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The focus of the Trump administration’s trade policy to date has been on renegotiating existing trade deals (with a mix of minor liberalization and modest new protectionism), putting tariffs on a wide range of imports using flimsy justifications, and engaging in a high-profile trade war with China. By contrast, it has put very little effort into pushing for significant new trade liberalization.

That may be about to change. The U.S. Trade Representative’s Office has just sent letters to Congress formally notifying the administration’s intent to enter into trade negotiations with the EU, Japan, and the UK. Cato scholars have called for exactly these negotiations (see herehere, and here, and much more detail here).

There is a lot of work ahead, as these negotiations won’t be easy. They would have been easier if the administration had not imposed “national security” tariffs on imports of steel and aluminum from these very same trading partners. Nevertheless, almost two years into the Trump administration, there is finally a glimmer of hope that there could be some trade liberalization coming.

Over the weekend, Washington Post investigative journalist and Cato alumnus Radley Balko published a devastating report on a drug unit in Little Rock, Arkansas. The squad has been conducting a high number of no-knock raids on drug suspects on evidence supplied by a less-than-reputable criminal informant. As Balko notes, that the police quite literally signed off on some of the informant’s apparent lies is one of myriad problems he uncovered in his investigation.

There are many shocking aspects to Balko’s story, but in the end, much of what he found in Little Rock reflects a broader problem of police reliance on informants to fight the drug war. Today, I published a piece in Democracy Journal explaining the many ways informants corrupt our justice system and policing itself. An excerpt:

The rules for using confidential (also called “criminal”) informants [CIs] in criminal investigations vary from jurisdiction to jurisdiction, but generally speaking, employing CIs introduces three systemic flaws into the criminal justice system. First, the use of confidential informants definitionally requires secrecy and opacity, which shields CIs and officers alike from sufficient oversight and accountability. Second, the informant system relies on bad inputs—namely, drug-addicted individuals and other people immersed in criminal activity to act as agents of the government—and thus effectively becomes a subsidy for criminal behavior. Third, the use of confidential informants creates some bad incentives for law enforcement actors and the CIs themselves, which skew toward case production and away from public safety and security. Taken together, and in the context of our everyday justice system, these flaws produce an array of bad individual and public policy outcomes while providing only superficial benefits for law enforcement.

Coincidentally, I recently testified before the Arkansas Advisory Committee to the U.S. Commission on Civil Rights in Little Rock. The committee invited me to talk about how police practices contribute to the pronounced racial disparities in mass incarceration. Among other things, my testimony included a criticism of Little Rock police using invasive, neighborhood-based pretextual traffic stops to quell an uptick in violence. Such methods fuel community resentment of the police and have not been shown to reduce crime in the process.

You can read Balko’s piece in full here. My commentary on informants can be found here. And the written version of my testimony in Little Rock can be found here.

Earlier this week, Leslie Stahl and 60 Minutes got into the subject of global warming with President Trump.  

Her question, “Do you still think climate change is a hoax” followed background on recent hurricanes Michael, Florence, Maria, and Harvey.

The President’s response was “I think something’s happening. Something’s changing and it’ll change back again. I don’t think it’s a hoax, I think there’s probably a difference. But I don’t know that it’s manmade.” 

This is a huge walk-back from his old rhetoric, which was enough to make scientists like me cringe. 

And in the context of hurricanes, his comment is also is consistent with what the National Oceanic and Atmospheric Administration’s Geophysical Fluid Dynamics Laboratory (GFDL) said in its September 20 statement titled “Global Warming and Hurricanes”: “In the Atlantic, it is premature to conclude that human activities–and particularly greenhouse gas emissions that cause global warming–have already had a detectable impact on hurricane activity.”

It is noteworthy that GFDL’s statement was in an update, and that “Global Warming and Hurricanes” has said the same about Atlantic hurricanes for years, long predating the Trump Administration.

Stahl then went on to Greenland.  Here’s the relevant transcript:

Lesley Stahl: I wish you could go to Greenland, watch these huge chunks of ice just falling into the ocean, raising the sea levels.

President Donald Trump: And you don’t know whether that would have happened with or without man. You don’t know.

Another reasonable response. For reasons having nothing to do with humans, ice-covered areas in Greenland endured 6,000 years of warming centering around 118,000 years ago that, in terms of integrated heating, was larger than anything humans can do to it. Yet it only lost about 30% of its ice. There were certainly more “huge chunks of ice just falling into the ocean raising sea levels” back then, with no human influence on climate.

It’s also true that the current high-latitude north polar warming is largely (but not completely) consistent with global warming theory.

Finally, they got into a “he said, he said” discussion about climate scientists’ various viewpoints.  Here’s how it ended:

Lesley Stahl: Yeah, but what about the scientists who say it’s worse than ever?

President Donald Trump: You’d have to show me the scientists because they have a very big political agenda, Lesley.

Lesley Stahl: I can’t bring them in.

President Donald Trump: Look, scientists also have a political agenda.

No, 60 Minutes cannot be expected to bring in hundreds of scientists on either side of this debate to investigate whether or not they have a political agenda.  But Al Gore may have been on to something in his comments on the recent UN report claiming temperature increases of a mere 0.6°C will be catastrophic.  He said it was “torqued up a little bit, appropriately – how [else] do they get the attention of policy-makers around the world”[?].

Hmmm. Seems like a political agenda.

This month the Washington, D.C. Council voted unanimously in favor of preliminary approval of a bill that has the potential to substantially restrict Airbnb and other short-term rentals in the District. The bill, which must pass a final vote before being officially approved, creates new licensing requirements and imposes new limits on who can rent out their spare rooms or homes and for how long. Most significantly, the legislation would only permit hosts to offer short-term rentals at their primary residence and to rent out their property for a maximum of 90 days a year while not present at their home.

The bill attempts to walk a fine line between fulfilling the promises of Airbnb and similar short-term rental companies and addressing the concerns of a coalition of community activists, hotel lobbyists, and hotel-worker unions. On the one hand, Airbnb—like Uber and some other “disruptors”—allows the middle-class to turn previously underutilized consumer durables and assets into sources of extra income. On the other hand, the groups calling for increased restrictions complain that Airbnb reduces the housing supply for long-term tenants and thus raises housing prices, has allowed commercial hotel operators to skirt regulations and taxes, and disrupts communities and neighborhoods with an influx of noisy strangers.

The benefits of Airbnb to some homeowners are clear, but the complaints of the bill’s proponents aren’t entirely baseless. Community activists argue that Airbnb exacerbates housing affordability issues. As I recounted in my working paper review in the winter 2017-2018 issue of Regulation, economists Kyle Barron, Edward Kung, and Davide Proserpio examined the impact of short-term rentals on housing prices and rent and found that, though the effect is not zero, it is small: a 1 percent increase in Airbnb listings causes a 0.018 percent increase in rents and a 0.026 percent increase in house prices.

Hotels contend that Airbnb, despite cultivating an image of middle-class owners earning extra income from renting out a spare bedroom, has allowed commercial operators to circumvent taxes and health and safety regulations. They back up this claim by citing that the vast majority of Airbnb revenue comes from entire home rentals and argue that regulations are needed to level the playing field. Browse through some of the postings on Airbnb and it is clear that these commercial operators aren’t fictitious (see this host, for example, whose description overtly describes themselves as a “full-service relocation management agency” and, with 79 available units in D.C., is the largest host in the city).

But a close look at the same hotel-lobby funded research used to justify the regulations shows that commercial operators are not as widespread as they portray: over 90 percent of entire home rentals in D.C. are offered by hosts with only one listing. That number also discounts middle-class D.C. residents who may rent out a starter home on Airbnb along with their new home, and thus technically offer two units for short-term rentals but can hardly be considered commercial operators.

Finally, some District residents complain about Airbnb and the strangers it brings into their neighborhoods and apartment buildings. These residents’ concerns about congestion, noise, and safety are probably overstated, but not unfounded. (In one egregious case, for example, one homeowner in the affluent Dupont Circle neighborhood of D.C. was renting his house out for large parties, including a concert with rapper Ja Rule.)

These issues are what is at the core of the short-term rental bill and zoning rules more generally: managing urban externalities. Unlike in rural areas, where neighbors can more easily ignore each other, in an urban environment what people do and how they live affects their neighbors because of proximity and density. Parking, noise, and land-use ordinances and regulations are attempts to create public expectations about behavior such that like-minded people become proximate to each other.

The expectations that are created are both on and off the books. While the norms in Dupont Circle create a quiet and peaceful neighborhood—and a premium for that peace and quiet—someone moving into fraternity row at George Washington University should expect a different decibel level and neighborhood flavor. As long as everyone is aware of these norms before they move in, and as long as everyone follows the norms while they live there, there are no issues.

The problems arise when people want to be different. Hosting a Ja Rule concert in Dupont violates both zoning laws and, more importantly, the established norms of the neighborhood. As it stands, someone who wants to be different can either break the rules and hope they are ignored, or lobby for change at city hall and hope for preferential treatment. But I propose a third option: buy the right to be different.

People who live next door to the concert, or even just a typical Airbnb, may not like the noise and strangers, but what if they got paid? Currently, a discontented neighbor’s only option to address their complaints is to ask the city government, through the police or enforcement of zoning laws, to use force. Instead, create a platform for rights exchange, which, as long as a price can be agreed upon, would give homeowners the right to rent their house on Airbnb providing they appropriately reimburse their neighbors for any disruption or inconvenience. 

What this platform would look like is unknown, and many questions, such as how it would handle holdouts, need to be addressed, but this sort of rights exchange is not unheard of. In the D.C. area, for example, rising home prices and demand for housing over the past 30 years created the need for denser housing developments. In Northern Virginia, which was once dominated by single-family homes, for 15 years between the late 1980s and early 2000s developers bought up neighborhoods for redevelopment, often paying homeowners more than double the listed price of their houses. Even more strikingly, a polluting coal power plant bought an entire town in Ohio for $20 million.

In both cases, the opportunity for exchange allowed the land to be used most efficiently while compensating those who had initial property rights. Though short-term rentals are on a smaller scale, the principles remain the same. Whether someone wants to rent their house on Airbnb or host a Ja Rule concert they should have the right to do so as long as they properly reimburse their neighbors for the externalities they create.

Written with research assistance from David Kemp.

School choice critics often resort to fearmongering. For example, a Superintendent of Public Instruction in North Carolina contended that citizens “could be in dangerous territory” with the expansion of private school vouchers. After all, she argued, “there is nothing in the [voucher] legislation that would prevent someone from establishing a school of terror.”

The only problem is that the facts don’t support these scare tactics.

My just-published study examines whether fluctuations in the private share of schooling affect national stability within 177 countries around the globe over 16 years. The analysis does not detect contemporaneous effects of private schooling on any of the five measures national stability. However, I find evidence indicating that increases in private schooling improve measures of perceived control of corruption and rule of law – provided by the World Bank – when students become adults.

As shown in Table 1 below (and in the original study), a one-percentage point increase in the private share of schooling enrollment is associated with around a 0.01-point increase in both the perceived control of corruption and the perceived control of the rule of law even after controlling for changes in factors such as GDP, population, and government expenditures.

Table Notes: p-values are indicated in parentheses. * p < 0.05, ** p < 0.01, *** p < 0.001. All coefficients are average marginal effects. All models use year and country fixed effects with time-variant controls added and a 7-year lag of the private share of schooling enrollment. Column 5 does not show any results for Coup d’état because the dependent variable did not vary. When the instrumental variable employed by DeAngelis and Shakeel (2018) and DeAngelis (2017)—short-run fluctuations in the demand for schooling—is used, the lag coefficient for Rule of Law remains statistically significant; however, the lag coefficient for Corrupt Control becomes statistically insignificant with a p-value of 0.11.

 

This study doesn’t provide any evidence to suggest that private schooling is dangerous to societies around the world. If anything, it appears that private schooling improves the character and citizenship skills necessary for social order. And this study isn’t alone. None of the eleven rigorous studies on the topic find that private school choice reduces social order in the U.S. The majority of these studies actually find positive effects on civic outcomes. But why?

Private schools must cater to the needs of families if they don’t want to shut down. And, of course, families want their children to become good citizens. But government schools remain open whether they teach kids character skills or not. Perhaps supporters of the status quo should consult the evidence – and basic economic theory – before resorting to scaremongering.

The federal government imposes a mandate to blend corn ethanol and other biofuels into the nation’s gasoline. This “renewable fuel standard” or RFS produces a range of negative effects, as discussed in this study at DownsizingGovernment.

The “10% Ethanol” sticker you see at the gas station indicates that the government is subverting your free choice and raising your driving costs to benefit corn farmers. The government has decided that corn farmers are more important than you are.

President Trump has supported the ethanol mandate, and he recently acted to increase the harm by allowing greater use of a 15 percent ethanol blend.

A Washington Post editorial today describes why that move is misguided:

For more than a decade, the United States has pursued the foolhardy energy policy known as the Renewable Fuel Standard, or RFS. Thanks to legislation passed by a Democratic Congress and signed into law by a Republican president, George W. Bush, in 2007, the RFS illustrates the sad-but-true principle of Washington life that bipartisanship is no guarantee of wisdom. In a nutshell, the RFS required the nation’s petroleum refiners to blend ever-increasing quantities of biofuels, chiefly ethanol, into gasoline, purportedly to promote energy independence and fight climate change.

Never mind that the United States has meanwhile become a major oil exporter, due to a production boom. Never mind that the environmental harms of ethanol arguably outweigh its benefits, because it takes massive amounts of energy to distill ethanol from corn — and massive amounts of fragile farmland to grow that crop. Never mind that diverting resources into corn production for ethanol raises the price of food. Never mind all that, because 39 percent of Iowa’s corn crop goes to create nearly 30 percent of all U.S. ethanol. And Iowa is a swing state with six crucial electoral votes and a first-in-the-nation presidential caucus; whatever Iowa wants, Iowa gets, from politicians of both parties.

Hence President Trump’s announcement, on the midterm-election campaign trail in Iowa, that he would, in effect, double down on this decreasingly justifiable policy. Mr. Trump declared that the Environmental Protection Agency will draft regulations allowing the year-round sale of motor fuel containing 15 percent ethanol, as opposed to the 10 percent limitation in effect for several months a year because of air-pollution concerns related to summertime atmospheric conditions. This would incentivize gas station owners to install pumps capable of delivering the fuel, thus boosting ethanol sales.

The point is to rescue Iowa corn farmers from adverse market conditions, which include lower prices because of retaliation from trading partners against Mr. Trump’s tariffs. The more fundamental problem is that, at its inception, the RFS assumed that ever-rising U.S. gas consumption would permit refiners to absorb huge amounts of ethanol. In fact, the year after Congress adopted the bipartisan RFS legislation, the U.S. economy went into a recession, causing a collapse in the number of miles Americans drove and the amount of fuel consumed per capita. Only last year did consumption return to pre-recession levels.

Refiners face high and rising costs when they are forced either to mix more ethanol into their motor fuels or to buy offsetting credits known, obscurely, as Renewable identification numbers (RIN). Plagued by volatility and manipulation, the market for RIN has turned into a major headache for smaller refiners, which often seek waivers of the ethanol blending requirement. The entire system adds enormous bureaucracy and complexity to the fuel market, with little or no benefit to consumers. E15, as the 15 percent ethanol blend is known, might cost less per gallon, but because of its lower energy content, motorists would probably get poorer mileage and have to fill up more often.

The petroleum industry has promised a lawsuit to stop Mr. Trump’s plan. While we hesitate to take sides between agribusiness and Big Oil, in this instance public policy clearly favors the latter.

Sears Roebuck & Co. became the most fabled retailer in American history as the pioneer of catalogue merchandising, an innovation that revolutionized small-town life. Its then-visionary management followed up with stand-alone stores that long served as landmarks in their communities, developing brands and business lines notable in their own right such as Craftsman, Kenmore, Discover Card, and Allstate Insurance, most of which are now independent. 

In the first half of the 20th century a whole generation of antitrust and competition laws attempted to restrain the rise of chain stores, with their perceived advantages in negotiating with suppliers. “One of the dumbest laws,” as Cato senior fellow Doug Bandow has called it, was the Robinson-Patman Act, amending the Clayton Antitrust Act in 1936, which (employing vague, opaque language) criminalized many arrangements in which chain stores like Sears obtained quantity discounts from manufacturers. Per one reference work, Robinson-Patman was meant to respond to “the growth of chain stores such as A&P and Sears, Roebuck,” in service of the interests of independent retailers and wholesalers. “The United States Wholesale Grocers Association drafted the original bill,” notes another source. 

None of which succeeded in holding back the logic of marketplace competition: under the Reagan administration’s leadership of the U.S. Department of Justice’s Antitrust Division, Robinson-Patman fell into disuse and the discount revolution gathered force. This morning, following a long decline, Sears filed for bankruptcy. (A&P, once demonized as a business juggernaut destined to swallow up grocery retailing, went out of business in 2015 after closing its remaining stores).  

In a column worth reading through, Joe Nocera at Bloomberg draws a lesson for policymakers about capitalism’s ferment of creative destruction. “The next time you hear somebody say that the dominance of Walmart or Amazon or Facebook can never end, think about Sears. It can — and it probably will.” 

In 1989, Larry Hatfield fudged his employment records to get some extra money from the Railroad Retirement Board. He was caught and pled guilty to the federal crime of making a false statement, and was sentenced to a fine and (at the government’s recommendation) no prison time. Since then, Hatfield has lived his life without incident, incurring nary as much as a parking ticket. He doesn’t fight, do drugs, or cause problems. Hatfield has lived as a completely law-abiding citizen for decades.

Hatfield’s neighborhood, however, has changed for the worst, so he wants to own a firearm to defend himself in his home. But the intersection of an odd federal law—18 U.S.C. § 922(g)(1)—and the ever-expanding idea of what a “felony” is has seen his right to keep and bear arms stripped away. That old conviction for lying to the Retirement Board now restricts his right to armed self-defense. While his conduct in 1989 was not upstanding, permanently stripping Hatfield of his core Second Amendment right seems an excessive punishment—one that puts the government in the interesting position of having argued that Hatfield is both so non-dangerous so as to have been recommended zero days in prison, but so dangerous that he can never be trusted with a gun.

Hatfield sued in federal court and won. The district judge agreed that permanently banning all felons—whether violent or not—from owning firearms was unconstitutional. The government has appealed that ruling to the Chicago-based U.S. Court of Appeals for the Seventh Circuit. Because the Second Amendment applies, on its face, to all Americans, Cato has filed a brief supporting Hatfield. Across-the-board felon disarmament is not only unconstitutional as applied to Hatfield—a non-violent felon who served no prison time—but with respect to all non-violent felons.

There is no longstanding precedent supporting the government’s position. In fact, Congress enacted a provision restoring gun rights to felons that don’t pose a threat to public safety, indicating a tacit acceptance that “felon” as a category is excessively broad in relation to the government’s stated purpose of protecting the public. Section 922’s operation as a categorical elimination of rights for a broad class of people is both beyond what was historically acceptable and without a meaningful tie to public safety.

The excessive breadth of modern felonies—including things as irrelevant to public safety as improper packaging of lobsters—unconstitutionally removes many individuals’ rights to self-defense. These laws also hurt minorities and the poor, the people most likely to become victims of crime and receive the least police assistance.

In Hatfield v. Sessions, the Seventh Circuit should uphold the lower court’s ruling and find the permanent removal of Hatfield’s right to defend himself unconstitutional.

Saudi Arabia has a big problem on its hands this week. Despite funneling significant resources into lobbying efforts and U.S. congressional campaigns, the kingdom has found itself in a pickle that it cannot seem to easily extricate itself from: the disappearance of Jamal Khashoggi. 

For years, Saudi Arabia’s war in Yemen has drawn significant criticism for their strategy and tactics. The naval blockade has their smaller neighbor grappling with a devastating famine and a dearth of medical supplies and humanitarian aid. The Saudi’s air campaign has also proven deeply problematic—either from their poor aim or amoral choice of target. 

International critiques seemed to reach a crescendo last month after the Saudi’s mistakenly bombed a school bus full of children—killing 26 and injuring 19 Yemeni kids. European nations issued statements that they would halt weapons shipments to the kingdom for the foreseeable future due to the incident, but many of those nations (including Spain and Germany) did an abrupt U-turn later in the month and proceeded with the sales. 

Some American policymakers have also tried to halt weapons sales to the nation over the past two years. There have been two outright votes on the matter led by bipartisan, bicameral coalitions—both votes narrowly defeated. Saudi Arabia’s role in Jamal Khashoggi’s disappearance has created a pivotal moment for the effort led by some in Congress to untangle the United States from Saudi crimes. 

Make no mistake—this change is not out of the blue—it’s reaching critical mass. The champions of previous amendments, including Sen. Rand Paul, Sen. Bernie Sanders, Sen. Chris Murphy, and Sen. Mike Lee, now have powerful policymaker allies that had been previously opposed to their efforts.  

But it should never have taken the disappearance of a Washington Post journalist to reach critical mass. Saudi Arabia has a staggering history of involvement in human rights concerns in Yemen that should have been enough momentum to stop and question the current scope of defense exports flowing into the country. The evidence that, at the very least, selling weapons to the country was a risky endeavor has been clear for years.

On the Risk Assessment Index, a comprehensive measure meant to objectively measure the risks of negative consequences flowing from American arms sales to particular countries, Saudi Arabia scored a 12 on the scale of 5 (lowest risk) to 15 (highest risk). The overall measure was created from making one unique composite score for each nation from the Fragile State Index, Freedom House Index, U.S. State Department’s Political Terror Scale, Global Terrorism Index, and the UCDP/PRIO Armed Conflict Database. 

While President Trump may tout the economic benefits of weapons exports, Congress has a responsibility to also consider the foreign policy implications of continuing their support. As I wrote recently in the Wall Street Journal,

 

The U.S. makes arms-sales decisions under legislative restrictions Mr. Benard doesn’t address. The 1976 Arms Export Control Act creates a directive to ensure that American-made weapons don’t spark arms races, support terrorism, or enable human-rights violations abroad. These aren’t “worries” or “aversions.” It’s the law.

 

The signs have been clear for a while. The smartest move for policymakers would be to at least halt deliveries to the kingdom until Khashoggi’s disappearance can be thoroughly investigated, and to use that time to seriously evaluate the trade-offs that come from selling weapons to Saudi Arabia. 

Writing in Project Syndicate, Stephen Roach, former chief economist for Morgan Stanley, declares the U.S. economy’s foundations fundamentally unsound:

“America’s net national savings rate – the sum of saving by businesses, households and the government sector – stood at just 2.1% of [gross] national income in the third quarter of 2017.  That is only one third of the 6.3% of the average that prevailed in the final three decades of the twentieth century… America… is saving next to nothing.  Alas, the story doesn’t end there. To finance consumption and growth, the U.S. borrows surplus saving from abroad to compensate for the domestic shortfall.  All that borrowing implies a large balance of payments deficit with the rest of the world which spawns an equally large trade deficit.”   

This alleged “savings crisis” has popped up periodically since the 1980s when there’s a Republican in White House, such as 2006 when I wrote about it.

Roach believes it “important to think about saving in ‘net’ terms, which excludes the depreciation of obsolete or worn-out capacity in order to assess how much the economy is putting aside to fund the expansion of productive capacity.”  

Dividing net savings by gross national income subtracts a semi-arbitrary estimate of depreciation from the numerator but not from the denominator. Dividing net by gross shrinks the resulting savings/income ratio. For Roach to suggest that more net savings could in any sense pay for more “consumption and growth” is misleading at best.  Don’t expect a discount on a new car because you hope to pay with net savings, after subtracting estimated depreciation.

The amount of money needed for new plants and equipment is gross, not net. And it is the dollar gap between gross investment and gross saving that needs to be financed by attracting foreign investment.  Mr. Roach calls foreign investment in U.S. equity (stocks) or real property “borrowing,” but that’s not how we describe the same investments if made by a U.S. resident.

The blue line in the first graph shows gross savings as a percentage of gross national income (GNI). The red line shows gross private domestic investment as a percentage of GDP, which is quite similar to GNI (GDP excludes income of foreigners spent in the U.S. and remitted income of Americans living abroad).  

The dotted green line is net savings divided by gross income – the extraneous ratio that worries Mr. Roach.  The green line appears to fall much more than the blue line simply because estimated depreciation rose from 12.3% of national income in 1969 to 15.9% in 2017 – as the capital stock shifted from structures to rapidly-depreciating high-tech. Because rising depreciation estimates are subtracted from saving yet added to income, the downward tilt of the green line is exaggerated by the oddity of dividing net savings by gross income. 

A declining net savings rate since the mid-1960s did not thwart fixed investment, though recessions always do.  Real net domestic fixed investment nearly tripled from $379.9 billion in 1983 (in 2009 dollars) to over $1 trillion by 2005-2006, and has again been heading up since the 2008-09 recession.

In the second graph, the ups and downs in the net savings rate (green line) do not track or explain the movements in net exports (exports minus imports). The U.S. runs a capital surplus and current account deficit when the economy is growing briskly.  Trade deficits shrink just before, during and right after recessions.  

When previous “net savings” anxieties appeared, they were used as a rationale for raising taxes.  In accounting, unlike economics, it sounds simple to raise national savings by reducing the government’s negative savings (budget deficits).  If we carelessly assume that higher taxes have no bad effects on the economy or private savings, budget deficits would then fall with higher taxes and national saving (the sum of public and private saving) would rise.  In this simplistic bookkeeping, more taxes are defined as being identical to more savings.     

There are big problems with assuming a $100 million tax-financed cut in the deficit equals a $100 million increase in national savings.  One is that politicians’ favorite targets for new taxes are savers and savings – retained corporate profits, dividends, interest, capital gains and high incomes in general.  If successful firms and families pay more in taxes, they’ll have less to save.

But the biggest problem with assuming smaller budget deficits add to national savings is that it is rarely true.  Smaller deficits (particularly surpluses) are frequently offset by lower private savings.  

The last graph compares recent changes in government savings (red line) with changes in private saving (blue) in billions of 2009 dollars.  When the red line falls sharply (2000-2002 and 2006-2009), that indicates a rising budget deficit.  Each time the red line fell, however, the blue line rose nearly as much – leaving total national saving little changed. Conversely, when the deficit was greatly reduced from 2011 to 2014, private savings was greatly reduced too, with little net effect on total public and private saving.

This inverse relationship between public and private savings is not unique to the United States, nor to the last 30 years.  In “A Reconstruction of Macroeconomics” (1992), I displayed graphs for the U.K., Sweden, Norway, and Japan to show the household savings rates fell dramatically (sometimes into negative territory) when these countries moved from budget deficits to surpluses for a few years in the 1978-92 period.  This is consistent with Ricardian Equivalence (taxpayers regard more national debt as their own, so they save to pay more future taxes), but perhaps also consistent with simpler cyclical explanations (people save more in recessions to rebuild lost wealth, and do the opposite in boom times).

We do not live in a closed economy, where new investment might have to be financed from flows of new domestic saving rather than from stocks of appreciated assets.  Global capital finds investment opportunities around the world, and foreign firms and investors find many of the best opportunities in the USA. More capital is better than less, and a dollar is a dollar.

Since the purpose of saving is to add to wealth, the best measure of saving is the addition to wealth.  In the first quarter of 2018, household net worth was a record 685% of disposable income according to the Federal Reserve – up from 548% six years earlier.   When the value of accumulated wealth rises that much, annual additions to the stockpile (saving) become far less urgent or significant.

Dire warnings of a looming savings crisis have been reported many, many times before, always in ways that are agitated, confused, mistaken and irrelevant.

The net savings rate does not explain or predict investment, trade deficits, interest rates, or anything else worthy of concern.  

More than 50 million Americans hold trillions of dollars in 401(k) accounts. The retirement accounts have been a big success. By eliminating the double-taxation of savings under the income tax, 401(k)s encourage individuals to build larger nest eggs.

However, many people needing near-term cash end up withdrawing funds from their accounts or borrowing against their balances. Retirement experts are concerned about such “leakage.” But the real problem is that the system imposes paperwork burdens and penalties on people for accessing their own money.

The solution is to create a savings vehicle that would allow withdrawals without a mess of rules, penalties, and paperwork. The solution is Universal Savings Accounts (USAs), as discussed in this Cato study.

USAs would be the first tier of savings for individuals, with the funds available for any near-term expenses that may arise. For individuals that didn’t end up needing the funds in the near-term, account balances would grow tax-free and help cover future retirement needs.

Because USAs would allow withdrawals free of hassles and penalties, they would encourage more savings. The simplicity and liquidity of USAs would make the accounts popular across all age and income groups, which is the experience with similar accounts in Britain and Canada.

The Wall Street Journal yesterday highlighted the 401(k) leakage issue:

Annual defaults on loans taken against investors’ 401(k)s threaten to reduce the wealth in U.S. retirement accounts by about $210 billion when the lost savings are compounded over employees’ careers, according to an analysis by Deloitte Consulting LLP.

The projected future loss amounts to about 2.7% of the $7.8 trillion currently in 401(k)-style retirement accounts.

The numbers highlight the problem of tapping 401(k) savings before retirement, known in the industry as leakage. Most leakage occurs because about 30% to 40% of people leaving jobs elect to cash out their accounts and pay taxes or penalties rather than leave the money or transfer it to another 401(k) or an individual retirement account.

But employees also take out loans, which about 90% of 401(k) plans offer. Workers can generally choose to borrow up to half of their 401(k) balance or $50,000, whichever is less.

About one-fifth of 401(k) participants with access to 401(k) loans take them, according to the Investment Company Institute, a mutual-fund industry trade group. While most 401(k) borrowers repay themselves with interest, about 10% default, or fail to repay their accounts, triggering taxes and often penalties, according to research by authors including Olivia Mitchell, an economist at the University of Pennsylvania’s Wharton School.

Failing to restore the funds typically occurs when employees with outstanding 401(k) loans leave companies before fully repaying their balances.

Money lost to 401(k) leakage, including loan defaults and cashouts, reduces the wealth in U.S. retirement accounts by an estimated 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.

Even those who successfully repay 401(k) loans can end up with less at retirement than they would have had. One reason is that many borrowers reduce their 401(k) contributions while repaying their loans.

While 401(k) loan defaults currently amount to about $7.3 billion a year, the impact is far greater given that many borrowers in default withdraw additional money to cover the taxes and early-withdrawal penalties they owe on their outstanding balances, says Gursharan Jhuty, senior manager at Deloitte Consulting.

… Few employers are willing to eliminate 401(k) loans, in part because academic studies have shown that they encourage 401(k) plan participation.

The fact that leakage is so high reveals a household need for flexibility that is not being met with current accounts. Universal Savings Accounts would fill the need by allowing withdrawals at any time for any reason. 

Ryan Bourne and I discussed the advantages of USAs in this study last year, and policymakers followed through with legislation this year. Republicans included USA accounts in their recent Tax Reform 2.0 package that passed the House.

We shall see which way control of Congress goes, but helping Americans at all income levels increase their financial security with USAs should be a bipartisan goal.

The continued intransigence of the Trump Administration in blackballing the appointment of new judges to the highest tribunal of world trade compels the 163 other countries that are members of the World Trade Organization to unite by resolving their international disputes in a way that cannot be stopped by the United States. The other, practical way should be the alternative means of trade dispute resolution currently available under Article 25 of the dispute settlement rules that are part of the WTO treaty – WTO arbitration.

The US refusal to join in the consensus needed to appoint and reappoint members of the WTO Appellate Body has now reduced the appellate tribunal from its full complement of seven judges down to the minimum of three judges required by the WTO treaty to hear an appeal. WTO member countries have an automatic right to appeal the legal rulings of ad hoc WTO panels under the treaty. If there are not three judges to hear an appeal, then the right to appeal will be denied and the WTO will be unable to adopt and enforce panel rulings.

Recently, nearly 90 percent of all panel reports have been appealed. Left with no opportunity to appeal, surely every country that loses before a panel will nevertheless seek to exercise its right to an appeal to guarantee that the verdict against it will not be enforceable. The WTO dispute settlement system will then be paralyzed. Moreover, if the rules cannot be upheld and enforced, why bother to comply with them or try to improve them? The very existence of the WTO will then be put at even graver risk than it faces now due to the illegal actions of Trump and his trade enforcers on other fronts in world trade.

If this stalemate between the US and the rest of the WTO continues, come December 11, 2019, the final terms of two of the three remaining members of the Appellate Body will end, and the tribunal will be reduced to only one member. Unlike the US, the other 163 countries in the WTO profess to see this situation as urgent. They also seem to assume they have until December 10, 2019, to resolve it. But one of the three remaining judges could at any time become ill, encounter a legal conflict, or decide to resign for family or other unrelated reasons. This could happen tomorrow.

The 163 other WTO members have endured nearly two years of largely stoic stonewalling by the United States due mainly to the US distress that the Appellate Body has had the temerity to do its job by upholding treaty rules on the use of dumping and other trade remedies that the US played a leading role in writing but now indignantly opposes under pressure from protectionist interests domestically and from within the Trump Administration.

The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement.

“Arbitration” is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.

Thus, “arbitration” in the WTO need not follow the practices of private arbitration throughout the world. WTO arbitration can mostly be the current form of WTO dispute settlement by another name – but with one important difference. The countries that choose to engage in WTO arbitration can fill the empty seats on the Appellate Body. They can decide to have the same seven appellate jurists resolve all arbitral appeals – to make certain that appellate rulings are consistent. And they can do so without the participation or approval of the United States.

There need not be any prior agreement by the 163 other WTO members before proceeding with this alternative. It would take only a mutual decision by two countries engaged in a trade dispute to get started. Before establishing a panel, those two countries could agree beforehand to use arbitration for the entirety of their dispute proceedings. Or, at some point before they knew the outcome of the panel proceedings, they could agree to use arbitration solely for purposes of an appeal. Other countries could then emulate the first two countries as this alternative approach proved its worth.

Obviously, the other 163 countries would be unable to use the option of arbitration in any of their disputes with the United States. Given the current standoff, the US would be unlikely to agree to an arbitration in which four new judges were appointed to hear an appeal. Disputes involving the US would still be at risk of not being resolved. The US might be content with such an outcome if it loses before a panel, but what of the nearly 90 percent of the cases that the US takes to the WTO and wins? (As happens so often, President Trump’s “facts” about the outcome of WTO disputes involving the US are not facts.)

When the US lost before a panel, it would doubtless be delighted that the country that prevailed would not be able to enforce its win. And, when the US won before a panel, it might sometimes be able to bully the country that lost into complying with the panel ruling. So far they seem to have gotten away with it, but can Trump and his team truly hope to achieve all their trade goals by bullying? At last count, the United States is a party to about 40 trade disputes in the WTO. A number of them involve billions of dollars in trade annually.

By engaging in WTO arbitration of their own disputes, other WTO members will significantly diminish the impact of the US blackballing, and may also generate some leverage to move the United States toward some common ground on the central issue of the survival of the Appellate Body as the independent and impartial custodian of the rule of law in world trade. As it is, the 163 other countries have no leverage and can only watch as Donald Trump destroys the rules-based world trading system.

Article I, Section 10 of the Constitution provides that “[n]o State shall … pass any … Ex Post Facto law.” The Ex Post Facto Clause was incorporated into the Constitution to prohibit states from enacting retrospective legislation, which the Framers believed to be inherently unfair and contrary to the principles of limited, constitutional government. Despite the Framers’ clear aversion to retrospective lawmaking, the Supreme Court has since adopted the view that states are uninhibited from enacting retroactive civil penalties. So long as a retrospective law contains a discernable legislative purpose and a “civil” label, retroactive application will not run afoul of the Ex Post Facto Clause. Consequently, states have imposed increasingly burdensome retroactive penalties on convicted sex offenders under the guise of civil regulatory laws. Even after offenders have paid their debts to society, they continue to face excessive registration requirements and other onerous civil penalties. 

Back in 2004, 19-year-old Anthony Bethea was convicted of six counts of sexual activity arising from non-forcible, consensual intercourse with a 15-year-old girl. He pled guilty and agreed to be sentenced to up to 48 months of imprisonment, complete a sex offender treatment program, and register as a sex offender for 10 years. He successfully completed the treatment program in 2006 and his period of probation in 2007. Beginning in 2006, however, North Carolina drastically transformed its sex offender statute, adding a laundry list of additional burdens on previously convicted sex offenders. Today, Bethea is subject to numerous restrictions that did not exist at the time of his plea agreement, such as limitations on where he can go, where he can live, and what jobs he can hold. Perhaps worst of all, the new restrictions have prevented him from being a father to his children. Due to his continued registration, Bethea has been forced to miss his son’s graduation ceremonies, parent-teacher conferences, and school field trips. Bethea should have been off the registry four years ago, but North Carolina retroactively lengthened his registration period from 10 to 30 years.

In 2014, 10 years after he registered, Bethea petitioned the North Carolina courts to be removed from the registry. He argued that retroactively applying the statutory provisions enacted after Bethea’s conviction violated the Ex Post Facto Clause. Although the court found that Bethea was in no way a threat to public safety, his petition was denied. On appeal, the North Carolina Court of Appeals held that the state’s sex offender statute was civil, rather than punitive, and thus did not constitute a violation of the Ex Post Facto Clause. The North Carolina Supreme Court denied review and Bethea has asked the U.S. Supreme Court to take his case.

Cato has filed an amicus brief supporting that petition, arguing that the Court must return to an original understanding of the Ex Post Facto Clause guided by its twin historical aims: to prevent vindictive legislation targeted at unpopular groups and provide sufficient notice of the consequences in place. Without a principled foundation in original meaning and historic purpose, the Court’s multi-factor ex post facto analysis has come to rest on shaky ground, supplying unimpeded deference to legislative intent. The Court’s continued unwillingness to invalidate statutes for their retroactive punitive effect has given states a perverse incentive to enact increasingly burdensome civil penalties that alter the legal consequences of previously committed conduct without constitutional accountability.

The Supreme Court should take up Bethea v. North Carolina and eaffirm that the Constitution’s prohibition against ex post facto lawmaking forbids states from skirting constitutional scrutiny by simply labelling increasingly burdensome retrospective penalties as “civil” regulatory laws.

Some advocates and policymakers think government should be involved in providing a limited or modest paid leave benefit, just 12 weeks or less. Their support seems implicitly contingent on the expectation that a paid leave entitlement wouldn’t grow, or wouldn’t grow much. But is there any evidence of that?

If the trajectories of OECD paid leave entitlements are any indication of the path a new U.S. entitlement would take then the answer is no. All OECD countries except one increased the length of their paid leave benefits substantially over time (see chart).

For example, the average length of paid maternity, parental, and home care leave entitlements in the Eurozone increased from 17 weeks in 1970 to 57 weeks in 2016. That means that the average duration of paid leave entitlemenets more than tripled over the period. OECD countries at-large follow the same trend.

In fact, the only country that reduced the length of its paid leave entitlement is Hungary. Hungary began with one of the most lengthy paid leave entitlements of any country; 162 weeks in 1970. In subsequent years Hungary reduced the length of that benefit by 2 weeks, to 160 weeks, which isn’t much. 

 

 

Data source: http://www.oecd.org/els/family/database.htm  

In short, international programs demonstrate that paid leave benefits grow substantially over time, similar to other government entitlement programs. Supporters of government paid leave should be aware that current proposals aren’t likely to stay limited to 12 weeks or less in the longterm.

For more information on paid leave, see the new Cato report Parental Leave: Is There a Case for Government Action? or livestream today’s Capitol Hill event.

On Tuesday, the president renewed his earlier criticisms of the Federal Reserve’s interest rates hike—saying he was not happy with the fast pace of the Fed’s “normalization” plan.  This pattern has been reported as “breaking” with tradition and questioning the “independence” of the Fed.  Then yesterday afternoon, after a plunge in financial markets, Trump sharpened his critique saying “the Fed has gone crazy.”

While it is—at least among recent presidents—unusual for the president to opine on monetary policy, this has been a most unusual presidency from the start.  And while Trump’s criticisms of the Fed are good for generating headlines, they risk drawing attention away from more important matters at the central bank. To that end, I want to share two points to help put the president’s remarks in proper contexts—followed by two additional points to reorient the Fed discussion around what’s actually important.

One worry people have about Trump’s comments is that they call into question the Fed’s “independence.” But it is critical to remember that central bank independence is a somewhat amorphous term—with different speakers relying on different definitions. It is, however, a useful concept when independence refers to the Fed conducting monetary policy without regard to political considerations.  That is to say, the Fed is an independent institution insofar as it sets policy in reaction to changing macroeconomic conditions—not in reaction to changes in the legislative agenda or electoral prospects. What is not, or should not, be meant by central bank independence is that the Fed is fully divorced from all other public institutions.  Chair Powell often, and rightly, stresses that the Fed pursues goals given to it by Congress; in that respect, the Fed is certainly not independent from accountability to the public.

To the extent anyone is worrying that the Powell Fed will change policy based on Trump’s remarks, such concerns are unfounded.  

On the policy front, the president seemed to suggest the Fed should wait on raising interest rates until “inflation [comes] back.” What threshold Trump has in mind when he says “back” is anyone’s guess, but inflation has been increasing. While this morning’s CPI release had month-over-month inflation below expectations, the Fed’s preferred inflation metric has moved up to their 2% target in recent months. And the ten-year forecast, put out by the Cleveland Fed, shows long-run inflation expectations have also increased of late and are now slightly above the Fed’s 2% inflation target.

These inflation data have been moving up as the Fed has been increasing their policy rates, suggesting that monetary policy has not become overly restrictive. Scott Sumner, in a post reacting to yesterday’s stock market developments, points out that while monetary policy was too tight it has recently moved towards a more neutral and appropriate stance. Remember, looking at just interest rates is insufficient to judge the actual stance of monetary policy. Therefore, at least for now, the Fed is likely to continue the normalization plan it has been talking about for years.

Of course, the Fed should not stick to this plan irrespective of any and all changes in the macroeconomy; indeed, I have been critical of their defense of rates increases in the past. But daily stock market volatility and the president’s response to it are not developments that should immediately change the Fed’s longer-term strategy. 

For the astute people monitoring the Fed, the president’s comments ought to be largely ignored.  It is far more important to pay attention to two conversations occurring within the Fed. 

One conversation is about changing the Fed’s 2% inflation target. Several Fed officials have already endorsed their preferred strategies. Eric Rosengren, President of the Boston Fed, believes an inflation range, perhaps 1.5-3%, is best, while New York Fed President John Williams and Atlanta Fed President Raphael Bostic, want to adopt a new target altogether: a price level target. Ex-Fed officials have also joined the conversation, with former Fed Chair Ben Bernanke proposing a hybrid system that would move from an inflation target to a price level target when the policy interest rate got close to zero.  There are very good reasons for the Fed to begin reconsidering its monetary policy target, but for this conversation to be truly beneficial the Fed should include an NGDP level target on the list of alternatives. 

The second conversation, and one of more immediate concern, is about the Fed’s operating framework for executing monetary policy. The current framework—which pays banks an above market interest rate on their deposits held at the Federal Reserve in order to keep the effective federal funds rate within the Fed’s target range—was created during the financial crisis.  The Fed is still learning about this new framework for setting interest rate policy and has already needed to tweak the framework once. Chair Powell has signaled that the FOMC will be exploring it further throughout the fall.  For those interested in learning more about the potential issues embedded in the Fed’s new operating framework and why it is in need of reform, I would point you toward my colleague George Selgin’s summary of his forthcoming book Floored!.

There are important challenges facing the Fed and its conduct of monetary policy, and they deserve more attention than do the president’s rants.

The Founding Fathers crafted a system of government in which legislative, executive, and judicial authority were each entrusted to different entities. Their purpose in choosing this design was to prevent the consolidation of power in any one individual or group of individuals. The Framers anticipated—and attempted to guard against—a bureaucracy that could serve multiple governmental functions and remain unaccountable to the citizenry. In Federalist No. 47, James Madison recognized that when legislative, executive, and judicial power rest in one entity, individual liberty suffers. Likewise, Justice Anthony Kennedy declared in his concurrence in the 1998 case of Clinton v. New York, which struck down the presidential line-item veto, “Liberty is always at stake when one or more of the branches seek to transgress the separation of powers.” 

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, however, Congress circumvented constitutional design and violated the separation of powers doctrine. Among its multifarious failings, Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), controlled by a single director who has the unilateral power to enact, enforce, and adjudicate regulations. The director is not accountable to any internal structure, is exempt from congressional oversight, and cannot be removed by the president for policy reasons. Since its inception, the CFPB has issued 19 federal consumer protection rules, affecting everything from student loans to banking practices, all without checks, balances, or accountability to voters. Essentially, Congress assigned a vast amount of authority to a bureau that answers to no one.

When a challenge to Congress’s unconstitutional delegation went before the U.S. Court of Appeals for the D.C. Circuit, the court refused to consider the impact that the CFPB’s actions have on individual liberty. However, the Supreme Court, in Commodity Futures Trading Commission v. Schor (1986), reminded us that the separation of powers protects “primarily personal, rather than structural, interests.” In other words, substantive freedom, rather than simply procedural rights, is most at risk when checks and balances fail. And so the CFPB, going far beyond simply contravening checks and balances, regulates areas such as home finance and credit cards. These sectors are essential to individual economic activity, so the D.C. Circuit was wrong to hold that the CFPB’s infringements upon these liberties were irrelevant.

The State National Bank of Big Spring, based in west Texas, filed a petition asking the Supreme Court to review the D.C. Circuit’s erroneous decision. Cato has joined the Southeastern Legal Foundation and National Federation of Independent Business on a brief supporting this petition. We argue that the separation of powers, as our Founding Fathers correctly recognized, is a bulwark of our individual liberties. If we allow Congress to delegate authority in a blatantly unconstitutional fashion, our republican system of government will be eroded by powerful bureaucracies with unchecked authority.

The Supreme Court will decide whether to take up State National Bank of Big Spring v. Mnuchin later this fall.

On Monday, President Trump told a gathering of police chiefs that cities faced with serious crime problems should return to the policing practice known as stop-and-frisk. “Stop-and-frisk works and it was meant for problems like Chicago.” This is an old theme for Trump, one he shares with former New York City Mayor Michael Bloomberg, whose rumored 2020 presidential candidacy raises the possibility of a contest between two stop-and-frisk enthusiasts. In Terry v. Ohio (1968) the Supreme Court found the tactic constitutional, but judges since then have sometimes ruled, as in a high-profile case against New York City, that the tactic was being employed in unconstitutional ways. (Despite predictions from some quarters that crime would soar in New York City following that ruling, no such thing happened.)

Cato has had a lot to say about stop-and-frisk over the years. A sampling:

  • “How did we the people of New York City allow this long-term disgrace to continue?” – the late Nat Hentoff, 2010.
  • “A ‘stop’ is an involuntary citizen-police encounter… [Stop-and-frisk] can be a degrading and humiliating event to endure.” - Tim Lynch, 2012.
  • “Statistics do not answer whether it is okay for an ostensibly free society to gratuitously stop-and-frisk its citizens.” – Trevor Burrus, 2013
  • Even after the curtailment of the New York City program, “for too many Americans, the basic liberty to move freely in society has been debased and degraded by police fighting the drug war” - Jonathan Blanks, 2018.

For another dimension, see Cato’s 2016 survey report by Emily Ekins on public attitudes toward Policing in America [attitudes toward authority / views on effectivenesswho should be searched?]  

 

Neither the government nor a private party may compel you to speak; nor may a private party masquerading as a government entity compel you to speak, even when it’s supposedly for your own good. In Delano Farms v. California Table Grape Commission, Cato, joined by the Reason Foundation, Institute for Justice, and DKT Liberty Project, is continuing to support a farm business’s challenge to a California state-established commission that compels grape growers to contribute money for government-endorsed advertisements. We had previously filed in the California Supreme Court, which was a losing battle, and are now asking the U.S. Supreme Court to take the case.

Now, governments are allowed to disseminate their own messages and can use tax revenue to do it under what’s called, simply enough, the “government-speech doctrine.” They can also tax industries specifically and earmark those funds to promote those particular industries; the Supreme Court has upheld several industry-advertising programs, including national campaigns for beef. In many of these targeted tax-and-advertise programs, the government requires taxes or “fees” from anyone doing business in the industry. One justification for these fees is that all producers benefit from such a “group advertisement.” If some were able to get the marketing benefit without paying, the system would suffer from “free riders.” For such a program to actually constitute government speech and thus avoid First Amendment problems, however, it is the government itself that must be speaking.

The California Table Grapes Commission has claimed that it is part of the government and that its speech is thus “government speech.” But the commission isn’t the government; it’s a commercial entity or trade group that uses compelled subsidies to fund speech. The commission’s generic advertisements for California grapes don’t really benefit the entire industry. Instead, they benefit some members of the industry by making it seem that all products are equally good. Furthermore the commission can’t be considered part of the government because it, unlike the actual government, can be disbanded based on a vote of the table grape producers.

Put another way, no person employed by the California government has ever written, produced, or even reviewed the speech the commission compels. In all other cases where the government programs were held constitutional, the government took direct control of the message and maintained oversight of a regulatory entity. None of that is true here. The commission here is a private entity, with the power to exact fees from members who have no choice but to pay for whatever message it ends up promoting.

In our brief, we argue that the Supreme Court should take this case and treat forced subsidies for generic advertising the same way it treats other such subsidies: as violations of the First Amendment freedoms of speech and association. The California courts relied on a decision recently overturned in the Supreme Court’s Janus holding this past June, in which compelled association and speech in union representation was deemed a violation of the First Amendment. The Court should continue with this line of reasoning here: no one should be compelled to support a non-government message. 

I’ll be a participant in an immigration conference in Michigan organized by Shikha Dalmia of the Reason Foundation later this week.  As part of the conference, Dalmia asked the participants to write essays on specific immigration subtopics that she will later assemble in a book (if I recall correctly).  Dalmia asked me to write an essay on Singapore’s immigration policy – a challenging assignment as I only had the vaguest impressions of their immigration policy from a few readings over the years and a lunch meeting with Singaporean officials from the Ministry of Manpower five years ago. 

Singapore’s immigration system has two main tiers.  The first tier is for highly paid professionals and their families who are encouraged to become permanent residents and eventually citizens.  The second tier is for skilled and semi-skilled temporary migrant workers who will eventually return to their home countries and cannot become Singaporean citizens.  I ended my essay with recommendations for marginal improvements to Singapore’s immigration system that would maintain the two-tier system while increasing the benefits to Singaporeans and foreign workers. 

Singapore is a city-state in Southeast Asia with the fourth highest GDP per capita (PPP adjusted) in the world. Singapore gained its independence in 1965 and developed rapidly since then.  From 1965 to 2017, Singapore’s average annual rate of GDP growth was 7.5 percent, averaging 9.1 percent prior to 1998.  Immigrants and temporary migrant workers have been important components of Singapore’s economic growth since the nineteenth century.  In 1965, 28 percent of the resident population of Singapore was foreign-born.  In 2017, about 47 percent of Singapore’s residents were foreign-born – a figure that dwarfs the 13.7 foreign-born percentage in the United States.  To give a comparison of how liberal Singapore’s immigration policy is, none of the top ten largest American cities had an immigrant percentage of their respective populations above 40 percent. 

The United States can learn much from Singapore’s immigration system, but I will focus on one lesson below: The United States should create a visa for domestic workers based on Singapore’s Foreign Domestic Worker (FDW) visa.

The FDW visa is Singapore’s most interesting and distinct second tier visa for workers who labor in the home providing domestic services, elderly care, childcare.  FDWs are tightly regulated under Singaporean law.  Among other requirements, they must be female, 23-50 years of age, be from an approved country of origin in South or East Asia, and have a minimum of 8 years of education.  Once in Singapore, the FDW cannot start a business or change employers.  The employers of FDWs must also meet stringent regulatory requirements.  For instance, the FDW must work at the employer’s home address, cannot be related to the employer, the employer must put up a $5,000 security bond, pay for medical exams, and cover most other costs of living – with fewer restrictions on FDWs from Malaysia.  According to government surveys, FDWs have high levels of job satisfaction and most intend to apply again for work as an FDW (Ministry of Manpower 2016, 5; Ministry of Manpower 2017).

The United States should adopt a visa like the FDW for at least three reasons.

First, the FDW likely increased the native Singaporean skilled female labor force participation rate (LFPR).  From 1990-2017, Singapore’s female LFPR rose from 48.8 to 59.8 percent while the male LFPR dropped from 77.5 to 76 percent.  Some portion of that increase in the female LFPR can be attributed to FDWs because they specialize in domestic production which allows Singaporean women to enter the workforce.  There is some evidence in the United States that additional lower-skilled immigrants slightly increased female time in the workplace but that is in the highly regulated and expensive childcare market in the United States.  Although some more research is needed to analyze how FDWs affected female LFPR in Singapore, it’s likely than an FDW visa in the United States would allow more women with children to work if they want to.

Second, an FDW visa would put downward price pressure on childcare providers by reducing demand for their services.  If an FDW visa was available in the United States, many American households would take their children out of daycares and other childcare arrangements and hire FDWs instead.  High-earning American households would especially be interested in the FDW as they are also the ones most likely to employ ­au pairs on the poorly-designed J-1 visa.  Taking many high-earning American households out of the daycare and childcare market would initially lower prices, thus allowing Americans with lower incomes to afford those services for the first time.  Americans who would continue with daycare and childcare services would also gain in the form of lower prices. 

Third, a large and robust FDW visa program could increase the fertility rate of highly-skilled native-born American women.  Over time, there is a strong negative correlation between female LFPR and fertility, but that relationship has weakened substantially in the United States.  Economists Delia Furtado and Heinrich Hock found that that weakening relationship is partly explained by low-skilled immigrants lowering the cost of childcare, resulting in an 8.6 percent increase in fertility and a 2.3 percent increase in female LFPR (for native-born skilled women in cities in prime birth years).  Although I do not support fertility subsidies in the United States, the FDW is a wise policy that would improve the livelihood of Americans and achieve the same end much cheaper than an expanded child tax creditreformicons should love it. 

Singapore’s FDW visa has many problems than an American version should avoid.  For instance, an American FDW visa should allow FDWs to live on their own if they want, move between FDW employers without legal penalty or ex ante government permission, be open to both sexes, have a wider age-range, and allow FDWs to sign longer-term labor contracts.  Such a visa would help many American households, migrants, and increase the range of choices open to American women who want to work and become mothers.   

 

The Senate appears poised to vote soon on a Congressional Review Act resolution sponsored by Sen. Tammy Baldwin (D-WI) that would rescind the Trump administration’s final rule on “short-term limited duration insurance.” Nearly every Senate Democrat has cosponsored the Baldwin resolution because they believe it would protect consumers. It would do exactly the opposite. 

The Baldwin resolution…

  • …would increase the number of uninsured. Various scholars have estimated that by making health insurance more affordable, the Trump short-term plans rule would reduce the number of uninsured Americans by up to 2 million. The Baldwin resolution would rescind that rule, thereby denying health insurance to up to 2 million Americans.
  • …would reduce protections for the sick. The Baldwin resolution would reduce consumer protections in short-term plans and expose sick patients to higher premiums, denied coverage, bankruptcy, and denied care. It would revert to the Obama administration’s 2016 short-term plans rule, which limited short-term plans to 3 months and banned renewals. As state insurance regulators noted at the time, “[There are] no data to support the premise that a three-month limit would protect consumers or markets. In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the [ACA] open-enrollment period and applies for short-term, limited duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short-term policy.” The Trump rule allows consumers to purchase coverage that lasts until the next ObamaCare open-enrollment period. The Baldwin resolution would result in that patient being re-underwritten and denied coverage and care for up to nine months.
  • …would not reduce ObamaCare premiums and could increase them. The Trump rule allows consumers to couple short-term plans with standalone renewal guarantees, which allow enrollees who develop expensive illnesses to keep paying healthy-person premiums. Since it gives expensive patients a lower-cost alternative to ObamaCare coverage, the Trump rule can reduce ObamaCare premiums by keeping expensive patients out of those risk pools. In contrast, the Baldwin resolution would force those expensive patients into ObamaCare plans, increasing the cost of ObamaCare coverage to both enrollees and taxpayers. In 2016, state insurance commissioners again explained the fundamental flaw of Baldwin’s approach: “If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage, there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford [short-term plans], and that is not good for the [ACA] risk pools in the long run.”
  • …would make short-term plans less comprehensive. The Baldwin resolution would not protect consumers from inadequate coverage. It would re-create the bad old days when excessive regulation blocked consumers from purchasing more-comprehensive short-term plans. The Congressional Budget Office writes that under the Trump rule only “a small percentage of [short-term] plans would resemble current STLDI plans, which do not meet CBO’s definition of health insurance coverage.” Instead, most short-term plans would “resemble[e] nongroup insurance products sold before the implementation of the Affordable Care Act” that offer “financial protection against high-cost, low-probability medical events.” In other words, the Trump rule allows the sort of health plans consumers want. The Baldwin resolution would make those products disappear again.
  • …would gut conscience protections. The Trump rule protects conscience rights by improving the market for short-term plans, which are exempt from ObamaCare’s contraceptives mandate. The Baldwin resolution would strip away those conscience protections.
  • …would not protect people with preexisting conditions. The Washington Post’s Paige Winfield Cunningham reports it “doesn’t exactly make sense” for Democrats to claim that restricting short-term plans helps patients with preexisting conditions. “Even with the expansion of these short-term plans, the marketplace plans guaranteeing preexisting protections will still be available to those who need them… So expanding the availability of short-term plans…doesn’t mean people with preexisting conditions would lose access to crucial coverage protections.”
  • …is pure symbolism. The Baldwin resolution has zero chance of becoming law. To rescind a final agency rule, Congressional Review Act resolutions must pass both chambers of Congress and receive the president’s signature. The House is unlikely to pass the Baldwin resolution. Even if it did, there is zero chance President Trump would sign a resolution nullifying a rule he himself asked his administration to produce.
  • is terrible politics. Or at least it could be, if opponents expose it as subjecting patients with expensive illnesses to higher premiums, cancelled coverage, medical bankruptcy, and denied care—all to serve supporters’ ideological goal of destroying a free-market alternative to ObamaCare.

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