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In this election, journalists following the immigration beat will focus on the outcomes of individual races. Dave Brat, the Virginia nativist whose defeat of House Majority Leader Eric Cantor in 2014 doomed hopes of immigration reform, lost in a previously safe GOP seat. Democrats blew out Corey Stewart in Virginia and Lou Barletta in Pennsylvania, the most anti-immigrant Senate candidates. Kris Kobach, the author of state anti-immigrant laws across the country, cost Republicans the governorship in Kansas.

But the two most important outcomes of this election are in the big picture. First, nativists have officially squandered their last, best chance to restrict legal immigration. There may never be another moment like the one in 2017 and 2018, where the House, Senate, and White House were all controlled by Republicans with nativist agendas. They held multiple votes in the House and Senate on various measures to make legal immigration cuts, and all their efforts went down in flames.

The second outcome is even more important: the House of Representatives is now the most pro-immigrant that it has been since the 19th century. Current House Democrats would not only pass the broadest legalization in the history of the United States—they also would greatly expand legal immigration. No elected House Democrat is opposed to legalization, even if they would want it paired with some enforcement measures. 

The last Democratic House from 2007 to 2010 did pass the Dream Act for a very small portion of the illegal population—only a subset of the Dreamers qualified—but it didn’t even reach a majority of the House (216, not 218, voted yes). House leadership lost 38 “blue dog” Democrats and got the votes of just five Republicans. Today, the Dream Act would easily pass the House with more than a dozen Republicans voting for it, even after moderate-Republican losses.

The last Democratic-majority House could not—and did not—pass any comprehensive immigration reform bill that would offer a path to citizenship for most illegal residents or expand legal immigration. From 1995 to 2006, the GOP majority bookended its tenure by passing the two harshest immigration enforcement bills since the 1920s: the Sensenbrenner enforcement bill in 2005 and the Illegal Immigration Reform and Immigrant Responsibility Act in 1996.

Except for one Congress from 1933 to 1994 Democrats controlled the House and during that time the House did pass several bipartisan immigration bills, a mix of expansive and restrictive measures. The Immigration Act of 1990 expanded legal immigration, while hiring more Border Patrol Agents. The Immigration Reform and Control Act of 1986 provided for amnesty, but it was generally seen as a restrictive measure (which is why most of the Hispanic Caucus voted against it) because it made it illegal to hire someone without a valid photo ID, which naturally led to discrimination against Hispanic workers.

Prior to that, a Democratic-majority House passed the Refugee Act of 1980 which increased legal immigration for refugees. The Cuban Adjustment Act of 1966 legalized the status of Cubans who made it to the United States, and the Immigration Act of 1965 replaced the old national origin quotas and expanded legal immigration (though more than anyone expected at the time). Before 1965, House Democrats did only very slight liberalizations, ending the Asiatic Bar Zone and allowing some Jewish refugees to resettle in the United States. They mostly maintained the restrictive system created by Republicans in the 1920s.

House Democrats today would not just protect every expansive immigration measure enacted from 1965 to 1990—they would greatly build upon them if they could reasonably expect them to be signed into law. The starting place for reform for them is the 2013 comprehensive immigration reform bill, H.R. 15, a version of which the Senate had passed. At the time, every House Democrat except two cosponsored the legislation. The bill would legalize more than 8 million illegal residents and at least double permanent legal immigration.

However, the bill also had some provisions that are unlikely to remain. In particular, while it expanded immigration overall, it ended the Diversity Visa Lottery and cut so-called “chain migration,” two issues that President Trump has championed. Because the lottery disproportionately benefits African immigrants—who Trump reportedly referred to as coming from “shithole” countries—many Democrats are now opposed to repealing it as a matter of principle.

Rather than cutting family-sponsored immigration, Democrats will seek to expand it. The legalization provisions were also very restrictive, covering just three quarters of the illegal resident population. Democrats would certainly go further now. Especially after seeing how their colleagues did in this midterm, the remaining moderate Republicans would likely sign onto these measures if tied to stricter enforcement.

As importantly, this House will have the backing of the most pro-immigration general public in recorded history. More Americans oppose cuts to immigration and favor expanded immigration than at any point since at least 1965. Because the Senate is still in GOP hands, however, Democrats will have to focus on chipping away at the numerous legal immigration restrictions and enforcement measures that the Trump administration has implemented or has plans to implement. Republicans would be wise to work with them in a bipartisan manner.

President Trump has repeatedly called for an immigration system like Canada’s. Unlike the president’s plans for immigration, however, the Canadian government announced last week that it would increase legal immigration by 13 percent from 310,000 in 2018 to 350,000 new legal permanent residents in 2021. This amounts to 0.9 percent of its 2021 population. By contrast, the United States allowed a rate of 0.3 percent of its population in 2017.

Figure 1 provides the breakdown of the Canadian and U.S. immigration rates right now by type of immigration. In 2017, Canada permitted virtually the exact same rate of family-sponsored immigration, double the rate of humanitarian immigration, and 11 times the rate of economic-focused immigration as the United States did. If the U.S. rate remains steady as it has, America will fall further behind in the international competition for labor. 

Legal Immigration to Canada and the U.S.
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Despite the overwhelming focus on economic-based immigration, Canadian immigrants are not more educated than U.S. immigrants, as I’ve described before. Canada is also not unusual in having a higher immigration rate. As I’ve written before, most other wealthy countries have higher immigration rates than the United States does. 

Unless the United States adjusts its outdated immigration quotas, these disparities will only increase. Yet President Trump has endorsed proposals to cut legal immigration in half, meaning that Canada would be allowing in on a per-capita basis five times more immigration than the United States. Indeed, every proposal supported by the president so far has amounted to reduction in legal immigration. Cutting legal immigration would harm economic growth and make America less competitive economically.

If Congress wants to emulate Canada, it would double humanitarian immigration and increase economic-focused immigration by tenfold or more, while not cutting family-sponsored immigration as the president has suggested

On November 2 the Food and Drug Administration announced the approval of Dsuvia, a sublingual tablet containing the powerful fentanyl analog, sufentanil. Sufentanil has been used for years in the hospital setting, primarily in intravenous form for anesthesia. It is roughly 5 to 10 times more potent than fentanyl, and thus has a significant overdose potential. The FDA reached this decision following a 10-3 vote in favor of the drug’s approval by the Anesthetic and Analgesia Drug Products Advisory Committee (AADPAC), based on data from multicenter trials. It was not approved for outpatient use, but for use only in medically supervised settings, and may be of particular benefit to military health care practitioners.

FDA Commissioner Gottlieb’s announcement stated:

Dsuvia, which was previously approved by the European Medicines Agency in July under the brand name Dzuveo, has some unique features in that the drug is delivered in a stable form that makes it ideally suited for certain special circumstances where patients may not be able to swallow oral medication, and where access to intravenous pain relief is not possible. This includes potential uses on the battlefield. For this reason, the Department of Defense (DoD) worked closely with the sponsor on the development of this new medicine. This opioid formulation, along with Dsuvia’s unique delivery device, was a priority medical product for the Pentagon because it fills a specific and important, but limited, unmet medical need in treating our nation’s soldiers on the battlefield. The involvement and needs of the DoD in treating soldiers on the battlefield were discussed by the advisory committee.

The announcement was met with criticism from numerous quarters, including Anesthesiology Professor Raeford Brown of the University of Kentucky, who chairs the AADPAC, Senator Edward Markey (D-MA), and the advocacy group Public Citizen. They questioned the need for the development of a new and potent opioid in the presence of the opioid overdose crisis, and raised concerns about the potential for the drug’s diversion to the black market for non-medical users. These objections were trumpeted by the media.

The concerns raised by critics are unfounded. According to the Drug Enforcement Administration, most fentanyl and fentanyl analogs found on the streets are in an illicit powdered form, made in labs overseas and smuggled into the US via the mail, Fedex, and UPS, or using Mexican drug cartel infrastructure. While much of it is mixed in with heroin or cocaine, many dealers own pill presses and press the powder into counterfeit oxycodone or hydrocodone pills that are sold to unsuspecting nonmedical users. That’s how the artist known as Prince died. He liked to use Vicodin (hydrocodone) recreationally. Records show he never obtained any prescriptions from doctors. His dealer sold him what was believed to be Vicodin but was actually counterfeit and made from fentanyl, which caused his overdose death.

Recrudescent opiophobia now evokes positions held at the zenith of President Nixon’s war on drugs. The fact remains that opioids can be highly effective in treating pain, especially in the acute setting. Hysteria-driven policy should not stifle innovations in this or other forms of pain management.

Commissioner Gottlieb also stated in the FDA announcement:

We owe an answer to patients with medical pain, and the innovators who take risks to develop products to help address their needs. We owe it to Americans who want the FDA to do our part to help end one of the biggest addiction crises of modern times, while we carefully balance these grave risks against patient needs.

Commissioner Gottlieb made the right call here.

Maine Governor Paul LePage announced that he will be moving to Florida at the end of his term.

LePage is a staunch fiscal conservative and has received an “A” on the past three Cato fiscal policy report cards. He fought for spending and tax cuts throughout his tenure, and he often decried the negative effects of big government.

Why is LePage moving to Florida? One of the reasons is that Florida has lower taxes than Maine:

I’ll tell you very, very simply: I have a house in Florida. I will pay no income tax and the house in Florida’s property taxes are $2,000 less than we were paying in Boothbay … At my age, why wouldn’t you conserve your resources and spend it on family (rather) than spend it on taxes?

Why indeed.

Florida has the most net in-migration of any state in the nation, as discussed in this study. It has no income or estate tax. Its state and local tax burden is much lower than the burdens in the Northeast. Maine is high-tax state, but New York is even worse. I wonder whether Governor Andrew Cuomo is considering Florida when he retires?

Relative to personal income, Florida runs its government at just half the cost of New York’s. Half the cost! That is like a Honda dealer trying to sell the Accord for $50,000 while the Toyota dealer across the street has the Camry for $25,000. It wouldn’t make any sense.

Perhaps the 2017 Tax Cuts and Jobs Act is on Paul LePage’s mind. Because of the law, millions of households will become more sensitive to tax differences between the states. That may prompt an increased outflow of people from higher-tax to lower-tax states.

How should high-tax states respond to the outflows? It’s straightforward. They should run leaner governments with more efficient services to give taxpayers more value for their money. The Accord may have some features that the Camry doesn’t, but that would not double the cost.

WCBS NewsRadio New York reports

Two New York lawmakers are working to draft a bill that would propose a social media check before a gun purchase.

Brooklyn Borough President Eric Adams and state Sen. Kevin Palmer’s proposal would allow authorities to review three years of social media history and one year of internet search history of any person seeking to purchase a firearm.

True, “free speech and gun rights complaints are likely to come up” – no kidding! – but Adams says it’s a way to identify persons who “not suitable to hold and possess a firearm.” 

The two are hoping to identify any hate speech on social media profiles, which are often revealed only after someone is arrested in a mass shooting.

The only way to make this proposal better – by which I mean worse – would be to arrange for New York to quarter troops on the homes of applicants with especially bad social media postings. That way the sponsors could achieve a straight flush of Bill of Rights violations.

Days before the 2018 midterms, 60% of Americans say that health care is very or extremely important to how they plan to vote in this year’s elections, according to a new Cato 2018 Health Care Survey of 2,498 Americans. These numbers are driven primarily by Democratic voters with 86% who say this issue is especially important to them—in fact, 56% say the issue is “extremely important” to them. Independent (33%) and Republican voters (21%) are far less likely to say this is an “extremely” crucial issue for their vote this Tuesday.

 FIND FULL POLL RESULTS HERE

These results are consistent with analysis of 2018 campaign ads, which finds Democrats have made healthcare the centerpiece of their case to voters. About half of Democratic ads have featured health care issues compared to less than a third of Republican ads. At the core of the debate is what to do with pre-existing condition regulations embedded in the Affordable Care Act (ACA) that prevent health insurers from denying coverage or charging higher premiums to people with pre-existing conditions. Much of the public debate centered on pre-existing condition protections assume that these regulations enjoy widespread public support. However, these protections lose public support when voters learn about their costs, finds the Cato 2018 Health Care Survey.

The survey first replicated the results from myriad other surveys finding a majority (65%) of Americans favor regulations that prohibit insurance companies from refusing to cover, or charging higher premiums to, people with pre-existing conditions, while 32% oppose. However, support plummets when Americans are faced with likely consequences of these regulations. 

Support drops 20 points to 44% in favor and 51% opposed if pre-existing condition protections limited people’s access to medical tests and treatments. Similarly, 44% would favor and 50% would oppose if these regulations harmed the delivery of high-quality health care. Support drops 18 points to 47% in favor and 48% opposed if these regulations limited people’s access to top-rated medical facilities and treatment centers. Some may dismiss these potential costs as improbable; however, research finds these are likely consequences from the incentives these regulations create for the health care industry. It is for this reason that we investigate how the public evaluates these costs.

Compared to quality reductions, Americans are more prepared to pay higher taxes or premiums in exchange for keeping regulations that prevent insurers from denying coverage or charger higher premiums to people with pre-existing conditions. About half (51%) would favor and 44% oppose if these regulations raised taxes and 49% would favor and 47% would oppose if they drove up premiums. 

These results follow a familiar pattern identified in the Cato 2017 Health Care Survey that asked about each of these pre-existing condition protections separately. However, in this year’s survey we improve the desirability of these regulations by offering them as a bundle. Even still, when faced with the realistic costs of these mandates, public support plummets. 

Taking a look among partisans, we find that without any mention of costs, 83% of Democrats, 55% of independents, and 52% of Republicans initially support pre-existing condition protections. However, independents and Republicans turn against these regulations if they increase the cost of health insurance (66%, 55%), reduce access to medical tests and treatments (59%, 58%), harm the quality of health care people receive (57%, 55%), reduce access to top-rated medical facilities and treatment centers (57%, 55%), or increase taxes (57%, 57%). Democrats are less swayed by these trade-offs; however, they are least willing to sacrifice the quality of health care in exchange for keeping the pre-existing condition regulations (42%). Instead, majorities of Democrats are willing to have less access to medical tests (57%), or top-rated medical facilities (61%), or pay higher premiums (67%) or taxes (72%). Some differences in how partisans answer these questions may depend, perhaps, on how believable these costs seem to respondents rather than how acceptable they are. For instance, since Democrats are most enthusiastic about these regulations, they may be less likely to believe that they could harm the quality of care.

Higher-income Americans are more willing than low-income Americans to make trade-offs, such as shouldering higher premiums or having less access to top-rated medical facilities, to keep the pre-existing condition regulations. For instance, 61% of Americans earning more than $80,000 a year say they’d pay higher premiums to keep these regulations. In contrast, about a third (38%) of Americans earning less than $40,000 a year agree; instead, 56% oppose paying higher premiums for this reason. Nearly 6 in 10 (57%) of people earning more than $80,000 a year say they’d accept having less access to top-rated medical facilities compared to 35% of Americans earning less than $20,000 a year.

Short Term Plans

The survey also asked Americans about new federal rules that allow consumers to purchase alternative health insurance plans that don’t comply with ACA-mandates. The survey finds that majorities support new federal rules that allow consumers to purchase alternative plans, like short-term plans, even when confronted with likely trade-offs.

First, the survey presented respondents with only the anticipated benefits of the new federal rules. Doing so finds that 77% of Americans support new federal rules that allow consumers to purchase health insurance plans that cost 50% less and offer greater choices of hospitals and doctors than current plans and would cover 2 million more uninsured people. 

Support drops to 64% in favor and 31% opposed if these rules meant that some people would purchase insurance policies that cover fewer services than current plans. For instance, these new plans would not be required to cover services like mental health and prescription drugs. 

One reason why such plans have lower premiums is they do not have to comply with ACA pre-existing condition regulations and thus may exclude people, or offer limited services to people, with expensive medical conditions. These lower premiums could draw people who use fewer medical services out of the ACA-compliant plans and thus increase premiums for those who remain in those plans and are not eligible for subsidies. Nevertheless, the survey finds that 59% would continue to favor while 35% would oppose these new rules if they caused premiums to rise for some people who purchase insurance plans in the individual market.

These rule changes are popular among partisans with 77% of Democrats and 86% of Republicans in support. Majorities of Democrats and Republicans continue to favor allowing people to purchase non-ACA compliant plans even if doing so means people would not have as many services covered (58% and 71%) or if doing so increased premiums for unsubsidized people in the individual market (63% and 65%).

The Path Forward

The survey also asked Americans how they felt policymakers should approach health care reform going forward. A majority (55%) of Americans believe that the “better way” to sustainably provide high-quality affordable health care is through expanding free-market competition among insurance companies, doctors, and hospitals. Thirty-nine percent (39%) think that more government regulation of insurance companies, doctors, and hospitals is more likely to provide affordable coverage. These numbers are virtually unchanged from last year’s health care survey.

Independents (54%) and Republicans (79%) agree that more free-market competition rather than more government management of health care is more likely to lead to affordable coverage. However, a majority (60%) of Democrats think more government management is the key. Despite these partisan differences, majorities or slim majorities of whites (58%), African Americans (53%) and Hispanics (51%) believe more free market competition can better provide affordable health care than more government control.

Implications

These results do not support the widespread misperception among the political punditry that pre-existing condition regulations are necessarily and universally supported by voters across the political spectrum. Voters like benefits but not costs. And some costs are more acceptable to voters than others. Democratic accountability demands that we understand if voters are willing to bear the necessary trade-offs and costs in exchange for establishing a new policy, regulatory protection, or social program. But first, pollsters have to ask.

Full survey results found here.   Sign up here to receive forthcoming Cato Institute survey reports.   The Cato Institute 2018 Health Care Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online October 26-30, 2018 from a representative national sample of 2,498 Americans 18 years of age and older. The margin of error for the survey is +/- 2.66 percentage points at the 95% level of confidence.

 

Speaking last week at a National Opioid Summit in Washington, DC, Attorney General Jeff Sessions reported opioid prescriptions fell another 12 percent during the first eight months of 2018, saying ‘We now have the lowest opioid prescription rates in 18 years.” Some of this was no doubt the result of the chilling effect that prescription surveillance boards have had on the prescribing patterns of physicians. For example, Sessions announced the Trump administration has charged 226 doctors and 221 medical personnel with “opioid-related crimes,” and this has not gone unnoticed by health care practitioners.

Sessions also pledged to meet the goal of a 44 percent overall reduction in the production of opioids permitted by the Drug Enforcement Administration. The DEA, which sets quotas on the production of opioids by US manufacturers, began the process with a 25 percent reduction in 2016 and another 20 percent reduction in 2017. This has led to shortages of injectable opioids in many hospitals, affecting the delivery and quality of care.

Meanwhile, the DEA reported in a Joint Intelligence Report that overdoses in Pennsylvania continued to rise, with 5,456 fatal overdoses in 2017, a 65 percent increase over 2015. Only 20 percent of those overdoses involved prescription opioids, with most deaths involving multiple drugs in combination—usually fentanyl, heroin and cocaine, as well as counterfeit prescription opioids (usually made of illicit fentanyl and heroin pressed into pills). The report stated heroin and fentanyl were found in 97 percent of Pennsylvania’s counties.

Prescription opioids were also responsible for just 20 percent of the fatal overdoses in Massachusetts in 2015, where researchers at Boston University reported last week in the American Journal of Public Health that Opioid Use Disorder among people over age 11 grew to 4.6 percent of the population that year. 

The Massachusetts Department of Public Health reports a modest tapering in the fatal overdose rate, from 2,154 in 2016 to 2,069 in 2017, and estimates up to 1,053 have occurred in the first 6 months of 2018. During the first quarter of 2018, 90 percent of those deaths involved fentanyl, 43 percent involved cocaine, 34 percent involved heroin, and 20 percent involved prescription opioids. Fentanyl is responsible for sustaining the death rate in Massachusetts at near-record levels.

What jumps out of these numbers is the fact that efforts to get doctors to curtail their treatment of pain have not meaningfully reduced the overdose rate. They have just caused non-medical users of opioids to migrate over to more dangerous heroin and fentanyl. Fentanyl and heroin—not prescription opioids—are now the principal drugs behind the gruesome mortality statistics. 

Addressing the overdose crisis by focusing on doctors treating patients aims at the wrong target. And patients are suffering—often desperately— in the process. The cause has been drug prohibition from the get-go. If policymakers can’t muster the courage to admit and address that fact, then they should at least put the lion’s share of reform efforts into mitigating the harmful unintended consequences of prohibition. I wrote about this here.

Welcome to the Defense Download! This new round-up is intended to highlight what we at the Cato Institute are keeping tabs on in the world of defense politics every week. The three-to-five trending stories will vary depending on the news cycle, what policymakers are talking about, and will pull from all sides of the political spectrum. If you would like to recieve more frequent updates on what I’m reading, writing, and listening to—you can follow me on Twitter via @CDDorminey

  1. Bolton Calls National Debt ‘Economic Threat’ to US,” Toluse Olorunnipa. Hot off the presses! National Security Advisor John Bolton calls for significant cuts to discretionary spending in order to get the country back on the path of fiscal sustainability. The new trajectory? Bolton, and the President himself, have called for defense spending to be cut or levelled off in the short-term—a radical change from the administration’s previous two budgets. 
  2. In The Shadow of Reagan’s Legacy, Trump Is Failing,” Alexandra Bell. This article talks about why Reagan negotiated the INF treaty that President Trump is trying to dismantle and juxtaposes Reagan’s belief in arms control as a stabilizing force against the current administration’s actions. 
  3. The Nation Needs A 400-Ship Navy,” Thomas Callender. In the interest of showing the true breadth of this field, I’ve included this new report by the Heritage Foundation that calls for an increase over the adminstration’s current 355-ship plan for the Navy. Building to a 400-ship Navy will require $4-6 billion more annually than is already allocated, during a time of competing priorities and sky-high debt (see first article). 
  4. Mattis wants to boost fighter readiness. Here’s how industry could help,” Valerie Insinna. Last month, Secretary Mattis said that he’d like to get fighter readiness up to 80 percent—this would include all the F-35, F-22, F-16, and F/A-18 fighter jets. Readiness has been a rallying cry from the Pentagon for several years, but if Mattis intends to put his money where his mouth is, that could mean fewer dollars for new procurement projects in favor of upgrading and sustaining current platforms. 

Proposition 10 on the California ballot would empower local governments around the Golden State to institute more and stricter rent control. Rent control laws infringe on landlords’ rights of property and contract; as critics point out, they also have a long history of making housing shortages worse, discouraging both the construction of new rental units and maintenance of the old while making it harder for newcomers to find a place to live. 

Though once favored in voter surveys, Proposition 10 has sagged lately, well behind in one poll and ahead in a second by only 41-38 with 21 percent undecided.  But advocates of liberty (and all who prize the lessons of Economics 101) shouldn’t get complacent.  Aside from the imponderables of turnout and momentum – first-time voters still lean toward the proposition, which has been endorsed by Bernie Sanders and the DSA – even a defeat for 10 could still leave the door open to future legislation in Sacramento working some of the same changes. Gubernatorial front-runner Gavin Newsom, for example, declares himself a supporter of rent control in principle and might preside over the passage using the conventional legislative process of what could get billed as a compromise measure with supposedly less radical provisions. 

It’s true that many California localities, the Bay Area especially, are experiencing skyrocketing housing costs. That has a lot to do with intense demand to live and work in places like Silicon Valley and San Francisco, and even more to do with the tight regulatory lid on new residential construction that artificially suppresses the supply of dwellings in the state generally and especially in desirable communities and near the coast. By shifting the blame for the resulting situation to owners of existing rental units, rent control would make it even less likely that Bay Area and coastal governments will take the one measure that would be effective against spiraling housing costs, namely legalizing much more new construction. 

As a classic instance of an infringement on economic liberty that often results in dire practical consequences over the long term, rent control has been a subject of interest to Cato from the institute’s earliest years and ever since then, in output ranging from multiple legal briefs, through a classroom treatment (at Libertarianism.org, by Howard Baetjer), to Ryan Bourne’s recent piece on Jeremy Corbyn’s plans to reimpose rent control in Britain, to.  Two papers from recent years:  

* “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco” (Research Briefs in Economic Policy no. 109, April), by Rebecca Diamond, Timothy McQuade, and Franklin Qian of Stanford University. To quote the summary in Cato Policy Report this summer, the authors “study the effects of a 1994 San Francisco ballot initiative that provided rent control for small multifamily housing built before 1980. They find that any benefits to tenants of rent-controlled properties were counterbalanced by landlords reducing the supply of housing in response to the law.”

* “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts” (Research Briefs in Economic Policy no. 9, 2014), by David H. Autor, Christopher J. Palmer, and Parag A. Pathak (“Our bottom line estimate is that the end of rent control added $2 billion to the value of the Cambridge residential housing stock over the ensuing decade following rent-control removal.”)

By the way, the chief group pushing Proposition 10 has been a Los Angeles-based nonprofit called the AIDS Healthcare Foundation. If you wonder what the rent control issue has to do with AIDS or healthcare, let that serve as a reminder to be extra-careful with your charitable giving, no matter how commendable or uncontroversial a group’s name or mission may sound.

 

 

 

 

Many commentators have recently written and said that members of the migrant caravan and Central American immigrants in general are diseased.  Former Immigration and Customs Enforcement agent David Ward claimed that the migrants are “coming in with diseases such as smallpox,” a disease that the World Health Organization (WHO) certified as being eradicated in 1980.  One hopes Mr. Ward was more careful in enforcing American immigration law than in spreading rumors that migrants are carrying one of the deadliest diseases in human history nearly 40 years after it was eradicated from the human population.  But even on other diseases, Ward and others do not have a compelling argument.

WHO has national estimates of vaccination coverage rates by country and type of vaccine.  It’s unclear whether vaccination coverage rates include immigrants, but they definitely include those born in each country as of 2017.  Vaccination coverage rates for the United States were unavailable for Tuberculosis and one of the polio vaccines (IPV1) while the IPV1 vaccine coverage rate is also unavailable for Costa Rica.  We shouldn’t expect vaccination rates to be the same in all countries for at least two reasons.  First, some diseases are more prevalent in certain climates so the requirement for vaccination there can be lower or higher.  Second, vaccines have a positive externality so there is less of an individual incentive to become vaccinated as all of the benefits are not internalized to the individual who receives the shot.  I expect the first reason to be more important than the second as enough benefits are internalized for the net-benefit of a vaccine to be positive (yes, vaccines are great) while many of the governments in these countries strongly encourage or mandate vaccination. 

Figure 1 shows that average vaccination rates for Tuberculosis (BCG), Diphtheria, Pertussis, & Tetanus (DTP1), Diphtheria, Pertussis, & Tetanus (DTP3), Hepatitis B (HepB_BD), Hepatitis B (HepB3), Haemophilus Influenzae (Hib3), Polio (IPV1), Measles 1st Dose (MCV1), Measles 2nd Dose (MCV2), Streptococcus Pneumoniae (PCV3), Polio (Pol3), Rubella (RCV1), and Rotavirus (RotaC).  The United States is in the middle of the pack with an 89 percent average vaccination coverage rate. 

 

Figure 1 Average Vaccination Coverage Rates
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The following figures all show the vaccination coverage rates for different vaccines in Central American countries relative to the United States.  In some figures, some countries are excluded because there are no WHO estimates of their vaccination rates.  The United States does not have the highest vaccination coverage rate for any vaccine reported below.  Perhaps members of the migrant caravan have lower vaccination rates than their fellow countrymen or they are carrying other serious contagions that cannot be vaccinated against.  But for most of these illnesses below, you have more to fear from your fellow Americans than from Central Americans.

 

Figure 2 Tuberculosis (BCG) Vaccination Coverage Rates
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Figure 3 Diphtheria, Pertussis, & Tetanus (DTP1) Vaccination Coverage Rates
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Figure 4 Diphtheria, Pertussis, & Tetanus (DTP3) Vaccination Coverage Rates
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Figure 5 Hepatitis B (HepB_BD) Vaccination Coverage Rates
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Figure 6 Hepatitis B (HepB3) Vaccination Coverage Rates
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Figure 7 Haemophilus Influenzae (Hib3) Vaccination Coverage Rates
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Figure 8 Polio (IPV1) Vaccination Coverage Rates
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Figure 9 Measles 1st Dose (MCV1) Vaccination Coverage Rates
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Figure 10 Measles 2nd Dose (MCV2) Vaccination Coverage Rates
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Figure 11 Streptococcus Pneumoniae (PCV3) Vaccination Coverage Rates
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Figure 12 Polio (Pol3) Vaccination Coverage Rates
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Figure 13 Rubella (RCV1) Vaccination Coverage Rates
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Figure 14 Rotavirus (RotaC) Vaccination Coverage Rates
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Center for a Free Economy president Ryan Ellis writes in the Washington Examiner that President Trump “has caved to the socialists” by proposing to set the prices that Medicare pays for certain drugs at a percentage of the prices that foreign governments set for those drugs:

Unfortunately, rather than fighting the socialists, the president has decided to become one with them — at least when it comes to prescription drugs. After spending most of this year rightly condemning governments in Europe and elsewhere for ripping off Americans by imposing below-market price controls on drugs, Trump and [Secretary of Health and Human Services Alex] Azar basically surrendered to the price controls and announced we would be adopting them ourselves…

By letting the foreign price controls serve as a reference price control here, Trump has put us down the same path of scarcity and rationing all too often seen in the rest of the developed world.

The purpose of Trump’s proposal is indeed to reduce the prices Medicare pays for these drugs. Medicare currently pays much more for these drugs than government-run health systems in other nations.

Beyond that, Ellis’s oped crystallizes everything conservatives get wrong about drug pricing and Medicare purchasing in general. A few clarifications:

  1. No one knows what the “right” price is for any drug. We need market prices because they create incentives that naturally and always push prices in the right direction. 
  2. Medicare’s administered (read: ouiji-board) prices are indeed price controls, but not in the usual meaning of the term. They do not restrain prices anywhere but within the Medicare program.
  3. Medicare’s administered/controlled prices are not market prices, any more than other governments’ administered/controlled prices are market prices. 
  4. The Trump proposal would merely change the way Medicare comes up with the prices it pays for drugs. Those prices would not be any more “price-controlled” after the Trump proposal than they were before. They would just be lower–if the proposal achieves its stated goal, that is, which may or may not happen (more below).
  5. Conservatives who argue Medicare should not pay less than it currently does for drugs need to address the paradox inherent in their argument that, in order to restrain government and have a free economy, government must spend more. In order to fight socialism, taxes must be higher.
  6. One cannot import a price control. That’s not how they work. A government can either impose price controls on its own populace, or not. It cannot import the coercion another government exerts on its own citizens.

Ellis is correct when he writes, “Markets do a much better job reducing drug prices than government price controls do, and they do it while making prescription medicines widely available to patients, as opposed to rationed due to scarcity.” But the end result of these misunderstandings and misconceptions is that conservatives end up crowding out markets and/by opposing efforts to reduce government spending. This is why the Left believes, with justification, that when it comes to health care conservatives are just a bunch of cronyists.

Another irony: the more likely impact of Trump’s reference-pricing scheme is that prices in other nations would rise, which is exactly what Ellis says he wants.

Overcharged by Cato adjunct scholars Charlie Silver and David Hyman is the antidote to this strand of un-conservative conservative thinking. 

Power Problems is one year old! In our first year, the podcast has covered a lot of ground, from the death of the Iranian nuclear deal to the defense budget, trade policy and nuclear weapons. Surprising no one, we’ve spent way too much time talking about the Middle East and the curious foreign policy perspectives now emanating from 1600 Pennsylvania Avenue.

But as we head into the second year of our podcast, we’d like to get some feedback from our listeners, so we can give you more of what you enjoy. To help us out, please take a couple of minutes and fill out a quick survey on the podcast. You can find the survey here.

If you’re not already a listener, and want to hear what we’re all about, you can hear myself, Trevor Thrall, and a selection of guests from across the political spectrum discussing top foreign policy issues biweekly. You can find us on iTunes, Stitcher or via the Cato Audio app. 

Thanks for your feedback, and thanks for listening to Power Problems! 

President Trump recently said, “I’m a nationalist. OK? I’m a nationalist.”  Trump didn’t give a definition of what a nationalist is or what that ideology entails.  Fortunately, political theorist Yoram Hazony recently wrote The Virtue of Nationalism where he attempted to define and present a persuasive argument in favor of nationalism.  This was a worthy goal as nationalism is currently a popular political ideology.  The time is right for a book that defines nationalist and coherently and consistently makes the case for it.  Unfortunately, The Virtue of Nationalism is not that book. 

Other reviewers have identified its many problems, so instead of writing another review, I’m going to list some ridiculous claims that Hazony makes in his book and some of the logical implications of those claims.  Those claims and implications are numbered below and come from his book and I identify them as one or the other.  They are my summaries of his claims and NOT direct quotes.

1.  Nationalists can’t do the bad things that nationalists are most known for, according to Hazony’s definition.

Early in his book, Hazony wrote that he “will not waste time trying to make nationalism prettier by calling it ‘patriotism,’ as many do in circles where nationalism is considered something unseemly.”  True to his word, Hazony wasted zero-time conflating nationalism and patriotism, the latter being different and mostly positive.  He just wasted most of his book arguing that any nation-state that attempts to conquer other nations is not really a nation-state. 

According to Hazony, a nation is combination of “a number of tribes with a common language or religion, and a past history of acting as a body for the common defense and other large-scale enterprises” (18) and that “the world is governed best when nations are able to chart their own independent course, cultivating their own traditions and pursuing their own interests without interference” (3). 

Hazony contrasts nation states with imperialist states that have universal ideals that he claims leads to conquest.  Thus, nation-states cannot seek to conquer other nation-states as that would make them imperialist states because they do not respect the independent course of other nations.  According to Hazony, a state cannot be a nation-state and imperialist (dominating or seeking to dominate other nations) at the same time due to his unique definition that conveniently excludes the “bad” nation-states.  In my reading of the literature on nationalism, historian Douglas Porch was more likely correct when he wrote: “Colonialism was not, as Lenin claimed, ‘the highest stage of capitalism.’ Rather it was the highest stage of nationalism.”

2. Hitler and the Nazis were not nationalists.

Following his definition of nationalism, Hazony repeatedly claims that the Nazis were not really nationalists.  I know of no other serious historian of the Third Reich or other thinkers on nationalism who would go so far as to say that Hitler or the core ideology of the National Socialist German Workers Party weren’t nationalists.  They were, of course, nationalists.  The first point of their political platform was: “We demand the unification of all Germans in the Greater Germany on the basis of the people’s right to self-determination.”  The evidence that the Nazis considered themselves nationalists, that others considered them nationalists, and that they fit into the scheme of nationalism is so massive that it would be silly to run through it all. 

Hazony should have just argued that not all nationalists are Nazis and that very few of them have achieved or even attempted to achieve that level of evil – which would be perfectly reasonable and true statement!  Not all nationalists are Nazis (very few are, in fact), so this would have been a very reasonable acknowledgment for him to make that would barely even rise to the level of a concession.  Carlton Hayes wrote a useful taxonomy of nationalism with Nazism on one extreme and liberal nationalism on the other.  There was no need for Hazony to make the blatantly false historical claim that the Nazi’s weren’t nationalists in order to argue in support of nationalism in the modern world.

3. Europe has never had nation-states, even during the age of nationalism.

This is an implication of Hazony’s unique definition of nationalism and nation-states, not something that Hazony explicitly wrote in his book.  According to his unique definition, there were no nation-states in the so-called age of nationalism in Europe.  During the age of European nationalist in the 19th and 20th centuries, France, the United Kingdom, Spain, Portugal, the Netherlands, Germany, Italy, Belgium, Denmark, and other nation-states were imperialists too.  They conquered colonies and overseas territories populated by non-nationals that they ruled with ghastly humanitarian consequences.

If Nazi Germany was not nationalist because it conquered other countries, then surely those European nation-states in the age of nationalism were also not nationalist because they conquered other countries.  I asked Hazony about this and his response was unsatisfying (Figure 1). 

Figure 1

Twitter Exchange Between Yoram Hazony and Alex Nowrasteh

 

 Source: Alex Nowrasteh’s Twitter Account on September 19, 2018.

 4.  Nationalism has nothing to do with race or ethnicity (page 20 of his book).

Hazony makes this claim specifically about the ancient Israelites.  I’m not a Torah scholar so he may be correct in that specific case.  However, many other nation-states are explicitly defined by ethnicity.  The Latin root of nationalism is natio, which means tribe, ethnic group, race, breed, or other divisions by birth.  Hazony’s definition that a nation-state forms from “a number of tribes with a common language or religion, and a past history of acting as a body for the common defense and other large-scale enterprises” is highly correlated with ethnicity, to say nothing of the historical inaccuracy of his theory.  There is much research arguing that there is a link between ethnicity and nation. 

Hazony could have argued that nation-states can also be formed by civic attachments too, thus widening the definition as many modern scholars do so they can avoid the ugly implications of arguing for a race- or ethnicity-based nation-state.  However, Hazony specifically wrote that nations formed along civic lines are systematically unstable and impossible to hold together, at best temporary, and that they function poorly relative to nation-states created with the ethnicity-correlated attributes above (156-157).  The United States, Switzerland, Canada, Australia, and New Zealand are four wealthy states that are functioning very well despite not being nation-states under his strict definition.

5.  Nation-states are governed by consent, not coercion. 

 Hazony makes this claim several times in his book.  Nation-states have police, courts, military, and other institutions to coerce individual compliance with its law and rules just as every government does.  Perhaps governments in nation-states require less coercion to govern well as they are more homogeneous, thus theoretically making it easier to reach more broadly held policy consensuses that require less coercion.  But that would be an empirical claim that Hazony does not address that is doubtful given the large and complex legal enforcement apparatuses of nation-states.     

6.  Tribes voluntarily combined to form modern nation-states.

As mentioned earlier, Hazony claims that nations are formed by tribes that voluntary combine.  Economic historian Mark Koyama thoroughly debunked this claim far better than I could have, so please read his review.  My only additional comment on this is that a thorough listing and description of all the historical situations where Hazony’s claim does not hold would fill many, many volumes and describe the history of virtually every country.  

We are living in a time of renewed nationalism.  Whether this is a temporary blip or a long-term shift remains to be seen, but there is a scarcity of modern books, articles, or other writings that can competently explain that political ideology and make the case for it.  Hazony’s book fails for many reasons, but his insistence on defining nationalism in such a specific way that excludes virtually all nation-states that have ever existed should be a big red flag to anybody interested in this topic.

The latest attack on international institutions by the Trump administration distinguishes itself by being quite obscure: It’s about postage. It also may have more of a basis than most of the administration’s complaints about trade. 

The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN. The UPU was established by the Berne Treaty of 1874 and became a UN agency in 1948. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is here).

When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to cover the destination country’s portion of the transportation costs – basically an agreed upon reimbursement rate to transport the item to the recipient.

The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness. 

Of course, as is often the case with the Trump administration, its approach to the problem is confrontational and perhaps risks inflaming tensions. The administration has, yet again, decided to use a threat of withdrawal from a treaty as a negotiating tactic, taking steps to withdraw from the UPU. Perhaps the withdrawal threat will force quick action to change the fee structure at the UPU, although there are some risks. Pulling out of the treaty would give the United States the flexibility to set our own transport rates, but it would also mean that we lose the power to stop others from charging us higher rates in return, while doing away with a mechanism that was designed to reduce, and streamline, transaction costs. In essence, the administration’s approach could lead to a postal “trade war.”

Are there alternative approaches? A Bloomberg editorial board piece sets out what they think may be a workable solution: having the administration look for a compromise on a postal rate during the broader trade negotiations with China. Of course, there would have to be some negotiations going on for this to work.

If it weren’t for all of the other aggressive trade actions taken by the Trump administration, this issue might be more easily addressed. Because it is part of a larger package of contentious moves, it might get lost in the mix of all the real and perceived trade slights the administration is complaining about. In calmer times, this might be a simpler problem to fix.

Thanks to Logan Kolas for research assistance with this post.

In my opening post about Scottish banks’ suspension of specie payments, I explained that, although the suspension was technically illegal, it failed to provoke any lawsuits in part because it was no less in the interest of many Scottish citizens, and Scottish bank creditors especially, than it was in that of Scottish bankers themselves. Rather than sue their banks, large numbers of prominent Scotsmen resolved publicly to make and receive payments in notes issued either by the Bank of England or by the Scottish banks themselves.

But while many Scots may have been willing, at least grudgingly, to accept bank notes rather than specie in payments, it doesn’t follow that none were harmed by the suspension. In today’s post I’ll consider just what the costs were, and who bore them. I’ll then turn in my third and final post to considering whether these costs should be regarded as a black mark against the Scottish bankers, and as a reason for denying that the Scottish free banking episode serves as a good example of the advantages of unregulated banking.

Gold versus Paper

The most obvious way in which holders of Scottish banknotes may have suffered from the suspension of specie payments would have been by finding that those notes were no longer worth their par value in gold, that is, that the cost, in banknotes and subsidiary coin, of an ounce of fine gold had risen above £3 17s 10.5d.[1]

It is, moreover, tempting to assume that the suspension led to an immediate and substantial decline in banknotes’ value, by eliminating what had been a crucial check against banks’ temptation to over-issue paper currency, thereby undermining the public’s confidence in it.

In the present instance, however, that’s not what happened. Instead the public, reassured by the British government’s promise that the Bank Restriction was to be a temporary measure only (and despite repeated extensions of the deadline for resumption), retained its confidence in paper currency to a remarkable degree. For its part the Bank of England continued to regulate its note issues as if specie payments hadn’t been suspended at all, no doubt in part because its directors also understood that they might be obliged to resume payments within a relatively short time. Scottish and English country banks in turn continued to be no less disciplined by the scarcity of Bank of England paper than they had formerly been by the scarcity of specie.

The upshot of all this, as can be seen in the chart below, is that a substantial portion of the Bank Restriction era banknotes, and Bank of England notes in particular, did not suffer any substantial loss of value relative to gold. Until 1808 the premium approached 10 percent on one occasion only — during the first quarter of 1801. Generally it was insignificant. (Even during the long stretch, between 1803 and late 1808, when the chart shows a constant 3 percent premium, gold’s market price was often lower, the 3 percent premium having been one that the Bank of England alone elected to pay at the time as a matter of its own peculiar policy.) “Month after month had passed away,” Henry Adams observes,

not only without bringing depreciation, but even rapidly increasing the stream of precious metals which flowed toward England, so that people were little inclined to dwell upon the dangers or temptations of restriction, and probably overestimated its value as a safeguard against panic.[2]

Following the 1801 spike, gold again fell close to par, from which it varied only insignificantly until 1808, thanks in part to the British governments’ willingness to limit its demands upon the Bank for wartime accommodation.

For some purposes, of course, and especially for that of paying for foreign goods, banknotes were no substitute for gold. But in that case, provided the particular need for gold could be demonstrated, the Scottish banks were often prepared to accommodate it, albeit quietly. “There is reason,” says William Graham,

to believe that cash [specie] payments were not stopped so entirely in Scotland as they were at the Bank of England. All the Scots banks kept stocks of gold, and it is probable that, notwithstanding the theory that the notes of Scotland turned out the gold, there was more gold in the country than was generally supposed, for the more prudent measures of the banks in their exchanges and issues could not fail to attract some of the gold which was displaced by excessive issues in England.[3]

In any case, gold could always be had in London and, to a more limited extent, in some other English markets, if not for its official price of £3. 17s 10.5d then for something not far from it. In that case, the main disadvantage consisted of transport costs amounting, in the case of shipments to Scotland, of between half and three-quarters of one percent of the purchase price,  plus a fixed insurance fee.

The Great Blockade

In the fall of 1808 circumstances changed radically, thanks mainly to the delayed effects of Napoleon’s Continental System, which had closed the European market to British exports two years before. For the first time gold commanded a substantial premium that peaked at over 40 percent during the last half of 1813. Under the circumstances — and the British government’s contrary official stance notwithstanding — it would be ludicrous to maintain that the public, whether in Scotland or elsewhere where the suspension remained in effect, continued to regard banknotes as equivalent to gold.[4]

Yet it would be a mistake to assume that the harm done to Scottish and other holders of banknotes and deposits was proportional to the extent to which the price of gold rose above its par value. By 1808 the “paper pound” had been an established fact for more than a decade, making it extremely doubtful that many contracts were still being entered into on the assumption that the payments called for would be made in anything save paper money and token coin. The “promise to pay” that every banknote bore was likewise understood to mean nothing more than a promise to replace one specimen or type of paper money with another.

Under these circumstances, it was only reasonable for merchants and laborers to determine what they regarded to be the right sums, not of gold but of banknotes themselves, to demand in exchange for their merchandise and labor, while allowing for the risk that paper would fall in value relative to gold. And it was likewise only reasonable for persons who deposited either silver or gold in a bank to determine whether the promised return — here, again, understood as a return likely to be paid in paper money  — was sufficient to make the deposit worthwhile. Finally, it was possible for  many who distrusted the paper standard to protect themselves by trading bank money for gold while it was still at or close to par, albeit by sacrificing the interest return banks promised them. In short, although there’s no doubt that many were caught short by the unprecedented post-1808 increase in the price of gold, and still greater increase in prices more generally, the overall losses attributable to that increase were presumably far less than those that would have ensued from an otherwise equivalent but immediate devaluation of a previously convertible currency.

Scotland’s Small Change Problem

The appreciation of gold after 1808 was, on the other hand, not the only source of anguish stemming from the banks’ decision to suspend specie payments. Besides denying bank liability holders ready access to gold at its official price the suspension denied them access to silver; and although gold rather than silver had been Great Britain’s de facto medium of account, it was lack of access to the less precious metal that proved particularly troublesome to many bank customers, and especially to merchants and manufacturers of all kinds. For those merchants and manufacturers needed small-denomination media with which to make change and pay their workers; and because banknotes were generally available only in larger denominations, they couldn’t serve the purpose even if they were still worth their nominal value in gold.

The problem was especially acute in England, where the smallest notes issued either by the Bank of England at the onset of the crisis were for £5 — a princely amount when you consider that the average wage worker was lucky to bring in 10 shillings a week, or one-tenth that amount! It was mainly owing to their fear of being deprived of means of payment suitable for their everyday needs, including gold guineas and half-guineas as well as smaller silver coins, that the English public panicked upon learning of the restriction. “It is no exaggeration to say,” writes William Graham, “that had the Bank of England at this time issued one pound notes…the storm would have been prevented.” The panic, he adds, “was purely a scarcity of a suitably small circulating medium in which the public could have confidence, and not a commercial crisis in any sense.”[5]

It was only after panic had set in, in March 1797, that the Bank first issued £1 notes, thereby helping to relieve the small-change problem and, ultimately, to bring more specie out of hiding and into its coffers. Eventually English and Welsh country banks, which had also been prevented from issuing notes of £5 or more, were also granted permission to issue £1 and £2 notes, thereby providing further relief. Coin remained necessary, however, for amounts below £1, causing numerous other expedients, including private tokens, to be resorted to in lieu of official silver coins.[6]

In Scotland the situation was better in so far as banks there were already allowed to issue £1 notes when the crisis broke out. Consequently the panic was largely limited from the start to a scramble for smaller-denomination silver coins. In Memoirs of a Banking-House, Sir William Forbes, who was then head of Forbes, Hunter and Co. (forerunner of the Union Bank of Scotland) offers a vivid account of the situation he and other Edinburgh bankers confronted then. The bankers having plastered the city with handbills and notices announcing their decision to suspend, the counting house of Forbes, Hunter and Co. at once found itself

crowded to the door with … fishwomen, carmen, street-porters, and butchers’ men, all bawling out at once for change, and jostling one another in their endeavors who should get nearest to the table, behind which were the cashier and ourselves endeavoring to pacify them as well as we could. … [W]e felt the hardship on the holders who were deprived of the means of purchasing with ready money the necessaries of life, as there were no notes of less value than twenty shillings, and it was with the utmost difficulty they could get change anywhere else; for the instant it was known that payment in specie were suspended, not a person would part with a single shilling that they could keep, and the consequence was that both gold and silver specie was hoarded up and instantly disappeared. …Saturday was the day on which we had the severest outcry to encounter; for on that day we had always been accustomed to the largest demand for silver to pay wages.[7]

“The banks,” William Graham writes, “were besought to issue smaller notes than for one pound,” but were prevented from doing so by the Bank Notes Act of 1765. Instead “recourse was had to tallies, tokens, and sometimes even to tearing a twenty-shilling note into quarters, for which the bankers afterwards freely paid the proportional sum.”[8]

But in March Parliament, having relieved the situation in England and Wales somewhat by allowing banks there to issue £1 notes, in turn brought relief to Scotland by suspending the provision of the 1765 Act outlawing Scottish bank notes for less than that amount. Before long, substantial quantities of banknotes worth as little as 5 shillings had fully met Scotland’s demand for small change, bringing the Scottish panic to an end, and eventually causing large amounts of silver coin that had disappeared into hoards returning to circulation, if not to Scottish bankers’ coffers. According to Sir William Forbes,

It was remarkable…after the first surprise and alarm was over, how quietly the country submitted, as they still [1803] do, to transact all business by means of bank-notes, for which the issuers give no specie as formerly.  The wonder was the greater, because the act of the Privy Council first, and afterwards the act of parliament, applied merely, as I have already said, to the Bank of England, while all other banks, both in England and Scotland, were left to carry on their business without any protection from parliament, and without any means of obtaining specie beyond what the natural course of business brought into their hands from the circulating in the country. That source, however, has hitherto proved amply sufficient for all needful purposes (my emphasis).[9]

***

With the facts concerning the causes and consequences of the Scottish suspension before us, we’re now prepared to consider the extent to which that suspension ought to be regarded as a black mark against the Scottish free banking system, if not against freedom in banking more generally. I’ll address that topic in my third and final post in this series.

_______________________

[1] Although Great Britain did not officially switch from bimetallism to a gold standard until 1819, a de facto gold standard is generally understood to have prevailed there since the opening decades of the 18th century when, by assigning gold guineas an official value of 21s Isaac Newton caused gold to be legally overvalued at the Royal Mint relative to silver.

[2] Henry Adams, “The Bank of England Restriction. 1797-1821,” North American Review, Vol. 105, No. 217 (Oct., 1867), pp. 402-3. Reprinted in Charles Francis Adams Jr. and Henry Adams, Chapters of Erie, and Other Essays (Boston: James R. Osgood and Company, 1871), pp. 224-68.

[3] William Graham, The One Pound Note in the Rise and Progress of Banking in Scotland (Edinburgh: James Thin, 1886) p. 123.

[4] Yet Nicolas Vansittart denied it nonetheless, by moving a resolution in Parliament in 1811 to the effect that the public then considered banknotes to be equivalent to gold. By so doing he made a laughing stock of himself. Still that didn’t stop Parliament from passing the resolution.

[5] Graham, op. cit., p. 115.

[6] For the story of the private tokens issued during this period see my Good Money: Birmingham Button-Makers, The Royal Mint, and the Beginnings of Modern Coinage, 1775-1821 (Ann Arbor and Oakland: University of Michigan Press and the Independent Institute, 2008).

[7] Sir William Forbes, Memoirs of a Banking-House (London: William and Robert Chambers, 1860), p. 81.

[8] Graham, op. cit., p. 116.

[9] Forbes, op. cit., p.85.

[Cross-posted from Alt-M.org]

One concern about the caravan of Central American migrants making its way to the U.S. border is that it may contain criminals. Although we don’t know the identities or criminal histories of the actual people in the caravan, we can get an indication by looking at estimates of the incarceration rates of immigrants in the United States who come from the Central American countries where the caravan originated.

Hondurans are likely the largest contingent in the caravan. The Honduran incarceration rate in the United States was 1,130 per 100,000 Hondurans in 2016 (Figure 1). The incarceration rate of native-born Americans is about 25 percent higher than for those born in Honduras at 1,498 per 100,000 natives. In 2016, the incarceration rate for immigrants from all of Mexico and Central America is about 35 percent below that of native-born Americans. 

Figure 1: Incarceration Rate by Nationality of Birth Per 100,000, Ages 18-54, 2016

Figure 1 controls for the size of the population to create a meaningful comparison of incarceration rates between the national-origin groups. For instance, the incarceration rate for American natives is 1,498 per 100,000 American natives and the Mexican incarceration rate is 996 per 100,000 Mexican-born residents in the United States. The incarceration rate for all immigrants from Mexico and Central America was 970 per 100,000 immigrants from that part of the world.    

The data for the estimates in this blog come from the 2016 American Community Survey (ACS). These are estimates from the group quarters population for those aged 18-54. Figure 1 is an estimate because not all inmates in group quarters are in correctional facilities. Most inmates in the public-use microdata version of the ACS are in correctional facilities, but the data also include those in mental health and elderly care institutions and in institutions for people with disabilities. As a result, we narrowed the age range to 18-54 to exclude most of those in mental health and retirement facilities. 

Commenting on the likely criminality of members in the migrant caravan based on the incarceration rates of their co-nationals in the United States is not fully satisfying. People in the migrant caravan could be more crime-prone than their fellow countrymen in the United States, for instance. However, the incarceration rates of their fellow countrymen in the United States at least provide some evidence to cut through the political statements made without any evidence.    

Most of the members of the caravan will likely seek asylum in the United States while the others will try to enter unlawfully. The government will vet the asylum-seekers to identify serious criminals and national security threats. However, it is impossible to vet those who enter as illegal immigrants – which is one of the better arguments for allowing them to enter legally as they would then be subject to vetting.

Special thanks to Michelangelo Landgrave from crunching many of the numbers for this post.

This weekend, I appeared on C-SPAN’s Washington Journal alongside Families USA’s Frederick Isasi to discuss “the role of health care  in the 2018 mid-term elections.” Specific topics were covered include Cato’s latest health care book, Overcharged: Why Americans Pay Too Much For Health Care; the recent vote by Senate Democrats that would have thrown patients with preexisting conditions out of their health plans and left them with no coverage; how ObamaCare’s preexisting-conditions provisions are unpopular and reduce quality; how markets make access more secure for the sick than employer-sponsored plans; the benefits and costs of short-term plans; the Veterans Health Administration; the single-payer two-step; and how ObamaCare supporters want to take away your freedom to choose your health benefits. 
 

Prepare yourself for the greatest 55 minutes and 30 seconds of your life.

Last week, NPR.org published a story entitled “D.C.’s Aggressive Confiscation of Illegal Guns Leaves Residents Feeling Targeted.” The report explains how the D.C. Metropolitan Police Department (MPD) is particularly adept among major cities at getting illegal guns off the streets, but a recent uptick in gun violence has ramped up efforts of their Gun Recovery Unit (GRU). The aggressive tactics of the GRU—using what locals call “jump-out cars” to stop and search individuals for weapons—contribute to the longstanding animosity between some community residents and the police.

While it is true that, per capita, D.C. leads other cities in gun confiscation, the high number of recovered weapons only tells part of the story. That is, what MPD did and the numbers of stops they made to recover that many weapons are part of a larger problem of harassment and distrust in the community. The MPD is quick to point to D.C.’s 44 percent increase in homicides since last year as the justification for their policy, but it’s uncertain as to whether “jump-out” tactics will help at all.

Aggressive and invasive police stops can lead to recovering firearms and other contraband from individuals, but there is no statistical evidence that ties those tactics to decreases in crime rates or violence. Indeed, as described in recent testimony in Little Rock, Arkansas, evidence shows that a heightened visible police presence can have positive effects on crime rates and violence in affected areas without the use of invasive stops.

Another problem with MPD policy is whom in particular the GRU is stopping. The jump-out cars are not used equally throughout the District. Indeed, friend of Cato and now-retired judge Janice Rogers Brown had some harsh words about the GRU in a 2015 case before her in the U.S. Court of Appeals for the D.C. Circuit:

As a thought experiment, try to imagine this scene in Georgetown. Would residents of that neighborhood maintain there was no pressure to comply, if the District’s police officers patrolled Prospect Street in tactical gear, questioning each person they encountered about whether they were carrying an illegal firearm? Nothing about the Gun Recovery Unit’s modus operandi is designed to convey a message that compliance is not required. While viewing such an encounter as consensual is roughly equivalent to finding the latest Sasquatch sighting credible, I submit to the prevailing orthodoxy, but I continue to reject its counterintuitive premise. (Brown, J. concurring, U.S. v. Gross 784 F.3d 784, 790 (2015))

Although she never mentions race once in her opinion, Judge Brown all but dared the MPD to try this method of policing in Georgetown—a posh, predominantly white residential and shopping district—instead of Southeast D.C., where GRU operates and the residents are predominantly poorer and black. She likens the idea that Georgetowners would think such treatment would be fair to the likelihood of seeing Bigfoot, but because the politicians and the courts have tolerated these heavy-handed tactics mostly used in poor black areas, they remain legal.

Indeed, as Jessie Liu, U.S. Attorney for the District of Columbia, told NPR, “I think that both the police department and our office are doing a great deal to train on what the legal requirements are.” But legality and propriety are often not one in the same. As one resident testified at a public hearing on the GRU tactics, the police “look at everyone in the community like [they are] villains.” While it is true that Georgetown and Southeast D.C. have different problems, each area’s residents are entitled to the same respect and treatment by police officers.

Perhaps most crucially, curbing illegal gun possession requires understanding why these individuals are carrying guns in the first place: fear. Putting aside the imprudence of carrying an illegal gun while fearful and lacking proper training, even tough-on-guns police executives admit that the fear of being killed is a major driver of these illegal gun possession cases. In 2017, nearly 45 percent of homicide victims were black men, and data shows homicides generally cluster in low-income areas of medium-to-large cities. A young black man in Southeast D.C. may have good reason to fear for his safety and security, and when the police have deemed themselves untrustworthy through their policies and actions, carrying an illegal gun may appear to be a reasonable—though reckless, flawed, and desperate—option.

By targeting people for searches based in part on where they live—and the same people resent the police and justifiably fear for their lives—it’s hard to see how MPD expects to either reduce crime and foster cooperation by using the GRU and its tactics. The rift between these communities and the police poses a problem when police are trying to solve crimes of tragic violence. Local activist Jay Brown told NPR, after the shooting death of a 10-year-old girl this summer, that the relationship between the community and police is so bad that, “We can’t even trust the police. [I]f anybody does know anything about what happened…they’re not going to talk to the police [because] it’s just like talking to another gang.”

And, thus, the vicious cycle continues.

Of course, both police and communities want to lower the murder rate—no one wants the killing to stop more than the people who live in the areas suffering the highest violence—but those desires don’t excuse each and every means the police contrive to find illegal guns. Antagonistic interactions between police and the public have real costs, and the stated intent of quelling gun violence does not make those costs disappear. If the police violate the trust of the community by shaking down and mistreating community members—even if it’s technically legal to do so—they risk the community’s cooperation when people get hurt. This lack of cooperation can enable the most violent offenders to go free, defeating the goal the police are trying to achieve.

The police need the public’s trust to be effective at deterring and solving crimes. It doesn’t make sense for them to direct the GRU to violate that trust and then expect the community to respond well. That’s not how trust works.

Before President Trump nominated now-Justice Brett Kavanaugh to fill Justice Anthony Kennedy’s Supreme Court seat, I wrote a piece about Judge Amul Thapar, a top contender for the seat who may yet find his way onto the Court. Thapar is on the Cincinnati-based U.S. Court of Appeals for the Sixth Circuit and is a judge who has displayed a deep understanding of our founding principles. He’s also a clear writer with a fondness for movie references. Two of his recent opinions illustrate his commitment to individual liberty and due process through a nuanced, contextualized view of the Constitution.

Morgan v. Fairfield County concerned a “knock and talk,” where county policy involved forming a police perimeter around a suspect’s house while one officer attempts to talk to the residents. One of the perimeter officers behind the house saw marijuana plants on a balcony, pursuant to which the police eventually secured a search warrant. The majority found that the county’s “knock and talk” policy directed the officers to conduct a warrantless search – that forming the perimeter involved invading the “curtilage” of someone’s house – and so the county could be held liable for a Fourth Amendment violation (though the officers had qualified immunity because they were just following standard policy).

Judge Thapar dissented in relevant part, arguing that while the officers did have qualified immunity if all they were doing was preserving officer safety or preventing the destruction of evidence, the county’s policy itself did not direct the officers to conduct a search. Accordingly, there was no constitutional violation unless the police actively searched while they formed their perimeter. Looking at the history of the Fourth Amendment, Thapar defined a search as a “purposeful investigative act.” He argues that the Supreme Court muddies Fourth Amendment protections by describing them as relating to a reasonable expectation of privacy, rather than to the reasonableness of a search. That gives too much wiggle room to police and courts alike, as judges struggle to define subjective expectations of privacy. Thapar maintains that the question should instead be whether officers engaged in a purposeful investigative act – and indeed would have remanded the case for a determination of that issue. This would simplify the analysis and allow courts to apply the original meaning of the Fourth Amendment to the facts before them. 

If Morgan puts Judge Thapar’s intellectual chops on display, then Doe v. Michigan showcases the effectiveness of his vibrant writing style. Here, a fraternity boy (“John Doe”) and sorority girl (“Jane Roe”) at the University of Michigan drank and had sex at a party. Roe filed a report, claiming she was too drunk to consent. Doe said the sex was consensual and he didn’t know she was intoxicated. He introduced witnesses, all of whom were his male fraternity brothers, and she brought her own, all female, most of whom were her sorority sisters. The two sets of witnesses presented two conflicting stories. The school was at an impasse, ultimately deciding in favor of Roe. Doe filed a claim against the school, citing due process violations.

The Sixth Circuit has established that in a public university disciplinary hearing where credibility is at issue, the accused must have an opportunity to cross-examine witnesses. Judge Thapar thus writes for the court that, since the case turned on Roe and her witnesses’ credibility, Doe had a right to cross-examine. Cross-examination, he argued, allows us to determine the truth when the accuser’s story sounds as plausible as the accused’s version of events. The accused has the chance to reveal inconsistencies in a witness’s story, and the trier of fact can evaluate someone’s demeanor. In a footnote, Thapar cited A Few Good Men and My Cousin Vinny as examples of why, even in pop culture, cross-examination is so highly regarded; it can be incredibly effective to “both undermine and establish the credibility of witnesses.”

The clarity of Judge Thapar’s opinions demonstrate his effectiveness as an originalist. Not only does he rely on the liberty-protecting context surrounding constitutional text to determine its proper meaning, but he applies it to the facts with style. He merits his place on a future Supreme Court short list.

Cato legal associate Patrick Moran contributed to this blogpost.

The Wall Street Journal takes the Trump administration to task this morning, and rightly so, over a proposed rule from Health and Human Services to impose price controls on what Medicare Part B pays for certain drugs. The rule would set the prices HHS pays at 126% of what other developed countries pay, down from 180% today.

Why do Americans pay so much more for drugs than foreigners? That’s the question that’s driving this proposal. The simple answer is that compared to foreign countries with their price controls under single-payer health systems, the U.S. still has a relatively free drug market. But the issues underlying that answer are anything but simple. In recent years they’ve swirled around proposals to end U.S. restrictions on “reimporting” cheaper drugs from Canada and Europe, which would amount to reimporting foreign price controls, critics rightly argue, and hence to reducing incentives to invest in years of expensive research and development. I’ve addressed those issues in detail in a 2004 Cato Policy Analysis and in the Wall Street Journal here and here. This new proposal is more of the same, in different garb.

In a nutshell, the miracle drugs that have so revolutionized modern medicine don’t come cheaply. On average it takes a billion dollars and 15 years of research and development to meet FDA safety and efficacy requirements, which most new drugs fail. But once a drug succeeds, the second pill costs pennies to produce, which is why patents are so crucial, failing which no one would invest in such risky ventures. When companies look at the world, however, they see socialized systems imposing price controls—except in America. So they charge market prices here (half the world market) and take what they can get abroad. What that means, of course, is that American’s pay the lion’s share of R&D costs while foreigners get drugs “on the cheap,” and therein lies the political problem here and the call for reimporting “cheaper” drugs from abroad.

It’s more complicated still, however. Given different levels of demand abroad, companies segment markets and price differentially. But that means they have to guard against not only reimportation but “parallel markets”—local vendors in low-price markets reselling to high-price markets at a discount—or all the drugs will end up in low-price markets, only to be resold to high-price markets, undercutting companies’ profit-making venues. They can try to preserve their market segmentation with no-resale contracts and supply limits. But those contracts are illegal in Europe from a mistaken belief that they’re anti-free trade, which is why there’s a thriving parallel market there. And since proposals in Congress to lift the ban on reimportation here have included bans on no-resale contracts and supply limits abroad, companies have understandably fought them.

This new HHS proposal is not as far-reaching as the earlier reimportation proposals, but the implications for future drug R&D investment are the same. As the Journal writes, “any investor who wants to bankroll the cure for Alzheimer’s is already staring at a very small chance of success—and the Trump HHS proposal adds another potential limit on return,” likely driving investment “into less difficult drug categories” or into other ventures altogether. Government funded drug R&D might not then be far behind. That would further politicize the development of drugs, much like European formulary limits do by rendering unavailable many of the modern miracle drugs we Americans enjoy.

Both are consistent with free market principles. Back in 1987, however, drug companies took a short cut: they asked Congress to ban drug reimports. They won a statutory, public law solution to a private law problem, and therein lie difficulties.

In effect, third-party Americans were told they couldn’t buy from willing foreign sellers. (In fact, Canadian provincial officials are actually encouraging local pharmacies to resell to Americans.) Thus, by opposing reimportation, the administration comes off as anti-free trade. Americans resent the price differences and the interference — especially those who understand the free-rider issue.

What’s to be done, then? Clearly, the situation today is politically unsustainable, as events are proving. The ban should be lifted, therefore, not to encourage reimportation, which isn’t likely to happen, but simply to allow market practices to surface. Today, with their high-profit American market protected, companies don’t have to bargain hard abroad. The ban shields them, allowing them to claim they have to accept foreign price controls. Practically, Americans are subsidizing socialized medical systems abroad.

But with the ban lifted, and the threat of underpriced drugs flooding the American market, companies would be “forced” to adjust. They could still try to maximize profits by segmenting markets. But they’d have to guard against parallel markets the right way, through no-resale contracts or supply limits. They could offer a country lower prices, but the country would have to police its exports, since America would no longer be policing imports. That places the incentive where it belongs, on the country benefiting from the bargain. And if that failed, companies could limit supplies, as they’re doing now with Canada.

In Europe, however, no-resale contracts are illegal — from a mistaken belief that they’re anti-free trade. That’s why there’s a thriving parallel market there. If that’s the way Europeans want it, companies will have no choice but to limit supplies or raise prices. That’s how markets work. Companies should be free to segment markets. But if it doesn’t work, international prices will move toward equality. And if that happens — as is likely, given enforcement difficulties — there’ll be no reimportation, which moots the safety issue as well.

With the ban lifted, no one knows whether prices will rise abroad and fall here, or just rise abroad. That’s for markets to decide. The last thing we want, however, is the bipartisan Dorgan-Snowe Senate bill, which would lift the ban and then prohibit companies from “gaming the system” — limiting supplies or raising prices abroad. In effect, the sponsors want to freeze the current situation, then import below-cost drugs from abroad — at those prices. The sponsors seem not to appreciate that the only reason a company can sell a drug for $20 in Germany is because it’s sold for $100 in America. The bill would actually import foreign price controls, and that would be the end of future R&D and the miracle drugs it produces.

Opponents of lifting the ban say that if we “forced” market practices on the world, countries would balk at paying those prices and would steal American patents. But a close reading of the WTO Trips Agreement, protecting intellectual property, should allay those fears. The administration needs to watch the issue, however; and in treaty negotiations it should encourage a clear separation of commercial and charitable undertakings. In particular, the “compulsory licensing” arrangements designed to help poor countries with their drug needs should be scrapped in favor of a more market-oriented approach to this problem.

Drug reimportation is thus more complex than at first it seems, but as with so many other issues on the public’s plate today, a healthy dose of market principles is the right prescription.

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