Welcome to Cato Audio for February, March, 2025. I'm Caleb Brown. In this offering, Cato's Romina Baccia and Adam Michelle discuss efforts to rein in federal spending and what Congress can do to make it happen. Norbert Michelle and Jennifer Schultz detail what financial markets actually deliver for Americans in their new book, Financing Opportunity. Jennifer Huddleston sits down with Representative Jay Obernolte to discuss AI policy and its future. And I chat with Cato's Tom Palmer about the choice yet to be made about America as civil society or a political one. First up, the Cato Roundtable.
As of the new Trump administration, there are a lot of people who are very concerned about what the justice system will look like. And, you know, of course, I think it's important to note that in many cases it is not necessarily the person wielding the power. The problem, of course, is the powers themselves. And joined here to talk about this, Mike Fox, a legal fellow at the Cato Institute. Brent Skorup, another legal fellow at the Cato Institute. And Pat Eddington, remotely a senior fellow at the Cato Institute and author of the forthcoming The Triumph of Fear. Before we get into the meat of our discussion, Pat, if you don't mind, could you tell us, give us the...
elevator pitch for the book that you've been working on so strenuously for so long that we'll finally see the light of day later this year. Yeah. Thanks, Caleb. This is volume one in what's going to be a two-volume series about domestic surveillance and political repression in the American Republic. And volume one, as you indicated, is titled The Triumph of Fear. It will come out this April, courtesy of Georgetown University Press. And if you go to the Georgetown University Press, it is available for pre-order even now. All right. So I want to start, Brent, I want to start with you because there are a lot of authorities that the federal government has that are at least problematic.
And one, we may have seen a little bright spot with respect to specifically Section 702 surveillance authorities. Can you walk us through a little bit of what that is and what the court decided? So Section 702 is a provision in law, in foreign surveillance law, that allows the government a pretty free hand in surveilling foreign targets, including foreign targets. So people who are suspicious for various reasons who are speaking to Americans as a result of all the surveillance. The federal government intelligence officials get a lot of communications and emails and phone calls of foreign targets. And incidentally, they sometimes get the communications emails of American citizens. But it's a pretty broad law. There's a lot of secrecy. There's a secret court. There's secret warrants. So it's hard for those of us in the public to understand fully what's going on. We got a small glimpse at how this works. A federal judge ruled that while... So what the government argued is that when they collect all this information under...
under the foreign intelligence surveillance laws, if their collection is legal, then they can query that information, and there's no Fourth Amendment issue. And a federal judge yesterday said, no, there's Fourth Amendment issues when you query the information. Even if you've collected it legally, you still need a warrant when you're querying that information. So it's a small step, and we learned a little bit more about secret courts, secret warrants, and how the surveillance system works. Pat, the authorities granted here, it seems like we're always moving one step away.
from a clear assertion of the Fourth Amendment. Brent just talked about secret warrants. And as we were talking about before we started recording, part of the point of a warrant is someone's going to present it to you. Well, you know, the issue is that this particular authority that we're talking about, which is a part of Title VII of the Foreign Intelligence and Surveillance Act, started out its life as a completely illegal, unconstitutional, warrantless surveillance program called Stellar Wind that was initiated literally within hours, within hours of the 9-11 attacks. And over the course of the years, what we learned through the work of Charlie Savage at the New York Times and others is that, and we have Edward Snowden to thank for an awful lot of what we know about this.
Then NSA Director Michael Hayden literally initiated this program without any kind of legal authority to do it. And in fact, his decision to tell his people to begin monitoring communications between the United States and Afghanistan without any kind of warrant was a direct violation of FISA at the time. So once this particular authority was surfaced by the New York Times in December 2005, it started an almost three-year battle, essentially, to take that illegal Stellar Wind program and make it legal. And the result has been this thing we call the FISA Amendments Act in Title VII, which was passed in July of 2008. And, you know, there are a number of federal courts that have ruled in the broad terms that the 702 program is legal. For the life of me, I cannot understand how a program that is based essentially on a programmatic warrant, in other words, a multi-target warrant, can possibly meet, you know, a Fourth Amendment standard. But as I think most of us who work at Cato understand, the level of deference that federal judges show to the executive branch in these matters is usually staggering, especially in the D.C. Circuit. Now, the reason that we got this decision, I'm convinced one of the reasons we got it, is that Judge LaShawn D'Arcy Hall...
is not a Department of Justice clone. She was a civil litigator, a corporate litigator. You know, so she doesn't come out of that, you know, whatever the executive branch says is wholly writ mold. And I think that's one of the reasons that we've seen this decision. And I think, you know, another judge, Judge Richard Leon, I think also in the same circuit or a nearby circuit, has previously ruled that, for example, a component of the Patriot Act, specifically the Section 215 telephone metadata program, was unconstitutional. He was overruled by other judges at the appellate level who are, wait for it, DOJ clones.
You know, this is a it's a it's a nice victory. I'm concerned that it will be challenged by DOJ, although we don't know. Right. I mean, you just brought this up, Caleb. I think in our sidebar chat beforehand, you know, President Trump was improperly targeted the first time around in 2016 under this crossfire hurricane investigation that used a different title of FISA. But the number of abuses that we've seen with the FISA program, not just in Title I, but obviously in Title VII and the 702 program have been pretty epic. So, you know, maybe the new president will say, you know, screw it. This thing needs to go away. Yeah. So that's the you know, when we when we think about federal power.
It kind of feels like the one ring and whoever has it wants to keep it, wants to make use of it. So my suspicion, as would be the case with any new president, is that you can complain and be upset about abuses aimed at you or your agents, the people who work for your campaign, as Carter Page did. And once the tables have turned. These are very useful authorities. We need to maintain them. We can use them for a lot of good given. And I think this is the sort of the underlying theme of our discussion, given the threats that this president has made against political opponents and the threats that have been made by Kash Patel, who is Trump's pick to head the FBI and others aimed at President Trump's political opponents. It seems like these authorities have revealed something of an Achilles heel in the justice system with respect to.
protecting individual liberty. Absolutely. So, you know, there are other elements here, and Mike, I want to bring you into the conversation, which is the Department of Justice, you know, if you listen to Clark Neely talk about it, a lot of the powers that have been exercised by the Department of Justice have been done so, have been used relatively quietly, despite their coercive nature. And a lot of the powers that are now assumed by people who are under the authority of the executive branch under President Trump, they seem very open about using these powers of the Department of Justice of the federal government more broadly in a highly specific, targeted way aimed at retribution.
Absolutely. And Caleb, as you noted, Trump's just saying the quiet part out loud. This is something that's gone on for years and years. It's nothing new. But I wanted to highlight two executive orders or an executive order and executive action that President Trump took on his first day. So one of the things he did is he issued commutations and pardons or sentencing commutations and pardons to some of the January 6th defendants while simultaneously issuing an executive order that he said restored the death penalty to promote public safety. I struggle to understand how these two things could coexist. On the one hand, the president is saying that.
you know, he's issuing these pardons because it's a grave national injustice that DOJ, you know, has orchestrated against what he perceives to be patriotic Americans. But on the other hand, he wants DOJ to have more power to continue doing exactly the same thing. And this is not a Republican or Democratic thing. This has gone on for years. So I would think that he would want to rein in DOJ, make them smaller, take away their power, not embolden them and allow them to continue doing the same exact thing that they've always done. Another thing I also wanted to mention is Pat sort of hinted on it, about the role of judges. So Cato...
did a study a number of years ago talking about how there's a disproportionate share of judges, especially federal judges, who were either former prosecutors or otherwise courtroom advocates for the government. And, you know, I was a former public defender, and I used to joke that my clients were in front of two prosecutors. One was the actual prosecutor. The other was prosecutor in a black robe, the judge who served 26 years as a prosecutor and didn't understand that he no longer did that role. And this is not to suggest that, you know, prosecutors can't be impartial judges. There are definitely some, but it does change your worldview. Like when you represent real people and you challenge government, you see the injustice government.
perpetrates on a daily basis against people, you tend to become more skeptical. Whereas when you literally do this on a daily basis, you don't realize, you know, the sheer terror that you're inflicting on people. And oftentimes they're overconduct that generally doesn't harm anyone and that many Americans would not actually deem wrongful. Pat? I agree with everything that Mike said. And I would really commend folks to go to the Cato website and take a look at that report. It was authored by my boss, Mike's boss and Brent's boss, Clark Neely, our VP, senior VP for.
criminal justice. And the fascinating thing, or terrifying in my view, the thing about this study that he did, he did it back in 2019, and I think he refreshed it in 2021. The number of judges on the federal bench who have a DOJ or government advocate background compared to people like Mike, for example, who was a public defender, those government advocates or former government advocates outnumber folks like Mike by anywhere from 10 to 1 to 12 to 1, depending upon how you slice it. I'd be willing to bet the D.C. Circuit is probably even worse than that. And it absolutely has a distorting effect. And our friend Ken White, otherwise known as Popat on social media, is himself a former prosecutor and now is in private practice. He constantly rails on the Serious Trouble podcast.
about the overreach of prosecutors, not just at the federal level, but at the state and local level as well. So when you get into the national security arena and you already have this bias towards the executive branch, and then you combine it with the secrecy that Brent has been talking about. It's an incredibly toxic combination. And I think it makes any chance of getting any kind of real justice. I mean, there's just fundamentally not a true adversarial process within the FISA court system. It's just not there. And so it's rare. Talk about that for a moment because Brent and I were discussing that beforehand. When you walk into a courtroom, you have an advocate on your behalf in the FISC, the Foreign Intelligence Surveillance Court.
That is not the case. And in many cases, the warrants that are issued, the targets of those warrants. Absolutely. And, you know, I mean, to be accurate here, when the USA Freedom Act was passed in 2015, and that only happened because of Edward Snowden's revelations, that law included a provision that required an amici to be appointed in FISA court cases where a, quote, novel question of law, end quote, appeared to be in play. And so, you know, there's some folks like Laura Donoghue over at Georgetown University Law, you know, who have actually served in that particular capacity. But, you know, it's a novel question of law, not.
Joe Schmoe, who has been wrapped up somehow in some kind of FBI investigation in which 702 was used, he or she will not get any kind of representation at the FISA court. So it is very much essentially a largely one-sided, almost totally one-sided, pro-government kind of thing that takes place behind this virtually impenetrable wall of secrecy that makes it impossible for us to actually get any kind of insight. And in this particular case that we're talking about, the one that Judge Hall ruled in, You know, her decision was handed down on December 2nd, 2024. We didn't find out about it until January 15th. I guess it was 2020, 2025. But the thing about Judge Hall, and I've talked about this before, and I do think it's very important is, you know, she has no DOJ background. And that's also true, I'll say, of Judge Amy Coney Barrett on the Supreme Court. And I think, you know, her.
Her lack of slavish fealty necessarily always to executive authority, I think that served her well, at least up until the Trump immunity decision, although she was one of the few justices outside of the Democrats who had some reservations about the scope of the decision itself. Well, let's close with that, because that is certainly something hanging out there that we really don't know exactly what it means at this point, which is the decision that the Supreme Court made in 2024, granting this president, future presidents, some immunity from prosecution. It's found nowhere in the Constitution, as far as I know, for so-called official acts or acts pursuant to some sort of official purpose. Mike, if you don't mind, could you walk us through some of the broad strokes of that decision and what that might mean down the road?
I do want to talk more broadly about the immunity doctrines and how they apply and, you know, actions that can be taken to sort of. Sure. Yeah. Yeah. So, you know, prosecutors in our system are the most powerful actors are also the least accountable. In 1976, in a decision called Imler versus Pacman, the Supreme Court invented prosecutorial immunity out of whole cloth. So what this means is that the prosecutors who, you know, did whatever they might have done, you know, to Trump and his supporters or whatever Trump and his supporters are going to do to exact revenge, you know, are fully immunized. And what that means.
is that there is no way whatsoever to hold them accountable. So every agency in the government, including DOJ, has what's called an OIG, which is Office of Inspector General. There is one carve-out in the entire federal government, and that is DOJ lawyers. So if you work for DOJ as not a lawyer or you work for any other agency, including as a lawyer, you are subject to independent oversight and review by the Office of Inspector General. For some reason, in 1978, Congress made a carve-out for DOJ lawyers.
What that means is that they're only subject to oversight by what's known as OPR, the Office of Professional Responsibility, which Attorney General Edward Levy created three years earlier in 1975. In those about five decades since then, OPR has become a place where, you know, prosecutor almost kind of goes to die. So there's really no meaningful way to actually hold prosecutors accountable at the federal level. There has been several members of Congress who have proposed legislation over the past few Congresses. I'm hoping to see that again to close that loophole. But it's also worth noting that because OPR was created by the Attorney General, it could also be eliminated by the Attorney General. So Pam Bondi has the ability on her own volition to get rid of the Office of Professional Responsibility. That may not in and of itself hold prosecutors accountable, but it's a step that the administration can take on their own. And then, of course, she and President Trump can work with Congress to get the Inspector General Access Act over the finish line. So that way, DOJ lawyers are subject to the same meaningful oversight that every other government employee has.
I think it's important also to point out that one of the offices in the Department of Justice that almost never gets mentioned, but arguably is one of the two most important offices in all of government, is the Office of Legal Counsel. And this is the office within the Department of Justice that writes the opinions that essentially sanction whatever it is anybody in the executive branch is going to go out and do. So why this is so important is because when we saw in the Bush 43 administration the creation of this torture program by my beloved former employer, the Central Intelligence Agency, OLC lawyers, John Yoo specifically, as I recall, wrote an opinion that essentially redefined torture to not essentially be torture when it came to waterboarding, when it came essentially to putting people in a coffin-sized box with a scorpion or things of that nature. And because that opinion is viewed by federal courts essentially as a shield, almost a form of law, if you will, when Special Prosecutor John Durham looked into all this, he wasn't able to actually bring any charges against anybody because of that OLC opinion. So what could happen now with Trump is that the immunity decision of the Supreme Court from July of last year, it only covers the president, right? But the Office of Legal Counsel is going to be responsible essentially for
helping to put a legal patina, if you will, over everything that Trump wants to do, whether there's any potential conflict with existing statute or existing case law. So I think it's going to be really critical to kind of keep an eye on, number one, who he appoints to that office. I don't think he's actually made an announcement about that so far. And then what that office ultimately does to help legitimize or provide legal cover for pretty much anything that Trump wants to do and anybody that is responsible for carrying out Trump's orders within the executive branch. That is a pretty grim assessment all around. I've been looking for bright spots to discuss, and there are a couple, but we're going to have to leave it there and we'll revisit this issue down the road. Mike Fox.
legal fellow at the Cato Institute, Brent Scorup, legal fellow at the Cato Institute, and Pat Eddington, senior fellow at Cato, author of the forthcoming book, The Triumph of Fear. And of course, you can follow all of these gentlemen and their work at our website, cato.org. What will it take for the so-called Department of Government Efficiency to be a success? Cato's Romina Baccia and Adam Michelle address that question at a Capitol Hill briefing in January. So 2025 represents a critical window for cutting spending, rightsizing the federal government and stabilizing the United States debt. And I'm so grateful for you all for being here so we can talk about how we're going to get this done. One point I want to emphasize before I turn over to my colleagues here is that.
There are many ways that Congress can help the DOGE be successful. On its own, as an executive commission, the DOGE will have very limited powers to make changes. That doesn't mean they're powerless. There are quite a few executive actions and regulatory changes that the administration can accomplish on their own, and we list many of them in our Cato Institute report to the Department of Government Efficiency, or DOGE, which you should have found at your chairs and is also available online. The Cato Institute has also produced a comprehensive report for executive actions that the administration should repeal, modify, etc.
Those are great targets for DOGE as well, which is available for free on kato.org. But Congress has two other opportunities to work with the DOGE to really amplify its impact. As you know, any executive changes can be easily reversed by the next administration. In order for change to be lasting and in order to change some of the biggest drivers of government debt and inefficiency, DOGE will need to work closely with Congress. And I can see at least two opportunities for that to happen. One is that Congress could authorize DOGE as a congressional commission and give it limited, targeted, narrow impoundment authority.
very similar to reorganization authority that Congress has delegated to presidents in the past. And if Congress did so, DOGE could actually also make statutory changes, eliminating entire government agencies and programs, as well as making other targeted cuts. Now, the important thing to keep in mind is that even if DOGE really was immensely successful at reducing the regulatory state, cutting a lot of discretionary spending, the biggest drivers of our debt are. the entitlement programs, especially Medicare and Social Security. And there too, I see an opportunity for Congress to work with Doge to tackle what I think are some of the most wasteful programs in our government. And that is there's opportunities to reduce spending in Medicare and Social Security without cutting benefits. So we can honor President Trump's promise to the American people by simply slowing the growth in Medicare and Social Security spending. And there, I believe a commission that is modeled after the base realignment and closure commission will have the biggest promise for getting those reforms done through the political gridlock that has been stifling progress on these issues.
Just as a quick reminder, Medicare and Social Security are responsible for more than 100 percent of our long term unfunded obligations. What this means is that even if we cut everything else, the federal government would still face a debt crisis if we don't reform Medicare and Social Security. Doing nothing is not an option. And those can bring emphasis and spotlight to our spending problems. And if Congress can set up a companion congressional commission, we can tackle.
the entitlement programs as well and stabilize our debt over the long term. There's a bill that has passed the House Budget Committee called the Fiscal Commission Act that Congress could consider for the lame duck this fall. At that time, the Fiscal Commission could work alongside the Doge in 2025 to identify not just tweaks on the margin, but to truly reform the programs that are driving our debt crisis. I have some questions for my colleagues, and I will also open the floor to your questions. Adam, I want to start with you.
Extending the pro-growth tax cuts is a key goal for Congress. How should Congress do this in a way that avoids spooking bond markets or driving up interest rates significantly? So how do we balance sort of tax cuts and fiscal responsibility is, I think, the overarching question. I think there's two components to this. The first is the need for pro-growth tax reform, not just tax cuts full stop, but pro-growth tax cuts. There is a difference. And then ensuring that the ultimate package that keeps taxes from going up is, if not deficit neutral, at least deficit conscious. So first on pro-growth tax reform, the 2017 tax cuts was successfully pro-growth. Most of that growth came from lowering the corporate tax rate because it was permanent.
permanent tax changes are the most pro-growth tax changes. The biggest problem with the 2017 tax cuts was the fact that it was temporary, putting us back in this position now and undermining its ultimate ability to be as pro-growth as it could be. Looking to 2025, when most of the Tax Cuts and Jobs Act expires, American people facing a $400, $500 billion a year tax increase if Congress does nothing, most of those tax changes are on the individual side, which are unfortunately not nearly as pro-growth as changes to the way we tax investment and the way we tax businesses.
The most pro-growth pieces of the tax cuts that are expiring are business, full business expensing, which is the ability for businesses to write off investments in the year they make them. The expensing is about four to five times more pro-growth than keeping individual tax rates low or from increasing to where they otherwise would be if Congress does nothing. Both reforms are important, but if we're prioritizing reforms, we want to prioritize the things that are getting us the most growth per dollar of reduced revenue. So focusing on the most pro-growth pieces of reform will be incredibly important. The second component is permanence.
Temporary tax cuts are not pro-growth. They simply just change business decisions between years rather than increasing the total amount of new economic activity, new jobs, new investment, new business starts that we would see otherwise. So when choosing the tax reforms that we want to see, we should pick the most pro-growth ones and make them as permanent as permanent as possible. And then considering the deficit is obviously very important. There's a Cato tax plan that I encourage you all to check out. There's copies of it out there. We identify $14 trillion worth of spending in the tax code over 10 years. That should all be open for discussion in order to make the ultimate package deficit neutral. Chris is going to talk much more about the spending side, but pairing tax cuts with spending cuts is ultimately the most pro-growth thing that Congress could do.
And all of this is obviously going to happen through reconciliation. Can you talk a little bit about how that process works and how Congress can use reconciliation to extend these pro-growth tax cuts and control spending simultaneously? So reconciliation is incredibly complicated and subject to a bunch of different constraints. The main one is that it can't increase the deficit outside of the 10-year window, which is the reason the 2017 tax cuts were made temporary. They expired or started phasing out so that it could meet that reconciliation requirement of not increasing deficits outside the budget window.
So the using reconciliation to make tax cuts permanent is challenging, but not impossible. And this is just whatever you think about. There's a lot of rhetoric about tax cuts not needing to be paid for or that we just need to extend tax cuts on a current policy baseline. Putting all of that aside, if we want to make tax cuts permanent, the most effective way to do that is by including spending reforms and other tax expenditure reforms in order to make the most pro-growth pieces of tax reform permanent through the reconciliation process. Cato's Romina Baccia directs entitlement studies and Adam Michelle directs tax policy studies at the Cato Institute. Financial markets are blamed for a lot of ills, so it's important to take stock of what those markets deliver for Americans. At the Cato Institute in December, Norbert Michelle and Jennifer Schelp sat down with capital account journalist Ryan Tracy to discuss their new book, Financing Opportunity. Personnel is policy. We are missing a lot of personnel.
still in terms of who's going to be making financial markets decisions. We've heard nothing about the banking regulators, who's going to be leading those. We haven't heard who's going to be leading the CFTC or the CFPB. So there's a lot to be built out still in terms of, I think, what the Trump administration vision is going to be for financial markets policy. But what can we infer from those picks? I mean, is it fair to say they signal change from the last four years?
Oh, absolutely. Talk about that. What kind of change in approach at a high level do you see coming when you look at those folks? Yeah, go ahead. Yeah, I would say for the SEC, I think it's a very clear signal of change from the past four years to Gary Gensler era. That's not a surprise. Trump campaigned on firing Gary Gensler on day one and was very excited to look for change at the SEC. Atkins is well positioned to do just that. But that's not...
Not a surprise at all. We knew that was coming. I think it's an interesting question as to what it signals different from Trump's first administration, where his pick was Jay Clayton, who didn't come in with a reform agenda. Jay Clayton came in with a much more traditional Republican stance of making tweaks and kind of keeping the trains running at the agency. Paul's going to, I think, responsibly tackle these questions. But Paul is a reformer and I think is going to have a long list of tasks, both that he wanted to do before Gary Gensler became chair and things that he wants to undo that Gary Gensler has done over the past four years.
And although we might not have a lot of detail yet, you know, if we go by the first number of administration, they're not. I mean, if we go, if we take sort of like them at their word, then we're going to have less regulation, right? It's going to be less of the same sorts of things that we've been having. Can't really name all these people yet, obviously, because they're not there. So we'll see. But I mean, they did do a lot of good regulatory agency level stuff in terms of reducing some of the bad stuff. So I don't know why we would expect anything radically different than that. And that's, you know, from our view, that's a good thing.
And let me ask you about two issues that I think, you know, again, if we've got some people coming to us on X and my X algorithm is any indication, these are issues that there's a fair number of people on there who care about. One is obviously crypto. And you mentioned Trump talked about firing games on day one. That was at a Bitcoin conference, I think, or a crypto conference. And so talk about what change you expect and even what change you think should happen when it comes to the approach to crypto policy. You know, obviously there will be some, I'll note the price of Bitcoin hit $100,000 for the first time yesterday, the day before we're having this conversation.
You got to think that's at least in part about excitement about a new approach in the U.S., not only to crypto, but to other new technologies. So, you know, talk about what you hope and expect on that front. Yeah, I think the first expectation is that kind of this SEC campaign against crypto is going to end. And I think there's no question that that is going to happen. The enforcement first make rules never approach that the Gary Gensler.
SEC time had been pushing, will be over on day one. We don't even need to wait for Paul Atkins to be confirmed for that to happen. Whoever's going to be the acting SEC chair, I think, will be of the same mind. They'll start reviewing enforcement actions that have been filed. They'll start taking a look at investigations that are in the works to determine whether or not those should continue. And I would expect a large majority of those will find their way to the trash bin in one way or another.
Making that happen can be a complicated process. So I don't think everyone's going to get closing letters on January 21st. There'll be some time as that works out. But that's going to be one of the first steps. But there's also going to be a lot of focus at the SEC in terms of creating a regulatory regime that provides regulatory clarity for crypto. And I'm talking about the SEC, but it's not just the SEC that's going to be involved in this process. The CFTC, the banking regulators and others, I think are all going to be taking a hard look at.
the regulatory landscape as it stands now and how that can be made more clear and welcoming to crypto technology and other financial innovation. That's a much longer process. It's a much more complicated process, particularly because the last four years have put the brakes on the agencies really being able to dig in and start that process. Everyone's starting a little bit behind the ball and we'll see how long it takes to really get that spun up. And just having that lack of a hostile environment, I think is huge. So I think everybody's kind of hopeful.
And again, it's partly based on the first Trump administration. You're not going to have that extreme adversarial relationship on many of those areas. So I think that's a reasonable expectation at the very least. And in the past week or two, some of the discussion around crypto from people like Elon Musk, Mark Andreessen, the prominent venture capitalist who went on Joe Rogan's podcast last week talking about this, is this issue of debanking. And as you know, but just a little bit of history for the viewers who may not, this is not something that's specific to crypto, right? This has been an issue in Washington for 10 or 15 years now. And it basically is this idea that banks are cutting off customers who they believe regulators may not want them to have a relationship with. And there are certainly examples of regulators being very explicit about that. There are also examples where...
it's a little bit unclear what happened and maybe the customer didn't get a very clear explanation. And perhaps the bank is just being risk averse. They weren't necessarily told to do it. Again, to be clear, there are instances when they were told to do it. This discussion relates to crypto because in the past week or so, a number of crypto founders following Andreessen's comments have come out and said, hey, I was debanked, right? The CEO of Ripple, Brad Garlinghouse. You had a representative of Facebook's old Libra project coming out and saying the Fed leaned on their banks to abandon it and on and on. And there's this optimism that, hey, this is going to be approached differently. So, Norbert, I know your expertise is more in banking. What do you make of sort of what could, first of all, like how big a deal is this issue and what kind of change?
How do you make change? How do you address it? I mean, it's a huge, huge deal. You've had Operation Chokepoint. Now you have the crypto sort of like under Operation Chokepoint, too. And you have literal instances of regulators saying, well, we need to choke them off from access to the banking system. And that kind of keeps all those companies on the fringe. And that's based on really nothing other than somebody's opinion. So that's a huge problem. A lot of the conversation, especially over the weekend, was about how the Bank Secrecy Act and any money laundering rules are kind of what drives this.
And that's true to some extent, but it's actually much bigger than that. Regulators have a lot of discretion. They can use something called reputational risk. And then they have a lot of discretion on what they consider to be a threat to safety and soundness. So they can kind of just go in and say, well, if you guys are doing business with those crypto customers, that's a high risk. Those are high risk customers or something along those lines. And if you're a bank, you know.
You're going to tell the FDIC, I don't care if you think that I'm too risky. No, that's not at all what's going to happen. Right. You're a bank. You're heavily regulated. And this is your person that could, in theory, shut you down or sanction your insurance. How does the message get delivered? Give people an idea of what that dynamic is like. Well, I mean, so some of this, and this is documented, so this isn't me just theorizing, but also a lot of this has been the examiners going in and saying.
Kind of what I just said, which is that if you're doing business with, for example, payday lenders or small dollar lenders, that's a problem because your reputation is going to suffer. Or that's a problem because those are high risk customers. Even if you're dealing with a third party that deals with them, we consider that to be high risk. And they don't have to say, stop banking with them. That's all they have to say. Because if you're the bank, obviously you have the deposit insurance held over your head, but you also have to worry about what your ratings are, your camel's ratings. Because if you want to operate, if you want to do a merger and acquisition, if you want to expand, if you want to open a new branch, your rating can't be bad. So you really have no choice. And then the sort of insidious part of that is you have no recourse. You can't go and complain to anybody or go to court or do anything. And that's why I think that this is a problem that needs some sort of legislative solution.
We're still on the early end of discovering what AI can deliver for us. So how has policy supported or hindered U.S. innovators and consumers in developing and accessing AI? At a discussion at the Cato Institute, Jennifer Huddleston sat down with California Republican U.S. Representative Jay Obernolte about the present and future of AI and its regulation.
You know, I think there is doom and gloom and some of it's misplaced. AI is this strange policy topic, very unusual and different from the other policy topics that Congress has to consider because it's been informed by 50 years of science fiction and pop culture. And so if you ask the average American what the main benefits and drawbacks of AI are, you will not get a realistic answer because if you ask, for example, the doomsday scenario, you know, what's the worst thing that could happen? You will get an answer out of a Terminator movie where an army of evil robots rises up to take over the world with their red laser eyes. But that's not what keeps us up at night.
But there are some equally consequential things that we worry about when it comes to AI, things like the potential for the spread of misinformation, cyber fraud, the AI's ability to pierce through digital data privacy, non-consensual intimate imagery, national security issues. And if you take those together, they're probably equally consequential to an army of evil robots. So I think that's part of our job as leaders is to educate the American public about what the chief hazards of AI are and what government can be doing about them. But at the same time, I think you've asked a very important question, which is we cannot ignore the upside of AI. And to me, AI will be the...
Single most powerful tool tool for enhancing human productivity that mankind has ever invented And that's going to have profound implications for our society and it's going to be disruptive certainly that's true These revolutionary technologies always are most recently the internet but going all the way back to the printing press But I think we shouldn't let that distract from the fact that I think AI will help everyone be more productive and it could create this Rising wave of prosperity that literally lifts all the boats in the United States Yeah, I think that productivity element is really interesting. Are there specific ways you've already seen some of the improvements in productivity with some of the applications that are already out there? Well, certainly. I think if you look at the things that AI is currently being used for, the most profound are the ways that AI is used to organize and disseminate human knowledge. AI is just really good about that, about taking a huge, vast amount of knowledge and boiling it down to the couple of sentences that you need to deal with the situation in front of you. And that's something that we as humans are terribly good at. Our brains work in a fundamentally different way. And so in that sense, AI is very complementary to what we do.
You answered this next question a little bit in the prior one where you were talking about how oftentimes when you ask the average American what they think about AI, you ultimately end up at something that sounds like it's out of a science fiction movie, tying it back to The Terminator or any other of the kind of Hollywood blockbuster type of movies. But we've also seen a lot of Americans starting to use this in their everyday life, things like ChatGPT, and also using AI technologies that we might not recognize as AI technologies, things that are already in our phones, in our search engines, in our GPS that we've been using for quite some time. But when we look at a lot of polling data, it's clear that some Americans are still quite hesitant about AI technology and somewhat unusually when it comes to to a new technology a bit pessimistic. What are some of the things that you would say or that you believe Congress can do to react to some of these, quote unquote, doomer headlines and conversations that are being had? And what is your response to folks that are concerned about the potential disruption of this technology? I think that being concerned is completely reasonable. But if your point of view is that you're worried about AI because it is unregulated and therefore unsafe, I think that that's not realistic. Because in this country, we believe in regulating.
outcomes, not tools. And AI is a very powerful tool, but it is still just a tool. And we already have a legal framework for dealing with outcomes. And I'll give you a couple of examples, one that's pretty obvious and one that's maybe less obvious. AI can be a very...
powerful tool for harming people if it is used in a context of cyber theft, to mislead someone into transferring money to someone that shouldn't have it. And we're seeing the vast proliferation of people using AI in this way. So it's certainly something that is worthy of concern. We need to make sure that our law enforcement agencies have the tools and resources to deal with it. But we don't need to make that use of AI illegal, because it is already illegal to steal someone's money. It doesn't matter if you use AI to do it or another tool to do it. And that's the obvious example. Here's a little less obvious one. A few years ago, there was a company that created an AI algorithm.
to perform automated screening of resumes. And this was, you know, you have a job opening, you want to reduce, you get 100,000 resumes and you want to reduce that down to the 300 or so that a human is going to look at. So that initial culling of the resumes. We would now, in retrospect, call that a highly consequential decision. That's something that deserves a very high degree of scrutiny from regulators because the decision that's made in an automated way has such a huge impact potentially on someone's life. So this algorithm was released and it was found to exhibit some very troubling biases, particularly in the area of race.
and what had happened is that the data that it was trained on had some of those biases baked in and those biases leaked into the way that the algorithm was operating so it was great that it was discovered that bias was discovered it was great was not intentional and we learned a lot about the way those biases can can propagate within ai algorithms from that example but none of that should distract from the fact that using any tool, AI or anything else, to discriminate in hiring is illegal. We don't need to make it illegal. It was already illegal. So that should give people some comfort that the way that we do things in this country, this idea of sectoral regulation, is one that can work and is working. And I hope that gives people some comfort because the people that are afraid of AI and are saying to us in federal government, please do something, make us safe.
You know you can't regulate for the sake of regulating that's you embarked on a fool's errand if you do that you have to have a reason for regulation and the reason for government regulating AI is to mitigate potential harms in AI and this is the person we've taken on the task force where we have tried to figure out what what lawyers call the parade of horribles you know all the bad things that can happen and then figure out what scenarios it's appropriate for government to protect against those and what needs to be done to enact that protection and I hope that gives people some comfort You know, you mentioned some of what you guys have done on the task force. And you also mentioned a lot of how Congress has been trying to learn about AI through that task force and those meetings that you co-chair with Representative Liu. We're about to wrap up the 118th Congress. We're about to wrap up a current presidential administration. You've been the co-chair of what has been a really bipartisan conversation around a wide range of topics as it relates to AI. What role do you think that Congress can play or should play when it comes to AI policy? And what have you learned from some of the conversations that the task force has had maybe that you didn't expect to learn about AI?
Well, some of the most surprising things that I've learned from the task force, I'll give you two. First is that artificial intelligence and the regulation of it are not partisan topics. And we tried, both Congressman Liu and I tried very hard to structure the task force in a way that discouraged people from reflexively retreating to their partisan corners whenever we had disagreement. I mean, we insisted on having an equal number of Democrats and Republicans, which is not the usual practice. Usually the majority gets more seats. We insisted that...
seating not be done by party so we told people to sit wherever they wanted to each one of our hearings we encouraged people to move around we didn't ask questions by seniority we didn't put people on the clock when they asked questions we wanted to empower them to expose a little vulnerability and ask questions that might be perceived as ignorant but then ask a follow-on question later in the hearing if they had one so but what we found was that we got collaboration in a wide variety of different ways from a wide variety of different people and i think it was really productive so i was very encouraged by that and the reason why that's important is that I can't predict who's going to control the house two years or four years or six years from now, but one thing that I can predict with a high degree of confidence is that the balance of power is going to continue to be narrow.
And probably control of government is going to shift back and forth between the two parties. And the reason why that's consequential for AI is that it is so incredibly expensive to train frontier large language models now. The current generation of ChatGPT costs over $100 million to train. The generation that's being trained right now will be over a billion dollars. And probably in a few short years, we'll be talking about multiple billions of dollars to train a single model. No one is going to make that kind of capital investment without some surety that there'll be a return on investment. And you can't have that surety if you're worried that every two years, the rules about AI and how it can be used completely are going to change.
So we need to accept that anything that gets done that's consequential in this space has to be bipartisan. So I was very happy about that. And then briefly, the other thing that I was surprised by is I think that looking back on what the task force has accomplished, one of the primary benefits of having the task force, I think, will end up being that we've created a nucleus of 24 members of Congress who are now deeply educated on the issue of AI and the different policy issues surrounding it. And I asked the speaker when he named the members. I said, please, don't send me a bunch of technologists. That would make life easier for me. But I said, we're going to have
policy areas that touch on lots of different committees of jurisdiction in the House. I mean, obviously, we've got science-based technology, energy and commerce for those pieces. But we've got a lot of really consequential intellectual property issues that are in the purview of judiciary. We've got a government efficiency issues that have the House Oversight Committee. We've got all the national security issues that are Hask and Intel. So all of those committees matter. And so I said, please send me a big diversity of people from all of those different committees because I wanted to get their perspective. But now what we've created is this pool of people who can now go back to their committees and evangelize the work we've been doing. And I think that's going to be very valuable.
Jay Obernolte is a Republican U.S. representative from California. Jennifer Huddleston is a senior fellow at the Cato Institute. We should never stop advocating for policies that will improve our world. But in our current polarized environment, it's worth taking stock of some of the personal relationships that make civil society vastly preferable to political society. Following his article on the subject in Cato's Free Society magazine, I spoke with Tom Palmer about what civil society means and how political society undermines its benefits.
Even after the election of Donald Trump in November 2024, there is, I think, still an opportunity for Americans to make a decision about the kind of society that we want to live in and think seriously about what that demands of us. And so in your article that you wrote for Free Society, the Cato Institute quarterly magazine, you sort of take up that question. Just to begin, you know, frame that decision. making the effort to try to live together. And even when other people are uncivil to you, finding ways to encourage them to engage in a civil dialogue. And it's hard. It's being tested very much today, not only the period leading up to the election, but since that time. And that's why I think people who want a future for the United States, and I'm quite serious about that, a future for the United States as a constitutional republic, have to make the extra effort for civility. It means not only focusing on what one
person with a big megaphone is saying right now, but looking also to those people who voted for him or against him, for his opponent, Mr. Biden, or for some other candidate, and showing respect to them as fellow citizens. And at this time, with the ugly rhetoric that's been flowing back and forth, it takes an extra effort. My view is it's worth it. So what does that look like? What does that toleration, that civil society being at the front
of our lives and pushing politics to the back? What are the steps, either politically or individually, that are required in your view? I think one thing that's important in a highly polarized society and one in which we've seen something that really I found quite shocking, this opposition among people to the idea that their children would marry people from the other party. The poll that I cite, 38% of both Democrats and Republicans said that they would be upset or very upset if their kids were to marry people from the other parties. That's really quite disturbing to me. As if you can't have friends with whom you disagree, friends who are in other parties or have different viewpoints.
A free society needs to be able to transcend that and say, yeah, Caleb and I might disagree about this, that, and the other thing, but we're buddies, we go bowling together, or we go to church or synagogue or mosque together, we're neighbors, we're members of the PTA, all those things that make connections among people. But when we have a situation in which we sort ourselves out, so we only associate with people who agree with us and consider the others to be in the enemy camp, we're heading down the road toward real civil conflict. And in order to get off of that road, I think we need to be willing to overlook those disagreements and sometimes say, you know, you and I disagree on that, but I just think you're a great person. I like your company, you're a good neighbor, whatever it happens to be. And sometimes saying, well, we can talk about that, but maybe not right now when political type questions come up. This is just not the occasion for that. Certainly the...
Thanksgiving dinner was a good example of that. The best thing to do is probably to avoid political conversations and talk instead about family and work and neighborhood and friends and, you know, those who have gone before us who have passed away that we remember fondly from previous Thanksgivings. That's what needs to take place on occasions like that and not fights over politics. You quote Alexis de Tocqueville in your piece in Free Society, talking about the associations. And I can recall that Tocqueville talked about how amazed he was at the prevalence of associations in the United States of America. This was, of course, in the 1800s.
The idea of associations as groups formed to address some problem or tackle some ill, political society in a lot of ways just replaces that and replaces that people coming together for some common purpose, whatever their political views. Well, not only that, but not only does it displace them, but it often creates conflicts itself. And the reason is when these associations are compulsory, which is basically your definition of a political association, we all are. required to be part of state policy, it applies to everyone equally, then there's a fight over what that policy is going to be. So if you take the current discussion, and I'll use two terms that are highly charged, but the ones that are used by the various participants, so-called woke, that's what critics call it, or DEI, which is what the diversity and equity and inclusion, which is what advocates call it, or on the other hand, traditionalism or conservatism or some other approach, you now have a winner takes all.
Whoever is in power gets to impose one or the other on other people, and they may not like it. In a society based on voluntary association, you can sort yourself out. I'll give you a simple example. From years and years ago, I spoke in Oregon. This has got to be 25 years before same-gender marriage was on the political agenda.
The society changed quite rapidly into accepting that. But at that time, it was just barely on the agenda at all. And I was asked a question about, well, do you think that people of the same gender should be able to be married? And I began to answer. And the convener of the meeting, there's about 90 or so people in the room, she spoke out. She was a very church-oriented person, very, very much a church-going Christian. And she said, you know, we probably wouldn't perform a service like that in our church, but it's not our business to tell other people how to live.
I said, well, that is the answer of a free society. In their church, maybe they wouldn't do that. Some other church would. But she said, it's not our business to tell other people how to live. The live and let live mentality is very important. And that, I think, is the linchpin of a free society. On the other hand, if you have one size fits all or one policy imposed on everyone, half the society is going to be angry about it.
and is going to then see the other side as the enemy. We should find ways in which people can sort themselves out if they want to into those groups to live the way that they want. If you want a very conservative traditional life in your church or mosque or synagogue, that's okay. Other people might live differently. And that's okay also because it's about exercising our autonomy over our own lives with the responsibility for the choices that we make. In a chat I had with Deidre McCloskey recently, we talked a little bit about the golden rule.
do unto others as you would have done unto you. But she added a corollary, which is the Rabbi Hillel rule, which is don't do unto others what you would not want done unto you. That's sometimes called the silver rule. You add those together and you get a pretty good set of rules for how to conduct yourself. Well, I'm not entirely sure in the following way. I think the golden rule is far too demanding as a basis of political life.
It is a claim on conscience, do unto others as you'd have them do unto you. I don't think it's the right foundation for political association in a varied population. It's a claim to a kind of moral excellence. The silver rule is the one we can all agree to and get along with. And by the way, Hillel argues this. The famous case where a man comes up and says to Shammai, another teacher says, can you teach me the Torah while standing on one foot, which means very quickly. And he's shooed away by Shammai, who then goes to Hillel. And Hillel says,
Do not do to others what you don't want done to yourself. That is the entire Torah. All the rest is interpretation. Go and study. The same principle is in the Analects of Confucius, articulated almost the same terms. One of his students, Shigong, comes to him and says, is there a principle that we can act on to the end of our days, which means consistently throughout life? And Confucius says there is one, Shu in Chinese. Do not do to others what you do not want them to do to you. It's a pretty simple rule.
It's the foundation of a free society, whether articulated by Confucius or by Hillel or anybody else. It's one that we can all agree to. And indeed, it's what parents typically teach their children. If you don't want people to hit you, don't hit them. You don't want them to take away your toys and your things, don't take away theirs. And, you know, kids, they get it until they get elected to Congress and then all that goes out the window. But as a fundamental principle of social life...
Most people internalize that quite well. Tom Palmer is a senior fellow at the Cato Institute. If you have an idea of what we should include on our Cato Audio exclusive, send it to me, cbrown at cato.org. An updated edition of David Bowes' timeless primer on libertarianism, The Libertarian Mind, is now available with a new preface by the author. As libertarianism gains increasing appeal to those concerned about illiberalism around the globe, this updated edition is a comprehensive guide to the history and philosophy of this movement, exploring its roots and its development over time. Challenging the notion of top-down governmental control, the book advocates for the sovereignty and fundamental dignity of the individual, as well as the importance of political freedom and limited representative government. This new paperback edition of The Libertarian Mind is available now at online retailers and wherever books are sold. That will do it for this edition of Cato Audio.
I'm Caleb Brown. Talk to you again next time.