Policy Institutes

The federal government provides an array of subsidies to increase the consumption of biofuels such as corn ethanol. The subsidies include tax breaks, grants, loans, and loan guarantees. The government also imposes a mandate to blend biofuels into gasoline and diesel fuels.

A new study at DownsizingGovernment.org describes the damage caused by these policies. Subsidies and the Renewable Fuel Standard (RFS) harm taxpayers, motorists, consumers, and the environment.

The study by Nicolas Loris argues that Congress should end its intervention in the biofuels industry. It should terminate subsidies and repeal the RFS. Individuals and markets can make more efficient and environmentally sound decisions regarding biofuels without subsidies and mandates.

Investor Carl Icahn said that the RFS has created a bureaucratic market in tradable credits full of “manipulation, speculation and fraud” with the potential to “destroy America’s oil refineries, send gasoline prices skyward and devastate the U.S. economy.”

That language is probably too strong, but federal ethanol policies really are stupid. President Trump says that he wants to cut unneeded regulations and wasteful subsidies. The RFS and biofuel hand-outs would be good policies to target.

So for an interesting read illustrating the craziness of special-interest policies in Washington, check out “Ethanol and Biofuel Policies.” The next time you are at the gas station and see that “E10” sticker on the pump, remember that a tag team of D.C. politicians and corn farmers are picking your pocket. 

Payday loans are small, short-term, unsecured loans. The typical borrower can not easily borrow elsewhere, and the interest rates on payday loans are quite high. These factors generate enormous criticism of payday lenders for “exploiting” borrowers.

Economists Susan Payne Carter and William Skimmyhorn of the United States Military Academy provide evidence on this criticism:

We evaluate the effect that payday loan access has on credit and labor market outcomes of individuals in the U.S. Army. … We find few adverse effects of payday loan access on service members when using any of [our empirical] methods, even when we examine dozens of subsamples that explore potential differential treatment effects.

This should not be a surprise: for people with poor credit, payday loans can be better than the alternatives. These include going to a loan shark, which is even more expensive; or not borrowing, even to fund crucial medical care, or a rental payment that avoids eviction, or travel to secure a job.

Here’s good news: President Trump may sign an executive order suspending the failed conflict minerals provisions of the Dodd-Frank law. Days before, Securities and Exchange Commission Acting Chairman Michael Piwowar had issued two statements directing the SEC to revisit its enforcement of the same provisions.

The provisions, enacted in 2010 as part of the wider Dodd-Frank law, impose a complex and in places impractical disclosure regime on publicly held companies that make products containing such minerals as tin, tungsten, tantalum, and gold. The idea is that laying bare supply chains leading to war-torn areas of central Africa will facilitate consumer boycotts. Some reports on the draft executive order, such as that in the Guardian (via Simon Schama on Twitter), seem intent on judging the Loi Obama (as it was known in some of the affected regions) by these original intentions rather than by its actual results. Yet those actual results are no secret. More than two years ago, the Washington Post, confirming what was widely known already, ran front-page reportage about how the law had

set off a chain of events that has propelled millions of miners and their families deeper into poverty, according to interviews with miners, community leaders, activists, and Congolese and Western officials, as well as recent visits to four large mining areas.

As the economy of the area had destabilized, some miners with no other way to support their families had themselves thrown in with lawless armed groups.

At the same time, the law was set to impose billions of dollars in cost on American companies and consumers. I won’t repeat the case against the rules, since I summarized it in this space two years ago, and little appears to have changed since. (For more, check the coverage at Overlawyered.)

The rumored draft of the executive order looks good, but a president’s leeway under the law extends only to suspending its effect for a time. Putting this fiasco to an end will call on Congress to repeal the relevant sections of Dodd-Frank, and that is what it should now proceed to do.

When I debate one of my leftist friends about deficits, it’s often a strange experience because none of us actually care that much about red ink.

I’m motivated instead by a desire to shrink the burden of government spending, so I argue for spending restraint rather than tax hikes that would “feed the beast.”

And folks on the left want bigger government, so they argue for tax hikes to enable more spending and redistribution.

I feel that I have an advantage in these debates, though, because I share my table of nations that have achieved great results when nominal spending grows by less than 2 percent per year.

The table shows that nations practicing spending restraint for multi-year periods reduce the problem of excessive government and also address the symptom of red ink.

I then ask my leftist buddies to please share their table showing nations that got good results from tax increases. And the response is…awkward silence, followed by attempts to change the subject. I often think you can even hear crickets chirping in the background.

I point this out because I now have another nation to add to my collection.

From the start of last decade up through the 2009-2010 fiscal year, government spending in the United Kingdom grew by 7.1 percent annually, far faster than the growth of the economy’s productive sector. As a result, an ever-greater share of the private economy was being diverted to politicians and bureaucrats.

Beginning with the 2010-2011 fiscal year, however, officials started complying with my Golden Rule and outlays since then have grown by an average of 1.6 percent per year.

And as you can see from this chart prepared by the Institute for Fiscal Studies, this modest level of fiscal restraint has paid big dividends. The burden of government spending has significantly declined, falling from 45 percent of national income to 40 percent of national income.

This means more resources in private hands, which means better economic performance.

Though allow me to now share some caveats. Fiscal policy is only a small piece of what determines good policy, just 20 percent of a nation’s grade according to Economic Freedom of the World.

So spending restraint should be accompanied by free trade, sound money, a sensible regulatory structure, and good governance. Moreover, as we see from the tragedy of Greece, spending restraint doesn’t even lead to good fiscal policy if it’s accompanied by huge tax increases.

Fortunately, the United Kingdom is reasonably sensible, which explains why the country is ranked #10 by EFW. Though it’s worth noting that it gets its lowest score for “size of government,” so the recent bit of good news about spending restraint needs to be the start of a long journey.

P.S. The United States got great results thanks to spending restraint between 2009-2014. It will be interesting to see whether Republicans get better results with Trump in the White House.

Jae Lee came to the United States legally as a child but never became a citizen. In 2009, he pled guilty to a drug crime after his lawyer assured him that he could not be deported as a result. The lawyer was wrong, because the conviction made Lee subject to mandatory removal.

When Lee learned of this mistake, he asked the court to vacate his plea so he could instead face trial, arguing that his counsel’s assistance was ineffective. The district court denied this motion because of the overwhelming evidence against Lee, ruling that his conviction at trial was so certain that his counsel’s bad advice didn’t actually harm him, particularly given the much longer prison sentence he would receive if convicted after trial.

The U.S. Court of Appeals for the Sixth Circuit agreed that a jury wasn’t needed to determine Lee’s guilt and that denying the “chance to throw a Hail Mary at trial is not prejudicial” and therefore doesn’t violate Lee’s Sixth Amendment right to a jury trial. The court reasoned that that the only chance Lee had was acquittal by “jury nullification” and thus such a gambit was so irrational—and the idea of nullification so antiquated—that it is not to be allowed.

Lee is now pressing the matter at the Supreme Court, which has agreed to hear his argument, which Cato is supporting with this amicus brief. The idea of an independent jury’s nullification power is encompassed in the original meaning of the Sixth Amendment. Colonists frequently viewed juries as a shield against the crown, as juries frequently protected defendants against unjust and oppressive laws.

Independent juries were important enough in the American colonies that a section in the Declaration of Independence was devoted to assailing the King for depriving them of that right. The importance of an independent jury, and what such a jury meant at the time, informed the creation and adoption of the jury-trial right in the Bill of Rights. The meaning is made clear by Alexander Hamilton, who argued as defense counsel in 1804 that it is up to the jury to decide facts and the law, and it is in the deciding of the law that the nullification power comes from. The meaning is further solidified by John Adams’s statement that it is the duty of a jury “to find the verdict according to his own best understanding, judgment, and conscience, though in direct opposition to the direction of the court.”

The Sixth Circuit actually admits in this case that the power of juries to acquit, despite strong evidence for conviction, was central to the decision to enshrine the jury right in the Constitution. In spite of the incontrovertible evidence that the right to seek an acquittal by nullification was enshrined in the Sixth Amendment, Jae Lee had this right revoked simply because it was considered irrational or unwise.

The Supreme Court must now protect the right to pursue a risky trial strategy; it may not be wise to seek acquittal by nullification, but Lee should be able to decide that the risk is worth facing as against the certainty of deportation. It is not up to courts to pick which strategy is best for criminal defendants to follow, but judges should protect the right to choose a jury trial even when they might not make the same choice under the same circumstances.

The Supreme Court hears argument in Lee v. United States on March 28.

Senators Tom Cotton (R-AR) and David Perdue (R-GA) recently introduced the Reforming American Immigration for Strong Employment (RAISE) Act.  If it were to become law, RAISE would cut legal immigration by 50 percent over the next ten years by reducing green cards for family members of U.S. citizens and lawful permanent residents, slashing refugees, and eliminating the diversity visa lottery.  These goals are in line with President Trump’s stated objective to cut legal immigration in most categories. 

The RAISE Act’s goal is to increase wages for lower-skilled Americans by reducing the supply of lower-skilled immigrants.  Their press release argues that the “generation-long influx of low-skilled labor has been a major factor in the downward pressure on the wages of working Americans, with the wages of recent immigrants hardest hit.”  Under such a worldview, only a drastic reduction in green cards and the supply or workers can raise American wages - and it’s not crazy.

The National Academy of Sciences’ (NAS) exhaustive literature summary on the economic effects of immigration concluded that: “When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small.  To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.”  Although the effect is small, RAISE seeks to take advantage of the finding in the academic literature by inferring that if an increase in the supply of workers slightly lowers some wages then a decrease in that same supply will do the opposite.

It might seem odd then that RAISE doesn’t target employment-based green cards but that category is for highly skilled workers while the categories this bill would cut are more likely to allow in lower-skilled workers who have fairly high labor force participation rates.  I’ve rebutted Senator Cotton’s poor economic arguments for immigration restrictions before but recent research is even more compelling. 

A recent paper by economists Michael Clemens, Ethan Lewis, and Hannah Postel seems tailor-made to test what would happen if a bill like the RAISE Act were to become law.  The paper studies the effectiveness of an immigration policy “designed to raise domestic wages and employment by reducing the total size of the workforce.”  The U.S. government’s 1964 termination of the Bracero program for Mexican farm workers provides a natural experiment for their paper which is comparable to what would happen if RAISE becomes law.  Senators Cotton and Perdue will be disappointed to discover that this new research found that ending lower-skilled migration for farm workers had little measurable effect on the labor market for Americans who worked in those occupations.

Figure 1

Figure 1 from their paper compares the quarterly average real farm wages by states where Braceros made up more than 20 percent of their seasonal agricultural labor (black line), states where Braceros were fewer than 20 percent of the workforce (gray line), and states where there were no Braceros at or very negligible numbers (dashed line).  Clemens et al write that “[t]he figure shows that pre- and post-exclusion trends in real farm wages are similar in high exposure states and low-exposure states.  It also shows that wages in both of those groups rose more slowly after bracero exclusion than wages in states with no exposure to exclusion.”

How can that be the case, shouldn’t a leftward shift in labor supply increase wages?  Not necessarily as farmers had other options not usually contemplated by those who only think about the supply and demand for labor in isolation.  Instead of hiring more American workers or raising their wages, farmers turned to machines and altered the crops they planted to take account of the new dearth of workers.  Instead of planting crops that required labor-intensive harvesting or care, they planted other crops that required many fewer workers.  Farmers turned to machines like tomato pickers and changed methods for planting and harvesting other crops to take account of the newer wages they would have faced had they stuck with the Bracero-era farm techniques. 

The farmer’s actions in response to Bracero’s cancellation were economically inefficient and presumably raised the costs of production relative to their employment of legal workers under the Bracero program.  But since the Bracero program wasn’t available anymore, using more machines and changing techniques were still the cheapest options available.  Those options did not include hiring more Americans or raising their wages.  The detailed empirical work in this paper considers many other possibilities but convincingly answers them, such as pointing out that nearly all of the Braceros went home instead of staying on illegally and that the flow illegal Mexican farm workers did not pick up immediately.

The similarities between the end of the Bracero program and the RAISE Act are enough to make this new research a compelling reason to reject the RAISE Act out of hand.  The Bracero program allowed in half a million workers a year before it was eliminated which is about the same number of green cards that RAISE would cut.  Bracero workers were lower-skilled and many of those that would be cut by RAISE are also low-skilled.  Braceros were concentrated in some states and not others just like the new immigrants who would not be allowed under RAISE.          

The ending of the Bracero program was a policy shift very similar to that proposed by the RAISE Act.  Ending Bracero didn’t raise wages for American farm workers and we shouldn’t expect the RAISE Act to do the same for other low-skilled Americans who are suffering for myriad reasons that have nothing to do with immigration.  Senators Cotton and Perdue may intend to raise the wages of lower-skilled Americans, but their bill is more likely to line the coffers of firms that manufacture machines that can substitute for them.        

I previously reviewed the exceptionally poor arguments that the Trump administration used to defend its blanket ban on immigration from seven majority Muslim countries in the State of Washington v. Donald Trump. Now, in its appeal of the district court’s temporary restraining order to the 9th Circuit Court of Appeals, the government has added a new argument in favor of its position that is still fatally flawed. It claims:

The State continues to argue that Section 3(c)’s temporary suspension of the entry of aliens from seven countries contravenes the restriction on nationality based distinctions in [section 202(a)(1)(A) of the Immigration and Nationality Act (INA)]. But that restriction applies only to “the issuance of an immigrant visa,” Id., not to the President’s restrictions on the right of entry [under section 212(f)].

The government was right not to attempt this argument initially. Their argument is that a visa does not entitle the recipient to entry in the United States, but merely to travel to the United States. Therefore, they are free to discriminate at the border. To bolster the argument, INA 101(a)(4) does specifically distinguish between admission and visa issuance.  Essentially, they are defining “visa” in section 202 to include only the visa document that permits travel to the border, but does not grant status in the United States. And status is what grants a person the legal right to reside inside the country.

The problem is that the definition of a “visa” in section 202 includes “status” that grants a right to enter and reside in the United States. The State Department’s regulations define visa in section 202 to mean visa or status and have for as long as the INA has been around. Eligibility for status is either determined by an adjustment of status application for immigrants residing inside the United States or at the border for immigrants entering the United States on an immigrant visa for the first time. It is the act of granting entry that confers legal permanent residency status.

Thus, the government would be violating the prohibition on discrimination in section 202(a)(1)(A) just as much by denying entry as by denying visas. An immigration officer cannot deny entry based on nationality without also discriminating in the issuance of status to an immigrant at a port of entry.

Why “visa” cannot be interpreted narrowly

Not only is this interpretation based on the government’s own longstanding regulations, the interpretation of section 202 that the government offered during appeal would require it to adopt a variety of other positions that are at odds with the statute and regulations.

If “visa” in section 202 was interpreted to mean only the visa document, then adjustments of status applications for persons inside the United States would be exempt from the numerical limitations on visas in that section and in section 203. The clear intent of Congress was to control the number of persons who are entering the United States, not visa documents issued, and so the department has always held this view. Thus, the U.S. attorney in oral arguments before the district court admitted that per-country limits were about allocating how many people the United States allows “to come into the country.”

If the person is determined ineligible to enter, the visa is revoked at this point, and the State Department considers it not to have been issued at all. In other words, the department only counts “status” determinations against the visa caps, despite the fact that the section never mentions status. It is interesting to note on this point that the original version of the Immigration and Nationality Act of 1952 actually had consular officers grant immigrants “status” abroad, which could be revoked at entry if they were deemed ineligible.

Why the government cannot be biased in entry but not in visa issuance

This interpretation does not undermine the distinction between visa issuance and admission in section 101(a)(4) because a determination of inadmissibility under section 212 applies equally to admission at the border as it does to visa issuance abroad. Immigration officers inside the country rely on the same criteria to determine eligibility to enter that consular officials use to determine eligibility for an immigrant visa. A person granted an immigrant visa in an unbiased manner would not be entitled to enter at the border. He would just be entitled to similar unbiased treatment.

This proves that the law forecloses the idea that the government could be unbiased in visa issuance but not in entry. This is also why all presidential proclamations under 212(f) are immediately printed in the State Department’s Foreign Affairs Manual. The manual explains, “Aliens who have engaged in conduct covered by a Presidential Proclamation issued under the authority of section 212(f) may also be inadmissible under other sections of the INA or other statutes. These statutory inadmissibilities are to be considered prior to determining whether a Presidential Proclamation applies.”

The executive order itself admits that the State Department will be enforcing it by suspending visa issuance just as much as the Department of Homeland Security by suspending entry, and indeed, it has suspended visa issuance to nationals of those seven countries.

Another problem for the government’s view is that it implies that Congress intended to create a system in which it required non-discrimination for applicants abroad, but not applicants at ports of entry or inside the United States. Indeed, their argument would free the government to discriminate based on nationality in adjustment of status applications for immigrants who are residing inside the United States right now, even without a presidential determination that they are a “detriment.”

Not only is this plainly absurd, this would create the bizarre result that immigrants adjusting in the United States would have fewer protections against discrimination than immigrant applicants abroad. This leaves the government arguing that immigrants abroad have fewer constitutional rights than immigrants in the United States, while somehow also having more statutory rights.

This obviously cannot have been what Congress intended. In fact, as I have previously explained, Congress debated this very question of whether ending discrimination would allow unvetted individuals to enter the United States from certain countries where information is difficult to obtain. They rejected this argument. No member of Congress in 1965—whether they were for the bill or against it—believed that President Johnson could then have immediately undone their work with a presidential proclamation.

Last night’s CNN duel between Senators Bernie Sanders and Ted Cruz on the future of Obamacare was pretty illuminating for a recent arrival to the United States, with Senator Sanders’ playbook all-too-familiar to those of us from the UK.

Sanders wants a single-payer socialized healthcare system in the United States, just as we have in Britain. Any objection to that is met with the claim that you are “leaving people to die.” The only alternatives on offer, you would think, are the U.S. system as it exists now, or the UK system. Sanders did not once acknowledge that the UK structure, which is free at the point of use, inevitably means rationed care, with a lack of pre-screening. He also failed to acknowledge that lower health spending levels (indeed, even public spending on health is lower in the UK than the United States now) are not the same as efficiency—which is about outputs per input.

In the face of anecdote after anecdote about those saved by Obamacare and the virtues of a government-run health system, Cruz countered with some anecdotes from the UK showing the consequences of rationed care: a Scottish hospital turning away pregnant women, a woman in Wales waiting eight hours on the floor for an ambulance to arrive after a fall, and a hospital in Essex canceling life-saving cancer treatment because there were no free beds in intensive care. He could also have talked about the Mid-Staffs scandal, or a recent documentary showing doctors deciding between saving a cancer patient or a pensioner bleeding to death.

Anecdotes are powerful in helping to persuade people, and there are good reasons to use them in debates. Yet they are always susceptible to the charge that all health systems have extreme failures. Perhaps more powerfully then, the inadequacies of the UK system show up systematically in the data about how well conditions are dealt with (data from my former colleague Kristian Niemietz’s reports here and here):

  • In the United States, the age-adjusted breast cancer 5-year survival rate is 88.9 percent, compared with just 81.1 percent in the UK
  • The United States leads the world on the equivalent stat for prostate cancer (97.2 per cent) vs. 83.2 percent in the UK
  • Lung cancer: 18.7 percent in the United States vs. 9.6 percent in the UK; bowel cancer: 64.2 percent vs. 56.1 percent
  • Just in case you think I am cherry picking: U.S. survival rates are also better for leukemia, ovarian cancer, stomach cancer, and liver cancer—all of those for which I can find comparisons
  • The age- and sex-standardized 30-day mortality rate for ischaemic stroke is just 3.6 per cent in the United States vs. 9.2 per cent in the UK; for haemorrhagic stroke, the figures are 22 percent vs. 26.5 percent

I could go on. All of which is to show that your probability of dying from a range of common conditions is much higher in the UK than here. Perhaps that’s why (with no hint of irony) The Guardian’s write-up of a Commonwealth Fund Report suggesting the UK’s health system was “the best in the world” said “the only serious black mark against the NHS was its poor record on keeping people alive.”

President Donald Trump has repeatedly complained that the United States carries too much of the economic and military burden in NATO. He has even gone so far as to call the European alliance “obsolete” and to suggest that his administration might not fulfill the treaty’s Article 5 obligation that commits NATO countries to come to the defense any member that is attacked (Note: administration officials have repeatedly sought to reassure NATO allies that we remain committed to the collective defense of Europe, and Trump has contradicted himself on this score).

Many think this provocative rhetoric is just a ploy to get our NATO allies, who habitually underspend on defense and free-ride on America’s security guarantees, to pay more of their fair share of the burden. At the Washington Post’s Monkey Cage blog, Andrea Gilli argues this approach is unlikely to jolt NATO allies into spending more on defense, though. Among other reasons, most NATO allies “face financial and political constraints to increasing military expenditure” in part because U.S. security assurances “have freed up state funds in Europe for other priorities, including a robust system of social services.” And since cutting welfare benefits is typically a political non-starter, we shouldn’t necessarily expect NATO countries to boost defense spending due to Trump’s abrasive rhetoric.

But the historical record seems to contradict Gilli’s argument. According to the RAND Corporation, Europe has historically spent between 43 percent and 78 percent of U.S. spending on defense. The ratio reached its peak in 1980, and then again in 2000 - years that were at the tail end of periods of defense budget cuts. And according to the RAND report, one of the the most successful techniques in getting NATO allies to share more of the burden was “threats by Congress to withdraw its troops from Europe.”

The only period of signficant real growth in European defense spending was during the 1970s; otherwise European defense expenditure has been remarkably flat in real terms…

Historically, efforts to create incentives or to manage the burden-sharing problem have taken four different approaches. The first approach (1966 to the mid-1980s) was based on the threat of U.S. troop withdrawals. With a series of resolutions and amendments from 1966 to 1975, Senator Mike Mansfield sought to use the threat of U.S. troop withdrawals to force Europe to contribute more and to lessen U.S. costs. As noted, that effort—plus other factors relating to economic growth and the Soviet threat—may have had a positive effect: European defense spending grew by 44 percent between 1970 and 1984.

Certainly other factors contributed to this period of growth in NATO burden sharing - higher rates of economic growth, increased perceptions of the Soviet threat, defense budget cuts as we withdrew from Vietnam, etc. But U.S. threats to pare back its commitment to the region seem to have had a significant impact.

That said, European defense spending may never reach the levels that the Trump administration, or for that matter the Washington foreign policy community generally, would prefer. And while U.S. security guarantees are surely one reason for this, it also may be the case that European countries aren’t boosting defense spending levels because they don’t face any major threats. Increasing defense spending to 2 percent of GDP or higher won’t do much about the terrorism problem European countries face. And the supposed geopolitical threat from Russia, meddling in Georgia and Ukraine aside, is consistently exaggerated

Kentucky Senator Rand Paul has weighed in concerning the rumors that Elliott Abrams could become the Number 2 person at the State Department. “Crack the door to admit Elliott Abrams,” Paul writes, “and the neocons will scurry in by the hundreds.”

He goes on:

Neoconservative interventionists have had us at perpetual war for 25 years. While President Trump has repeatedly stated his belief that the Iraq War was a mistake, the neocons (all of them Never-Trumpers) continue to maintain that the Iraq and Libyan Wars were brilliant ideas. These are the same people who think we must blow up half the Middle East, then rebuild it and police it for decades.

Paul continues:

I voted for Rex Tillerson for secretary of state because I believe him to have a balanced approach to foreign policy. My hope is that he will put forward a realist approach. I don’t see Abrams as part of any type of foreign policy realism.

And he concludes:

In a country of 300 million people, surely there are reasonable foreign policy experts who have not been convicted of deceiving Congress and actually share the president’s foreign policy views. I hope Secretary Rex Tillerson will continue the search for expert assistance from experienced, non-convicted diplomats who understand the mistakes of the past and the challenges ahead.

During an appearance on the Tucker Carlson Show on FoxNews last night (clip starts at 5:23), the Republican was asked about his concerns.

“Someone who was a Never-Trumper should never be in a Trump State Department,” Sen. Paul said, noting that “Elliott Abrams was one of the key architects of the Iraq war. We don’t need people with a failed policy back in.”

Host Carlson admitted to being “baffled by it.”

Elliott Abrams was one of the leading supporters of the Iraq War. He signed the original statement of principles for the Project for a New American Century, the organization founded by leading #NeverTrumpers William Kristol and Robert Kagan that was instrumental in making the case for regime change in Iraq. Abrams has since signed a number of other letters organized by PNAC and its successor organization, the Foreign Policy Initiative, concerning war with Iraq, Yugoslavia, Libya and Syria.

Why would Donald Trump want Abrams in the State Department? And why would Rex Tillerson want someone like Abrams as his deputy?

Like Carlson said: It’s baffling.

It is gratifying to see Betsy DeVos confirmed as the next U.S. Secretary of Education. This is not because the federal government should attempt to push school choice—it should not, except in the District of Columbia and for families connected to the military—but because the opposition to now-Secretary DeVos was so unfair to her, and to the research on educational freedom. The reality is that research indicates charter schooling works in Michigan, DeVos’s home state, and specifically in Detroit. It shows that families of students with disabilities, rather than somehow being victimized by school choice, are empowered and immensely satisfied with it. And logic and evidence show that private school choice, rather than imposing ideas on people, frees them to get what they want for their children without forcing it on others.

It is also gratifying to see DeVos approved because she stated repeatedly in her confirmation hearing that education decisions should be left to state and local governments. Constitutionally, that has things absolutely right: the Constitution gives Washington no authority to govern or “oversee” American education, as Sen. Patty Murray (D-WA) put it, which means such rights remain with the states, or with the people. And 50-plus years of increasingly intrusive federal meddling in education, with ultimately no visible academic improvement to show for it, brilliantly illustrates the wisdom of that decision.

Now let us hope that the Trump administration sticks to the constitutionally-constrained federal role—even on school choice—that Secretary DeVos has repeatedly endorsed. 

President Trump’s executive order is facing numerous court challenges, including a temporary restraining order.  My colleague David Bier has made a convincing statutory argument that Trump’s temporarily ban on issuing visas to the nationals of Iran, Iraq, Syria, Saudi Arabia, Sudan, Libya, and Yemen is unlawful.  The genesis of Trump’s executive order was his campaign promise of a Muslim ban which, although unpopular, is built on a sturdier legal foundation than a 21st-century national origins quota.  If the court challenges fail and Trump’s ban is legal then there is a high probability that the bans will be extended and expanded to additional countries.  Indeed, section 2, subsections e and f of the executive leaves open the possibility of extending the length of such bans and extending them to additional countries. 

The Trump administration will have to consider several points in order to place additional countries on the banned list.  The first is political.  Trump promised he was going to block countries that could send terrorists here after he called for a Muslim ban (that he later retracted).  He also seems committed to fulfilling his campaign promises through executive orders.  The other political consideration is avoiding the fierce criticism and mass protests that accompanied his first executive order.  Must of this opposition was based on the erroneous assumption that this executive order was a Muslim ban, although some opponents could be forgiven for thinking that.  To defuse the claim that his future actions will be a Muslim ban, Trump could include some non-Muslim countries on the banned list.  There are many non-Muslim countries in armed conflicts to choose from but I would place my bets on the swiftly disintegrating Venezuela. 

The second consideration is the risk of terrorism from foreign nationals.  As I’ve written elsewhere, the risk of foreign-born terrorism on U.S. soil is small and even smaller for foreigners from certain countries.  The Trump administration could target some countries that send few immigrants and tourists to the U.S. but have historically sent many deadly terrorists.  The most likely candidates there are Egypt, Lebanon, Saudi Arabia, and the United Arab Emirates – countries where the 9/11 hijackers came from.  Foreign nationals from those countries received a total of 17,835 green cards in 2015, about a third as many as the foreign nationals banned in Trump’s original executive order.  Afghanistan, Kuwait, and Pakistan are also possible – the latter mainly because one of the Saudi terrorists was actually born in Pakistan although she lived almost her entire life in Saudi Arabia.  Afghanistan hasn’t sent any deadly terrorists but it is a scary place. 

Altogether, foreign nationals from these additional seven Muslim countries and Venezuela were granted 54,260 green cards in 2015 – slightly more than nationals from the first list of seven nations banned in Trump’s original executive order.  Those nations all sent 1,344,337 non-immigrants to the United States, mostly tourists, in 2015.  That number is almost 16 times as great as the number who came from the banned countries on Trump’s original executive order.  The economic impact of a ban on these eight countries will be bigger than the original executive order.

Trump’s third consideration is foreign affairs.  The United States is allied with Iraq and has alliances with many of the other countries that could be subject to future visa bans.  Surely this must negatively affect America’s alliances just as the targeting of Japanese in the Immigration Act of 1924 caused a serious diplomatic row with that Empire.  The other foreign policy angle is how America’s adversaries view a ban.  After all, the U.S. immigration system was a source of anti-American propaganda for the Soviet Union and their Communist allies until the 1965 Act – passed partly in response to that international pressure during the Cold War.  Many commentators have already commented on how ISIS propaganda benefits tremendously from this ban.  Regardless, any extension or expansion of the migration ban will affect America’s foreign affairs, regardless of the wisdom of our existing alliances and policies, to such an extent that Trump must consider the effects.

A panel of judges in the 9th Circuit this evening will hear arguments on Trump’s migration ban.  The legal issues surrounding Trump migration ban will not disappear anytime soon but if the ban is legal then this administration will have to consider the factors I outline above when it seeks to extend and expand the ban.  

Today marks one year since the death of former Cato Center for Educational Freedom director, and later senior fellow, Andrew Coulson. Many friends and colleagues had wonderful things to say about Andrew upon his passing, and we invite you to read all the testimonials that we were able to assemble.

Today, however, is not only a day for looking to the past, but to the future. Because Andrew’s ideas are about to enter their biggest stage yet. The project to which Andrew devoted most of his final years, and that encompasses the heart of his thought on education, has been accepted by PBS. School Inc., Andrew’s three-part documentary series on how free markets bring transformative innovation to countless parts of our lives, and how to achieve such dynamism to the world of education, will air on WNET in New York in June, and may begin airing on PBS stations around the country as early as April. We’ll keep you posted on all stations and times as soon as they are available.

As a supplement to the documentary—and for anyone who wants to explore the ongoing debates about Andrew’s ideas on education—Cato will soon be publishing Educational Freedom: Remembering Andrew Coulson, Debating His Ideas, a free ebook that will be available on the Cato website, featuring essays by many education thinkers who knew Andrew and his ideas well.

As we said last year, “Andrew Coulson is no longer with us. Thankfully, his ideas remain, and they will always illuminate the pathway forward.” Indeed, they will.

Over at KiwiReport, a writer named Serena Carsley-Mann asks a good question: “Why do trains in America function so different from trains in Europe?” Unfortunately, she mistakenly thinks the problem is that “trains in America function so badly.”

In fact, America has the most efficient rail system in the world. It is European trains that function badly. I’ve discussed this before in my blog, but since writers like Carsley-Mann continue to get it wrong, it is worth repeating.

According to a Pew study, freight shipped by truck uses about ten times as much energy, and emits far more greenhouse gases, per ton-mile than freight shipped by rail (see page 2). Because rail cars weigh more, per passenger, than automobiles, rail’s comparative advantages for passengers are much smaller, and unlike trucks it will be very easy for cars to close the gap: a Prius with a average of 1.67 occupants, for example, is more energy efficient than almost any Amtrak train. Thus, to save energy, it is better to dedicate rail lines to freight rather than to passengers.

This is what the United States has done, but it is exactly the opposite of what Europe has done. According to a report from the European Union, 46 percent of EU-27 freight goes by highway while only 10 percent goes by rail, while in the U.S. 43 percent goes by rail and only 30 percent by road. Thus, we’re using our rail system far more effectively than Europe. This is not just from an energy view but also from a consumer-cost view, as rails cost less than trucks for freight but more than cars for passengers.

Carsley-Mann actually sees freight trains as an obstacle to effective use of the railroads because the freight trains slow and sometimes delay the passenger trains. But in reality, it is the nearly useless passenger trains that are the obstacle to an efficient freight system. Europe manages to carry 5 percent of passenger travel on intercity rail lines, at the cost of pushing a huge share of freight shipments onto highways. By yielding most of that 5 percent of passenger travel to highways and airlines, American manages to free up the railroads for a huge amount of freight.

To avoid the freight conflict, some European countries are building rail lines exclusively for passengers. For the most part, the cost is very high and the benefits low. To some degree, subsidies to those rail lines attract people from lower-cost forms of transportation. But overall, rail is losing market share to cars and, especially, low-cost airlines, so Europe is fighting a losing battle. As economist Charles Lave wrote in The Atlantic many years ago, the “law of large proportions” dictates that “the biggest components matter most,” so making the cars that move 85 percent of people a little more energy efficient is more effective than getting a tiny share of those people out of their cars and onto trains that are a little more energy efficient.

Carsley-Mann never does figure out why American trains are so different from European ones. The answer is simple: American railroads are private and based on the profit motive they operate as efficiently as possible. European railroads are public and based on the political motive they operate as visibly as possible. Passenger trains are more visible to the public than freight trains (which are almost invisible to people like Carsley-Mann, who see them only as obstacles), so European politicians give their constituents subsidized trains rather than an efficient rail system.

I love passenger trains, but I prefer an efficient private system to a visible but heavily subsidized public system. Now if only we could privatize our airports and highways.

On his first official trip as secretary of defense, Jim Mattis sent a signal to U.S. allies that American foreign policy in the region will feature more continuity than change. In South Korea, Mattis reaffirmed that the United States would react to a nuclear attack by North Korea with an “effective and overwhelming” response, and stated, along with the South’s defense minister, America’s commitment to proceed with the deployment of the THAAD missile defense system. Mattis also provided clarification on the administration’s position in the South China Sea. In a break with past rhetoric by other administration officials, Mattis said “At this time we do not see any need for dramatic military moves [in the South China Sea],” and emphasized the importance of diplomacy.

Mature foreign policy statements have been a rare commodity since Trump’s election, and Mattis’s reassurance tour brought a deep sigh of relief from friends and adversaries alike. Whether or not Trump will follow through on Mattis’s words is an open question, however.

Initial reporting on the Trump administration’s approach to decision-making reveals two things. First, while his outlook cannot be labeled “restraint,” Mattis has a relatively restrained or moderate outlook on foreign policy. Second, the ability of such moderate voices to influence Trump is challenged by a group of policy advisors centered on Chief Strategist (and National Security Council member) Steve Bannon that has a much more aggressive outlook.

Both Mattis and Bannon have had some success in shaping policy. Mattis was reportedly able to tone down the language that Michael Flynn, the national security advisor, used when putting Iran “on notice” after Iran conducted a ballistic missile test. Bannon’s major policy success was the executive order barring immigrants from seven Muslim-majority countries, which he oversaw the drafting of along with policy advisor Stephen Miller. Mattis was allegedly not consulted while the immigration order was being drafted. He also reportedly did not see the final version of the order until hours before its release. Additionally, the executive order that gave Bannon a seat on the National Security Council was reportedly signed by Trump without the president being briefed on the details of the order. The author of the order is unknown.

It is difficult to predict who will have the president’s ear on issues of foreign policy and national security, but the first few weeks of the Trump administration indicate that Bannon wields significant influence given his central role in the immigration executive order. This influence caused tension with Mattis, and the homeland security secretary John F. Kelly who sparred with Bannon over whether or not Kelly could issue a waiver for green-card holders affected by the immigration ban.

Of course, all administrations have some degree of internal division, and these recent disagreements come as new advisors are getting used to their roles in a new administration.

Nevertheless, there appear to be at least two cliques taking shape among Trump’s foreign policy and national security advisors: the relatively moderate and restrained professionals like Mattis, and the aggressive firebrands like Bannon. It remains unclear which advisors belong to which clique, but the struggle between these two groups will shape future policy decisions in the Trump administration for the foreseeable future. Since both have some small “wins” under their belt, it is also unclear which clique will end up winning the important policy decisions. Watching how these two groups develop and lobby for their policies will be essential to understanding the Trump administration’s approach to foreign policy and national security. 

President Trump’s testy telephone conversation with Australian Prime Minister Malcolm Turnball quickly produced a reaction from one ubiquitous U.S. player on foreign policy issues, Arizona Senator John McCain. He contacted Australia’s ambassador in Washington to assure him of Washington’s undying devotion to the U.S. alliance with Australia and to that country’s security and well-being. The implicit message was that Canberra should not take Trump or his actions seriously. In so doing, McCain basically anointed himself as America’s shadow president, with the right and obligation to bypass the elected president and conduct relations with foreign governments and other parties.

His actions were entirely inappropriate. Granted, Trump’s conduct toward Turnball deserves no praise. During the telephone call, a dispute arose over refugee policy, and an angry Trump reportedly berated the Australian leader and abruptly cut the scheduled one-hour session short after 25 minutes. Such behavior was that of a petulant adolescent rather than the expected behavior of a president of the United States.

Nevertheless, the Constitution empowers the president and his appointees to conduct America’s foreign policy. Even senators are not authorized to undercut their authority by engaging in direct, free-lance diplomacy with foreign leaders. Yet that is what McCain did.

Unfortunately, this was hardly the first time that he has engaged in such disruptive behavior. His record is that of an annoying, and sometimes dangerous, loose cannon. For example, during Ukraine’s political crisis in late 2013 and early 2014, McCain showed up in Kiev to urge on anti-government demonstrators in their bid to unseat President Victor Yanukovych’s elected government before the expiration of its term in 2016. America was on their side, he assured them.

McCain engaged in similar meddling in Syria’s civil war. In May 2013, he met with so-called moderate rebels who were trying to overthrow President Bashar al-Assad, and as in Kiev, conveyed America’s alleged solidarity with their cause. This intrusive action occurred at a time when the Obama administration remained wary of the United States becoming entangled in the bloody, complex conflict, and was at least trying to limit the extent of U.S. involvement. Not only were McCain’s actions complicating official U.S. policy, but they should have been embarrassing to the Arizona senator. The reality is that there were (and are) very few truly moderate Syrian rebels. Most of them are Islamists masquerading as moderates to gain support from gullible Westerners. Even McCain seemed unclear about the specific identities or the nature of his interlocutors in Syria.

Especially in light of his dreadful track record, McCain should tend to his senatorial duties and stop trying to be a shadow president or secretary of state. In fact, given his dreadful, ultra-hawkish views and his advocacy of, and often feverish lobbying efforts for, a lengthy series of ill-advised foreign policy ventures (ranging from the calamitous Iraq War to a new cold war with Russia), it might be better for all concerned if he just concentrated on domestic issues.

A federal judge in Seattle paused enforcement of President Trump’s executive order banning almost all immigration from seven countries in the State of Washington v. Donald Trump. The same judge will also hear a lawsuit brought by American Immigration Council (AIC), which makes the argument that I have made here and in the New York Times that the order is illegal as applied to immigrants coming to live in the U.S. permanently.

Washington’s main claims were constitutional, and it sought to have the entire order overturned. Nonetheless, the government did partially respond to the main argument in the AIC complaint, which is:

Section 202(a)(1) of the Immigration and Nationality Act [INA]…expressly provides for the non-discriminatory issuance of immigrant visas; it mandates that, with limited exceptions not relevant here, “no person shall receive any preference or priority or be discriminated against in the issuance of an immigrant visa because of the person’s race, sex, nationality, place of birth, or place of residence.”

[INA section 202(a)(1)] was intended to protect the interests of both U.S. citizen and lawful permanent resident immigrant visa petitioners as well as immigrant visa applicants or holders. The EO discriminates against immigrant visa applicants or holders on the basis of their “nationality, place of birth, or place or residence,” and therefore is discriminatory and violates [INA section 202(a)(1)].

The government responded to these points by pointing to section 212(f) of the Immigration and Nationality Act, which reads:

Whenever the President finds that the entry of any aliens or of any class of aliens into the United States would be detrimental to the interests of the United States, he may by proclamation, and for such period as he shall deem necessary, suspend the entry of all aliens or any class of aliens as immigrants or nonimmigrants, or impose on the entry of aliens any restrictions he may deem to be appropriate.

Resolution of Conflict

There is an apparent conflict between the statutes. In the case of conflict, the rule of construction is 1) “to give effect to each but 2) to allow a later enacted 3) more specific statute to amend an earlier, more general statute,” Smith v. Robinson (1984).

On point 1, the government provided no argument that the section 202(a)(1) would still have “effect” as a prohibition if the president could choose to waive it at any time that he felt that a nationality was a detriment. It merely stated that it applies “in the absence of action by the President.” Judge Robart should have asked whether there is any circumstance in which the executive branch chooses to discriminate against a certain nationality in which they would describe those excluded nationals as not “detrimental” to the United States. Of course, no such case exists, meaning that the government’s argument would effectively nullify section 202(a)(1), which is naturally its intention.

On point 2, the government neglects to mention that 8 U.S.C. 1182(f) was enacted in the Immigration and Nationality Act of 1952, which was amended by 8 U.S.C. 1152(a)(1) in the Immigration Act of 1965. Judge Robart at oral arguments considered this point important, stating that this “Congress had to be aware of” 212(f) but chose to enact the sweeping prohibition anyway. On point 3, the government provides the following argument:

Section 212(f) is easily reconciled with section 1152(a)(1)(A): the latter sets forth the general default rule that applies in the absence of action by the President, whereas section 212(f) governs the specific instance in which the President proclaims that the entry of a “class of aliens” would be “detrimental the interests of the United States.”

This analysis cannot be taken seriously. Section 212(f) allows the authority to the president to ban any class of alien for any reason. 202(a)(1) limits this authority only for one small category of aliens, immigrant visa applicants. Moreover, 212(f) is in a general section of the law dealing with inadmissibility for all aliens, not just immigrants, whereas section 202(a)(1) is a section dealing only with immigrants. This argument from the government almost becomes humorous in light of its argument in the very next paragraph, that there is no general prohibition on discriminating based on nationality.

Section [202] generally establishes a uniform annual numerical limit on immigrant visas for nationals of each foreign country. Had Congress intended to enact a general bar against nationality-based discrimination, it would have enacted such a bar as a general provision of the INA, rather than as a subpart of a subsection speaking to the implementation of nationality-based numerical limitation for the issuance of immigrant visas. (Emphasis added)

In other words, the government is using the exact opposite argument here: that section 202(a)(1) is so specific that it cannot apply to the general authority to exclude aliens in section 212(f). The U.S. attorney at oral arguments repeated this line, stating that “we think [202(a)(1) is] a narrow section of the statute” as opposed to the “broader authority” under section 212(f). In other words, section 202 is both too general and specific. The government would like to have its discriminatory cake and eat it too.

The government also ignores a fourth rule applicable here. Inclusion implies exclusion. As Judge Robart said, section 202(a)(1) “makes a number of exceptions, but it doesn’t except” section 212(f). Section 202(a), which was enacted 13 years after 212(f), states that the government may not discriminate against immigrant visa applicants based on their nationality, place of birth, or place of residence “Except as specifically provided in paragraph (2) [allocating visas on equal per country basis] and in sections 101(a)(27) [special immigrants], 201(b)(2)(A)(i) [preferences for immediate family members], and 203 [visa distribution based on family and employment criteria]” (my emphasis). Section 212(f) was specifically left out of the exceptions, which demonstrates that Congress did not want to include it as an exception to the rule (whether the government wants it to be a “general” rule or a “specific” one).

Finally, for good measure, a fifth principle of construction states, as Justice Antonin Scalia stated in United Savings Association of Texas v. Timbers of Inwood Forest Associates, “Statutory construction, however, is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme.” In this case, as the government admits, the statutory scheme is to create a system of immigration that is unbiased, in which every country receives an equal apportionment of the visas for each year. Indeed, the entire 1965 act was written for that express purpose, which President Trump has now undone.

Other Authorities

Perhaps believing their argument on this point insufficient, the government turns to other statutes as providing the president the authority to discriminate against immigrant visa applicants:

Section 202(a)(1)(B) clarifies that subsection (A) is not to be “construed to limit the authority of the Secretary of State to determine the procedures for the processing of immigrant visa applications or the locations where such applications will be processed.” The clarification suggests that the Executive Order, in part or in whole, may not be covered by the restrictions of subsection (A) because the Executive Order governs the procedures for pausing then resuming visa applications.

Even the government could not get this argument out with a definitive “it is not covered” but rather a “suggest that maybe.” Subparagraph (A) pertains to, if nothing else, the decision to issue or not issue a visa, and the decision to not issue is at the heart of this executive order. If subparagraph (B) is read to allow the president the ability to not issue or to revoke a visa based on nationality, then subparagraph (A) has no effect. Aside from ignoring the first rule of construction, this obviously cannot be the case because subparagraph (B) was added to allow President Clinton to require Vietnamese asylum seekers to apply for immigrant visas in Vietnam. Congress specifically chose to leave subparagraph (A) rather than repeal it, demonstrating its intent to have it constrain the executive.

The government further claims that the last Congress’s visa waiver program changes requiring that nonimmigrant nationals of these seven countries travel to the United States only with a visa proves that Congress has approved this discrimination.

The 2015 amendment to the INA…has drawn the exact same nationality-based distinctions as the Executive Order. 

First of all, this is simply incorrect. The amendment specifically included people who had visited those countries. Thus, it was broader than simply nationality. Second of all, these procedures had no impact on immigrant visa applicants who are protected from discrimination. Moreover, the fact that barely a year before the executive order Congress specifically created procedures under which these nationals can enter the country shows that Congress does not agree with the president that these nationals are a “detriment” to the United States. Indeed, it shows just the opposite: that Congress wanted them to have an opportunity to come if they obtained a valid visa.

Finally, the government turns as a last gasp toward its inherent national security powers:

Indeed, under the State’s view, the United States could not suspend entry of a country with which the United States is at war. The INA plainly does not require that result. 

The United States is not at war with any of these countries, so the court need not reach a conclusion about how the INA would impact such a case. But it goes without saying that the government would not be relying on its statutory authority in such a case, and so the question would be irrelevant to such a situation. This is likely what provoked Judge Robart’s eye-rolling response, “You’ve shaken those bones just about as much as you can get out of them.”

Moreover, the Executive Order does not label these immigrants actual threats to the United States. Rather, it claims that the inability to vet them makes them a “detriment,” a seemingly much lower threshold, and the argument is that the INA makes an exception for “detrimental” aliens. This is nowhere expressed in the INA itself and, as previously demonstrated, flies in the face of the plain language of section 202(a)(1)(A), which specifically lists the only exceptions to it.

Importantly, the discriminatory pre-1965 act system was justified partially on this exact claim, that immigrants from certain countries may be threats and thus discriminated against. As Sen. Fisher said on the Senate floor in 1965:

There is a serious security threat which would result in the expected substantial increase in Asiatic migration to these shores. At the present time, the flow of Asiatics to this country is checked by the simple device of quota limitation to which all Asiatics are chargeable. With a substantial increase in immigration of Asiatics, coming not only from the Orient, but from every country in which they reside, the problem of procuring background information to screen out subversives becomes increasingly difficult.

Moreover, most of the background information regarding Communist activities would be located in oriental Communist countries; and hence unavailable to our security officials. Furthermore, the language barriers, with the many dialects unfamiliar to our immigration officers, would only compound the danger inherent in an attempt to screen out security threats; and I have no doubt that the international Communist conspiracy will avail itself of the opportunity to increase its penetration of our country.

The passage of this bill will present an inviting opportunity. It has been argued that because some European countries now have a larger annual quota than others, this country regards the people of the larger quota nations as being better people than those in countries with the lower quotas. That is a ridiculous argument. Immigration laws, like trade laws and the like, come under the normal exercise of sovereign power. (My emphasis).

Sen. Celler, the bill’s author, responded to this concern:

There can be no fear of Communists or subversives entering this country. The same safeguards that are in the law with reference to internal security are maintained. They are not changed one iota; therefore, there should be no fear in that connection.

The idea that President Johnson could have signed the act and then, on the basis the government asserts here, ban all Asian immigrants to the United States flies in the face of the letter of the law and its intent. Yet that is exactly what is being asserted here. The passage of time and the change in the targets of discrimination does not make what would have been illegal then legal now. President Trump is violating the law, and Judge Robart was clearheaded enough to see it. 

Unless something unexpected happens, tomorrow the United States Senate will vote on Betsy DeVos to be the next U.S. Secretary of Education. And if you are a Democrat sweating through nightmares over what a Trump administration will do to education, you should be pretty comfy with what DeVos has said she’d like to see happen under her watch. As she stated repeatedly in her confirmation hearing, she would not use federal power—and certainly not secretarial power—to impose anything, including school choice, on unwilling states and districts.

But isn’t the vote expected to be as close as last night’s Super Bowl at the end of regulation, with all Dems voting against DeVos and Vice President Mike Pence delivering the final, overtime vote for her? Yup.

You see, over the decades, Democrats, with copious help from Republicans, have tried to make the U.S. Department of Education what it was not originally intended to be, and what with absolute certainty it cannot constitutionally be: a national school board. This vision was exposed in a comment by Senator Patty Murray (D-WA), ranking member of the Health, Education, Labor and Pensions committee, when she warned all who were suffering through the festival of misinformation and grandstanding that was DeVos’s confirmation hearing, that if approved DeVos would “oversee the education of all of our kids.”

This did not elicit the manufactured giddiness that met DeVos’s suggestion that a school with a grizzly fence might have a gun, and that such decisions should be left to states and communities who know their needs better than Washington. But Murray really ought to know that the Constitution and several laws give the feds no authority to “oversee” American education. Moreover, she had only about a year earlier voted for a law—the Every Student Succeeds Act—intended to cage the education secretary after the Obama administration had employed the position to illegally micromanage American education.

Sen. Murray was, though, soon outdone in her hyperbole. Senate Minority Leader Chuck Schumer (D-NY) took his rightful position in the front of the overstatement pack, declaring that DeVos “would single-handedly decimate our public education system if she were confirmed.”

How, exactly, would she do that?

Some have argued that the apocalyptic scenario Schumer invoked was inconceivable because Washington supplies less than 10 percent all K-12 funding. That’s a dubious conclusion: Washington has called lots of shots with that level of funding because while it may look small in percentage terms, try being the state representative who says “I voted to turn down $500 million federal dollars—your tax dollars, dear constituents—so we could keep control.” $500 million looks like a lot of money, which is why, though some threatened, no state ever just abandoned No Child Left Behind.

What Dems appear to fear most is school choice, in particular private choice that enables people to attend truly independent schools that make their own decisions on everything from staffing to curricula. But here’s why the decimation accusation is nonsensical. First, DeVos said that she would not attempt to expand choice unilaterally, but through Congress, where laws are supposed to be made. Suppose, though, somehow the Trump administration on its own was able to make good on its promise to furnish $20 billion for choice, and it was all directed to private rather than charter or traditional public schools? Divide $20 billion by the roughly 50 million kids in public elementary and secondary schools and you get a voucher of $400 per student. Not nothing, but far from enough to move many kids to private schools.

Of course, giving students real choice—but not through Washington—is what we should want, and that includes for children with disabilities. On that front, the attack on DeVos has been that she somehow did not know about the Individuals with Disabilities Education Act. But there was no meaningful indication of that. DeVos said that governmental decisions about students with disabilities are better made at state and local levels, and the IDEA does not disagree: it only applies when federal dollars are involved. More important, choice, such as through Florida’s McKay scholarship program, empowers families to meaningfully advocate for themselves by giving them control over education funds, rather than forcing them into bureaucratic and legal battles that favor the well-to-do. And it does not make sense to subject to IDEA’s rules any private school a family might choose. Having to attract and keep business is the very real, immediate accountability that such a school faces, which may be why McKay is so darn popular with families who use it.

If Democrats fear what a Trump administration might try in education, they ought to be encouraged by Betsy DeVos, who made one thing clear in her confirmation hearing: she does not think she should be calling the shots. But the Dems may fear Washington losing power even more than Trump, though they tremble at the thought of chickens coming home to roost.  

Despite both the recent release of a set of “GSE reform principles” by the Mortgage Bankers Association and Treasury Secretary Designee Steven Mnuchin’s promise to prioritize reform of Fannie Mae and Freddie Mac, as matters stand such reform seems likely to remain stalled for some time: while there may be a consensus to “do something,” there is far less agreement concerning what that something should be.

To jump start the debate, protect taxpayers, and encourage a more private mortgage market, Mr. Mnuchin, if confirmed, should strongly consider reviving a plan developed by his predecessor, John Snow. That plan would take advantage of the Treasury’s authority to place limits on Fannie and Freddie’s debt issuance to reduce those agencies’ indebtedness. The reduction can and should be done in a controlled manner that could be easily reversed if necessary; a 5 percent monthly reduction, for instance, should work smoothly.

The Treasury’s Authority

Some may be surprised to learn that the Treasury Secretary has such broad, unilateral authority. For those in doubt, the authority is found in the largely identical charters of Fannie Mae and Freddie Mac. According to Section 306(j)(1) of Freddie Mac’s charter, for example,

Any notes, debentures, or substantially identical types of unsecured obligations of the Corporation evidencing money borrowed, whether general or subordinated, shall be issued upon the approval of the Secretary of the Treasury and shall have such maturities and bear such rate or rates of interest as may be determined by the Corporation with the approval of the Secretary of the Treasury (emphasis added).

Section 306(k)(1) of the same document allows for similar Treasury authority over the GSE’s issuance of mortgage-backed securities. In short, neither Fannie Mae nor Freddie Mac can issue debt without the approval of the Treasury. (Those who still doubt this broad interpretation of the Treasury’s powers under Section 306 may wish to consult the Congressional Research Service” (CRS) independent legal analysis supporting the interpretation offered here.)

Under then Treasury Secretary John Snow, the Bush Administration announced its intention to more fully implement this authority. It’s position, as expressed by the Office of Management and Budget in the fiscal 2008 budget (page 75), was that

Fannie Mae and Freddie Mac fund their portfolios by issuing debt, and the U.S. Department of the Treasury has the responsibility to review and approve these GSEs’ debt-issuances. The Treasury Department’s debt approval authority is contained in Fannie Mae’s and Freddie Mac’s Charter Acts, and the Department has approved Fannie Mae and Freddie Mac’s debt on a regular basis. Treasury is developing a more formalized approach to their debt approval authority. As part of that approach, Treasury is developing new debt approval procedures to enhance the clarity, transparency, standardization, and documentation of Fannie Mae’s and Freddie Mac’s debt issuances.

The powers granted to it in Section 306 also allow the Treasury to increase the percentage of GSE debt that is in the form of mortgage backed securities, rather than unsecured debt. By taking this further step, the Treasury would help to reduce the interest rate risk carried on the GSE’s balance sheets.

No Serious Disruptions Likely

Some might be concerned that such a move would cause disruptions in the GSE debt markets.

The primary objection to these suggested reforms relates to a concern about mortgage rates. But one should keep in mind that by reducing the flow of GSE debt, all else equal, the Treasury would be pushing up the price of GSE debt, which, of course, will result in lower interest rates. Given that jumbo mortgage rates are currently very similar to conforming rates, other market players should be able to take any reduction in GSE market share with little impact on overall mortgage rates. The excess reserves in the commercial banking system alone could fund the entire mortgage market for at least a year or more. It is also helpful to note that when the original Snow plan was contemplated no disruptions to the GSE debt markets occurred.

Despite this and the CRS’s favorable review that the Snow plan was an acceptable interpretation of the law, John Snow resigned before it was implemented. Alas, his replacement, Hank Paulson, shelved Snow’s effort. We, of course, know the rest of that story. But if the next Treasury Secretary wants to 1) protect the taxpayer, 2) protect the financial system, and 3) motivate Washington (especially Congress) to do the hard and much needed work of reforming our mortgage finance system, he should take the Snow plan back off the shelf.

[Cross-posted from Alt-M.org]

The House Republican tax plan would cut the federal corporate tax rate from 35 percent to 20 percent, but it would broaden the tax base in a misguided way. It would deny businesses a deduction for their imported inputs to production, but exempt exports from their taxable income.

This base change would raise tax revenues by about $100 billion a year, which is causing major blowback in the business community. It would be a radical change in the structure of business taxes and cause large disruptions in the supply chains and tax liabilities of many firms. No other nation that I am aware of structures their income tax base that way.

I’m for radical change in the tax system, but not radical change that would increase taxes on so many businesses and make the system more complex. Yes, border adjustment would reduce tax avoidance and cut compliance costs related to transfer pricing, but it would create other avoidance and compliance issues by spurring manipulation of imports and exports on tax returns.

Most supporters of border adjustment know that the economics of it are dubious, but support it anyway because it would limit the deficit impact of tax reform. That’s an understandable goal, but there are three better solutions than broadening the tax base in a way that would harm companies.

1) Match a corporate tax rate cut with corporate welfare spending cuts. Romina Boccia, Tom Schatz, and I identify $50 billion in corporate welfare cuts in a new op-ed. And it’s easy to find another $50 billion in cuts in tables 1 and 2 here to match the $100 billion from border adjustment. Unlike the proposed tax base broadening, spending cuts would boost growth by reducing microeconomic distortions caused by federal programs.

2) Limit individual tax cuts. The GOP tax plan is generally excellent, moving in a pro-growth direction on many fronts. I’ve lauded the great work of Chairman Brady and his team in assembling the plan. However, the individual portion of the plan could be tweaked to limit revenue losses and increase the focus on growth, for example, by reducing the mortgage interest deduction and not expanding the child credit.

3) Slash the corporate rate without a legislated offset. The corporate income tax is the most damaging tax in the government’s revenue arsenal, and so cutting it would generate the most growth. Trump’s 15 percent corporate rate should be the goal. Canada’s federal corporate income tax at 15 percent generates as much revenue as ours at 35 percent—about 2 percent of GDP—partly because of the positive dynamic effects that a low rate has on growth and tax avoidance.

It is true that Canada is a smaller economy and so the dynamic effects are more powerful. But as globalization intensifies, and as corporate tax rates elsewhere fall further, the more economic growth and less revenue loss the United States would experience as it reduces its tax rate.

In sum, America must cut its corporate tax rate, but boarder adjustment is creating a major political barrier to reform. The economics of it are not good, and our trading partners may retaliate by denying their companies income tax deductions for U.S. products.

Spending cuts are a much better offset to tax cuts, and they would generate growth benefits of their own.

Dan Mitchell examines border adjustment here. Alan Reynolds here.

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