April 2023

Welcome to Cato Audio for April 2023. I'm Caleb Brown. In this month's offering, two members of Congress talk financial privacy. First, Congressman Tom Rose of Tennessee discusses the invasiveness of our current Bank Secrecy Act. Then Congressman Tom Emmer of Minnesota discusses the specter of a central bank digital currency and its potential effects on financial privacy and the control over our financial lives. And then a conversation about February's Supreme Court hearing of a case that could make the internet less useful and less free. First up, this month's Cato Roundtable.

President Biden has released his budget, which is to say his proposed budget, his suggestions, his good faith offerings to Congress when it comes to spending and taxes, and to discuss the implications of that and what that might mean for priorities going forward. I'm speaking with Adam Michelle. He is the freshly minted director of tax policy studies here at the Cato Institute, and Michael Cannon, who is the longtime director of health policy studies here at the Cato Institute. So, gentlemen, welcome. Adam, I want to start with you for the big picture here, which is...

How likely is any particular thing that's in any president's proposed budget? going to make it into anything that Congress might approve down the road? The probability is very low. Budgets, presidential budgets in particular, are mostly just messaging documents. It's the president sort of setting his big goal priorities, something that in this case he'll probably end up campaigning on. And it's basically dead on arrival once it gets to Congress. But it's useful to see the things that the administration is willing to put on paper and sort of see what vision they have for policy and for Americans going forward. All right. And Michael, to you, how much does health policy

figure into what the president has proposed. You know, a joke that I heard a long time ago that stuck with me for a long time is that the federal government can be aptly described as healthcare programs for the elderly with an army attached to it. He spends a fair amount of time and attention on healthcare, but not nearly enough. This is a budget proposal. And so the idea is, here's where I want to spend a lot of money. And it's not really about improving the quality of care that seniors are receiving. It's really just about spending money.

But even from that perspective, he should spend a lot more time on health care because the rapid growth of federal health care spending is what's driving this enormous $1.3 trillion current year deficit and future year deficits. It's the main reason why, you know. The debt-to-GDP ratio, I believe, is supposed to hit 100% next year. And so looking out into the future at this vast gap between the promises that the federal government has made to seniors in the Medicare program and low-income people in the Medicaid program and patients through other health care programs and the available resources, this huge gap between the spending they have promised and the available resources for it. And the president offers really nothing but...

budget gimmicks, mostly budget gimmicks, and one tax increase wouldn't cover even a tiny measure of that, he should have spent a lot more time and attention on health care because that's the only way to bring the federal budget into balance. All right, Adam, when it comes to taxes in this budget and the CBO and Republicans in Congress who now control one chamber of Congress, what are we likely to see? Is there anything from this budget we should expect Republicans to take on and say, hey, this is a good idea? Or you say dead on arrival, but is there anything that's going to survive? On the tax side, specifically, I don't see any of these proposals making their way through the current Congress. Republicans are, I think, pretty dead set against raising taxes, even as a part of the upcoming budget negotiations. One of the things that I think the president and Republicans could seem to agree on, at least in theory, is the president in his sort of budget documents describes the fact that the 2017 tax cuts.

expire at the end of 2025. He acknowledges this fact. He doesn't actually extend these tax cuts or keep taxes from increasing on Americans in his budget, but he acknowledges the fact that this will need to be addressed and that he looks forward to working with Congress to extend these. I think this is an area where Republicans and the president likely agree that many of these tax cuts do need to be extended. The problem is no one agrees how to deal with the deficit impacts of the current budget, let alone the problems with keeping taxes well below the amount of money we're spending for the foreseeable future. It's always a fun exercise for me, and I think Cato scholars are uniquely suited to take up this.

challenge, this thought experiment. Imagine, if you will, members of Congress and the President of the United States woke up tomorrow and realized the enormity of the problems associated with taxing and spending and health policy and how we get money to and from and through our health policy arena. So to you, Adam, what might that look like? If these guys woke up tomorrow and they were serious, what would be the big bites at the apple that they should go for to make a more coherent system of taxation in the United States? That's a great question. And I think the first thing to acknowledge is that we don't currently have a revenue problem. We have a spending problem. In 2022, revenues as a share of GDP were at a two-decade high of almost 20%. That's well above the 50-year historical average. So taking the sort of broader conversation about the size and scope of the budget, the deficit that we're facing, should lead policymakers to look at the spending side. We're spending well beyond historical norms, much more than the current sort of tax system can support.

The things that Congress should address going forward on the tax side specifically is keeping taxes low, which requires addressing the spending side. We can't keep spending significantly more than we take in. And so I think in order to keep the current tax system from falling under the pressures of the budget that will lead policymakers to have to raise taxes on every American in the future, we need to first address the spending side, which, as Michael mentioned, is largely driven by the health care programs and the spending growth in those areas of the budget. All right. So, Michael, can you give us a picture of what we are looking at in terms of the years to come when it comes to health spending that is either done directly by or delegated from the federal government over the next 10 years or so? So, as I mentioned before, the federal government is running this huge deficit, more than a trillion dollars. That's about how much the Medicare program spends or how much the Medicaid program spends each year. And the debt to GDP ratio, so the amount of debt that the federal government owes the public.

because the public loaned the federal government money for all the spending that no one wants to pay for, is about 100% of GDP. And it's growing. And so if you want to know what is going to happen with health spending, we have to look at that and realize that that cannot go on forever. If something cannot go on forever, eventually it must stop. And it could stop because Congress gets religion and realizes, hey, we should not keep spending money we don't have. Or it could happen because there's something like a debt crisis. And in that case, the cuts would be even more severe. And when those cuts come, they're going to go first to the Medicaid program because that serves low-income people who don't vote in the same numbers that seniors do, the seniors the Medicare program covers. And so if Congress doesn't get spending under control now, then we're looking at a scenario where...

It is going to start slashing spending for the most vulnerable people in the health sector, the low-income people who are on the Medicaid program. seniors would not be immune. They would suffer some cuts, not as bad as the Medicaid program. And you asked Caleb the question, what should we be doing right now? Or if Congress woke up and got religion tomorrow, if they really took these challenges seriously, what sort of changes would they make? And I'll give you two changes that they should make. Rather than expand Medicare and Medicaid as President Biden is proposing to do, which just makes these problems worse, what they should do is they should first eliminate all federal Medicaid spending. The federal government pays for about 60% of

the Medicaid program by sending that money out to states in ways that encourage states to enroll in the Medicaid program, people that don't need to be there. So if Congress stopped sending any of that money to the states, that would go a long way toward balancing the federal budget. And a lot of people don't realize this, but states, if they want to replace that money, they have the power to do it. They have taxing authority. They could maintain their Medicaid programs exactly as they are right now.

People fear that change because they are afraid that states will not want to maintain their Medicaid programs as they exist right now because states know that they are not popular, that taxpayers will not want to pay for these incredibly bloated programs. And the other change is, I think the only way we're going to contain federal Medicare spending is by showing that markets can provide necessary medical care to seniors at a much lower cost, at much lower prices than the Medicare program is setting. And the only way to do that... To let markets do that is to turn Medicare basically into an adjunct to the Social Security program, where instead of providing a government-designed package of benefits where government sets the rules and sets the prices, Congress gives Medicare enrollees a check and says, you get $12,000 from the Medicare program on average. Go buy the health insurance plan that you want and spend that money wisely because that's your entire subsidy. And sicker people would get larger checks and low-income people would get larger checks. But that would cause a revolution in the healthcare sector. Prices would plummet. Healthcare would become more affordable and it would become apparent very quickly that

Congress can provide the same level of health care or even better health care to seniors at a lower cost. And that would allow Congress to bring down Medicare, finally to bring down Medicare spending. And so Congress is probably not going to do either of those things tomorrow. But one thing they could do that should be in the president's budget is they can increase the means testing aspect of the Medicare program so that the wealthiest Medicare employees. don't get the massive subsidies that they are getting right now and those funds. And that would enable Congress to reduce Medicare spending in an important way and I think help build support for future reforms. Michael, your friend and mine, Lou Randall, several years ago, I believe, filed a lawsuit asking to be allowed not to be a participant in the Medicare program. Lou Randall, as you know, is a man who can afford his own health care.

And so why is that a part of the structure of this dramatically expensive program? So that was a trick. That lawsuit challenged a little trick that the federal government played to try to rope people into Medicare to protect the program. The federal government, the Social Security Administration, without any statutory authority, told people that unless you enroll in the Medicare program, you will lose all of your Social Security payments in the past and future. So you have to pay back anything that you got from the Social Security program. And the reason they did that...

And the lawsuit challenged it because they didn't have statutory authority to do that. But the reason that they did it is because they understood that as long as Medicare is a universal program, as long as it enrolls 99% of people over age 65 in this country, then that is a solid voting bloc that will vote to protect and even expand the program. And for the same reason, they hate the idea, Medicare supporters hate the idea of means testing the program so that wealthier people have to, the way they do it is wealthier people have to pay higher premiums, which is really just offsetting the subsidy that they get. So they get a smaller net subsidy from the federal government. They hate that idea because the more you mean sense of programs for the wealthy, the more wealthy people are going to opt out of it. Now, that's just what people do in other nations with universal health systems. Lots of people in the United Kingdom opt out of the British National Health Service, get private health insurance, sometimes on top of it, sometimes they just go private entirely. I don't know why we can't do the same thing with Medicare enrollees.

But then those people who opt out will no longer be part of that voting bloc that votes to protect Medicare at all costs. And it is that voting bloc that has led, that political dynamic that has led to this unaffordable, wildly expensive program that is the number one or the number two contributor to the long-term fiscal imbalance of the U.S. government and is making health care worse for seniors to boot. All right, Adam, I have been hearing from some sectors, most mainly Democrats, that as part of the tax package that was passed in 2017, One thing that seems to be a sticking point, at least for particular members of Congress in, I think, California and maybe New York, is the capping of state and local tax deductions, which is to say you get a benefit on your state tax bill for having paid your federal taxes. Or maybe I do have that backwards.

So the state and local tax deduction lets you lower your federal taxable income by the amount that you pay in state and local income taxes. And so the 2017 reform capped that amount. Before it was unlimited, they capped it at $10,000 of the taxes you pay can be deducted from your federal income tax return if you choose to itemize your taxes. So not everyone takes this deduction. And that was a change that was part of sort of broader reforms that allowed Republicans to lower marginal tax rates across the board and make a whole bunch of other changes. And this is sort of the classic.

good tax reform playbook. You close loopholes, you eliminate deductions, and you use that money to lower rates for everyone. So you're not bringing in any more revenue, but you're creating a simpler, fairer system that does in preference states like New York and California that have higher taxes and therefore getting a larger write-off. And so that's sort of at the core of... the 2017 reforms. Many people in high-tax states have pushed for uncapping this deduction, but policymakers have struggled to actually get there because this was a big revenue raiser as part of the reform. And so doing this on its own is incredibly expensive. And so it's sort of baked into the reforms that were passed in 2017. Michael?

There are lots of things. This is a really important issue because there are lots of things that high tax states do to use the federal government to protect themselves from the cost of their preference for high taxes for big governments. So one of them is what we call the SALT deduction so that when states pass, you know, levy high taxes, like states like California, New York, levy high taxes on their residents, especially the wealthiest residents. It's not as costly because there's this deduction against their federal taxes. So so they don't really have to.

bear the full cost of that tax increase. All else equals some of the cost of federal spending gets shifted from those high tax states to low tax states. And the exact same thing, the exact same dynamic was at play when Congress created the Medicaid program. This is the one, as I said, where the federal government pays 60% of the cost. States pay the other 40% that they administer the programs. A big reason, a big part of the push for the Medicaid program was you had these, you know, to put in crude political terms, blue states, these democratic states, these states with very large...

social welfare programs, high taxes, health care programs for the poor. And they did not want to have to bear the cost of those decisions, of those programs and those taxes by having to compete with other low tax states. They didn't want to lose businesses and residents to those states. So what did they do? They got the federal government to fund half or more than half of the Medicaid program so that they could have these very expensive.

health care programs and have residents of all 50 states pick up the cost instead of having them pick up the cost. So the Medicaid program, a good way to understand it is that the high tax states use it, they cartelized and used it as a way to protect themselves from competition from low tax states. There's all sorts of this sort of gamesmanship of the federal government in the service of protecting high tax states or high tax rates in states. And so I'm one of those people who is really glad to see Congress get rid of. the SALT deduction, the state and local taxes deduction, because it is one of the bigger examples of high-tax states trying to take advantage of the rest of us. Adam, one other complaint that I have heard, and this is mainly just people chattering on social media, is, you know, these blue states, these Californias, the New Yorks, are effectively, by paying out huge sums to the federal government, lots of wealthy people paying high taxes, are subsidizing the consumption of health care through Medicaid and other programs in lower-income states.

And so I hear about that and I think, well, there is one radical way to fix that overnight, but nobody wants to go there. Would you like to go there? So you're right that this argument that high tax states subsidize lower income states is a product of having a highly progressive income tax and transfer system. And so when you have some states where they have a higher, a larger number of high income people, you are going to, by definition, transfer money to areas that have more people that are more reliant on the benefits that those high taxes fund. So if the Democrats want to complain that there's this transfer from California to Louisiana or whatever the other example is, the solution is to have a flat.

flat tax that taxes everyone at the exact same rate and get rid of most of the transfer system. But that's not politically popular either. What's funny about that from the perspective of the healthcare wonk. is that you look at the Medicaid program and it is this vast ocean of waste and perverse incentives and awful spillover effects into the private sector where it makes private healthcare more expensive. And there's gamesmanship by the states and there's abuse and people abusing the program, middle-class people involving the program to abuse it. All of this, as I said, this ocean of waste. And then you hear from the high-tax states that are using the Medicaid to...

programs to protect themselves from interstate competition, from competitive federalism, they say, oh, well, you know what, there's this tiny increment that these low-income states get that comes from us, and so this is so unfair, when they're completely ignoring, and that might be like little waves lapping up on the shore that they're pointing at and ignoring the entire ocean of waste in this program, including the fact that this program exists to protect their states from competition. So for an irony junkie like me, those sorts of complaints from high-tax states are just, I mean, they're just the hit I need. All right, gentlemen, we're going to leave it there, but you can, of course, follow all of the work that the Cato Institute does on these subjects. Thank you, Adam Michelle. Thank you, Michael Cannon. You can follow all of this at our website, cato.org. The Bank Secrecy Act is aimed at mitigating money laundering and related crimes, but the act also severely limits Americans' financial privacy and imposes massive compliance costs on American business. At a Cato Institute event on the Bank Secrecy Act, Republican Representative Tom Rose of Tennessee details his simple proposal to curtail government access to financial transactions. In most cases, he argues the government needs to just get a warrant.

One of my priorities has been and will continue to be providing the necessary congressional oversight to ensure financial regulators do not overstep and use their authority to strangle our banks and Main Street businesses. On the administrative front, this has been one of the most ambitious and aggressive expansions of the regulatory apparatus in history, certainly in my lifetime. Since President Biden's inauguration day, just barely over two years ago, his administration has finalized 570 new regulations that cost the economy. an amazing $359.9 billion and resulting in 224.4 million hours of additional paperwork for our American businesses. We've also witnessed a great deal of mission creep at the regulatory agencies, particularly with regard to climate and social issues. When I meet with stakeholders in the financial sector, as well as in other industries for that matter, they tell me that unelected bureaucrats are trying to mandate so-called best practices for running their businesses, including telling them where they can operate, what products they can offer,

and whether or not they can expand and grow their operations. It's gotten so bad that the SEC has been acting more like the Social and Environment Commission than the Securities and Exchange Commission. In addition to being an eighth-generation farmer, a small business owner, and a recovering lawyer, I previously served on the board of First National Bank of Tennessee. That experience has guided my views on the dire need to reform our anti-money laundering laws. Personally, I think the entire system is set up wrong. We basically deputize banks as law enforcement agencies.

mandating them to collect information on their customers and report that information to the federal government. Then, to add insult to injury, after requiring banks to go to that time and expense, the federal government essentially refuses to provide feedback to those same banks as to whether or not the information that they were forced to provide is even utilized. During my time at First National Bank of Tennessee, I spent countless hours reviewing suspicious activity reports and currency transaction reports and never was I given feedback from the regulators. In fact, they don't even tell members of Congress whether this information is in fact useful. I've been trying to get answers on this issue and no one seems to have a clue. Go figure.

In the case of non-bank ATM operators or automated teller machine operators, the anti-money laundering framework has failed them as well. For those of you who are not aware, a previous iteration of the Federal Financial Institution's Examination Council's Bank Secrecy Act and Anti-Money Laundering Manual, now that's a mouthful, also known as the BSA AML Manual, labeled the entire non-bank ATM industry as high risk. And many banks won't bank the owners of these businesses or these businesses even till this day, even though the FFIEC has revised their manual and issued a statement telling banks not to treat them as high risk.

Now, getting that change took months of work from a group of bipartisan members of Congress, including former Representative Carolyn Maloney, Representative Blaine Lukmeyer, and myself. Last year, I met with the acting director of FinCEN, him, Doss, and I asked him for data on the number of successful prosecutions that have been brought against ATM operators over money laundering concerns and the total number of cash withdrawals from the independently owned ATMs in a given year that they could verify represented laundered funds. Now, remember, they labeled this entire industry as high risk. He couldn't provide me with any of that information, not even one instance. In fact, no one in the federal government seems to have access to this information. So this begs the question, what is the point of the current system?

All of this to say, our anti-money laundering regulations are undoubtedly out of whack and have real-world consequences, including when it comes to our personal privacy. That is why today I am reintroducing the Bank Privacy Reform Act, which keeps the Bank Secrecy Act's record-keeping requirements intact but prevents the government from accessing consumers' transaction history without first obtaining a warrant, thus statutorily restoring the Bill of Rights protections that we were granted. under the Fourth Amendment, and that I dare say most Americans probably think are being safeguarded on a day-to-day basis. Today, the Fourth Amendment is more important than ever. With the growth of technology and increasing use of surveillance and data collection, our privacy is constantly under threat. We live in a world where our every move can be tracked, where our personal information can be easily accessed by third parties, and where the government has unprecedented powers of surveillance. In recent years, we have seen many cases...

where the Fourth Amendment has been critical in protecting the rights of individuals. Cases like Riley v. California, which held that the police must obtain a warrant before searching a suspect's cell phone. And Carpenter v. United States, which established some limitations on the government's ability to obtain cell phone location data without a warrant. Now, I told you earlier, I've been trained as a lawyer historically, a recovering lawyer, I said. But I dare say that we see as technology advances that it always seems that the government thinks that because new technology is involved, that our sacred rights protected under the Constitution, like the Fourth Amendment, should be thrown out the window.

And that is simply not the case. The law is developing in these areas to protect individuals' right to privacy, but it's still lagging behind in the financial sector. The Fourth Amendment is a vital part of our legal system, and it is critical to protecting our individual rights and freedoms. It ensures that the government cannot invade our privacy without a warrant and without showing probable cause to gain one, and it provides us with protections against unwarranted searches and seizures. As Americans, we must ensure that we continue to protect our individual freedoms for ourselves as well as the generations to come.

Tom Rose is a Republican U.S. representative from Tennessee. Now from the same event, television personality Kat Timpf and Brookings Institution's Aaron Klein discuss with Cato's Norbert Michelle some of the chilling terms of the Bank Secrecy Act. All right. So I think that the government is very successful overall at making things super murky and difficult to understand or people, they just kind of tune it out. If you were explaining what is the Bank Secrecy Act to someone and why they should care, kind of how would you do that to just an average person who maybe isn't as into policy as a lot of us here are? I can think of this one. I think of it as two pieces. So you've got a record keeping requirement and a reporting requirement. Record keeping, kind of like it sounds, financial institutions have to keep records. It's not just banks. I'll throw that in there. All kinds of different companies fall under the financial institution name.

So it's pawn shops, car dealers, dealers, broker dealers, all kinds of financial companies. And then the reporting part, that's the kicker. There are many different pieces to that, but basically these financial institutions have to report your financial transaction data to the federal government. And again, there's many different pieces to that, but one part of this is that unlike if the police were to come to your home, they would have to have a warrant. They would have had to have shown a judge probable cause that you have committed a crime, that they think that you may have committed a crime in order to get a warrant to go and search your papers and your property. That's not the case with the financial transaction data. The financial institutions have to give that, have to report that stuff to...

the law enforcement agencies without them having to get the warrant first. That's why you should care in addition to the cost that it imposes on financial institutions that comply with. Yeah, absolutely. I mean, people like to say the whole, well, if I'm not doing anything wrong, you know, why do I care? I'm not running any kind of crime ring, but I still don't want anybody to know what I'm buying on Amazon. I feel like that's just very, very personal, far too personal. But what the government says, which is how they justify a lot of these things and people agreeing or sort of just being compliant, complacent about privacy laws is that, you know.

terrorism, safety. If you don't do this, you won't be safe. So Aaron, I'm going to go to you on this. I know that Congressman, you alluded to this, that people can't really give you any examples of, oh, we have to allow this because otherwise all these people would have died here. We're not really seeing that. And then how does the money wasted and the loss of privacy compare to the actual safety that we're getting in return? So let me touch on that with two things. Well, most people who engage in financial services with a lot of money, and even some people in the common world know there's this $10,000 transaction limit that was set in the 1960s unindexed for inflation, a point I hope we get back to.

Part of the law also says you can't just get around the law by constantly withdrawing $9,999. That's called structuring. That's what Denny Haster did. That's what the situation did on the Jersey Shore. Also in jail for a combination of anti-money laundering and tax evasion. He would get money from DJ gigs he did in Vegas and ask instead of getting $15,000, can I get a check for $9,900 and $5,100 and trying to avoid paying taxes. Remember, he was the smartest guy on the Jersey Shore. Right, yeah. Which is why he knew about the $10,000 limit. And he was on the Jersey Shore, which is why he thought he could get away with it with this scheme. So now, look, I'm not saying the situation and Denny Haster don't deserve to be in jail.

But what I am saying is the crimes for which they're in jail are a different set of crimes. Second point, let's talk about whether these things make us more or less safe. If I were to have to explain the Bank Secrecy Act, I would start with that banks are required to know their customer, know your customer, KYC. Banks can bank criminals. There's nothing that says you can't bank a criminal. In fact, part of the goal of it is to use the data you get from banking criminals to find out the criminals by tracking the money. So part of it, there's a push-pull tension to keep criminals out of the banking system versus keep them in so we can catch them.

This gets to the issue of cannabis, which to me is a huge glaring insanity in our current system. Banks can bank cannabis entities. They just have to file an inordinate amount of reports. And if they make any mistake on this report, the bank can be liable. Now, as a result, most banks don't want to touch these companies. Thus, they have to deal in cash. Guess what happens when you have a lot of cash and weed in a location? Right. Crime. People are getting shot. People are murdered. All these things because we're pushing an entire industry. For what purpose? If you want to find out, if Uncle Sam wants to come and raid a cannabis shop, there's a really useful tool out there for them. It's called Google Maps. I suggest that you get on Google Maps and you'll find all the weed stores you want. But instead, we're requiring banks to spend all this money reporting information on where these weed stores are, right? And correspondingly...

keeping a lot of banks away, putting cash on the weed stores, and then creating crime, making us all less safe. Kat Timph is a television personality. Aaron Klein is a senior fellow in economic studies at the Brookings Institution. And Orba Michelle directs the Cato Institute's Center for Monetary and Financial Alternatives. Interest in central bank digital currencies, or CBDCs, has dramatically increased over the past few years. What was once limited to passing ideas in academic papers has now become a leading policy discussion. Yet with it has also come a growing concern for the future of freedom. Will CBDCs spell doom for financial privacy? Will the government simply be able to turn off your money? Republican Representative Tom Emmer of Minnesota made his case at the Cato Institute in March.

When I joined Congress eight years ago, a staffer gave me a book that discussed the promises of blockchain and crypto to disintermediate economic and social frameworks and to restore control to the individual. I've come to refer to this concept today as the ownership economy. But eight years ago, and by the way, that comes from some of you. I'm just referring what you people are saying. But eight years ago, I just saw this technology as a solution to the mismanagement of our monetary policy and a restoration of vital American values, privacy, individual sovereignty, and free markets.

The United States' leadership in the global economy is propelled by our ability to leverage innovations that make markets and communication more efficient. For example, the United States responded to the emergence of the Internet, a decentralized digital infrastructure upon which anything can be built, by advancing policies that prioritize these American values, privacy, individual sovereignty, and free markets. As a result, the Internet stands today as an infrastructure that any American can access freely. without the permission of public officials, which is very important, unlocking an abundance of economic activity and opportunity. America remains the technological leader, not because we force innovations to adapt our values under regulatory duress, but because we allow technology that holds these values at their core to flourish. The next phase of the digital economy, the ownership economy, consists of a trusted, immutable mechanism for transferring value in real time over the internet. Enter crypto.

A technology that can shift economic power from centralized institutions back into the hands of the people. It's transformational. And it can be threatening. Yes, it can be very threatening to unelected bureaucrats right here in Washington. As the federal government sees to maintain and expand the financial control to which it has grown accustomed, the idea of the central bank digital currency has gained traction within the institutions of power in the United States. As a government-controlled, programmable money that can easily be weaponized into a surveillance tool. The very ethos of central bank digital currencies is everything I would argue that Bitcoin and crypto in general stands against.

It's everything the United States of America stands against. Of decentralized cryptocurrencies such as Bitcoin, CBDCs are a digital form of sovereign currency that are designed and issued by the federal government and transact on a ledger that is controlled by the federal government. Not only significant transaction-level data down to the individual user, but also the ability to program the CBDC to choke out politically unpopular activity. For this reason, I introduced the CBDC Anti-Surveillance State Act to halt the effort of unelected bureaucrats here in Washington, D.C. from issuing a central bank digital currency that strips Americans of their right to financial privacy. Our bill would, one, prohibit the Fed from issuing a CBDC directly to anyone. Two, it would bar the Fed from using a CBDC to implement monetary policy and control the economy. And three, it would require the Fed's CBDC projects to be transparent to Congress and the American people.

Recent actions from the Biden administration make it clear that they are not only itching to create a digital dollar, but they are willing to trade Americans' right to financial privacy for surveillance-style CBDC. We don't make trade-offs with Americans' rights. Through a series of executive order directives focused on CBDC research and development and a mindset that the United States has fallen behind other nations like China when it comes to crypto development, think about that. We should never emulate China. That is not what this country is.

in freedom. We don't chase a communist-style, top-down surveillance economy that the Chinese have, more importantly, the Chinese Communist Party. Look, the crypto development, it's the Federal Reserve, it's the Treasury, the White House, and others within these bureaucracies are working frantically to, in their minds, keep up with our competitors. But nothing could be more dangerous than adhering to a manufactured sense of urgency like this and ultimately developing a CBDC that is not open, permissionless, and private. So, as other countries like China develop CBDCs that fundamentally omit the benefits and protections of cash, it is more important than ever to ensure the United States' digital currency policy upholds our American values of privacy, individual sovereignty, and free market competitiveness. With that, it goes without saying that the challenges behind us and the challenges ahead of us in ensuring the United States welcomes the ownership economy that Bitcoin and crypto are significant.

However, I'm confident that American values will always prevail against the power-hungry whims of unelected bureaucrats. Enshrined within our American values, crypto should be fostered and developed right here in the United States of America, just like the Internet. So the future of our global financial system embodies our values, again, of privacy, individual sovereignty, and free markets, just like the Internet, rather than the values of the CCP. I am grateful for the opportunity, again, to join all of you here today, not just for the forum, but also in our daily fight to equalize and capitalize on the enormous opportunity for the growth that crypto and blockchain presents. And, again, I thank you for having me here today. And when they start waving and jumping up and down, I've got to go. But if you want to do something, Norbert, I'm happy to answer whatever. Thank you very much. You want to stage right? If nobody has a question in the audience, I do have one online that I can read off. I see this was a setup. I got it. No, I'm good. I'm good. Whatever you guys want to talk about. Okay. Okay, I'm going to read one that was submitted online anonymously, and then that's going to be the one quote that I was given. This is – I like this one. Here we go.

I'm just reading this, okay? The Fed has clearly indicated that a decision to issue a CBDC would be a decision for Congress and that it has no intention of issuing a CBDC without authorization from Congress. Therefore, why do we need a bill to tell the Fed to not do something it was never planning on doing? It was never planning on doing. Whoever sent that in, I really appreciate it and I understand their logic. But they are assuming that there are good actors in this space and that what they are hearing from these unelected bureaucrats who are saying there's nothing to see here. It's all good. We need to have permission. It's interesting. The Federal Reserve issued some documents recently that my staff was provided. It just showed up at one of their events. And they have a...

slide, I would say, in this deck, where it lists what the Federal Reserve is responsible for. It's responsible for the money supply. It's responsible for the two-tier rails of the banking system, the overnight window, those types of things that we're used to, right? You know what the bullet point was at the bottom? Central bank digital currency.

They're putting it out in their own materials today and they have no authority. They have not been directed by Congress to do a thing. Let's understand that what they say is not necessarily what they're doing. You are dealing with central bankers around the world, which I am not opposed to the central banking system. But the idea, and I think these people literally looked at this more than a decade ago and said, oh, look at those kids that are playing with this Satoshi white paper. And isn't that fun? It's kind of like gaming, right? Virtual gaming. It's virtual money. It's never going to go anywhere. And oops.

Then it started gaining some traction because people don't trust the way our money supply has been handled. They don't trust our monetary policies. They're worried about what our government is failing to do to ensure stability and a prosperous future. So what do they do? It starts to grow. And what do these bureaucrats do? They go, and by the way, bureaucrats with their partners in the private sector who are using the existing two-tier banking system and want to protect it because that's their market share. They went, well, now we got to kill it.

And so they started taking actions to try and knock this train off the tracks, and they found out much what the Chinese found out. By the way, Chinese, you can't mind, they haven't been able to shut it all down. If they can't shut it down, nobody's going to shut it down. So they realized at some point, one, it's here, and it's not going away. Two, I can't shut it down, so guess what I'm going to do now? I'm going to swallow it up.

and make it part of what we run because then we will control it. That's the innocent way of looking at it. The not so innocent way of looking at it is when people say to me, yeah, I know what you keep saying about the digital yuan and how they use that to control the population. They turn your card on, they turn your card off. You have the outbreak in Wuhan. You can't pay for a hotel room. You can't buy transportation out of there. In fact, they will tell you when you can go to the grocery store because they'll turn on your card. That will never happen here in the Western Hemisphere. Anybody familiar with Justin Trudeau and what he did to shut down the protests up in Ottawa? He did exactly that.

And again, I appreciate the question. I appreciate that somebody is asking what is legitimate. You know, if Congress has the authority and they're the only way that this can happen, well, if you want to just assume people are going to do the things that you expect them to do, you do that at your own risk. I look at it this way. They are already moving in this direction. They already have friends of ours, people who believe in individual liberty and freedom, the right to self-determine, who think this is a good idea.

I just want to remind you, two different things. But in the early 1970s, they created something called FISA courts. These were special courts that were created by Congress for what? To surveil foreign nationals that might be up to no good on American soil. And you know what the argument was made back in the 70s? I wasn't there. I was a kid. I was actually having fun. The argument back then was made, it will never be used to spy on American citizens. I rest my case. Tom Emmer is a Republican U.S. representative from Minnesota.

In February, the Supreme Court heard oral arguments in Gonzalez v. Google, a case that could reshape the internet for the worse. Plaintiffs have sued Google, parent company of YouTube, alleging that YouTube's algorithms aided terrorist recruitment by helping would-be terrorists find radicalizing videos. They argue that YouTube's video recommendations are distinct from publishing and thus are unprotected by Section 230 of the Communications Decency Act. If accepted, their argument would expose many websites' algorithmic matching features to litigation. Following the oral argument, the Cato Institute's Tommy Berry was joined by Jess Myers and Nicole Sod-Bembridge for a quick assessment of the oral argument.

I mean, the word that came up the most often when the lawyer for the challengers was speaking was confused or some variant of that word, baffled, stymied. At one point, Justice Thomas asked a question. The lawyer responded and said, was that responsive? And Justice Thomas said something like, it was responsive. I just didn't understand it. So there was quite a difference. Both the actual challenger argued and also a lawyer from the Solicitor General's office representing the United States as an amicus curia, making some similar arguments, but some distinct arguments that they didn't perfectly overlap. And it was clear that the justices were at the very least following and considered more plausible the arguments made by the...

the Solicitor General's Office on behalf of the United States. The challengers themselves, their lawyer, Eric Schnapper, was focusing more on a theory that things like thumbnails or URLs are generated by websites themselves and exempt from Section 230 for that reason, in the sense that it's content created by the websites, and the justices just didn't seem convinced or even to think that was plausible. Whereas I think the Solicitor General's Office made the argument the justices were expecting, which is the notion that up next, things that are commonly called recommendations are not subject to 230 because they're the speech of the websites. And there it wasn't clear that the justices... agreed with it, but they at least seem to treat it as plausible. Nicole? Yeah, I also got a strong sense that they were confused by the arguments, but maybe also confused why they took the case. I wonder if they saw something that they found compelling in the petition or in the reply brief that maybe they didn't hear during oral arguments. And I also thought that we saw the justices recognizing in real time the implications on the internet for accepting Gonzalez's argument. So they were recognizing that there really is no passive or brute hosting that's readily separable from the act of

presenting in the context of public-facing content. And then Justice Barrett, I think, really hit the nail on the head when she emphasized that it's not just big tech that's affected by this. It's also users, that if, under Gonzalez's theory, a retweet, or even a like, or in the context of Reddit, an upvote or downvote, that would also be in the crosshairs for litigation. Thank you. Anything to add, Jess? Yeah, I echo the exact same thoughts on my panelists. I'll just say this. So I actually went to the arguments. I got a chance. I was one of the golden ticket holders, as were the rest of the three of us. And I walked in with a lot of cynicism. To Nicole's point, I had been thinking up until that point.

There's a reason why this case was taken up. We heard in the Malwarebytes dissent with Justice Thomas. He's eager to rewrite the rules of Section 230, reinterpret the law. And so I went in thinking this is the heat death of the Internet and Section 230. And I was surprised. I was I was I came out kind of cautiously optimistic. And I think, you know, to Nicole's point, I agree with her. I think the reason the case was taken. I mean, keep in mind that the question had changed.

so frequently, even during the arguments themselves. I think Justice Thomas and folks who were probably interested in hearing the case probably thought that they were going to be hearing a different question. The case started out as, does Section 230 apply to traditional editorial functions? Which is a very broad sort of... First Amendment slash 230 question that could actually bring about some interesting and detrimental consequences depending on, you know, where the court would go with it. And I think that's sort of the original question that the court was interested in hearing. It then changed to, you know, later on in the briefs, it changed to, okay, well, does Section 230 actually only apply, you know, not to recommendations, for example? Recommendations are out of scope of 230. And that's also a broad Section 230 question with interesting implications. And then the question changed again to, all right, we can see that 230 applies to some recommended content, but we don't think 230 applies when you use technology, i.e. algorithms, to do the recommendation. And I think once it...

got there to that. That was the question that was actually discussed in arguments. I think it became so convoluted and so thin that even the petitioner themselves, I think, struggled to be able to draw that difference between recommendations algorithmically done and not algorithmically done or neutrally versus not neutrally done. So I walked out cautiously optimistic. I think there's still room for the court to...

draw some arbitrary distinctions in the law. But I also, you know, we heard throughout not just the confusion, but the court seemed generally uninterested in even touching Section 230. There were a couple of questions that came up, such as, isn't this Congress's, you know, goal? If Congress had never intended to include algorithms in 230 scope, then Congress should write that into the law as well. Tommy Berry is a research fellow at the Cato Institute. Jess Byers is legal advocacy counsel at the Chamber of Progress. Nicole Saad-Bembridge is associate counsel at NetChoice.

The COVID-19 pandemic caused an unprecedented shock to our economy, including the mortgage and housing markets. As the director of the Federal Housing Finance Agency, Cato Institute Senior Advisor Mark Calabria led a considerable part of the federal response to the 2020 crisis. In Shelter from the Storm, he offers his readers a peek behind the curtain of government decision-making in a crisis and shows how millions of families were provided mortgage and rental assistance at little to no cost to taxpayers, while resisting repeated calls for industry bailouts and subsidies. This is a story about how you can directly help Main Street without bailing out Wall Street. Purchase your copy of Shelter from the Storm at kato.org slash books. That will do it for this edition of Kato Audio. I'm Caleb Brown. Talk to you again next month.