Policy Institutes

Donald Trump’s whiplash-inducing Twitter comments about the surveillance legislation his administration had just endorsed didn’t stop the House of Representatives from approving a bill to reauthorize the FISA Amendments Act for another six years, but if you watched the floor debate, you might come away thinking civil libertarians won at least a few concessions in the process. Defenders of the statute’s controversial Section 702, which authorizes warrantless survellance of foreigners’ communications, rejected a proposal to require FBI agents to seek a warrant before querying the vast 702 database for Americans’ communications—a practice critics have dubbed a “backdoor search”—but did accept a narrower warrant requirement for queries conducted for criminal investigations unrelated to national security. Is this, as the bill’s boosters repeatedly insistence, a “compromise” that should provide some small consolation to civil libertarians?

Alas, no. There’s a good reason you won’t find any privacy advocates cheering even a partial victory following Thursday’s vote.  First, as I noted back in October, such a narrow warrant requirement would do almost nothing to prevent abuses of the sort it’s most reasonable to worry about: historical abuses of spying power have nearly all been clothed in invocations of national security.  But it’s worse than that.  The limited warrant requirement in the House bill not only exempts a potpourri of ordinary crimes—among them any involving the risk of death or serious injury, cybersecurity, or offenses against minors—it applies only to what are known as “predicated” or “full” investigations.  

What this means, perversely, is that when FBI agents are conducting “preliminary” investigations—which are essentially inquiries into whether a crime worth investigating may have been committed—they are free to search for Americans’ intercepted communciations.  The requirement to obtain a warrant kicks in only when there is enough evidence of wrongdoing—a “factual predicate”—to open a full-blown criminal investigation.  In other words, Americans will actually enjoy greater privacy protections when the government has evidence they’re involved in criminal activity.  That should seem inherently rather backwards, but it also sets up some pretty terrible incentives.  In effect, it tells investigators: “You’d better go hunting for people’s private communications in the preliminary stages of an inquiry, when it’s less clear who or what actually merits scrutiny, because once you’ve developed actual evidence you won’t be able to do it without jumping through additional hoops.”  This inverts the normal progression of investigations, where more intrusive methods become available as evidence of criminal conduct accumulates.

This also incentivizes the unseemly practice of “parallel construction,” wherein information obtained by intelligence methods is passed along to ordinary law enforcement agencies, which then conceal its intelligence origins, often fabricating an alternative story of how that information was discovered before bringing a case to court. As a new report from the group Human Rights Watch details, the practice appears to be disturbingly routine, despite the serious and obvious due process questions it raises. Now Congress is poised to give explicity statutory blessing to the warrantless querying of intelligence intercepts for ordinary criminal investigative purposes.  A probable unintended consqeuence is to make parallel construction even more attractive: agents can develop preliminary leads without being burdened by court oversight, then offload the task of building a case to bring before a judge on state and local authorities (or other federal agencies, such as the Drug Enforcement Administration).  

Finally, it’s worth noting a tension in the arguments offered by 702’s defenders that came out with unusual clarity in Thursday’s floor debate.  One representative after another insisted that civil liberties concerns about 702 were misplaced since, after all, it was focused on “targeting” only foreigners on foreign soil.  Yet again and again, the very same representatives insisted that the intelligence value of 702 would be “crippled” if the government could not routinely query the database of intercepted communications for information about Americans.  It does not take advanced training in logic to see that those claims cannot both be true. 

The Wall Street Journal had a flattering piece about Governor Jerry Brown’s budgeting today:

California Gov. Jerry Brown appears poised to exit office next year with a top political priority in hand: free from the massive budget deficits that had weighed on his predecessors.

… Mr. Brown has been preaching frugality for years—he kicked off one past budget talk with Aesop’s fable about the thrifty ant and the lazy grasshopper.

Mr. Brown took office in 2011 with a $27 billion deficit and drastically slashed spending. In 2012, he staked his governorship on a tax increase that voters approved that year and reauthorized in 2016.

Brown might have been “preaching frugality,” but his high-speed rail boondoggle is about as spendthrift as you can get.

As for state deficits, they generally arise when states project high future spending growth even when revenues are stagnating. They have more to do with excessively optimistic forecasts than they do with real gaps between current spending and revenues.  

California general fund spending increases have been substantial under Brown, as shown in the chart below using the latest state data.

Spending fell 6 percent Brown’s first year, but then bounced back strongly, rising 46 percent from 2012 to the enacted level for 2018.

During the whole period, 2011 to 2018, general fund spending rose 38 percent in California, compared to an average 27 percent in the other 49 states, per NASBO data.

Total California spending (general and nongeneral funds) has risen 44 percent under Brown, 2011-2018. Perhaps Brown did too much preaching, and not enough actual cutting.

In the Cato 2016 Governors Report Card, I assigned Brown an “F.” Look for another Report Card this October.

Two months of drama in the House of Representatives over the soon-to-expire FISA Section 702 mass surveillance program came to an end this morning, with a bipartisan group of House members first defeating a FISA reform amendment (USA RIGHTS Act) offered by Rep. Justin Amash (R-MI), then passing the GOP House leadership bill. The key votes in support of the GOP House leadership effort came from Democrats, including Minority Leader Nancy Pelosi (D-CA) and House Intelligence Committee Ranking Member Adam Schiff (D-CA).

The progressive activist group Demand Progress, which spearheaded the campaign on the political left for meaningful surveillance reforms, issued a blistering statement after the vote, the key paragraph of which follows:

Demand Progress has opposed the FISA Amendments Reauthorization Act from the start and has instead urged the House to pass strong reform legislation, like the USA RIGHTS Act, which was offered as an amendment but defeated 183-233, despite strong support from members of both parties. 55 Democrats voted against the amendment, where a swing of 26 votes would have meant its adoption and the protection of Americans’ privacy. The USA RIGHTS amendment would have enacted meaningful reforms to Section 702, which are imperative given the government’s historical abuse of surveillance authorities and the danger posed by future abuses.

Amash garnered 58 GOP votes for his amendment (offered with several other Democratic and Republican House members), by far his best showing since his first attempt to rein in federal mass surveillance programs in the summer of 2013, in the wake of Edward Snowden’s revelations. 

The FISA Amendments Act was first passed in 2008, when Pelosi was Speaker. In her floor speech in support of the FISA Amendments Act on June 20, 2008, Pelosi made this claim:

Some in the press have said that under this legislation, this bill would allow warrantless surveillance of Americans. That is not true. This bill does not allow warrantless surveillance of Americans. I just think we have to stipulate to some set of facts.

In fact, as Demand Progress noted in their 2017 report on Section 702, the FISA Court itself found the federal government had done exactly that in a number of cases. But as is so often the case in politics, it is emotion and perception, not facts and reason, that dominate debate on Capitol Hill. Today was another one of those days.

 

A surprising Politico story this morning laid out the contours of a rough deal to legalize the DACA recipients.  There are several welcome developments.  First, it would be a wider DREAM Act that goes beyond the DACA recipients.  In exchange, it would restrict the legalized DREAMers from sponsoring their parents (essentially duplicating current law), but it does allow the parents 3-year renewable legal status.  This is a fine compromise.  Second, it would not eliminate any of the family-sponsored green card categories, a wonderful development.  Third, it would use the 50,000 annual diversity green cards, also known as the visa lottery, to legalize Salvadorans here on Temporary Protected Status (TPS) who just had their status canceled (this status will expire in 18 months).  This third point is the most potentially troubling depending on what happens to those green card numbers after the 200,000 or so Salvadorans are legalized.

If the green cards from the diversity visa that are allocated to legalize those on TPS are canceled after the Salvadorans are legalized, then this would be a bad move.  Green cards are rare and valuable commodities that are beneficial to the United States and to the immigrants themselves.  The Salvadorans should be legalized, but not at the cost of reducing legal immigrants by substantially more.

 

I propose three ways of dealing with the diversity green cards after the Salvadoran TPS holders are legalized:

 

  1. The 50,000 diversity green cards are recaptured and allocated to a new lawful permanent residency program based on the RAISE Act proposed by Senators Tom Cotton (R-AR) and David Perdue (R-GA).  This new green card category would allocate 50,000 green cards a year to applicants living overseas who have the greatest number of points according to the RAISE Act’s proposed system.  This is a great way to co-opt a portion of the RAISE Act for a positive purpose while making the United States immigration system more merit-based – one of the stated goals of the RAISE Act.  Crucially, creating a new merit-based category does not cut legal immigration like the RAISE Act would nor would it destroy the current employment-based green card system.  It would also make sure that the recipients of this merit-based category continue to come from abroad, just like most of the recipients of the diversity green card lottery currently do.  The diversity visa program won’t last forever, so this is a less harmful way for it to end
  2. The diversity visa starts up again after all of the TPS workers are legalized without any other changes.  This would probably satisfy the Congressional Black and Hispanic Caucuses. 
  3. Congress auctions the 50,000 green cards every year to the highest bidders who are non-excludable under current law.  An annual auction of 50,000 green cards could raise substantial revenue for the federal government.  The median wage gain for immigrants from developing nations to the United States is about four-fold.  Estimates of the annual wage premiums for earning a green card are between $11,860 and $20,000 for adjustments of status, meaning that such an auction could command a very high price.  Some American firms have even offered to pay $10,000 to $15,000 for an H-1B visa or a green card.  Nobel Prize-winning economist Gary Becker thought the government could sell a green card for $50,000 back in 2011.  Based on those statements, an auction of 50,000 green cards would raise $500 million to $2.5 billion per year and, potentially, far more.  This extra revenue could sweeten the pot.  Additionally, this new auction category would attract richer and more educated immigrants who think they have a promising economic future in the United States – a decent measure of merit.        

 

It’s wonderful that Congress is moving away from some of the more radical cuts in lawful immigration that have been discussed over the last year.  However, the future of the green cards currently allocated under the diversity visa is important to resolve.  There should not be any net-cut in the number of green cards issued.  If the diversity visa program is going to end then those green cards so be reallocated to more valuable uses rather than extinguished entirely.

Over at The National Interest, I review some recent articles (e.g. here, here and here) claiming that President Donald Trump has completely reoriented U.S. foreign policy in the span of one year. If true, that would be a pretty mean feat. After all, Barack Obama claimed to have tried to do the same thing, and he essentially admitted to being rolled by what Obama adviser Ben Rhodes labeled “the blob.”

But, it turns out, it isn’t true. Trump hasn’t, for example, restructured U.S. alliances.

On the contrary, he allowed Montenegro’s admission to NATO to go forward, the first new member in ten years. Last month, he backed the sale of weapons to Ukraine’s government as it struggles to put down a Russia-backed insurgency. He increased the number of U.S. troops in Europe. None of these decisions advance U.S. security—arguably, they undermine it—so it is hardly consistent with what most Americans think of when they hear “America First.”

Aside from his running feud with North Korea’s Kim Jong Un, the U.S. presence in Asia remains largely unchanged.

The U.S. Navy continues to operate extensively throughout the Asia-Pacific. There are still tens of thousands of troops in Korea and Japan, and the Trump administration has shown no signs of reducing that permanent presence, despite the president’s stated misgivings, and the dubious connection between such a presence and U.S. safety.

And, in the Greater Middle East, Trump’s approach isn’t so different from Obama and Bush 43, except for the fact that many more civilians are being killed. And Trump’s decision to continue the war in Afghanistan indefinitely provides the most obvious evidence that the foreign policy establishment is winning.

“To be sure,” I observe:

Donald Trump has pushed through a number of changes to U.S. foreign policy that neither Obama nor Clinton would have (e.g. withdrawal from the Paris climate accord; reversal on better relations with Cuba; threats to undo the Iran nuclear deal; calls for recognizing Jerusalem as Israel’s capital). Indeed, if there is a single theme connecting his disparate actions it seems to be “If Obama did it, it must be wrong.” But, on matters of substance, and particularly with respect to the U.S. global military posture, Donald Trump hasn’t changed that much.

So, why all the fuss? Because Trump is different. Words matter, and Trump’s Twitter rants and ill-considered off-hand comments have not made us, or the world, safer.

Unsurprisingly, European leaders, from Angela Merkel to Emmanuel Macron to Theresa May, have pushed back against Trump–but also, more broadly, against U.S. leadership. “We Europeans must really take our destiny into our own hands,” Merkel said in May. “The times in which we can fully count on others—they are somewhat over.”

She’s not alone. “Germany can no longer simply react to U.S. policy but must establish its own position,” German Foreign Minister Sigmar Gabriel explained in early December, “even after Trump leaves the White House, relations with the U.S. will never be the same.”

To be honest, I think we should be encouraged that the leaders of other countries, appropriately unsettled by Trump’s unpredictability, now question the wisdom of basing their security on the wishes and whims of an American president–even if future chief executives aren’t as mercurial as Donald J. Trump. Whether they act on those concerns, however, remains to be seen. A lot will depend not on what Trump says, but on what he actually does.

In the meantime, I conclude:

We should be disappointed…that concerns about Trump and Trumpism haven’t prompted a more serious debate over the future of U.S. foreign policy. Instead we get lamentations that all is lost, followed by a forlorn hope to go back to the way it was before.

You can read the whole thing here.

Many commentators have compared Bitcoin to gold as an investment asset. “Can Bitcoin Be Gold 2.0?,” asks a portfolio analyst. “Bitcoin is increasingly set to replace gold as a hedge against uncertainty,” suggests a Cointelegraph reporter.

Economists, by contrast, are more interested in considering how a monetary system based on Bitcoin compares to a gold-standard monetary system. In a noteworthy journal article published in 2015, George Selgin characterized Bitcoin as a “synthetic commodity money.” Monetary historian Warren Weber in 2016 released an interesting Bank of Canada working paper entitled “A Bitcoin Standard: Lessons from the Gold Standard,” which analyzes a hypothetical international Bitcoin-based monetary system on the supposition that “the Bitcoin standard would closely resemble the gold standard” of the pre-WWI era. More recently, University of Chicago economist John Cochrane in a blog post has characterized Bitcoin as “an electronic version of gold.”

In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?

Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so they either provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”

Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card. The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer to peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.

The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.

Let’s consider supply in more detail. Secularly, annual production of gold has been a small percentage (typically 1% to 4%) of the existing stock but not zero. Because the absorption of gold by non-monetary uses from which it is not recoverable (like tooth fillings that will go into graves and stay there, but unlike jewelry) is small, the total stock of gold grows over time. Historically this has produced a near-zero secular rate of inflation in gold standard countries. The number of BTC in circulation was programmed to expand at 4.0 percent in 2017, but the expansion rate is programmed to fall progressively in the future and to reach zero in 2140. At that point, assuming that real demand to hold BTC grows merely at the same rate as real GDP, Bitcoin would exhibit mild secular growth in its purchasing power, or equivalently we would see mild deflation in BTC-denominated prices of goods and services. (Warren Weber’s paper similarly derives this result.) This kind of growth-driven deflation is benign, but the difference is small in real economic welfare consequences between a money stock that steadily grows 3% per year and one that grows 0%.

The key difference in the supply mechanisms is in the induced variation in the rate of production of monetary gold in response to its purchasing power, by contrast to the non-variation in BTC. A rise in the purchasing power of BTC does not provoke any change in the quantity of BTC in the short run or in the long run. In Econ 101 language, the supply curve for BTC is always vertical. (The supply curve is, however, programmed to shift to the right over time, ever more slowly, until it stops at 21 million units). By contrast, a non-transitory rise in the purchasing power of gold brings about some small increase in the quantity of monetary gold in the short run by incentivizing owners of non-monetary gold items (jewelry and candlesticks) to melt some of them down and monetize them (assuming open mints) in response to the rising opportunity cost of holding them and to the owners’ increased wealth. The short-run supply curve is not vertical. Still more importantly, the rise will bring about a much larger increase in the longer run by incentivizing owners of gold mines to increase their output. The “long-run stock supply curve” for monetary gold is fairly flat. (I walk through the stock-flow supply dynamics in greater detail in chapter 2 of my monetary theory text.) The purchasing power of gold is mean-reverting over the long run, a pattern seen clearly in the historical record.

Because its quantity is pre-programmed, the stock of BTC is free from supply shocks, unlike that of monetary gold. Supply shocks from gold discoveries under the gold standard were historically small, however. The largest on record was the joint impact of the California and Australian gold rushes, which (according to Hugh Rockoff) together created only 6.39 percent annual growth in the world stock of gold during the decade 1849-59, resulting in less than 1.5 percent annual inflation in gold-standard countries over that decade. For reference, the average of decade-averaged annual growth rates over 1839-1919 was about 2.9 percent.

As a result of the long-run price-elasticity of gold supply combined with the smallness and infrequency of supply shocks, the purchasing power of gold under the classical gold standard was more predictable, especially over 10+ year horizons, than the purchasing power of the post-WWII fiat dollar has been under the Federal Reserve. As I have written previously: “Under a gold standard, the price level can be trusted not to wander far over the next 30 years because it is constrained by impersonal market forces. Any sizable price level increase (fall in the purchasing power of gold) caused by a reduced demand to hold gold would reduce the quantity of gold mined, thereby reversing the price level movement. Conversely, any sizable price level decrease (rise in the purchasing power of gold) caused by an increased demand to hold gold would increase the quantity mined, thereby reversing that price level movement.” Bitcoin lacks any such supply response. There is no mean-reversion to be expected in the purchasing power of BTC, and thus its purchasing power is much harder to predict at any horizon.

Describing gold supply, Warren Weber writes: “Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.” This is not well put. Changes in the world stock of monetary gold come about every year from normal mining. Gold strikes and technical improvements in extraction brought about changes in the growth rate (not the level) of the stock. Historically, the changes in the growth rate were not dramatic by comparison to changes in the postwar growth rates of fiat monies. As often as not, the changes in gold stock growth rates were equilibrating, speeding the return of the purchasing power of gold to trend from above trend. As Rockoff noted, some important gold strikes (like the Klondike in the 1890s) and some important technical breakthroughs (like the cyanide process of 1887) were induced by the high purchasing power of gold at the time, which gave added incentive for prospecting and research.

The phrase from John Cochrane quoted above is part of a sentence that reads in its entirety: “It’s an electronic version of gold, and the price variation should be a warning to economists who long for a return to gold.” From the consideration of the mean reverting character of the purchasing power of gold, by contrast to Bitcoin’s lack of such a character, we can see that the second half of Cochrane’s statement is incorrect. The inelastic supply mechanism that produces price variation in Bitcoin should give pause to those who predict that Bitcoin will become a commonly accepted medium of exchange. It says nothing about the purchasing power of gold under a gold standard.

[Cross-posted from Alt-M.org]

Last night, the Office of Management and Budget (OMB) issued a Statement of Administration Policy (SAP) opposing the FISA Amendments Act Section 702 reform amendment offered by House members Ted Poe (R-TX), Zoe Lofgren (D-CA), Justin Amash (R-MI), Thomas Massie (R-KY) and several dozen others. Around the same, time GOP House Whip Steve Scalise’s office circulated an email to all GOP members that included a falsehood-laden attack on bipartisan FISA reform amendment authored by House Intelligence Committee chairman Devin Nunes (R-CA):

In fact, the Poe/Lofgren/Amash/Massie substitute creates no such “barriers”–it would require federal authorities to get a probable cause-based warrant to search the stored communications of Americans acquired under Section 702. Exactly as the Fourth Amendment requires.

This morning, President Trump tweeted what appears to be opposition to the reauthorization of Section 702:

The House convenes at 9am today. The vote on the House GOP FISA Section 702 reauthorization bill and the Poe/Lofgren/Amash/Massie alternative will likely take place sometime between 10:30 and 11am. A live feed of the debate is available on the House Clerk website.

Imagine yourself waking up on November 8, 2016, and preparing to head to the polls for the culmination of nearly two years of presidential campaigning. You feel passionate about your favored candidate and so put on your “I’m With Her” t-shirt or your “Make America Great Again” hat, to show pride in your selection and solidarity with the cause. You stop off at your local polling place on the way to work and walk into the building, ready to pull the lever, like millions of other Americans taking part in the same collective ritual.

We regret to inform you that, if you live in the state of Minnesota, you just broke the law. Minnesota prohibits any insignia deemed to be “political”—as determined solely at the discretion of the on-site election judges—from being worn into a polling place. When Minnesotans go to the polls, they may not convey to their fellow citizens that they are Republicans, or Democrats, or any “group with recognizable political views.”

There’s no requirement that the insignia encourage voting one way or another, or even relate to any candidate or issue on the ballot. Voters violate the law by wearing a hat or shirt bearing nothing more than the words “Occupy” or “Tea Party,” a picture of a blue donkey or red elephant, or a button explaining that they are a member of their union local—or that they “Like Ike.”

It’s hard to imagine a law more offensive to the First Amendment than a blanket ban on political expression by voters exercising their franchise—not speech by way of campaigning or soliciting or otherwise distracting or confusing voters, mind you, but just by wearing. Citizens are entitled to express their support for the causes they value by means of the press, and the soapbox, and their wallets, and, if they choose, their attire. Sartorial symbolism possesses a long pedigree in American discourse, be it black armbands to protest foreign wars, a gloved fist raised in defiance of racism, or a jacket vulgarly denouncing conscription.

But a polling place, Minnesota contends, is different, and the U.S. Court of Appeals for the Eighth Circuit agreed, holding that polling locations are a speech-free zone—a “non-public forum” in constitutional legalese—where the state may broadly prohibit anything as long as it doesn’t discriminate as to viewpoint. The Minnesota Voters Alliance disagrees, and the Supreme Court agreed to hear their case.

Cato, joined by the Rutherford Institute, Reason Foundation, and Individual Rights Foundation, filed a brief supporting the voters’ group, as we did at the petition stage. Our brief makes the point that what is referred to as “forum analysis”—a convoluted doctrine that treats a speech restriction differently depending on whether the courts deem it a “traditional public forum,” a “designated public forum,” a “limited public forum,” or a “nonpublic forum”—is irrelevant here.

Instead of applying that judge-made doctrine rigidly, courts should always consider the underlying speech interests at stake. A complete ban on political expression should be met with the most searching judicial inquiry, regardless of the setting. While the Supreme Court has upheld limits on campaigning near polling stations, justified by the desire to ensure voters are not intimidated or bamboozled, these interests aren’t served by punishing any voter who shows up with a “Feel The Bern” button on their lapel.

The Court, which hears argument in Minnesota Voters Alliance v. Mansky on February 28, should reaffirm that the First Amendment isn’t defined by real estate and that other values matter beyond location, location, location.

Basic economic logic still applies to rent control. Earlier this week, the National Bureau of Economic Research (NBER) published a study that provides strong evidence of rent control’s damaging effects.

The study’s findings should be unremarkable to students of basic economics. As students learn in the first days of class, when regulation limits prices, product supply decreases and demand increases. The resulting mismatch creates a shortage.

San Francisco is a veritable poster-child for housing shortages, and the NBER study focuses on the city’s rent control policy, which exacerbates housing shortages and associated housing affordability problems there.

San Francisco’s rent control policy caps rents for units built in 1979 or earlier. It remains in effect today and “covers most rental property,” according to the San Francisco Tenants’ Union.

The NBER study finds damaging impacts for this feel-good policy. The authors find rent control “reduced rental housing supply by 15 percent,” which consequently raised rents by more than 5 percent city-wide.

The study also estimates that 42 percent of rent losses were “paid by future residents,” while current residents bore the other 58 percent of losses. But because current residents also benefited from rent control, the losses were offset for them “at the great expense of welfare losses from future inhabitants.”

The adverse effects of San Francisco’s policy don’t stop there. Rent control also “increased renters’ probabilities of staying at their addresses by nearly 20 percent.” This is arguably undesirable, given geographic mobility’s recent decline and critical importance in a healthy economy.

Although the direction of the results are predictable given a rudimentary understanding of economic principles, rent control’s effects are clearly not widely understood enough. For example, Illinois, Oregon, and California are “considering repealing laws that limit cities’ ability to pass or expand rent control.” Legislators in these states would probably think twice if they were better acquainted with basic economics.

The Pentagon is on track for its first-ever agency-wide audit, but will the audit hold any surprises? In case you missed it, Christopher Preble, vice president for defense and foreign policy studies, and Caroline Dorminey, research assistant, had an op-ed in Defense One this week, discussing the audit and what it may uncover. 

Beyond the obvious accounting of assets—an estimated $2.4 trillion worth, including everything from infrastructure to personnel to weapon systems—an audit will create opportunities for careful consideration about the best use of military dollars.

Why has it taken this long for the Pentagon to be audited? Preble and Dorminey discuss common criticisms that have stood in the way of reviewing the military’s books. Some argue that an audit might expose sensitive information, yet Congress regularly debates the defense budget out in the open. The only thing missing from the public eye is knowledge of how dollars are actually spent and whether they deliver a return on investment. Others argue that the armed forces are too busy safeguarding liberty, and shouldn’t have to be subject to rigorous examinations of fiscal responsibility. Yet if all other government agencies are subject to audits, there’s no reason the Pentagon should be exempt. 

Preble and Dorminey argue that there will likely be few surprises:

Some of the Pentagon’s worst examples of wastefulness are already common knowledge. A $125 billion bureaucratic waste report (albeit with questionable methodology) made headlines this time last year. The General Accounting Office regularly reports on the Pentagon’s struggle to produce weapons systems in a timely fashion. One of the largest single line items in the budget, the F-35 Joint Strike Fighter program, has been plagued by everything from software struggles to production delays to cost overruns. Some muse that the entire enterprise might be a $1 trillion mistake. Similarly, the Littoral Combat Ship program has long been associated with inefficiency. Its new acquisition strategy doesn’t seem to be making things better. The worst of the worst in the DOD’s gargantuan budget will likely be the things that policymakers and the public already know about.

More importantly, they make a case that the audit is an opporunity for us to rethink the roles our armed forces play, and to decide what sort of resources are best used in furthering those missions.

You can read the full op-ed, “What to Expect from the Pentagon’s First-Ever Audit,” here

President Trump has reportedly expressed reservations about public-private partnerships, but White House economic advisor Gary Cohn is still enthusiastic about building the administration’s fabled infrastructure plan around them. Not everyone realizes, however, that there are two very distinct kinds of public-private partnerships, which I call the good kind and the bad kind. I’d like to believe that it is the bad kind that worries Trump while it is the good kind that encourages Cohn.

The good kind of public-private partnership is more formally known as a demand risk partnership. In this case, the public partner essentially gives the private partner a franchise to build a road or some other infrastructure. The private partner is allowed to collect tolls or other revenues from the infrastructure for a fixed period of time, usually three or four decades, after which ownership and management of the infrastructure is turned over to the public partner (who may contract it out again). The key is that private partner accepts all of the risk that the revenues may not cover the costs. The I-495 Capital Beltway express lanes are a demand risk partnership.

The bad kind of public-private partnership is more formally known as an availability payment partnership. As with the good kind, the public partner designs the project and the private partner builds and, usually, operates it. Unlike the good kind, the private partner takes no risk that the project might not pay its way. Instead, the public partner contracts to pay the private partner enough money over several decades to completely repay the private partner’s costs regardless of whether anyone is actually using the infrastructure.

Availability payment partnerships might make sense in the case of infrastructure that no one expects to earn user fees, such as common schools. But in most cases, such partnerships are formed mainly to allow the public partner to sidestep legal debt limits. For example, euro nations are supposed to limit their debts to a fixed percentage of GDP. Some nations, such as Italy, have built high-speed rail and other infrastructure using availability payment partnerships so that the debts appear on the books of the private partners, not the government.

For the same reason, Denver’s Regional Transit District (RTD) formed a public-private partnership to build a billion-dollar rail line to the airport. Voters had approved a sales tax increase for the rail line but set a debt limit. When cost overruns made it impossible to build the line without exceeding the debt limit, RTD entered into an availability payment partnership so the debt wouldn’t appear on its books. Of course, it was still contracturally obligated to pay the private partner enough to repay its debt.

Demand risk partnerships are good because the need to cover costs out of user fees creates a discipline that insures that projects are worthwhile and costs do not get out of control. User-fee funded projects are also better maintained because managers know users will stop paying if the project becomes dangerous or unreliable. 

Availability payment partnerships are bad because they offer little incentive to insure that projects are worthwhile or to control costs. Denver’s airport rail line was originally projected to cost $315 million and ended up costing over a billion dollars. Nor did that billion dollars buy a quality product: more than a year after it opened, the builder still has not got the automatic grade crossing gates working, a technological problem that the private railroads solved more than 80 years ago.

Until the Trump administration releases its infrastructure plan, we won’t know if it will make a distinction between demand risk and availability payment partnerships. But it should favor the former over the latter to protect taxpayers and insure that the infrastructure we build is both worth having and well maintained.

Last night, the House Rules Committee made in order one alternative to the HPSCI FISA Sec. 702 reauthorization bill, the USA Rights Act. You can view the Rule here

The bill was originally introduced in the Senate by Ron Wyden (D-OR) and Rand Paul (R-KY). You can view a one-pager on the USA Rights Act here.  

None of this would have happened without the relentless effort of Rep. Justin Amash (R-MI) and a number of his House Freedom Caucus colleagues, who’ve made clear for some time that they would not support the reauthorization of the extremely controversial (and constitutionally dubious) FISA Sec. 702 mass surveillance program in its current form. Amash is an original cosponsor of the House version of the USA Rights Act. 

To be clear, the USA Rights Act is itself a significantly deficient surveillance reform measure. The bill does not require the IC/FBI to purge their databases of data on Americans not the subject of a criminal investigation, nor does it mandate the kind of GAO audits that are necessary to truly help end surveillance abuses. It also accepts the USG framing that 702 is necessary, legitimate, and effective—assertions I’ve challenged previously. 

Despite those serious flaws, the USA Rights Act is a vastly more comprehensive FISA Sec. 702 reform measure than every existing alternative. It restores the 4th Amendment probable cause standard for searches of the data of Americans stored on FBI or IC IT systems, and it makes it easier for innocent Americans to sue the federal government for unlawful spying. And precisely because it would, if enacted, give citizens more tools to discover if they are the targets of unlawful or politically-motivated surveillance, I expect the House GOP leadership to do everything possible to defeat it on the House floor, as will the IC/FBI. Even if the USA Rights Act passes, the House GOP leadership has shown time and again that they are willing to ignore the will of the House and strip out real surveillance reform measures in conference with the Senate, as I’ve explained elsewhere

All of which underscores a point I’ve made for years: traditional advocacy on surveillance issues has generally proven ineffectual in stopping, much less rolling back, post-9/11 surveillance powers that we know have been abused. The reason is simple. The groups that lobby on these issues do not engage in electoral politics—which means politicans can vote for more surveillance powers in the name of “public safety” without fear of organized, targeted political reprisal from Bill of Rights supporters. Until that dynamic changes, enduring surveillance reform will remain elusive.

Yesterday, Senator Tom Cotton (R-AR) gave a speech on the floor of the Senate about “putting an end, once and for all, to chain migrations.”  The main argument that Senator Cotton made is that immigrants lower the wages of blue-collar American workers.  Senator Cotton said:

That means that you have thousands and thousands of workers with absolutely no consideration for what it means for the workers who are already here … The wages of people who work with their hands and work on their feet hold the type of jobs that require you to take a shower after you get off work, not before they got to work.  Blue-collar workers have begun to see an increase in their wages over the last year for the first time in decades and that is in no small part because of the administration’s efforts to get immigration under control.

There is vast empirical evidence that contradicts Cotton and shows that the wage effect is minuscule, concentrated on only high school dropouts, or that immigration actually increases the wages of lower-skilled Americans.  Even worse for Cotton’s argument, the wages for low-skilled American workers actually rose less slowly the last time the government cut low-skilled immigration to raise wages.  I’ve provided evidence pushing against Cotton’s position in previous posts but this one will present new evidence from the Mariel Boatlift. 

The last major academic debate on the wage effects of immigration concerned the Mariel Boatlift when about 125,000 Cuban refugees surged into Miami over a few months in 1980.  Indeed, this debate was so important that even Trump Administration White House aide Stephen Miller cited it in a press conference in 2017

The Mariel Boatlift a wonderful quasi-natural experiment that economists have exploited numerous times to estimate the effect of immigrants on wages.  David Card wrote a paper in 1990 showing that the effect of Mariel on wages and employment was near zero.  Recently, George Borjas of Harvard wrote another paper that found Mariel actually had an enormously negative effect on wages – a result that has been challenged by Giovanni Peri and Vasil Yasenov and Michael Clemens and Jennifer Hunt.  Professor Borjas responded here.  I added a bit to this debate by pointing out that under Borjas’ methods, the wages of Miamians with only a high school degree rose at the same time as the Boatlift and that wages for Hispanic dropouts in Miami rose rapidly shortly after the Boatlift, a perplexing result for the most-substitutable workers. 

The rest of this blog will ignore the criticisms of Borjas’ Mariel Boatlift paper and instead use his methods to show that the wages of blue-collar Miamians were not negatively affected relative to the placebo cities.  This will use some of the most recent and relevant economics research to see whether Senator Cotton can make a convincing case that immigrants lower the wages of blue-collar American workers.  We used the same CPS dataset that Borjas used for the full empirical exercise of 1977-2003.  The placebos are comparison sets of cities.  They are all cities that aren’t Miami (labeled as “Miami”), those selected by David Card, those that are similar to Miami in terms of employment prior to 1980, and those with similar low-skilled work forced prior to 1980.  I define blue-collar workers in two ways.  The first is all workers with less than a college degree.  The second is all workers who have at least a high school degree but less than college. 

The first group of blue-collar workers is those with less than a college education.  We ran a differences-in-differences model that shows a statistically significant decline in average wages by around 2.5 percent that is significant at the 1 percent level in Miami, relative to all other cities, after the Boatlift. (Table 1).  This finding is much smaller than Borjas’ negative finding.  For the employment and Card placebos, native employment and wages increased at the 10 percent and 1 percent level in Miami.  There were no statistically significant effects on the wages of Miamians compared to the low-skill placebo.  According to Borjas’ paper, this group of workers includes 86.9 percent of the Marielitos and 81.2 percent of native Miami workers.

The second group of blue-collar workers is those who have at least graduated high school but don’t have a college degree.  Their wages increased by 5.5 percent in the Miami placebo and by 4.7 percent in the employment placebo, both at the 1 percent level, after the Boatlift (Table 2).  The effect of the Mariel Boatlift on the wages of blue-collar workers in the Card and low-skill placebos are statistically insignificant.  According to Borjas’ paper, this group of workers includes 29.1 percent of the Marielitos and 54.4 percent of native Miami workers.  For both tables, the percentages are large enough that we should see a negative wage impact but we do not.  The cross-skill complementarities likely cancel it out.

 

Table 1 

Less than College Workers

 

 

Miami

Card Placebo

Employment Placebo

Low-Skill Placebo

Diff in Diff

-.025***

0.009*

0.055***

0.004

 

(0.009)

(0.005)

(0.017)

(0.007)

          Table 2 

Workers with High School Degree and Less than College

 

Miami

Card Placebo

Employment Placebo

Low-Skill Placebo

Diff in Diff

0.055***

0.007

0.047***

0.003

 

(0.010)

(0.005)

(0.018)

(0.006)

The dependent variable is the natural log of weekly wages.  Each specification includes city and year fixed effects.  Standard errors clustered by the city. 

Significance levels denoted *** p < 0.01, ** p < 0.05, *p < 0.1.

 

This quick exercise is further evidence that the wages of blue-collar Americans, most of whom have at least a high school education, are not much affected by immigrant workers.  If the goal is to bolster working class wages, cutting legal immigration will not do it.    

Andrew Forrester provided substantial and important assistance for this blog post.      

The National Center for Health Statistics reported last month that a record 63,600 deaths occurred in 2016 due to overdoses. Digging deeper into that number shows over 20,000 of those deaths were due to the powerful drug fentanyl, more than 15,000 were caused by heroin, and roughly 14,500 were caused by prescription opioids, although it has been known for years that, in most cases of prescription opioid deaths, the victims had multiple other potentiating drugs onboard. The rest of the deaths were due to methamphetamines, cocaine, benzodiazepines, and methadone.

Drugs Involved in U.S. Overdose Deaths* - Among the more than 64,000 drug overdose deaths estimated in 2016, the sharpest increase occurred among deaths related to fentanyl and fentanyl analogs (synthetic opioids) with over 20,000 overdose deaths. Source: CDC WONDER

* Provisional counts for 2016 are based on data available for analysis as of 8/2017.

In its end-of-year report, the National Center for Health Statistics noted deaths from fentanyl increased at a steady annual rate of 18% per year from 1999-2013 and then shot up 88% from 2013-2016.

Fentanyl is not routinely prescribed in the outpatient setting, and when it is, it most commonly is in the form of a skin patch for slow, transdermal release, unsuitable for abuse or nonmedical use. The evidence shows it is being smuggled into the country, often by mail, in powdered form from factories in China and elsewhere, where it is used to fill counterfeit prescription opioid capsules or to lace heroin to enhance its potency.

In the case of heroin, NCHS found the death rate steady from 1999-2005, then it increased 10% per year from 2005-2010, 33% per year from 2010-2014, and has been increasing at a rate of 19% per year since 2014.

Meanwhile, after increasing 13% annually from 1999-2009, the death rate increase from prescription opioids has remained steady at 3% per year since 2009.

For nearly a decade, policymakers have bought into the misguided narrative that the opioid overdose crisis is a result of careless doctors and greedy pharmaceutical companies getting patients hooked on prescription opioids and condemning them to the nightmarish world of drug addiction. As a result, the Drug Enforcement Administration has ordered decreases in prescription opioid production. There was a 25 % reduction in 2017 and a 20% reduction is ordered for 2018. States have set up monitoring programs that put doctors and patients under surveillance leading to a dramatic reduction in the prescription of opioids since 2010. In fact, high-dose prescribing fell 41% since 2010. The popular opioid OxyContin was replaced with an abuse-deterrent formulation in 2010 (that could not be crushed for snorting or dissolved for injecting), and, since then, several other such formulations have come online.

This focus on the supply and prescription of opioids makes many patients needlessly suffer in pain. Some, in desperation, turn to the illicit market to get relief, where they find heroin and heroin-laced fentanyl often cheaper and easier to get. Some resort to suicide.

Policymakers mistakenly focus on doctors treating their patients in pain. By intruding on the patient-doctor relationship they impede physician judgment and increase patient suffering. But another unintended consequence is that, by reducing the amount of prescription opioids that can be diverted to the illicit market, they have driven nonmedical users to heroin and fentanyl, which are cheaper and easier to obtain on the street than prescription opioids, and much more dangerous.

Data from the Centers for Disease Control and Prevention show that from 2006 to 2010 the opioid prescription rate tracked closely with the opioid overdose rate, at roughly 1 overdose for every 13,000 prescriptions. Then, after 2010, when the prescription rate dropped and it became more difficult to divert opioids for nonmedical use, the overdose rate began to climb as nonmedical users switched over to heroin and fentanyl. There is a dramatic negative correlation between prescription rate to overdose rate of -0.99 since 2010.

The overdose rate is not a product of doctors and patients abusing prescription opioids. It is a product of nonmedical users accessing the illicit market.

The problem will not get better—it will probably only get worse—as long as we continue to call this an “opioid crisis.” The title is too nonspecific. This is a crisis caused by drug prohibition—an unintended consequence of nonmedical drug users accessing the black market in drugs. Policymakers should stop harassing doctors and their patients and shift the focus to reforming overall drug policy. A good place to start would be to implement harm reduction measures, such as safe syringe programs, making Medication Assisted Treatments like methadone and suboxone more readily available, and making the opioid antidote naloxone available over-the-counter, so it can be easier for opioid users to obtain. Even better would be a sober reassessment of America’s longest war, the “War on Drugs.”

Renaming the problem a “heroin and fentanyl crisis” might be a way to trigger a refocus.

In an op-ed published today on The Hill, trade policy analyst Colin Grabow shows that President Trump has not, in fact, raised a single tariff in his first year in office. Although Trump took the momentously disruptive steps of withdrawing the U.S. from the Trans-Pacific Partnership and has threatened to withdraw the U.S. from the North American Free Trade Agreement, “U.S. trade policy  … is largely in the same place it was when President Obama left office.” 

Have saner voices inside the White House prevailed, or is this just the calm before the storm? The answer should be apparent in the coming months, and possibly even weeks, as a series of trade-related deadlines will force the president to show his hand.

Grabow discusses the inflection points in 2018 that may give Trump an opportunity to reverse course and start imposing tariffs, including ongoing investigations into the national security implications of steel and aluminum imports; an investigation into alleged trade violations committed by China related to technology transfer, intellectual property and its innovation policies; and the U.S. International Trade Commission’s recommendations for tariffs on imported solar cell and washing machine. Finally, NAFTA renegotiations and the recent kickoff of renegotiations for the Korea-U.S. Free Trade Agreement may also shed light on Trump’s intentions for trade policy in 2018.

He concludes:

The trade story could very well still end in tears, with plenty of opportunities in the New Year for Trump to choose a protectionist path.

But a more optimistic scenario exists: Amid record stock market highs and an unemployment rate trending toward 4 percent, Trump could be swayed by arguments senior administration officials are reportedly making

Namely, that tariff increases would amount to throwing a monkey wrench into an economic machine that is nicely humming along. For the sake of the country, let’s hope they prevail. 

You can read the full op-ed (“Tariffs would throw a monkey wrench into humming economy”) here, and click here to see more of Colin Grabow’s writing, along with other scholars from Cato’s Herbert A. Stiefel Center for Trade Policy Studies. 

International travelers, citizens and foreigners alike, enjoy reduced privacy protections at ports of entry. Thanks to the “border exception” to the Fourth Amendment, Customs and Border Protection (CBP) officers do not need reasonable suspicion or probable cause to search electronic devices at airports. This regrettable authority made headlines last year after CBP officers searched phones belonging to innocent American citizens. CBP has updated its electronic device search policy via a new directive. While the directive does include a welcome clarification, it states that CBP can search anyone’s electronic devices without probable cause or reasonable suspicion.

The CBP’s new directive begins by outlining the unfortunate state of the Fourth Amendment at the border and ports of entry. The Fourth Amendment protects “persons, houses, papers, and effects” from “unreasonable searches and seizures.”

Yet, as Justice Rehnquist wrote in his majority opinion in United States v. Ramsey (1977):

[S]earches made at the border, pursuant to the longstanding right of the sovereign to protect itself by stopping and examining persons and property crossing into this country, are reasonable simply by virtue of the fact that they occur at the border.

In 1985, Rehnquist reiterated this point, writing in his United States v. Montoya de Hernandez (1985) majority opinion:

Routine searches of the persons and effects of entrants are not subject to any requirement of reasonable suspicion, probable cause, or warrant.

CBP conducted numerous warrantless searches of electronic devices last year. Perhaps most notable was the January 2017 case involving Sidd Bikkannavar, an American citizen, member of the CBP Global Entry program, and NASA Jet Propulsion Laboratory engineer. After arriving from Chile (not exactly a hotbed of international terrorism), a CBP officer at Houston’s George Bush Intercontinental Airport asked Bikkannavar to unlock his smartphone, which happened to be NASA property. Despite Bikkannavar pointing out that the phone contained sensitive information, the officer persisted, and Bikkannavar eventually gave up the phone’s passcode.

A month after CBP needlessly interrupted Bikkannavar’s travel, agency officials reportedly stopped another American citizen, Haisam Elsharkawi, from leaving Los Angeles on his way to Saudi Arabia. According to Elsharkawi, CBP officers put him in handcuffs and pressured him into unlocking his phone. The officers released Elsharkawi without charge hours after his plane had left.

Searches of electronic devices at the border are on the rise. According to CBP’s own figures, the number of international travelers processed with electronic device searches in the 2017 fiscal year increased almost 60 percent compared to the 2016 fiscal year. While the number of travelers subjected to these searches represents a small fraction of total international travelers, it’s clear that these warrantless searches have targeted innocent Americans and are unlikely to stop. At a time when the smartphone is an increasingly integral part of modern life, containing most of our intimate and private details, this authority is of acute concern.

The directive distinguishes between “Basic” searches and “Advanced” searches. During a Basic Search, officers may—with or without suspicion—”review and analyze” information found on the electronic device. If CBP officers conduct an Advanced Search they may connect the electronic device to equipment that can review, analyze, and copy its contents. The new CBP directive states that the reasonable suspicion standard applies to “Advanced” searches.

The directive makes clear that CBP officers still have the authority to seek technical assistance for any device if it cannot be accessed thanks to encryption or passcodes.

The directive also clarifies what information CBP officers can access. Last year, Senator Ron Wyden (D-OR) wrote to then Department of Homeland Security Secretary John Kelly, asking a range of questions about CBP’s search of electronic devices. CBP Acting Commissioner Kevin McAleenan responded.

According to McAleenan, CBP officers conducting an electronic device search only examine information that is “physically resident” on the device and do not access “information found only on remote servers.”

What information is found “only on remote servers” is not exactly clear cut, as Ars Technica’s Cyrus Farivar explained:

After all, many modern apps—notably social media, e-mail, or messaging apps—keep data on remote servers, but a smartphone often also keeps a local copy of the message or relevant data.

Late last year, McAleenan answered questions presented by the United States Senate Committee on Finance. In answering these questions he clarified the steps CBP officers take to ensure remote data is not accessed (emphasis mine):

Border searches of electronic devices extend to searches of the information residing on the physical device when it is presented for inspection or during its detention by CBP for aborder inspection. To ensure that data residing only in the cloud is not accessed, officers are instructed to ensure that network connectivity is disabled to limit access to remote systems.

The new CBP directive includes this policy:

To avoid retrieving or accessing information stored remotely and not otherwise present on the device, Officers will either request that the traveler disable connectivity to any network (e.g. by placing the device in airplane mode), or, where warranted by national security, law, enforcement, officer safety, or other operational considerations, Officers will themselves disable network connectivity.

This is a welcome clarification, but even with airplane mode enabled revealing details are still visible on a phone. Facebook group membership, emails, contact details, and photos are some of the information that’s available on a phone in airplane mode. Even if all of this information was hidden from CBP officers conducting a “Basic” search, the apps someone has downloaded can be revealing. You don’t have to be Sherlock Holmes to infer details about someone who has Coinbase, TinderDiabetes and Blood Glucose Tracker, and Muslim Pro apps on their phone.

CBP officers should have to secure a warrant before scouring our most intimate communications and details. A few years ago, the Supreme Court held in Riley v. California (2014) that police cannot search the digital information found on phones belonging to arrested persons without a warrant. In a brief for one of the cases considered in Riley v. California, the United States argued that searching information on phones is “materially indistinguishable” from searching wallets and purses. In his Riley v. California majority opinion Chief Justice Roberts correctly characterized this argument as “like saying a ride on horseback is materially indistinguishable from a flight to the moon.”

The modern smartphone is an essential feature of modern life. Almost every American adult owns a cell phone, with 77 percent owning a smartphone. Americans use these devices to contact family and colleagues, organize their finances, find love, publish their thoughts, find transport, play games, track their eating habits, listen to music, and much more. Allowing CBP officers warrantless access to devices that house this information risks needlessly violating Americans’ privacy.

Lawmakers in the House and Senate have introduced legislation requiring CBP to have warrants before searching phones. Until such legislation is passed or the Supreme Court revises the border exception to the Fourth Amendment, privacy at ports of entry will be dependant on CBP’s policies. Sadly, the new CBP directive shows that we should expect continued privacy violations at ports of entry for the foreseeable future.

The city of Seattle has now put its stiff new 1.75 cents per ounce tax on sugary beverages into effect, and Costco managers in the tech city, much to their credit, have not hesitated to post signs informing shoppers of its impact. According to a reporter’s photo, the sign atop a Gatorade Frost Variety Pack lists the regular Costco price of $15.99 along with $10.34 in newly added Seattle tax for a total of $26.33. Helpfully, an adjacent sign advises shoppers that the same item “is also available at our Tukwila and Shoreline locations without City of Seattle Sweetened Beverage Tax.”

Following KIRO7 News coverage of the story, Scott Drenkard of the Tax Foundation wrote a funny Twitter thread on the positions taken by the various advocates:

  • “First they interview people at the Costco who are rightfully shocked at how high prices on soda and sports drinks are now (they are almost doubled).”
  • “Then they interview a public health advocate who says ‘that’s right! We want these prices to change people’s behavior and slow sales!’”
  • “Then they talk to the consumer, ‘think you’ll change your behavior, maybe even shop somewhere else?’ And she’s like, ‘ya the Tukwila store is close enough.’ Then they ask a city council member if this will hurt local biz, who says ‘there is no data’ suggesting that.”
  • “Then the SAME public health advocate says that people won’t respond to price increases, shopping elsewhere because it isn’t ‘worth their while.’”
  • “You can’t have it both ways people! The tax is either big enough to elicit behavior change, which would slow sales and hurt local biz and potentially reduce calories, or it isn’t. Get your stories straight!”

In 2016 I wrote about Philadelphia’s soda tax that “while all taxes are evaded to some extent, excise taxes are especially subject to evasion based on local geography”, and followed up on the Philly measure’s possible openings for unlawful evasion and eventual public corruption. Seattle authorities intend to use the hoped-for $15 million revenue stream to fund various causes and organizations including an effort to bring fresh fruits and vegetables to urban neighborhoods, even though the once-voguish “food deserts” theory blaming dietary choices on the retail environment has suffered one debunking after another in recent years.

It is not surprising that so many Americans believe President Trump has spent the past year erecting tariff walls around the United States. From Trump’s bombastic, anti-trade rhetoric to media’s and social media’s conflation of that rhetoric with real protectionist actions, hardly a day has passed without publication of an analysis or editorial about how especially protectionist this administration has been. The facts are quite different.

Despite promising 45 percent duties on imports from China, 35 percent duties on re-imports from Mexico, tighter restrictions to limit access to U.S. government procurement markets to U.S. firms and workers, requirements that oil pipeline builders use only American-made steel, and more, the Trump administration has not undertaken any of those actions. There has been no discretionary protectionism imposed by President Trump. None. Not yet anyway.

Certainly, President Trump’s instincts are protectionist. He’s already inflicted incalculable damage by withdrawing the United States from the Trans-Pacific Partnership, playing loose with his aggrandized sense of U.S. indispensability to the trading system, and deliberately throwing sand in the gears of the World Trade Organization’s Dispute Settlement Body. His view of trade as a zero-sum contest played between national monoliths (i.e., Team America vs. Team China), where winning means achieving a trade surplus by way of policies that maximize exports and minimize imports, certainly provides fertile ground for protectionism to take root and flourish. But when it comes to actually imposing tariffs or other trade restrictions, so far Trump has been remarkably circumspect. Why?

First of all, the president’s trade policy actions are constrained legally, politically, and practically. The U.S. Constitution gives Congress, not the president, authority to regulate foreign trade. However, at various points and for various reasons over the past century, Congress delegated—through legislation that became statute—some of its authority to the president. For example, the president can impose tariffs without need of congressional action or consent under several different laws.

Since Trump took office, his administration has initiated investigations under five different statutes: Section 201 of the Trade Act of 1974 (i.e., the “Safeguards” Law); Section 301 of the Trade Act of 1974; Section 232 of the Trade Expansion Act of 1962; the Antidumping Law; and the Countervailing Duty Law. Under each of those laws, certain conditions must be met before restrictions can be imposed. Determining whether those conditions are met normally involves an investigation subject to formal procedures and statutory or regulatory timetables. And, if and once imposed, those tariffs are generally time-limited and usually subject to judicial review. So, while the president has conditional authority to raise tariffs, he does not have carte blanche, which seems to be a popular misconception.

Second, tariffs may benefit the protected industry temporarily, but they usually impose financial burdens on domestic producers in downstream industries. There are inevitably trade-offs to consider, with economic and political implications. Thus, while the president can puff out his chest and direct the public’s attention to the tariffs he imposed to help steel producers or solar cell manufacturers, for example, those actions exact direct and indirect costs on companies and workers in steel-using industries and the solar panel producing and installing industries, respectively. In many of the pending trade cases, workers in the downstream industries that will bear the brunt make up Trump’s base of political support.

Third, while national governments are permitted to resort to temporary protectionist measures under certain circumstances without violating the rules of the global trading system, in other circumstances trade protection measures can lead to authorized retaliation against U.S. exporting interests. Trump may like to talk tough, but will he really want to impose measures that could hurt the economy?

Certainly, 2018 will offer more opportunities than previous years for protectionist measures. But so far, despite the media frenzy, Trump has been restrained.

In two new posts at the Health Affairs blog, I lift the fog of economic jargon to show ObamaCare’s preexisting-conditions provisions are reducing quality, are wildly unpopular with voters, and are indeed the law’s greatest political vulnerability:

Public opinion surveys show voters support ObamaCare’s preexisting conditions provisions by a two-to-one margin. If those provisions have the effect of reducing quality, however, that initial support flips to two-to-one opposition. The biggest shift is among Democrats, who swing from 82 percent in favor to 55 percent opposed. Voters turn against those provisions whether the erosion in quality comes in the form of less access to medical tests and treatments, longer waits for care, more surprise medical bills, or less access to top-rated treatment centers…

In “Is ObamaCare Harming Quality? (Part 1),” I explain that new research shows that ObamaCare is not working how it is supposed to work in theory: the law’s preexisting conditions provisions create perverse incentives for insurers to reduce the quality of coverage; those provisions are reducing the quality of coverage relative to employer plans; and the erosion in quality is likely to accelerate in the future.

In “How To Ensure Quality Health Coverage (Part 2),” I explain why regulators cannot fix this problem, and why providing sick patients secure access to quality health care requires allowing consumers to purchase health plans not subject to ObamaCare’s preexisting conditions provisions.

Part 2 also explains how expanding the definition of “short-term” health insurance to include policies that include guaranteed-renewability riders, a change the Trump administration can make on its own via regulation, would free consumers from ObamaCare and pressure Democrats to come to the negotiating table.

Tonight is the college football championship, an all-SEC affair between the Bulldogs of the University of Georgia and the Alabama Crimson Tide. Going into it, however, even these programs have something to lament: the end of the 80 percent federal tax deduction season ticket holders would get for providing mandatory “gifts” to the schools’ athletics departments. It went away with the recently enacted tax reform package.

Yes, the tax code treated it as charitable giving when one made a required donation, on top of actual ticket costs, to get into college football games. That included the $4,000 per-seat, per-year, needed to obtain Ivory Club seating at the University of Alabama, and the $2,250 required for Champions Club views at Georgia. Presumably the justification was that market failure—season ticket buyers thinking only of the private good of attending games—would have undervalued Alabama head coach Nick Saban’s, or Georgia coach Kirby Smart’s, contribution to the public good, and absent Saban’s roughly $11 million annual compensation, and Smart $3.8 million, the public would have been hurt by these guys (and lots of assistant coaches) doing something other than coaching football. (To be fair, both figures include such provisions as payments for apparel use and media appearances.) Meanwhile, outside the Power Five, the National Champion* Knights of the University of Central Florida were demanding a $1,500 per-seat donation for Tower Club seats, but nonetheless lost head coach Scott Frost to Nebraska. Frost was only earning $2 million at UCF, which was presumably a failure to subsidize correctly.

Of course, big-time college football and basketball are not about the public good. Yes, schools often argue that their football and basketball programs make big bucks that support other sports, but not only is there little justification for sports at all as a public good, many of these programs lose money as they compete in the uber-expensive college sports arms race. And there is no reason that season ticket holders should get tax deductions for attending games they thoroughly enjoy, or that colleges that do make big football and hoops bucks can’t use those profits to subsidize other sports without tax incentives.

Much more important, these programs are just the shiniest parts of widely gold-plated American higher education, a system that costs taxpayers hundreds-of-billions of dollars a year, while producing rampant price inflation, cruise ship-like facilities, greatly devalued credentials, and massive non-completion. So tonight, let’s all cheer the arrival of a little rationality in the wacky world of college sports, but tomorrow focus on all the rest of the far larger, crazily counterproductive subsidies going to America’s Ivory Tower.

* Self-declared for having had an undefeated season and beating a team that beat Alabama. And the college football playoff system is unfair to non-Power Five schools. And a whole lot of other things no doubt all intimately connected to serving the public good, as higher education purely exists to do.

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