Cato Op-Eds

Individual Liberty, Free Markets, and Peace
Subscribe to Cato Op-Eds feed

From the beginning, there is one embarrassing and evident fact that Professor White has to cope with: that “free” Scottish banks suspended specie payment when England did, in 1797, and, like England, maintained that suspension until 1821. Free banks are not supposed to be able to, or want to, suspend specie payment, thereby violating the property rights of their depositors and noteholders, while they themselves are permitted to continue in business and force payment upon their debtors. …White correctly notes that the suspension was illegal under Scottish law, adding that it was ‘curious’ that their actions were not challenged in court. Not so curious, if we realize that the suspension obviously had the British government’s tacit consent.
–Murray Rothbard, “The Myth of Free Banking in Scotland

Back in April, while Bob Murphy and I were debating whether fractional reserve banking poses a threat to market stability, Bob asked whether it was the case that, despite not having had Parliament’s permission to do so, the Scottish banks joined the Bank of England in restricting specie payments between 1797 and 1821. The answer, I said, was that they had indeed done so. I also pointed out that, although the Scottish banks’ decision was presumably illegal, the Scottish public appeared to go along with it.

In this and a subsequent post, I plan to delve more deeply into the story of the Scottish bank suspension, so as to offer more complete and accurate answers to Bob’s questions, and to answer as well other important questions that the restriction episode raises. If the British government didn’t authorize a Scottish suspension of payments, did it otherwise alter the rights of holders of claims against the Scottish banks? If those banks refused to pay their notes in specie despite being obliged to do so, why was no Scottish bank ever taken to court? To what extent, and in what fashion, were Scottish bank creditors harmed by the Scottish bankers’ actions? Should those actions prevent us from regarding the pre-1845 Scottish banking system as an informative case study of free banking? Does the Scottish suspension suggest that fractional reserve banking is, inconsistent with genuine freedom in banking, including the consistent honoring of bank customers’ property rights?

In this post, I’ll first review the events leading to the passage of the Bank Restriction Act. Then I’ll discuss how that act altered the legal rights of Scottish bank creditors. Finally I’ll propose an explanation for the fact that no Scottish banks were sued for suspending payment. In Part 2 I’ll consider the adverse effects of the Scottish suspension on the Scottish public. The restriction’s main victims, I plan to argue, were tradespeople and others whose livelihood depended upon ready access to small change. But their plight, far from enduring throughout the full period of the restriction, was confined to its opening months. Finally, in Part 3, I’ll argue that the Scottish restriction does not, after all, warrant any major revision of claims that Larry White and I and other members of the “modern free banking school” have made regarding the implications of  unrestricted freedom in banking. On the contrary: to the extent that Scottish bankers were guilty of “violating the property rights of their depositors and note holders,” the fault lay mainly, not with freedom banking, but with provisions of the 1765 Scottish Bank Notes Act that placed unwise and unwarranted limits upon that freedom.

The Bank Restriction

The vast sums the Bank of England had been compelled to advance to the government from the outset of the Napoleonic Wars, together with persistent fears of a French invasion, had been draining it of reserves for some time when, in late February, 1797, news that a French fleet had landed in Wales threatened to carry it across the brink. Upon being so notified by the Bank’s Directors, William Pitt prevailed upon the King to hold a meeting of the Privy Council, the result of which was an Order of Council prohibiting the Bank from issuing any more specie in exchange for its notes “until the sense of Parliament could be taken and measures adopted for maintaining the means of circulation.” Parliament’s “sense” was in turn taken and eventually embodied in legislation, known as the Bank Restriction Act, passed on May 3, 1797, exempting the Bank of England from the obligation to pay its notes in specie. Shortly afterwards a similar exemption was granted to the Bank of Ireland. These initial exemptions were to be repeatedly renewed throughout the courts of the Napoleonic wars, and for several years afterwards, until the two banks were at long last compelled to fully renew specie payments in 1821.

Because the Restriction Acts applied only to the Bank of England and the Bank of Ireland, they did not expressly contravene the obligation of other banks in the United Kingdom to pay their notes in specie. Nor did either law make Bank of England notes a legal tender. It’s therefore tempting to suppose, as most commentators have done, that the Acts did not in any way relieve other banks, including those in Scotland, of their obligation to pay their own liabilities, and their circulating notes especially, in specie. But the truth isn’t quite so simple.

As Frank Fetter explains in his very good 1950 article on the subject, although in drafting the English Restriction Act Parliament recoiled at the prospect of declaring Bank of England notes legal tender, it did provide that they “shall be deemed payments in cash if made and accepted as such.” What’s more, the act declared that anyone tendering such notes in payment, bankers included, “was to be protected from arrest for debt.” Instead, “The creditor had the option of refusing to accept the notes and then taking legal action against the debtor to compel payment in legal tender.” In other words, the creditor of a bank other than the Bank of England or Bank of Ireland might insist upon payment of a note in specie, but would in that case be obliged, as Pitt explained in justifying the clause in question to Parliament, to wait for the “process of law [to] take its course to the attainment of judgement.”

No More Summary Diligence

So far as Scottish bank creditors were concerned, the effect of the Bank Restriction Act was to deprive them of the right to “summary diligence,” a procedure in Scots law “whereby certain constituted obligations can be enforced without the need to apply to a court.” Because the act also made the act of receiving Bank of England notes in lieu of specie tantamount to the extinction of the debt for which the notes were paid, it confronted anyone seeking to redeem a Scottish banknote with a relatively stark choice: either accept Bank of England notes in lieu of specie, or refuse payment and initiate a legal process that might at very least mean a considerable delay in payment. However, Parliament did not otherwise alter Scottish banks’ legal obligations. That is, it did not supply any grounds for their clients to suppose that, if a suit were brought, it would only result in a verdict in the bankers’ favor.

Because no Scottish banker was actually sued for refusing payment in specie during the course of the Bank Restriction, we don’t know what verdict a Scottish court would have reached in the event of such a suit. However, in 1801 a suit was brought, by one Mr. Grigby, against an English country bank, Oakes and Co., and that suit resulted in a verdict for the plaintiff. As it plainly illustrates the court’s refusal to bend the law in a bank’s favor, by second-guessing the preferences of the British government or otherwise, the opinion in that case, as rendered by Chief Justice Lord Alvanley, at the Court of Common Pleas, with which all the other justices concurred, is worth quoting at length — and all the more so given Alvanley’s evident lack of sympathy for the plaintiff:

Are we then to say [Alvanley asks], that the Legislature has enacted that which the provisions of the [Restriction] act do not warrant? If we were at liberty to refer to our own private knowledge of the language that was held in Parliament while this act was pending, no doubt could be entertained upon the subject. We know that it was very much canvassed by many persons at that time, whether or not the Legislature ought to go the length of declaring bank notes a good legal tender? If therefore it had been intended by the Legislature so to make them, that intention would have been expressed in such clear terms that no question could have arisen upon the subject. Indeed, it is expressly provided in the 2d section of the act, that if the Governor and Company of the Bank of England, shall be sued on any of their notes, or for any sum of money, payment of which in their notes the party suing refuses to accept, they [the Bank] may apply to the Court in which such proceedings are instituted to stay proceedings during such time as they are restricted from paying in cash. But with respect to individuals it was not intended to prevent any creditor who should be so disposed from captiously demanding a payment in money, though such a creditor is deprived of the benefit of arresting his debtor. Thank God few such creditors as the present Plaintiff have been found since the passing of the act! But yet whatever inconveniences may arise, and to whatever length they may go, Parliament, and not this Court, must be applied to for a remedy.[1]

If the British Government could not prevent England’s Court of Common Pleas from rendering such a verdict, it’s hardly likely to have held greater sway in any Scottish court. There seems to be no basis, therefore, for Rothbard’s claim that the lack of legal actions in response to Scottish banks’ suspension of specie payments was a reflection of creditors’ belief that the suspension enjoyed “the British government’s tacit consent.” On the contrary: in refusing to make Bank of England notes legal tender, while explicitly absolving only the Bank of England and the Bank of Ireland from any obligation to pay their notes in specie, Parliament knowingly left all other British banks in the lurch. Their creditors had to sue for their gold and silver; but had any bank actually been sued, it would have found itself with no clear legal grounds by which to defend itself.

Why No Lawsuits?

If a Scottish bank might have been successfully sued for failing to pay its notes in specie, why were there no such suits? William Cobbett, a virulent critic of paper money generally, and of the Scottish banking system in particular, insisted that the Scottish public simply had no choice. Although the people of Scotland may not have been “compelled by law” to accept Bank of England notes, he wrote, they were “compelled by circumstances … as powerful as if by law itself; and, in a way exactly similar as if the whole mass of paper-money had been made a legal tender ever since the year 1797.”[2]

But what, precisely, were those “circumstances”? The trouble and delays that suing involved may well have deterred many. But it can’t explain why some relatively well-heeled creditor didn’t bother to press a claim, and especially so once gold commanded a substantial premium over paper, as it did after 1808.

I believe that the explanation stems from the fact that many Scottish bank creditors were also debtors to their banks: although they held bank notes and deposit balances, they also depended on “cash credits” granted to them by their bankers — lines of credit, with interest charged only upon sums actually drawn. Most outstanding Scottish bank notes and deposit balances were the by-products of the banks’ practice of granting such credits, so that almost all Scottish bank obligations to the money-holding public had as their counterpart like obligations of that public to the Scottish banks. Perhaps owing to his penchant for confusing banks with warehouses, Rothbard, in claiming that, by suspending specie payments, Scottish bankers systematically violated their patrons’ property rights “while they themselves are permitted to continue in business and force payment upon their debtors,” overlooks the fact that those patrons were as likely to be in debt to their bankers as vice versa, as well as the fact that the Scottish banks had always allowed those patrons to settle debts with them in either Scottish or Bank of England paper rather than gold or silver.

That so many Scottish citizens, including the vast majority of ordinary merchants and traders, relied upon cash credits, and that their banks could not possibly have continued to grant such credits were they systematically called upon to pay their notes in specie, gave the Scottish public a powerful motive for refraining from insisting upon such payments, and for otherwise accepting the Scottish banks’ decision to suspend specie payments in good stride. For besides allowing the bankers to settle claims against them in Bank of England notes, it allowed them to settle their own debts to the banks with banknotes rather than gold. In short, Scotland’s decision to join other parts of Great Britain in switching to a paper (Bank of England note) standard, instead of having simply been imposed upon the Scottish public against its will, is better understood as a cooperative solution to a problem — the absolute lack of specie — facing bankers and their creditors alike.

The suspension’s cooperative nature was, indeed, made explicit shortly after the bankers announced their plans, when many of Edinburgh’s prominent citizens gathered at a meeting convened by that city’s  Lord Provost and attended by many other officials, including the Lord President of the Court of Session, the Lord Chief Baron of Exchequer, the Lord Advocate, and the Sheriff of Edinburgh. Those present “unanimously resolved to accept the notes of the Scotch banks as hitherto and to support their credit.” Notice of this resolution was afterwards “inserted in all the newspapers and circulated throughout the country.”[3]

That there was widespread support for the Scottish bank suspension did not, however, mean that the suspension left the Scottish public unscathed. Just how it harmed people, and whether its having done so constitutes a black mark either against the Scottish system or against fractional reserve banking, are questions I’ll answer in the follow-ups.

______________________

[1] See Grigby v. Oakes et al., November 19th, 1801. In Reports of Cases Argued and Determined in the Courts of Common Pleas etc., Volume 2, pp. 526ff.

[2] Cobbett, it bears noting, is hardly an entirely objective observer. He had it in for all forms of paper money. “Ever since that hellish compound word, Paper-money was understood by me,” he wrote, “I have wished for the destruction of the accursed thing; I have applauded every measure that tended to produce its destruction, and censured every measure having a tendency to preserve it.” What’s more he despised the Scottish banking system, observing that “There never was a thing under the sun to which a greater number of God’s curses directly apply,” that system having harbored “oppression, tyranny, fraud, monopoly, and every cursed art by which the avaricious take from the food and the raiment of the needy.” See Cobbett’s Political Register, June 14, 1828, p. 764.

[3] [Henry Dunning MacLeod], “History of Banking in Scotland,” The Bankers’ Magazine 37 (1) (January 1877), pp. 33-4. For further details see Sir William Forbes, Memoirs of a Banking House (London and Edinburgh: William and Robert Chambers, 1860), p. 83.

[Cross-posted from Alt-M.org]

The Economist reports on an interesting new study undertaken on differences in gender pay:

According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower-ranking jobs at lower-paying organisations.

The figures for Britain in the study break down as follows. The “raw” gender pay gap between all men and women is 28.6 percent. This falls to 9.3 percent once one controls for people being in the same level job. This falls further to 2.6 percent for the same level job at the same company, and to just 0.8 percent for the same level job at the same company with the same function. In other words, as free market economists have long explained, there is little to no evidence of overt company discrimination once one controls for observable factors (and beyond those here, things such as educational attainment, or years of continuous work experience).

Confronted with studies such as these, some commentators, and even some libertarians, pivot. They suggest that this kind of research attacks a straw man. Few people think it’s overt wage discrimination at an employer level that’s the problem, they say. The aggregate statistics though, which show women on average earn 82 percent of men’s median hourly earnings, are said to reflect other types of structural societal discrimination – in the subjects that young women are encouraged to study, hiring processes at firms, the nature of wage negotiation and much else besides.

The starting point that we would expect an aggregated pay gap of zero even in a world in which no overt or covert societal pressures exist is questionable. When free to choose, it’s unlikely gendered populations will make equal choices. And to the extent these commentators are right, it is unclear what the policy implications should be.

Nevertheless, most evidence suggests this is explicitly not what the public hear when they see talk about the gender pay gap. A recent YouGov survey in the U.K. asked the public what they thought when they heard of the term. Just 30 percent said that they thought it was about women, on aggregate, being paid less than men. A whopping 64 percent thought that it was about women being paid less than men for the same job. To be clear: the latter is not what the commonly cited aggregated statistics on the gender pay gap are about.

Politicians appear to misunderstand this too, and it leads to bad policy. After all, in developed countries one policy that they have pushed for is company-level disclosures– something that makes little sense if you are worried about society level structural problems.

It’s little surprise that the public interpret the term in this way then. Though in pure language terms both definitions might be acceptable, pay gap stories of the aggregate variety reported in the media regularly include irresponsible lines implying discrimination, such as “from this day onward, women work for free” or describe companies that have the largest gaps as “the worst offenders.”

In this environment of misinformation, it is important and worthwhile to continuously highlight what the pay gap shows, and what it doesn’t. The structuralists might have a point about broader drivers, but it’s not one helped by a raw measure that is used misleadingly and to advance policy positions which do not make sense according to the structuralist concern.

Read more on the gender pay gap here, here, and here.

There are indications now that the Saudi Arabian government may have murdered a prominent Saudi journalist who advocated domestic reforms and opposed Crown Prince Mohammed bin Salman. A Turkish investigation concluded that a 15-member “preplanned murder team” killed Jamal Khashoggi when he was visiting the Saudi consulate in Istanbul. Not surprisingly, Riyadh has flatly denied Turkey’s allegation, but that denial seems to have even less credibility than most Saudi statements. Khashoggi has contributed articles to the Washington Post and numerous other prominent Western news outlets, and he has an abundance of influential friends in such circles. They do not seem inclined to let this incident fade away.

Khashoggi’s disappearance and apparent murder—as appalling as it may be–should be overshadowed, though, by Saudi Arabia’s far more extensive human-rights abuses and outright war crimes. That is especially true regarding the way it has conducted the war in Yemen. There is abundant evidence of multiple atrocities that Riyadh and its United Arab Emirates (UAE) junior partner have committed and continue to commit. The coalition’s war strategy has created a famine as well as a cholera epidemic. Among the many deliberate attacks on innocent Yemeni civilians was an August incident in which coalition aircraft attacked a school bus, killing 40 children.

Yet, incredibly, just weeks later, Secretary of State Mike Pompeo certified that Saudi and UAE forces were making a reasonable attempt to avoid inflicting harm on civilians. Pompeo’s certification was necessary to meet the requirements of a congressional statute barring aid, especially military aid, to countries that do not take appropriate precautions. The latest certification preserves the fiction that Saudi and UAE forces are not guilty of war crimes and that the United States is not a willing accomplice in such crimes.

As I describe in a recent National Interest Online article, such brazenly false certifications are nothing new. Both the Trump administration and its predecessors have displayed that sickening cynicism with respect to numerous countries and their “friendly” dictatorial regimes, most notably Egypt and Pakistan. Indeed, similar phony certifications were routine fare in the 1980s, when Washington repeatedly whitewashed massive human rights abuses on the part of foreign allies. Some of the worst offenders were in our own hemisphere, including Guatemala, El Salvador, Honduras, and Colombia. More recently, the worst offenders are concentrated among Washington’s Middle East allies.

The pervasive dishonesty of U.S. officials should be a matter of national shame. Pompeo has carried on a long and dishonorable tradition. Congress may have intended that a requirement certifying that U.S. aid recipients are complying with human-rights standards would pressure those regimes to avoid egregious abuses. If that truly was the intent, and not just empty congressional posturing, then that strategy has failed.

If Congress intends to get serious about enforcement, the country with which to start is Saudi Arabia—especially regarding its conduct in Yemen. Congress needs to cut-off all military assistance to Riyadh and the UAE immediately. Beyond that issue, the legislative branch must insist that human-rights certifications accurately reflect reality. Even leaving aside the Saudi regime’s possible murder of a dissenting journalist, Riyadh does not come close to meeting the most basic human-rights standards for receiving U.S. aid. Americans have endured more than enough whitewash episodes from administrations over the decades regarding Saudi Arabia.   

Susana Martinez of New Mexico has gained the highest score on the “Fiscal Report Card on America’s Governors 2018.” She is the first woman to achieve the distinction since Cato began producing the reports in 1992.

Over eight years in office, Governor Martinez has restrained state spending, cut taxes, and vetoed tax hikes. She also scored well on Cato reports in 2014 and 2016.

The governors report assigns grades based on a calculated score between 0 and 100. Higher scores indicate more focus on cutting taxes and restraining spending. Cato has used the same methodology since 2008.

Martinez’s achievement stands out because men governors score slightly higher, on average, than women governors. Since 2008 the Cato reports have assigned 276 scores—6 reports and an average 46 governors per report. There were 242 men and 34 women. The average score for the men was 51 and for the women 49. Interestingly, the men’s scores tended to be more extreme low and high, while the women were more bunched toward the middle score of 50.

The chart shows that party is a more important factor in determining fiscal conservatism than gender. Both men and women Republican governors averaged substantially higher scores than Democratic governors. Martinez received a score of 73.

The Cato Institute has released its 14th biennial fiscal report card on the governors.

The report uses statistical data to grade the governors on their taxing and spending records since 2016. Governors who have cut taxes and spending the most receive the highest grades, whereas those who have increased taxes and spending the most receive the lowest grades.

Five governors were awarded an A: Susana Martinez of New Mexico, Henry McMaster of South Carolina, Doug Burgum of North Dakota, Paul LePage of Maine, and Greg Abbott of Texas.

Eight governors were awarded an F: Roy Cooper of North Carolina, John Bel Edwards of Louisiana, Tom Wolf of Pennsylvania, Jim Justice of West Virginia, Dennis Daugaard of South Dakota, David Ige of Hawaii, Kate Brown of Oregon, and Jay Inslee of Washington.

Susana Martinez received the highest score this year. She is in her eighth year in office and scored quite well on previous Cato reports. One achievement has been vetoing all tax hikes that have come to her desk. Last year, she vetoed $350 million in tax hikes.

Many Republican governors have entered office promising not to raise taxes but then capitulate to the spending lobbies. Brian Sandoval of Nevada and Charlie Baker of Massachusetts are good examples. Both governors made epic U-turns in approving major new taxes after being elected on no-tax-hike pledges.

So bravo to Governor Martinez for standing firm against tax increases and for restraining New Mexico’s budget during her two terms in office.

In addition to examining the tax and spending actions of each governor, the Cato report looks at recent changes in the state fiscal environment.

The Tax Cuts and Jobs Act of 2017 has shaken up state tax policy. The act changed the federal income tax base, which in turn changed state tax bases. The act also capped the federal tax deduction for state and local taxes. That reform increased the bite of state and local taxes for millions of households and may prompt higher out-migration from high-tax states.

Recent Supreme Court decisions regarding online sales taxes and public-sector labor unions have also affected the state fiscal environment. Lastly, the legalization of recreational marijuana has created a new source of revenue for some states.

The Fiscal Policy Report Card on America’s Governors 2018 is here.

Prior report cards are here.

The 2018 report was completed with the help of David Kemp.

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

  • Would open all government procurement markets to goods and services providers from the other party.

Buy American” and “Buy Local” requirements, in general, restrict access to bidding on and performing government procurement projects to U.S. firms using U.S. goods and providing U.S. services. However, pursuant to terms of the Trade Agreements Act of 1979, free trade agreement partners, as well as signatories to the World Trade Organization’s Agreement on Government Procurement (GPA), are granted waivers from these “Buy” provisions so that their firms can compete for U.S. procurement work tendered by a defined list of agencies. 

In the USMCA, no new access to U.S. procurement markets is granted to Canadian bidders relative to the original NAFTA. In fact the chapter makes no mention of Canada, presumably because Canada is a signatory to the GPA, which provides for slightly greater access to U.S. procurement projects anyway. The chapter does include provisions for Mexico, but doesn’t appear to afford new access to Mexican bidders either, so relative to the terms of access in effect today, the USCMA provides no discernible change.

That’s a huge missed opportunity because large portions of the estimated $1.7 trillion annual U.S. federal and state government procurement markets remain off limits to competition. This, of course, drives up the cost of every government project and ensures that taxpayers get the smallest bang for their buck. Given talk that President Trump is interested in advancing a major infrastructure bill—maybe in the neighborhood of $1 trillion—in the next Congress, this is a problem that should concern us all.

(Conclusion: Criterion unmet.)

  • Would open all sectors of the economy to investment from businesses and individuals in the other party.

The U.S. market is generally pretty open to foreign investment already, but investment restrictions continue to exist in certain industries, including financial services, commercial air services, communications, and mining. It doesn’t appear that USMCA provides any significant new access for foreign investors in the United States.

(Conclusion: Criterion unmet.)

  • Would open all services markets without exception to competition from providers of the other party.

The USMCA fails pretty miserably in this area. The chapter on cross-border trade in services reaffirms bans on foreign competition in maritime shipping, dredging, commercial air services, and trucking services. The absence of foreign competition in shipping raises transportation costs, which are among the most significant supply chain costs reflected in the prices Americans pay for goods purchased on Amazon and at brick and mortar establishments.

Commercial air travel is a significant cost of doing business for companies across all industries, and it accounts for an important share of consumer spending. Rules based on dubious national security arguments that preclude foreign carriers from flying routes between U.S. cities reduce supply, lower quality, lessen accountability, and raise the cost of airfare.

Instead of opening domestic trucking services to foreign competition, the USMCA makes available, for the first time ever in the services sector, access to a “safeguard” mechanism (which could result in new restrictions) for U.S. companies deemed to be “harmed” or threatened with harm by competition in the long-haul, cross-border trucking sector.

U.S. demand for dredging services is on the rise for a variety of reasons, including the need to deepen U.S. ports. A large majority of the 44 Atlantic and Gulf Coast ports are too shallow to accommodate the larger, higher capacity, more cost-efficient, post-Panamax container ships that necessitated widening of the Panama Canal. If President Trump gets his infrastructure funding, there is likely to be a huge increase in demand for dredging services. This market should be opened fully, but USMCA ignores this looming matter, taxpayer be damned.

(Conclusion: Criterion unmet.)

  • Would ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations.

The so-called rules of origin in USMCA, especially concerning automobile production and assembly (but apparel and other products, too), have been among the most discussed provisions in the agreement. Rules of origin are the content and value-added terms that must be met for a product to be conferred as originating in the region (North America), entitling them to the preferential terms of access.

For both autos and apparel, the regional content threshold (minimum value of components from and labor performed in the three countries) was effectively increased in the USMCA. The reduced capacity for incorporating inputs from countries outside of North America is likely to make regional producers less competitive relative to producers in countries where there are fewer restrictions on sourcing. The changes will lead to higher regional production costs, which will encourage automakers, garment markets, and other producers to forego the more costly compliance with the qualification rules in favor of using non-qualifying inputs or producing outside the region, altogether, and paying the non-preferential tariff rates upon entry into the United States.

(Conclusion: Criterion unmet.)

  • Would include rules that prohibit digital trade — data flows that are essential components in the provision of goods and services in the 21st century — from being taxed and unprotected from misuse and abuse.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would require businesses to comply with only one of the Party’s regulations if the regulations are comparable in their objectives and outcomes — consumer safety, product reliability, worker safety, environmental friendliness — in order to reduce the costs of complying with two sets of regulations to sell in two different markets, and a regulatory cooperation mechanism to promote mutual recognition of regulatory compliance.

There is growing receptivity to adopting mutual recognition and other forms of regulatory coherence that would ensure the same safety/social outcomes, while reducing regulatory compliance costs. But such provisions are not in the USMCA and remain rare in practice. However, the USMCA does include a chapter called “Good Regulatory Practices,” which establishes mechanisms and protocols for establishing broader compatibility, transparency, and predictability to regulation and regulatory processes. It is not novel but builds on a similar version established in the Trans-Pacific Partnership and operating under a separate U.S.-Canada Regulatory Cooperation Commission.

(Conclusion: Criterion almost met.)

  • Would include an enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Although the agreement includes a chapter called “Dispute Settlement,” problems that afflict dispute settlement under the original NAFTA seem to remain unresolved by the language in USMCA.  While there are pretty straightforward rules for how disputes should be settled and what parameters Parties should consider if and when needing to threaten or resort to retaliation, the text remains unclear as to the protocol for naming and seating panelists to adjudicate the issues.

Disagreements over these matters essentially made state-to-state dispute settlement inutile under NAFTA, leaving the terms of the agreement almost voluntary. The fact that this problem remains isn’t too surprising, given USTR Robert Lighthizer’s distaste for binding dispute settlement—a position that contributes to the WTO Appellate Body crisis, which imperils that institution presently.

(Conclusion: Criterion unmet.)

By the 10 standards identified as essential to an ideal free trade agreement, USMCA falls way short. Four criteria are “met” or “almost met.”  Six criteria are “unmet” or “worse than unmet.” Realistically, “ideal” is probably too exacting a standard for our politically constrained trade negotiators. But then again, an agreement pursued with trade deficit reduction and supply chain repatriation as its main objectives was never going to be an exemplar of trade liberalization.

Grading on a Scale

What would be a more reasonable benchmark for assessing the USMCA? The terms of the TPP (which was President Obama’s renegotiation of NAFTA from which President Trump withdrew the United States)? The existing NAFTA? U.S. withdrawal from NAFTA without a replacement?

Relative to the TPP, the USMCA is a disaster. Yes, there’s a little more liberalization in USMCA’s Digital Trade chapter, better access for U.S. dairy farmers and wine exporters to Canadian markets, a higher threshold for the value of exports not subject to customs duties in Canada and Mexico, and other marginal improvements (such as rules for “Good Regulatory Practices” and the retirement of traditional investor-state provisions). But there are considerably more provisions that are protectionist relative to the terms of TPP. 

The far stricter rules of origin—especially concerning automobiles and clothing—give regional firms fewer options to compete with producers from outside the region and virtually guarantee higher prices for North American consumers. The USMCA includes unnecessarily stronger patent, copyright, and data protection provisions, which are—by definition—protectionism.  It includes the first-ever trade agreement chapter with rules aimed at disciplining currency manipulation, which has a subjective definition, eludes any consensus about how to measure, and has potential to cloak garden variety protectionism in a veneer of legitimacy.

NAFTA 2.0 is certainly better in some regards.  But even if its provisions could be demonstrated to be, on net, more liberalizing than the TPP’s (to be sure, they cannot!), there is still the major shortcoming that TPP offered liberalization with nearly 300 million more people in nine more countries accounting for a combined GDP of $7.5 trillion. Canada and Mexico account for an aggregate $2.8 trillion. So, yeah.

Relative to the existing NAFTA, there are also pros and cons to the USMCA. Though there is greater liberalization in goods trade, it is marginally to imperceptibly so. Taking into consideration the negative changes, especially to the rules of origin, it’s not obvious that USMCA is liberalizes much from NAFTA. But it’s possible—even probable—that some of the less directly liberalizing, technical and procedural provisions, such as those governing “Digital Trade,” “Customs and Trade Facilitation,” “State-Owned Enterprises,” and others, utilized in ways not completely apparent now, could lead to lower trade costs.

The only certainty is that the USMCA is better than a U.S. withdrawal from NAFTA without a replacement agreement. That bullet appears to have been dodged. Beyond that, the best that can be said of the USMCA is that the negotiations – especially the animating theatrics, insults, and tantrums that came with the talks – are finished and the dark clouds of uncertainty hanging over the region should begin to dissipate…only to be replaced by darker clouds over the descent of U.S. relations with China and the WTO.

Congratulations to Judge Brett Kavanaugh, whose nomination to the Supreme Court was confirmed by the Senate today by a vote of 50 to 48. This evening at the Supreme Court, Chief Justice John Roberts administered the constitutional oath and retired Justice Anthony Kennedy, for whom Judge Kavanaugh clerked, administered the judicial oath. Now-Justice Kavanaugh will take his seat when the Court sits again on Tuesday. 

Judge Kavanaugh survived one of the most acrimonious judicial confirmation processes in the Senate Judiciary Committee’s history. The reasons for that are many, as I wrote in an op-ed in TIME magazine last week. But in one way or another, the divisions that so divide us today all come down to fundamental misunderstandings of the Constitution and, accordingly, to an expectation among so many Americans that the Court will solve the many problems that today afflict the nation. The Court, now back to full strength, may make a dent in those problems, but their roots are much deeper. Still, the Senate’s vote today is a start.

Everybody’s deploring partisan polarization these days, especially this presidential term, especially this week. Including the Cato Institute’s president, Peter Goettler: “two years in Washington has taught me that tribalism is a huge factor in driving the political process and discourse.” On the other hand, as I’ve written  before, bipartisanship is typically a conspiracy against the taxpayers. Here’s the latest example, from the Wall Street Journal:

‘We Don’t All Hate Each Other’: Senate’s Bipartisanship Obscured by Kavanaugh Fight

The intense partisanship engulfing Supreme Court nominee Brett Kavanaugh has diverted attention from a raft of recent bipartisanship in the Senate during the past few weeks, drowning out issues that could appeal to voters in the midterms.

The chamber on Wednesday passed legislation to reauthorize the Federal Aviation Administration for five years by a 93-6 vote. That legislation included a measure to double funding for big infrastructure projects around the world, combining several little-known government agencies into a new body with authority to do $60 billion in development financing.

Also on Wednesday, the Senate advanced an opioid bill to President Trump’s desk by a vote of 98-1. That bill includes several changes to Medicare and state Medicaid programs, such as requiring Medicare to cover services provided by certified opioid treatment programs. 

And last week, Mr. Trump signed into law a spending bill that increases military spending for the next fiscal year.

America is a nation of immigrants, and throughout its history, it has received nearly 100 million immigrants. I almost wrote that America “welcomed” them, but the fact is that very few of those 100 million were broadly popular with the public when they arrived. They came nonetheless. They thrived, and those immigrants—at least those who stuck it out in the face of harassment and discrimination—and their descendants built the country that we have today.

The term “immigrants” refers to foreigners who come to the United States with the intention to settle permanently. They are distinct from “nonimmigrants” who make temporary visits to the country, such as tourists, students, and guest workers. Figure 1 provides the breakdown of immigrants by the last legal status that the immigrant held. An illegal immigrant who receives legal permanent residency is listed as a legal immigrant, even though he may have entered illegally or lived illegally in the United States at some point. It includes all immigrants since the end of the Revolutionary War in 1783, but does not include slaves imported involuntarily to the United States (the legal slave trade ended in 1808).

Figure 1: Immigrants to the United States

Figure 2 breaks down the number of new legal permanent residents admitted annually from 1783 to 2018. The bars show the absolute figures and the line the number as a share of the U.S. population. The government didn’t collect annual statistics prior to 1820, but a general consensus appears to have arrived at about 250,000 immigrants from 1783 to 1819. I estimated the annual figures for the period by assuming a modest jump after the French Revolution in 1789, a significant jump in 1793-94 following the Haitian Revolution, a significant decline during the Napoleonic Wars, and an almost  total elimination during the War of 1812. These assumptions produced period averages similar to those estimated in American Immigration by Maldwyn Allen Jones and which accord with other accounts of the period.

Figure 2: New Legal Permanent Residents Admitted Annually

The average number of new legal immigrants per year from 1783 to 2017 was 370,169, and the average immigration rate was 0.4 percent of the population—that’d be the equivalent of 1.3 million people in 2018. For context, the United States is on pace to admit about 1 million new immigrants in 2018 or 0.32 percent of its population.

The estimate for the number of illegal immigrants is much more tentative for obvious reasons. About 11.3 million immigrants without legal status show up in the Census Bureau’s American Community Survey in 2016. Broadly reliable estimates of the illegal population exist back to 1980. While relatively few people immigrated illegally prior to the 1980s, I estimated amounts using the available evidence. Based on estimates of the mortality and emigration rates of illegal immigrants in recent years, we can conclude that about 1.4 million immigrants died without status and 6.4 million illegal immigrants voluntarily emigrated. In addition to these, about 2.4 million were deported. It would be reasonable to increase these figures by 10 to 20 percent, but the overall picture of U.S. immigration in Figure 1 would hold.

America’s tradition of receiving people from around the world is admirable, but as Figure 2 shows, the rate of legal immigration right now is still far lower than its historic highs in the 19th and early 20th century. America can not only easily sustain a much higher rate of legal immigration than what it permits at the moment—it would benefit greatly from a much higher rate.

There’s a lot in the new NAFTA (technically, the US-Mexico-Canada Agreement, or USMCA), some of it good and some of it bad (the new name is terrible, but that’s not particularly important). In this blog post, we offer our thoughts on some of the key provisions, after which we provide an initial overall assessment of the agreement. We break it down into the good, the interesting, the whatever, the worrying, the bad, and the ugly.

The Good:

– Canadian agriculture: In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. The Office of the United States Trade Representative (USTR) has noted the opening of Canada’s dairy market as a key achievement, because it gives the U.S. additional access to what was agreed in the Trans Pacific Partnership Agreement (TPP). In addition, Canada agreed to give up a pricing system for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. On wine, the U.S. and Canada agreed in a side letter that the Canadian province of British Columbia (BC) would adjust its measures restricting the sale on non-BC wine in its grocery stores. The United States has agreed to give BC until November 2019 to make this adjustment, before advancing a complaint it already put forward at the World Trade Organization (WTO) on this issue. This is the most positive part of the new agreement. It gives U.S. producers greater access to the Canadian market, and will be good for consumers in Canada. 

– de minimis: The de minimis threshold for products that you buy online and can be imported duty free has been raised. The United States allows consumers to purchase goods up to $800 duty free, and has been pushing for Canada and Mexico to raise their limits as well. It did not persuade them to do so in the TPP. In the USMCA, however, Canada raised its de minimis threshold to CAD $150—a significant increase from the previous CAD $20 limit. In addition, sales tax cannot be collected until the value of the product reaches at least CAD $40. This is good for Canadian consumers making online purchases. Additionally, a 2016 study showed that increasing the duty free limit would be cost-saving for Canada. Mexico also increased its de minimis level, from USD $50 to USD $100, with tax free diminimis on USD $50. USTR has noted that this will be especially helpful for small businesses. 

The Interesting: 

– Investment protection/ISDS: These provisions have been significantly scaled back. We see this as a positive, and it will be interesting to see how it plays politically with left wing critics of existing investment provisions, and with the business groups who want these provisions included. 

– Regulatory issues:  One notable addition was an expansive chapter on Good Regulatory Practices, which builds upon the TPP Regulatory Coherence chapter, the Canada-EU Comprehensive and Economic Trade Agreement (CETA), and bilateral initiatives that have been in place between the U.S. and Canada, as well as with Mexico, since 2011. The key items in this chapter are provisions on increasing transparency in the regulatory process, providing a clear rationale for new regulatory actions, as well as encouraging cooperation on minimizing divergence in regulatory outcomes. The general idea is to make regulations less burdensome on trade. It will be interesting to see how this chapter functions in practice, but it appears to be the most comprehensive attempt to address this issue in any trade agreement the United States has signed. 

– Digital trade: The digital trade provisions are very similar to what was in the TPP. In theory, these provisions can help facilitiate e-commerce, although in practice they are still untested and it’s not clear what impact they will have. 

The Whatever: 

– Chapter 19: The special review mechanism for anti-dumping/countervailing duties in the famous Chapter 19 has been shifted to Chapter 10, but remains essentially the same. This provision does not have much, if any, commercial impact, but Canada insisted on keeping it nonetheless, and was able to push back on U.S. demands to eliminate it.

The Worrying:

– Currency: This is the first trade agreement with binding provisions related to exchange rates, although not all of this chapter’s provisions are enforceable. There are few concerns with Canada’s and Mexico’s practices in this area, so this provision is really just a marker to lay down for future agreements. The test of this provision will be if another country for which such concerns have been raised (e.g., Japan) agrees to it. While there may be real issues with currency intervention here and there, the problems here have been exaggerated, and have been used by politicians as an excuse to impose tariffs.

– State-state dispute settlement: In order to ensure that the obligations that have been agreed to in a trade agreement are followed, there needs to be an enforcement mechanism. Chapters 11, 19, and 20 of the original NAFTA are often bundled together as “dispute settlement” chapters, but they all do different things. Chapter 20 is the basic provision that allows one government to complain that another government is not complying with its obligations. The original NAFTA Chapter 20 did not work very well, and unfortunately the new NAFTA looks like it fails to fix its flaws.

– Labor rights: The labor rights provisions go further than past U.S. trade agreements. For some people on the left, this could offer a reason to support the agreement. If you are skeptical about including labor provisions in trade agreements, as we are, this is a negative aspect to the agreement.

– IP provisions:The intellectual property chapter strengthens IP protections, going beyond what was agreed to in the TPP. For example, the parties agreed to 10 years of data exclusivity for biologic drugs (from 5-8), copyright protection to a minimum of the life of the author plus 70 years, and 75 years for copyrights not based on the life of a person. 

– Section 232 auto tariffs: As part of the NAFTA renegotiations, Canada and Mexico had hoped to secure an exemption from the potential imposition of additional Section 232 tariffs on autos. However, instead of an outright exemption, there are two separate side letters to the USMCA for Canada and Mexico that exempt a set quota of passenger vehicle imports and auto parts, as well as all light truck imports, from 232 tariffs that may be imposed in the future. The United States also agreed not to impose 232 tariffs on Canada or Mexico for at least 60 days after the measure is imposed, allowing the U.S. to negotiate separate agreements within that timeframe. The exemption levels are high enough that all auto exports from Canada and Mexico could be exempt, which is good news. However, the principle is an awful one – applying these tariffs and then establishing export quotas is bad policy and undermines the rule of law.

The Bad:

– FTAs with China: The agreement discourages the NAFTA parties from negotiating trade deals with non-market economies, which means China and a few others. Limitations on negotiating other FTAs are a bad idea generally; it remains to be seen what actual impact it will have here (Canada and China have been talking about negotiating an FTA).

The Ugly:

– North American auto trade: The new rules of origin are extremely restrictive, raising costs for auto production in North America. This could lead to more production being done outside of North America, or higher costs for consumers. This is the most negative part of the new agreement.

– Sunset clause: The sunset clause is weakened from the original U.S. proposal – under which the agreement would expire automatically after five years unless all three countries agree to extend it – but it is still problematic. The revised provision may end up being harmless, but there are risks, and it would be better to take it out. 

**********************

Overall, the package agreed to here looks like a mixed bag. There are some good things, some bad things, and many unknowns. The biggest loss might be unseen, however. If only the Trump administration had just implemented the TPP, or had begun negotiating with countries with whom the U.S. did not already have a trade agreement, it could have achieved a great deal more trade liberalization. On the other hand, people may feel that the biggest gain was preserving most of the zero tariffs under the NAFTA. But somehow, just keeping what you already had does not seem like that big of a win to us.

In a campaign address, Donald Trump told his supporters that “if you are Syrian and you’re Christian, it’s almost impossible to come into the United States… it’s all going to change.” After his inauguration, he reiterated the promise. “They’re chopping off the heads of everyone, but more so, the Christians,” he told CBN News. “I thought it was very, very unfair, so we’re going to help them.”

But he hasn’t. Refugee resettlement has changed, but not for the better. While his administration has reduced Muslim refugee arrivals 93 percent compared to the final months of the Obama administration, it has still slashed Christian refugees 64 percent. He has also cut Syrian Christian refugee arrivals by 94 percent and those from Iraq by 99 percent. He has admitted just 20 Syrian Christians in all of Fiscal Year 2018.

Figure 1 shows the monthly average refugee arrivals by fiscal year—which starts on October 1 and ends on Sept. 30—as far back as there are statistics available for religion. During the months of FY 2017 when President Obama was still in office, Christian refugee admissions averaged 3,586 per month. Christian admissions fell to 1,411 per month during the rest of the fiscal year before plummeting to 1,334. Figure 1 also shows that, while the Obama administration oversaw a rise in Muslim refugees, it didn’t reduce Christian refugees as a result.

Figure 1: Monthly Average Refugee Arrivals by Religion

The rate of Christian refugee admissions has been 50 percent lower under President Trump’s first two years than under President Obama’s entire term, and it is 25 percent the monthly rate under President Bush. President Trump’s rate of admissions for Muslims was 72 percent lower than Obama and 47 percent lower than Bush. His rate of admitting people of other faiths was 78 percent and 64 percent lower than Obama and Bush, respectively.

Figure 2: Monthly Average Refugee Admissions by Administration and Religion

On Syrian Christians specifically, President Trump has permitted the entry of just 2 per month in 2018—which is a reduction of 94 percent compared to the last few months of Obama’s term. Among Christian refugees from Iraq—who also face persecution from ISIS—the numbers have fallen 99 percent.

Figure 3: Monthly Average Admissions of Iraqi and Syrian Christian Refugees

The unfortunate part of this story is that Trump was right: the Obama administration and the United Nations High Commissioner for Refugees did let down Syrian Christians as ISIS committed genocide against them. But President Trump has not corrected this mistake—he’s made matters worse.

Some analysts give partial credit to Christians of Middle Eastern ancestry for President Trump’s surprise 2016 upset in Michigan because they voted for him based on his promise to save Christian refugees. Yet not only has his administration cut Christian refugee resettlement, it has attempted to deport hundreds of Iraqi Christians living in the United States without legal status for many years. A federal district court even accused the Trump administration of impeding the Christians’ attempts to challenge their removals in courts and declared that they are “confronting a grisly fate… if deported to Iraq.”

The Trump administration is hostile to Christian refugees for the same reason that it opposes other legal immigrants to the United States: they could take jobs from Americans, commit crimes, and use welfare in the United States. Never mind that they commit crimes at lower rates than Americans, that even the Trump administration has found that refugees are fiscally positive for the United States, and that employed refugees create better paying jobs for existing workers.

By cutting the refugee program across the board, the Trump administration has not just violated a campaign promise to resettle more Christian refugees—it has condemned many more to desperate poverty, persecution, or death. President Trump may not even be aware that his administration has failed to uphold his wishes. If he isn’t, perhaps he can force his bureaucrats to correct course if it comes to his attention. If he is aware, then Christian refugees have another long wait before they can hope for an escape to the land of the free and the home of the brave.

For well over a decade it’s been apparent that the distinctive arrangements by which asbestos plaintiff’s lawyers acquire control of the bankrupt remains of defendant corporations they’ve sued, and then exercise control over those firms’ claims, disbursements, and general management, is fraught with self-dealing and sometimes fraud, ranging from the charging of unnaturally high fees to the concealment of double- and triple-dipping by claimants. Business interests have pursued a campaign in the states and Congress to require more transparency and better judicial oversight of asbestos bankruptcy trusts. Now they may have a powerful ally indeed in the federal government, which has weighed in with an early statement of interest in one such bankruptcy to insist on better controls against fraud and abuse. Its standing for such an intervention arises in part from its role as Medicare and Medicaid payor (entitled by law to recoup some health-related outlays) rather than merely from any interest it might have in heading off fraud generally. Daniel Fisher at Forbes:

In the Trump administration, at least, the government will no longer look the other way as asbestos lawyers negotiate lenient terms that make it easy for their current clients to get money at the expense of future claimants and federal entitlement programs….

The government’s unusually blunt statement of interest in the Kaiser Gypsum bankruptcy, long before any plan of reorganization has been approved, warns lawyers against including terms that make it hard to ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims….

The Justice Department also warned it will be looking for excessive fees and may not allow claimants to deduct those fees from reimbursement due the government for Medicare and Medicaid expenses.

[cross-posted, slightly adapted, from Overlawyered]

Cost estimates for new government programs usually vary depending on the source. For government paid leave, cost estimates depend on assumptions about benefit duration, wage replacement rate, eligibility requirements, and more.

A variety of real and hypothetical government paid leave programs are listed below, along with associated costs. 

Source Program specs Cost to average worker  Total annual cost Notes AEI-Brookings Cost Calculator Similar to the FAMILY Act:
12 weeks paid, 70% wage replacement, $1000 max weekly benefit, FMLA take-up assumptions 0.89% payroll tax = $450/annually for average annual wage of $50,620 $76 billion This seems like a middle-of-the-road estimate.
This estimate uses a benefit profile that closely resembles the FAMILY Act. American Action Forum FAMILY Act 2.1 percent payroll tax to cover the lower bound estimate = $1,063 annually for mean annual wage of $50,620
A 13.02 percent (997 bill/159 bill = 6.27 and 2.1%*6.27= 13.02%) payroll tax to cover the upper bound estimate = $6,590 annually for average annual wage of $50,620 $159 - $997.4 billion annually The lower bound estimate assumes that everyone that takes paid leave takes 12 weeks in a year. FMLA take-up rates are used.The upper bound number assumes that all workers take paid leave in a given year and is considered the “total cost exposure” of the policy. Institute for Women’s Policy Research FAMILY Act About $5/week for average wage worker in 2016 = $255/annually for average wage worker $28.3 billion annually   California – author’s calculation California policy:
6 weeks of family leave and 52 weeks of disability. 1.0 percent in California in 2018 (on wages up to the first $114,967 of earnings) = $506 annually for average worker with mean annual wage of $50,620 n/a This includes family and medical leave benefits, as well. New Jersey – author’s calculation New Jersey policy:
6 weeks of family leave and 26 weeks of disability. 0.28% combined employee payroll tax + 0.5% employer payroll tax (on up to $33,700 for 2018) = $263 annually for average worker n/a This includes family leave insurance and state disability insurance (temporary medical insurance), as well.
This calculation assumes full pass through of employer payroll taxes associated with state disability insurance. Note that New Jersey payroll taxes are reset annually, so numbers are subject to change. Rhode Island –author’s calculation Rhode Island policy:
4 weeks of family leave and 30 weeks of disability. 1.1 percent in Rhode Island in 2018 (on up to $69,300) = $557 annually for average worker with average annual wage of $50,620 n/a This includes both family and medical leave programs.

Adjusting the benefit profile of the program (for example, changing the length of benefit offering, wage replacement rate, or eligibility criteria), or changing take-up rate assumptions impacts these estimates.

For more information on the consequences of federal paid family leave, see the new Cato report Parental Leave: Is There a Case for Government Action?

Wisconsin’s Badger Institute has a new book—Federal Grant Standing—that examines the $750 billion system of federal grants to state and local governments.

The federal grant or aid system is costly and bureaucratic. It undermines political accountability and sows distrust in government. The Badger book is chock full of unique data and survey information illustrating the problems. It examines the practical failings of aid programs within Wisconsin, but the lessons are applicable to every state.

The book discusses how federal aid prompts state and local governments to make bad decisions. And it describes how aid induces cost inflation, reduces innovation, and wastes everyone’s time on paperwork.

Sadly, the governments of Wisconsin and other states have become administrative arms of the federal government. Wisconsin’s Department of Workforce Development has 1,603 employees and 73 percent of them are paid with federal funds. Wisconsin residents may think that their state government works for them, but bureaucrats and politicians in faraway Washington are pulling the strings.

Democracy, local control, community, diversity, self-determination, and transparency. Those are words that liberals like. Yet the giant federal aid-to-state system that liberals built during the 20th century has helped to destroy those values in American government.

I hope that policy wonks in other states pursue similar investigations of aid, and I hope that federal policymakers reconsider the system and start cutting.

You can read more on federal aid here and here.

Late last night, Canada, Mexico, and the United States agreed to a revision of the North American Free Trade Agreement (NAFTA). They are calling it the United States-Mexico-Canada Agreement (USMCA), which is a pointless exercise in rebranding, but not worth agonizing about. We suspect that many people will just keep calling it NAFTA.

If you are curious, the full text is here but it is a slog. We are slowly making our way through it, and ultimately will provide an assessment of whether this new deal is net liberalizing. If you are interested in some more technical details, check out the blog posts at the International Economic Law and Policy blog.

If you want to get a general sense of what’s in it, here’s a basic overview. Overall, the new agreement is kind of a mixed bag. There are some improvements, mainly the liberalization of a few Canadian agricultural sectors. However, the agreement is made worse in some ways by making it harder for autos to qualify for zero tariffs. The new agreement has also been modernized by including some recent Trans Pacific Partnership (TPP) innovations, which is good. But there are systemic provisions that are not very good. All in all, it is not a terrible deal, although U.S. government resources probably would have been better spent on liberalizing trade with countries with whom we did not already have a trade agreement. 

A common argument employed by those opposed to lesser-skilled immigrants is that they are simply out of place in America’s high-tech economy. We often hear that the only workers we need now are those with advanced degrees. Yet according to the Bureau of Labor Statistics, 115 million Americans—74 percent of the total—were employed in jobs that do not require a Bachelor’s degree in 2016. Moreover, nearly a quarter of all jobs were those without any education requirement.

Share of Employment by Education Requirement

The opponents of lesser-skilled immigrants could respond by claiming that while this is true at the moment, these jobs will quickly disappear in the future. But the Bureau of Labor Statistics disagrees on this point as well. In 2026, the BLS projects that 73 percent of all jobs—123 million—will still not require a Bachelor’s degree—an increase of 7.1 million over 2016. The number of jobs for those without any formal education will still be 24 percent of all jobs—39.6 million—an increase of 2.4 million.

Figure 2: Employment by Education Requirement

BLS projects that 62 percent of all job growth will come from jobs not requiring a college degree. Nearly half of all new jobs will require no postsecondary education at all, and 21 percent of all new jobs will not require any education at all. 

Figure 3: Employment Growth by Education Requirement

It simply isn’t true that the United States needs no lesser-skilled workers right now nor will it be true in the near future. Recent legal immigrants are already far more educated than the U.S. population, and they are as educated as their counterparts in Australia and Canada. But even if this were not the case, the data simply doesn’t support keeping less-educated immigrants out of the country based on the belief that our developed economy doesn’t need them. In any case, the market—not government bureaucrats—should determine which workers are needed.

The essence of the separation of powers is that Congress may not give another branch the power to do what it alone may do. In Animal Legal Defense Fund v. Department of Homeland Security, several California-based environmental groups are challenging a law allowing the department secretary to waive any and all laws to speed building of the southern border-wall. Denied in the lower courts, the groups filed a petition with the Supreme Court. Cato has filed an amicus brief supporting that petition and arguing that such unlimited discretion violates the separation of powers.

The Constitution vests “all legislative power” in Congress, while the executive branch enforces those laws (rather than making or un-making them). Courts from the early days of the republic have maintained this division by preventing the delegation of the legislative power to the executive. To enforce this non-delegation doctrine the Court established the “intelligible principle” test. For a law to pass, Congress must (1) designate an agent or actor, (2) clearly direct the purpose or goal of the law, and (3) set boundaries to the agent’s powers. But the modern Court has stopped applying this doctrine; the last time it struck down a law on non-delegation grounds was in 1935. Since then it has deferred to larger and larger grants of legislative power to executive agencies.

The weakness of the intelligible-principle test lies in the third prong of imposing boundaries for the delegated powers. There is no definite line for how much discretion or power is “too much.” Even James Madison acknowledged the line between permitted and prohibited sharing of power can get blurry. The Court has long recognized that the branches can coordinate for efficiency, but has declined to find any practical limit to the powers Congress can delegate. The result is that executive agencies are making increasingly complex and restrictive laws, completely insulated from and un-accountable to the people.
In our brief, we argue that the Court must re-establish the non-delegation doctrine, either by refining or reforming the intelligible-principle test. It must make it more than an unenforceable truism. The ability to suspend laws at the secretary’s discretion is tantamount to the ability to enforce or repeal laws at will: an essentially legislative power. Unlimited discretion prevents the Court from having any standard by which it can measure abuses of power. The Court need not adopt a stringent test that would require abolishing years of precedent and many bureaucratic agencies, but if the non-delegation doctrine means anything at all, it must at least mean that unlimited discretion to suspend laws is too much.

The New York Times recently reported on a breakthrough at the United States Army’s Combat Feeding Directorate, the group that develops and tests combat field rations or Meals, Ready to Eat (M.R.E.’s). After twenty years of testing, the Army has finally created an M.R.E. pizza that fulfills the stringent requirements to survive extreme weather, pests, and combat conditions with a shelf life of three years. Considering the challenges of meeting these standards, this review from an artisanal pizza chef is quite glowing: “You know, they’re not far off…. It’s familiar. It reminds me of the frozen pizzas I had as a kid.”

As the Times notes, the M.R.E. pizza exemplifies some of the ways that the end of the draft in 1973 has forced the military to find ways to attract and retain the talent required to sustain an all-volunteer force:

But the deployment of M.R.E. pizza is not just a victory for food technologists. It is an indication of how much the military has been forced to change its culture since the draft effectively ended in 1973.

To recruit and retain the volunteers it needs, the military has built up an elaborate social support structure for troops and their families. It now offers child care and family counseling, continuing education benefits, improved base housing, and fitness centers that can rival those in luxury condo complexes. The core mission still includes service under spartan conditions in dangerous lands, but there has been a growing focus on delivering small comforts when possible.

Walter Oi, an economist who passed away in 2013, was a key contributor to the shift away from the draft and towards an all-volunteer military. One of his positions during his impressive career (achieved despite the loss of his sight in 1956) was as a staff economist on President Richard Nixon’s Commission on the All-Volunteer Force, or the Gates Commission. As David R. Henderson recounted in his eulogy for Oi in the spring 2014 issue of Regulation, Oi recognized that the budgetary costs of the draft neglected the hidden costs imposed on draftees.

Based on his research, the Gates Commission’s 1970 report recommending the end of the draft found that eliminating conscription would increase the federal budget by much less than the military estimated. This finding and Oi’s analysis of the impacts of ending conscription were, in the view of the executive director of the Gates Commission, “a watershed in the cause of voluntarism” and helped convince draft supporters that an all-volunteer force was practical.

Even after the draft ended in 1973, Oi continued to fight against any calls to reinstate the draft. In particular, he published two articles in Regulation, in 2003 and 2007, that directly refuted claims that the all-volunteer military unfairly burdens low-income Americans. Oi used data to show that the claims were unfounded and argued that, with the end of the draft, “Military pay was raised to be competitive with wages in the civilian labor market. It was the right thing to do, to eliminate the hidden tax that had been placed on draftees. Members of the [all-volunteer force] enlist to serve their country, to get training and post-service education benefits, and engage in something that is worth their while.”

Walter Oi’s work acknowledged the hidden costs imposed on draftees and the inequality of conscription. American’s who since 1973 have enjoyed the freedom to choose their occupation and the soldiers who enjoy the benefits an all-volunteer force has conferred, including M.R.E. pizzas, owe thanks to his contributions.

Written with research assistance from David Kemp.

Prager University (PragerU), founded by radio talk-show host Dennis Prager and Allen Estrin, is a non-profit that makes short videos on political, economic, cultural, and philosophical topics from a conservative perspective.  Last month, PragerU released a video called “A Nation of Immigration” narrated by Michelle Malkin, an individual most famously known for her defense of the internment of Japanese Americans during World War II.  The video is poorly framed, rife with errors and half-truths, leaves out a lot of relevant information, and comes to an anti-legal immigration conclusion that is unsupported by the evidence presented in the rest of the video.  Below are quotes and claims from the video followed by my responses. 

The United States still maintains the most generous [immigration] policies in the world.  Generous to a fault … 

There are two things wrong with the statement.  The first is framing around the word “generous” and the second is the claim that the U.S. has the freest immigration policy in the world.  

Using the word “generous” implies that allowing legal immigration is an act of charity by Americans and that we incur a net-cost from such openness.  On the contrary, the economic evidence is clear that Americans benefit considerably from immigration via higher wages, lower government deficits, more innovation, their greater entrepreneurship, housing prices, and higher returns to capital.  

Most immigrants come here for economic reasons.  In what sense is it generous or charitable on the part of Americans to allow an immigrant to come here voluntarily and to work for an American employer?  Not only do both the employer and the immigrant gain; the consumers, investors, and economy do as well.    

Second, the United States does not allow more legal immigrants to enter annually in comparison to other countries.  When controlling for the population size of the destination country (excluding Turkey), the annual flow of immigrants to the United States is the 25th most open among the OECD countries in 2016 (Figure 1).  Unlike other countries in the list, the OECD records the number of non-permanent migrants who entered the United States in 2016.  Adding together the permanent immigrants and non-permanent migrants for the United States only and then comparing that new number to the permanent immigrant inflows in other OECD countries, which I am only doing to give Malkin the benefit of the doubt, turns the United States into the 20th most “generous” OECD country.  

Malkin probably meant that the United States lets in a greater absolute number of immigrants per year than any other country in the world – which is true.  But that’s not a meaningful statistic unless we control for the resident population of every country. Analyzing cross-country comparisons in Gross Domestic Product (GDP) makes this point well.  According to the World Bank, the 2017 GDP for the United States in current dollars is $19.391 trillion and China’s is $12.238 trillion. By that measure, the United States is only 58 percent richer than China.  However, that is deceptive because the population of China is about 4.3 times as great as the United States. Thus, the more meaningful GDP comparison between the two countries controls for population – a measure called GDP per capita. A cross-country measure of GDP per capita shows that Americans are individually 674 percent richer than individual Chinese. (There are other important variables for cross-country comparisons in GDP per capita, such a Purchasing Power Parity, but they aren’t relevant to the point here). In the same way that we must adjust for the population when comparing GDP between China and the United States, we must also control for population size when comparing the relative openness of immigration policies across the world.

Another relevant comparison to evaluate our country’s openness to immigration is to America’s past when the United States had a much more open immigration system. The number of immigrants who received green cards in 2016 was 1,183,505, below the 1,218,480 who arrived in 1914 when the United States was a much smaller country (I picked 1914 because that was the last year before World War I seriously limited European emigration). According to research by my colleague David Bier, the number of immigrants receiving green cards today is low compared to most of American history. The number of immigrants who received green cards in 2016 was equal to about one-third of one percent of the U.S. population – below the average annual rate of 0.45 percent from 1820 to today. In 19 years, mostly in the mid-late 19th and early 20th centuries, the annual number of green cards issued was equal to at least 1 percent of the U.S. population.  Through comparison to America’s past and controlling for the number of residents over time by the time dimension itself, the current number of immigrants receiving green cards is relatively small.    

Figure 1
Annual Permanent Immigrant Inflows as a Percent of the Destination Country’s Population, 2016

 

Sources: OECD and World Bank. 

 

… the overwhelming numbers [of immigrants] have stymied our ability to assimilate the huddled masses.

 There’s never been a greater quantity of high-quality quantitative research that shows that immigrants are assimilating and becoming Americans at a rapid clip.  The first piece of such research is the National Academy of Science’s (NAS) September 2015 book titled The Integration of Immigrants into American Society. This 520-page book is a thorough summation of the relevant academic literature on immigrant assimilation. The bottom line of the book: Assimilation is never perfect and always takes time, but it’s going very well in the United States. 

The second piece of research is a July 2015 book entitled Indicators of Immigrant Integration 2015 that analyses immigrant and second-generation integration using 27 measurable indicators across the OECD and EU. This report finds problems with immigrant assimilation in Europe, especially for those from outside of the European Union, but the findings for the United States are positive.  In comparison to Europe and the rest of the OECD, immigrants in the United States are assimilating very well. 

The third work by University of Washington economist Jacob Vigdor offers a historical perspective.  He compares modern immigrant civic and cultural assimilation to the level of immigrant assimilation in the early 20th century (an earlier draft of his book chapter is here while the published version is available in this collection).  For those of us who think early 20th century immigrants from Italy, Russia, Poland, Eastern Europe, and elsewhere assimilated successfully, Vigdor’s conclusion is reassuring: 

“While there are reasons to think of contemporary migration from Spanish-speaking nations as distinct from earlier waves of immigration, evidence does not support the notion that this wave of migration poses a true threat to the institutions that withstood those earlier waves.  Basic indicators of assimilation, from naturalization to English ability, are if anything stronger now than they were a century ago [emphasis added].”

50 million residents of America are foreign-born.  In fact, today the United States has more immigrants as a percentage of its total population than at any time since 1890. 

According to the 2016 American Community Survey (ACS), there were 43.7 million foreign-born residents of the United States in 2016 (Advanced Search, Table S0501, 1-year sample).  Since the publication of PragerU’s video, the government released the 2017 ACS which estimates that there were 44,525,855 immigrants living in the United States last year.  The immigration restrictionist Center for Immigration Studies reported the same numbers.  This means that the foreign-born resident population was 13.5 percent of the U.S. population in 2016, below the 14.8 percent record set in 1890.  Malkin was correct in highlighting 1890 because that is when the foreign-born percentage of the population peaked. However, the foreign-born percent was higher, relative to today, in 1900 and 1910 too.  Perplexingly, the source that Malkin provides states that there were over 43.2 million immigrants in 2015, not the 50 million that she claims. PragerU should correct this factual error. 

Oddly enough, Malkin never actually mentions the percentage of the population that is foreign-born. A new working paper by economists Alberto Alesina, Armando Miano, and Stefanie Stantcheva shows the results of surveys across six countries to see how natives view immigrants. They found that Americans, as well as natives from other countries, systematically overestimate the percentage of the population who are legal immigrants (they specifically asked about legal immigrants and made it clear that they were not asking about illegal immigrants). The average native-born American’s perceived share of legal immigrants was 36.1 percent of the population, almost 4 times the actual 10 percent figure (the ACS figure above includes illegal immigrants).  Importantly, people who are more likely to be opposed to liberal immigration policies think the percentages are even higher.  

One of the purposes of PragerU videos is to inform viewers about facts that are ignored by liberals.  The research by Alesina, Miano, and Stantcheva illustrates how many Americans are ill-informed regarding the percent of the population that is foreign-born.  This video was a wonderful opportunity to state the actual percentage of the population that is foreign-born, something that would have been a great service.  It’s a shame Malkin neglected to do so.     

Chain migration allows immigrants to sponsor not only their immediate family – parents, spouses, and children under age 21, but much of their extended family once they gain citizenship … Princeton University researchers, using the most recently available data, found that immigrants sponsored an average of 3.45 additional relatives each.  So, the one million immigrants granted permanent residence each year potentially adds, over time, another three and a half million.

There are five important points that Malkin neglects to mention that are critical to put this statement in context. 

First, the annual cap on the number of immigrants who are not the spouses, minor children, or parents of U.S. citizens is 226,000 per year.  This is hardly a flood but it is true that many of these immigrants eventually sponsor other family members who are either immediate relatives, siblings, and/or adult children. 

Second, the wait time to sponsor an immigrant through the family-based green card system is long and varies by the immigrant’s country of origin. The government issues a “priority date” for people who want to apply for green cards.  When that date comes up, then the applicants can apply. According to the U.S. Department of State, the government is accepting green card applications for certain family-based green cards (F-1 through F-4) for those who have a priority date before the dates below (Table 1). The F-2A visa is for the spouses and minor children of those who already have green cards and is effectively capped at 87,934 per year. Those who had a priority date for the F-2A before December 1, 2017, can now apply for a green card. This is unlike other family-based green card categories. The wait time is over 20 years for Mexicans and Filipinos on the F3 and F4 green cards and for Mexicans on the F1. These long waits mean that about 4 million people were waiting to apply for a family-based green card at the end of 2017. 

Table 1
Dates for Filing Family-Sponsored Visa Applications Based on Priority Dates 

Family-
Sponsored  Other Countries China India Mexico Philippines F1 08MAR12 08MAR12 08MAR12 01SEP98 15FEB08 F2A 01DEC17 01DEC17 01DEC17 01DEC17 01DEC17 F2B 22MAR14 22MAR14 22MAR14 08JUN97 15DEC07 F3 22SEP06 22SEP06 22SEP06 08OCT98 01AUG95 F4 01MAY05 01MAY05 01JAN05 01JUN98 01DEC95

 Source: U.S. Department of State.

Third, the long wait times in Table 1 mean that Americans can only sponsor some of their family members. The long waits discourage many from applying and some actually die while waiting. Malkin mentioned a Princeton study that found that the average immigrant who arrived from 1996-2000 sponsored 3.46 family members. The author of that study went on to say that that was largely driven by high skilled employment-based immigrants sponsoring their families because these high-skilled immigrants are more likely to be naturalized. It was not driven not by family-based immigrants who sponsored additional family members.  

Fourth, the legal immigration system is extremely complex and restrictive.  Family members of American citizens or immigrants are not just waved in.  Rutgers law professor Elizabeth Hull wrote, “With only a small degree of hyperbole, the immigration laws have been termed ‘second only to the Internal Revenue Code in complexity.’ A lawyer is often the only person who could thread the labyrinth.”  A judge wrote that “This case vividly illustrates the labyrinthine character of modern immigration law-a maze of hyper-technical statutes and regulations that engender waste, delay, and confusion for the Government and petitioners alike.”  

Figure 2 is a simplified legal map of the green card system.  People watching the PragerU video could get the impression that it is easy to immigrate to the United States but that is a myth rooted in mainstream American perceptions of our history, not an accurate recounting of current law and policy. 

Figure 2
Legal Immigration System

 

Source: Immigration Road.

Fifth, the United States has the seventh most open family-based immigration system when compared to OECD countries. According to my own estimates, New Zealand, Sweden, Ireland, Australia, Norway, and Canada all allowed more family-based immigrants in 2013 than the United States did, statistically discussed as a percentage of their respective populations. Those countries allowed in fewer types of family relations but, because they allowed in more legal immigrants overall, the relative percentage of family-based immigrants was also higher.  

Sixth, the legal family-based immigration system (also known as chain migration) was created by Congress in 1921 when they placed the first numerical caps on European immigrants that favored Northern and Western Europeans based largely on long-discredited eugenics theories.  When the immigration system was slightly liberalized after the Immigration and Naturalization Act of 1965 went into effect, immigration restrictionists were the ones who argued for expanding family-based immigration. Tom Gjelten provides substantial evidence that immigration restrictionists in the 1960s favored expanding chain migration because most immigrants at the time were Europeans. Thus, the restrictionists thought that a new immigration system based on family reunification would mostly allow European immigrants to sponsor their family members and basically recreate the caps that favored Northern and Western Europeans at the detriment of other populations. These immigration restrictionists seriously miscalculated. 

In addition, an estimated 100,000 refugees and asylum-seekers–people who claim to be fleeing political or personal strife abroad–enter the country annually.

Malkin is double-counting. Those 100,000 refugees and asylum-seekers that she mentions eventually get green cards, which she stated above amount to about 1 million a year. Thus, these 100,000 refugees and asylum-seekers are not “in addition” to the one million who earn permanent residency a year as they are eventually counted as permanent residents. Over the last several years, about half of the green cards issued were to those who came directly from abroad and the other half went to immigrants already here on another visa – a process termed “adjustment of status.”  

Furthermore, refugees and asylum-seekers have to do more than merely claim that they are “fleeing political or personal strife abroad,” they must show a well-founded fear of persecution in the future or that they have suffered from past persecution “on account of race, religion, nationality, membership in a particular social group, or political opinion.”  Previous administrations have considered things like abuse or persistent gang violence that their home-country governments are incapable or unwilling to control as factors that could help an applicant obtain asylum.  The refugee process occurs overseas and is arduous.  Essentially, the U.S. government selects the refugees after having been initially screened by the United Nations. The other category, asylum-seekers, apply at U.S. ports of entry or inside of the country for humanitarian protection and must make their case in front of an immigration judge.  Some asylum-seekers and refugees fraudulently claim that they have been persecuted but the system relies on more than just the statements of asylum-seekers. 

In that same time frame [2008-2017], nearly half a million more people came to America through the diversity visa lottery – a program designed to admit people from ‘underrepresented’ countries.  Diversity visa applicants don’t need a high school education, job skills – or pretty much anything.

An immigrant who applies for a Diversity visa must have a high school education, its equivalent, or two years of qualifying work experience as defined under provisions of U.S. law.  It is simply inaccurate to state that they “don’t need a high school education, job skills, – or pretty much anything.”  This is another factual error that PragerU should correct. 

The number of illegal aliens in the country is usually given as 11 million, but have you noticed that number never seems to change?  Common sense suggests it’s higher – much higher. 

A recent paper published in the journal PLoS ONE claims that the actual number of illegal immigrants in the United States is likely between 16.2 and 29.5 million.  Their finding is dubious for several reasons as explained by immigration researchers on both sides of this issue.  Millions of additional illegal immigrants would have lots of births that are not currently recorded, fill the public schools with additional children who are not currently there, and would show up in surveys of employment and the workforce.  Either these extra illegal immigrants have zero children and do not work, or they are simply not here.  

But, let’s assume for the moment that Malkin’s “common sense” theory turns out to be true and there really are millions more illegal immigrants than demographers estimate. That would mean that illegal immigrants are far less likely to commit crimes than natives, have an even smaller effect on the wages of Americans, and are assimilating at a rapid pace. I don’t believe that Malkin intends to make this point but, if she’s correct, then she’s helped prove that illegal immigrants are among the safest people in America and are assimilating rapidly.    

And though illegal aliens themselves don’t qualify for welfare, they receive free health care in our clinics and hospitals, and through their American-born children they can expect to receive all manner of benefits – cash aid, food stamps, and housing vouchers.  Their children are entitled to a free education in public schools.

Malkin is correct that some illegal immigrants and their children do receive some welfare benefits but much less so than natives. Still, welfare is a problem and I’ve co-authored several pieces on how to build a wall around the welfare state instead of around the country. If welfare is a real concern, it is a lot easier to reform welfare than it is to tinker with the U.S. population through immigration controls in an age of low-cost transportation. I like to quip that immigration restrictionists use the welfare system to argue against immigration while real free-marketeers use immigration to argue against welfare.    

Building a high-tech border barrier would certainly help stem this flow. Ending chain migration is another obvious remedy. 

Malkin’s statement here conflates illegal and legal immigration. A border wall could only potentially hinder the flow of illegal immigrants into the United States but “ending chain migration” would cut legal immigration. Although Malkin isn’t specific in her video, her suggestion could cut the number of green cards issued annually by 20 percent to 68 percent (and potentially more depending on how it is counted).  

Many conservatives rightly complain about pro-immigration advocates unfairly lumping in legal and illegal immigrants – so why is Malkin unfairly lumping policies to stop illegal immigration in with those to cut legal immigration without making an obvious distinction between the two?  Just to be clear, family-based immigrants who arrive through the chain migration system are legal immigrants.  

E-Verify, the national database that allows employers to check workers’ immigration status, is also essential.

E-Verify is not a database. It is an electronic eligibility for employment verification system run by the federal government that is supposed to check the identity information of new hires against government databases to deny employment to those legally ineligible to work. The intent of E-Verify is to exclude illegal immigrant workers from the workforce to dis-incentivize them from coming in the first place.  

Many immigration restrictionists sing E-Verify’s praises but they rarely address its deep and persistent problems. Even worse, they never acknowledge that E-Verify is ineffective. Barely more than half of the new hires in states where E-Verify is mandated are actually run through it, E-Verify erroneously approves about 54 percent of illegal workers for legal employment, E-Verify doesn’t affect the wages of illegal immigrants much, and there are a host of other problems. Additionally, Arizona’s mandate of E-Verify in 2008 may have increased crime there, and a nationwide mandate of E-Verify will likely increase identity theft. Even worse, E-Verify’s supporters have stoked high expectations for the program that will never be met. The best thing about E-Verify is that it does not work very well and can never work well as currently designed. The worst thing about E-Verify is how Congress will react if, after it mandates the program for all new hires, they find out that it does not work and then they create a more intrusive government identity system.  

But all solutions will ultimately fail unless we get control of the numbers and enforce our laws consistently. 

Malkin is arguing for enforcing immigration laws more consistently and changing those laws to cut legal immigration.  Her rhetorical conflation of these two points is misleading and does a disservice to her audience who would probably like to distinguish legal immigration from illegal immigration.  

Also, cutting the number of legal immigrants will make it harder to enforce immigration laws.  Immigrants overwhelmingly come to the United States for economic opportunity. If they can’t come legally, then some percentage of them will come illegally. Creating a legal way for them to come or, at a minimum, not cutting those few legal avenues that do exist is essential to consistently enforcing our laws.  

In the 1950s, the U.S. government decreased the number of illegal Mexican immigrants by about 90 percent by combining a massive expansion in guest worker visas through the Bracero program with more enforcement. At the time, a Border Patrol official warned that if the Bracero program was ever “repealed or a restriction placed on the number of braceros allowed to enter the United States, we can look forward to a large increase in the number of illegal alien entrants into the United States.” That is exactly what happened when Congress canceled the Bracero program in 1964.

It’s Sovereignty 101: This is our home and we have not only the right, but the responsibility, to determine who comes in, how many come in, and what qualities and qualifications they bring. 

There are few scholars who doubt that the U.S. government has the legitimate constitutional power to regulate immigration, but the specific immigration policy that Congress chooses has little to do with national sovereignty as foreign governments do not have a hand in it. 

The standard Weberian definition of a government is an institution that has a monopoly (or near monopoly) on the legitimate use of violence within a certain geographical area. The way it achieves this monopoly is by keeping out other competing sovereigns (a.k.a. governments, countries, nations, etc.) that seek to become that monopoly of legitimate coercion. The two main ways our government does that is by keeping the militaries of other sovereigns out of the United States and by stopping insurgents or potential insurgents from seizing power through violence and supplanting the U.S. government. 

U.S. immigration laws are not primarily designed or intended to keep out foreign armies, spies, or insurgents. The main effect of our immigration laws is to prevent willing foreign workers from selling their labor to willing American purchasers. Such economic controls do not aid in the maintenance of national sovereignty and relaxing or removing them would not infringe upon the government’s national sovereignty any more than a policy of unilateral free trade would. There are individual exceptions to this like an immigrant who is a terrorist or an agent of a foreign government, but those are rare exceptions even for illegal immigrants. 

Less-than-perfect enforcement of our immigration laws does not diminish national sovereignty because those coming are not agents of foreign governments or other groups trying to conquer the United States and diminish our government’s monopoly on the use of violence. It would be an odd standard to argue that any less-than-perfect enforcement of American laws diminishes sovereignty, even if those laws are largely intended to regulate Americans’ interaction with foreigners who are not a national security threat. Less-than-perfect enforcement is evidence that Congress is either uninterested and/or incapable of doing so better, not that national sovereignty is somehow infringed.  

It’s not hateful to protect our borders.  It’s not hateful to protect our citizens. 

This depends on how the government conducts border security relative to the seriousness of the threat. It’s easy to argue that the U.S. government’s policy of separating the young children of asylum seekers from their parents is an action far crueler than what action is required to deal with the manageable threats of crime and terrorism. Previous administrations have cruelly blocked immigrants on dubious grounds that one should call hateful. Proponents of those laws certainly thought they protected American citizens. Almost all of us would support very cruel policies to defend the United States from great and serious threats but having a cruel policy for no good reason isn’t reasonable. 

It’s not hateful to protect our values.

One of our core American values is an openness to immigration, as Malkin acknowledged at the beginning of this video.  Although our government has not always followed that principle well, it is part of our exceptional national character. Progressive and nationalist politicians violated those values when they slowly closed the border in the late 19th and early 20th centuries. Today, many self-described conservatives are the biggest proponents for rejecting Western Civilization’s ancient pro-immigration history, a history that is especially relevant in the United States.    

Lady Liberty may be shedding tears – not because we’ve stopped welcoming immigrants, but because our ill-conceived immigration policies are threatening the American Dream. 

This conclusion does not follow from the arguments in Malkin’s video. Americans are getting richer, achieving more, and leading the world in numerous endeavors while immigration is increasing. Although Malkin does not define what the “American Dream” is, it’s certainly not diminishing. A great measure of the vitality of the American Dream is the tens of millions of foreigners who want to immigrate here and become Americans. We should all be proud that immigrants from around the world want to come here and join our country. Our government should allow them to do so more easily and cheaply because it is in our best interests to and consistent with our values. 

 

 

Milton Friedman published Studies in the Quantity Theory of Money in 1956, a seminal anthology of papers from five economists, leading with “The Monetary Dynamics of Hyperinflation” –the recent PhD dissertation of Phillip Cagan (1927-2012), which became an instant classic.  So, Cagan was thought to be a “Monetarist” a dozen years before that phrase was even coined by my UCLA teacher, Karl Brunner.

Soon after August 15, 1971 when President Nixon opted to renege on the Bretton Woods pledge to convert foreign official dollar reserves into gold on demand (rather than simply devalue the dollar/gold ratio), we entered a long and painful period of extremely high worldwide inflation.

Even as measured by the gentler “core” CPI (less food and energy), U.S. inflation averaged 9% from 1974 through 1981, reaching 12.2% in 1980.   When President Reagan took office in January 1981, the Fed had pushed the fed funds rate above 19% – up from 9% six months earlier.

We can’t always fix such big problems by thinking small, so the prolonged stagflation of 1968 to 1982 led several economists to propose fundamental, even radical monetary reform, preferably on a global scale.  Such ambitious reform plans commonly involved making dollars convertible in tangible assets, such as gold or a group of commodities.

I was invited to testify before the 1982 Gold Commission, perhaps because of a decade of published and personal connections to Milton Friedman and Karl Brunner.  I had echoed conventional objections to a gold standard before, and was probably expected to do so again.  But that would have been too facile. I instead took the occasion to review periods of long and impressive prosperity when currencies were linked (or re-linked) to gold, invariably followed by instability and crises when they weren’t.

Other economists attempted to replicate some key advantages of being able to convert dollars to gold and vice-versa at a predictable guaranteed rate, yet do so without using gold. In 1983, Greenfield and Yeager proposed the “Black-Fama-Hall” system (melding similar analyses of Fischer Black, Gene Fama and Robert Hall) in which the unit of account would be defined by convertibility into a basket of commodities, rather than just gold and/or silver.

Chicago School monetarists were generally quite critical of any of these ideas, except, as we later learned, Phil Cagan.  

After Brunner moved to the University of Rochester and his star pupil Alan Meltzer to Carnegie-Melon, they held legendary Carnegie-Rochester conferences which I attended.   

After the conference on April 15-16, 1984 I kept the paper by Phillip Cagan of Columbia University, “The Report of the Gold Commission (1982)” later  reprinted in Carnegie-Rochester Conference Series on Public Policy 20 (1984) 247-268.  In it, Cagan flirted with hopeful thoughts about hypothetical hybrid standards, such as Black-Fama-Hall, but not before he said this about gold:

The appeal of the gold standard… is that it solves to problems.  First, if control over the quantity of transactions balances becomes more difficult and discretionary policy is unable to achieve reasonable stability of the price level, convertibility can provide the needed control of the relevant monetary quantities for stabilizing the price level.  Second, even if monetary policy continues to be capable of achieving stability of the price level, discretionary control may still fail to do so, as in the past, because of inadequate determination or inability to pursue polices that are successful (for political or other reasons). Convertibility provides a mechanism for making a commitment to price stability.

I see no escape from the conclusion, inherent in the position of the advocates of gold, that only a convertible monetary system is sufficiently free of discretion to guarantee that it will achieve price stability… If one is looking for some kind of long-last commitment of a constitutional nature, a convertible monetary system seems to be the only practical possibility.

Pages