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Transportation Secretary Elaine Chao’s decision to give $647 million to California to electrify a San Francisco commuter rail line tells states and cities across the nation that they should plan the most expensive and wasteful infrastructure projects they can and the Trump administration will support them. The Caltrains electrification project had no political, economic, social, or environmental justification, so Chao’s support for the project despite its lack of virtues does not bode well for those who hoped that the Trump administration would take a fiscally conservative stance on infrastructure and transportation.

The California project had already been funded by the Obama administration, but it was a last-minute approval by an acting administrator who immediately then took a high-paying job with one of Caltrains’ contractors. When Chao took office, every single Republican in the California congressional delegation asked her to overturn the decision, and she agreed to review it. Even some Democrats opposed the project, meaning there was far less political pressure to fund it than many other equally wasteful programs.

Caltrains carries just 4 percent of transit riders in the San Francisco Bay Area, and based on the dubious claim that electric trains would go a little faster than Diesel-electric trains, the environmental assessment for the project predicted that electrification would boost ridership by less than 10 percent. It would save no energy and have a trivial effect on air pollution. 

Instead, the main purpose of the Caltrains project was to wire the way for California’s bloated high-speed trains, which at least initially would use the same electric power to get to San Francisco. Normally, high-speed trains would not use the same track as ordinary commuter trains, but the costs of the high-speed rail project have risen so much that the state’s rail authority is cutting corners wherever it can. One result is that the project, if it is ever completed, won’t really run trains at high speeds for much of its route.

California Governor Jerry Brown had hoped to fund the state’s high-speed rail project out of carbon cap-and-trade revenues, but that hasn’t worked out. That means the only hope for high-speed trains is federal funding. Since the only legitimate reason for Caltrains electrification is to support high-speed trains, Chao’s decision to fund electrification effectively signs off on billions in future federal subsidies for California high-speed rail. It is quite likely that the next governor of California will want to kill the high-speed rail project before any more money is wasted on it, but Chao’s decision will make it harder for him or her to do so.

Chao’s sign-off on Caltrains electrification also gives hope to supporters of dozens of wasteful rail projects around the country, ranging from Maryland’s Purple light-rail line to a Fort Lauderdale streetcar line to a light-rail line to Eden Prairie, one of the wealthiest suburbs of Minneapolis. None of these projects have any transportation benefits: the Purple Line will dramatically increase congestion in suburban Washington, D.C.; proponents of the the Fort Lauderdale streetcar predict that it will attract no new visitors to downtown Fort Lauderdale; and the Eden Prairie line will replace an existing bus line that is faster and far less costly to run than the trains will ever be.

Trump’s budget proposed to end federal funding to projects such as these, suggesting that they should instead be “funded by the localities that use and benefit from these localized projects” (p. 35). However, unlike Caltrains electrification, all of these projects have supporters on both sides of the aisle who want federal pork barrel coming into their states and districts. With the Caltrains precedent, those supporters will make it much harder for Chao to implement Trump’s plan.

One of the strings attached to federal funding for projects like these is that, even if no one rides them, the cities have to keep running them for about 30 years or repay the prorated costs of the federal grants. Most of the projects, including Caltrains electrification, won’t be completed before Ford, Uber, and other companies start flooding cities with fleets of shared, driverless cars able to move people from door to door faster and at a lower cost than transit. Unless sanity returns to the Department of Transportation, we’ll be paying for empty trains for decades to come.

President Trump made headlines with his impromptu remarks after he learned of the tragic attack in Manchester earlier this week.

President Donald Trump put the latest incident in perspective: “So many young beautiful innocent people living and enjoying their lives murdered by evil losers in life. I won’t call them monsters because they would like that term. They would think that’s a great name. I will call them from now on losers because that’s what they are.

“They’re losers, and we’ll have more of them, but they’re losers, just remember that,” he added.

He spoke from the heart, but there is wisdom in the President’s words, as I explain at The National Interest’s The Skeptics

I note that “loser” is the same word that Ruslan Tsarni used to describe his nephews, Tamerlan and Dzhokhar Tsarnaev, the two Boston Marathon bombers.

When asked what provoked the bombing suspects, the uncle stated: “Being losers, hatred to those who were able to settle themselves—these are the only reasons I can imagine.

“Anything else, anything else to do with religion, with Islam, is a fraud, is a fake,” Tsarni added.

Other words include nitwits and idiots. My colleague John Mueller, who has assembled a catalog of all the post-9/11 terrorism cases in the United States—92 as of January 2017—characterizes most of these plots as bone-headed. These words describe mostly instances in which the would-be terrorists managed to kill and injure no one, not even themselves. But we should be equally dismissive of the losers that manage to detonate their bombs, or fire their weapons. Trump got it right.

I explain:

The word “loser” works because it doesn’t imply that there is anything particularly special about the individuals who perpetrate these heinous acts. They might wish to make a statement by indiscriminately killing and injuring helpless victims. They might fashion themselves as heroic, or uniquely evil, or superhuman. They are none of these things.

And I conclude:

I refuse to reward these losers. I refuse even to mention their names. Though we should never forget their victims, we shouldn’t allow [killers] to change the way that we live. They were sad and angry, and they lived unhappy lives. They wanted us all to be unhappy, too.

I’m not having it. I just cranked an Ariana Grande shuffle on my iPhone.

You can read the whole thing here.

Last week the Wall Street Journal’s editorial page criticized the investors who lent money to Puerto Rico as being naive about political risks and suggested that they more or less deserve the massive haircuts currently being proposed.  However, this is a puzzling perspective that misconstrues the legal issue at hand—and bodes poorly for the next government that gets in such a mess.

Disregarding the Commonwealth’s constitutional requirement to prioritize general obligation debt above other obligations is not a regrettable necessity, as the Journal seems to suggest, but a violation of the law. Such a step is not only unnecessary but also portends long-run ramifications that would be to the detriment of the island’s residents.

The Journal mistakenly places its faith in the island’s recently announced fiscal plan, which bases its sparse debt repayments on the island’s supposedly ongoing economic contraction. In fact, Puerto Rico’s nominal GDP is at an all-time high (as are tax revenues), having grown 20% over the last decade. While the Journal praises the fiscal plan’s ostensible parsimony, spending actually grows by 12% over the next decade—it’s the 80% reduction in debt payments that makes it appear as if Puerto Rico’s government has restrained anything. To essentially forego any serious spending reforms when there is a fiscal oversight commission in place to take the political heat is mystifying—as is the Wall Street Journal’s facile praise of this approach. It’s also worth remembering that Puerto Rico’s government employs a much greater proportion of its workforce than any state in the union, so this notion that there’s nothing to cut in their budget doesn’t hold water.

If Puerto Rico does succeed in escaping its obligations to secured creditors, look for a stampede in the bond markets, as lenders come to realize there is no such thing as a safe government bond or an ironclad legal protection. What happens in Puerto Rico is going to be perceived by the bond markets as the model for Illinois—and Kentucky and California before too long.

What Puerto Rico threatens to establish is that regardless of any contractual agreements or constitutional pledges, all bets are off when a government not covered by Chapter 9 bankruptcy can’t pay its debts.

In the early days of the 2016 election cycle pundits were expecting the most expensive election ever. There were predictions of a $2 billion Hillary Clinton campaign and a $5 billion total for all presidential candidates. In the end, the campaigns spent less than expected, and less than in 2008 and 2012, and the winning candidate spent much less than the runner-up. “News” is supposed to be something unexpected, yet I haven’t seen many headlines about the drop in campaign spending and the dramatic revelation that money doesn’t always win.

Of course, in every election the bigger amounts are government spending. When politicians vote or promise to give money to students, the elderly, farmers, automobile companies, defense contractors, and other voting blocs, political considerations are certainly part of the decision-making process. When presidential candidates promise free college or a trillion dollars for infrastructure construction, they are clearly understood to be appealing for votes. When Republicans vote for $60 billion in “Hurricane Sandy recovery aid,” including money for Alaskan fisheries and activist groups, aren’t they buying votes? 

But for the moment, let’s take a look at how much the candidates did spend, and how much they got for it. I’ve added Libertarian nominee Gary Johnson to the usual Clinton-Trump comparison to get some perspective.

The vote totals are from Dave Leip’s Atlas of U.S. Presidential Elections. Spending figures for the Democratic and Republican candidates are from the Washington Post and for Johnson from

So the first thing we notice is that Clinton and Trump spent respectively just over $9 and $5 per vote, while Johnson spent less than $3. But party and outside groups more than doubled spending for the major candidates. All told, Clinton spent substantially more than Trump. She did get 2 percent more in the popular vote, but that wasn’t much return on the extra half-billion dollars. Johnson spent about six times as much as he did in 2012 to get three times the percentage, but we can only wonder how much of “the libertarian vote” a Libertarian Party candidate might pick up if he had enough money to be heard. 

Throughout his presidential campaign Donald Trump pledged to defund so-called “Sanctuary Cities.” Since his election the president and his administration have had to backpedal on this commitment thanks to serious constitutional issues with such a proposal. Recent news that Attorney General Jeff Sessions has narrowed the category of funds that can be withheld from sanctuary cities as well as the definition of sanctuary jurisdictions is good news for constitutionalists and federalists who oppose the federal government bullying cities and states.

Before unpacking Sessions’ recent memo it’s worth taking a look at the Trump administration’s actions against “Sanctuary Cities,” a term that has no legal meaning but is usually used to describe cities and localities where local officials have decided not to assist with federal immigration enforcement.

On January 25, President Trump signed Executive Order 13768: Enhancing Public Safety in the Interior of the United States. Section 9 of this executive order is the “sanctuary” section and reads, in part (emphasis mine):

Sec. 9. Sanctuary Jurisdictions. It is the policy of the executive branch to ensure, to the fullest extent of the law, that a State, or a political subdivision of a State, shall comply with 8 U.S.C. 1373.

(a) In furtherance of this policy, the Attorney General and the Secretary, in their discretion and to the extent consistent with law, shall ensure that jurisdictions that willfully refuse to comply with 8 U.S.C. 1373 (sanctuary jurisdictions) are not eligible to receive Federal grants, except as deemed necessary for law enforcement purposes by the Attorney General or the Secretary. The Secretary has the authority to designate, in his discretion and to the extent consistent with law, a jurisdiction as a sanctuary jurisdiction. The Attorney General shall take appropriate enforcement action against any entity that violates 8 U.S.C. 1373, or which has in effect a statute, policy, or practice that prevents or hinders the enforcement of Federal law.

There is a good argument that 8 U.S.C. 1373 is unconstitutional. 8 U.S.C. 1373 is a prohibition on a prohibition, banning local governments from preventing police departments from sending or receiving immigration status information to or from federal immigration authorities. This law potentially runs afoul of the 10th Amendment’s “anti-commandeering” doctrine, which bans the federal government from compelling local officials into enforcing federal law.

In the original executive order, jurisdictions that don’t comply with 8 U.S.C. 1373 risk losing federal funding except law enforcement grants. Sessions’ memo issued yesterday states that only law enforcement grants will be withheld from jurisdictions that willfully refuse to comply with 8 U.S.C. 1373. Below is the relevant part of the memo (emphasis mine):

In accordance with my duties as Attorney General, I have determined that section 9(a) of the Executive Order, which is directed to the Attorney General and the Secretary of Homeland Security, will be applied solely to federal grants administered by the Department of Justice or the Department of Homeland Security, and not to other sources of federal funding.

The memo also narrows the definition of a “sanctuary jurisdiction”:

the term “sanctuary jurisdiction” will refer only to jurisdictions that “willfully refuse to comply with 8 U.S.C. 1373.” A jurisdiction that does not willfully refuse to comply with section 1373 is not a “sanctuary jurisdiction” as that term is used in section 9(a).”

This definition of a “sanctuary jurisdiction” doesn’t include, for instance, jurisdictions that choose not to honor Immigration and Customs Enforcement (ICE) detainers or cities where police have decided to not to question people about their immigration status.

Sessions’ memo comes almost a month after a federal judge in San Francisco issued a preliminary injunction, ruling that the executive order’s threat to withhold federal funding from sanctuary jurisdiction is “unconstitutionally coercive” insofar as it threatened to cut off all federal grants. The judge cited the Supreme Court’s National Federation of Independent Business v. Sebelius (2012) ruling, which found that the Affordable Care Act’s threat to pull Medicaid funds from states that didn’t expand Medicaid was an unconstitutional “gun to the head.” The judge also noted that the president cannot attach conditions to money Congress has already appropriated. Yesterday, the Trump administration filed papers asking the San Francisco judge to reconsider his ruling.

The memo does allow for the Department of Justice (DOJ) to “seek to tailor grants to promote a lawful system of immigration.” As the Trump administration continues to threaten sanctuary cities we should be wary of Sessions’ portrayal of departments that cooperate with federal immigration authorities as “lawful.”

Local police departments are acting lawfully when they choose to cooperate with federal immigration enforcement efforts. But so too are police departments that have determined officers shouldn’t be involved in enforcing federal law.

Law enforcement in the United States has traditionally been handled at the local level. This is appropriate considering this country’s diversity and its federalist system. Conservatives regularly correctly point out that when it comes to education, transportation, healthcare, and a host of other issues local officials, not bureaucrats in D.C., should determine what’s best for their communities. The same goes for immigration. ICE is free to send as many agents as it wants to San Francisco, but it’s up to San Francisco officials to determine whether to assist.

Despite what some might think, sanctuary cities are not in and of themselves more dangerous than cities that don’t have sanctuary policies in place. In addition, there is evidence that local cooperation with federal immigration authorities can harm police-community relationships. Given this state of affairs it shouldn’t be a surprise that some local officials have determined that sanctuary policies are appropriate for their communities. Rather than threaten sanctuary jurisdictions, the federal government should take a federalist approach and allow local officials and police departments to determine how much cooperation with federal immigration agents is appropriate.

Conservative and libertarian fears about Donald Trump’s infrastructure rhetoric will be somewhat allayed by today’s budget. In the presidential campaign and early days of the administration, there was much talk of “shovel ready projects” and “creating jobs” with $1 trillion of new investment, which sounded suspiciously like a federal stimulus package and vastly more borrowing. But that language was nowhere to be seen in this new document. In fact, infrastructure as a pressing issue was somewhat downplayed.

Where once it was talked about as the third priority behind healthcare and taxes, President Trump’s opening message did not feel infrastructure important enough to list in the “eight pillars of reform.” Healthcare, tax, immigration, education, welfare, regulation, energy and reductions in federal spending were front and center, but infrastructure appeared in a B-list of “additional priorities” alongside student loan reform and paid parental leave.

Good infrastructure is of course important to an economy’s productive potential. But with the unemployment rate as low as 4.4 percent, construction unemployment lower than in 2007 and interest rates rising, there was little robust argument for an infrastructure stimulus, even if one subscribes to Keynesian economics. In fact, rushing through projects without assessing “bang for the buck” would have allowed a dogs dinner of rent-seeking and undermined long-term productivity through bad project selection, whilst doing nothing to stimulate the economy today.

It’s very welcome then that this budget instead emphasized the need for long-term reform of how infrastructure is “regulated, funded, delivered, and maintained.” In a move that will upset the Senate Democrats, it explicitly repudiated the idea that a huge increase in federal funding is the solution. It recognizes that “underlying incentives, procedures and policies” are more important to allow infrastructure responsive to demand.

As such, it proposes a few market friendly policies and principles to improving things. States would be responsible for more funding more of their own infrastructure, allowing tailored solutions to local needs. Air traffic control would be privatized, just as in countries such as Canada. The permitting process would be reviewed and streamlined to prevent long delays to projects, which add cost and uncertainty.

Yes, there is still provision for an additional $200 billion of federal spending over a decade. But even on this, the budget outlines that the primary purpose of the funding will be to harness in other non-federal funds, whether private or state, to get the desired $1 trillion additional investment. As an example of what will count towards this target, the budget chalks up the Keystone Pipeline, meaning it will include projects given approval by the federal government that otherwise might not have happened.

There are naturally lots of unanswered questions. How will projects be selected? Will the administration use robust cost-benefit analysis, or will politics and a desire to support certain industries with federal funds play a role? Will the administration be willing to embrace other measures, such as greater use of user fees within transportation infrastructure? Will there be any policy measures to try to harness private investment, such as the Navarro-Ross tax credits (which would narrow the tax base)? Is Trump envisaging a greater role for public-private partnerships and, if so, how will the federal government seek to avoid the problems of contract design, which plagued widespread use of them in Britain? And will the administration see the logic of abolishing regulations that raise the cost of construction, such as the Davis-Bacon Act and Buy American regulations as part of their supply-side push?

These, presumably, will all be answered in due course. But taking today’s brief insight at face value, the focus on the longer-term and on supply-side barriers to achieving better infrastructure mark a sharp and welcome break from the kind of agenda Trump originally seemed to have in mind. 

As the Trump administration debates whether to help fund a $1.75 billion transit project in California that will do almost nothing to increase transit ridership, it is time to reconsider whether transit should be subsidized at all. Here are ten reasons to end those subsidies.

1. It’s the most costly transportation we have

In 2015, the transit industry spent $1.15 to move one person one mile, of which $0.87 was subsidized. No other major form of transportation is so expensive or so heavily subsidized. Auto driving cost about 26 cents per passenger mile of which subsidies were 2 cents. Flying was about 16 cents a passenger mile of which subsidies were also about 2 cents. Intercity buses cost about 12 cents a passenger mile of which subsidies were about 3 cents.

Other than transit, the most expensive passenger transport was Amtrak, which cost about 53 cents per passenger mile in 2015 of which 19 cents was subsidies. Not coincidentally, Amtrak is also government owned, suggesting that government ownership either makes transportation more expensive or government is stuck with the obsolete clunkers in the urban and intercity transport markets.

2. Subsidies haven’t increased ridership

Federal subsidies to transit began in 1965, when transit carried 60 trips per urban resident. Since then, federal, state, and local subsidies have exceeded $1 trillion (in today’s dollars), yet annual ridership has dropped to 40 trips per urban resident. Ridership responds more to changes in gasoline prices than to increased subsidies.

3. Few use it and fewer need it

In 1960, when most of the nation’s transit was private (and profitable), 7.81 million people took transit to work. By 2015, the nation’s working population had grown by nearly 130 percent, yet the number of people taking transit to work had declined to 7.76 million.

In 1960, 22 percent of American households did not own a car and transit subsidies were partly justified on the social obligation to provide mobility to people who couldn’t afford a car. Since 2000, only 9 percent of American households don’t own a car, so the market of transit-dependent people has dramatically declined.

Half the households with no cars also have no employed workers in the households. Of the 4.5 percent of workers who live in households with no vehicles, well under half–41 percent–take transit to work, meaning transit doesn’t even work for most people who don’t have cars.

4. Cities need low taxes more than transit

New York City, where 58 percent of commuters take transit to work, is the only American city that heavily depends on transit. Transit carries less than 12 percent of passenger travel in the New York urban area, less than 8 percent in the San Francisco Bay Area, and well under 5 percent everywhere else.

To improve urban vitality, what cities really need are lower taxes. Transit is one of the biggest tax burdens on residents and businesses in many urban areas, and those that spend the most on transit tend to grow slowest, while those that grow fastest are the ones that spend least on transit.

5. Social and environmental benefits are negligible

Transit helps the poor, saves energy, and reduces pollution, right? Wrong! According to census data, people who earn $75,000 and up are more likely to ride transit than people in any other income bracket. Transit subsidies are subsidies to the wealthy.

Nor is transit particularly green. Transit uses more energy and produces more greenhouse gases per passenger mile than the average car. Transit uses less energy than cars in only a handful of urban areas, namely New York, Chicago, Atlanta, San Francisco, Portland, and Honolulu. Even in these areas, you might be able to personally save energy by riding transit, but increased subsidies to transit end up using more energy and producing more pollution than they save.

6. Private transit works

Although many states have outlawed private competition with public transit agencies, where competition is legal there are many profitable private transit operators. New York has the New York Waterway ferry service plus at least a dozen profitable private bus companies. The Atlantic City Jitney is a completely private transit system serving hotels and casinos. In San Francisco and Seattle, companies such as Apple, Google, and Microsoft find local transit systems fail to serve their needs so they have started their own private bus services to take their employees to work.

Some public agencies save money by contracting out transit to private operators. Denver contracts out half its buses, and the half it contracts out costs 53 percent as much to operate, per vehicle mile, as the buses the transit agency operates itself. Nationwide, buses that are contracted out cost 66 percent of buses that are operated by agencies, suggesting that, if transit were privatized, private operators could cut costs by a third to half without cutting service.

7. Subsidies destroy worker productivity

Since the federal government began subsidizing transit in 1965, worker productivity has collapsed. Before 1965, the transit industry carried close to 60,000 transit riders per worker each year. Today it is down to around 27,000 riders per worker.

Transit productivity declined in other ways as well. In 1960, fares covered virtually 100 percent of transit operating costs. Today it is less than 35 percent. In 1988, the earliest year for which capital expenditures are available, every inflation-adjusted dollar spent on capital improvements produced 1.25 transit rides. By 2015, it was less than 0.55 transit rides.

8. It only moves people

Freight movements are the life blood of any city. Without shipping, people starve, hospitals run out of supplies, and construction and manufacturing grind to a halt. Transit carries virtually no freight, and the emphasis that many cities place on increasing transit ignores the freight systems those cities need.

More than a fifth of federal highway user fees go to subsidize transit. Many states, including Connecticut, Delaware, Massachusetts, New York, and Pennsylvania, also divert a large share of highway user fees to transit subsidies. This means less money is available to maintain and improve highways, which means more congestion, which makes consumer goods more expensive, increases costs to delivery companies, and drives up the costs for almost every business in a region.

9. It doesn’t relieve congestion

Transit advocates often argue, or at least imply, that increased subsidies to transit will relieve traffic congestion. In fact, that is rarely, if ever, true.  “Increasing transit utilization does not lead to a reduction in traffic congestion,” says Thomas Rubin and Fatma Mansour in a study of the relationship between transit and congestion in 74 urban areas. While completely eliminating transit from New York and a few other urban areas might increase congestion, private operators could easily take over public transit operations in those areas.

10. Driverless cars will soon replace it

Shared transportation companies such as Uber and Lyft are already having an impact on the transit industry. Once those companies have driverless cars, they will be cost-competitive with and far more convenient than public transit. New York City is the only place in the country whose population and job densities are too great for shared driverless cars to handle.

This suggests that transit as we know it will cease to exist in a decade or so. Rather than spend billions building new transit lines that few people will ever ride, transit agencies need to figure out how they are going to pay their unfunded pension and health care obligations once they have no transit riders they can use to justify their subsidies. It is time to stop subsidizing this wasteful and declining industry.

It’s both amusing and frustrating to observe the reaction to President Trump’s budget.

I’m amused that it is generating wild-eyed hysterics from interest groups who want us to believe the world is about to end.

But I’m frustrated because I’m reminded of the terribly dishonest way that budgets are debated and discussed in Washington. Simply stated, almost everyone starts with a “baseline” of big, pre-determined annual spending increases and they whine and wail about “cuts” if spending doesn’t climb as fast as previously assumed.

Here are the three most important things to understand about what the President has proposed.

First, the budget isn’t being cut. Indeed, Trump is proposing that federal spending increase from $4.06 trillion this year to $5.71 trillion in 2027.


Second, government spending will grow by an average of almost 3.5 percent per year over the next 10 years.

Third, because the private economy is projected to grow by an average of about 5 percent per year (in nominal terms), Trump’s budget complies with the Golden Rule of fiscal policy.

Now that we’ve established a few basic facts, let’s shift to analysis.

From a libertarian perspective, you can argue that Trump’s budget is a big disappointment. Why isn’t he proposing to get rid of the Department of Housing and Urban Development? What about shutting down the Department of Education? Or the Department of Energy? How about the Department of Agriculture, or Department of Transportation?

And why is he leaving Social Security basically untouched when taxpayers and retirees would both be better off with a system of personal retirement accounts? And why is Medicare not being fundamentally reformed when the program is an ever-expanding budgetary burden?

In other words, if you want the federal government to reflect the vision of America’s Founders, the Trump budget is rather disappointing. It’s far from a Liberland-style dream.

But for those who prefer to see the glass as half-full, here are a couple of additional takeaways from the budget.

Fourth, as I wrote yesterday, there is real Medicaid reform that will restore federalism and save money.

Fifth, domestic discretionary spending will be curtailed.

But not just curtailed. Spending in the future for this category will actually be lower if Trump’s budget is approved. In other words, a genuine rather than fake budget cut.

I’ll close with my standard caveat that it’s easy to put good ideas (or bad ideas) in a budget. The real test is whether an Administration will devote the energy necessary to move fiscal reforms through Congress.

Based on how Trump was defeated in the battle over the final spending bill for the current fiscal year, there are good reasons to be worried that good reforms in his budget won’t be implemented. Simply stated, if Trump isn’t willing to use his veto power, Congress will probably ignore his proposals.

P.S. You may have noticed that I didn’t include any discussion of deficits and debt. And I also didn’t address the Administration’s assertion that the budget will be balanced in 10 years if Trump’s budget is approved. That’s because a fixation on red ink is a distraction. What really matters is whether the burden of spending is falling relative to the private sector’s output. In other words, the entire focus should be on policies that generate spending restraint and policies that facilitate private sector growth. If those two goals are achieved, the burden of red ink is sure to fall. Whether it happens fast enough to balance the budget in 2027 is of little concern.

New York Times columnist Paul Krugman recently chided President Trump for imagining he invented the metaphor of “priming the pump” during an Economist interview. Yet Krugman, like Trump, buys into the premise that budget deficits really do “stimulate” total spending or “aggregate demand” which is commonly measured by growth of Nominal GDP (NGDP).

Economic booms and busts clearly have huge effects on budget deficits, but where is the evidence that deficits and surpluses have their own separate (“exogenous”) effect on NGDP? 

To isolate cause and effect, we have to take out the “endogenous” effects that ups and downs in the economy have on taxes and spending. That is why the Congressional Budget Office (CBO)estimates budget deficits or surpluses (divided by GDP) without automatic stabilizers, which has traditionally been called the “cyclically-adjusted” budget. I will label it the “C-A Deficit” for short.  

The red line in the graph shows the CBO’s Cyclically-Adjusted (C-A) deficit or surplus as a share of GDP. The blue line shows the percentage growth in Nominal GDP (NGDP). 

From 1965 to 2016, the C-A Deficit averaged -2.7% of GDP, and growth of nominal GDP averaged 6.6%.

Contrary to 1960s Keynesian orthodoxy, the graph and table reveal no connection between the size of cyclically-adjusted deficits or surpluses and the rate of growth of aggregate demand (NGDP).  From 1991 to 2001, for example, the C-A Budget swings from an average deficit to a sizable surplus with essentially no change in the pace of NGDP growth. 

There is no measurable or even visible connection between larger CA-Deficits and faster NGDP growth in 2009-2012, nor between budget surpluses and slower NGDP growth in 1998-2000.  For more than 50 years, our experience has frequently been the opposite of what demand-side fiscalism predicts. This is not just a short-term phenomenon.

The Table highlights three extended periods when the assumed connection between C Deficits and NGDP was the opposite of what Krugmanian/Keynesian Pump Primerism would lead you to believe. 

  • From 1972 to 1981, the growth of NGDP was extremely rapid – 10.5% a year – yet C-A Deficits were below-average, at just -2.2% of GDP.  
  • From 1994 to 2001, the average C-A Deficit was nearly zero (in surplus 1998-2000), yet NGDP grew at a relatively brisk 5.9% pace. 
  • From 2009-2012, C-A Deficits were by far the highest in recorded U.S. history, averaging -8.1% of GDP.  These uniquely huge Obama deficits were conventionally labeled a “fiscal stimulus,” yet NGDP growth was a record low of just 2.4% a year.









Mainstream economists confidently predicted that the massive 2009-2012 additions to Column A (the C-A deficit) would result in faster increases in Column B (NGDP).  That was a testable, falsifiable hypothesis.  It was tested and falsified.  

Being unscientific and unapologetic, Mr. Krugman declares, “the first few years after the 2008 financial crisis… was a time for serious pump-priming; unfortunately, we never got enough of it …” 

Not enough of it?!  No remotely comparable U.S. “fiscal stimulus” ever happened before.  FDR’s reputedly miraculous New Deal C-A deficits averaged just -1-7% of GDP from 1933 to 1939, according to MIT economist E. Cary Brown.

In reality, fiscal and monetary “stimulus” were tested to the extreme after 2008 and failed spectacularly.  To now attempt to explain-away this dramatic failure of demand-side nostrums by declaring that cyclically-adjusted deficits above 8% of GDP were actually quite small is a feeble ad hoc excuse.  So too are the Keynesian magician’s empty claims that insipid NGDP growth “would have been even worse” without enormous deficits.  

A few years ago, I concluded, “The remarkably aggressive fiscal and monetary effort to stimulate demand did not stimulate demand… The promised stimulus from the previous fiscal and monetary binge remains undetectable—a big fizzle. Demand grew much faster (at a 6.1% pace) from 1998 to 2000, when the budget was in surplus and the Fed hiked the fed-funds rate to 6.5%.”

Turning back to Trump’s recent pump-priming remark, Krugman says “the economic engine no longer needs a fiscal jump start.  This is exactly the wrong time to be talking about the desirability of bigger budget deficits.”  Actually, it’s always the wrong time to be talking about budget deficits producing a “fiscal jump start,” because that’s a false metaphor with no basis in fact.  It doesn’t work.  It never worked.

A commonplace Keynesian retort is to point to the late 1960s, when Great Society and Vietnam War spending was said to have caused a “Guns and Butter” inflation, irrespective of Fed policy. That story is just as wrong as pointing to the New Deal as a successful example of fiscal stimulus.  It turns out that the C-A deficit averaged only -1.2% from 1965 to 1968, and was far below average in every year except 1968.  Even at the peak in 1968, the C-A deficit was only -2.9% of GDP, about the same as 2013-2016 (-2.8%)

Higher tax rates can crush the economy, but a crushed economy never ends up with a budget surplus.  LBJ’s ill-fated surtax of June 28, 1968 [$] was a failed experiment of using a fiscal solution to a monetary problem. Congressional Quarterly called it “the first complete test of the “New Economics”—a theory that Government fiscal policy should be used to guide the national economy through Budget deficits in a recession and Budget surpluses (or at least smaller deficits) during inflation.”  The 10% surtax on corporate and individual income was supposed to slow NGDP and thus inflation, but nothing like that happened until the Fed pushed the fed funds rate from 6% at the end of 1968 to 9.2% by August 1969.  LBJ’s “first complete test” failed completely, and so did Obama’s daredevil test of doubling-down on the national debt.

For the first four years after the 2008 financial crisis, unprecedented C-A Deficits resulted in the polar opposite of a “jump start” to demand (NGDP).  After President Obama’s experience, plus the endless failures of “fiscal stimulus” in Japan, how can anyone pretend to worry that much smaller deficits under President Trump would risk pump-priming excessive growth of demand?  

For both Krugman and Trump, Pump-Primerism relies on an obstinate faith that huge Obama’s gigantic C-A Deficits must “stimulate demand” while Clinton’s budget surpluses must have had the opposite, depressing effect.  That unsupportable belief repeatedly conflicts with reality, yet Krugman always clings to the comfort of Keynesian theory and considers reality expendable.

The Trump administration has released its 2018 budget plan, which includes spending and revenue projections for the 2018 to 2027 period. The plan would increase spending on defense, infrastructure, paid leave, and a few other items, but would reduce overall spending substantially compared to the baseline. The plan would cut numerous programs, and it would eliminate the budget deficit within a decade.

The spending cuts in the Trump plan would be beneficial for numerous reasons:

  • Cuts would reduce federal deficits, which have plagued the government since the turn of the century. The budget’s spending cuts are being called cruel and heartless, but chronic deficits are imposing huge costs on young Americans down the road, which is totally unethical.
  • Cuts would spur economic growth. Reforms to welfare programs, for example, will encourage more people to join the labor force and add to the nation’s output. 
  • Cuts would expand freedom because many federal programs—such as Obamacare—come with top-down rules and regulations that micromanage society.

Here are thoughts on some of Trump’s proposed spending reforms:

  • Overall Spending. The budget would cut spending $4.6 trillion over 10 years, which sounds like a huge cut, but it would be just 9 percent of the $53.5 trillion in projected spending over the period.
  • Medicaid. Spending on this huge health program has soared from $118 billion in 2000 to $389 billion this year. The explosive growth is caused by the program’s poor design—it lacks incentives for cost control and it has open-ended matching for state spending. The budget would shift the program to a more efficient structure of capped payments for states, saving federal taxpayers $610 billion over 10 years. More on the program here.
  • Food Stamps. The cost of the food stamp program has moderated in recent years as the economy has grown, but this $71 billion program has grown from just $18 billion in 2000. The Trump budget would reduce the program’s cost by tightening work requirements and imposing a state government match. The reform would save $193 billion over 10 years. More here.
  • Social Security Disability Insurance. The SSDI has soared in cost from $56 billion in 2000 to $144 this year. It is in desperate need of reform. A key problem is that SSDI discourages disabled Americans who can work and want to work from entering the labor force. The budget would restructure the program to encourage work and save $72 billion over 10 years. More here.
  • Federal Pensions. The CBO found that federal workers receive benefits 47 percent higher, on average, than comparable private-sector workers. One cause of the excess is that federal workers receive both a defined-benefit and defined-contribution pension plan. The Trump budget would scale back the cost of the defined-benefit plan to save $63 billion over a decade. More here.
  • Earned Income Tax Credit. The EITC is mainly a spending program, which has soared in cost from $32 billion in 2000 to about $70 billion today. The program has been plagued for years by an error and fraud rate of more than 20 percent. The budget would trim the waste by about $40 billion over the decade. More here.
  • Farm subsidies. Farm welfare damages the economy, harms the environmental, and skews heavily toward wealthy households. In 2015 the average income of farm households was $119,880, which was 51 percent higher than the $79,263 average of all U.S. households. The budget would trim subsidies modestly by $38 billion over the decade. More here.
  • Discretionary Programs. The budget builds on the discretionary cuts proposed in the March mini-budget by reducing nondefense spending $1.8 trillion over 10 years compared to the baseline. Many discretionary programs—such as education subsidies—are properly state and local responsibilities. If state and local governments believe that programs are crucial, they can pony up the funding themselves. There is no magic money tree in Washington, as the $20 trillion federal debt makes clear.

Trump budget chief Mick Mulvaney said “This is, I think, the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes.” He’s right, and he should be commended for proposing overdue reforms for such a wide range of spending programs.

Many members of Congress are denouncing or dismissing the proposed cuts, but they are in denial of the large reforms that will need to be made eventually because of the nonstop growth in the big entitlement programs. Social Security retirement and Medicare should be cut as well, but the Trump budget provides Congress with many good ideas to start paring back the bloated federal welfare state.

President Obama left office having roughly doubled the gross federal debt from about $10 trillion to $20 trillion. We don’t know yet whether Trump will be any more fiscally responsible than Obama. But he does get credit for giving his budget team room to explore major downsizing options across the vast $4.1 trillion federal government. 

At the National Police Misconduct Reporting Project, we keep tabs on a wide range of misconduct. Whether the misbehavior is excessive force on duty or a DWI off duty, we catalog the event and track the officer’s case as it goes through the administrative, civil, or criminal justice systems. Part of the reason we do this is to show whether police departments and other responsible government agencies are holding their officers accountable.

Depending on local laws and union contracts, police leadership can be limited in how much punishment they can dole out for a given offense. However, when a crime appears to have been committed and the police simply administer minor officer discipline, it sends a message that officers can act above the law. This message is amplified when officers who exposed that potentially criminal behavior are punished more severely than the offending officer.

This seems to be the case in Fort Worth, Texas. Two senior officers, Assistant Chief Abdul Pridgen and Deputy Chief Vance Keyes, have been demoted for allegedly leaking camera footage of their fellow officer, William Martin, violently attacking a woman who had called police for help after her son was assaulted. The video went viral, and Martin was suspended for ten days.

The attorney for the woman who was attacked and arrested, Jacqueline Craig, had this to say:

“[Officer] Martin amassed a series of felonies on that day from assault, to aggravated assault, to perjury, official corruption, false arrest [and] to each of these he received no criminal investigation, no criminal prosecution. He received a 10-day vacation and he was returned to the force with a scheduled promotion,” [Lee] Merritt said. “It’s a sad day for the city of Fort Worth. The level of blatant racism and unapologetic hypocrisy should no longer be tolerated and so we take this stand together today.”

Such retribution against senior officers who appear to have acted as whistleblowers will almost certainly have a chilling effect on reporting misconduct within the department. Moreover, it tells the people of Fort Worth–especially those in minority communities–that police violence against them is a less serious offense than exposing misconduct by fellow officers.

At least one of the officers reported that he plans to sue over this discipline.

You can read the full news report here.

This is an edited cross-post from

The Epoch Times quotes me on how the American Health Care Act’s Medicaid provisions create almost identical incentives to ObamaCare’s Medicaid expansion:

While both the per capita matching funds and the block grants seek to unleash innovation, they provide the states with very different incentives, according to Michael Cannon, director of health policy studies at the Cato Institute.

“The current per dollar matching grant system provides an unlimited entitlement to federal funds,” Cannon said. “The per capita matching grant system allows the states to keep that unlimited entitlement to federal funds going if they keep expanding enrollment, and so it creates enormous pressure for states to expand enrollment.”

Because able-bodied adults consume less health care than those who are more vulnerable, the per capita matching grants have an unintended consequence, according to Cannon. They will give states incentives to enroll able-bodied adults in preference to others who are more needy.

Cannon prefers giving the states block grants, which have the benefit of limiting federal expenses to a fixed amount, making the program financially sustainable.

For more, read my Philadelphia Inquirer op-ed, “Fulfill Promise to Repeal ObamaCare.”

This morning’s Supreme Court opinion in TC Heartland v. Kraft Foods, hinging on what I described in January as a dry point of statutory interpretation, is likely to stand as a landmark win for defendants in patent litigation – and, on a practical level, for fairer ground rules in procedure. A unanimous Court (8-0, Thomas writing, Gorsuch not participating) rejected the broad reading of a venue statute by which the Federal Circuit had empowered lawyers to forum-shop disputes from all over the country into a few decidedly pro-plaintiff venues, above all the largely rural Eastern District of Texas. From here out, defendants can still be sued in a district such as E.D. Tex. if they have a regular and established place of business in it, but the decision is likely to shrink what I called in my January preview a “jackpot patent litigation sector… that shifts around billions of dollar.” By redirecting cases into more neutral venues, it should bring outcomes closer to reflecting cases’ actual merits, which would in turn do much toward restoring confidence in this sector of the law.

If Congress believes the Court has erred it is free to restore patent venue to a more shopper-friendly set of rules. But after the experience of recent years, it is unlikely that a Congress of either party or any likely political complexion will have an appetite for doing that.


In 1964, most transit was privately owned, earned a profit, and was used by the average urban American 60 times a year. Then Congress passed the Urban Mass Transportation Act, offering capital grants to cities that took over their transit systems. Since then, most transit has been municipalized, we spend nearly $50 billion a year subsidizing it, and today the average American rides transit just 40 times a year.

Transit advocates complain that Americans have some sort of irrational love affair with their automobiles. But Americans have excellent reasons not to rely on transit. Here are nine of them.

1. Transit is slow.

Most transit is much slower than driving, and a lot of transit is slower than cycling. While the average speed of driving in most American cities is more than 30 mph, and in some it is more than 40 mph, the American Public Transportation Association’s Public Transportation Fact Book admits that the average speed of rail transit is just 21.5 mph while the average speed of buses is 14.1 mph. That doesn’t count the time it takes to get to and from transit stops.

2. It doesn’t go where you want to go.

Most transit is oriented to downtown, a destination few people go to anymore as less than 8 percent of urban jobs and 1 percent of urban residences are located in central city downtowns. If you don’t want to go downtown, transit is practically useless as hub-and-spoke transit systems can require hours to take you to destinations that are only a few minutes away by car.

3. It’s expensive.

The transit industry claims that transit saves people money. But the truth is that, for most people, it costs a lot less to drive than to ride transit. Transit fares in 2015 averaged 28 cents a passenger mile. That’s less than the cost of driving if you count all the costs of owning a car and are the only person in the car. But if you already own the car, the cost of one more trip is less than 20 cents a mile, and you save even more if you carry any passengers.

4. Lack of privacy and security.

Compared with the aura of security offered by riding inside of an automobile, many people avoid transit because they feel vulnerable and threatened by other riders. Teenagers swarm onto San Francisco BART trains to rob passengers. One person was killed and three injured in an Atlanta train shooting. Transit crime is up in New York despite a drop in the city overall. Even if these highly visible crimes had never taken place, sexual harassment of women is a constant problem with transit.

5. Our cities aren’t built for it.

Housing, jobs, and other destinations are so diffused throughout American urban areas that they don’t generate the large numbers of people moving from one point to another that mass transit systems need to work. One hundred years ago, when transit was at its peak, half of urban jobs were concentrated in factory districts. Today, most urban employment is in service jobs in such fields as health care, education, wholesale and retail trade, and utilities, and these jobs are diffused throughout urban areas. This makes it almost impossible for transit to serve commuters, much less anyone else.

6. Transit infrastructure is crumbling.

Rather than maintain transit systems in a state of good repair, the transit industry has chosen to build more transit lines that it can’t afford to maintain. Transit riders respond to delays and dilapidated transit by finding other methods of travel. The Department of Transportation’s latest assessment estimates that transit has a $90 billion maintenance backlog. Yet rather than address this backlog, transit agencies spent $6.4 billion building new rail transit lines in 2015.

7. It doesn’t carry freight.

Carrying large packages, suitcases, or shopping bags on transit is awkward at best and impossible at worst. Anyone who expects to travel with such cargo, even if only some of the time, will do best with a car.

8. Life is complicated.

Transit works best going from point A to point B if you happen to be near point A and want to get to point B. Transit doesn’t work well for trip chaining, going from point A to point B via points C, D, and E. Because life is complicated and people don’t want to spend all their time traveling, trip chaining works best in an independent vehicle such as a car.

9. It’s demeaning.

“Exact change only.” “Carry proof of fare with you at all times.” “No food or beverages.” “No playing music aloud.” “Take off your backpack and put it between your legs so we can cram more people onto your transit vehicle.” Some of these rules are for the convenience of other passengers, but most of them are for the convenience of the transit agencies themselves. Owning your own car means you can throw your bag in the back, drink your morning coffee, and play your favorite music as loud as you want. 

Bonus 10. Europeans don’t use transit much either

Europe is supposed to be a transit mecca, and transit there works for American tourists who are content to see only the major sights in big cities. But it doesn’t work for most Europeans much better than American transit works for most Americans. Example: According to the European Union, the average American rode light- or heavy-rail transit (known in Europe as trams and metros) 34 miles in 2006, while the average European rode them 89 miles. Yes, that’s more than twice as much, but that extra 55 miles is insignificant compared with the 12,600 miles the average American travels by car each year.

For all these reasons, just 5 percent of American commuting is by transit while 86 percent is by car. When all travel is counted, transit represents less than 1 percent of the total. Yet transit subsidies per passenger mile are 50 to 100 times as great as subsidies to driving. The solution is not to increase subsidies for one form of travel or another but to end all transportation subsidies and let people choose how to get around based on the real costs of travel.

In the New York Times, Niki Kitsantonis writes, “It may seem paradoxical, but Greece’s anarchists are organizing like never before.”

No. Anarchists – the sensible ones, at least – are not against organization. They are against rule – against ruling and against being ruled. Merriam-Webster explains the derivation of the word: “Medieval Latin anarchia, from Greek, from anarchos having no ruler, from an- + archos ruler.” True, as the dictionary editors note, “anarchy” and “anarchism” are sometimes used to mean something like “absence or denial of any authority or established order” or simply “absence of order.” But rational political theorists and even activists don’t advocate pure disorder; they advocate the absence of rule, which they define as the absence of government

So what is it that these Greek anarchists are organizing for? Well, in fact, the focus of the article is on how anarchists are supplying the services that the Greek state is not providing:

Seven years of austerity policies and a more recent refugee crisis have left the government with fewer and fewer resources, offering citizens less and less. Many have lost faith. Some who never had faith in the first place are taking matters into their own hands, to the chagrin of the authorities….

Whatever the means, since 2008 scores of “self-managing social centers” have mushroomed across Greece, financed by private donations and the proceeds from regularly scheduled concerts, exhibitions and on-site bars, most of which are open to the public. There are now around 250 nationwide.

Some activists have focused on food and medicine handouts as poverty has deepened and public services have collapsed.

In recent months, anarchists and leftist groups have trained special energy on housing refugees who flooded into Greece in 2015 and who have been bottled up in the country since the European Union and Balkan nations tightened their borders. Some 3,000 of these refugees now live in 15 abandoned buildings that have been taken over by anarchists in the capital.

One part of Athens seems to have been a self-governing, but not state-governed, territory for some time. Some sources say Exarchia has existed since as early as 1870. The name presumably comes from “ex-,” out of, away from, and of course “archos,” ruler.

In Athens, the anarchists’ epicenter remains the bohemian neighborhood of Exarchia, where the killing of a teenager by a police officer in 2008 set off two weeks of rioting, helped reinvigorate the movement and produced several guerrilla groups that led to a revival of domestic terrorism in Greece.

The police and the authorities tread lightly in the area.

The police have recently raided some buildings illegally occupied by anarchists, called squats, in Athens, in the northern city of Thessaloniki and on the island of Lesbos, a gateway for hundreds of thousands of migrants over the past two years….

The anarchists say their squats are a humane alternative to the state-run camps now filled with more than 60,000 migrants and asylum seekers. Human rights groups have broadly condemned the camps as squalid and unsafe.

In Exarchia, one of the squats includes a former state secondary school that was abandoned because of structural problems. Established last spring with the help of anarchists, the squat is now home to some 250 refugees, mostly from Syria, who have set up a chicken coop on the roof. Many more refugees are on a “waiting list” for other occupied buildings.

The squats function as self-organized communities, independent from the state and nongovernmental organizations, said Lauren Lapidge, 28, a British social activist who came to Greece in 2015 at the peak of the refugee crisis and is actively involved with several occupied buildings.

“They are living organisms: Kids go to school, some were born in the squat, we’ve had weddings inside,” she said.

There’s really nothing paradoxical about anarchists setting up institutions and communities outside the state to provide needed goods and services. The Greek anarchists probably don’t see businesses as part of that non-state society, though libertarian anarchists and anarcho-capitalists do. 

What is paradoxical, as I wrote five years ago, is Greek “anarchists” who object to the state reducing its size, scope, and power by cutting back on taxes and transfer payments. Anarchists who organize voluntarily to achieve common purposes are just living their philosophy.

The Trump administration’s 2018 budget to be released tomorrow will include a range of proposed spending cuts. The budget will call for cuts to food stamps, Medicaid, and other entitlement programs. These reforms come on top of proposed cuts to discretionary programs released in March.

There is more good news. The budget will propose cuts to the fat benefit packages received by federal workers. An April CBO report found that benefits for the government’s civilian workers were 47 percent higher, on average, than for comparable private-sector workers.  

One cause of the excess is that federal workers receive both a defined-benefit and defined-contribution pension plan. Pensions and other benefits for the 2.1 million federal civilian workers cost taxpayers about $80 billion a year (excluding postal workers). So federal benefits are a good place in the budget to tap for savings.

The Washington Post reports that the Trump budget will propose these reforms:

  • Increasing the required worker contribution to defined-benefit (DB) pension plans.
  • Basing DB benefits on the average of the top five salary years rather than the top three.
  • Ending cost of living increases for DB payouts.

These would be reasonable and long-overdue changes. Indeed, a better reform would be to phase out DB benefits for federal workers altogether. After all, just 13 percent of private sector workers even have DB plans. Federal compensation packages should reflect typical packages in the rest of the nation.

The Washington Post said, “The thought of Trump’s assault on federal retirement programs becoming law enrages federal employee leaders.” It certainly does. The paper quotes union leaders calling the proposals an “outrageous attack,” “downright mean,” and “beyond insulting.”

On the contrary, trimming the 47 percent advantage in benefits enjoyed by federal workers is a sensible attack on overspending. Furthermore, it is mean and insulting to taxpayers to give gold-plated pensions to workers inside the government bubble, especially since those favored few also have much higher job security than the rest of us.

See here for more thoughts on federal worker pay.

According to news reports last week, the legislature in Oklahoma passed, and Gov. Mary Fallin then signed, a bill whose wording directs judges to award reasonable attorneys’ fees and costs in cases of civil litigation. The provision was part of a bill on certain child abuse lawsuits, and its Senate sponsor said it was believed that the fee provision applied only to those cases until on a closer reading “it seems evident that it makes all civil cases … loser pays,” said Sen. David Holt. “But nobody caught that.”

As someone who has been writing in favor of the loser-pays principle since my first book, The Litigation Explosion, you might expect my reaction to this news (once I stopped laughing) to be positive. After all, there’s nothing wrong with a legislature enacting good policies through inadvertence. (For some legislatures, that seems to be the only way they do enact good policies.)

Sober second thoughts, however, will be less cheerful. Most advanced legal systems around the world follow versions of a loser-pays rule, but generally with the advantage of long experience that has allowed kinks to be worked out through Hayekian evolution, code tinkering, or both. Even the state of Alaska, the only one of the 50 to follow the principle, traces its experience back to 19th century territorial days. A well-functioning system must reflect a lot of embodied knowledge about how to handle the many intermediate cases (where both sides win on some issues, for example, or when a case wins but recovers no more than had previously been on the table as a settlement offer). Completely different results and incentives can be expected if fee shifts are set at artificially high levels (say, on a rationale of encouraging more assertion of the claim in question) than if their amount is low-balled.

Where there is no evolved local tradition, trying to design a system from scratch means either tying judges’ hands, inviting one set of problems, or accepting that they will use their discretion in perhaps surprising ways. Would you have guessed, for example, that language explicitly and neutrally providing for two-way fee shifts would at length be interpreted to entitle prevailing plaintiffs, but not prevailing defendants, to collect fees in ordinary cases? That’s what has happened in many employment discrimination cases in federal court.

Assuming Oklahoma goes ahead and does not look back, it will be placing a lot of confidence in its judiciary to learn fast and resolve a lot of issues on the fly. 

Last week, the Cato Institute hosted a policy forum on teaching controversial subjects such as sex and religion in k-12 educational institutions. All of the panel members pointed out that schools needed to do a better job at improving student civic outcomes such as character skills and tolerance of others’ views; however, a couple of the speakers claimed that the issue is not a result of our traditional system of public schooling.

This assertion fails to recognize the scientific evidence and, more importantly, the clear logic of incentives.

While families have a diverse set of values and goals for their children, the political process regurgitates a uniform educational environment. Further, since children are forced to attend schools based on zip codes, the government perhaps rightfully protects various family values by avoiding controversial discussions altogether. After all, if public schools were teaching that evolution was not real, many parents would obviously be very upset.

Of course, it is not the fault of public school employees. If you or I were held accountable to standardized test scores, we would probably not allocate a lot of time towards fostering friendly debates on provocative topics. In fact, it would be a risk to do so if we taught in a state that had laws attempting to protect individual family values. It is completely rational that traditional public schools are not spending much time on controversial issues.

On the other hand, if families had the ability to opt into or out of schools based on their values and goals, the state would not need to protect them. In addition, if parents cared about civic skills such as citizenship and tolerance, they would be able to reward schools for improving the lives of their children. Further, schools would not have the perverse incentive to focus on standardized tests if they were accountable to parents instead of public officials.

The scientific evidence largely supports the theory. Dr. Patrick Wolf’s review of the evidence finds that school choice increases civic skills. Moreover, my forthcoming review of fourteen rigorous studies also shows that private school choice improves civic outcomes such as crime and tolerance.

We must not pretend that the scientific evidence is mixed on such an important topic. We also must not pretend that school systems have nothing to do with shaping skills that will impact children and societies for years to come. If we wish to live in a more tolerant society, we ought to listen to scientific evidence, clear logic, and the needs of all families.

Senator Ron Johnson, Chairman of the Senate Homeland Security and Government Affairs Committee, introduced a bill this month that would resolve a major concern for high-skilled temporary workers in the United States. It would allow them to change jobs, get promotions, or start businesses while waiting in line for permanent residency. It would also prevent their children who grew up in the country from being forced to leave if they reach adulthood before their parents become permanent residents. 

The legislation (S. 1040) would create a large number of temporary three-year work visas that would allow foreign workers, entrepreneurs, or investors to live and work in a state that sponsors them. States could sponsor people of all skill types and from any industry. They could renew their status if the state wanted to invite them back. Their employers could also sponsor them for permanent residency (“green cards”) under the existing immigration programs.

In some ways, the program has similar features to the H-1B visa, which is a three-year renewable work visa for high-skilled foreign workers sponsored by a U.S. employer. Employers also have the option of sponsoring H-1Bs for green cards, which allows workers to extend their H-1B status indefinitely until they receive a green card.

As I have written before, however, one problematic provision of the H-1B visa is that those workers whom employers sponsor for a green card cannot change jobs or even receive certain promotions without losing their place in the green card line. H-1Bs also cannot be self-employed or start their own businesses. Because the green card line has a century-long wait for certain workers due to the per-country limits, these rules effectively bind them to their employer and their current position indefinitely. It prevents them from contributing to the economy to their fullest potential.

Fortunately, S. 1040 would prevent this situation from developing under the state-sponsored visa and fix the H-1B. Sec. 3(c) would allow any foreign worker in the United States whose employer’s petition is approved to file an adjustment of status application to become a permanent resident. The application would remain pending until a green card became available, but during this time, the person shall “have a lawful status” and “following a biometric background check, be eligible for employment and travel authorization incident to such status.”

Employment authorization and status means that these workers could have full access to the labor market—change jobs or industries, get promotions or start new businesses. As an added bonus, it would eliminate another significant problem (that I’ve also written about). Under current law, H-1Bs can bring their spouses and minor children with them as they work in the United States. The benefit is limited to juvenile children, however, and even if the child grows up in the United States in H status, they are forced out or deported if they reach the age of 21 before their parent receives a green card.

S. 1040 would also allow workers to bring their children unless the state said otherwise. But if S. 1040 becomes law, it would prevent those children from being forced out. When a worker reaches the front of the green card line and files an adjustment of status application, current law “freezes” the age of any of their minor children for immigration purposes while the government reviews the application and approves their green card. This really only protects them against administrative delays, not the big wait for a green card to become available.

Under S. 1040, rather than waiting until they reach the front of the line to file the adjustment of status, they could file as soon as their employer’s petition for them is approved. Thus, if the child were 12 at the time the employer’s petition is approved, the child would not lose their status even if the parent fails to receive their green card for decades. The Table compares the two approaches. As you can see, S. 1040 basically moves step 6 under current law up to step 2, allowing them to immediately take advantage of the adjustment of status protections.

Table: Green Card Process for Temporary Workers Under Current Law vs. S. 1040

Current law S. 1040 1. Employer’s petition for guest worker to receive permanent residency (green card) is approved 1. Employer’s petition for guest worker to receive permanent residency (green card) is approved 2. Worker waits many years for a green card to become available due to the quotas 2. Worker applies to adjust status to a permanent resident 3. While waiting, worker cannot change jobs/accept certain promotions 3. While adjustment  is pending, worker may change jobs/children who reach 21 may stay 4. Worker’s children who reach 21 lose their status and must leave the country 4. Worker waits many years for a green card to become available due to the quotas 5. Worker applies to adjust status to a permanent resident after reaching the front of the line 5. Government approves adjustment of status and worker receives permanent residency 6. While adjustment is pending, worker may change jobs/children who reach 21 may stay   7. DHS approves adjustment of status and worker receives permanent residency  

These provisions will have a positive benefit on the economy. Harvard economist George Borjas has shown that the mobility of immigrants creates efficiency gains of $5 to $10 billion because they shift quickly to changes in the labor market. The entrepreneurship of immigrants also creates large productivity gains. Preventing the removal of the children would also benefit the economy. At the 2016 Intel Science Talent Search, the leading science competition for U.S. high school students, more than 80 percent of the finalists were children of H-1Bs. America should not push these workers away.

Thus, Senator Johnson’s bill will prove a benefit not only to foreign workers in the future, but also to current aspiring immigrants. Letting immigrants achieve their highest potential would have major economic gains for the country.  

Corporate tax reduction is at the center of the tax reform debate in 2017. While the United States has the highest statutory corporate tax rate in the OECD, some pundits claim that U.S. companies are not so hard done by because they pay low effective rates. Effective tax rates are calculated in various ways, but they generally measure actual taxes paid as a percent of the tax base.

Canadian tax scholar Jack Mintz has released new estimates of corporate tax rates in a Tax Foundation study. He calculates marginal effective tax rates, meaning the additional taxes paid on profits earned from a new investment. This is the rate that drives real investment decisions by corporations.

Mintz finds that the United States has the third highest marginal effective corporate tax rate among 34 OECD countries. The U.S. rate in 2017 is 34.8 percent, which compares to the OECD average rate of 19.2 percent. Only France and Japan had higher rates. Our NAFTA trading partners have rates around 20 percent, as shown in the figure.

Cato held a forum on Capitol Hill earlier this week to discuss tax reform. Ryan Borne described recent British corporate tax changes:

Since 2010, the U.K. has substantially reduced its headline corporation tax rate, from 28% to 19% today with a plan to reduce it to 17% by 2020. This forms part of a longer-term trend: the U.K. had a corporate income tax rate as high as 52 percent in 1980.

In 2013, the UK government dynamically scored this overall rate cut and looked at general equilibrium effects, and estimated that within 18 years somewhere between 45%-65% of lost receipts will have been recouped as a result of increased economic activity. But early signs suggest that official statistics may have underestimated the positive effects of the cut.

In fact, looking broadly across the past 30 years there appears to be little evidence that cutting corporation tax from 52 to 19 percent has fundamentally reduced revenue. Looked at as a proportion of national income, revenues from corporation tax have fluctuated cyclically between 1.7% and 3.5% of GDP, and are currently at 2.6%, which is the same rate as seen in 1985, when the main rate of tax was 40% and the Thatcher boom was well underway.