goes on to note that researchers believe the results reflect the fact that both environmental awareness and frequent flying are linked to income. Wealthier people do more of both.

The Bush’s administration’s bailout proposal includes a provision making the Secretary of the Treasury’s actions non-reviewable by the courts. Can they do that? At Slate today, Rod Smolla observes that while court-stripping provisions are not per se unconstitutional (because Congress does have the constitutional authority to define the court’s jurisdiction), the Court nevertheless frowns on laws that preclude judicial review of claimed violations of constitutional rights. He describes how such claims might arise:

Secretary Paulson’s proposal doesn’t mess with habeas corpus. But its breathtaking sweep would prevent a litigant from raising constitutional objections to his actions. You could imagine, for example, a suit claiming that the Treasury Department had engaged in a taking of property without just compensation or had deprived people of property without due process of law (neither is allowed under the Fifth Amendment). Or a litigant could sue Treasury for acting so arbitrarily or irrationally that his actions violated the 14th Amendment’s Equal Protection Clause.

The Heritage Foundation’s Todd Gaziano and Andrew Grossman likewise examine these concerns in their new paper “All Deliberate Speed: Constitutional Fidelity and Prudent Policy Go Hand in Hand in Fixing the Credit Crisis.” They argue that judicial review should be available for citizens claiming violations of their rights, and also that any bill needs to provide intelligible principles to guide the exercise of the Secretary’s discretion:

The existing drafts provide almost no meaningful standards to cabin the secretary’s discretion on what debt he may buy, for what purposes, to whom he may sell it, and on what terms. The definition of “troubled” assets is also unreasonably open-ended and not subject to judicial review. The two sweeping, subjective findings the secretary must make in the Administration proposal (three in the House bill) do not seriously limit his subsequent actions. Coupled with the existing limitation on judicial review, his discretion to manage “troubled” markets, “provide stability,” or “prevent disruption” is almost limitless. Equally important, that a particular market is “troubled” or that there is a risk of “disruption” is still a questionable ground for action if there is no legitimate government interest involved. The statute should set forth some objective criteria that connect the particular market problem with a traditional government purpose—e.g., currency stabilization. That connection should not be fictionalized or unreasonably tenuous, or it will simply serve as a bad precedent for other questionable delegations. With regard to all of these factors, the objective criteria must actually operate to guide and sometimes limit the secretary’s exercise of discretion and not merely serve as a hortatory preamble for congressional action.

Smolla also makes this interesting point:

Those who advocate for a bailout this week often conjure the dismal economic history of the Great Depression. There’s an apt legal parallel here as well. Many of the early laws passed at the behest of the Roosevelt administration during the New Deal were struck down by the Supreme Court precisely because they violated norms of checks and balances. While we have come to caricature those Supreme Court decisions as the shortsighted backlash of nine old curmudgeons who reflexively opposed the socialistic tendencies of the New Deal, perhaps it is worth remembering that the constitutional principles they invoked were grounded in the elemental balance struck by the framers. These principles are that Congress should pass laws based on intelligible policy judgments and not (literally) pass the buck to the executive branch, that executive-branch officials should administer laws subject to the guidance of Congress, and that courts exist to review the legitimacy of both.

Anyone interested in learning how an economic crisis can help rearrange a country’s constitutional order should read Richard Epstein’s How Progressives Rewrote the Constitution. (Cato podcast.)

So far, reports Frederick Hess, the data do not show that school choice has improved education in the school districts that have tried it. Today in The American, Hess points to studies finding little educational improvement in cities such as Milwaukee, Detroit, Youngstown, and Washington, D.C.—all places that have undertaken significant experiments in school choice. Further, he notes that the U.S. Department of Education’s National Center for Education Statistics has found: “After adjusting for student characteristics, charter school mean scores in reading and mathematics were lower, on average, than those for public noncharter schools.”

So is the verdict in? Were school choice proponents wrong? Hess remains an advocate of school choice, but he argues that reformers have conflated choice with markets and the latter is what we need:

Markets are about both supply and demand—and, while “choice” is concerned with emboldening consumer demand, the real action when it comes to prosperity, productivity, and progress is typically on the supply side.

Simply put, market reform is not just about choice; it is also about enabling market mechanisms to channel human energy and ingenuity into solving problems and satisfying needs. Dynamic markets require much more than customers choosing among government operated programs and a handful of nonprofits. Unfortunately, given an often casual faith in the power of choice, little has been done to eliminate the ways in which state regulations, licensure requirements, and funding systems stifle entrepreneurial ventures.

…

In Milwaukee or Washington, D.C., we see none of the social infrastructure that denotes vibrant market environs like Silicon Valley or Route 128 in Boston. There is no aggressive research and development, no pool of savvy investors screening potential new entrants and nurturing the most promising, and no outsized professional or monetary rewards for those who develop more effective operations.

Hess points out another problem: Public schools that lose students to charter schools or choice schools typically lose neither funding nor classroom facilities. Nor do school administrators receive a lower salary for serving fewer students. Without adverse consequences for poor performance, there is little incentive for school administrators to improve performance. In other words, the schools do not have to worry about competition.

If only regulators had prevented people from making bad decisions, then people wouldn’t have made bad decisions—so goes the tautological reasoning of the latest liberal sound-bite asserting that “free market religion” is responsible for the mess on Wall Street.

Today at The Foundry, Dave Mason looks at some actual facts, such as that the most significant regulatory action under President Bush has been, not deregulation, but rather the creation of a new regulatory authority, the Public Company Accounting Oversight Board:  

PCAOB’s job is to prevent unexpected bankruptcies due to over-valued assets. Its chosen method was a welter a new accounting rules. Not only did the rules not work, some commentators have pointed to the PCAOB accounting rules as triggering the current crisis.

One result of Sarbox was for capital to flee to private equity funds, or to London, beyond reach of the new rules. This capital flight weakened American investment banks by shrinking their markets. And by the way, the three companies that have required rescue were all regulated by PCAOB. Less-regulated private equity funds seem to be doing just fine.

It is true that the 1999 repeal of the 1930s-era Glass-Steagal Act, requiring separation of commercial and investment banking, represented significant deregulation. But that repeal was signed by President Clinton, and implemented enthusiastically by his regulators. A good thing too, since that deregulation allowed Wall Street’s two remaining investment banks to avoid bailouts this week by transforming themselves into commercial banks.

Another point: Liberal (as well as conservative) members of Congress question the breadth of new powers requested by the Secretary of the Treasury. They argue, correctly in our view, that there needs to be some limits and oversight. But if bureaucrats prospectively can make mistakes, then it is certainly possible that they have already made mistakes that have helped create the current crisis. Time to go beyond the sound-bites, liberals, and examine the government’s culpability in all this.

James Pethokoukis:

“The private market screwed itself up, and they need the government to come help them unscrew it.” So says Barney Frank, chairman of the House Financial Services Committee. Did Wall Street make mistakes? Absolutely. But so did our fellow Americans who took out loans that they shouldn’t have.

And so did Uncle Sam. The more you look at the history of the housing-spawned credit crisis, the more you notice Uncle Sam popping up, Zelig-like, in every scene. Fannie Mae and Freddie Mac were government-birthed entities that decided to buy securities tied to subprime loans. And it was government officials on Capitol Hill, the recipients of millions in campaign donations from the F&F lobby, who decided not to rein in those entities. You had the government’s Community Reinvestment Act nudging banks to make unsound loans. Government banker Alan Greenspan pushed interest rates too low for too long earlier this decade, creating an extreme financial situation that made the crazy Wall Street strategies look temporarily reasonable. And for decades, government has pushed higher homeownership as a national goal, via F&F as well as through the tax code, siphoning off resources that might have been better devoted to other economic sectors.

And now, folks like Barney Frank pretend government just showed up on the accident scene moments ago like an innocent passerby who wonders aloud, “Anyone here know what happened? Anyone?” I mean, how can we try to prevent future financial crises, or least minimize their damaging effects, if we delude ourselves on the causes of the current one?

If politicians seem in an eternal contest to woo voters with taxpayer dollars, one reason might be that fewer and fewer voters have to bear the cost of government spending. The Tax Foundation estimates that one-third of all tax returns that will be filed in 2009 will indicate zero tax liability. That’s up from 21 percent since 1990. The reason for the increase is that Congress has expanded many tax credits as well as created new ones. And the problem will get worse under the economic plans of either a president McCain or a president Obama. The Tax Foundation calculates that John McCain’s tax proposals will lead to 43 percent of tax-return filers having zero tax liability, while Barack Obama’s tax plans would lead to 44 percent of tax-return filers owing Uncle Sam nothing.

John McCain’s proposal for a health care tax credit accounts for most of the change under his plans. While we think this health care tax credit is a good idea (because it helps correct the current bias in the tax code toward employer-provided insurance), the Tax Foundation’s numbers are nevertheless a bracing reminder that the tax code needs reform. 

Some other problems: The Tax Foundation also notes that having too many deductions and credits in the tax code increases the difficulty and expense of complying with the tax code, produces very high marginal tax rates for those taxpayers in the phase-out range of a tax credit program, and increases the volatility of government revenues.

The near-collapse of short-term capital markets last week naturally calls to mind the stock market collapse of 1929 and the ensuing Great Depression. Many Leftists favor this comparison because they believe it points to the shortcomings of capitalism. But do they have their history correct?

In the most recent issue of Policy Review, Lawrence Stratton and Paul Craig Roberts argue that the historical verdict on the Great Depression as a crisis of capitalism is out of sync with the facts. As long ago as 1963, they point out, Milton Friedman and Anna Schwartz uncovered the real story in their ground breaking A Monetary History of the United States, 1857-1960: The Great Depression occurred, they argue, because the Federal Reserve responded to the stock market crash of 1929 and the subsequent banking crises by tightening the money supply instead of maintaining liquidity. As a result, banks facing the possibility of a run had to hold more reserves and couldn’t lend to businesses. Unemployment rose to 25 percent.

Further confounding the Leftist storyline is the fact that the New Deal’s alphabet soup of economic planning agencies failed to bring the country out of the depression. Don Boudreaux explains why:

It’s easy to blame the Depression for fueling socialist sympathies. But in his important book Depression, War and Cold War, economic historian Robert Higgs argues that socialist sympathies were responsible for the depth and length of the Depression. Higgs’ case is persuasive.

People will not invest if the prospect of their investments being nationalized—that is, taken from them by government—is real. Nor are people eager to invest when the public-policy regime is very vague. Significant uncertainty about tax rates and regulations cause investors to cool their heels.

Such a prospect of nationalization, along with regulatory uncertainty, was real throughout the 1930s. Although we know now that America never moved as far toward socialism as did Europe, Higgs points out that it was quite reasonable during that decade for investors to worry that widespread nationalization and tight government control of economic activity were in the cards. It’s not only that large numbers of intellectuals were confidently predicting that socialism was inevitable; more practically, the cascade of centralizing policies that was the New Deal signaled that Uncle Sam was indeed ready to transform the U.S. from a market-based economy into a socialist one.

Potential investors in the 1930s witnessing the creation, for the first time in American history, of large government bureaucracies—whose powers and reaches were still unknown—understandably stuffed their money into their mattresses rather than invest it in such an environment.

The Heritage Foundation’s Stuart Butler, Alison Fraser and James Gattuso have a new paper outlining some things that policymakers need to keep in mind as they ponder creating new authorities for the Department of Treasury to deal with the crisis in U.S. capital markets. Any new powers for the government, they say, should be strictly limited to the mission of maintaining liquidity to the market during the immediate crisis. Butler, Fraser, and Gattuso advise Congress:

• Do not prop up failed or failing institutions. The goal should not be to keep troubled enterprises in business but to ensure that they are restructured or wound down in a way that does not cause undue disruption in the financial system as a whole. Thus, for instance, policymakers did not try to keep Bear Stearns in business even though its sudden collapse would have disrupted U.S. financial markets. Instead the government assured its orderly acquisition.

• Do not try to support prices. Policymakers should not attempt to keep stocks or housing prices from falling to their proper market-determined levels. The role of the federal government is not to ensure that prices do not drop. Market practices such as “short selling” that tend to lower prices generally should not be discouraged—they are part of the process by which the marketplace determines value. Limits on such practices, however, may be appropriate as very short-term, emergency measures to “cool off” spiraling markets. Thus, the Securities and Exchange Commission’s actions to suspend all short selling on shares of specified financial services firms for up to 40 days will serve as a breather, but it should be lifted as soon as is prudent.

• Do not allow the government to become the permanent “owner of last resort.” Any assets acquired should be disposed of as expeditiously as possible. The Resolution Trust Corporation, which in the early 1990s acquired assets from failed thrift institutions, is one such model. Those assets were held by equity partnerships with private investors, facilitating sales. Any approach instituted to deal with this crisis should not allow the government to take ownership stakes in the institutions themselves but simply acquire assets.

• Strictly limit legislation to the immediate need to stabilize the financial situation. Within hours of the Bush Administration’s announcement of a financial rescue plan, there were media reports that congressional leaders were considering adding in provisions on a host of other issues, including unemployment benefits, food stamps, and infrastructure and Medicaid funding. Lawmakers should oppose any and all attempts to expand the legislation being proposed.

• Avoid “moral hazard.” Policymakers must ensure that all concerned have financial “skin in the game,” thereby providing incentives for them and others to act responsibly and discouraging others from seeking similar support. If a private firm is so integral to the financial operations of the economy that it requires assistance, the taxpayers’ financial exposure should be minimized and the managers and stockholders should suffer consequences for their miscalculations. In the Administration’s plan, moral hazard is not fully avoided. But if this plan or something like it is adopted, Congress must at least require financial institutions to receive a deeply discounted price for their assets, or pay a significant fee for assistance in liquidating their portfolio.

• Carefully define the Fed’s role. The Federal Reserve should exercise its “lender of last resort” responsibilities to ensure liquidity but avoid the unwarranted mission creep of those responsibilities to new fields. The Fed’s loan to provide funding for AIG, for example, was a measured extension of the classic “lender of last resort” function, which provided a way to get cash to illiquid but otherwise solvent enterprises. The action represented the first time, however, that such funding was provided by the Fed other than to a bank. Since AIG’s activities were so intertwined with that of the banking system, however, that expansion may have been justified. But that authority should not be expanded to other industries, such as manufacturers or airlines.

• Limit taxpayer exposure and keep actions temporary. Any new mechanism or authority to halt the deterioration in the market should ensure that affected firms pay a cost and be strictly limited in time and scope to minimize taxpayer exposure.

• Assure liquidity in markets but require full pricing of government insurance. Money market funds, a critical element in the flow of capital, have almost completely seized up in recent weeks. The Treasury’s actions to offer insurance are intended to restore confidence and allow capital to flow smoothly again. However, the Treasury must ensure that the price of any insurance fully reflects the market risk.

A few events that caught our eye:

Monday
• LEARN about the abolition of slavery in the Western Hemisphere. The Cato Institute hosts author Jim Powell.
• HEAR about an agenda for a human global economy from Rep. Thaddeus McCotter, Chair of the Republican House Policy Committee. Host: Intercollegiate Studies Institute.

Tuesday
• VIEW a screening of Flunked, a new documentary about what makes some schools rise above the mediocrity of the rest. Host: The Heritage Foundation.

Friday
• MEET fellow gun rights leaders and activists at the Second Amendment Foundations annual Gun Rights Policy Conference.

Saturday
• OBTAIN the tools, knowledge, and training you need to transform government at any level. Attend Solutions Day 2008 in Atlanta.

For events, visit InsiderOnline’s Conservative Calendar.

U.S. judges should be guided by U.S. law, not the judgments of foreign courts. However, there is one trend in foreign jurisprudence that U.S. judges should note: Other nation’s courts, reports the New York Times, are citing U.S. Supreme Court decisions less frequently than they used to:

From 1990 through 2002, for instance, the Canadian Supreme Court cited decisions of the United States Supreme Court about a dozen times a year, an analysis by The New York Times found. In the six years since, the annual citation rate has fallen by half, to about six.

Australian state supreme courts cited American decisions 208 times in 1995, according to a recent study by Russell Smyth, an Australian economist. By 2005, the number had fallen to 72.

The story is similar around the globe, legal experts say, particularly in cases involving human rights.

Since U.S. law is irrelevant to other countries’ law, this development is good news. U.S. judges, in turn, should stick to U.S. law and refrain from citing foreign law in their decisions.

Hat tip: Balkinization.

Here’s another reason to attend this year’s European Resource Bank: Mart Laar will be participating. As Prime Minister of Estonia in the late 1990s, Laar became a hero to the free-market movement by revitalizing the Estonia economy through tax cuts and privatization.

Come hear Laar and other fellow think tankers discuss the challenges facing the liberty movement in Europe. European Resource Bank will be held October 9 – 12 in Tbilisi, Georgia.

When governors negotiate contracts with public employee unions, they are supposed to be acting as the agents of the taxpayer. But are they?

In Investor’s Business Daily, Sonya Jones and John Lott, Jr. point out that Washington state Gov. Christine Gregoire is currently engaged in negotiations with the state’s employees while running for re-election. The employees’ unions, meanwhile, have contributed more than $1.5 million to the Evergreen Progress PAC, which has unleashed ads drubbing her Republican gubernatorial opponent.

Washington taxpayers on the other hand have no way of knowing what obligations they have been saddled with until after the elections. Jones and Lott observe:

By law, the contracts themselves are not public records until after the legislature approves the budget.

Even worse, while the negotiations are going on immediately before this fall’s election, the budget votes won’t occur until next year. Because of term limits, this November is Gov. Gregoire’s last election for governor, and she will never have to face the voters again after the contracts eventually become public.

Such a set-up is a problem in other states, too, note Jones and Lott:

Currently, 39 states lack any transparency for their public-sector negotiations. Michigan law goes so far as to explicitly prohibit any documents related to the negotiations from being disclosed. Other states don’t even let union members have access to the documents related to the negotiations on their behalf.

Twenty-three of those 39 states also have compulsory unionization for public employees, giving the unions access to tens of thousands of paychecks per state. Unions not only get to help re-elect the politicians who give them favorable contracts, they can impose dues on people who don't want to be union members to accomplish this.

And George Will, in one of his recent columns, details the generosity with which state and local governments, on behalf of the taxpayer, have undertaken promises to pay its public employees. Vallejo, California, went bankrupt because of its generosity:

… a police captain receives $306,000 a year in pay and benefits, a lieutenant receives $247,644, and the average for firefighters – 21 of them earn more than $200,000, including overtime – is $171,000. Police and firefighters can store up unused vacation and leave time over their careers and walk away, as one of the more than 20 who recently retired did, with a $370,000 check. Last year, 292 city employees made more than $100,000. And after just five years, all police and firefighters are guaranteed lifetime health benefits.

Pensions for public employees, says Will, are the biggest part of the problem, and they will become the next financial crisis to hit the country:

Pensions “are a perfect vehicle for procrastination; in the financial world, they are the most long-enduring promises that exist.” Human nature – the propensity to delay the unpleasant – rears its ugly head: When pension benefits come due, the people who promised them, thereby buying labor peace and winning elections, are long gone.

Our partner in policy mongering, Policy Experts, has been updated with new features that make it easier for you to find just the right policy expert or organization. A new edition of the biannual print version has also been released.  

The listing for experts now includes (where available) links to an expert’s curriculum vitae, resume, or biography. Also, you can now search for experts who speak a particular language. And search results can be saved for future use or even sending by e-mail.

The Policy Experts database, which is updated continually, lists over 2,500 experts and 700 policy organizations throughout the world. The database allows you to search for experts on the issues you care about. You can choose from 175 different issues classifications.

Don’t get Twitter? Then get the Twitter 101 Guide by the David All Group. It’s a great guide to the basics and includes some examples of how other people and groups are using Twitter.

By the way, you can follow the InsiderOnline blog on Twitter now, if you’re so inclined.

Eyeblast.tv has posted the first video produced by its “Porkbusters on Patrol” project, which gives video cameras to anyone who wants to make a video about wasteful earmarks in their area. The video below tells the story of a $4 million “landport” in Nashville.

Today is Constitution Day, and here is today’s very appropriate American Minute from William Federer:

“Done...the SEVENTEENTH DAY of SEPTEMBER, in the year of our LORD one thousand seven hundred and eighty seven.” This is the last line of the U.S. Constitution. A study by Professors Donald S. Lutz and Charles S. Hyneman, titled “The Relative Influence of European Writers on Late 18th-Century American Political Thought” published in American Political Science Review, 1984, revealed that after examining nearly 15,000 writings of the 55 writers of the Constitution, including newspaper articles, pamphlets, books and monographs, that the Bible, especially the book of Deuteronomy, contributed 34 percent of all direct quotes made by the Founders. When indirect Bible citations were included, the percentage rose even higher. Presiding over the Constitutional Convention was George Washington, who wrote ten days after his Presidential Inauguration to the United Baptist Churches of Virginia, May 10, 1789: “If I could have entertained the slightest apprehension that the Constitution framed by the Convention, where I had the honor to preside, might possibly endanger the religious rights of any ecclesiastical Society, certainly I would never have placed my signature to it.”

Does capitalism make people greedy? According to a new paper from The Heritage Foundation’s Center for Data Analysis, entrepreneurs give much more generously to charities than do non-entrepreneurs. Looking at tax return data, the authors of the paper (Guinevere Nell, James Sherk, and Paul L. Winfree) found that entrepreneurs at all income levels give a larger percentage of their adjusted gross income to charity than do non-entrepreneurs. The paper defines entrepreneurs as those who report more self-employment and business income than wages and salary. Nell, Sherk, and Winfree write:

Even entrepre­neurs with low incomes give generously. Entrepre­neurs in the bottom quintile donate 0.6 percent of their income. This is more than six times the rate for non-entrepreneurs in the bottom quintile. Entre­preneurs in the middle quintile give 2.7 percent of their income to charity, triple the 0.9 percent that non-entrepreneurs give in the same quintile.

It is also true at the top. Entrepreneurs in the wealthiest fifth of the population contribute 3.1 percent of their income, compared to 2.2 percent among non-entrepreneurs. Overall, the typical entrepreneur donates 1.8 percent of his income, compared to 1 percent for the person not running his own enterprise. In other words, the average entrepreneur gives 80 percent more of his income than someone who does not work for himself or does not own his own business.

The country lost a great social entrepreneur yesterday with the passing of J. Patrick Rooney. Rooney, 80, played key roles in promoting both school choice and consumer-driven health care. Rooney is considered the father of medical saving accounts for his work promoting the idea. Medical savings accounts, now called health savings accounts (HSAs), are proving to be a popular alternative to the traditional low-deductible, high-premium insurance plans purchased by employers for their employees.

Rooney’s insurance company, Golden Rule, began selling medical savings accounts in the early 1990s—even though the tax code at that time gave a huge advantage to traditional employer-provided insurance.

In 2003, as a result of lobbying by Rooney and others in the consumer-driven health care movement, Congress passed a law allowing anyone with a qualifying high-deductible health insurance plan to make tax-free contributions to a health savings account.

The idea was to take the premium savings achieved through the purchase of a high-deductible plan and give consumers an incentive to be careful shoppers. Consumers actually own the accounts, and money they don’t spend can be rolled over from year to year. The money is theirs until they spend it.  

Recent data indicate that the plans are succeeding at lowering medical bills while giving consumers another vehicle for tax-free savings. According to the group America’s Health Insurance Plans, 6.1 million people are now covered by an HSA/high-deductible plan.

In a recent report for the Washington Policy Center, Roger Stark writes:

There is now clear evidence that HSAs are helping to hold down rising health care costs. For employers with at least half their employees enrolled in HSAs, health care costs rose only 3.6 percent in the past two years. For companies that did not offer HSAs, the cost of providing health care coverage rose nearly twice as fast, by seven percent, during that same time period.

John Goodman, who is also considered the father of health savings accounts, says:

The passing of Pat Rooney reminds us just how much impact one individual can have on improving the lives of many millions with a commitment to reshaping state and national health care legislation.

Rooney also contributed to the school choice movement. In 1991, he created the Educational CHOICE Charitable Trust, which provides financial assistance to low income families in Indianapolis who want to send their children to private schools. As Andrew Coulson of the Cato Institute notes, Rooney’s effort became the model for many similar programs around the country:

Today, school choice programs in six states offer tax credits to businesses or individuals who donate to such scholarship organizations (Arizona, Florida, Georgia, Iowa, Pennsylvania, and Rhode Island).

For every dollar donated, the donor’s tax bill is reduced by anywhere from 80 cents to a full dollar. Scholarship donation tax credit programs have grown faster than other kinds of private school choice programs, and have garnered more bi-partisan support. In Florida, the newly appointed director of the state’s largest scholarship program is a former public school teacher and union leader. A recent expansion of that state’s education tax credit program garnered the support of half of the black Democratic caucus. Two leading advocates of creating such a program in New Jersey are Newark Mayor Corey Booker and state senator Ray Lesniak, both Democrats.

Milton Friedman laid the theoretical groundwork for the modern school choice movement, and J. Patrick Rooney was one of the leading social entrepreneurs who helped bring that theory to life.

The Insider is honored to have been able to publish an article authored by Pat along with Dan Perrin in its most recent Summer 2008 issue. In that article, once again, Pat took up the cause of consumers burdened by a law created for the benefit of organized interests: the prohibition against selling individual health insurance across state lines.

Lately, one hears a lot of political operatives openly declaring class warfare, blaming greedy finance executives for ruining the economy. Pat Rooney was an insurance executive who understood how government policy had screwed up the insurance market. And he did something about it. We need a few more voices like Pat Rooney’s today.

Some events that caught our eye:

Monday
• GET an overview of the recent happenings in finance, including what to do about Fannie Mae and Freddie Mac. The Shadow Financial Regulatory Committee will meet and issue statements at the American Enterprise Institute.

Tuesday
• PREVIEW the Supreme Court’s October 2008 term. Host: Washington Legal Foundation.
• EXAMINE the role that missile defense can and should play in protecting America. Host: The Heritage Foundation.
• LEARN how the unilateral lowering of trade barriers offers a better way of promoting free trade than negotiated trade agreements. The Cato Institute hosts Razeen Sally, who talks about his new book, New Frontiers in Free Trade: Globalization’s Future and Asia’s Rising Role.

Wednesday
• EXAMINE the recent and upcoming terms of the Supreme Court at the release of the annual Cato Supreme Court Review.
• CELEBRATE Constitution Day by taking in a lecture on constitutional reverence by Jeffrey Sikkenga. Host: Ashbrook Center.
• LEARN how bad policies have put America one bad storm away from a catastrophic insurance crisis. Host: Competitive Enterprise Institute and South Carolina Department of Insurance.

Thursday
• FIND OUT what’s wrong with Latin America, from the Acton Institute’s Samuel Gregg.
• EXPLORE the connection between the Soviet Union’s mass murder of its own citizens and the Third Reich’s Final Solution. The Heritage Foundation hosts a screening of The Soviet Story.

Friday
• ASSESS a private-sector alternative to Fannie Mae and Freddie Mac. Host: American Enterprise Institute.

For more events visit InsiderOnline’s Conservative Calendar.

Taxpayers will end up paying billions to backstop Fannie Mae and Freddie Mac’s obligations. That writing was on the wall even before the federal government announced this past Sunday that it was taking control of the two government-sponsored enterprises.

But the need to act should have been regarded as an opportunity to cut the taxpayers losses by getting them out from under the burden of the “too big to fail” model. Instead, Secretary of the Treasury Henry Paulson chose to put the two companies into a conservatorship, which contemplates the possibility of returning them to the control of the shareholders with all the same government-provided advantages that created the problem in the first place. Paulson could have chosen to put Fannie and Freddie into a receivership, which would have led to either liquidation, privatization, or nationalization.  

Amazingly, notes Peter Wallison, Paulson’s plan actually makes it harder to do the right thing now, because it creates an incentive for the government to see Fannie and Freddie survive as going concerns:

The Treasury Department also has allocated up to $100 billion for equity investment in the companies. Yet if Mr. Paulson simply wanted to keep Fannie and Freddie functioning, no capital investment by the U.S. Treasury would be required (although the taxpayers will have to bear the losses incurred thus far). Capital is necessary for a business corporation mostly to reassure lenders about the organization’s ability to meet its financial obligations. Since Fannie and Freddie’s debt will now be backstopped by the Treasury, such reassurance is unnecessary.

Instead, the taxpayer-funded capital injection contemplated in the Paulson plan seems to be a down payment on what will be required to return the companies to profitable operations. The Treasury Department has received preferred stock and warrants for the purchase up to 79.1% of Fannie and Freddie’s common shares at a low price. Both would be worthless unless the companies become profitable. But any gains to taxpayers should be of little consolation; we will once again be saddled with two companies that create enormous risks for the financial system and deliver little or nothing for taxpayers or homeowners.

Wallison also notes, however, that the Secretary does have the authority to convert a conservatorship into a receivership. Given that Fannie and Freddie have been particularly adept at buying political support in the past, punting the issue to Congress is not the best way of protecting taxpayers.

We’ve heard good things about the movie An American Carol, which premiers October 3. Check out the trailer:

The Tax Foundation has a new YouTube video contest: Make the best video telling the story of how high business taxes are hurting America’s economic competitiveness, wages, and living standards, and you’ll win $5,000.

Get the contest details.

The Foreign Policy Research Institute has put together a page of resources for students to learn more about 9/11.

September 22 is “Car Free Day.” Should you feel guilty for driving? And are the observers of “Car Free Day” really helping the planet? Investigate and post a video response at YouTube, and you could win two free tanks of gas from the Competitive Enterprise Institute:

James S. Dobbins comments:

The 9/11 Commission concluded that our greatest failure in the period leading up to the attack was one of imagination. We had sacrificed the initiative to the terrorists, and they made the most of it. But no longer. The most important change wrought by 9/11 has been the willingness of the United States to take action. Some ambivalence has been replaced by vigilance. We push out, we take risks. Sometimes we pay a price for being so assertive, but we have not had to relive what al-Qaeda called “Holy Tuesday.”

How long will this continue? Success in the war on terror has bred a measure of complacency. The victories we have won are rarely reported in detail. But the heroes are still out there, doing their jobs every day. Much of the war on the terrorists is by necessity secret, but if kept under too many wraps the public might conclude nothing is going on at all. The costs of the war become more apparent than the benefits. Ironically the post-9/11 reforms are being undermined by their very effectiveness.

Kim Holmes says U.S. diplomacy needs to stop relying on institutions and alliances created during the Cold War—i.e., the United States needs alternatives to NATO and the United Nations:

It’s time for a “Global Freedom Coalition,” a mechanism that would enable free nations to better coordinate their security policies.

It would consist of freedom-loving nations from all over the world who share the values, interests and capacities to defend liberty against terrorism and aggression.

It would be voluntary and with as little bureaucracy as possible.

It would be an association in which Poland or Estonia could sit across the table from Japan, Australia or even India to discuss global problems such as terrorism, nuclear proliferation, cybersecurity or whatever happens to be on the international security agenda at the time.

This coalition would be smaller and more focused than a community or league of democracies. One of the reasons why the Community of Democracies has been ineffective is because it is too large and its mission too unfocused.

A coalition of 20 to 30 free nations dedicated to solving specific security problems would be far more effective than a group of 100 or so countries talking nonstop about what divides rather than unites them.

The world needs more tax havens not fewer, says Dan Mitchell in the Center for Freedom and Prosperity video below.

On Sunday, the federal government announced it was taking control of financially troubled Fannie Mae and Freddie Mac through a conservatorship. That may seem like bad news for taxpayers, but it really depends on what happens next. Taxpayers have been on the hook for Fannie and Freddie’s losses long before Sunday. The backing was implicit when the two mortgage market makers were considered “too big to fail.” The backing has been explicit since July 30, when Congress approved Treasury’s plan to shore up Fannie and Freddie with loans and equity investment.

Unlike the July 30 action, the conservatorship at least gives the government some ability to protect taxpayers’ interests. Under the plan announced by Secretary of the Treasury Henry Paulson, the government gains an 80 percent stake in the companies, and appoints new management. Further, dividend payments and voting rights for existing shareholders are suspended. But a conservatorship is at best a temporary de facto nationalization of the business of selling mortgage-backed securities. The danger is that it will lead either to a permanent nationalization or to Fannie and Freddie emerging from a conservatorship as reconstituted private entities retaining all the same privileges that gave them their “too big to fail” status in the first place. Special interests will push Congress in those directions. Unless Fannie and Freddie are truly privatized, taxpayers will face either another bailout down the road, or a government-run mortgage insurance business that primarily serves specials interests.

Cato’s William Poole makes the case for privatization:

if [Fannie Mae and Freddie Mac] were put out of business in an orderly fashion over 5 to 10 years, the market would pick up the business they abandon. Fannie and Freddie exist to provide guarantees for mortgage-backed securities trading in the market. The business is simply insurance.

There are lots of insurance businesses around: property, auto, life and many others. These markets work fine without any government-sponsored enterprises. They are not highly concentrated into a small number of dominant players whose failure would threaten the entire economy; rather, lots of companies compete and spread the risk. Indeed, there are well-established firms in mortgage insurance, but their growth has been stunted by the special advantages Fannie and Freddie enjoy.

In fact, there has already been a test case for how the mortgage market would function without Fannie and Freddie. After an accounting scandal in 2005, regulators severely constrained their activities. The nation’s total residential mortgage debt outstanding rose by $1.176 trillion in that year, even though Fannie’s and Freddie’s stakes rose by only $169 billion, just 14.4 percent of the total.

In his statement on Sunday, Secretary Paulson said: “Policymakers must view this next period as a ‘time out’ where we have stabilized the GSEs while we decide their future role and structure.” Lawmakers should act soon while the lessons of Fannie and Freddie’s failures are most obvious. Hopefully, one lesson lawmakers are learning is that a system of profit-side capitalism/loss-side socialism is always a bad deal for taxpayers.

Lots of folks are commenting today on the Treasury plan:
• “Weekend at Henrys,” Wall Street Journal, September 8, 2008.
• “Housing Reforms Built on Sand,” National Review, September 8, 2008.
• “Morning Bell: Big Government Fails Again,” by Conn Carroll, The Foundry, September 8, 2008.
• “Fannie and Freddie’s Government ‘Takeover’—Truth in Advertising at Long Last,” by John Berlau, OpenMarket.org, September 8, 2008.

Here’s a reading list for background information:
• “Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer,” by Arnold Kling, Cato Institute, September 8, 2008.
• “Fannie Mae and Freddie Mac: Avoiding the Next Big Mistake,” by David C. John, The Heritage Foundation September 4, 2008.
• “Fannie and Freddie by Twilight,” by Peter J. Wallison, American Enterprise Institute, August 26, 2008.
• “America’s Obession with Housing Hobbles Growth,” by Amity Shlaes, American Enterprise Institute, August 20, 2008.
• “To Big to Fail, or to Survive,” by William Poole, the Cato Institute, July 27, 2008.
• “Congress Should Fix the Fannie Mae and Freddie Mac Mess,” by David C. John, The Heritage Foundation, July 15, 2008.
• Privatizing Fannie Mae, Freddie Mac and the Federal Home Loan Banks: Why and How, by Peter J. Wallison, Bert Ely, Thomas H. Stanton, American Enterprise Institute, 2004.

Sally McNamara on Russia’s invasion of Georgia:

British firms are finding Ireland’s low corporate taxes very tempting. In the spring, the pharmaceutical firm Shire and United Business Media decided to leave the United Kingdom and reincorporate in Ireland. Last week, the engineering firm Charter and the office space management firm Regus did so as well. Meanwhile, Henderson Global Group Investors and Brit Insurance are actively considering relocating to Ireland.

The Telegraph reports:

Charter yesterday spelt out the reasons for its decision to quit the UK, highlighting the overseas nature of its business and the fact that it has made investments worth more than £100m in areas such as China, central Europe and South America.

The company said that by moving out of the UK, it would be able to "provide a suitable platform on which to develop and expand Charter's businesses internationally and will lead to a lower overall tax rate and lower tax compliance costs than would be achievable if the ultimate parent company of the Charter Group were to remain in the United Kingdom."

The Tax Foundation’s Scott Hodge comments:

The U.S. corporate tax regime is similar to the U.K. system in that it taxes companies on their worldwide earnings rather than on just the profits earned domestically. U.S. firms are even more disadvantaged than U.K. companies because the combined federal-state corporate tax rate is 39.3 percent, the second highest among industrialized countries.

The flight of companies from the U.K. has been a wake-up call to the British government. The question is, whether American politicians react to the early warning signs before it is too late.

The grand daddy of all think tanks, the Institute of Economic Affairs, has launched a blog. Check it out. The first post, by John Blundell, is about how Britain’s police can become more efficient by cutting down on paperwork, spending more time on patrol, and making “the beat” the path to career advancement for officers.

These are the things, says Blundell, that Lowell, Mass., did to accomplish as 70 percent reduction in crime.

Constitution Day is coming up—September 17. A good way to celebrate is to learn a little bit more about the most revolutionary document in the world—or help someone else learn more.

Good sources of online information include The Bill of Rights Institute; Ratification of the Constitution, a product of the Ashbrook Center; and Founding.com, a project of the Claremont Institute. (The forthcoming fall issue of The Insider will feature an article on the Bill of Rights Institute.)

Also you might consider rummaging through The Heritage Guide to the Constitution, which provides a clause-by-clause analysis of the entire Constitution and includes contributions from the leading constitutional scholars in the country.

Recently, the Atlanta Committee for Heritage decided that the Guide would be a great resource for Atlanta-area students. The group, which is affiliated with The Heritage Foundation, donated a copy of the Guide to each of the 117 public schools and 68 private schools in Atlanta and the 10 surrounding counties. Said committee member John McNair: “The Constitution is the most important government document we have. I thought, ‘How can we get this book out to the community, and in particular to students?’”

Nice work, Atlanta Committee!

In Saudi Arabia, the school year is starting up again, and it appears that Saudi officials have failed in their commitment to remove the hate-mongering lessons of Wahhabi from the textbooks used in Saudi schools. Two years ago, in discussions with the United States, Saudi Arabia pledged to clean up the text books. New text books have since been published, but a recent analysis by the Hudson Institute has found that many of the same troubling passages remain. The Hudson report summarizes the lessons of the text books:

These texts teach students that there exist two incompatible realms – one consisting of true believers in Islam, the monotheists, and the other of infidels or unbelievers – and that these realms never coexist in peace. They assert that unbelievers, such as Christians, Jews, and Muslims who do not share Wahhabi beliefs and practices, are hated “enemies,” and that true believers should aid and show loyalty only to other true believers. These texts teach that Christians, Jews, and others have united in a war against Islam that will ultimately end in the complete destruction of these infidels. The books promote global jihad as an “effort to wage war against the unbelievers.” In these lessons, no argument is made that such references to jihad mean only spiritual struggle and defensive warfare. Some Saudis themselves have linked the Kingdom’s educational curriculum to patterns of violence in young Saudi men.

In the lessons examined in this report, the Saudi government discounts or ignores passages in the Qur’an and in the accounts of the life of the Muslim Prophet Muhammad that support tolerance. This is in striking contrast to the Saudi government’s invocation of just such passages when it addresses Western audiences. In the international arena, the Saudi government argues that there is no religious coercion in Islam and that the Islamic tradition supports “inalienable human rights” and the peaceful coexistence of Muslims with other religious believers. These are the types of arguments that the Saudi government needs to make in its own textbooks and educational materials in place of lessons that sanction and promote violence and extreme intolerance.

These text books are used to teach young impressionable minds throughout Saudi Arabia, and also those at 19 academies outside of Saudi Arabia. One such academy, the Islamic Saudi Academy, is located in northern Virginia. Fairfax County officials, concerned that a school in its jurisdiction might be teaching an ideology hostile to Western civilization, have asked the State Department to help it determine an appropriate course of action regarding the Islamic Saudi Academy. The State Department has declined to do so, claiming it lacks jurisdiction. But according to Ryan O’Donnell and Jim Phillips of The Heritage Foundation, the Foreign Missions Act gives the Secretary of State authority to declare that the academy is a foreign mission of the Kingdom of Saudi Arabia and order it closed if she determines it is operating contrary to the interests of the United States.

O’Donnell and Phillips recommend that the Secretary of State consider using this  authority in order to “ensure  that an intolerant, violent ideology hostile to the United States is not allowed to establish a beachhead in northern Virginia …”

The U.S. Department of Agriculture—the department charged with ensuring the safety of the nation’s food supply—may forbid a private company from spending its own money to test its own cattle for “mad cow” disease. That’s the upshot of a recent ruling by the U.S. Court of Appeals for the D.C. Circuit.

In Creekstone Farms Premium Beef v. USDA, Creekstone Farms had challenged USDA’s authority to forbid its use of a so-called rapid BSE (Bovine Spongiform Encephalopathy) test. The USDA itself uses the tests to check for BSE in 2 percent of the beef produced in the United States. Creekstone did not claim that testing would make its beef safer, but said it merely wanted to be able to sell its beef in countries that require such testing. The Court of Appeals upheld the USDA’s authority.

Jonathan Adler, law professor and blogger at Volokh Conspiracy, has a post running through the possible explanations for the USDA’s initial action of barring the use of a test that poses no safety issues and doesn’t cost taxpayers any money. Adler believes that USDA feared Creekstone’s use of the test would lead consumers to believe that untested beef from other U.S. companies was unsafe, which would hurt the industry.

Adler says that while it is true that the risk of BSE is infinitesimally small (and therefore the test does not really improve safety), the USDA’s heavy-handed approach here may have the long-term effect of discouraging the development of private testing options to deal with other food safety problems.

Hat tip: Hans Bader at OpenMarket.org.

If more supply and lower prices aren’t reasons enough for Congress to open up U.S. lands and coastal areas for more energy exploration and development, Hurricane Gustav suggests another: Greater geographic diversity in energy sources would limit the impact that an extreme weather event could have on our energy supply.  

Early reports are that hurricane Gustav has not done as much damage to the Gulf’s oil-producing infrastructure as was expected. Before the hurricane hit, oil prices had risen slightly on expectations of some disruptions, but have now fallen more than $10 per barrel on the New York Mercantile Exchange since Sunday’s special trading session.  

But the next hurricane—like the previous one that hit New Orleans—might be worse. As the Heritage Foundation’s Ben Lieberman notes, 25 percent of U.S. oil production comes from the hurricane-prone central and western Gulf of Mexico. Further, a significant amount of infrastructure critical to the industry, like pipelines and refineries, is located in or near the Gulf.

The vulnerability of our supply could be eased if Congress declines to renew the moratorium on offshore drilling that currently affects 85 percent of the coastal areas of the Atlantic, the Pacific, and the eastern Gulf of Mexico. Currently, the moratorium will expire on September 30. Also helping would be opening up the Alaskan National Wildlife Refuge and public lands in the Midwest to oil and natural gas development.

The Acton Institute is releasing a series of shorts that supplement its recent documentary, The Birth of Freedom. Acton plans to release one short every Monday. Check out the first one below.

Adam Thierer reports that another four months have passed since he last complained about the Federal Communications Commission’s failure to release its annual competition report. That makes the report, which is required by law, 18 months overdue. The failure of the FCC to issue the report in a timely fashion has raised suspicions that the agency is trying to “cook the books” in order to trigger an obscure provision of a 1984 law that would give the agency more power to regulate the cable industry.

It certainly seems like folly to put the FCC in charge of collecting data that could give the FCC more power to regulate. But, that’s what Congress did. Meanwhile, we should wonder: Should an agency that can’t issue reports as required by law be trusted with the power to decide which business models are acceptable for the Internet?