Cato’s Slippery Slope: How the Institute of Liberty Squashed Freedom of Speech

Once upon a time there lived a scholar named Andrei Illarionov, a prominent free market economist who at some point became a senior economic advisor to the Russian government at the end of the 1990s. Yet, in the early 2000s, he quit on the new Putin regime.  Illarionov became disgusted with the growing authoritarianism of his boss, who was slowly but surely squashing private businesses, increasing the powers of the secret police (who are the untouchable ruling elite in current Russia) and enlarging governmental bureaucracy.

Andrei Illarionov

The place that gave Illarionov a chance to pursue his scholarship and to further exercise his criticism of the Putin regime was Cato Institute, a libertarian think tank in Washington, DC that hired him in 2006.  Hiring a prominent dissident scholar who quit a lucrative and well-paid governmental position and who was raising his voice against the autocratic regime is very commendable and very libertarian.  Furthermore, after securing his position, Illarionov returned to Russia a few times, where he took part in the antigovernment street protests, firmly supporting anti-Putin opposition forces. 

The professor also became active in social media and on YouTube, drawing millions of viewers on various Russian-language channels and sites.  Besides, he regularly published his pieces in a personal LiveJournal. I liked and agreed with some of his assessments, especially the ones that analyzed the 1990s reforms in Russia, and Putin’s crony capitalism.  I also became drawn to his insights into existing threats to the values of Western civilization coming from the current US and European woke mainstream that increasingly breeds intolerance, “tribalism,” racial animosity, erodes the rule of law, and undermines constitutional values.  At the same time, some of his other assessments aroused my skepticism.

As a popular social scholar, Illarionov became part of current debates in the Russian-speaking internet community, speaking on topics ranging from the Putin regime to the notorious corona and to the woke cancel culture that currently suffocates American pollical, intellectual, and cultural life.  Some people agreed with him, whereas other rebuked him – a normal process in a normal democratic republic.  And everything was OK in the life of the scholar until January 6, when the “storming” of the Capitol building took place and when suddenly the Cato Institute decided to quickly get rid of him.

Now I must expand on what Illarionov said about the January 6 event. This is not to convince the reader whether he was right or wrong but to give some context to the story that will be unfolded below.  For this reason, I ask you to bear with me.  First, the scholar dared to question the validity of the voting in the five swing states and suggested in his Russian-language blog that the whole “storming” business and the passivity of Washington DC officials and the Capitol police, several of whom let the “insurrectionists” in, somewhat reeked of the so-called Reichstag fire – an incident that had opened doors the ascension of totalitarianism in Germany in 1933.

Then, in the same posting he dared to come up with a few other “uncomfortable” statements. For example, Illarionov remarked that, if we went by the one person-one vote rule, the winner of the US elections was clearly Joe Biden; yet, if one went by the constitution (the electoral college), the results of the elections in swing states were rather murky, considering the lax corona mail-in voting rules that were railroaded into our society at the last moment.  By refusing to even consider Trump elections lawsuits, the US court system failed to play the role of an independent umpire and missed the opportunity to validate the quality of the presidential elections in the eyes of people.  Illarionov stressed that, since about 40% of American voters, including 73% Republicans, questioned the results of the swing states’ elections, it was essential to take extra legislative and judicial steps to check and verify those results to regain the popular trust into US electoral, judicial, and political system rather than to simply jump to announce the winner of the 2020 elections.

The scholar also shared his personal experience of being in downtown Washington on January 6 among tens of thousands of protesters who were walking along the Pennsylvania Avenue toward the Capitol and who were insulted by tiny groups of BLM supporters who shouted obscenities at the demonstrators. The latter either responded with such phrases as “Join us” or warned each other by saying, “No violence,” and “Don’t touch them, they want to instigate a fight.”

Illarionov also drew our attention to another “uncomfortable” fact: none of the “insurrectionists” who broke into the Capitol building used weapons against police. Later, FBI confirmed that among all arrested for “storming” the Capitol no one faced firearms-related charged and no arms were recovered.  It was in fact the Capitol police that shot one of the protestors: a veteran air force officer named Ashlie Babbitt; Illarionov nevertheless found it necessary to add that a Capitol police officer was hit in his head by a fire extinguisher, which turned out to be a fake information spread by the mainstream media, including New York Times.  In reality, the man died after the incident and the cause of his death was completely different.  Yet, the mainstream media and democratic legislators for the whole month cynically exploited the original “fact” of his death to amplify “insurrectional” dimension of the January 6 break-in and present the officer as a martyr for the cause of democracy.

A few days after Illarionov came up with those and other LiveJournal remarks, popular Politico condemned him , distorting his utterances and ascribing to him what he never said. Politico insisted that the scholar denied the results of the US elections and argued that January 6 event was a trap set by police following a deliberate provocation by BLM activists with a silent agreement of Democrats.  Ironically, after Cato rushed to ditch Illarionov, it was revealed that, besides Trump supporters who rushed into the building, there was indeed an Antifa and BLM sympathizer, a provocateur named John Earle Sullivan, who too took part in the “storming” of the Capitol.  Sullivan was arrested for vandalism and directly inciting violence while being inside the building. Dressed in a “Trump garb,” he was caught on tape by encouraging the right to be more assertive and aggressive. But the story does not end there. An additional and cruel irony was a publication in Time magazine, a mainstream liberal publication, which literally bragged about how Democrats, “decent” Republicans, Big Tech, and their radical Antifa and BLM informal allies worked together in a united “shadow campaign” to orchestrate changing election rules, purging media of “wrong” opinions, and enhancing mass street protests to “fortify” the elections in the “correct” direction for the greater cause of “saving democracy.”

What was stunning in that situation was not Politico’s public condemnations and bot the content of the scholar’s utterances but a reaction of the Cato Institute, Illariniov’s employer, that too denounced the scholar and began an internal investigation of what he said about the 2020 elections and how he said it, which led to his immediate dismissal a few days later. 

The whole Illarionov incident reveals not only how quickly our intellectual mainstream has degenerated for the past year by moving fast forward toward the elimination of the constitution’s first amendment.  What is the most appalling here is that it was the administration of the libertarian think tank that, instead of dismissing outright any attempt to penalize the scholar for what he said and how he said it, followed the lead of an academic snitch, initiating an investigation and purging him in a lightning speed.  It is hard to figure out what drove the minds of the Cato scholar-bureaucrats when they made an instant decision to crucify Illarionov for saying things they did not agree with. Did Cato fear that, being in the den of the DC “deep state” area where 91% of people vote Democrat, they could be cut from the available publicity venues and networks they established in the Washington area?  Or could it be a simple opportunism – a fear that Cato could become a target of the woke mob if it did not throw the sacrificial lamb to the pack of the cancel culture wolves?

I never heard about progressive scholars losing their jobs over calling Trump an illegitimate president and insisting that the 2016 elections were a fraud perpetrated by massive Russian interference; in fact, it was an acceptable mainstream discourse for the past four years.  Moreover, neither academic nor state and federal bureaucrat was penalized by losing his or her job for endorsing BLM, whose mass rallies last summer were responsible for urban pogroms (destructive property damages in the amount of more than $1 billion, 25 people killed , and 2037 police officers wounded). No academic or politician was disciplined for raising funds to bail out “racial justice” rioters that were looting and burning stores, court houses, smashing statutes, and intimidating people. Both the left and the right know full well that, except spent time, public posturing as a “civil rights activist” or “minority advocate” hardly cost a person anything morally, politically, or financially.  In fact, in government and especially in academia, which is currently held in tight grips of the left hegemony (I have borrowed the latter word from the leftist jargon), such posturing can be an excellent career booster.  The first analogy that comes to my mind in this case is the officially endorsed and politically correct activism, which motivated millions of opportunists and would-be young apparatchiks in “good” old socialist countries of Eastern Europe and Soviet Union. 

I am sure many in academia carry the abovementioned activities on their sleeves as the badge of honor.  In fact, as early as 2011, in several universities, left-leaning instructors began incentivizing students by trying to make a participation in demonstrations for “progressive causes,” including the 2018 Kavanaugh hearings, part of their social science course work and offering students brownie points in a form of extra credits. By the way, among the leftist protesters who “stormed” the Capitol that year, 227 were arrested for obstructing the hearings and harassing congress people they did not like.  Nobody (and rightly so) ever thought about treating them as insurrectionists, and their only penalty was meager fines of $35 to $50. Better than anything, such state of things tells us about who currently represents the power elite in the country and who really calls the shots in our political, intellectual, academic, and cultural mainstream. 

The Illarionov incident is not something extraordinary. It is unfortunately a manifestation of the systemic (another favorite word of choice among the current left) impact of the cancel culture or, putting it simply, an ideological witch hunt, in our cultural and intellectual mainstream.  The cancel culture flourished in earnest last summer, when those people who refused to endorse urban pogroms and false BLM claims about thousands of unarmed black people being murdered by white police were routinely silenced, ostracized, and fired.  National Association for Scholars recorded 128 of cases in US and Canadian universities, where people with predominantly conservative and libertarian views (along with several leftist academics!) were silenced by their schools when they expressed “incorrect” opinions on various racial and political issues. Among them one can find, for example, Professor Gordon Klein, UCLA, who “incorrectly” responded to a request to postpone final exams for black students in his online course (in the wake of the George Floyd death) by saying that he intended to treat everybody equally irrespective of their skin color.  Legal scholar John Eastman from Chapman University made a mistake to speak at the January 6 rally that prompted the university to force him into retirement.  In its turn, Duquesne University immediately fired its professor of educational psychology Gary Shank for using N-word in his class to simply illustrate how the word was used in the past: the professor wanted to make a point about the progress of race relations in US! Even though several of the fired people were restored in their employment, the draconian McCarthyism-like message is very clear: toe the line or else. 

Petrified of potential accusations in racism and bigotry, corporations, universities, state institutions, just in case, literally bow down to the aggressive woke mob, morally disarming themselves and the whole society, planting in our midst the atmosphere of fear and self-censorship that reeks of Stalin’s Russia and Mao’s China during their “best” days. Not infrequently, for the past months, we have been witnessing the communist-style practices when “progressive” people have been routinely denouncing their colleagues and relatives (on many occasions retroactively for past “sins”) for being “reactionaries” and “racists.”  Moreover, most recently, the cancel culture practice has reached grotesque proportions, when family members report to FBI their relatives if they happened to be participants of the Trump January 6 rally.

The Cato Institute that shut down Illarionov should remember the famous “First they came after” confession credo from German Lutheran pastor Martin Niemöller (1892–1984) who referred to the cowardice and compliance of German intellectuals and clergy during the time of national socialism. And sure enough, we already have radical voices among Democrats who have suggested to phase out and deprogram not only conservatives but also libertarians. If current woke censorship and self-censorship escalates further, tomorrow there might be nobody left to protect Cato.  This liberty institute claims that it works to enlighten our society to “better understand and appreciate the principles of government that are set forth in America’s Founding documents.”  Something tells me that the woke mob, which does not care about these founding documents, will not spare the cautious and politically correct preachers of constitutionalism.

Andre Van Doren, a humanities scholar of a Polish-American extract, who is interested in the issues of political economy and culture. He can be contacted at, the list of his publications can be found at

From the Comments: who is the conservative or libertarian equivalent of Nancy MacLean?

Rick posed a great question about Nancy MacLean awhile back. I haven’t been neglecting it. I’ve been thinking about it. Here it is:

Question for those more abreast than me: do conservatives or libertarians have an equivalent of Nancy MacLean? All sides have irresponsible pseudo-scholars, but how often do the various camps launch one of them to undue prominence instead of just ignoring them?

Michelangelo suggests Murray Rothbard as one example, and I had that thought as well, but that’s almost too obvious, and he’s been dead for a long time now.

Libertarians today are pretty firmly divided by the cosmos and paleos, so undue prominence is hard to get. When was the last time you saw Jason Brennan or Bryan Caplan praising the work of Justin Raimondo or Lew Rockwell?

With that being said, I think libertarians nowadays tend to launch intellectual fads into undue prominence, rather than scholars. Stuff like Open Borders or signaling or my personal favorite, non-intervention in foreign policy, tend to hold a prominence in libertarian circles that I find ridiculous. If you don’t believe me, find your nearest Cato Institute scholar on Twitter and ask him (yes, him) if his pet policy project has any potential flaws in it…

Legal Immigration Into the United States (Part 6); Immigrants, Crime and Incarceration: Another Mostly Local Cost and a Causal Tangle.

There exists a widespread impression, deliberately fed by some conservative media and sometimes by President Trump himself, to the effect that illegal immigrants are especially prone to crime, and to violent crime. By extension, by illogical implication, immigrants in general are tarred with the same brush.

Immigrant crime agitates for different reasons that are not always disentangled from one another. First, there is the general social disorganization that any crime causes and the worsening of the quality of life it entails. Second, mostly youthful immigrants could have the power to reverse the general decline in crime that accompanies the aging of American society. They might be the agent of a step backward for American society. Third, capturing, trying, and incarcerating anyone is very expensive, more expensive than schooling, for example. Immigrant crime in general is especially apt to disturb emotionally because it seems to involve a kind of crass ungratefulness: I let you into my living room, or you enter while I am not paying attention, and you show your appreciation by stealing the silverware, and worse.

Belief in the criminality of immigrants as a group is not necessarily the result of a kind of emotional prejudice. Immigrants are predominantly young, ill-educated, and poor, all known ingredients of criminal propensity in any context. (To my surprise, current immigrants are not predominantly male, although maleness is a strong factor of criminality.) So, if immigrants to the US are like just about every population of the same age, income, and education ever studied, they should exhibit a higher crime rate than the native-born population that is, on the average, better educated, more prosperous, and, especially, considerably older.

It’s difficult to figure out the basic truths about immigration and crime because gross miscounting by partisan journalists is common. For instance, in his 2018 article in Reason on a report based on 2009 figures, Alex Nowrasteh shows how easy it is to make horrendous but simple mistakes of enumeration: Counting single events of incarceration as if they were individual immigrants, for example, as if illegal immigrants could not be repeat offenders. (“Restrictionists Are Misleading You About Immigrant Crime Rates.” Reason, Feb. 1, 2018.)

I explicitly do not accuse the authors cited below of such miscounting.

In his 2006 article in Liberty, Cox showed that about 2.6 % of inmates in federal prison and an astonishing 12% of people incarcerated in local jails and prisons were illegal immigrants in 2002. That’s 14.6% of all persons then incarcerated in the US. The highest estimate of the number of illegal aliens I could locate for any year is 15 million. With that estimate, conservatively, incarcerated illegal aliens would be about 5% of the then US population of 293 million. Roughly, illegal aliens, according to Cox, were thus incarcerated in 2002 at almost three times the rate of their occurrence in the general population. This rate did not include incarcerations for merely being illegally present in the US (which must have been a small number since that was only a misdemeanor). Cox’s study is based on figures for only one year for the whole country.

At any rate, Cox’s incarceration figures concern mostly illegal aliens. It’s not clear whether illegal immigrants’ propensity to commit crimes is similar to the corresponding propensity of legal immigrants, nor if their crimes are similar. Legal and illegals may come from different countries and regions. Even if they come from the same places, they may issue from different classes in their societies of origin. Even if from the same places and same classes, they may constitute different samples of the populations of origin from the standpoint of motivation and thus, of personal psychology. It takes different virtues to arrange for legal immigration via whatever path, on the one hand, and to swim the Rio Grande, or coolly to overstay one’s visa, on the other. These different virtues could easily be associated with different levels of different criminal tendencies. Finally, legal and illegal immigrants have different incentives to break the law or not, the latter being in a good position to not draw attention to themselves. That’s at least until the sanctuary movement.

A study published by the libertarian Cato Institute in February 2015 examined criminal conviction data provided by the Texas Department of Public Safety. It found that native-born residents were much more likely to be convicted of a crime than immigrants in the country either legally or illegally. For all crimes together, the legal immigrants’ score was less than one third that of the native-born. The difference in the likelihood of being convicted of homicide, specifically, was very large between legal immigrants and the native-born. The former were 15 times less likely to be convicted of homicide. Even illegal immigrants were only 70% as likely as the native born to be convicted of homicide. (“Two charts demolish the notion that immigrants here illegally commit more crime,” Christopher Ingraham, Washington Post on-line accessed circa June 28 2018.)

Note that the Cato Institute study is for one state only and for only one year. Cox’s figures cited above are also for one year only but for the whole country.

It’s not obvious how one should relate these contradictory sets of findings to one another. (There are many more such studies. I chose two researchers on my side of the political fence that seemed to me to have worked with seriousness.) First, figures about comparatively rare events such as homicide are notoriously unstable. The corresponding homicide figures for 2004 or for 2014 might be very different. Moreover, both sets of figures, Cox’s and Cato Institute’s use the heterogeneous categories “legal immigrants” and “illegal aliens.” To generalize from their findings requires making the silent assumption that the composition of both is stable from year to year. This assumption is unwarranted. Nothing regulates the composition of illegal immigration and little insures that the composition of legal immigration will be similar from year to year. The varying numbers of refugees alone could sway the legal figures one way or the other.

Here is a realistic scenario: For a period of a few years, both immigration flows consist mostly of rural, mountain Mexicans from rural areas where crime is scarce. In a subsequent and contiguous period, a large flood is added, through both refugee legal immigration and through illegal immigration, of urban Central Americans (thus, of people from some of the highest crime areas of the world). Both the frequency and the nature of immigrant crime may change swiftly as a result  of this sudden (and realistic) change in  the composition of immigration, legal or illegal, or both. The composition of legal immigration may change drastically in a single year because of the influx of refugees from a single location hitherto unrepresented in the US. The composition of illegal immigration may also change suddenly because of a disaster in a region that the American federal government does not recognize as a legitimate source of refugee status. It’s hazardous to extrapolate from one period to any other period. Hence both Cox’s and Cato Institute’s findings may be correct but, at the extreme, each of them for one year only.

It’s also risky to extrapolate from one domestic location, for example, Texas, to another, for example, the whole United States. Here is one reason among others why it is so: The (innocent) rural mountain Mexicans I mention above are likely to move to the Central Valley of California and to similarly agricultural areas in Florida. Crime-prone Central Americans, on the other hand, may seek their fortune in the more familiar big cities anywhere, including, Los Angeles, Chicago, and Houston. In this imaginary scenario, immigrant crime in Texas (Houston and Dallas, per chance) may be grossly unrepresentative of immigrant crime anywhere else in the US.

Finally, as Cox pointed out to me in a personal communication, the comparison category, “native-born” is itself heterogeneous with respect to crime. The rates for African-American  – most of whom are native-born – are several times as high as others’. Perhaps, the native-born would far better for incidence of crime if blacks were excluded from the comparison. I suspect this is true but I don’t know according to what theoretical principle, this exclusion should be made.

[Editor’s note: In case you missed it, here is Part 5]

Josh Barro and the Gold Standard

A few days ago, when it was announced that former Cato Institute president John Allison was under consideration for treasury secretary, Josh Barro of Business Insider dismissed the man as a “nutcase”. Why? Because Allison believes that the Federal Deposit Insurance Corporation (FDIC) generates a moral hazard that contributes to financial crises (a statement I agree with).

This slur irked one of the economists at Cato, George Selgin, who took to twitter to challenge Barro. In the exchange, at one point, Barro indicated that the desire of libertarians to return to the gold standard confirms the “nuttiness” of libertarians and the people at Cato.

And here, Barro allows me to make a comment on the gold standard. The sympathy towards the gold standard is not sympathy towards gold per se, but rather sympathy for reducing the capacity of governments to exercise discretion. Basically, each time you hear some academic economist mention the gold standard, what that economist means is rules-based monetary policy.

The gold standard era (1875-1914) was not an image of perfect monetary policy. It is not a lost paradise that we ought to strive to. However, the implicit rules imposed by the system did favor more stability that would have been the case with discretion during that era. In fact, the era of central banking with the Federal Reserve has not been that great relative to the gold standard era (and in the world of central banks, the Fed is pretty good). A lot of the scorn that the gold standard era has received had to do with regulatory policy towards banks (notably regarding restrictions on branch banking which forced more volatility) or with the role of changes in international demand for assets (see here). Thus, in spite of its many flaws, the gold standard was not that bad (but it was not* gold per se that was helpful – it was the shunning of discretion by governments).

To be sure, I do not favor a return to a gold standard era. What I do like, and what I think John Allison likes as well, is the return to rules-based monetary policy. Josh Barro should have been intellectually generous and understand this key distinction. By not making that distinction, of which he must be aware given his background, he debased the debate over monetary policy.

“Voice, Exit, and Liberty: The Effect of Emigration on Origin Country Institutions”

That’s the title of this short piece (pdf) by Michelangelo, which was just published by the Cato Institute. Michelangelo, by the way, just got his MA in economics and is now in a doctoral program at UC Riverside’s political science department. Get reaquainted with his bio.

Hopefully he has a little bit of time now to work on NOL‘s soon-to-be-world-famous foreign policy quiz…

A Quick PSA: Putting “boots on the ground” in Syria is still a dumb idea

Readers might be mistaken into thinking that I am some kind of statist or rabid interventionist because I often put forth arguments that are nowhere to be found at the Cato Institute or the Mises Institute when it comes to American foreign policy.

I have argued that the federation of countries would be a good idea. I have argued that multilateralism is of the utmost importance when it comes to solving problems. I have no problem using IGOs like the UN or the IMF to bolster diplomacy. I have entertained the notion that the US should take a back seat in hot spots in order to better bait autocratic states into committing blood and treasure to the said hot spot, and then unleashing hell. Sanctions are dumb and never work, but building closer trading ties with an adversary’s enemies is a underdeveloped path.

Statist AF, right?


I am trying to put forth alternatives to “boots on the ground.” I understand that military interventions are a bad thing. I don’t want “boots on the ground.” I understand that the costs far outweigh the benefits. I understand that war is the health of the state. What I don’t understand is how “doing nothing” is a libertarian position. Dogmatic slogans made us lazy a century ago. We lost our claim to the title “liberal” because of it. Dogmatic slogans made us lazy a century and a half ago, and we lost our claim to the title “internationalist” because of it. What will our laziness cost us today?

Boots on the ground? We should be so lucky.

Which countries are of US interest?

I was reading my news stream when I noted a blog post from the Cato Institute discussing the silliness of adding Montenegro to NATO. I don’t disagree per se. I certainly don’t see the value of adding Montenegro to NATO, if the purpose of NATO is to protect the US. Nor do I disagree with the general US-libertarian belief that the US has over extended itself in terms of military alliances.

I do wonder though what countries US-libertarians should desire to maintain a military alliance with. A North American military alliance, ranging from Canada to Panama and including the Caribbean, makes sense to me. The Atlantic and Pacific Oceans are our greatest defenses, but I welcome military cooperation from our geographical neighbors.

Beyond there though it gets tricky. Western Europe is certainly rich enough to protect itself. The main reason I am hesitant to leave NATO altogether is the nuclear question. France and the UK are the only European powers with nuclear weapons, but several others are part of NATO’s nuclear sharing program. Should the US leave NATO would these countries seek nuclear weapons for themselves? Would the UK/France provide substitute weapons? Ending military ties with Europe would likely be the easiest option in terms of cutting down on allies.

Japan and South Korea are likewise rich countries, but here too the nuclear question arises. Japan has a cultural aversion to nuclear weapons that I do not see it overcoming in the foreseeable future. South Korea may be willing to use nuclear weapons, but its strained historical relationship with Japan leaves me concerned about the future possibility of a Korean-Japanese alliance to counterweight China PRC. I believe that Japan should be encouraged to modify its constitution to allow its military greater freedom in action and to consider acquiring nuclear weapons of its own. Other nations in the region, such as the Philippines, are outmatched in conventional weaponry or, in the case of Australia, too far away geographically to be of much use in restraining China PRC’s influence in east Asia.

I am hopeful that within my lifetime China PRC will transition to a liberal democracy, but till then I am skeptical about allowing it free reign in east Asia. For the foreseeable future it is hard for me to consider an east Asia without a significant role for the US. Nor would I be particularly against offering South Korea and/or Japan statehood in a United States of the Pacific.

Thoughts? I admit that international politics is not my area of expertise and I more than welcome other’s thoughts on the matter. I also admit that I am not viewing these issues from a pure libertarian perspective but with a splash of nationalism.

As readers may know our own Brandon is playing around with creating a NOL foreign policy quiz similar to the Nolan libertarian quiz.

How does emigration impact institutions?

Hello everyone. As usual I’ve come to ask for feedback on my latest research. I can’t emphasize enough how much it helps to blog it out, if only because it forces me to sit down and try to summarize things in a few hundred words.

My current research is looking at the effect emigration has, if any, on institutions. Institutions come in various forms. The state is an institution, but family, religion, and even organized crime are too. Broadly speaking institutions are those rules that govern society, both formal and informal. Institutions have increasingly been acknowledged as being one of the key (if not the key) determinants of a nation’s wealth.

Despite the importance of institutions, we know relatively little about them. By no means is this due to a lack of trying, and in there have been some earnest attempts to tackle the issue. Acemoglu’s Why Nations Fail is one such attempt.* For the time being the goal in institutional studies is to properly explain how and why institutions form.

My goal is to neither explain the origin of institutions or to measure their impact on economic well being. I take it for granted that good (and bad) institutions populate the world. Instead I am interested in how different institutions interact with one another.

My former boss at Cato has looked at how immigration has influenced a destination country’s (the USA) institutions. He finds little effect. In my project I try to look at the problem from the opposite end – how does emigration influence an origin country’s institutions. To measure the impact of emigration I use remittance data.

Remittances come in two form. There are monetary remittances, which are cash transfers from emigrants to their family members and friends back home. There is a broad economic literature on the former and its affect on development outcomes. There is however little (if any- I haven’t found any at least) economic work on social remittances. Social remittances is the transfer of ideas from emigrants to their family members and friends. In general the economic remittance literature has not yet attempted to connect itself with the institution literature despite both being part of the larger development literature.

Most work on social remittances has been done by sociologists. Thus far though most of the work has been qualitative and/or focused on how social remittances tie migrant communities with their origin countries. There has been little work on how this communication translates to changes in institutions.

Political scientists are currently taking the lead on the question. Earlier this year Abel et al. published a paper looking at how remittances affect democratic transition. They find that increased monetary remittances decreases voter turn out and thus weakens the political base of populist-based autocracies. Another recent paper by Miller et al. find that emigration increase the possibility of civil war by giving opposition parties an external funding source.

I think Abel and Miller’s work the best thus far in seeing how emigration affects institutions. My biggest concern with Abel’s paper is that he looks at democratic transition events, but there is no reason why democracy must lead to better institutions. Hong Kong and Singapore alternate as the most economically free states in the world, but neither is a bastion of democracy. India is the world’s largest democracy and by most metrics has awful institutions.

Miller’s work on the other hand looks at how the probability of civil war increases, but civil war in itself is not always bad. On occasion war is necessary for the improvement of institutions**.

To remedy my concerns I look at how remittances marginally influence institutions. I use the Fraser Institute’s Economic Freedom in the World summary index as my measure of a country’s institutions. My regression tables are found below. All observations are for north American (including central America but excluding the Caribbean) countries from 1994-2012.

Column 1 is a simply regression between a country’s EFW score and remittances as a percent of GDP. Initially we find a negative correlation between the two – a 1 percentage point increase in remittances is associated with a 0.01 point decrease in its EFW score. Is this a sign that brain drain, the emigration of high skilled migrants, is reducing the institutional qualify of origin countries? Not quite – it’s simply caused by the lack of control variables. At this point remittances is a proxy for a country being undeveloped.

Columns 2-4 are me playing around with various control variables. The interaction of phone subscriptions with remittances is my attempt to proxy for social remittances. Presumably emigrants are more likely to call back home, and exchange ideas, if their family members and friends have a phone to be contacted at. The 1 year lagged EFW index symbolizes the ‘stickiness’ of institutions: in the short run institutions do not drastically change.

Column 5 is simply column 4 re-run using clustered errors and country fixed effects. Country fixed effects, for those of you who have been spared endless hours of statistical classes, is a technique that allows us to account for unobserved characteristics of a country that do not change across the observed time span. This is usually done to account for such things as culture or geography.

In this final iteration we find that a one percentage point increase in remittances increases a country’s EFW index score by 0.05 points. This is a marginal effect, but its not irrelevant. See the Cato Institute’s interactive map of economic freedom. The difference between the United States and Russia is about one point despite the former presumably being a bastion of freedom.


*Why Nations Fail has been discussed on NOL several times before, see here and here.
** But let me emphasize that this is rarely the case and war should be the last option. We really do need to make our own NOL foreign policy quiz.

(1) (2) (3) (4) (5)
VARIABLES EFW Index EFW Index EFW Index EFW Index EFW Index
Remittances as a percent of GDP – Fraser EFW -0.01* 0.04*** 0.00 0.01** 0.05***
(0.01) (0.01) (0.00) (0.01) (0.01)
Fixed telephone subscriptions (per 100 people) 0.03*** 0.01* 0.01
(0.00) (0.00) (0.01)
Remittances * Phone -0.00 -0.00 -0.00**
(0.00) (0.00) (0.00)
EFW Index 1-year lag 0.81*** 0.78*** 0.54***
(0.04) (0.05) (0.05)
Income Per Capita in 000s, Constant 2005 dollars. 0.00* -0.00 -0.01
(0.00) (0.00) (0.05)
Constant 7.39*** 6.60*** 1.33*** 1.50*** 3.04***
(0.06) (0.06) (0.28) (0.32) (0.45)
Country Fixed Effects No No No No Yes
Observations 134 134 110 110 110
R-squared 0.03 0.66 0.91 0.91 0.93

Standard errors in parentheses in columns 1-4. Robust errors in column 5.

*** p<0.01, ** p<0.05, * p<0.1

Around the Web: Notewriters Edition

Woah, it’s been a slow week here at NOL. I can’t speak for anybody else, but I’ve been busy. Michelangelo and Edwin have both recently had their work published by the Cato Institute, and that’s cool.

I wish, of course, that my fellow Notewriters would toot their own horns a little more often, especially on the blog, but rest assured loyal readers, we’re staying busy.

Blaming Finance, Ignoring Real Causes

The fall 2014 Cato Journal has an article, ‘The Financial Crisis: Why the Conventional Wisdom Has It All Wrong,” [pdf] by Richard Kovacevich, Chairman Emeritus of Wells Fargo. The author is correct in saying that the conventional wisdom is wrong in blaming the slow recovery on the “uniqueness of a financially led economic recession.” The US economy recovered from the severe 1980 recession within two years, while now the economy is creeping like a turtle.

The economic cause of recovery and growth is simple. Economic investment – the production of capital goods – drives the business cycle. Recessions are caused by a sharp fall in investment. Then, as the prices of raw materials fall, and as land rent drops, a depression reduces these costs of production, therefore increasing profits, so investment recovers. Government can boost the recovery by further reducing the costs of production, by decreasing the taxes and regulations it imposed previously. This is the “supply side” policy of increasing investment and production by reducing the costs of regulations and taxes.

But this time around, the federal government did the opposite. Costly regulations have magnified, with an anti-supply-side effect. Every year, there are thousands more regulations that hamper enterprise, and finally, regulations plus taxes have achieved the tipping point of making it too costly for enterprise to invest and hire labor.

After the Crash of 2008, the federal government had two basic policy options: it could help the economy recover with market-enhancing supply-side policies, or else the government could enact the welfare-state agenda of greatly increased governmental medical services. The government chose the latter option, which imposed even greater costs on enterprise and labor.

When the recession hit the economy in 2008, one of the responses was TARP, the Troubled Asset Relief Program. As the article states, one of the problems with TARP was that it did not focus on the troubled banks, but imposed the policy on all banks. The banks that were not troubled had to obtain the funds and then pay interest on them. TARP imposed the impression that all banks were in trouble, which destroyed confidence, and then Congress responded to the turmoil by imposing 25,000 pages of Dodd-Frank regulations.

None of the financial regulations, going back to the Great Depression, confront the causes of the boom and bust. The fundamental cause is massive subsidies to land values. The Cato article focused on the financial industry, but the more fundamental issue is government policy regarding real estate. The problems of the financial industry originate in their financing of real estate.

The history of the Americas has been that of grabbing land and enslaving labor. In the American colonies, the British government promoted European settlement to control land and to profit from trade. After the defeat of the French in 1763, the United Kingdom changed policy to avoid conflict with the people of Quebec and with the Indians, by restricting western speculation and migration. That annoyed the landed interests enough to declare independence, and to establish a constitution that would better extend and protect land speculation. Huge grants of land were given to railroads, veterans, colleges, and speculators.

After the public domain was disposed of, the government continued the subsidy of the large landed interests with implicit policies that are invisible to the public and to most economists. The provision of public works, welfare to the poor and elderly, and artificially cheap credit, all generate greater land rent and land value. This amounts to a vast redistribution of wealth from workers, tenants, and enterprise owners, to landowners, especially the concentrated owners of commercial and farm land.

With a fixed supply of land, much of the gains from an economic expansion is captured by higher land rent and land value, which then attracts speculation that carries real estate prices to unsustainable heights. When land values crash, they bring down with them the financial system that provided the loans. None of the financial regulations touch this basic cause, and land-value seeking is so deeply ingrained in American culture that people favor it even at the price of high taxes, high unemployment, and the destruction of liberty.

Ask a typical American, “Would you favor a tax reform that eliminates taxes on your wages, on interest from your financial assets, and on buildings, replaced by a tax only on land values?” The answer is, “No! I would rather suffer unemployment, insecurity, crime, poverty, and loss of liberty, than have my precious land taxed!”

“OK, then, would you favor the complete replacement of government’s public goods with private, contractual, provision that eliminates the subsidy to land values?” “No! We need government to provide these things!”

Then you ask, “So why do you want the word ‘liberty’ put on our coins?” The answer is, “I want liberty so long as it is not put into practice!”

And that is why government deals with the superficial financial appearances, and not the implicit reality that causes the booms and busts.

Around the Web

I don’t know if I can echo Andrew’s prodigious output, but here’s my own reading list for the weekend:

  1. Modesto Junior College, bureaucracy and censorship: Haughty arrogance edition. Ken White explains Weber’s ‘iron cage’
  2. Liberty after Lehman Brothers: What have we learned? Peter Boettke muses about the infamous bailouts
  3. Who were the anti-Federalists, and why do they still matter? Trevor Burrus of the Cato Institute explains
  4. The Christian Exodus. Another disaster in the Middle East

PS I just got in to Santa Cruz. Wish me luck!

More Dramatic News on Climate Change

I am giving this link as a small public service. I am trying to do my little bit to counter the media swamping, the totalitarian endeavor by climate change proponents. I perceive the bulk of those proponents as totalitarian because they use various devices to silence their opposition. They are forever declaring the subject of the reality of man-made global warming that is also catastrophic closed.

I can hear them salivating about the fantasy of owning their very own gulag (a Russian word; look it up.) They are positively drooling (like me before a nice cheese tray).

I am unable to vouch for the scientific validity of the contents of the article of reference, of course. I am only able to recognize a calm contrarian voice and, in general, I respect the Cato Institute. (For those who don’t know, Cato is conservative, libertarian tendency.)

The Predictable Failure of the Iraq War

I’ve gone over the knowledge problem associated with foreign policy before, and I believe it is sufficient to say that libertarians were right in deflating predictions by hawks that the illegal invasion and occupation of Iraq would go over smoothly. Hawks on both the Left and the Right oversimplified the situation in the Middle East. Their condescending tone towards both the Iraqi people and the broader Middle East guaranteed failure from the outset. Anybody who believes that a state – no matter how wealthy and powerful – can just waltz in to another state – no matter how poor and weak – and impose its will upon it is a fool.

Gene Healy reports from DC:

In a 2001 debate on Iraq with former CIA Director James Woolsey, my Cato Institute colleague, then-Chairman William Niskanen, argued that “an unnecessary war is an unjust war” and one we would come to regret having fought.

Niskanen was right. A new report from the Watson Institute for International Studies at Brown University tallies up the costs: nearly 4,500 U.S. troop fatalities, an eventual budgetary cost of some $3.9 trillion and more than 130,000 civilians as “collateral damage.”


Bill Niskanen, who passed away last year at the age of 78, never tired of reminding conservatives that war is a government program — and an especially destructive one at that.

If you add up the harsh economic sanctions imposed upon the Iraqis by the Democrats earlier in the decade, the 130,000 civilian toll increases significantly (to about half a million, most of whom were children).

Only a foreign policy based around commerce, peace and honest friendship will succeed in both the short and the long runs. Luckily for us, it appears that there is a growing consensus on this argument among the population of the United States. It helps that most advocates of the war are either remorseful or they are becoming more and more discredited by the day. From Hitlery Clinton to Dubya to John McCain, the old guard is steadily giving way to a breath of fresh air. Air that is more suitable for a republic dedicated to individual liberty.

How to Rebut the Condescending Leftist

Economist Bryan Caplan, in responding to calls for more to be done by governments for the world’s poor, writes the following:

Isn’t the entire problem that the world’s poor have little of value to sell on the world market? The answer, surprisingly, is no. The world’s poor have a very valuable good to sell: their labor. Though Third World workers often earn a dollar or two a day, even unskilled labor is worth $10-$15,000 per year on the world market.

There’s just one problem: First World governments’ immigration policies effectively forbid international trade in labor. The world’s poor cannot legally work in a First World country without that government’s permission. For most current residents of the Third World, this permission is almost impossible to obtain. If you’re an unskilled worker with no relatives in the First World, you have to endure Third World poverty, win the immigration lottery, or break the law.

Do read the whole thing. It’s from the recent Cato Unbound symposium on “Authority, Obedience and the State.” The Cato Institute is probably one of three think tanks that actually puts out work I can count on (the other two being Brookings and Hoover). Their monthly Cato Unbound is one of the best symposiums on the web.

Dr. Delacroix has written on immigration before. Here is a piece he produced for the Independent Review. Here are his blog posts on immigration.

Around the Web: Cato Unbound Edition

The response essays to Dr. Horwitz’s Cato Unbound lead-off essay are now up.

Horwitz, Economy and Empirics by Bryan Caplan, a very good critic of the Austrian School

Free bankers George Selgin asks: How Austrian Is It?

And Antony Davies plays nice by saying “come to the middle!”

My own quick thought: none of these guys are hostile to the Austrian School the way a Keynesian would be. I take this as a sign that Keynesianism is dead intellectually, rather than any sort of selective bias on the part of Cato Unbound’s very good editors.