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Picking up on Simon Lester’s reaction on Friday to President Trump’s near 180-degree rhetorical pivot on the Trans-Pacific Partnership, I agree with the implication that one would be ill advised to set his watch to the man’s words. However, there are plenty of good reasons for Trump to change his mind and seek to rejoin the TPP, so maybe—just maybe—the president is beginning to see the bigger picture.

Before the 2016 election, I wrote a piece in Forbes explaining why any president would want the tools of the TPP at his or her disposal and predicted that the next president (despite both major party candidates disavowing it) would ultimately support it:

The TPP is a blueprint for securing U.S. geoeconomic and geopolitical interests now and into the future by updating the rules and institutions of international trade that facilitated 70 years of global economic expansion, poverty reduction, and relative peace. As an agreement that includes countries on four continents, the TPP is well-suited to fill the void created by the breakdown of the multilateral negotiating “round” approach to global trade liberalization. The TPP is open the new members and the fact that it has achieved critical mass (40% of global GDP represented) means that the cost of remaining outside the deal will rise with every new accession, so most eligible countries will choose to join.

As investment has begun to shift from TPP outsiders to TPP members in anticipation of implementation, non-members have been implementing various domestic reforms to improve their prospects for eventually joining. And with China’s most important trade partners joining TPP, Beijing with have no better alternatives than to embrace the TPP, as well—and accept the new rules that will rein in some of the abusive trade practices of which China is so frequently accused.

After Trump won the election, I remained unconvinced that he’d pull out. I wrote in Foreign Affairs:

The TPP offers the last best chance to achieve a fresh round of comprehensive global trade liberalization under U.S. leadership. It reasserts the primacy of the rule of law in trade and expands its coverage to aspects of global commerce that didn’t even exist when the current rules were last updated, 22 years ago. As an agreement that includes countries on four continents and is open to new members that qualify, the TPP could evolve into a vehicle for achieving a much more broad-based round of multilateral trade liberalization.

Economies accounting for nearly 40 percent of global output and one-third of trade are among the TPP’s charter members, so the deal has achieved critical mass. That heft allows the TPP’s terms to be offered to prospective new members on a take-it-or-leave-it basis. If regional investment shifts from TPP nonmembers to TPP members, the incentive to join the agreement would only grow. Many countries, including Indonesia, South Korea, Taiwan, and Thailand, have already expressed interest in joining and have begun to undertake the domestic reforms necessary to qualify for the TPP.

With each new accession to the deal, the cost of remaining on the outside would only increase. That applies to China, too, which could watch some of its most important trade partners join TPP and, at some point, concede to having no better alternatives than to embrace the TPP, as well-and to accept the new rules that would rein in some of the abusive practices for which it is so frequently criticized.

Well, the costs of remaining outside the agreement have begun and will continue to mount and be borne by the United States unless we move quickly to change course. By bailing out of TPP, which will set sail without us as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) in March, U.S. exporters will be at a disadvantage when it comes to foreign market access, U.S. consumers will be deprived of lower-priced goods, and the U.S. economy will be a less attractive destination for investment. 

But just as important, being outside the TPP deprives U.S. negotiators of meaningful leverage to address, curtail, and reverse China’s objectionable practices in the realm of forced technology transfer, intellectual property theft, discrimination, and state intervention—especially those practices that might not be adequately restrained by WTO rules. Standing shoulder-to-shoulder, resolutely, with other trade partners who face similar problems in China is probably the best—maybe the only—way to get Beijing to change course short of a deleterious trade war.

Although it’s far from clear whether Trump has really changed his mind about the TPP, I think he’s probably learned over the past year that his decision to withdraw came at a pretty steep cost. He may have a case of buyer’s (returner’s) remorse. Let’s hope so. Let’s encourage him to make amends. But Trump’s off-the-cuff conditionality for reentering the deal assumes a degree of negotiating leverage the United States probably doesn’t have anymore. As humbling as this may be, joining the TPP as a non-charter member is likely to mean the United States would have to give more and get less than what Obama’s USTR was able to do.

(Link to Cato Trade’s Comprehensive Assessment of the TPP.)

 

The White House released another immigration framework Thursday. Like its past efforts, this plan calls on Congress to enact draconian restrictions on legal immigrants. Members of Congress will have to flesh out the details, but in the most likely scenario, the new plan would cut the number of legal immigrants by up to 44 percent or half a million immigrants annually—the largest policy-driven legal immigration cut since the 1920s. Compared to current law, it would exclude nearly 22 million people from the opportunity to immigrate legally to the United States over the next five decades.

The White House Plan: Full Changes

The language in the framework is vague enough that members of Congress have some flexibility in its implementation. The most vocal supporters of the new plan in Congress are Senators Tom Cotton (R-AR), David Perdue (R-GA), James Lankford (R-OK), Thom Tillis (R-NC), and Charles Grassley (R-IA). This group has previously introduced the SECURE Act (S. 2192), legislation that would make many similar changes to legal immigration as those called for by the White House. This analysis will take the SECURE Act as the initial blueprint for a bill implementing the White House ideas.

The president’s new plan adds two major elements that distinguish it from the senators’ current bill. First, it would immediately end the diversity visa lottery and, before eliminating its 55,000 visas completely, reallocate them toward reducing the current family- and employer-sponsored backlogs. Second, it would end—like the SECURE Act—most family-sponsored visa categories, but the White House would apply the changes only “prospectively, not retroactively, by processing the backlog.” This means that the number of legal immigrants would drop more gradually than under the senators’ current bill.

Table 1 provides the fully implemented changes. The White House plan—enacted as an amended and narrowed version of the SECURE Act—would reduce the number of legal immigrants by more than 490,000 people annually, or 44 percent. The final column shows the estimated timing for the entire category to have fully phased out. (See below for a full explanation of these estimates.)

Table 1: Legal Immigrants Under Current Law & White House Framework

Sources: Authors’ calculations based on White House; S. 2192; Department of Homeland Security (FY 2018 based on FY 2016 figures, accounting for the FY 2018 cut to refugees)*Plan provides for a temporary increase

The White House plan would end the categories for parents and siblings of U.S. citizens as well as those for adult children of citizens and legal permanent residents. Based on the SECURE Act, the “minor child” category would be limited to those under the age of 18, rather than 21. The White House framework calls on Congress to end “loopholes exploited by smugglers”—language that the GOP has used to refer to a bill to restrict asylum, elements of which are included in the SECURE Act.

While spouses and minor children of residents are theoretically preserved, the SECURE Act reduces their allotment by the number of parolees—foreigners granted temporary admission for humanitarian or public interest reasons—who stay in the United States for more than a year. Because the number of parolees appears to be greater than the allotment, this category would likely never issue any green cards in practice.

The effects of the White House immigration framework are similar only to two notorious pieces of legislation: the Emergency Quota Act of 1921 and the Immigration Act of 1924, which reduced the number of legal immigrants by 495,672 and 412,582, respectively. Congress saw these bills as preventing the degradation of America’s racial stock—by Italians and Eastern Europeans, specifically Jews.

The White House Plan: Phase-Out Period

The State Department records 3.7 million applicants waiting abroad in the categories that the SECURE Act would eliminate, and Department of Homeland Security figures indicate that between 6 and 9 percent of family-sponsored immigrants, depending on the category, adjust to permanent residency inside the United States. This would imply another quarter of a million applicants waiting inside the United States (presumably in temporary statuses).

Adding half of the 55,000 green cards from the diversity visa lottery to the combined quota for the eliminated family-sponsored categories would allow 165,566 green cards to be issued annually to those in the backlog. Simple division would lead to a full implementation date of the White House plan 24 years from today.

But this is not the most likely method of implementation. Under current law, each category has a separate annual quota, and within the categories, each nationality has a quota of no more than 7 percent of the total number in that category. For example, the sibling category quota is 65,000, and Mexicans can use no more than 4,550. This means that if the senators leave all other aspects of current law the same, the categories will expire at radically different times for each nationality. For several reasons, the senators are more likely to adopt this staged implementation.

First, it delays or prevents the entry of the greatest number of legal immigrants, which is the bill’s goal. Second, the framework states that the changes would apply “prospectively, not retroactively,” implying that the legislation would allow the current system to continue without any changes. Finally, the SECURE Act already allows the categories to continue unchanged for a single year, so the simplest amendment would be to replace “for one year” with something like “until all current beneficiaries receive visas.” Similarly, the easiest and most restrictive way to implement the diversity visa reallocation would be to distribute them equally among the four eliminated categories.

White House advisor Stephen Miller in his press call explaining the framework indicated that both the employer-sponsored and family-sponsored diversity reallocation was temporary and could be accessed only by green card applicants in line as of 2018. Only employer-sponsored applicants from India would be taking advantage of this increase by 2029 or 2039. While some family-sponsored Mexican applicants would be technically still eligible more than 100 years from now, this analysis assumes 2069 as the date of final implementation (i.e., the date when all applicants who have yet to immigrate are likely to be dead).

As Table 1 shows, 61 percent of the cuts would occur immediately and 71 percent within a decade. From 2019 through 2028, nearly twice as many immigrants—3.6 million—would be banned as would potentially receive residency through the Dreamer legalization—at most 1.8 million—under the White House plan. By the end of the second decade, the number of banned immigrants would rise to 7.6 million. By final implementation, the White House plan would exclude almost 22 million legal immigrants.

Table 2: Legal Immigrants Admitted Under Current Law & White House Framework Phase-Out

Sources: See Table 1

Figure 1 provides the phase-out schedule for the four eliminated family-sponsored preference categories that have a backlog. The implementation occurs in large jumps as the backlog for nationalities that are not at their per-country limits disappears all at once. The more gradual drops happen as the backlogs for individual nationalities are eliminated. 

Figure 1: Number of Family-Sponsored Preference Immigrants under White House Framework By Year

Sources: Authors’ calculations based on White House; S. 2192; Department of Homeland Security (DHS)

As Figure 1 shows, even in 2069, some legal immigrants are still scheduled to receive green cards. These immigrants are entirely from Mexico and the Philippines. Therefore, assuming 2069 as the final implementation date implies that up to 706,665 family-sponsored Mexican and Filipino applicants would die or make alternative plans before they received their green cards under this plan as well as under current law.

This does not mean most people in the current family-sponsored categories typically wait this long to immigrate. Instead, it reflects the impact exerted by the per-country limit in some of the categories, particularly affecting Mexicans and Filipinos in particular. Modifying the per-country limit and increasing quotas in the categories would shorten the family wait times under current law or in the backlog reduction plan.

Conclusion

Restricting legal immigration will unnecessarily deny opportunity to many people and have far-reaching negative consequences for economic growth in the United States. Labor force growth is one of the most important growth factors. Cutting the number of new legal immigrants by about 50% would initially reduce the rate of economic growth in the United States by an estimated 12.5% from its projected level, according to Joel Prakken, senior managing director and co-founder of Macroeconomic Advisers. This penalty would increase in later years as America becomes even more dependent upon immigrants for the country’s labor force growth due to our aging population.

The National Academy of Sciences has estimated that the average immigrant contributes, in net present value terms, at least $92,000 more in taxes than they receive in benefits over their lifetime, so banning them would harm government finances. Diversity and family-sponsored immigrants—who the White House framework would ban—are better educated than the average immigrant (and Americans), so the effects of the White House ban could be even more negative.

The United States needs legal immigrants to maintain a strong rate of current economic growth and stay competitive internationally. America already has an immigration level as a share of its population near the bottom of OECD countries. Real “merit-based” immigration reform would focus on increasing the number of immigrants at both ends of the skill spectrum to fill difficult manual labor jobs as well as contribute to technology, science, and finance. The White House proposal is the opposite of the reforms that would lead America toward prosperity.

Starting today and throughout this week, the Cato Daily Podcast (Subscribe!) will drill down into issues related to immigration. First up, Alex Nowrasteh and I discuss the persistent myths surrounding immigrants and crime. Put simply, if you’re going to worry about crime rates among groups, worry relatively more about your fellow Americans and relatively less about immigrants, both legal and illegal.

Late on the night of January 25, the Arizona legislature unanimously approved “The Arizona Opioid Epidemic Act,” introduced at the urging of Governor Doug Ducey (R) just 3 days earlier. The Governor and legislature were in such a hurry that they took no time to request testimony from representatives of the medical profession or from any other experts that might have differing views about the best ways to approach the overdose crisis. The overdose crisis is such an “emergency” that there was no time for that. Yet, most of the Act’s provisions are not scheduled to take effect until 2019.

Among the harmful features of the Act are strict restrictions on the amount and dose of opioids doctors can prescribe to new and postoperative patients. Prescriptions may be for only 5 days, and the dosages are capped. Doctors wishing to exceed these limits must first consult a board-certified pain management specialist which, of course, might take several days. This policy is not evidence-based. It will cause injured patients and those recovering from surgery to suffer needless and agonizing pain. In December, the Arizona Medical Association and the Arizona Osteopathic Medical Association wrote the state Department of Health Services warning of harmful “unintended consequences” that may ensue from one-size-fits-all 5-day limits on prescriptions and dosages for patients in acute pain.

This policy is not just inhumane, it’s dangerous. Desperate patients might seek to get better relief for their undertreated pain by supplementing their prescriptions with alcohol and/or other drugs, or by obtaining drugs through the illegal market, increasing the risk of overdose or death.

Another provision requires all providers to use a state-approved E-prescription system to prescribe opioids, placing a burden on health care providers in remote and rural areas of the state, where broadband internet access is inadequate and where some practitioners lack technological sophistication in their practices.

A “Good Samaritan Law” was a feature of the legislation. This law, a good idea already on the books in over 40 other states, is intended to encourage witnesses of overdoses to call first responders with the rescue antidote naloxone. In many cases, witnesses are afraid to call for help out of fear they might be arrested for possession of an illicit substance or some other offense. A “Good Samaritan Law” assures them they will not be arrested. However, in some states, the laws contain loopholes that have resulted in witnesses being arrested and charged with non-drug related offenses, or even with manslaughter if the overdose victim dies.

Unfortunately, in the rush to pass Arizona’s Good Samaritan Law, such loopholes were included. They allow law enforcement first responders to confiscate any drugs or drug paraphernalia they find on witnesses, and to arrest witnesses for non-drug related crimes. It won’t take long for word to spread after the first such arrest or confiscation. Don’t look for this Good Samaritan Law to reduce many overdose deaths.

It’s not as if the legislators weren’t aware that they were acting in haste and might be making matters worse. Senator Sylvia Allen (R) expressed concerns about the costs of second opinion consultations and how long it may take to obtain them. She also questioned the state’s micromanagement of medical practitioners. She told a reporter for the Arizona Capitol Times, “Here’s a doctor who’s practiced for years, knows that patient, and now they have to get a second opinion. It’s kind of an insult to them. So I don’t like that at all.” Similarly, Senator Steve Smith (R) was unhappy with imposing a new regulatory scheme on doctors, pointing out that only a few “bad doctors” overprescribe, and that adding this new burden is “still not going to solve the problem.” Republican Senator Warren Petersen agreed. 

Senators Rick Gray (R) and Regina Cobb (R) worried about the burden the new E-prescribing requirements place on rural providers. Senator Gray worried that “some of this software isn’t even developed yet.” And Senator Cobb, pointing out that rural doctors might have to lay out $20,000 to set up their systems, called it an “unfunded mandate” on rural doctors.

Senator Sonny Borrelli (R) openly worried about the Act’s potential harm to patients. The Arizona Capitol Times reported him saying, “I don’t want to restrict the ability of good doctors to do their job and force that patient (who needs painkillers) to black tar heroin.”

Along with many of his colleagues on the other side of the aisle, Senator Borelli lamented the fact that barely any attention was given to harm reduction measures that have a proven record of saving lives and preventing the spread of disease. Short shrift was given to Medication Assisted Treatment, and Senator Borelli was unhappy that nothing was done to promote needle-exchange programs. Safe Syringe Programs have been long supported by the Centers for Disease Control and Prevention.

Even Republican Senate Majority Leader Kimberly Yee was unhappy with the rush to action: “If we’re not implementing this until 2019 I don’t know why we’re voting on this this afternoon…Sometimes when we rush through legislation there are consequences.”

Despite the objections raised by these and many other legislators, they voted for the bill along with everyone else— the bill passed unanimously later that day. It is based on the false premise that the opioid overdose crisis is the result of doctors and pharmaceutical companies teaming up to ensnare unsuspecting patients in the web of drug addiction. Yet all the evidence shows that, to the contrary, the overdose crisis is the result of nonmedical users seeking drugs in the illicit market. And in recent years the majority of overdose deaths are due to heroin and fentanyl.

This Act will not cause any intravenous heroin users to pull the needle out of their arm. But it might add to the growing number of deaths from drug abuse.

This sloppy, ill-conceived, and hasty piece of legislation is best understood as a bipartisan act of political grandstanding by the Governor and the legislature in a year when the Governor and most lawmakers are up for re-election. They have until 2019 to fix it before its harmful effects begin to appear.

In its final ruling issued just minutes ago, the U.S. International Trade Commission determined that the U.S. industry (Boeing) was NOT threatened with material injury by reason of dumped or subsidized imports of 100- to 150-Seat Large Civil Aircraft from Canada (Bombardier). This is big news in the trade world for a variety of reason.

Typically, domestic industries seeking relief under these statutes (the U.S. Antidumping and Countervailing Duty laws) are successful because the evidentiary thresholds are so low. The antidumping law was changed in 2015 to lower the thresholds even further, which helps explain the near record number of trade remedy case filings in 2017.  Boeing seemed to be testing how low that threshold was. As I wrote a few months ago, “The language in the statute would seem to preclude an affirmative threat of material injury finding if there haven’t been any import sales.” 

I’m glad the ITC seems to have agreed.  It’s important that a case as meritless as Boeing’s, which was predicated on the notion that the domestic industry was “threatened” with material injury by reason of sales by Bombardier to Delta that haven’t even happened, of airplanes that haven’t even been built, which are of a class of aircraft that Boeing doesn’t even produce, was found wanting by the ITC.  Seems like common sense, but the AD/CVD statutes accord very little room for common sense to prevail. It’s good to see some a crucial check on the system working.

But there’s still a lot of work to do to rein in the routine abuses and to make these laws more compatible with economic reality. 

The Ontario bar association has adopted a rule under which all lawyers “must prepare and submit a personal ‘Statement of Principles’ attesting that we value and promote equality, diversity and inclusion,” according to Bruce Pardy in the National Post, who says it’s a bad idea:

In free countries, law governs actions rather than expressions of beliefs. People can be required to obey the speed limit and pay taxes, but they may not be compelled to declare that the speed limits are properly set or that taxes are a good thing. The Supreme Court of Canada has said that forcing someone to express opinions that they do not have “is totalitarian and as such alien to the tradition of free nations like Canada, even for the repression of the most serious crimes.”

The rule and resulting suggested Statements of Principles have been the subject of numerous criticismsdebate, and defenses in Ontario and throughout Canada. According to No Forced Speech, an effort of the Canadian Constitution Federation, the society rejected a proposal “to create an exemption to the new mandatory Statement of Principles for persons who believe the requirement violates their freedom of conscience.”

Now, per the CBC,

Ryan Alford, an associate professor with the faculty of law at Lakehead University, filed an application in Ontario Superior Court on Monday that seeks an injunction to block the requirement.

“We need to have an understanding about whether or not this is within the law society’s powers under the Law Society Act and whether or not it’s constitutional. I think a lot of people just want clarity on this,” Alford said in an interview.

Good luck to Prof. Alford and the CCF. But the U.S. is not so far behind. In 2016 the ABA adopted Model Rule 8.4 (g), which makes it “professional misconduct” for an attorney to engage in “conduct,” including verbal “conduct,” that “the lawyer knows or reasonably should know is harassment or discrimination on the basis of race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity, marital status or socioeconomic status in conduct related to the practice of law.”

Aside from its many other problems — lawyers “discriminate” on the basis of “socioeconomic status” every time they turn down a client they adjudge unlikely to pay their fee — UCLA law professor Eugene Volokh has argued that the ABA rule’s scope “is broad and vague enough to potentially apply to a wide range of political speech, and thus violate the First Amendment.” Texas Attorney General Ken Paxton has declared in an advisory opinion that if his state adopted the ABA model rule, the courts would probably strike it down as an unconstitutional restriction on “freedom of speech, free exercise of religion, and freedom of association.”

The “Test Acts” were a series of enactments in England that excluded from public office and penalized in other ways those who would not swear allegiance to the prevailing religious tenets of the day. There is no good reason to bring back their principles.

Regulation is often portrayed as the use of government authority to alter market outcomes away from the interests of firms and toward those of consumers and employees.  In turn, the “story” associated with deregulation is the opposite: Corporations and the powerful use their influence to eliminate public sector controls on their conduct at the expense of consumers and employees.

But if the usual narrative is true how do we explain a full-page ad that AT&T recently published in multiple newspapers, including the Washington Post and the New York Times, calling on Congress to pass new legislation to guarantee internet neutrality?  The short answer is that existing companies often favor regulation that reduces competition in ways not well understood by consumers or legislators.   

AT&T, one of the nation’s largest ISPs and a company that recently dedicated significant resources to support the FCC’s recent repeal of Title II net neutrality regulations, seems like an unlikely proponent of net neutrality legislation. But its position on the policy highlights why companies sometimes support regulations that would appear to harm them.

AT&T’s opposition to Title II net neutrality regulations is not based on a general hostility towards all regulations, but instead stems from the specific types of rules that Title II regulations would impose. Title II of the Federal Communications act of 1934 was originally intended to regulate telephone companies, and gave the government the ability to review and accept or reject telephone rates. During the fight for net neutrality regulation over the last ten years, the FCC sought to regulate the internet under other parts of the Communications Act, but courts continually said no, forcing the Commission to regulate under Title II. Because Title II comes with the possibility of price controls like those imposed on telephone companies, AT&T opposed that regulatory system and called for Congressional action to ensure net neutrality without the possibility of price controls.

As I’ve previously argued, net neutrality regulations are an attempt to settle fights between ISPs and content providers, like Netflix or Hulu. Both sides “need each other to satisfy consumers, but they fight each other to capture the larger share of consumers’ payments.” Title II price controls would have disadvantaged ISPs and benefitted content providers. Now that the debate over whether ISPs should be regulated under Title II is, at least temporarily, seemingly in its favor, why is AT&T continuing to call for new legislation?

Whereas Title II regulations disadvantaged AT&T, new legislation could create regulations that would benefit it by reducing the number of dimensions over which firms can compete and differentiate themselves. This would disproportionately hurt smaller companies and new market entrants and aid larger companies with larger networks and economies of scale allowing them to offer lower prices than competitors.

One example of differentiation that would be banned under net neutrality is known as “zero rating,” the offering of internet access plans that allow customers to access specific content or applications that don’t count against a customer’s data cap. Christopher Yoo of the University of Pennsylvania Law School argues that, on the demand side, zero rating would allow companies to tailor plans to different groups and types of consumers, and would help consumers save money by enabling them to buy only the plan they need.

Zero rating is a threat to AT&T because it increases competition. As Yoo contends, “on the supply-side, service differentiation promotes competition by broadening the ways that ISPs can compete. Offering service-specific plans that are targeted at key subsegments of the population can promote entry even by firms that suffer from disadvantages in cost and network.” AT&T’s call for new legislation constitutes an attempt to stifle smaller companies ability to compete through differentiation and specialization.

Instead of enacting new legislation to aid AT&T, the internet should be allowed to operate under the hands-off regulatory framework under which it flourished  This would allow continuing innovation and let companies specialize to attract consumers without restricting AT&T’s own ability to differentiate.

The ad says:

AT&T is committed to an open internet. We don’t block websites. We don’t censor online content. And we don’t throttle, discriminate, or degrade network performance based on content.

Regulation is not necessary for AT&T to continue that commitment. It can market its position on net neutrality as a business model and let competitors that don’t support the policy explain to consumers why their position is better. Congress should resist the call for legislation and let the value of net neutrality be determined by consumers.

Written with research assistance from David Kemp.

Recently Sen. Ted Cruz (R-Texas) criticized the large tech companies who host private forums for speech and association. Having questioned representatives of the companies closely, Sen. Cruz concluded:

The pattern of political censorship we are seeing across the technology companies is highly concerning. And the opening question I asked of whether you are a neutral public forum — if you are a neutral public forum, that does not allow for political editorializing and censorship. And if you are not a neutral public forum, the entire predicate for liability immunity under the CDA [Communications Decency Act] is claiming to be a neutral public forum, so you cannot have it both ways.

Sen. Cruz is wrong about the Communications Decency Act. Section 230 of the Act does not require tech companies to provide a “neutral public forum.” The section does say that Congress finds that “the Internet and other interactive computer services offer a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.” That finding does not create a legal obligation. Even if it did, those who support free markets would maintain that private management of internet forums would be the best way to attain diversity, cultural development, and intellectual activity. Beyond that, Section 230 of the CDA freed tech companies from liability for restricting “access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.” In other words, Section 230 helps tech companies act non-neutrally toward user generated content on their platforms! 

The managers of the tech companies may wish to offer a neutral public forum for speech and association, even though the CDA does not require it. But that is very different from the government requiring neutrality. The Fairness Doctrine sought to enforce neutrality on broadcasters, a dangerous policy for the reasons discussed in this Cato Policy Analysis. Having the government manage speech to attain neutrality or fairness or other goals violates the freedom of speech. The managers of the tech companies (as agents of their owners) have the right to oversee these private forums as they see fit. The forums are, after all, private not government property. 

I feel certain that once Sen. Cruz reconsiders his interpretation of CDA, he will return to form and support strong private property rights on the Internet. In doing so, he will also vindicate the speech and associational rights of the customers of the tech companies. 

Right after he took office, President Trump famously withdrew from the 12 nation Trans Pacific Partnership (TPP) trade agreement that the Obama administration had negotiated. That was not too surprising, given that during the campaign, he had referred to the TPP as “a continuing rape of our country.”

But the other 11 TPP nations decided to move forward without the U.S., and on Tuesday they were able to agree on a revised deal (with key changes to the text undertaken in the form of suspensions, so that the original provisions can be reinstated if the U.S. decides to rejoin). By Thursday, President Trump seemed to be rethinking his TPP opposition:

Trump: I like bilateral, because if you have a problem, you terminate. When you’re in with many countries — like with TPP, so you have 12 if we were in — you don’t have that same, you know you don’t have that same option. But somebody asked me the other day, ‘Would I do TPP?’ Here’s my answer — I will give you a big story. I would do TPP if we made a much better deal than we had. We had a horrible deal. The deal was a horrible deal. NAFTA’s a horrible deal, we’re renegotiating it. I may terminate NAFTA, I may not — we’ll see what happens. But NAFTA was a — and I went around and I tell stadiums full of people, I’ll terminate or renegotiate.

Kernen: So you might re-enter, or? Are you opening up the door to re-opening TPP, or?

Trump: I’m only saying this. I would do TPP if we were able to make a substantially better deal. The deal was terrible, the way it was structured was terrible. If we did a substantially better deal, I would be open to TPP.

Kernen: That’s interesting. Would you handicap … ?

Trump: Are you surprised to hear me say that?

Kernen: I am a little bit, yeah, I’m a little taken aback.

Trump: Don’t be surprised, no, but we have to make a better deal. The deal was a bad deal, like the Iran deal is a bad deal, these are bad deals.

Following up on these remarks, he said this in his speech in Davos today:

As I have said, the United States is prepared to negotiate mutually beneficial bilateral trade agreements with all countries. This includes the countries in TPP 11, which are very important. We have agreements with several of them already. We would consider negotiating with the rest, either individually, or perhaps as a group, if it is in all of our interests. 

What should we make of all this? Perhaps Trump is deviously trying to disrupt the momentum of the TPP 11, by encouraging the others to slow down and wait for the U.S.? More likely, TPP was in the news, and Trump therefore decided to talk about it in his usual incoherent way. I encourage reporters to press Trump and other U.S. trade officials on what exactly the U.S. has in mind now for the TPP, but I would be surprised if these remarks signal any change in U.S. trade policy.

The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here.

The justification for returning to the topic now is that two recent reports, issued by the Federal Reserve Bank of San Francisco and by the European Central Bank, provide new evidence on the public’s use of large-denomination notes. This evidence is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe.

The Sands and Rogoff argument assumes that the users of large bills are almost entirely criminals; use by innocent citizens is rare. Rogoff writes in his book:

The bulk of US cash in circulation cannot be accounted for by consumer surveys. Obviously, if consumers are holding only a small fraction of all cash outstanding, they cannot possibly be holding more than a small fraction of the $100 bills in circulation, since $100 bills account for nearly 80 percent of the value of US currency.

By contrast: “The drug trade is a famously cash-intensive business at every level.”

Peter Sands declares: “Eliminating high denomination notes has limited downside since such notes play such little role in the legitimate economy.” Sands downplays any effect of eliminating large notes on the welfare of non-criminals, those he calls “legitimate” currency hoarders, on the assumption that they are at most a small minority of currency holders, while criminals are the vast majority:

The other arguments for retaining high denomination notes [besides profitability to the issuing government] largely revolve around some individuals’ desire to hoard or save cash “under the bed” given concerns about banks, or the utility of high denomination notes in emergencies, war zones or natural disasters. There probably is some legitimate hoarding, particularly in countries with a history of banking crises, but the reality is that most of the money that is hoarded in cash is kept from the banking system in order to keep its origins from scrutiny. Hoarding cash appears highly correlated with tax evasion. [Legitimate hoarding] can only account for a minute fraction of high denomination notes.

In actual reality, nobody really knows the shares of the stock of large bills held by non-criminal hoarders and by various types of criminals, because people who agree to answer survey questions have every incentive to under-report their holdings, whether acquired lawfully or otherwise. It stands to reason that ordinary citizens who hoard cash, say because they dislike surveillance of their banking activity, or fear a breakdown in banking system functionality for reasons of natural disaster (such as recently happened in Puerto Rico) or political upheaval, are the very people who are least likely to divulge the true size of their hoards to strangers, no matter what assurances of anonymity they receive.

Sands argues that in cases of legally acquired hoards, the welfare loss from banning large notes would be minimal, because “lower denomination notes offer an only slightly more inconvenient solution for ordinary people, given the sums involved. Only the very wealthy would be truly inconvenienced by having to make such a substitution.” But this is a hand-waving argument rather than a factual deduction. To securely hoard any dollar amount in $10 bills rather than $100 bills requires a safety deposit box ten times as large, or buying a lockbox ten times as large to hide at home. It is far from obvious that “only the very wealthy” hoarders would be “truly inconvenienced.”

Directly addressing the concern that large bills have legitimate uses, Sands responds [footnote call omitted]:

Some suggest that high denomination notes play an important role in economic activity. There is little evidence for this assertion. Whilst low denomination notes continue to play a significant role in legitimate economic activity even in the most advanced economies given the transactional convenience they provide, high denomination notes do not.

The new FRBSF and ECB survey evidence is most relevant to assessing claims like this one, allowing us to quantify (if imperfectly) how significant a role high-denomination notes actually play.

Shaun O’Brien’s report on “Preliminary Findings from the 2016 Diary of Consumer Payment Choice” for the San Francisco Fed unfortunately does not break down US currency use by denomination. Nonetheless it has at least three useful takeaways for the “war on cash” debate:

  • “Cash is held and used by a large majority of consumers, regardless of age and income.”
  • “[C]ash was the most, or second most, used payment instrument regardless of household income, indicating that its value to consumers as a payment instrument was not limited to lower income households that may be less likely to have access to an account at a financial institution.”
  • Cash is used to make 8 percent of all payments of $100 or more. We don’t know the mix of denominations used, but this certainly leaves open the possibility that $100 and $50 bills play a significant role in a non-negligible share of legitimate economic activity.

The ECB study by Henk Esselink and Lola Hernández, entitled “The use of cash by households in the euro area,” reports on cash use in all 19 eurozone countries, based on a 2016 survey. Two immediately relevant findings are that many ordinary members of the public store cash for emergency use, and commonly handle even the highest denomination notes:

The study confirms that cash is not only used as a means of payment, but also as a store of value, with almost a quarter of consumers keeping some cash at home as a precautionary reserve. It also shows that more people than often thought use high denomination banknotes; almost 20% of respondents reported having a €200 or €500 banknote in their possession in the year before the survey was carried out. […]

Of those respondents who acknowledged that they put cash aside, only 23 percent kept €100 or less.  22 percent kept between €101 and €250, 19 percent between €251 and €500, 15 percent between €500 and €1000, and 12 percent more than €1000. In addition 10 percent refused to specify the amount. If we assume conservatively that the non-specifiers were distributed in the same proportions as the specifiers, then those who kept more than €100 as a precautionary reserve comprised about 75 percent of respondents (almost 25 percent of those surveyed) who reported keeping cash in reserve. Thus about 18 percent of the Eurozone population has cash holdings large enough that they may benefit from using notes of €100 and above merely as a compact means of storing wealth.

By contrast with the US figure of 8 percent cash among payments over $100, Europeans use cash to make 32 percent of payments over €100. Such payments, the authors report,

amounted to 10% of the value of all cash payments at the POS [point of sale] in the euro area. The share of cash payments above €100 in the total value of cash payments at the POS was wide-ranging, from 3% in France or 5% in Belgium, to 21% in Ireland and Slovenia or 26% in Greece.

These numbers do not indicate to me that law-abiding cash use is negligible — but armed with the figures, the reader can make his or her own judgement about what level of cash use counts as non-negligible.

I want to add a somewhat tangential but related additional comment: Besides making the debatable quantitative assumption that law-abiding cash use is negligibly small, Sands and Rogoff also make a normative assumption that strongly tilts their seemingly neutral estimates of overall welfare effects. They assume that the welfare of people who use cash for illicit purposes doesn’t count, while disrupting their operations by banning large notes is pure benefit to the rest of us.

As Lemieux, Hummel, and also David Henderson have noted, however, an economic analyst may justifiably distinguish, among the set Sands lumps together as “financial criminals,” those actors who violate personal and property rights (kidnappers, thieves and fences, extortionists, terrorists) from those whose illicit activity consists of peacefully trading in illicit goods and services (drug dealers, sex workers, and the like). The first group clearly generates negative-sum outcomes, while the second group generates positive-sum outcomes — mutual gains from trade — from the point of view of the participants. Taking the point of view of the participants is the standard approach in modern welfare economics. The principle of gains from trade — gains from capitalist acts between consenting adults — applies to drug sales and sex work despite their illicit status in many jurisdictions. Banning high-denomination notes in order to raise the cost of such trades means reducing the economic welfare of the participants in those markets. To the extent that the main illicit use of high-denomination notes is in victimless markets, a policy to suppress their use is harmful rather than beneficial from this perspective

Cases of people who make or take illicit bribes, pursuing this logic, have to be sorted between trade-enhancing bribes and trade-restricting bribes. Making bribery more costly is not an unmixed blessing if without certain bribes the economy fails to function as smoothly. It likewise cannot be taken for granted that all tax evasion reduces overall economic welfare once it is recognized that some taxes may be too high from a Kaldor-Hicks efficiency standpoint, meaning at a level where their marginal deadweight loss (the uncaptured gains due to tax-blocked trades) exceeds the net gains from the government projects they finance.

[a href=”https://www.alt-m.org/2018/01/26/more-evidence-of-the-high-collateral-da…“>Cross-posted from Alt-M.org]

The White House today released four principles for immigration reform.  Overall, the Trump plan would cut legal immigration and spend about $25 billion on border security and a wall.  In exchange, the Trump administration has decided to support an amnesty and citizenship for an estimated 1.8 million DREAMers. 

It’s unclear how the administration estimates that only 1.8 million illegal immigrant DREAMers would gain citizenship as the number could be very different from that.  Most likely, they assume that many people could have earned DACA but did not.    

The conservative reaction to Trump’s support for amnesty and citizenship, even though he’s always said that he could accept such a compromise, has been swift.  Senator Ted Cruz (R-TX) preempted the rollout of Trump’s principles by stating, “I do not believe we should be granting a path to citizenship to anybody here illegally …  Doing so is inconsistent with the promises we made to the men and women who elected us.”  Cruz’s sentiment is consistent with his position during the 2013 debate over S. 744 where he favored a legalization but not an amnesty and path to citizenship for illegal immigrants.

Senator Cruz employed even more cruel rhetoric when he said, “For some reason that [amnesty] to me is utterly inexplicable, we see Republicans falling all over themselves to gallop to the left of [former President] Obama in a way that is contrary to the promises made to the voters who elected us.”  Any comparison of President Trump to former-President Obama by a Democrat is evidence that Trump’s amnesty plan will not be well received.

Representative Steve King (R-IA) has repeatedly said that he won’t vote for amnesty.  Although he hasn’t spoken about Trump’s amnesty proposal, we can safely assume that the conservative Iowa congressman, who is nothing if not consistent, is a hard “no.”  Virginia Republican gadfly and proud Trump-supporter Corey Stewart trashed Trump’s amnesty.  Republican primary challengers from Mississippi to Nevada are furious at the betrayal.

Amnesty is a toxic word among conservative immigration restrictionists.  They spent 25 years calling every proposal they disliked “amnesty” and mobilizing large numbers of people to oppose them.  The extent to which the conservative media describes President Trump’s immigration plan as amnesty will determine how unpopular it is.  The media outlet Breitbart labeled President Trump “amnesty Don” after they heard he would be supporting amnesty and a path to citizenship for DREAMers.  When the plan was released they called it “Don’s Amnesty Bonanza” and compared it to other “failed” amnesties.  The Washington Times headline is “Trump amnesty to cover 1.8 million Dreamers; triple Obama’s DACA,” – comparing Trump to Obama is toxic to the president’s base.  The story goes on to describe the amnesty as “generous.”  The Drudge Report’s Twitter account led with “Triple Obama’s DACA.”

Heritage Action, the Heritage Foundation’s political outreach arm, condemned President Trump’s amnesty as harshly as it could in order to maintain its ties to the administration.  Heritage Action’s press release called President Trump’s plan an amnesty, said amnesties always grow in size and scope, and then raised concerned about the Gang of Eight 2013 S. 744 immigration reform bill.  The Federation for American Immigration Reform is emphasizing its anti-amnesty stance to appeal to their supporters.  Daniel Horowitz, Senior Editor of conservativereview.com called it a “@#$% hole of an amnesty.”  Last, Mark Krikorian of the nativist Center for Immigration Studies fiercely criticized the Four Pillars in a post at National Review Online calling it “The Art of the Choke.”  That last piece is most significant as Krikorian was long rumored to be the Trump immigration whisperer.  

Worse than the media outlet and politicians, twitter commentators are going wild in opposition and fury at President Trump’s support for amnesty.  Interestingly, so are a lot of groups that represent DREAMers.  Check out this strongly worded press release to Four Pillars put out by United We Dream.  That is a big loss as the expanded amnesty portion of the Trump Four Pillars was meant to appeal to them.  If the DREAMer groups aren’t on board and the conservative base and media are opposed, Democrats will be emboldened to oppose this.

The amnesty portion of Trump’s plan is better than many other Republican options but the cuts in legal immigration are too great.  We’ve suggested other workarounds that won’t cut legal immigration that both the administration and Congress should consider.  At this stage, President Trump’s amnesty plan appears to be dead on arrival among his base, conservative Republicans, in the right-wing media, and DREAMers.  The best thing that may come from this is that it undercut the Goodlatte bill.

A passenger on a bus at Fort Lauderdale’s Greyhound station recently recorded disturbing footage of Customs and Border Protection (CBP) officers walking up the bus’ aisle, asking for proof of citizenship. Although nothing new, it’s sad to see American law enforcement conducting the kind of “Papers Please” stops that many Americans usually associate with foreign authoritarian governments. Thanks to advances in facial recognition technology, CBP and other law enforcement agencies will soon not have to ask us for identification. Our faces will be our papers.

 

Under current law and Supreme Court precedent, CBP’s behavior on the Greyhound bus was not illegal. Thanks to 8 U.S.C. § 1357(a)(3), CBP officers within 100 miles of the border can board and search “any railway car, aircraft, conveyance, or vehicle” in order to prevent illegal immigration. Two thirds of the people living in the United States live within this 100-mile zone, which encompasses entire states, including Florida.

The Supreme Court upheld warrantless vehicle inspections at internal checkpoints in United States v. Martinez-Fuerte (1976). In his Martinez-Fuerte dissent Justice Brennan presciently noted, “Every American citizen of Mexican ancestry, and every Mexican alien lawfully in this country, must know after today’s decision that he travels the fixed checkpoint highways at the risk of being subjected not only to a stop, but also to detention and interrogation, both prolonged and to an extent far more than for non-Mexican appearing motorists.”

The erosion of our liberties in the name of border security is not a recent development. The so-called “Border Exception” to the Fourth Amendment was expressed bluntly by Justice Rehnquist in his United States v. Ramsey (1977) majority opinion:

That searches 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 should, by now, require no extended demonstration.

Law enforcement officers who wish to identify someone usually approach that person and ask for identifying documents. Throughout the world policies governing under what circumstances law enforcement can instigate one of these interactions and what documents resident can or must carry vary widely. In Israel, for example, all residents over the age of 16 must have an national ID card, and they are legally required to have this ID with them at all times. Nefesh B’Nefesh, a nonprofit that helps those hoping to migrate to Israel, notes the disturbing degree to which national ID is embedded in the national culture:

Israelis use their ID number (Mispar Zehut) freely and it is common to give out your ID number in even the most basic and public of forms. For North Americans who are used to keeping their personal information private, it is helpful to think of your Mispar Zehut as interchangeable with your name.

Fortunately, in the United States citizens are not required to have identifying documents on them as they go about their business. Green card holders and other immigrants aren’t so lucky. Section 264(e) of the Immigration and Nationality Act (INA) requires immigrants over the age of 18 to carry their “evidence of registration document” (e.g. green card, I-94 form) at all times. In addition, Section 287(a) of the INA allows CBP officers “to interrogate any alien or person believed to be an alien as to his right to be or to remain in the United States” without a warrant. 

What CBP officers did on the bus in Fort Lauderdale is shocking, but it was legal. Yet in the near future it is unlikely that CBP will have to ask people for documents in order to verify identification.

Facial recognition technology is improving, and the law enforcement community has been taking notice.

The Department of Homeland Security (DHS) is interested in small drones with facial recognition capabilities, and body camera manufacturers are working on incorporating facial recognition into their gadgets.

Last year Axon, one of the most prominent law enforcement equipment companies, issued a report on policing technology, which stated the following:

The future of law enforcement technology looks smarter and more connected, and advancements in artificial intelligence and machine learning will have profound implications for policing. Soon, you’ll be able to tell almost immediately if someone has an outstanding warrant against them, thanks to facial recognition technology.

The report went on to quote Captain Daniel Zehnder, former manager of Las Vegas Police Department’s body-worn camera program:

But the fact that I could potentially walk down the street with a camera in real time, scanning faces, doing facial recognition while it’s recording, sending that data to the cloud for real-time analysis, have that data come back and somebody tell me, “That guy in the red hat, red shoes you just passed, he’s wanted for burglary” That type of real-time, big data analysis application would be huge.

The Axon report mentions how the merger of facial recognition and body camera technology could help officers identify people with outstanding warrants or suspects. But this technological shift will also impact innocent Americans. Around half of all American adults are already in a law enforcement facial recognition network thanks in large part to the fact that 16 states allow the Federal Bureau of Investigation (FBI) to access their driver’s license photos. 

In a world where police officers and border patrol agents are outfitted with body cameras with real-time facial recognition capability, it won’t be necessary for them to approach you and ask for ID in order for them to identify you. If real-time facial recognition becomes a normal feature of CCTV cameras, body cameras, and drones the anonymity we currently enjoy as we go about our regular business will become a luxury of the past.

In a city where real-time facial recognition is widespread, you could take steps to cover your face with a mask or large sunglasses. You could use de-identification technology to make images unrecognizable to facial recognition algorithms. However, such strategies could look suspicious to law enforcement. When surveillance is ubiquitous, those who takes steps to avoid it will stand out. Far too many people find the argument that “If you’ve got nothing to hide, you’ve got nothing to worry about” persuasive, a sad reflection of the fact that to many people attempts to secure privacy is evidence of suspicious or criminal behavior.

If you don’t like the idea of your facial images making their way to the FBI, you would have to abandon driving if you live in some states. DHS is interested in installing more facial recognition scanners at airports, and last year it issued a privacy impact assessment for its expansion of the biometric entry-exit system for international flights. In that assessment, DHS stated candidly:

the only way for an individual to ensure he or she is not subject to collection of biometric information when traveling internationally is to refrain from traveling.

For many Americans, abandoning driving and international travel is too high a price to pay in order to avoid detection via face scanners.

In the not too distant future our faces will be our “papers.” Police officers won’t need to talk to us, let alone examine ID documents, in order to identify us. Those who don’t appear in a facial recognition network or take steps to avoid facial scan detection will be the subject of extra scrutiny. Unless lawmakers take steps to ensure that only wanted suspects and those with a history of violent crime are included in law enforcement facial recognition networks those who wish to avoid being identified via facial scans will have to take steps that come at high social and economic cost.

Interactions with law enforcement can sometimes be stressful and intimidating, but if a border patrol agent or any other law enforcement officer approaches you and asks for ID I would recommend you keep the words of Clarence Harry Willcock in mind.

On December 7, 1950 a police officer in London stopped Willcock, a dry-cleaning manager, for speeding. The officer asked Wilcock to produce his national ID card. The British government had introduced ID cards during the Second World War. Despite the war being over, the ID cards remained. Wilcock refused, reportedly telling the officer, “I am a Liberal, and I am against this sort of thing.” Although he was charged, his case marked the last time someone was convicted for not producing an ID card in the U.K. Wilcock went on to found the Freedom Defence Committee, campaigning against national ID cards, going so far as to rip his ID card up on the steps of the National Liberal Club. Winston Churchill became prime minister for the second time the year after Wilcock refused to hand over his ID card and oversaw the abolition of the national ID card scheme.

At a time when civil liberties are being continually eroded in the name of national and border security it’s easy to feel despondent. It won’t change government policy, but you might be surprised how refreshing it feels to flex some liberal muscles when faced with the growth of the increasingly intrusive surveillance state. Ask to opt out of the TSA’s body and face scanners, don’t consent to searches, ask for a lawyer, and don’t talk to the police, except maybe to tell them, “I am a Liberal, and I am against this sort of thing.”

It is hard to keep track of all the waste, corruption, and mismanagement propagated by government agencies in recent years, including the DOD, PTO, VA, and others.

In researching my new study on the federal Power Marketing Administrations (PMAs), I ran across a story of federal failure that the national media has overlooked.

One of the PMAs, the Western Area Power Administration (WAPA), has been racked by scandal in recent years. WAPA is an agency of 1,450 workers within the Department of Energy.

Investigations found that WAPA employees have been using government credit cards for millions of dollars of personal spending on items such as guns, car parts, and sports equipment. ABC News reported “outlandish spending” by WAPA employees, and Sen. John McCain of Arizona charged the agency with “widespread waste and mismanagement.”

When whistleblowers inside WAPA raised concerns, they were subjected to threats from agency managers to keep quiet. WAPA has apparently accumulated a large slush fund of unobligated revenues, which has helped to facilitate the wasteful and illegal spending.

The Arizona Republic had a nice summary of the scandal last year. Here are some excerpts:

The receipts just didn’t make sense: Employees at a federal power agency in Phoenix were using U.S. government purchase cards to buy millions of dollars’ worth of items from sporting good stores like Bass Pro Shop or Cabela’s, and from specialty auto shops. Ammunition. Scopes for assault rifles. Engine superchargers. Radar detectors.

The merchandise had nothing to do with electrical grids or transmission lines.

Nate Elam, former assistant regional manager at the Western Area Power Administration office in Phoenix, shakes his head remembering his shock reviewing receipts submitted by his employees in 2014. Then he mentions something even more alarming: Instead of aggressively going after corruption, Elam alleges, WAPA’s bosses slow-walked the investigation, retaliated against those who uncovered fraud, and failed to protect them from threats.

“You see stuff everywhere,” said Elam, a 14-year federal employee who once worked for the U.S. Attorney’s Office. “But I’d never seen the corruption — or the lack of wanting to do anything about it — like I did in the Department of Energy.”

Keith Cloud, WAPA’s chief of security who worked with Elam to expose credit-card abuse, said the situation was harrowing due to a gun culture within the agency. As some employees began making threats and using intimidation tactics, Cloud said, administrators delayed protective measures and held almost no one accountable.

“We asked them to look into all of this,” Cloud said. “What’s appalling to me is, I cannot protect my staff because they just won’t do anything.”

… Cloud and Elam said the embezzlement reflects a larger problem at the federal agency — one that ultimately hurts consumers. They contend waste and mismanagement are obscured and ignored in part because WAPA has built up a $767 million reserve known as the “unobligated balance.”

… Instead of doing a full sweep to change the culture, internal critics said, the agency tried to bury its scandal. Nearly all the perpetrators went unpunished, along with supervisors who failed to prevent or detect the scams. And, according to a second audit, problems continued. From December 2014 through October 2015, investigators identified more than 11,600 potentially fraudulent transactions. One employee picked up 2,000 rounds of ammunition for a .308 rifle. Others tricked out government and personal vehicles with fancy wheels and elevated suspension systems. Receipts disappeared. So did the merchandise.

McCain and Sen. Jeff Flake have introduced legislation to increase transparency at the agency. But, as I discuss in my new Cato report, privatization would be a more durable reform for WAPA and the other PMAs. It would create incentives to avoid such waste in the first place, and it would focus managers on reducing costs and improving performance.

The new Human Freedom Index is out today. For a third year, the annual report—published by Cato, the Fraser Institute in Canada, and the Liberales Institut in Germany—paints a broad picture of personal, civil and economic freedom in the world. It uses 79 indicators in 12 areas ranging from freedom of religion to freedom to trade.

Here are some highlights. Global freedom has declined slightly compared to last year’s report and compared to 2008, the first year for which we have complete data. Switzerland is the freest country in the world, followed by Hong Kong, which fell from first place for the first time since the rankings began. The United States is ranked 17th, up from its ranking last year of 24th, but down from its ranking in 2008 when it was in 11th place. Other noteworthy countries rank as follows: the United Kingdom (9), Canada (11), Germany (16), Mexico (73), Russia (126), China (130), Egypt (155), Venezuela (158). See the top and bottom five in the chart below.

The areas that saw the largest global declines were the rule of law; freedom of movement; association, assembly and civil society; and expression and information. As a region, the Middle East and North Africa (MENA) is the least free and Western Europe the most free. MENA also saw one of the largest declines in freedom among all regions. While global freedom is slightly down, there is a lot of movement in the rankings, with about half the countries improving, and half doing worse, compared to 2008. The index captures significant declines in freedom in many countries that moved toward authoritarian populism including Russia, Venezuela, Turkey, Hungary and Argentina. The figure below shows Russia’s decline, but also Taiwan’s improvement (East and South Asia are the two regions with the greatest improvements).

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There is a strong relationship between freedom and prosperity, with countries in the top quartile enjoying an average per capita income ($38,871) that is far higher than that of the bottom quartile countries ($10,346). Find out much more here about the state of global freedom.

The success of the corporate tax cut should ultimately be judged by corporate investment levels and wage growth, not share buybacks or one-off bonuses.

Investment is the mechanism through which corporate rate cuts lead to higher productivity and higher compensation, and the Republican plan was explicitly designed to improve the marginal incentive to invest.

Yet announcements made by hundreds of businesses for one-off bonuses for workers and even share buybacks can still be a direct consequence of the tax cut.

There are two economic mechanisms at work here, which John Cochrane has outlined: “incentives” and “cashflow”. The former is the more important, but the latter is what we are seeing so far.

Follow the money. Companies have existing investments. The rate cut means they now receive a higher after-tax return than expected, and profitable firms are left with higher after-tax profits.

Each firm will examine how best to use any extra funds. They will know their near-term investment opportunities. Some will invest, and they now have a greater incentive to do so. But if the firm decides not to reinvest, then they may pay out extra cash to shareholders, or to employees in the form of bonuses. They may increase wages too, if they foresee a tighter future labor market, in part caused by the tax cuts.

Of course, some may use the tax cut as a hook to make announcements of wage increases or bonuses that they might have made anyway. It’s a free “good publicity” story, and helps entrench support for lower corporate taxes. But a firm will decide to do what it believes is best for it given its individual circumstances.

There’s a clear mechanism through which the big corporate rate cut leads to short-term bonuses, then. The claim they are due to the tax rate cut is perfectly feasible, and some of the partisan criticism of company announcements is baffling.

Critics are right to say, as I have above, that we should not read too much about the long-term effects of the rate cuts from one-off bonuses. What ultimately matters is how much investment increases, and the whole purpose of the rate cut was to incentivize this.

But if your argument is that it’s investment that matters and we should ignore short-term flows of cash, you cannot in the next breath criticize companies for large share buybacks. In fact, if you care most about investment then share buybacks are probably preferable to one-off worker bonuses. Existing shareholders do not burn the money they receive, and are probably more likely than workers on average to reinvest elsewhere in the economy.

An even worse take though is from those who believe the company announcements are just a timeline effect, completely unrelated to tax. So many people on Twitter say things like “if you’re going to claim all these bonus announcements are due to the tax cuts then Toys“R”Us shutting stores is presumably due to the tax cut too.”

No. There is a clear mechanism through which corporate tax cuts can generate worker bonuses. It’s a basic flow of cash. There is no mechanism through which the loss-making Toys“R”Us is affected by a corporate rate cut. Corporate taxes apply to profits, and Toys“R”Us is not making any.

In exchange for a deal on young immigrant Dreamers, the White House is demanding that Congress reduce legal immigration by ending the diversity visa lottery and almost all family sponsorship categories. On Fox News last week, Attorney General Jeff Sessions made the case for these changes by stating that he wants legal immigrants to “have the education and skill level to prosper in America.” He asked rhetorically, “What good does it do to bring in somebody who is illiterate in their own country, has no skills, and is going to struggle?”

But this generalization about diversity and family-sponsored immigrants is wildly inaccurate. Not only are many of them educated, they are generally much better educated than U.S.-born Americans are. Nearly half of all diversity and family-sponsored immigrants who arrived in 2015 had college degrees. Diversity and family-sponsored immigrants were 62 percent more likely than U.S.-born natives to have graduated college. At the same time, they are no more likely to have dropped out of high school than natives.

Table 1 provides the educational attainment for natives and immigrants by type of entry. As it shows, refugees, asylees, and unauthorized immigrants are among the least educated. Employer-sponsored immigrants are by far the most educated. But diversity lottery winners and immigrants sponsored by U.S. family members are right in the middle, and generally better educated than their U.S.-born counterparts.

Table 1: Adult Education Attainment of U.S.-Born and Immigrants Entering in 2015 By Method of Entry

  No High School High School College & Above Refugee-Asylees

46%

44%

10%

Employment-Based

1%

8%

92%

Family & Diversity

11%

42%

47%

Illegal

46%

40%

14%

Overall Foreign-Born

19%

38%

43%

Overall

19%

38%

43%

U.S.-Born

10%

61%

29%

Sources: Office of Refugee Resettlement; U.S. Department of Homeland Security; U.S. Department of Homeland Security; American Community Survey 2015 (5-Year Sample);

Because the Department of Homeland Security (DHS) fails to ask legal immigrants their education level when they enter, the only way to make these estimates was through other sources. To obtain the family and diversity education levels, it was necessary to work backwards from the overall foreign-born educational attainment figures for foreign-born adults over the age of 18 from the Census’s American Community Survey (ACS). Then it is possible to subtract out the other categories of immigrants from the overall figures. The Office of Refugee Resettlement, for example, reports the education level of adult refugees and asylees who entered in 2015.

Almost all employer-sponsored primary applicants in the first, second, and third preferences are required by law to have college degrees, and EB-5 millionaire investors and EB-4 broadcasters and religious workers likely do as well. I assumed that all spouses in EB-1, EB-2, and EB-5 categories had college degrees, and that 75 percent of those in the EB-3 and EB-4 categories do as well. Only 1.3 percent of the adults entering in EB categories were EB-3 “unskilled workers” and their spouses who work in jobs that do not require a college degree, and I assumed that half of these immigrants had no high school degree.

The Center for Migration Studies used ACS data to estimate the educational attainment of all adult unauthorized immigrants. For this analysis, I assumed that new border crossers have the same level of educational attainment as the overall illegal population. According to DHS, about 170,000 border crossers made it into the United States illegally. I assume three quarters were 18 years old or over. While this figure ignores visa overstays who make up roughly half of all new entrants to the illegal population in 2015, illegal immigrants are underrepresented in the ACS, so I only included 127,500. Note that assuming more unauthorized immigrants would result in diversity and family sponsored immigrants appearing more highly educated than they already do.

With these estimates, it is only necessary to subtract refugees-asylees, employment-based workers, and illegal immigrants from the overall foreign-born figures in the ACS to obtain estimates for diversity and family-sponsored immigrants, who represented 96.2 percent of all other adult legal immigrants in 2015. The other 3.8 percent primarily includes Iraqis who worked with the U.S. government in the war and illegal immigrants who received cancelation of removal or U visas as victims of crimes. It is unlikely that these populations are skewing the results in any way.

Table 2 provides the absolute figures used in this analysis. Column 1 uses DHS figures for each legal immigration category subtracting the children who entered in those categories, as well as three quarters of the illegal border crosser figures estimated by DHS in 2015. The educational distribution is based on the shares in Table 1.

Table 2: Adult Education Attainment of U.S.-Born and Immigrants Entering in 2015 By Method of Entry

  Total No High School High School College & Above Refugee-Asylees

112,261

51,752

48,833

11,675

Employment-Based

106,511

678

8,924

97,588

Family & Diversity

530,056

58,836

222,093

249,126

Illegal

127,500

58,395

51,510

17,595

Overall Foreign-Born

876,328

169,661

331,360

375,984

Sources: Office of Refugee Resettlement; U.S. Department of Homeland Security; American Community Survey 2015 (5-Year Sample); U.S. Department of Homeland Security

No matter what assumptions you use, however, it is just impossible to significantly change the broad conclusions. That’s because the family and diversity categories make up 70 percent of all adult legal immigrants to the United States, and refugees and asylees make up half of the rest and are the least educated group of legal immigrants. We know that immigrants generally are the highest educated that they’ve ever been, so given the size of the family and diversity population, it is just impossible that they are the unskilled group that the attorney general describes them to be.

Diversity and family sponsored immigrants are more highly educated than U.S.-born Americans. There are good arguments for changing the selection process for legal immigrants, but claiming that they lack any skills or education simply is not one of them.

The “Fight for $15” has broken out again in Washington, DC, with the city council considering raising the minimum wage to $15 per hour. The proposal includes a provision to extend that price floor to restaurant and other workers who receive much of their income from tips. Surprisingly—at least for some people—that has generated some push-back from tipped workers.

Over the weekend, the Washington Post ran a persuasive op-ed by local bartender Ryan Aston criticizing the idea. Aston writes in part:

There seems to be this myth going around that most tipped employees in restaurants aren’t earning a livable wage; after 13 years in the industry, this baffles me completely. I earn roughly $45 an hour with tips included; I don’t know a single server or bartender in the District whose wages have to be supplemented because they haven’t earned the minimum.

So what happens [if the provision is adopted]? Restaurant profit margins are already often razor-thin, and to be forced to pay the largest (and already highest-earning) portion of a staff four times more than before creates a real accounting problem. Generally, it means you need to bring in more money in sales and cut costs elsewhere. This translates to jacking up menu prices and laying off staff. Whom would this help?

Next, once menu prices have soared and staff has been cut, tips will dwindle. Remember, your weekly budget doesn’t change just because I got a raise. Within a few years, I’d be surprised if anyone tipped at all, and without tips, the incentive to give good service would be nonexistent. The great American bar culture would die. That would be a real tragedy.

Fight-for-$15 supporters may dismiss Aston’s concerns as hypothetical. But he has support from research by California-Irvine economist Richard McKenzie. In the spring 2016 issue of Regulation, McKenzie reports the results of surveys he conducted of food service worker on the effects such policies would have on tipping. He writes in part:

Tipping abolitionists might be surprised to learn that all servers surveyed chortled at the suggested replacement of their tip incomes with a “living wage” of $15 an hour. Most servers responded with comments of the essence,“How stupid can these people be?”

… To examine this issue, I asked the servers I interviewed if the service they provided affected their tips. All strongly agreed it did. Indeed, servers said that if they raised their service level from a “3” (average service) to a “4” (above-average), their average tip percentage (not total tips) would rise by over 25 percent. If they elevated their service from “4” to “5” (excellent service), their average percentage tip would rise another 25 percent, which means that an increase in service level from average to excellent would raise their average percentage tips by 57 percent. All servers strongly agreed that overall service quality would drop precipitously if their tip income were replaced with a fixed hourly wage, especially for “loud,” “obnoxious,” and “arrogant” customers, as well as customers with unruly and messy children.

He concludes:

Tipping abolitionists may be surprised to find that some of the most ardent opponents of tipping abolition are servers and their customers. One North Carolina server volunteered: “I made $60,000 in tips last year, reported $40,000—and had a before tax income of $80,000! That’s why I quit my teaching job.” And customers will likely suffer impaired service as the tipping incentive disappears.

A large group of House Republicans with support from President Trump has united behind comprehensive immigration reform legislation that would be their answer to the DACA impasse. Among other provisions, it would gut legal immigration, criminalize all unauthorized immigrants, and legalize a small percentage of the DACA population. But most pressing for Congress as it debates a long-term spending deal is its authorization of $130 billion in new spending over 5 years, tripling the current Customs and Border Protection budget and executing a six-fold increase in Border Patrol spending.

The Securing America’s Future Act (H.R. 4760) has 77 Republican cosponsors. It would authorize the construction of President Trump’s border wall (p. 254), 10,000 new Customs and Border Protection Officers and Border Patrol agents (p. 319), a biometric surveillance system at airports, seaports, and land ports of entry (p. 357), mandatory E-Verify employment verification program for all workers (p. 87), border drones and other border surveillance (p. 261), and much else. It would require spending more than $40 billion annually and more than $200 billion over five years.

Table: Customs and Border Protection Spending Under H.R. 4760 (In Millions$)

Sources: H.R. 4760 (pp. 349, 349, 262, 349, 349, 354, 355, 368, 368, 368); Department of Homeland Security

The level of spending that the House GOP wants over the next 5 years is twice as much as Customs and Border Protection (CBP) has spent in its entire history since its creation in 2003. For Border Patrol specifically—which is now a component with CBP—it would call for approximately six times as much spending per year and require a five-year total of $120 billion, which is more than Border Patrol has spent in its entire history. Since 1965, the agency has spent about $65 billion, roughly half the amount that the House bill requires over just the next 5 years. The figure below puts the change that the bill would make in historical context. 

Figure: Border Patrol Budget, FY 1965 to FY 2022 (in Million$)

Sources: H.R. 4760; Border Patrol; Massey

This funding request is unreasonable. It is so extreme that it alone could upend a spending-DACA deal because, due to the budget caps on discretionary spending, any new spending on the border would likely need to be offset. The bill itself reduces no other spending, and it makes virtually no serious effort to pay for the bill. Its legalization provisions do require Dreamers to pay a $1,000 border security “fee” (p. 400) but because only 10 percent of the Dreamer population would qualify for the legalization, this would raise at most $250 million—nowhere near the $130 billion in new spending that this bill requires.

It is important to note that these figures only authorize appropriations to occur. For the spending to actually occur, Congress will also need to appropriate the funds. However, White House Budget Director Mick Mulvaney told Fox News on Sunday that President Trump rejected an offer from Senator Chuck Schumer (D-NY) specifically because he only offered authorization, so certainly the expectation by the White House and House Republicans is that the Appropriations Committee will also fund the request.

What programs are House Republicans willing to cut to pay for Trump’s wall and border bureaucracy blowup? We must wait and see.

I have written before about how the House GOP DACA bill would legalize some young immigrant Dreamers, but would criminalize them if they failed to maintain an income at least 125 percent of the poverty line. Center for Immigration Studies (CIS) has written a blog post claiming that the bill, the Securing America’s Future Act (H.R. 4760), does not do this. CIS is wrong. First, on pages 390-396, we see the following:

(b) Eligibility Requirements.— (1) IN GENERAL.—An alien is eligible for contingent nonimmigrant status if the alien establishes by clear and convincing evidence that the alien meets the requirements set forth in this subsection. …

(4) GROUNDS FOR INELIGIBILITY.—An alien is ineligible for contingent nonimmigrant status if the Secretary determines that the alien— … (L) if over the age of 18, has failed to demonstrate that he or she is able to maintain himself or herself at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission as a contingent nonimmigrant …

CIS responds that this “does not require that an alien maintain him- or herself “at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission;” rather, it conditions a grant of nonimmigrant status to a showing of an ability to do so at the time of application” (My emphasis). Nothing in the language of subsection (b) actually limits the income “demonstration” to the time of the application. Are all the other requirements also limited only to the time of the application? Can the Dreamers commit felonies and keep their status? Obviously not. But in any case, CIS’s argument ignores page 409, which clearly states that all requirements in subsection (b) are conditions of the status:

The Secretary shall revoke the status of a contingent nonimmigrant at any time if the alien— (A) no longer meets the eligibility requirements set forth in subsection (b).

But revocation of status is not the only penalty for violating the conditions of the status under the bill. On pages 171-172, we see that it creates a new federal criminal offense:

(1) ILLEGAL ENTRY OR PRESENCE.—An alien shall be subject to the penalties set forth in paragraph (2) if the alien—…(D) knowingly violates the terms or conditions of the alien’s admission or parole into the United States and has remained in violation for an aggregate period of 90 days or more

(2) CRIMINAL PENALTIES.—Any alien who violates any provision under paragraph (1)— (A) shall, for the first violation, be fined under title 18, United States Code, imprisoned not more than 6 months, or both; (B) shall, for a second or subsequent violation, or following an order of voluntary departure, be fined under such title, imprisoned not more than 2 years (or not more than 6 months in the case of a second or subsequent violation of paragraph (1)(E)), or both.

Any foreigner who violates “the terms or conditions” of an immigrant’s status will have committed a criminal offense if they did so for more than 90 days. For some reason, CIS never quotes this language. Instead, its post discusses a variety of irrelevant current regulations. The plain fact is that the House GOP would have Dreamers criminally prosecuted and sentenced to up to six months in federal prison if they drop below an annual income of 125 percent of the poverty line for 90 days.

CIS also tries to portray this requirement as no more onerous than the public charge affidavit requirement that all sponsors of legal immigrants already must sign, pledging to maintain the immigrant at an income of at least 125 percent of the poverty line. In that scenario, however, it is the sponsor who is required to demonstrate income, and the legal immigrant can enforce the affidavit against the citizen. This comparison also cuts against the notion that the income requirement is only at the time of the application, since the income requirement for the affidavit is not limited to the time of the application.

In any case, the immigrant is in absolutely no danger of deportation as a result of the citizen’s failure to sufficiently support them. Moreover, the affidavit requirement for the sponsor expires. By contrast, the House GOP bill’s requirement has no termination date. It would continue to require Dreamers to work for the rest of their lives if necessary to avoid status revocation, deportation, and the criminal penalties under this bill. As I have said in my explanation of the legalization provisions on Twitter, this bill treats Dreamers as criminals on parole, not as the Americans that the vast majority of the public considers them to be. 

This treatment makes perfect sense when you consider that the bill also makes it a criminal offense (p. 171-72) to exist in the United States for 90 days without legal status. The House GOP is so determined to see these immigrants as not just illegal, but as criminals that they have decided to try to make their view reality. Given this perspective, it seems perfectly logical to them to treat Dreamers as criminals on parole, not equal members of society.

Private-sector utilities provide the bulk of electricity generation, transmission, and distribution in the United States. But the federal government also owns a share of the nation’s electricity infrastructure.

The government owns the Tennessee Valley Authority (TVA) and four Power Marketing Administrations (PMAs). The PMAs mainly transmit power generated by hydroelectric dams owned by the Army Corps of Engineers and the Bureau of Reclamation. Federal entities account for 7 percent of U.S. power generation, and they own 14 percent of the nation’s transmission lines.

In its 2018 federal budget, the Trump administration proposed privatizing the PMAs. Today, Cato is releasing a study discussing the PMAs and the advantages of privatization. A previous study looked at privatizing the TVA.

The federal government entered the electricity business in the mid-20th century when faith in government ownership was high. But over time it has become clear that government-run businesses lag private businesses in efficiency, innovation, and environmental performance. As such, there has been a global trend toward privatization, and many nations have sold their electricity assets. 

The Trump budget said, “ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives.” And it said the proposal to “eliminate or reduce the PMA’s role in electricity transmission and increase the private sector’s role would encourage a more efficient allocation of economic resources and mitigate risk to taxpayers.”

Trump is on the right track with the PMAs. Rather than increasing infrastructure subsidies, the administration should work to improve the efficiency of existing infrastructure, and that includes clearing out the federal attic and holding a garage sale.

About three-quarters of Americans receive electric power from for-profit private utilities. There are no sound policy reasons for the other one-quarter to be supplied by government facilities and subsidized nonprofit firms. Privatizing federal generation and transmission facilities would raise government revenues from the sell-off and from the payment of income and property taxes by the privatized entities over time.

President Ronald Reagan proposed privatizing the PMAs because it would “result in a more efficient power system for electricity customers.” President Bill Clinton also proposed privatizing the PMAs. It makes sense for President Trump to dust off the Reagan and Clinton plans, and move ahead with reforms.

Privatize the PMAs here.

Privatize the TVA here.

Clearing the rest of the federal attic here

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