Policy Institutes

The Securities and Exchange Commission (SEC) is poised to have the majority of its seats filled by Trump nominees.  Earlier this week SEC chair Mary Jo White announced she would be stepping down at the end of President Obama’s term. This is not in itself surprising.  The chair serves at the will of the president and it’s customary for the current chair to step aside and let an incoming president install a chair of his or her choosing.  What is remarkable however is the number of vacancies that leaves president-elect Trump to fill. 

The five member commission has had two empty seats for over a year and a half now, following Republican Dan Gallagher’s resignation in May 2015 and the expiration of Democrat Luis Aguilar’s term the same month. Although President Obama nominated two candidates to fill those seats, Republican Hester Peirce and Democrat Lisa Fairfax, their confirmations have been stalled in congress.  (Like many similar commissions, the SEC must be politically balanced with no more than three seats filled by members of the same party.)  White’s resignation will therefore leave only two commissioners in office, Republican Michael Piwowar and Democrat Kara Stein. Until a new chair can be confirmed, it is likely that president-elect Trump will name Piwowar acting chair.  In the meantime, however, with only two commissioners, it is unlikely that the SEC will pursue any kind of ambitious agenda.

Looking forward to what the SEC might look like with its new members in place, it would be reasonable to hope for a less aggressive and more market-friendly agency than we have had under White’s direction.  Trump has sounded a decidedly deregulatory tone both in the course of the campaign, vowing to dismantle Dodd-Frank, and in the days since the election.  His pick of Paul Atkins, a former SEC commissioner known for his strong free-market bent, to head up part of his transition team also signals a commitment to paring back the voluminous regulations that have plagued the financial sector in recent years. 

As far as concrete agenda items for a new chair, there are a number of regulations ripe for reform.  The U.S. capital markets have seen a marked decrease in the number of initial public offerings (IPOs) in recent years, which many have attributed to the Sarbanes-Oxley Act of 2002 and its onerous reporting and internal controls requirements for public companies.  Under new direction, the SEC would be able to investigate what has been depressing interest in IPOs and to pursue strategies to reduce the regulatory burden as necessary.  Dodd-Frank imposed several disclosure requirements unrelated to companies’ profitability, a tactic former commissioner Gallagher has called “hijacking” the SEC’s disclosure regime. 

While many of these disclosure requirements cannot be repealed without an act of congress, the new SEC chair would have the authority to push back against any additional issue-of-the-day disclosures.  Senator Warren and others on the left have agitated for a requirement that companies disclose information about political spending; it is unlikely that an SEC chair picked by Trump or his team would pursue such a rule.  Finally, a highly technical rule known as Regulation NMS has long plagued the securities exchanges, even some have argued spawning the trading strategy known as “high frequency trading.”  A new chair would be well-positioned to reopen that regulation and to evaluate its potential unintended consequences.

In the week since election night, foreign policy watchers (myself included) have rushed to speculate about the effects that President Trump’s administration will have on the world. The most dramatic effect is the potential upending of the international order that the United States built after World War II. Of course, at this point it is impossible to determine whether or not such a consequence will come to pass, but it deserves consideration.

Baked into the idea that Trump will tear down the international order is the assumption that Hillary Clinton would have maintained the order if she was president. Jeffrey A. Stacey argued as much in Foreign Affairs when he wrote, “The world’s challenges require a determined use of U.S. leadership, not isolationism. And in the areas where Obama’s restraint has failed, the more activist Hillary Clinton Doctrine…could likely prevail.” However, the idea that the United States can influence events through “leadership” ignores the fact that in foreign policy the enemy gets a vote. In other words, the growing relative power of America’s adversaries will still pose a challenge to the international order, regardless of what actions the United States takes or who sits in the Oval Office.

America’s ability to rein in the bad behavior of other states has diminished, not because the United States is in decline, but rather because the power of our adversaries has grown. In East Asia, for example, the two most important challenges to the security status quo are North Korea’s nuclear weapons program and China’s improving conventional military capabilities. Both developments threaten the regional order in East Asia, and resist American attempts to stop them. Multilateral and bilateral sanctions efforts have failed to stop North Korea’s nuclear weapons program, which has come a long way with minimal external assistance.

China’s growing military power enables more assertive behavior in the South and East China Seas, despite displays of resolve by the United States and its allies. While many have criticized the Obama administration for not doing more against China, the simple fact is that as its military grows strong it becomes harder to deter China from using it. Beyond East Asia, after years of neglect following the Cold War, the Russian military is fielding new capabilities and pushing back against NATO expansion to countries along its border.

The growing relative power of America’s adversaries does not make the president obsolete, but the individual behind the Resolute desk is not omnipotent. They cannot always prevent changes in the balance of power or maintain the international order by dialing up the “leadership” they demonstrate. We don’t know what impact Donald Trump will have on the world, but the threats America faces would exist regardless of who won the election. The assumption that Hillary Clinton would be able to prevent negative outcomes through greater leadership on the international stage disregards the growing power and agency of America’s challengers. 

I’m a big fan of the Baltic nations of Estonia, Latvia, and Lithuania.

These three countries emerged from the collapse of the Soviet Empire and they have taken advantage of their independence to become successful market-driven economies.

One key to their relative success is tax policy. All three nations have flat taxes. Estonia’s system is so good (particularly its approach to business taxation) that the Tax Foundation ranks it as the best in the OECD.

And the Baltic nations all deserve great praise for cutting the burden of government spending in response to the global financial crisis/great recession (an approach that produced much better results than the Keynesian policies and/or tax hikes that were imposed in many other countries).

But good policy in the past is no guarantee of good policy in the future, so it is with great dismay that I share some very worrisome news from two of the three Baltic countries.

First, we have a grim update from Estonia, which may be my favorite Baltic nation if for no other reason than the humiliation it caused for Paul Krugman. But now Estonia may cause sadness for me. The coalition government in Estonia has broken down and two of the political parties that want to lead a new government are hostile to the flat tax.

Estonia’s government collapsed Wednesday after Prime Minister Taavi Roivas lost a confidence vote in Parliament, following months of Cabinet squabbling mainly over economic policies. …Conflicting views over taxation and improving the state of Estonia’s economy, which the two junior coalition partners claim is stagnant, is the main cause for the breakup. …The core of those policies is a flat 20 percent tax on income. The Social Democrats say the wide income gaps separating Estonia’s different social groups would best be narrowed by introducing Nordic-style progressive taxation. The two parties said Wednesday that they will immediately start talks on forming a coalition with the Center Party, Estonia’s second-largest party, which is favored by the country’s sizable ethnic-Russian majority and supports a progressive income tax.

And Lithuanians just held an election and the outcome does not bode well for that nation’s flat tax.

After the weekend run-off vote, which followed a first round on October 9, the centrist Lithuanian Peasants and Green Union party LGPU) ended up with 54 seats in the 141-member parliament. …The conservative Homeland Union, which had been tipped to win, scored a distant second with 31 seats, while the governing Social Democrats were, as expected, relegated to the opposition, with just 17 seats. …The LPGU wants to change a controversial new labour code that makes it easier to hire and fire employees, impose a state monopoly on alcohol sales, cut bureaucracy, and above all boost economic growth to halt mass emigration. …Promises by Social Democratic Prime Minister Butkevicius of a further hike in the minimum wage and public sector salaries fell flat with voters.

The Social Democrats sound like they had some bad idea, but the new LGPU government has a more extreme agenda. It already has proposed to create a special 4-percentage point surtax on taxpayers earning more than €12,000 annually (the government also wants to expand double taxation, which also is contrary to the tax-income-only-once principle of a pure flat tax).

So the bad news is that the flat tax could soon disappear in Estonia and Lithuania.

But the good news, based on my discussions with people in these two nations, is that the battle isn’t lost. At least not yet.

In both cases, policy can’t be changed unless all parties in the coalition government agree. Fortunately, they haven’t reached that point.

And hopefully that point will never be reached if Estonia and Lithuania want long-run success.

All of the Baltic nations get reasonably good scores from Economic Freedom of the World. Ditching the flat tax will cause their scores to decline.

Given that fiscal policy is only 20 percent of a nation’s grade, adopting some bad tax policy may not seem like the end of the world.

But the flat tax isn’t just good policy. It also has symbolic value, telling both domestic entrepreneurs and global investors that a country has a commitment to a system that won’t impose extra punishment just because a person contributes more to national economic output.

By the way, the LPGU Party is very correct to worry about emigration. The Baltic nations (like most countries in Eastern Europe) face a very large demographic problem. And every time a young person leaves for better opportunities elsewhere (even if that better opportunity is a big welfare check), that makes the long-run outlook even more challenging.

But imposing a more punitive tax system is exactly the opposite of what should happen if the goal is faster growth so that people don’t leave the nation.

Let’s close with a famous quote from John Ramsay McCulloch, a Scottish economist from the 1800s.

To be sure, progressive taxation didn’t lead to total catastrophe, so McCulloch’s warning may seem overwrought by today’s standards.

But the so-called progressive income tax did lead to the modern welfare state. And the modern welfare state, when combined with demographic change, is threatening immense economic and societal damage in many nations.

So what he wrote in 1863 may turn out to be very prescient for historians in 2063 who wonder why the western world collapsed.

P.S. If Estonia and Lithuania move in the wrong direction, Latvia could be a big winner. That nation already has received some positive attention for being fiscally responsible, and it also has withstood pressure from the IMF to impose bad tax policy. So Latvia is well positioned to reap the benefits if Estonia and Lithuania shoot themselves in the foot.

Just over a month ago, another Department of Homeland Security deadline for state compliance with the provisions of the REAL ID Act passed. It was but the most recent in a series of deadlines DHS has improvised since the statutory May 2008 compliance date passed without a single state participating in the national ID program.

Time and again, when faced with resistance from the states, DHS has backed down. But the agency has had more success goading states toward compliance since it stopped issuing deadline extensions in the Federal Register and took the process offline to deal directly with individual states. Divide and conquer works.

A new series of deadlines assigns different states to one of three dates—January 30th, June 6th, and October 16th, 2017—depending on where they are in the compliance process. If the states in each category have not sufficiently answered to DHS by the relevant date, DHS will judge them non-compliant. As it has so many times before, DHS says their residents will then be at risk of having their state-issued IDs refused for federal purposes.

Because so much of this is happening behind the scenes, it is hard to gauge how DHS is choosing which states to play hardball with and which states to treat with kid gloves. But the staggered compliance deadlines have the feel of meting out punishment to states that have been the most vocal in their resistance to REAL ID. It does not have the feel of an agency neutrally enforcing a generally applicable law.

Consider the earliest group, which has a January 30th, 2017 deadline. It consists of Kentucky, Maine, Montana, Oklahoma, Pennsylvania, and South Carolina (as well as the U.S. territories of Guam and the Virgin Islands). DHS already considers Minnesota, Missouri, and Washington State “non-compliant” with REAL ID.

Each of these states has pushed back against REAL ID and, in doing so, seems to have incurred the wrath of DHS’s bureaucrat-enforcers. Kentucky’s governor recently vetoed a compliance law. Maine, Montana, and South Carolina have had anti-REAL ID legislation on the books for nearly a decade (and show few signs of changing their stance), while Pennsylvania rejected compliance in 2012. Oklahoma and Missouri have had long running and vocal battles in their state legislatures over compliance. Minnesota and Washington State have been prioritizing their residents’ privacy by refusing to amend state law for REAL ID, which will ultimately feed drivers’ private data into a national database system.

The second group, with the June deadline, consists of Alaska, California, Oregon, and Virginia. All four states have resisted REAL ID compliance somewhat, but not to the same extent or with the same level outspokenness of the first group.

The final group of fourteen states consists of states that seem further along in meeting DHS’s improvised standards (implemented with the barest arguable authority to do so in the terms of the law, by the way). These range from states that are actively working towards compliance, such as Arkansas and Texas, to Rhode Island, which has shown little sign of active compliance but already has in place strict, state-written requirements that dovetail with DHS’s REAL ID requirements.

Based on how the groups are ordered, it’s easy to see the first group as a “punishment group” singled out for active resistance to the national ID law. The chance of them meeting DHS’s compliance requirements within three months is nil, so the deadline must be meant simply to engender panic among state officials and opinion leaders.

The January deadline is going to come and go like all of the previous deadlines. But DHS seems to be executing on a political strategy to punish recalcitrant states rather than enforcing federal law in an even-handed way.

The REAL ID law was called unworkable by the chairman of the Senate Homeland Security and Governmental Affairs Committee when it passed. DHS is gamely trying to press states toward compliance anyway. Its inventiveness in rewriting the law and improvising deadlines draws into question whether the agency is acting with dispassion or with vindictiveness toward states that it sees as opportune victims of federal punishment.

On the campaign trail, Donald Trump promised to spend twice as much on infrastructure as whatever Hillary Clinton was proposing, which at the time was $275 billion. Doubling down again in a speech after winning the election, Trump now proposes to spend a trillion dollars on infrastructure over the next ten years.

President Obama had proposed to fix infrastructure with an infrastructure bank, though just where the bank would get its money was never clear (actually, it was perfectly clear: the taxpayers). Trump’s alternative plan is for the private sector, not taxpayers, to spend the money, and to encourage them he proposes to offer tax credits for infrastructure projects. He says this would be “revenue neutral” because the taxes paid by people working on the infrastructure would offset the tax breaks. In short, Trump is proposing tax credits in lieu of an infrastructure bank as a form of economic stimulus.

America’s infrastructure needs are not nearly as serious as Trump thinks. Throwing a trillion dollars at infrastructure, no matter how it is funded, guarantees that a lot will be spent on unnecessary things. As Harvard economist Edward Glaeser recently pointed out in an article that should be required reading for Trump’s transition team, just calling something “infrastructure” doesn’t mean it is worth doing or that it will stimulate economic growth.

Infrastructure more or less falls into three categories, and Trump’s one-size-fits-all plan doesn’t work very well for any of them. First is infrastructure that pays for itself, such as the electrical grid. Private companies and public agencies are already taking care of this kind, so if Trump’s plan applied to them, they would get tax credits for spending money they would have spent anyway. That’s not revenue neutral.

The second kind of infrastructure doesn’t pay for itself. Rail transit is a good example, and this tends to be the infrastructure that is in the worst shape. It won’t suddenly become profitable just because someone gets a tax credit, so under Trump’s plan it will continue to crumble.

The third kind of infrastructure consists of facilities that could pay for themselves but don’t because they are government owned and politicians are too afraid of asking users to pay. Local roads fit into this category. Simply creating tax credits doesn’t solve that problem either.

Trump may think that local governments and transportation agencies will jump at the chance to borrow money from private investors to fix infrastructure, and then repay that money out of whatever tax sources they use to fund that infrastructure. But those government agencies can already sell tax-free bonds at very low interest rates. It isn’t clear how taxable bonds issued by private investors who get tax credits are going to be any more economical.

Most public-private partnerships for projects that have no revenue stream are entered into by the public party to get around some borrowing limitation. If the infrastructure spending is really necessary, it makes more sense to simply raise that borrowing limit than to create a byzantine financial structure that, Trump imagines, will have the same effect.

In short, whether funded by municipal tax-free bonds or taxable private bonds, those bonds will ultimately have to be repaid by taxpayers. We know from long experience that politicians are more likely to ask taxpayers to pay for new projects than maintenance of existing projects, and Trump’s plan will do nothing to change that.

The problem with a top-down solution such as Trump’s proposal is that one size doesn’t fit all. Different kinds of infrastructure have different kinds of needs, and the financial solution will be different for each one. Trump’s plan is more likely to result in new construction of pointless projects than whatever maintenance is needed for existing infrastructure.

Fortunately, a lot of people know this, so there is already criticism of Trump’s plan, including from conservatives in Congress. No doubt Trump’s plans will get refined between now and when he actually takes office. The question is whether Trump will realize that bottom-up solutions work better than ones that are top down.

The incoming Trump administration has indicated that it will make reforms to the federal workforce. Here are a few places where the administration may focus its efforts:

  • Freezing Hiring: Trump’s Contract with the American Voter promised “a hiring freeze on all federal employees to reduce federal workforce through attrition (exempting military, public safety, and public health).” As a goodwill gesture, Trump should also shrink the army of almost 4,000 political appointees in his administration in order to speed agency decisionmaking.
  • Increasing Firing: Trump is famous for firing people on his TV show, and he will likely support reforms to increase federal firing. On the campaign trail, Trump talked about firing VA executives, and his advisors Chris Christie and Newt Gingrich talked about the importance of civil service reforms to increase firing. Reforms are needed: federal civilian workers are fired at just one-sixth the rate that private-sector workers are. Members of the federal senior executive service are fired at just one-twentieth the rate that corporate CEOs are.
  • Reducing Retirement Benefits. Federal wages and benefits are higher, on average, than in the private sector, but it is on benefits that federal compensation really stands out. The WaPo has discussed various GOP proposals to reduce federal benefits. My favored reform is to repeal the old-fashioned defined-benefit pension plan. That would leave federal workers with a generous defined-contribution plan, which is the standard in the private sector.  
  • Reforming Federal Unions. One reform was mentioned in the Republican platform: “union representatives should not be allowed to engage in union-related activities while on the public’s time.” Republicans on the Hill have been investigating the use and abuse of such “official time” in federal agencies.

My essays “Bureaucratic Failure in the Federal Government” and “Reducing the Costs of Federal Worker Pay and Benefits” should provide useful information to the Trump team in assembling its workforce reform agenda.

Proponents of more restrictions on immigration—legal and illegal—talk a big game, suggesting more penalties for lawbreakers, more assets for the border, and more surveillance for the workforce. These, restrictionists say, will restore the rule of law. Yet while occupying the White House is new for them, the fact is that restrictionists largely dictated U.S. policy until recently. Not only have their ideas failed on their terms, they have backfired, creating more lawlessness than before.

Creating the Problem

Before the 1920s, America had no numerical restriction on the number of immigrants, so legal immigrants poured in. As a share of the population, total annual immigration flows were four times as great then as they are today. Restrictionists—members of the progressive wings of both parties—won the election of 1920 and immediately imposed a numerical cap. This reduced legal immigration by 80 percent, barring immigrants regardless of their health, wealth, or skills.

This fateful decision spawned all of the problems that restrictionists have blamed on their opponents ever since. “While legal immigration has been curbed to the extent that advocates of the new policy expected, that of the illegal—the ‘bootlegging’—kind has probably increased greatly,” the New York Times reported in 1925. “Some officials estimate that immigrants have been coming in clandestinely at a rate of at least 100 a day.”

Border patrols and deportations were increased to stop the flow of unauthorized immigrants, but they had little effect. “I’ve no doubt whatever that the man finally deported is back here,” the Assistant Secretary of Labor told the Times. “Easily 50 per cent of them return.” In July 1929, Congress gave in and provided “amnesty” or citizenship to the undocumented immigrants. Then, the Great Depression dried up demand for workers, temporarily resolving the issue.

When the economy finally picked up again following World War II, illegal immigration returned. This time, Congress opted for a different approach: admit more workers legally. Under the Bracero guest worker program, illegal immigration almost vanished as the number of Braceros soared to almost a half a million in the early 1960s (Figure 1). Apprehended Mexicans were directed to border stations to receive cards to enter legally.

Figure 1: Aliens Apprehended at the Border and Low-Skilled Guest Workers (Braceros & H-2s)

Sources: Border Patrol; INS

But the restrictionists wouldn’t allow the fix to last. Over the vigorous objections from the Border Patrol, they cancelled the program under the guise of protecting U.S. workers. Over the next decade, the entire legal flow (and then some) was replaced with immigrants entering illegally. By the 1980s, over a million people were crossing the border each year. 

A Parade of Phony Solutions 

Restrictionists refused to accept responsibility for this chaos and demanded a new law to restrict the flow and fine employers who failed to check workers’ IDs. In 1986, President Ronald Reagan, who believed in more open legal immigration, signed the law, while extracting a legalization concession for unauthorized immigrants.

But the law backfired. Before 1986, workers—first as legal guests or later as illegal migrants—would return home at the end of each harvest, and as Figure 2 shows, the total illegal population in the country grew only very slowly throughout the decade. (The drop after 1986 occurred due to the legalization.) But with more border guards, it became too risky and costly to circulate each year. Instead of not coming at all, immigrants came and built their lives here. “If enforcement efforts had remained at pre-1986 levels,” concluded Princeton University’s Douglas Massey, “there would have been 5.3 million fewer net undocumented entries.”

Figure 2: Unauthorized Immigrant Population and Number of Border Patrol Agents

Sources: Warren and Passel (1980); Census Bureau (14 and up only, 1983); Congerssional Research Service (1986-1988); Pew Research Center (1990-2006); Border Patrol

The illegal population rose as fast as the number of border agents—both tripled between 1986 and 2000 (Figure 2). Not acknowledging their failure, restrictionists tried again, doubling the border agents over the next decade, which brought the level to ten times the amount in 1985. Immigrants continued to enter by the millions and the shadow population hit 12.2 million in 2007. As the cost of each crossing rose, cartels swooped in to capture the smuggling profits.

At the same time, the requirement that employers check IDs only created another black market in fake documents. Ignoring past failure, restrictionists doubled down in 2008, demanding a border fence and pressuring employers to use E-Verify, an employment verification system that checks Social Security numbers against federal databases. Rather than expunging the black market in jobs and documents, E-Verify has only ballooned yet another black market in identities.

Illegal immigration finally nosedived after the housing bubble burst, and the illegal populationshrunk from 2007 to 2014. Meanwhile, ignoring the restrictionists, the Bush and Obama administration quietly resumed issuing many more work visas to Mexican workers. The result has been that just as many people were entering from Mexico in 2016 as in 2006, but most of them were doing so legally.

The Trump administration might want to undo this progress. With each new failure, restrictionists have never admitted that their core policy—restricting legal immigration—was the cause of all the others. Never mind that the Obama administration set records for deportations, it was never enough. Enforcement is the only tool in the restrictionist shed. Their many botched attempts to clean up their own mistakes is proof that they simply cannot fix the problem today.

In 1993, Bill Clinton swept into office with a Democratic majority in both the House and Senate. His attempt to pass a controversial health-care bill failed but generated enough of a backlash that the Republicans took over both houses of Congress in 1995.

In 2001, George H.W. Bush entered the White House with Republicans in control of both houses. The events of 9/11 muted criticism of Bush for a time, but by 2007 Democrats had taken over Congress.

In 2009, Barack Obama became president and Democrats held both houses of Congress. He succeeded where Clinton failed in passing a health-care bill, but Republicans took over the House in 2011 and the Senate in 2015.

Pundits say that Americans like to have different parties controlling the White House and Congress. However, Americans are often angry at the gridlock that results. So why do they vote that way?

The answer is that the party that takes over both branches often overreaches, which has the effect of polarizing the other side. The party in power would be better off taking small steps that lead to genuine results rather than try to take large steps that either can’t be achieved (Hillarycare) or that create more problems than they solve (Obamacare).

A case in point is the Department of the Interior, a highly visible agency that has proven to be a lightning rod for both sides. Ronald Reagan’s appointment of James Watt as Secretary of the Interior helped build the environmental movement in the 1980s because environmental groups used Watt as their leading fundraising tool. They in turn used those funds to stymie just about everything Watt wanted to do with the public lands.

Now rumor has it that Trump is considering Sarah Palin for Secretary of the Interior, though an oil company executive named Forrest Lucas seems a bit more likely (Lucas contributed $50,000 to Mike Pence’s gubernatorial campaigns). What a great way for environmental groups to rebuild their memberships!

As Secretary, either Palin or Lucas would be likely to try to open up the Arctic National Wildlife Refuge to oil exploration and extraction. Bush tried this in 2001 and the environmentalists successfully prevented it. Instead of going after the most controversial piece of ground in the nation, Bush should have–and Trump should–start with opening less controversial areas to show that oil development is compatible with wildlife and other resources.

In the same way, instead of controversial figures like Palin or Lucas, Trump could ask Gary Johnson to be Secretary of the Interior. As a former western governor, Johnson is more familiar with public lands than Lucas. As a dedicated free marketeer, Johnson won’t be committed to one resource over all others; instead, he will try to find ways to maximize the value of all of them together.

Johnson’s Libertarian candidacy shouldn’t make him unacceptable, but if it does, how about current Arizona Governor Doug Ducey? As former CEO of Cold Stone Creamery, Ducey isn’t identified with one natural resource or another. As a fiscally conservative Republican, Ducey should fit right in with Trump’s agenda.

Whoever is picked should focus on maximizing the value of public lands, partly by maximizing returns they produce for the Treasury. This will mean convincing Congress to give public land agencies, including the Forest Service, the authority to charge more user fees. It will mean more oil & gas drilling, but instead of focusing on controversial areas, the new secretary should start with some demonstration projects to show it can make resource extraction compatible with conservation. If Audubon allows oil wells on one of its wildlife refuges and the Nature Conservancy allows timber cutting on its conservation lands, the United States should be able to do similar demonstration projects on public lands.

Obviously, numerous Obama administration policies hang in the balance with the coming of a new president and Republican majorities in both houses of Congress. Among them is an administration campaign that has been waged against for-profit colleges, a sector of higher education seen by many as uniquely predatory and, it is probably fair to say, uniquely awful. But is the sector so horrible? And horrible or not, does the election mean a reprieve is coming?

To answer these questions—and in the interest of having a real exchange of views—this Wednesday Cato’s Center for Educational Freedom will be hosting a Q & A-intensive forum on for-profit colleges featuring several of the sector’s most prominent critics and defenders, including former Obama administration member Robert Shireman and Center for College Affordability and Productivity director Richard Vedder. We’ll also be fielding questions through Twitter using #CatoHigherEd.

One lesson from the just-completed election seems to be that different parts of America have been talking about and past each other, but rarely to each other. At least when it comes to for-profit higher ed, at least for one morning, we plan to do something different. Register today to join us in-person, or watch online—and join us via Twitter—at 10:00 am ET, on Wednesday, November 16.

Talk with you then!

While he may be in the news for being on the outs from the Trump transition, as well as for legal troubles regarding Bridgegate, New Jersey Governor Chris Christie is also leading a challenge to federal law that could have a quite beneficial effect in rebalancing federal-state relations.

First, some background. Why do we even have states? While a fairly common question now in light of the federal Leviathan, it likely would have seemed quite foreign to the Constitution’s authors. The Framers saw federalism’s decentralization of government authority as a central bulwark of ordered liberty, preventing any one entity or bloc from gaining too much power over the nation while encouraging innovative competition between each of the several “laboratories of democracy.”

Unfortunately, federalism’s safeguards against centralized authority have slowly eroded, particularly since the New Deal Supreme Court’s expansive reinterpretation of the Commerce Clause paved the way for aggressive federal expansion under Presidents Roosevelt, Johnson, and beyond. One firewall that has survived, however, is the anti-commandeering doctrine: the idea that the federal government may not compel states or state officials to implement federal policies. In other words, states cannot be made into mere “puppets of a ventriloquist Congress.” Printz v. United States (1997).

It is this anti-commandeering doctrine that is under threat in Christie v. NCAA. The Professional and Amateur Sports Protection Act (PASPA) is a federal statute that does not allow states to “authorize” sports gambling “by law.” So when New Jersey wanted to repeal some of its old gambling laws, it was stopped from doing so by PASPA, prompting Gov. Christie to sue on the grounds that the law infringes on New Jersey’s sovereignty and further undermines the United States’ federalist structure.

The U.S. Court of Appeals for the Third Circuit interpreted this prohibition to bar states not just from affirmatively licensing sports gambling, but also from repealing or modifying preexisting state prohibitions. It held that PASPA did not violate the anti-commandeering doctrine because New Jersey wasn’t being compelled to pass new legislation, just forbidden from repealing existing laws. In doing so, it accepted an argument based almost entirely on semantics. Regardless of whether the federal government compels or forbids particular action, the result—a state’s being forced to regulate behavior that its duly elected representatives prefer to leave unregulated—is the same.

If allowed to stand, this absurd loophole may have wide-ranging implications across many policy areas and poses a serious threat to what remains of state sovereignty. Cato has joined the Pacific Legal Foundation and the Competitive Enterprise Institute on a brief supporting New Jersey’s petition for Supreme Court review.

We urge the court to take up the case so that it can clarify the proper scope of the anti-commandeering doctrine and ensure that the sovereignty of the individual states—so critical to the republic’s constitutional system of checks and balances—is not further eroded by an overreaching national government.

As votes in a few places are still being counted, the battle to fill Justice Antonin Scalia’s empty seat on the Supreme Court is already taking shape. Speaking on MSNBC last night and again this afternoon on WBUR’s “Here & Now” (NPR), Oregon Senator Jeff Merkley, a member of the important Senate Democratic Caucus, set forth what is likely to be a main line of argument going forward for Senate Democrats.

In a nutshell, given the failure of Senate Republicans to hold hearings on President Obama’s nominee, Judge Merrick Garland, the seat “is being stolen,” rendering anyone that President Trump might put forward “illegitimate.” As Merkley put it last night:

The seat that’s sitting empty is being stolen. It’s being stolen from the Obama administration and from the construct of our Constitution, and it’s being delivered to an administration that has no right to fill it. And we have to understand that this is about the Koch Brothers cartel working with the Republican majority to say that they want to basically pack the Court. … There’s no legitimacy to a Supreme Court justice in a seat that’s being stolen from one administration and handed to another. We need to do everything we possibly can to block it. … This is a theft being delivered to the Koch Brothers, and the Koch Brothers are not interested in We the People. It’s turning the Constitution on its head. This is government by and for the most powerful. It locks in Citizens United, which is completely against the mother principle that Jefferson laid out for an equal voice for citizens, and this is going to corrupt our political system in a way never envisioned or intended by our Constitution for a generation to come.

Asked if he would keep that seat open for as long as Democrats could, even if it took the entire duration of a term and keep a 4-4 Court, Merkley answered that first he would “call upon the majority leader that Merrick Garland gets a legitimate shot at a vote here in the lame duck, and then the Trump administration, if they want to see partnership and cooperation, if he puts forward a nominee it should be Merrick Garland.”

Doubling down on those points on NPR this afternoon, Merkley charged that “for the first time in history the Republican leadership failed to fulfill their responsibilities” and this “delegitimizes any nominee that Trump might put forward”—adding that “there’s still time to salvage this,” but “we’re facing a real problem … in terms of legitimacy of whoever Trump might put forward. So we really have a deep corruption that is occurring through this stolen Supreme Court seat.” He concluded that “absolutely,” he would filibuster a nominee, adding that “we changed the application of the rules back in 2013. We left in place the filibuster on the Supreme Court.”

The “we” Merkley references was not the Senate as a whole, of course, but Senate Democrats, led by Harry Reid, who exercised the so-called nuclear option in order to “pack” the appellate courts with Obama nominees unacceptable to the Senate Republican minority. Doubtless, Reid and company wanted to keep the filibuster in place for Supreme Court nominations just in case they lost the Senate, which happened only a year later. But in the process, they lost the principle, even as the appellate courts they filled were upholding Obama’s rule by executive diktat.

Turning to Merkley’s main line of argument, however, the idea that the empty Scalia seat is being “stolen,” much less that it is being “handed” to a succeeding administration, as if it were some entitlement, simply boggles the mind. The Constitution is clear: The president nominates; the Senate advises and consents—or not. Given that the Senate has no duty to fill the seat, especially in an election year when primary voting was already underway when the vacancy arose, the seat could hardly be “stolen.” If the Senate fails to act, it simply falls to the Senate in the next Congress to take up the matter. This is quintessentially a political matter, plain and simple.

Nor does the Senate’s failure to act on one administration’s nominee in any way “delegitimize” its confirmation of a subsequent administration’s nominee. One has nothing to do with the other. Moreover, the filibuster is itself a political construct, not a constitutional imperative, and it has changed over the years. Having played with fire, Democrats have no ground for complaint if they should get burned down the road.

And it isn’t as if Senate Democrats are coming to these issues with clean hands. For nearly two years they sat on President George W. Bush’s first nine Republican appellate court nominations, holding no hearings at all for such legal luminaries as Michael McConnell, John Roberts, and Miguel Estrada. Only when the Senate changed hands did several of those nominations go forward. That’s politics—as provided for in the Constitution.

While the twitterverse is chirping with concern over Donald Trump’s handling of the global warming science, we offer a few realities that should be key parts of any transitional team’s synthesis.

1. Carbon dioxide is a greenhouse gas that by itself will result in a slight warming of the lower atmosphere and surface temperatures, as well as a cooling of the stratosphere.

     a. All of these have been observed.

 2. Additional warming is provided by a complicated feedback with water vapor. If it were large and positive, so would be future warming.

     a. The observed warming is far below values consistent with a high temperature sensitivity. Therefore future warming will run considerably below any high-sensitivity estimate.

     b. The disparity between observed and forecast warming continues to grow.

3. Any attempts to mitigate significant future warming with the current suite of politically acceptable technologies are doomed to failure. The Paris Agreement, according the EPA’s own models, only prevents 0.1 to 0.2⁰C of warming by 2100.

     a. The Paris Agreement is meaningless, unenforceable, and compels developed nations to tender funds to the developing world. That makes it a treaty that should be submitted to the Senate for ratification, where it will be soundly rejected.

4. Having the government mandate politically correct and inefficient technologies such as solar energy and wind inevitably squanders resources that would better be used for investments in a much more efficient future. Unfortunately, this is what President Obama’s Clean Power Plan does.

     a. Voiding the Clean Power Plan will therefore ultimately lead more quickly to competitive, more efficient technologies.

5. Affluent societies have the resources for private investment in novel and efficient technologies, and inevitably are more protective of their environment than are poor ones.

     a. Environmental protection is a priority in a vibrant economy. Promoting economic development is the key to a cleaner planet.

6. There is no evidence that government funding of most science is better than a more diversified base of private support. The current dependency of the academy on this funding is creating perverse incentives that are demonstrably harming science.

     a. All government-funded science outside of the clandestine realm must be perfectly transparent with data, research methods and results available to any party.

We’ve recently taken a look to see how these comport with the views of Myron Ebell of the Competitive Enterprise Institute, who was recently named to head the transitional team for the new administration’s EPA. We think he agrees with this us on this synthesis—something no one ever in any previous administration has done!

You Ought to Have a Look is a regular feature from the Center for the Study of Science.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

In this You Ought to Have a Look, we hope that some of the “You” are members of, or influencers of, President-elect Trump’s transition teams.

With so much talk about the Trump’s plans on killing the Clean Power Plan, withdrawing from the Paris Climate Agreement, reversing the Keystone XL pipeline rejection, removing energy subsidies and reigning in the EPA (all good ideas in our opinion), we want to make sure the transition team doesn’t overlook other, invasive, burdensome, costly, and climatologically-meaningless regulations that were put in place in President Obama’s Climate Action Plan.

Here’s a rundown of some of the more significant of them.

Energy Efficiency Regulations from the Department of Energy. 

The DoE and put forth a seemingly endless string of regulations governing the energy efficiency of all manner of power-consuming appliances large and small, from industrial boilers and refrigeration systems, to microwave ovens, and ceiling fans (and most things in between). The reason?

We have repeatedly submitted public comments as to why the climate change angle should be a non-starter (our latest in this long line is here). But besides that, the DoE standards result in appliances that work less well, cost more, and reduce consumer choice. Our big brother government thinks it’s doing us all a favor because we aren’t savvy enough to value long-term cost saving from energy consumption over other values. Not everyone agrees. Sofie Miller, senior policy analyst at the George Washington University Regulatory Studies Center, recently wrote:

This line of reasoning overlooks the possibility that consumers may have legitimate preferences for less-efficient appliances based on household characteristics or other observable product qualities (such as size, durability, reliability, or noise level). Also, the assumptions underpinning the DOE’s analyses may not be accurate; for instance, some consumers may have high discount rates, making future energy savings less important than immediate purchase savings. By regulating away the option for consumers to purchase less efficient appliances, the DOE claims to be improving consumers’ choice structure by removing choices. These rules aren’t technology-forcing, they’re consumer-forcing.

…the fact that consumers choose not to purchase efficient appliances indicates only that they do not value these attributes as much as the DOE does. As a result, these rules impose huge net costs on consumers, rather than benefits.

Yet the DoE has a lot more of these efficiency standard regulations in the offing (the public comment period is currently open for two more proposed regulations—governing walk-in refrigerators and residential furnaces).

One member of Congress, Representative Michael Burgess (R-TX) has previously sponsored legislation aimed at striking “all government-mandated energy efficiency standards currently required on a variety of consumer products found in millions of American homes.”

We suggest that similar efforts—either taking place within the DoE or through Congressional action—be pursued by the incoming Administration.

Greenhouse Gas Emissions Assessments Required Under the National Environmental Policy Act

According to the EPA, the National Environmental Policy Act of 1970 (NEPA), directs that:

 “all branches of government give proper consideration to the environment prior to undertaking any major federal action that significantly affects the environment.” 

And that:

“NEPA requirements are invoked when airports, buildings, military complexes, highways, parkland purchases, and other federal activities are proposed. Environmental Assessments (EAs) and Environmental Impact Statements (EISs), which are assessments of the likelihood of impacts from alternative courses of action, are required from all Federal agencies and are the most visible NEPA requirements.”

Under the Obama Administration, NEPA, which is administered by the Council on Environmental Quality, was modified to include requirements that the greenhouse gas emissions (acting as a proxy for climate change) that may result from all new projects be estimated and that information considered when assessing the feasibility/acceptability of the project.

This is ludicrous, as we explained in our Comment in opposition:

This aspect of the CEQ guidance is internally inconsistent, contrary to the intentions of NEPA, and ultimately misdirects policymakers and the general public alike. 

Additionally, it illustrates a lack of understanding and comprehension of environmental science—yet this guidance is supposedly being developed to provide direction to federal agencies in their reporting of science-based environmental impacts.

Instead, the draft guidance appears to have been created to elevate policy initiatives over actual science. This is inappropriate. In its current form, the guidelines should be rescinded and redeveloped with a more appropriate emphasis on environmental and climate science.

…To best serve policymakers and the general public, the CEQ should state that all but the largest federal actions have an undetectable and inconsequential impact on the environment through changes in the climate. And for the largest federal actions, an analysis of the explicit environmental impacts resulting from greenhouse gas emissions arising from the action should be detailed, with the impacts assessment not limited to climate change but also to include other environmental effects such as impacts on overall vegetative health (including crop yield and production).

As called for in the guidelines described in this current draft—substituting greenhouse gas emissions for climate change and other environmental impacts—is not only insufficient, but is scientifically inadequate and potentially misleading. As such, these CEQ guidelines should be rescinded and discarded.

Obama’s CEQ didn’t favorably consider our objection. We urge Trump’s to reconsider.

Social Cost of Carbon

The Obama Administration’s favorite tool to produce monetary justification for its actions on climate change is the social cost of carbon (SCC). The SCC is supposed to be a representation of all the future damages (extending globally out about 300 years(!)) caused by each additional ton of carbon dioxide emissions from human activities, expressed in current dollars. The Administration currently considers that elimination a ton of CO2 that would otherwise be emitted results in a savings of about $40 in future damages. It’s the “climate benefit” of their rulemaking.

But, the SCC is so highly malleable that you can pretty much game it to produce any value desired—the perfect characteristic for an all-purpose economic cost/benefit tool wielded by an opportunistic and activist government.

We’ve described in great detail the hows and whys of the SCC and why the Obama Administration’s determination of it is so badly biased (a recent example is here).

A critical re-examination of the SCC is badly needed (the one conducted a few years back by Obama’s OMB was but a whitewash).

We suggest that the new administration follows the explicit Office of Management and Budget (OMB) guidelines in calculating the SCC, including guidance on how to select discount rates, as well as requirements for reporting domestic (vs. global) costs. Additionally, the new SCC determinations should fully incorporate the latest scientific estimates of the sensitivity of the earth’s temperature to carbon dioxide increases and adequately incorporate the overwhelming scientific evidence of the positive effects of carbon dioxide on global food production and vegetation growth. At some higher discount rates (associated with a vibrant economy) and low climate sensitivities the SCC becomes negative, meaning that the emissions are beneficial.

In doing so, the new Administration will find that the value of the SCC will approach zero and even go below in some cases—eliminating the justification for federal actions explicitly directed a reducing carbon dioxide emission from energy use and production.

There are many more Obama climate actions that the Trump Administration should reconsider, but these three, along with the ones explicitly mentioned in Trump’s new transition website, should feature prominently on the list of things to accomplish in the near term.

Trump won, and free market types have valid concerns about a Trump presidency. It certainly won’t be a conventionally free-market administration, and it won’t likely be an ideologically coherent one in the conventional Republican sense. However, one area that free-marketers can find some solace is development regulation. In fact, as a developer and businessman himself, there’s reason to think that Trump intuitively understands this policy area better than any other and self-interest makes him an ally.

All the way back in August, Trump spoke to the National Association of Homebuilders and decried the “horrible regulations” that are stacked against developers to the resounding cheers of the crowd. He described development regulations as increasing by almost thirty percent over the past five years, and complained about the “frivolous lawsuits” brought against homebuilders. Notably, he even framed the discussion in terms of low-cost housing, rather than housing affordability.

Decades of experience taught Trump that more regulation means higher cost housing. Taken together, Trump emphasized that development regulations increase the cost of housing by a whopping 25%. Although that figure may sound substantial, it may actually underestimate the impact of regulation on housing prices in some areas of the country. In Manhattan, for instance, it’s estimated that up to half of the price paid for housing is attributable to the hidden costs of restrictive zoning regulations alone.

As a businessman who grew his business under a heavy New York City regulatory burden, Trump also knows that the expansive regulatory state is particularly punishing for burgeoning companies that don’t have entire departments dedicated to divining the morass of construction, design, mortgage finance, and tax requirements that they are subject to at every step of the development process.

Trump is likewise averse to central planning schemes like those advanced under Julian Castro’s Housing and Urban Development Department. Back in June, Trump said that if he was elected, he would rescind HUD’s Affirmatively Furthering Fair Housing rule. Although the rule’s title sounds inherently appealing, the rule itself, as explained elsewhere, is not.

When affordable housing advocates complain that Trump has no plans for affordable housing, they are mistaken. A reduction in development regulations is a plan for low cost housing. While this is good news, don’t expect a Trump administration to take on eminent domain or eliminate the mortgage interest deduction anytime soon. Also, watch for the aggressive use of agency power to implement his agenda.

That said, developers, private citizens, and market urbanists have reason to be cautiously optimistic.

Ever since the Financial Crisis, regulators have tightened their grip on banking activities (read: beaten up on banks) without taking note of unintended consequences. Prominent amongst these misguided regulatory interventions have been the Bank for International Settlements (BIS) mandates, which are touted as promoting global financial safety and economic stability. John Dizard of the Financial Times has seen through the Basel Committee on Banking Supervision’s smoke and mirrors display and correctly concludes that the proposals provide background noise for the next crisis.

First, the new “Basel IV” reforms will dampen economic growth globally. The European Banking Federation claims that increased capital requirements will cause European Banks to raise an additional €850bn of capital. This will exacerbate the credit crunch because banks can increase capital-asset ratios by either shrinking assets or raising capital. In both scenarios, deposit liabilities are reduced and money is destroyed. Slower growth in the money supply, broadly measured, slows the expansion of nominal GDP. The implications are dire because Basel IV seeks specifically to increase capital requirements on project lending and banks account for 80 percent of lending to the real economy in Europe.

Second, Basel IV’s push to standardize risk weighted asset calculations will actually increase risky activities. Unbelievably, Dizard reports, “under the current version of the Basel ‘standardized approach’, unsecured lending to a non-public, below investment-grade corporate borrower requires the same bank capital commitment as project financing secured by assets, liens on equity and cash lockbox arrangements.” With all corporate risk considered the same, incentives will exist for bankers to lend for a risky, high-yield project instead of a safer, more productive one. The result will be a push away from revenue-producing infrastructure projects. 

The secretive Basel Committee on Banking Supervision continues to create systemic risks, which threaten to plunge the world into a slump. Thanks to the BIS mandates, we might experience the horrors of Quantitative Tightening (QT).

All of my political predictions about Donald Trump were wrong.  I predicted that he wouldn’t get the Republican Party nomination despite all of the polls to the contrary.  I followed the polls closely during the election and thought Trump would lose.  I was wrong again.  While certainly no mandate, Trump won the election.  Now the policies his administration will implement and push for are what matters.  We have very little to go on when it comes to predicting his actions.  Trump has no voting record on this and other issues.  His statements, actions, a policy paper, and his staff picks are the best indicators of this actions.

My prediction is that Trump will increase the scale and scope of immigration enforcement, rescind President Obama’s executive actions or at a minimum not allow Dreamers renew their status, massively curtail or end the refugee program, and try to convince Congress to cut legal immigration.  I’ve been wrong about Trump in the past and I hope I’m wrong here too.  Let me lay out evidence that I think supports my pessimism and evidence that supports a more optimistic interpretation.

Optimistic Take: Why Trump Could Not be THAT Bad

Trump is not ideologically grounded except that he is a nationalist and a populist.  Those political instincts usually manifest an anti-foreign bias in trade and immigration but they don’t have to.  Trump has portrayed himself as a deal maker so it’s possible he’s staked out a harsh immigration position as a bargaining tactic to get concessions elsewhere.

Trump’s personal experiences with his wives and businesses hiring illegal immigrants and guest workers may soften him.

He’s also made some statements in favor of immigration liberalization.  In 2011 and 2013, Trump supported legalization for some illegal immigrants.  He said Republicans have to do “the right thing” during the 2013 debate over comprehensive immigration reform but refused to elaborate on what he meant by that. 

Trump flip-flopped on H-1B visas numerous times during his 2016 campaign, sometimes saying skilled migrants were great and that the United States needs more of them.  In every case I’ve found, he then backtracked from the pro-H-1B position, repudiated his earlier statements, or repeated that they are taking American jobs.  He’s also said that foreigners who attend U.S. universities should stay.  Some lobbyists think Trump will not support broad immigration reform but that he might be persuaded to support liberalizing high-skilled immigration.  Lobbyists should know those things but that could also be a public projection of confidence in order to maintain morale.

In his major immigration speech on August 31, 2016, in Phoenix, he said:

“And the establishment of our new lawful immigration system then and only then will we be in a position to consider the appropriate disposition of those individuals [illegal immigrants] who remain.

That discussion can take place only in an atmosphere in which illegal immigration is a memory of the past, no longer with us, allowing us to weigh the different options available based on the new circumstances at the time.”

That’s an improvement over a “they have to go” policy.  In the third presidential debate he said:

“As far as moving these people out and moving, we either have a country or we don’t. We’re a country of laws. We either have a border or we don’t.  Now, you can come back in and you can become a citizen. But it’s very unfair. We have millions of people that did it the right way. They’re in line. They’re waiting. We’re going to speed up the process bigly, because it’s very inefficient.  But they’re on line and they’re waiting to become citizens.”

That sounds like he wants to deport them or force them to leave but then they can come back through the legal system.  He’s made statements in support of letting the “good ones” come back a few times during the campaign, especially in the later stages.  Allowing them to come back, especially after deportation, would require significant legal changes.  His call to “speed up the process bigly” is encouraging though.  Trump could soften his deportation plan much sooner than he let on here if he’s confronted with the logistical and humanitarian nightmare of deporting more than 11 million people. 

Pessimistic Interpretation: Why Trump Will Probably be That Bad

Trump is a national populist with a zero-sum worldview.  His long opposition to trade with Japan and now China and Mexico shows that he doesn’t understand how voluntary exchanges are mutually beneficial.  Opinions on trade and immigration are tightly correlated.  His 2013 statements on immigration reform could mean that he thought the Senate’s 2013 bill would destroy the Republican Party.   

Trump’s immigration position paper is detailed, specific, and terrible.  It supports drastic cuts in legal immigration and refugees as well as harsh new enforcement measures like a border wall, mandatory E-Verify, and a greatly expanded deportation force.  Many think this plan was inspired by Ann Coulter’s recent book on the subject and some of his statements support that theory.  In return, Coulter called Trump’s immigration position paper, “the greatest political document since the Magna Carta.”   

When Trump looked like he was wavering from his immigration position in the final week of August 2016, Coulter mocked him.  In her recent book In Trump We Trust, she wrote, “There’s nothing Trump can do that won’t be forgiven … Except change his immigration policies.”   Trump’s response was a blistering speech in Phoenix on August 31, 2016, where he doubled-down on his immigration stance and even read out portions of his position paper.  Coulter gave the speech her seal of approval, declaring it “better than Lincoln’s Gettysburg address.”  

Virtually every time Trump looked like he was wavering in his opposition to legal immigration or stepped up enforcement, he quickly reversed course.  When he has spoken off the cuff about immigration, it has almost always been negative and supportive of deportations, cutting legal immigration, and linking immigrants to crime.  If speaking off the cuff reveals Trump’s real opinions then they are largely consistent with his policy positions.

Trump’s presumptive picks for positions in his administration are opposed to immigration reform, support more enforcement, and generally favor cutting legal immigration.  Steve Bannon, the former executive chairman of the nativist Breitbart News and chief executive office of Trump’s 2016 campaign, looks to be on the shortlist for Chief of Staff.  Breitbart’s immigration position is well known.

Trump’s picks for his immigration transition team are uniformly supportive of increased immigration enforcement and, as far as I can tell, large cuts in legal immigration.  Kris Kobach is the first member of the transition team.  He is the Kansas secretary of state and architect of many of the immigration enforcement laws around the country in the last decade.  Just yesterday he said, “the wall is going to get built.”  The second member of the transition team is Danielle Cutrona, the chief counsel in Senator Jeff Sessions (R-AL) judiciary committee. 

The connection with Senator Sessions is important and it runs throughout Trump’s other appointments – the Senator himself could even be appointed to an important position.  He is the most outspoken Republican Senator who opposes immigration reform, supports enforcement-first policies, and favors slashing legal immigration.  Trump is reportedly also considering Stephen Miller, former communications aide to Senator Sessions, for one of many potential positions.  Rick Dearborn, Sessions’ chief of staff, is also being considered for leading the office of legislative affairs. 

There are also a few leaked lists circulating around DC that say Trump is supposedly considering Cindy Hayden as head of the Department of Homeland Security.  There isn’t much information available on Ms. Hayden except that she was Sessions’ former chief counsel on the Senate Judiciary Committee. 

Sessions’ praise for Ms. Hayden is deep and effusive.  Upon her departure from the Senate in 2008, he said, “Cindy was just fabulous, and I depended on her.  Day after day, her work and the respect she engendered throughout the country played a big role in the final result, in which the [immigration reform] bill was pulled down without passage in that form.”  Senator Sessions himself wasn’t alone in his praise.  He quoted his former chief counsel William Smith and executive director of the Americans for Limited Government Research Foundation at the time, “The only group I know that will truly celebrate her departure will be illegal aliens.”  Brian Darling, then director of Senate Relations for the Heritage Foundation, was quoted as saying, “Without Cindy and ‘Team Sessions’’ tireless efforts to educate the American public on the contents of the secretly drafted amnesty bill, the bill may have become law.”  Joe Matal, then-counsel for Senator Kyl was also quoted by Sessions as saying that, “If you look closely at the corpse of last year’s immigration bill, you will find a series of small squares holes in its back. Those holes were produced by Cindy’s heels, stomping that bill to death.”

Trump has frequently cited the Center for Immigration Studies, a think-tank that produces near-uniformly shoddy research and supports cutting legal immigration.  It’s safe to assume that Trump facts, specific enforcement ideas, and message on immigration during his administration will be more influenced by them than any other group outside of the government.  Ending or severely curtailing refugee resettlement will be an early move.    

None of Trump’s actions since his election, from his statements to the people on his immigration transition team to those he’s considering for important positions, indicate that he is changing his position on immigration.  Trump looks like he partially wavered occasionally on the campaign when it came to high-skilled immigrants and some form of amnesty.  His instincts over the last several years show that his instincts aren’t uniformly nativist.  However, those few bits of optimism are overwhelmed by his other statements and actions to the contrary. 

Although I’m looking for reasons to be optimistic and I’m hoping my predictions about Trump continue to be as wrong going forward as they have been up to this point, the weight of evidence convinces me that his immigration policies will likely be just as bad as many of us feared.  I hope he changes and will gladly eat many humbles pies if he does but I’m not going to skip any meals in anticipation.      

For a quarter century Republicans in American politics have broadly campaigned on a promise of reducing the volume and cost of litigation. At first glance, it might seem that the rise of President-elect Donald Trump might signal a discarding or even a reversal of this position. As a businessman, Trump has been an intensive, sometimes zealous litigant; unlike earlier GOP candidates he has said little about lawsuit reform on the campaign trail; and some of what he has said, especially his instantly famous remarks about “opening up” libel law to allow more damage suits against the press, is in tension with the goal of a less costly and more predictable legal system. 

At the same time, there are reasons to believe that a Trump administration will maintain considerable continuity with the positions of earlier GOP administrations as well as of Congressional Republicans. Here are some of those reasons. 

* Both sides of the “v.” Trump has been in court frequently as plaintiff and defendant alike. While he may be nobody’s idea of a critic of litigiousness, there is little reason to believe that his instincts about the legal system are systematically pro-plaintiff or pro-trial-lawyer in the manner of some Capitol Hill Democrats.  

* Much of the national litigation reform agenda is now negative. Some of the biggest priorities in the short term are simply to block or pull back destructive federal initiatives that the Obama administration pushed hard, including proposals to ban pre-dispute arbitration in consumer and labor settings in favor of litigation; proposals to extend overtime rules deep into the white-collar workforce, with wage-and-hour class actions inevitably to follow, and the idea of interpreting the Americans with Disabilities Act to require websites and online services to be made accessible to disabled users, on pain of freelance lawsuits. Trump has signaled that his administration will be skeptical of grandiose regulation, and by knocking out rules of this sort he would also knock out much prospective litigation. 

To be sure, some litigation issues narrowly related to trade and immigrant employment might see a reset. And because Trump may be more open than most GOP presidents to cutting deals with organized labor, it is possible he will seek new solutions on issues like compensation for occupational illness arising from asbestos and other long-term exposures.  

Social reform litigation. A Hillary Clinton administration would have been likely to cheer on big cities like Miami in “disparate impact” litigation seeking massive damages from banks for lending too freely (or too stingily; the theories vary) on mortgages and construction in urban neighborhoods. Whatever else is uncertain about a Trump administration, it seems unlikely that its instincts are to put real estate development at the mercy of redistributive social justice campaigns. And while Clinton campaigned on a promise to reopen the gun-control-through-lawsuits campaign by repealing the Protection of Lawful Commerce in Arms Act (PLCAA), that idea is now gone. 

On libel law. As I and others have pointed out, our system doesn’t give the President much of a say in libel law, which consists mostly of state tort law bounded by constitutional law as interpreted by the Supreme Court in cases like New York Times v. Sullivan. Some earlier presidents (as well as some noted Republican-appointed jurists) have favored broader rights for plaintiffs to recover, but there is little evidence that the Supreme Court is on the cusp of any major reconsiderations here. One may also doubt that Trump in office will really make this a make-or-break litmus test for appointees knowing that it would limit his choice of politically appealing nominees and that a chipping away of Times v. Sullivan would in any case probably take many years. 

 * Progress on litigation reform does not depend on White House leadership. Most positive change in this area has come from a combination of state legislatures and the courts themselves through judicially driven improvements in doctrine and procedure, especially via the U.S. Supreme Court (DaubertIqbal/TwomblyDukes, etc.)  With occasional exceptions, as with securities litigation and class action reform, the U.S. Congress has not achieved much in this area, in part because our system of federalism places real limits on wholesale displacement of state court authority by federal. 

All of these predictions depend greatly on appointments; Trump is known above all for his capacity to surprise. But on an issue as important to the nation’s economic climate as this, don’t bet on President Trump to break with the near-uniform sentiment of the business community. 

I said there was no way Trump would last through the early primaries.  I belittled the prospect of Trump even attending the convention, much less accepting the Republican nomination.  And I was cavalier in my certainty that Trump would be making a concession speech early Tuesday night.  In other words, by Washington’s standards, I have established credibility on the subject. 

So you should feel reassured that I am less bearish about the direction of President Trump’s trade policy than I probably should be given candidate Trump’s bellicose campaign rhetoric.

The trade policies Trump outlined in broad strokes on the campaign trail would – to put it mildly – devastate the economy.  For example, Trump has said he would:

  • impose duties on 35 percent on imports from Mexico and 45 percent on imports from China;
  • impose special taxes on U.S. companies that incorporate foreign components or labor into their production or assembly operations;
  • tear up the North American Free Trade Agreement – or at least renegotiate what he calls “the worst trade deal ever negotiated,” and abandon the Trans-Pacific Partnership, which he calls a “rape of our country”; 
  • declare China a currency manipulator and impose countervailing duties to mitigate the export price advantages that practice allegedly bestows;
  • use tax policy, protectionism, and the threat of more protectionism to compel China, Mexico, and all of the other countries with whom the United States runs bilateral trade deficits to buy more from U.S. producers and sell less to U.S. consumers in order to achieve a state of balanced trade;
  • tax manufacturing companies that lay off workers.

The list of angry, knee-jerk, foolish ideas goes on and on. If you take candidate Trump at his word, U.S. trade policy is going to be an unmitigated disaster.

That kind of hot-headed hyperventilation arguably has a place on the campaign trail. It is a coveted perquisite of the opposition candidate – the outsider – to spew venom about the status quo. But those kinds of populist fantasies rarely translate into prudent policy. 

Two things constrain Trump.  The first is Congress, which really does have constitutional authority to regulate foreign commerce.  Yes, the Peterson Institute issued a paper a few months ago documenting all of the laws under which the president has been given authority to raise trade barriers. But in almost every case there are statutory thresholds that must be surpassed or judicial review to restrain autocratic impulses. (Here’s a response from a legal scholar.) The president does have more discretion – and thus greater liberty (to co-opt a good word) to act unilaterally – if he invokes his authority on national security grounds under specific national security statutes. 

Prompted in part by the specter of a Trump presidency, there is a debate emerging over whether, where, and to what extent the president has been given statutory authority to act unilaterally on trade matters. Cato colleagues Scott Lincicome and Simon Lester (both lawyers) have noted some troubling ambiguities in the language of various, relevant statutes. Of growing concern is the question of treaty withdrawal.

Without the consent of Congress, the president is authorized to withdraw the United States from NAFTA – that is not really in doubt.  The question, however, is whether congressional authorization is required to raise tariffs on Mexico and Canada back up to their non-preferential rates – and to undo the other liberalizing provisions.  If so, a withdrawal from NAFTA would have no real impact unless Congress was also on board. 

But, as Scott and Simon have noted, there are clauses in the implementing legislation for U.S. trade agreements that might be interpreted as meaning that withdrawal from a treaty nullifies it terms as articulated and effectuated in U.S. law. (Expect more from one or both of them soon.) Different interpretations of the meaning of those clauses could provoke a constitutional crisis if Trump, for example, instructed U.S. Customs officials to assess duties at the higher rates without Congress first changing the relevant laws. If this happens, Congress could file suit against the president, and that is a potential tinderbox.

If the separation of powers doctrine strikes Trump as too quaint, and he wished to push to expand his authority in the trade realm, there is a second constraint that should work: Reality.

Frankly, asserting presidential authority to impose, say, a 45 percent duty on all imports from China would be laborious and resource-consuming. The president would have little bandwidth for much else. And more to the point: Does Trump really want to destroy the U.S. and global economies?  If he’s the Manchurian Candidate, perhaps.  Otherwise, I imagine he wants his policies to succeed.  He wants to be beloved – actually, worshipped.  For that to be within the realm of possibilities, his economic policies cannot fail. They must spur real economic growth.

But it wouldn’t take very long – days, weeks – for the policies bellowed on the campaign trail and populating the first draft of the “First 100 Days” documents to spawn a mass exodus of capital and the ditching of plans to send more foreign direct investment to the U.S.  The negative economic results would begin to show up in the statistics within one quarter.

I suspect Trump will continue to talk tough, but we can bank on his hubris and vainglory being better fortified by economic policies that history will judge kindly.  Implementation of any of his protectionist ideas, I believe, will be more cosmetic than functional.

There may be a rocky first year beset by rising trade tensions, especially with China, but also the possibility of course correction before too much damage is done.  Regardless, we all have our work cut out for us.

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that all men are created equal, 

that they are endowed by their Creator with certain unalienable Rights, 

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That to secure these rights, Governments are instituted among Men.

Throughout the 2016 presidential election, Donald Trump’s attitude toward NATO has engendered significant consternation throughout both Europe and the U.S. foreign policy establishment. Although the president-elect has not explicitly advocated pulling out of the NATO, he has suggested that the United States should rethink its involvement since the United States continues to bear a disproportionate share of the defense burden within the alliance. The incoming administration could thus be poised to conduct the sort of “agonizing reappraisal” that John Foster Dulles threatened 63 years ago. Although a complete withdrawal from NATO would be unwise, the time to redefine the United States’ role in the alliance may have arrived.

Critics have attempted to undermine Trump’s intimation that he might refrain from defending NATO allies such as Estonia by suggesting that the United States is treaty-bound to do so. The day after Trump’s election, Jens Stoltenberg, NATO’s Secretary General, insisted that “NATO’s security guarantee is a treaty commitment…All allies have made a solemn commitment to defend each other. This is something absolutely unconditioned.” But that is only true to a certain extent. Article V of the North Atlantic Treaty stipulates that in the event of an attack against a NATO member state, each ally “will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.” The key phrase “as it deems necessary” gives the United States a great deal of latitude.

Were the North Atlantic Council to invoke Article V in response to a Russian incursion into Estonia, for instance, the United States could fulfill its treaty obligations in any number of ways. The Pentagon could certainly deploy the U.S. military to combat Russian forces directly. On the other hand, the United States could restrict its role to the provision of military equipment and logistical support to its European allies. To borrow a phrase from Franklin D. Roosevelt, the United States could serve as the great arsenal of NATO.

Some would argue, however, that although Article V does not legally obligate the United States to deploy military forces in defense of its NATO allies, such a response would be essential to preserve American credibility. In other words, if the United States failed to defend its NATO allies against Russian aggression, all of the United States’ other allies around the globe would begin to doubt whether they could really depend upon the United States. Yet U.S. credibility would only suffer if Washington were to maintain an expectation of U.S. intervention and subsequently failed to fulfill that expectation.

If the incoming Trump administration is serious about reducing its commitment to NATO, its first priority should therefore be to eliminate the expectation that the United States would automatically intervene militarily in defense of its NATO allies. For that expectation is the root of the inequitable distribution of the defense burden within NATO. Why should the European allies invest significantly in defense if they can count on the United States to guarantee their security? Rather than maintaining an implicit commitment to spearhead any defense of NATO territory (particularly in Eastern Europe), the Trump administration could make it clear to the allies that the United States will serve as a balancer of last resort in Europe. In other words, the European allies will bear primary responsibility for the defense of Europe; the United States will only intervene in dire circumstances if they are unable to defend themselves (much like during the two world wars).

Redefining the United States’ commitment to its NATO allies in such a manner would need to be accomplished gradually, however. After years of underinvestment, European militaries suffer from significant deficiencies. Heavy land forces, in particular, have atrophied substantially since the end of the Cold War. Germany’s fleet of Leopard 2 main battle tanks has declined from 2,020 in 1990 to only 306 in 2015. Over that same period, the British and French tank fleets have each also shrunk from over 1,300 to about 200.

In the long run, however, Europe certainly has the wherewithal to ensure its own defense. In 2015, the combined GDP of Britain, France, and Germany totaled nearly $8.6 trillion—seven times that of Russia. With 210 million people, those three allies command a population 1.5 times that of Russia—and significantly healthier. Since the economies of Western Europe are also much more technologically advanced than that of Russia, the European allies are capable of constructing robust, technologically-advanced military forces capable of defending against Russian aggression.

To give the European allies time to construct such military forces, the Trump administration could delineate a timetable for the phased withdrawal of U.S. forces from Europe. The first phase could focus on the withdrawal of the U.S. forces that the Obama administration has deployed to Eastern Europe as part of the European Reassurance Initiative, essentially in violation of the NATO-Russia Founding Act. While encouraging European allies to step up and shoulder more of the defense burden in Europe, such an action would constitute an important first step in alleviating Moscow’s concerns that the United States is intent upon isolating and encircling Russia. After pulling back from NATO’s frontier in Eastern Europe, the United States could gradually reduce its military presence in Western Europe over the next decade.

One problem with a phased withdrawal would be its reversibility. Since the timeline for such retrenchment would extend beyond a single presidential term, a potential Trump successor could easily halt of reverse such a policy. Yet that possibility should neither dissuade the incoming president from attempting to redefine the United States’ role in NATO, nor encourage the new administration to undertake a risky, immediate withdrawal from Europe. A phased U.S. military withdrawal from Europe is the prudent choice. 

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