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As we near the release of President Trump’s new budget, some of his proposals are leaking to the press. The Washington Post reports that the president will propose cutting renewable energy and energy efficiency subsidies by 72 percent. That would be a good start, although 100 percent would be better.

Spending for the Energy Department’s Office of Energy Efficiency and Renewable Energy (EERE) is set at $2.04 billion for the current fiscal year, which ends Oct. 1. Last year, the administration asked for $636.1 million, a decline of more than two-thirds, although Congress did not implement the request. For 2019, the administration’s draft proposal would lower that request even further, to $575.5 million.

We will see whether Congress goes along, but the story does show that, so far, Trump is siding with his conservative budget director, Mick Mulvaney:

The Energy Department had asked the White House for more modest spending reductions to the renewable and efficiency programs, but people familiar with the process, who spoke on the condition of anonymity to share unfinished budget information, said the Office of Management and Budget had insisted on the deeper cuts. …“It shows that we’ve made no inroads in terms of convincing the administration of our value, and if anything, our value based on these numbers has dropped,” said one EERE employee…”

Apparently, the White House budget office has concluded, as I have, that energy subsidies are a waste of money.

There is more good news from the Post:

The draft document says the administration will once again ask Congress to abolish the weatherization program … The budget proposal would also eliminate state energy grants. The budget would ax research in fuel efficient vehicles by 82 percent, bioenergy technologies by 82 percent, advanced manufacturing by 75 percent and solar energy technology by 78 percent.

The proposal would cut funds for electric car technologies and fuel-efficient vehicles—at $307 million currently the biggest of the program areas—to $56 million in 2019.

… The plan would also chop spending on more efficient building technologies and research into geothermal, hydro and wind power.

These cuts would be splendid, and straight from the DownsizingGovernment.org playbook.

Nonetheless, there has been some bad news on energy policy. Energy Secretary Rick Perry has tried to aid coal and nuclear at the expense of electricity consumers. Also, the administration supports the ethanol boondoggle, and it just imposed special taxes on solar panels. As for the president, he has been talking nonsense about “beautiful clean coal.”

Still, I’m looking forward to the spending cut proposals in the budget to be released February 12.

Meanwhile, you can read about energy subsidies here and proposals for federal spending cuts here.

Last week, Bartlesville, Oklahoma, police released video from a nighttime SWAT raid on the home of a man suspected of selling marijuana—yes, marijuana—during which officers fatally shot his mother, 72-year-old Geraldine Townsend, after she fired a BB gun at the officers. As he is being cuffed and dragged from the house, Mike Townsend can be heard pleading with the officers to let him see his dying mother, but they refuse.

In December, Wichita, Kansas, police received what turned out to be a prank call regarding a non-existent hostage situation at the home of Andrew Finch. When the 28-year-old father of two went outside to investigate the flashing emergency lights, SWAT officers yelled at him to “Show your hands” and “Walk this way.” Seconds later, one of the officers shot and killed him. Andrew Finch was unarmed.

That same month, a six-year-old San Antonio boy was killed by deputies who were shooting at a suspected car thief, also unarmed, on the front porch of the boy’s mobile home. Two weeks before that, former Mesa County, Arizona, officer Philip Brailsford was acquitted of murder for shooting an unarmed man, Daniel Shaver, as he begged for his life in the hallway of a motel. And back in July, Justine Damond was shot and killed by a Minneapolis police officer after she called 911 to report a possible sexual assault in the alley behind her house. Damond too was unarmed.

Lack of systematic record-keeping makes it difficult to quantify the scope of the problem with precision, but according to The Washington Post, of the roughly 1000 people shot and killed by police last year, at least seven percent were unarmed. A study by Vice News of all shootings by police, including non-fatal ones, suggests the numbers are even worse: 20 percent of people shot by police were unarmed.

No one denies that police have a difficult, dangerous, and sometimes scary job, nor should we forget the heroism of officers like those who threw themselves between citizens and mass shooter Micah Johnson during a Black Lives Matter rally in Dallas in July 2016. But the time has come for a national conversation about the risks we expect officers to take in order to avoid shooting innocent people like Andrew Finch, Daniel Shaver, and Justine Damond—and also to ensure that they avoid creating unnecessarily dangerous situations by staging gratuitous nighttime SWAT raids to serve low-level drug warrants.

More specifically, it is time to reconsider a legal rule called “qualified immunity” that holds police to a much lower standard of care than ordinary citizens.

We expect homeowners not to leave firearms where children can get at them, and we expect permit holders to exercise great care in deciding when to carry a gun and when to use it. One of the ways we send that message is through tort law, which enables people to sue for injuries caused by the negligence or intentional misconduct of others. Importantly, tort law creates positive incentives by holding professionals to a higher standard than others when acting in their field of expertise. Thus, the standard of care for doctors in medical malpractice cases is not that of a layperson, but of a reasonably prudent professional with the same training and experience.

Incredibly, the opposite rule applies to police officers, who, notwithstanding their greater training and experience, are held to a much lower standard than ordinary citizens in the use of force. That’s because the Supreme Court has effectively rewritten a federal law that makes police officers liable for violating “any right” so that they are instead only liable for violating rights that are “clearly established” in light of existing case law. While that may seem like a relatively minor tweak, it is anything but—indeed, the Supreme Court has emphasized that the practical effect of this so-called qualified immunity doctrine is to protect “all but the plainly incompetent or those who knowingly violate the law.” That is a breathtakingly low standard, and patients would flee from a hospital that expected no more from its doctors.

Going back to the shooting of Andrew Finch, we can see how better incentives might have prevented that tragedy. First, “swatting” is a well-known practice whereby someone calls in a fake emergency in the hopes of unleashing heavily armed police on an unsuspecting victim. Properly trained officers would take this into account in responding to calls like the one that led to Mr. Finch’s death. Second, officers would recognize that the many advantages they possess over laypersons, in this case more training, powerful weapons, and strength in numbers, translates into a duty of greater care, not less. An ordinary citizen who shot Mr. Finch under similar circumstances would not only be facing a ruinous civil suit but would almost certainly be charged with criminally negligent homicide. Finally, proper financial incentives would better motivate police departments to weed out officers who are not suited to their duties. For example, Philip Brailsford, the Arizona officer who shot and killed Daniel Shaver, had the words “You’re f*cked” etched onto his police-issued rifle. That should have been a red flag that he lacked the temperament for a job requiring good judgment and self-restraint under pressure.

There is no magic solution to the problem of police shooting unarmed citizens or creating needlessly hazardous situations by invading people’s homes in the middle of the night. But a good start would be for the Supreme Court to reverse its ill-advised foray into policymaking by abandoning qualified immunity and ensuring that police officers are held to the same standard of care as other professionals. In doing so, the court would embrace a key precept of the medical profession: First, do no harm.

 

 

As a general matter, governments are poorly managed compared to businesses in competitive markets. They tend to spend money on low-value activities, put up with sloth and waste, and follow failed policies for years without a course correction. I have examined the structural causes of federal waste and mismanagement in studies on Congress and the executive branch.

Many of the federal government’s structural problems also bedevil state governments. Yesterday, a Washington Post editor, Gene Park, described some of the dysfunction in Hawaii’s government that led to the false missile alert last month.

I could not figure out whether Park was mainly blaming institutional problems—such as union job protections—for government failures, or whether he was blaming the general culture of Hawaii and its government.

Certainly, the two factors are related. Flawed institutions such as labor unions create bad incentives and spawn a culture of waste. I would guess that people are similar everywhere, but different institutions across societies have shaped differing cultures or general behaviors. Of course, within societies people have many different personality traits, and governments likely attract workers seeking an environment of high job security and low performance expectations.

Is Hawaii’s government more mismanaged than other state governments? If so, is it because high unionization and other features of its government have created bad incentives, or is it because people in the state hold attitudes that undermine government efficiency?

Anyway, see what you think about Park’s article. Here are some excerpts:

This past week, we learned that the man responsible for the bogus Hawaii missile alert last month had kept his job for a decade, even though he had a history of performance problems and had been “a source of concern,” according to a Federal Communications Commission report. His fellow employees had expressed discomfort about his work, and the FCC said that he was “unable to comprehend the situation at hand and has confused real life events and drills on at least two separate occasions.” Although the emergency management worker, who remains unnamed, was a union member, he could’ve been fired at will. “Why, then,” Gizmodo understandably wondered, “was the employee in a position to send a false missile alarm to a couple of million people?”

As we say in the islands, e komo mai (welcome) to Hawaii.

I worked as a Hawaii state employee for a short time, serving as spokesman for a division of the Hawaii Department of Commerce and Consumer Affairs, and then spent more than seven years dealing with the government as a journalist. Anyone who knows how Honolulu functions can’t have been surprised by the FCC’s revelations. The sad part is that the worker’s ineptitude and the chaos he caused have exposed to the world old, ugly tropes about Hawaiian accountability and competence that residents would love nothing more than to shake off. “How many more non effective employees are on the job here in Hawaii?” asked a local on Hawaii News Now’s Facebook page.

There’s a strong assumption in the islands that once you enter the state government system, you’re set for life. … The prevailing notion is: You don’t have to work that hard.

And there is often no cost for screwing up. Vern Miyagi, the emergency management chief who resigned in the wake of the FCC report Tuesday, had made his reluctance to fire the alert author clear: “You’ve got to know this guy feels bad, right? I mean, he’s not doing this on purpose.” …

Culturally, Hawaii tends to reward seniority, not competence. Careers often advance only when incumbent workers resign or die. …

That’s a sentiment young people (and apparently 54-year-old members of Congress) hear often in Hawaii. The author of that 2006 newspaper column rued how “local values” insist on deference and conformity. …

I often heard residents of my old state parrot a Japanese saying: The nail that sticks out gets hammered down. And people who want reform, or just want to try something new, hear a common refrain in Hawaii’s private and public sectors: “That’s not how things have been done before.” Play your role, and you’ll be rewarded when you’re good and old.

That attitude has consequences. The FCC report shows it was no secret that the missile alert’s author was inept. Yet he somehow landed the critical job of telling an entire state whether its people could die in a nuclear blast. While 10 years passed, his supervisors did nothing to remove him from a job they knew he was unqualified for, nor did they implement procedures for what to do if someone accidentally sent a missile alert. It took a national embarrassment to dislodge him from his job.

More on the causes of government failure here and here.

After much publicly acrimony and week-long speculation about its contents, the “Nunes Memo” (named for GOP House Permanent Select Committee on Intelligence (HPSCI) chairman Devin Nunes of California) was finally made public today. In reality, the document was authored by thus-far unidentified GOP HPSCI staffers and does not represent a genuine, bipartisan committee product. It is thus, by definition, a purely partisan document.

But what of its substance, if any? Is there anything truly new or genuinely important in the document that is worthy of follow up by Special Counsel Robert Mueller? Unlikely. Should the memo serve as an opportunity for Congress to revisit its anemic surveillance oversight and reform record? Absolutely. First, let’s deal with the memo.

The memo itself is concerned with FBI Foreign Intelligence Surveillance Act (FISA) surveillance requests targeting then-former Trump campaign aide Carter Page in 2016. The core Nunes Memo allegation is that material that would’ve cast doubt on the credibility of the so-called “Steele Dossier“–a piece of campaign opposition research on the Trump campaign compiled by former British intelligence operative Christopher Steele, portions of which were allegedly used in the October 2016 FISA application on Page submitted to the FISA Court (FISC) by the FBI. In essence, the Nunes Memo alleges that a piece of political campaign material was used in an effort to target Trump and his campaign staff, and that the FBI failed to disclose Steele’s political connection to the DNC and Clinton campaigns to the FISC. 

What the Nunes Memo fails to note is that Page was clearly a “person of interest” to the FBI as early as 2013 in connection with a counterintelligence investigation involving Russian spies–agents who were apparently attempting to recruit Page as a source. As a former intelligence officer myself, its very easy for me to see why the Bureau would be interested in Page and his ongoing contacts with Russians. That Nunes and his staff apparently don’t see the problem presented by Page’s Russian contacts should be of concern to anyone who cares about preventing hostile intelligence services from gaining access to Americans with potential political influence and access to sensitive government information via their friends in government.

The Nunes Memo also implies that the FBI deliberately lied to the FISC about what it knew about Steele’s opposition research target and clients. From p. 2 of the Nunes Memo:

Neither the initial application in October 2016, nor any of the renewals, disclose or reference the role of the DNC, Clinton campaign, or any party/campaign in funding Steele’s efforts, even though the political origins of the Steele dossier were then known to senior DoJ and FBI officials.

Did the FBI have a statutory requirement to disclose that information? The specifc legal requirements for an application for electronic surveillance do not mandate that explicitly political/campaign-related conflicts of interest or similar politically sensitive information be included in the application. Should it? Absolutely. But in releasing the memo, neither Nunes, House Speaker Paul Ryan, or President Trump have called upon Congress to address this loophole. Neither have their Democratic Party counterparts.

What House Democratic Whip Steny Hoyer of Maryland has called for is Nunes’ head. Speaker Ryan is unlikely to accomodate the request, though one could make a very credible argument that he should.

Nunes’ tenure as HPSCI chairman has been a poltical and oversight disaster. Nunes and his GOP colleagues have made much about alleged surveillance violations against white businessmen while ignoring far more credible allegations of surveillance abuse against politically active people of color. The memo on alleged violations of Page’s rights rings quite hollow when you consider that the House GOP-controlled HPSCI conducted no investigation into documents released by Edward Snowden showing clear evidence that Arab- and Muslim-American leaders had been the target of unjustified–and likely unconstitutional–surveillance. The targets included a then-Republican Muslim-American Virginia House of Delegates candidate, Faisal Gill.

Nor has the House GOP-controlled HPSCI shown the slightest interest in investigating the near-complete breakdown of internal Intelligence Community (IC) watchdog. Indeed, I have heard credible reports about whistleblower retaliation problems at multiple IGs across the IC. But instead of investigating these and other genuine IC oversight challenges, the House GOP leadership–and their Democratic counterparts–have spent their time and energy arguing over a political “nothingburger” for weeks…ensuring that the FISA Follies continue.

All this week, the Cato Daily Podcast (subscribe!) has tackled the myths, errors, and underappreciated elements of immigration policy. President Donald Trump has made a massive reduction in legal immigration a centerpiece of his second year in office, and the sales pitch he’s made on behalf of that plan hinges on a number of false or misleading claims about the costs and benefits of immigration. In case you missed them, here are my discussions with Alex Nowrasteh, David Bier, and Matthew Feeney:

And, not to be left out, Jim Harper discussed his recent paper on new national ID systems including E-Verify, the deeply flawed employment verification system aimed at keeping undocumented immigrants from working in the United States.

Here’s more of Cato’s work on immigration.

An appeals court in Pennsylvania has ruled that the state police force must rehire a trooper whom it let go after a female officer obtained a protective order against him which barred him from having a gun. A dissenting judge argued in vain that the dismissal was justified since under the circumstances the man “cannot perform the basic and essential duties for which he was hired as a trooper.” Union grievance arbitration awards, however, get deferential treatment in court afterward, and so it was in this case, in which the arbitrator found it significant that the state had listed other reasons (unbecoming conduct, conformance to laws) for its action. 

Now, there’s nothing to physically prevent the state from complying with this set of marching orders: it is free to go on shelling out a trooper’s salary and benefits at taxpayer expense even while it cannot ask him to perform the duties of his job. Still, it’s close enough to a “sued if you do, sued if you don’t” situation that I filed the story in that department at Overlawyered, a department that also compiles many other curious stories: 

Sometimes courts succeed (expensively, and after the fact) in untangling these conflicts. But wouldn’t it be nice if the law didn’t create so many of them in the first place by trying to reach into so many areas of life?

The Washington Post does not do much investigating of waste, fraud, and abuse in federal agencies anymore, but it has done a great job with the Fat Leonard Navy corruption scandal. I discussed prior WaPo stories on the scandal here and here.

The newspaper has another pair of stories today (here and here) describing how Leonard Glenn Francis cozied up to Navy leaders in the Pacific to win lucrative deals for resupplying ships. He cashed in on overpriced contracts and fraudulent invoices, and he had numerous moles inside the Navy to steer business and profits his way. He wined and dined Navy officers, providing them with gifts, prostitutes, and other favors to get their help and protection.

The upshot: If so many Navy leaders were easily seduced by an old-fashioned con artist, does it mean that America’s other military and intelligence services are just as vulnerable to low-tech bribery and infiltration?

Here are excerpts from the WaPo story:

In a case that ranks as the worst corruption scandal in Navy history, the Justice Department has charged 15 officers and one enlisted sailor who served on the Blue Ridge with taking bribes from or lying about their ties to Leonard Glenn Francis, a Singapore-based tycoon who held lucrative contracts to service Navy ships and submarines in Asian ports.

For the better part of a decade, as part of a massive scam to defraud the Navy, Francis systematically infiltrated the Blue Ridge to a degree that is only now coming into focus, more than four years after the defense contractor’s arrest, according to the documents from federal court and the Navy, as well as interviews with Navy officials and associates of Francis.

Prosecutors say nine sailors from the 7th Fleet flagship leaked classified information about ship movements and other secrets to Francis, a Malaysian citizen, making the Blue Ridge perhaps the most widely compromised U.S. military headquarters of the modern era.

The Navy is investigating dozens of others who served on the ship, which is based in Japan, for possible violations of military law or ethics rules, according to documents and interviews.

Between 2006 and 2013, Francis doled out illicit gifts, hosted epicurean feasts and sponsored sex parties for Blue Ridge personnel on at least 45 occasions, according to federal court records and Navy documents obtained by The Washington Post under the Freedom of Information Act.

Officers from the Blue Ridge consumed or pocketed about $1 million in gourmet meals, liquor, cash, vacations, airline tickets, tailored suits, Cuban cigars, luxury watches, cases of beef, designer handbags, antique furniture and concert tickets — and reveled in the attention of an armada of prostitutes, records show.

That’s your government folks.

Some of the systematic reasons for bureaucratic failure in the government are discussed here.

Economic growth is a poorly understood phenomenon by economists.  There are many schools of thought and models that try to understand it but we are far away from understanding it as well as how micro markets function.  We may never do so.  But there seem to be two non-mutually exclusive ways that growth increases.  The first is called intensive growth whereby our economy becomes more efficient and produces the same amount of output for equal or lesser inputs.  The second is called extensive growth whereby economic output increases because more factors of production are added such as capital, land, entrepreneurship, or laborers. 

Based mainly on extensive growth, many economic models try to predict how changes in the U.S. population affect gross domestic product (GDP), itself an imperfect measure.  Immigration is the primary contributor to population growth in the United States both through their movement here and their subsequent birth of children.  More people in the United States, at a minimum, increase the quantity of two factors of production: labor and entrepreneurship.  Land is relatively fixed and capital adjusts based on population.  The National Academies of Sciences (NAS) report on immigration and economic growth concluded that (page 317):

Immigration also contributes to the nation’s economic growth. Most obviously, immigration supplies workers, which increases GDP and has helped the United States avoid the fate of stagnant economies created by purely demographic forces—in particular, an aging (and, in the case of Japan, a shrinking) workforce.  Perhaps even more important than the contribution to labor supply is the infusion by high-skilled immigration of human capital that has boosted the nation’s capacity for innovation and technological change. The contribution of immigrants to human and physical capital formation, entrepreneurship, and innovation are essential to long-run sustained economic growth. Innovation carried out by immigrants also has the potential to increase the productivity of natives, very likely raising economic growth per capita. In short, the prospects for longrun economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants.

The NAS report argues that there are substantial technological spillovers that boost economic growth but those are impossible to predict.  Thus, I use a simple back of the envelope calculations to show how GDP growth through 2060 would alter under the Trump plan.  This includes Census population projections under the current policy.  I then subtract legal immigration and adjust births and deaths accordingly.  I assume annual GDP growth of 2 percent under the current policy but 1.75 percent under the Trump plan to take account of the Wharton Model’s findings concerning the Trump-inspired RAISE Act and the research of economist Joel Prakken.

GDP would be 15.5 percent lower in 2060 under the Trump plan than under the status quo according to this calculation (Figure 1).  U.S. GDP would grow from about $19 trillion today to $49 trillion under the Trump plan but it would have grown to $58 trillion under the continuation of the current immigration policy (2017 dollars).  According to this rough estimate, American GDP would be about 15.5 percent lower in 2060 under the Trump plan than it otherwise would be under the status quo.  My estimate is very similar to that of Prakken’s whose model says U.S. GDP would be 12.5 percent lower than baseline by 2045 under the Trump-inspired RAISE Act. 

Figure 1

GDP Under Trump’s Immigration Plan Versus the Status Quo 

Source: U.S. Census, Author’s Calculations, Cato Institute, Joel Prakken.

The loss in GDP comes from a lower population which the Census expects to grow to 409 million under the current policy but would only be 383 million under the Trump plan (Figure 2).     

Figure 2

American Population Under Trump’s Immigration Plan Versus the Status Quo 

 

Source: U.S. Census, Author’s Calculations, Cato Institute.

Most commentators and policymakers are interested in the minuscule and mostly positive effect that immigration has on wages.  In contrast, the impact of immigration policy on economic growth is far larger and more important.  The size of the economy is a great measurement of national wealth and material abundance that should be the focus of any debate over the economic merits of immigration policy.

The U.S. Chamber of Commerce is urging policymakers to pass an infrastructure package. Some of the Chamber’s proposals make economic sense and have bipartisan appeal, such as speeding the permitting process for construction projects.

But one Chamber proposal makes no sense and has little political appeal: raising the federal gas tax by 25 cents per gallon, which would more than double it from the current 18 cents. The Chamber’s case for a federal increase in infrastructure funding—as opposed to state-level increases—seems to include little more than polls purporting to show Americans are not against a federal “user fee” increase.

The Chamber undercuts its argument for a federal increase in this advocacy piece:

To rebuild and expand our roads, bridges, and transit systems, it is time for a modest increase in the federal motor vehicle user fee. The user fee was last raised in 1993. Since then, inflation has eroded nearly 40% of its value … Since 1993, 39 states have raised their own state motor vehicle fuel user fees. It is past time for the federal government to do the same. Specifically, we call on Congress to raise the user fee by 5 cents per year for five years for a total of 25 cents and adjust the fee to inflation thereafter.

If 39 states have proactively raised their own gas taxes, why does the federal government need to? Apparently, states are quite capable of balancing the costs and benefits of highway investment, and of making infrastructure decisions based on their own needs. As I discuss here, the average state gas tax rate increased from 21 cents per gallon in 1994 to 33 cents today.

Florida’s population has grown 47 percent since 1994, which has presumably increased the demand for highways. The state responded by raising its gas tax by 26 cents over the period, according to API data. Meanwhile, the population of Kansas has grown just 13 percent, presumably creating just a modest increase in highway demand. Kansas raised its gas tax 5 cents over the period.

Federalism works! States are making different choices based on their own needs. If Chamber of Commerce members in Florida favor higher gas taxes for better roads, wouldn’t they rather their tax money stay within the state, rather than going to D.C. and being re-routed to, say, Kansas?

Advocates of increased federal taxing and spending for infrastructure never seem to tell us the advantages of a centralized approach over a decentralized approach. Indeed, there are many disadvantages of centralizing the financing of, and control over, the nation’s infrastructure.

Some Americans may be surprised to learn that agriculture in their country is in large part based on a five-year plan. Most commonly referred to as the farm bill, it is up for renewal this year and—just like in years past—is likely to produce a legislative morass in which the primary beneficiaries are lobbyists and the business interests they serve. The following excerpt from a recent article in The New Yorker helps to illustrate the madness:

When milk prices bottomed out in the summer of 2016, Robin and David Fitch didn’t know how they could continue. Their four-hundred-and-seventy-acre dairy farm, in West Winfield, New York—a four-hour drive north of Manhattan—supported about a hundred and seventy milk cows. Sixteen years earlier, when they had married and started farming together, a herd that size would have been more than enough to keep them afloat. But milk prices kept falling that summer, eventually hitting fourteen dollars per hundredweight, down from twenty-five in 2014. The Fitches’ income took a nearly fifty-per-cent hit, while the debt they incurred from fuel costs, rising interest rates, and other expenses grew. The day came when they had to tell their two children that they might be forced to sell the farm. “My fourteen-year-old was in tears,” Robin recalled. “For the farmer, it means losing everything they have worked for their entire life—their land, their home, everything. It’s gone.”

The Fitches were not alone in their struggles. The U.S. Department of Agriculture estimates that, between 2013 and 2016, net farm income fell by half, the largest three-year drop since the Great Depression. Some forty-two thousand farms folded during the downturn, and small and medium-sized operations, such as the Fitches’, proved particularly vulnerable. Now, with commodity prices still low and farm debt predicted to reach record highs, the nonprofit organization Farm Aid has warned that, if the market doesn’t recover soon, the country could see its highest rate of farm closures since the nineteen-eighties. Newsweek estimates that, at the peak of that crisis, two hundred and fifty farms closed every hour.

Many American farmers are looking to Donald Trump for relief. He was, after all, their preferred candidate for President, winning sixty-two per cent of the rural vote in 2016. “Farmers built this country, and I was hopeful that he was going to see that and step up to the plate for us,” Robin Fitch told me. The President will soon have the chance to do just that, as Congress readies the next version of the farm bill, the single most important piece of legislation for the nation’s food growers. First conceived during the Depression, the bill has since become a fixture of American policy-making, updated and renewed and haggled over every five years or so. The 2018 bill, which is due in the coming months and is expected to cost around nine hundred billion dollars over a decade, promises to be one of the most consequential ever. This year, even more than in the past, farmers such as the Fitches face an existential question: Will Washington come to their rescue, or will it let them disappear?

The farm bill’s unassuming name fails to capture its effect on American life. Besides providing crop subsidies, establishing pricing structures, and regulating farming practices, it allocates funds for disaster relief, school-lunch programs, and wildlife conservation. Some eighty per cent of the bill’s budget goes to the Supplemental Nutrition Assistance Program (snap), formerly known as food stamps. “At one point, I started to catalogue the number of programs that were covered in the farm bill, and I gave up after a hundred,” Marion Nestle, a professor of nutrition, food studies, and public health at New York University, told me recently. “And every single one of those programs has a lobbying force behind it or it wouldn’t be there. And that’s just the farm programs!”

As the Fitches’ experience suggests, past farm bills have tended to benefit large operations over small and medium-size ones, which still account for ninety-seven per cent of all working farms in the United States. According to the Environmental Working Group, a D.C.-based nonprofit, the top ten per cent of wealthiest farms received seventy-seven per cent of commodity subsidies between 1995 and 2016. Roughly the same is true of crop insurance, currently the largest component of the farm bill behind snap. That’s where the real money is, Nestle told me. “What the insurance programs do is provide an incentive to grow as much food as you possibly can, because you know that the price is going to be guaranteed,” she said. The certainty of payment, backed by U.S. taxpayers, encourages big farms to get bigger, take risks, and then claim the insurance payouts if the crops fail to yield.

Each one of these paragraphs helps highlight at least one flaw with the farm bill or perceptions of the agriculture sector.

Among them:

Low prices of milk or any other agricultural commodity are not a problem to be ameliorated by public policy. Food is essential for human survival and we would all be better served if its price was, like sunlight and air, zero. The benefits of cheaper food and reduced hunger easily outweigh any losses borne by the farm sector.

The financial state of the agricultural sector is less than dire. While it is true that net farm income has dipped in recent years, this was preceded by a notable increase and currently is not particularly low by recent historical standards:

Similarly, the observation that farm debt is projected to reach record highs is presented without needed context. Left unsaid is that the sector’s assets are projected to reach $3 trillion, resulting in solvency ratios that are near historical lows:

It isn’t the job of politicians in Washington to save farmers—or members of any other industry. The task of lawmakers is not to dispense favors to particular constituencies but rather to create a policy environment in which market participants thrive or fail based on their own merits. Instead of pressing their thumbs on the economic scales, members of Congress should get out of the way and let the market—that is to say the collective judgment of consumers—render its verdict on which businesses continue and which ones cease. Smaller, more inefficient farms that cannot compete with larger agricultural concerns should be allowed to go out of business. Indeed, the replacement of less efficient farms with more efficient ones has been the story of agriculture for decades, with the resulting productivity surge leading to cheaper food and freeing up labor to participate in other sectors of the economy

The farm bill is an unfocused mess. Legislation which covers everything from subsidies to food stamps to wildlife conservation and contains so many programs that even experts cannot keep track is, by any measure, an unwieldy mess. Such legislative stuffing is best explained as an exercise in log-rolling, in which politicians from agricultural states and districts obtain support for farm subsidies by incorporating unrelated measures such as food stamps that have broader legislative appeal. This is no way to conduct business.

Ultimately the lobbyists win. As the article accurately notes, the legislation’s big winners are not family farms but rather large agricultural concerns who don’t need the help. While the federal government should not be handing out largesse to smaller farms, neither should it be funding their larger competitors. Losers from the farm bill, meanwhile, are not merely small and medium-sized farms, but the taxpayers who are forced to pay for this agricultural extravagance.

The article goes on to note that while it is “difficult to say what a small farmer’s ideal version of the bill would look like” that “there is no doubt that it would require radical revamping.” Such language implies that legislation meant to direct government assistance to particular actors within a large sector of the economy can become something other than what it is: an overgrown monstrosity written by lobbyists and ridden with corporate welfare. The only true reform of such a bill is to end the thicket of subsidies and price supports, and to break the legislation into smaller parts where its non-agricultural aspects such as food stamps can be addressed separately.

This is not to say that the government is without options should it seek to assist the agricultural sector. Rather than dispensing taxpayer-funded goodies, however, the Trump administration—assisted by pro-trade forces in Congress—should press ahead with efforts to open foreign agricultural markets. One of the richest and most protected such markets is Japan, and access by U.S. farmers to the country would have been notably expanded had President Trump not opted to withdraw from the Trans-Pacific Partnership. Fortunately, there is every indication the United States would be welcomed back should it seek to rejoin.

Similarly, European agricultural markets are shot through with subsidies and barriers to imports. An existing trade negotiation between the U.S. and European Union, the Transatlantic Trade and Investment Partnership, could yield positive results for the agriculture sector should this dormant initiative be reinvigorated. Let us also hope that administration rhetoric expressing a willingness to withdraw from the North American Free Trade Agreement, which would be particularly harmful to the agricultural sector, is simply a misguided negotiating tactic and not the expression of heartfelt sentiment.

Rather than conjuring up new economic distortions or tinkering with existing ones, Washington should seek ways to tear down barriers which prevent market forces from working their magic. The best farm bill is none at all.

At Reason’s “Hit & Run” blog today, Damon Root discusses “a major split [that] seems to be developing between conservative justices Neil Gorsuch and Samuel Alito over the issue of property rights and the Fourth Amendment.” I write simply to add a point to Damon’s important post. But first, a very brief summary of the issue.

Bryd v. United States, argued on January 9, is an automobile search case. Setting aside the more peripheral issues, the core question nominally before the Court was whether police may conduct suspicionless searches of places and effects in which those in possession have a reasonable expectation of privacy.

But Justice Gorsuch took not an “expectation of privacy” approach to the question but a property rights approach. Under common law, he said, “possession is good title against everybody except for people with superior title.” Absent probable cause, a trespass action would be available against anyone searching the car. Thus, “by virtue of his possession,” Byrd would have a right to resist a carjacker or throw out an overstaying hitchhiker. “So why not the government?”

Taking the more recent expectation of privacy approach to reading the Fourth Amendment, Justice Alito complained that “the problem with going down this property route is that we go off in search of a type of case that almost never arose…at common law, where [a person in possession] brings an action for trespass to chattel against a law enforcement officer.” He added that the word “property” doesn’t appear in the Fourth Amendment: “It talks about ‘effects’.” He then asked Byrd’s lawyer whether his argument is “that any property interest whatsoever falls within the definition of effects if we are going to go back to an originalist interpretation of the Fourth Amendment?”

Set aside whether Alito is resisting an originalist interpretation, it’s hard to know just what his theory of the case is. Is precedent his main concern, including the more recent expectation of privacy precedents and the alleged paucity of property precedents, especially involving law enforcement officers? Is it that with “effects” there’s a lesser expectation of privacy?

By contrast—and here’s the point I want to add—Gorsuch appears to be going back to First Principles. By implication, he’s doing the kind of state-of-nature analysis, reflected largely in the common law, that underpins the Constitution’s theory of legitimacy. From the Preamble to the document’s first sentence to the Ninth, Tenth, and Fourteenth Amendments, the idea is that legitimate governments have only those powers that the people have given them—but only those that they first have to give them. In the state of nature, there’s no right to trespass on another’s person or property—real or chattel—without probable cause. So once we leave the state of nature, where would a law enforcement officer get such a right. We have here, in short, a justice who studied these issues at Oxford, and we are the better for it.

Public comments on the draft fourth “National Assessment” of present and future climate change impacts on the U.S. are due at 11:59 PM tonight and will be embargoed from public release until after then. As soon as it is made public, we’ll link to our comments. Until then, just think about the previous three Assessments.

Reviewing the first one in 2000, myself and Chip Knappenberger discovered that the science team just happened to choose the two most extreme models (for temperature and precipitation) out of the 14 they considered. And then we discovered that they were worse than bad: when applied to a really simple record of temperature, they performed worse than a table of random numbers. Really, it was the same situation as if you took a multiple choice test with four possible answers, and somehow managed to get less than 25% right. That’s the highly sought after “negative knowledge,” something you might think impossible!

The second one (2009) was so bad that we covered it with a 211-page palimpsest, a document that looked exactly like the federal original in both design and content. Except that it contained all the missing science as well as correcting as many half-truths and incomplete statements as we could find. Like we said, that took 211 pages of beautiful typeset and illustrated prose.

The National Oceanic and Atmospheric Administration was instrumental in producing the third (2014) Assessment, and in their press release at its debut, gushed that “it is a key deliverable in President Obama’s Climate Action Plan.” That has been recently undelivered.

So what did we say in our review of the upcoming fourth one? Well, you’ll have to wait until tomorrow. 

Last night’s State of the Union address by President Trump was curiously light on the topic of trade policy despite the fact that it was continually brought up during his campaign and throughout 2017. In fact, there were a total of 6 sentences in the entire speech devoted to trade. The White House did, however, release a factsheet to fill the gaps. Below are excerpts from this factsheet, entitled “President Donald J. Trump Is Promoting Free, Fair, and Reciprocal Trade,” as well as links to commentary from my colleagues and me on the various issues listed. Though the address was a more reserved take on trade than the president’s past speeches, that doesn’t mean trade policy is now a safe space. Let’s keep a close eye on actions the administration might take in the future.

In outlining ways the administration intends to stand up for American interests, the factsheet begins with a focus on China:

  • In August 2017, the Administration initiated an investigation into Chinese practices related to forced technology transfer, unfair licensing, and intellectual property (IP) policies and practices.
    • These practices by the Chinese are estimated to cost the United States billions of dollars each year.
    • Conducted by the USTR, this is the first Section 301 probe since 1997, fulfilling the President’s campaign pledge to use all tools available under U.S. law to combat unfair trade.

As my colleague Scott Lincicome argues, any aggressive, broad-based unilateral tariffs on China through the use of Section 301 would likely be ineffective and harmful to both U.S. exporters and importers. Instead, he suggests the administration pursue concerns with Chinese IPR practices through a WTO dispute (joined by members with similar concerns) as well as a “targeted unilateral response” for those actions that fall outside the scope of the WTO Agreements.

Next, the document turns to address recent safeguard actions:

  • In January 2018, the President announced his decision to provide safeguard relief to U.S. manufacturers injured by surging imports of washing machines and solar products.
    • The President’s decision was based on a series of recommendations made by the independent and bipartisan International Trade Commission (ITC).
    • This is the first time Section 201 of the Trade Act has been used to impose tariffs in 16 years.
    • These actions respond to unfair trade practices by China and other countries, including attempts to avoid legally imposed antidumping and countervailing duties.>

These kinds of actions are part of the built-in system of protectionism that works on autopilot irrespective of which party is in power. In both the washers and solar products cases, the ITC made recommendations, and President Trump roughly followed these recommendations. Therefore, while the actions are likely to hurt U.S. consumers (LG just announced it would be raising prices of its washing machines), they are not out of the ordinary (though prior to these actions, a case hasn’t been initiated since 2001).

The factsheet continues by praising the increase in antidumping and countervailing duty investigations in 2017:

  • During 2017, the Trump Administration conducted 82 major antidumping and countervailing duty investigations, a 58 percent increase over 2016.
    • This includes the first self-initiation of an antidumping investigation in 25 years.
    • Many of these investigations resulted in import duties to address dumping and subsidies, including one in response to Canada’s unfair trade in softwood lumber.
    • USTR and Commerce are working together to defend the right of the United States to continue treating China as a non-market economy in antidumping investigations until it makes the reforms it agreed to when it joined the WTO.

A few things to note here: first, some trade remedy 101—the use of these trade remedies is not really new, and is something U.S. companies have long utilized to shield themselves from competition from foreign companies. Boeing’s latest trade remedy initiation is a great example of the abuse of this law, which ended last week with the U.S. ITC unanimously agreeing that Boeing was not in fact injured by airplanes made by its Canadian competitor Bombardier, and thus no tariffs could be imposed. It is worth emphasizing here that regardless of the amount of saber rattling by the administration on this issue, the process by which these investigations take place is independent. The problem is not really an uptick in protectionism, but rather, U.S. trade remedy laws that don’t serve U.S. interests.

My colleagues have also written extensively on the issue of China’s nonmarket economy status with regard to the application of U.S. AD/CVD laws and have argued that China should not be treated differently than other countries.

The factsheet was surprisingly positive about the WTO, noting the successful use of the institution’s dispute settlement mechanism:

  • The Trump Administration has successfully litigated numerous WTO disputes, helping force countries to abandon unfair practices and preserving the U.S. right to enact fair laws.
    • In November 2017, the United States won a dispute on Indonesia’s unfair import licensing regime that was blocking the export of U.S. agricultural goods.
    • In October 2017, the WTO determined that the U.S. tuna labeling rules were consistent with WTO standards, helping the United States to inform consumers about safe fishing practices.
    • In September 2017, the WTO rejected the EU’s allegations that Boeing was receiving prohibited subsidies.

This is good news considering how critical USTR Lighthizer has been of the WTO, and signals that perhaps the U.S. has not abandoned the institution, but instead is actively using it. Later in the factsheet, reform of the WTO is referenced as follows: “The United States is committed to reforming the WTO to ensure that countries are held accountable for breaking the rules and that U.S. sovereignty is respected.”

This is consistent with previous statements from the administration, but again sends the message of working to improve the WTO, not destroying it. As for “holding countries accountable” it is likely that the prime target here is China. China was the recent subject of criticism with regard to its WTO membership in a recent report on China’s WTO compliance, which stated that “the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market oriented trade regime.” While it may be hyperbolic to suggest this means the U.S. regrets China’s membership entirely, it does point to concerns over the “terms” on which China entered. As my colleague Simon Lester noted, China’s membership to the WTO has been good for the United States, not least because it has prompted significant episodes of liberalization in China, even though there still is much work to be done on that front. Though it is true that China has developed significantly since it joined the WTO in 2001, working within the WTO to address an expansion of China’s obligations may be the best route forward, as opposed to any unilateral actions, particularly over China’s IP and technology transfer policies.

In a section entitled “Putting the American Worker First,” the administration highlights its priorities for undertaking renegotiations of existing trade agreements and the launch of new ones. It states:

  • The Trump Administration is renegotiating and modernizing the North American Free Trade Agreement (NAFTA) to ensure that it does not harm American workers and companies. This is the first renegotiation of a major free trade agreement in U.S. history.
    • The Administration is working with Korea to ensure that trade under the U.S.-Korea Free Trade Agreement (KORUS) is more equitable and reciprocal.
    • President Trump withdrew the United States from the Trans-Pacific Partnership (TPP), because the deal negotiated by the past Administration did not sufficiently prioritize the needs of the American workforce.
    • The United States is seeking to enter into new trade agreements with countries that commit to fair and reciprocal trade.

The 6th round of NAFTA talks concluded this week, and negotiations do seem to be progressing, albeit at a slower pace than the administration might like. It is true that NAFTA would benefit from modernization, in part because it was negotiated at a time when the internet was just taking off, and also because over the course of 20 years, we have learned a lot about things that may not work or could be improved. For instance, eliminating investor-state dispute settlement (Chapter 11) and binational panels that review the administration of domestic AD/CVD laws (Chapter 19) would be a step in the right direction. Not only would this address the controversy surrounding ISDS (which essentially subsidizes foreign investments) but also end a possibly unconstitutional system of adjudication (Chapter 19) that is unnecessary given that foreign companies have access to domestic U.S. courts to address these concerns.

The administration has put forward some controversial “poison pills” in the NAFTA negotiations, such as more stringent rules of origin and government procurement provisions, as well as non-binding state-to-state dispute settlement and a 5 year sunset clause that would automatically terminate the deal unless all parties agree to continue it, but this is really not the type of reform that would be helpful. For instance, state-to-state dispute settlement should be strengthened, not weakened, as NAFTA Chapter 20 has barely functioned in its 20-plus year history. Also, the government procurement market should be open to foreign competition, and the administration should be wary of how it abuses the term “reciprocity” in calls for dollar-for-dollar procurement access. There is also much that can still be done to eliminate unnecessary regulatory obstacles to trade by including a chapter on regulatory cooperation in the new NAFTA.

Aside from renegotiating old deals, the administration has also promised to launch new ones. However, very little progress has been made on this front in 2017, and it is unclear what countries we would be sitting down at the table with.

The Trans Pacific Partnership, which the president withdrew from early last year, is moving along without the U.S. and is a major lost opportunity to expand access to Asian markets and to contribute to the new rules of modern trade agreements. (Even though Trump just raised the possibility of rejoining the TPP, this sudden change of heart should be approached with caution.)

Overall, while the tone of both the president’s address and the content of the factsheet on trade appear subdued, we should remain vigilant about possible trade actions and continue to make the case for more trade liberalization. Sometimes what is more important is not what is said, but rather what goes unsaid. President Trump’s state of the union was striking for one major omission–an acknowledgment of the benefits of free exchange and U.S. leadership in the international economy. This is particularly notable due to fact that increasing skepticism towards international trade is coming from the Republican Party, which used to stand more vociferously for freedom over protectionism. The history of U.S. trade policy reveals that protectionism has consistently failed to promote U.S. interests, and it would be unfortunate if past mistakes are repeated. Let’s hope that the president’s more cautious tone towards trade indicates a softening stance.

Writing in the pages of USA Today last week, Senator Elizabeth Warren (D-Massachusetts) criticized President Trump for taking insufficient action to arrest the flow of jobs from U.S. factories to foreign countries such as Mexico. Labeling Trump the “King of Offshoring,” Sen. Warren called for U.S. negotiators participating in the renegotiation of the North American Free Trade Agreement to take “bold actions that will stop the offshoring of American jobs.”

That would be a mistake. In fact, outsourcing helps to boost productivity—the art of doing more with less—which is the sine qua non of improvements in living standards.

Although it is perhaps understandable when casual observers are seduced by the notion that the outsourcing of jobs to overseas locales is a sign of weakness, more should be expected of a sitting United States senator. In fact, both theory and experience teach us that foreign outsourcing helps promote economic vitality in a variety of ways.

Cheaper goods: By shifting production overseas companies can reduce the cost of production, which—assuming a competitive marketplace—will translate into lower prices for consumers. This is a particular boon to the working families Sen. Warren repeatedly invokes in her op-ed, who tend to spend a greater percentage of their income on imported non-durable items such as clothing.

Improved competitiveness: Beyond benefits to consumers, cost reductions also help improve the competitive position of U.S. companies and ensure they will survive and thrive versus rival firms.

New jobs: While the jobs lost via outsourcing understandably receive considerable attention, an all too often unseen aspect of this process is that the money saved both by firms and consumers frees up resources to be either spent or invested, supporting yet other types of jobs.

Better jobs: By finding ways to lower costs and sell the goods they produce more cheaply, companies can boost sales and firm growth. This, along with money saved through outsourcing that is reinvested in the firm, leads to more jobs in areas such as design, research, marketing, finance, and management which typically feature better compensation than those found on the factory floor.

Increased exports: Overseas job creation helps provide much-needed growth in relatively poorer countries such as Mexico. This, in turn, leads to increased demand for higher-end goods produced in the United States which range from Hollywood movies to financial products to Boeing aircraft. In addition, supply chain linkages resulting from outsourcing help drive exports. The largest truck factory of U.S.-headquartered firm Navistar, for example, is in Mexico, but the engines—which by themselves can account for up to 45 percent of the truck’s cost—are made in Alabama. Wrangler jeans, meanwhile, has shifted its production away from the United States but over 70 percent of the material in its Mexico-made products comes from American companies.

Representing Massachusetts, Sen. Warren should be well-versed in the benefits of foreign outsourcing. The state, after all, is the former home of a vibrant textile industry which has long since decamped in search of cheaper labor and other costs, first to the American South and then later on to places such as Central America, China, and Southeast Asia. While this no doubt resulted in some painful adjustments, Massachusetts has long since adapted and today features a vibrant economy with an unemployment rate well under 4 percent and numerous companies in such sectors as technology, medical devices, and financial services. Indeed, some of the state’s former textile mills have been converted into high-end condominiums which house some of the workers now employed in these industries. 

It should also be noted, however, that while public policy should not seek to halt outsourcing, neither should it be actively encouraged through unreasonable taxation or regulations which unnecessarily drive away companies from U.S. shores. Indeed, to the extent outsourcing requires a legislative solution it is through the adoption of market-friendly policies which both encourage investment in the United States and ensure a dynamic job market so that the losers from outsourcing can more easily find new sources of employment.

Even the most ideal policy environment, however, will not prevent all jobs from being outsourced. Nor should we want them to. Instead of swimming against this tide Sen. Warren and her fellow legislators should focus their energies on creating a policy environment in which commerce can thrive and create the jobs of tomorrow instead of a misguided effort to preserve those of yesterday.

In his State of the Union speech, President Trump failed to mention one important phenomenon that occurred under his watch last year. Except for one other year, 2017 saw the fewest illegal border crossings since World War II. While he has often bragged about this in other settings, it is possible that his advisors left it out of his speech because it clearly downplays any urgency to build a massive wall or send in reinforcements for Border Patrol. 

In any case, he was right not to brag about it: 98.8 percent of the decline in illegal entries from 1986 to 2017 occurred entirely before Trump’s inauguration. While his year in office has continued a preexisting downward trend, his campaign rhetoric appears to have caused a pre-inauguration surge in arrivals. His overall effect is essentially zero.

Illegal crossings are naturally difficult to count, but researchers use Border Patrol apprehensions as an indirect measure of the number of attempts to cross. All else equal, more crossers results in more apprehensions. While apprehensions could also rise due to increased agents rather than increased crossers, researchers control for this effect by looking at the number of apprehensions per agent.

Figure 1 shows the number of apprehension per Border Patrol agent from the 1920s through the end of Fiscal Year 2017 (September 2017). As it shows, illegal entries were a significant issue in the early 1950s and again from 1970 to 2000, but since 2001, and particularly since 2009, illegal immigration has slowed to trickle. In 1986, each Border Patrol agent apprehended nearly 530 people—44 people per month. By the end of 2017, that number had dropped to just 16, barely more than one arrest for each per month.

Figure 1: Annual Apprehensions Per Border Patrol Agent, FY 1925 to 2017

Sources: Agents: INS; TRAC; CBP; Apprehensions: CBP

Zooming in on just the last 17 years of monthly apprehension data shows that illegal immigration is currently slightly above the downward exponential trend line (the trend is the dotted red line in Figure 2). President Trump can only claim at most the trend continued during his time in office.

Figure 2: Monthly Southwest Apprehensions Per Border Patrol Agent From October 1999 to December 2017

Sources: Apprehensions FY 2000-16: Border Patrol; Apprehensions FY 2017-18: Border Patrol; Border Patrol Staffing: Border Patrol

Focusing on only the Obama and Trump months in office does reveal some interesting anomalies (Figure 3). Every year prior to FY 2016 going back to at least 2000, flows peaked in the spring and fell through the fall and winter. In the fall of 2015, however, as Trump rose to the top spot among Republican presidential contenders, the flow continued and peaked in December. In 2016, the flow had its usual spring surge, but then after the GOP officially nominated him, border crossers responded with an uncharacteristic winter rush.

Figure 3: Monthly Southwest Apprehensions Per Border Patrol Agent From January 2009 to December 2017

Sources: Apprehensions FY 2000-16: Border Patrol; Apprehensions FY 2017-18: Border Patrol; Border Patrol Staffing: Border Patrol

Clearly, the fear that the Trump administration would make changes incentivized a pre-inauguration increase in illegal immigration. Immigrants moved up their travel plans and left before he assumed office. This resulted in a post-inauguration decrease in illegal immigration. Back in August when I first proposed this theory with data only through June 2017, I hypothesized that if it were true, the apprehensions would return to trend by the end of the year. As Figure 3 shows, they have.

In other words, President Trump has had zero effect on net illegal immigration. His campaign rhetoric caused a pre-inauguration boom and post-inauguration bust, but his overall impact has not affected the trend at all. The decades-long downward movement in apprehensions has continued, but President Trump’s policies have had nothing to do with it.

Even if his current policies did matter, however, it would demonstrate that Border Patrol can effectively manage illegal immigration without an unnecessary, wasteful monstrosity spanning 2,000 miles of the U.S.-Mexico border. 

The en banc D.C. Circuit ruling was disappointing but not unexpected given the government-sympathetic lean of the court. The director of the CFPB reports to no one but himself, and, under the terms of Dodd-Frank, can be removed by the president only for cause. (Judge Griffith in concurrence understands that provision to include firing based on policy disagreement, but there’s no way that this view could command a majority of the court if that eventuality ever happened.) 

As Cato argued in our brief, this structure violates core principles of separation of powers and allows the agency to exist unfettered by any accountability to the people. These constitutional problems would be reason enough to fear the CFPB, but they’re not merely academic. The way Director Richard Cordray wielded his considerable authority demonstrates just how important these checks are, but the fact that he’s been by replaced Mick Mulvaney—whose actions thus far are more to my policy liking—doesn’t change the constitutional calculus. 

The Supreme Court should now take up PHH v. CFPB, as it has the structural challenge to the SEC’s administrative law judges in the Lucia case, and find that the Constitution cannot countenance this fifth branch of government (or is it sixth or seventh? I’ve lost count).

Remember America’s crumbling infrastructure that supposedly needs trillions of dollars for maintenance and rehabilitation? President Trump doesn’t. Instead, the seven sentences in his State of the Union speech that focused on infrastructure talked about building “gleaming new” projects rather than fixing existing systems. 

The only news is that he is upping the ante from $1.0 trillion to “at least $1.5 trillion.” More disturbingly, other than mentioning an “infrastructure deficit” – which could just as easily be interpreted to mean a shortage of new infrastructure as a deficit in maintenance – Trump said nothing about fixing existing infrastructure. Instead, he wants to “build gleaming new roads, bridges, highways, railways, and waterways.”

Why? We have plenty of railways. Though the railroads have trimmed the nation’s rail mileage by 45 percent since 1916, they move more freight than ever and seem to be quite capable of adding capacity where they need it without government help. High-speed trains, meanwhile, are pointless when we have planes that can go twice as fast and don’t require hundreds of billions of dollars of supporting infrastructure.

Nor do we need more interior waterways. The ones we have are government subsidized and paralleled by railroads that could easily replace them if subsidies ended tomorrow (as they should). Fixing the Jones Act to allow low-cost shipping to Alaska, Hawaii, and Puerto Rico is more important than adding new waterways in the contiguous 48 states.

Our state and interstate highways and bridges are actually in better shape than ever. City and county roads aren’t doing as well and many urban roads are heavily congested, but these are local problems, not federal ones. They are best handled by fixing the system of user fees that should pay for them, such as by Oregon’s experiment with mileage-based user fees (in which I am a participant). More federal funding would only allow the states to delay making those changes.

Finally, our transit systems – especially the most important ones in New York, Chicago, Washington, Boston, and the San Francisco Bay Area – are suffering from overspending on gleaming new transit lines and neglect of the existing ones. More new lines will only make that problem worse.

In short, President Trump has fallen for the politician’s fallacy of preferring ribbons over brooms – that is, building new infrastructure rather than maintaining the old. This is underscored by a leaked infrastructure plan that outlines seven different initiatives and programs, none of which is focused on repairing or rehabilitating America’s existing infrastructure.

This country may need some new infrastructure, but mainly it needs to better utilize and take care of the infrastructure it already has. Since politicians seem to be incapable of doing that, and since user-fee-funded infrastructure tends to be far better managed and maintained than politically funded infrastructure, Congress should focus on returning as much infrastructure as possible to funding systems that rely on user fees, not taxes.

Zoning regulations and occupational licensing aren’t the only regulations with regressive impacts. A new study circulated by National Bureau of Economic Research (NBER) suggests building energy codes hurt the poor, too. The NBER report focuses on California, but most states adopted statewide building energy codes decades ago. As a result, regressive impacts may be widespread.

Building energy codes regulate a home’s energy footprint, and they are often justified by concerns about energy-related environmental externalities. But well-intentioned objectives don’t insulate the public from trade-offs.

The NBER study looks at impacts on home characteristics, energy use, and housing prices. In all three categories, the impact of residential energy codes is negative for those in the lowest income quintiles.

For example, stricter energy codes were associated with a decline in home values for low-income households of 8-12 percent. Stricter codes reduced the number of bedrooms and square footage of homes in the lowest income households by 4-6 percent. On the other hand, home values increased and changes to square footage and number of bedrooms were minimal for wealthier households.

For some environmental advocates, the distributional consequences may still be justified if energy codes reduced energy use. But the authors state there is “debate about the extent to which building energy codes reduce energy use at all.” The study finds no signficiant reduction in energy use per square foot, although it does find energy reduction on a per-dwelling basis but only in the second lowest-income quintile. 

This suggests energy codes do not meet even their own stated objectives. Energy codes provide another example of how various political objectives – including protecting the environment – unavoidably require trade-offs. Often the costs of regulation are borne by the poor.    

In his State of the Union address last night, President Trump said that one of his “greatest priorities” is to reduce the price of prescription drugs. “In many other countries,” he said, “these drugs cost far less than what we pay in the United States.” Alluding thus to the “drug reimportation” issue, he added that he had directed his administration “to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.” That won’t be easy.

Back in 2004, when Congress took up the idea of lifting the ban in place on importing lower-priced drugs from abroad, I wrote a long, complex Cato Policy Analysis on the issues at stake, urging, as the subtitle said, “The Free Market Solution.” Unfortunately, three years later, when the Senate finally acted, the bill was anything but a free market solution. In fact, it amounted to importing foreign price controls, as I explained in a piece in the Wall Street Journal. Fortunately, the bill died, but in the face of state efforts along the same lines in 2013, I wrote this time at Cato@Liberty, explaining why the “simple” solution of lifting the ban would not work. Drawing from that post, here’s why, in a nutshell. (See the Policy Analysis for the complex details.)

Given the Food and Drug Administration’s safety and efficacy standards, it takes 12 to 15 years and upwards of a billion dollars to bring a new drug to market, but only pennies a pill to manufacture it thereafter. Obviously, drug companies need strong patent protection or they’d never undertake that research and development.

But when they go to market a new drug, they find a relatively free market only in America. Everywhere else they face socialized medical systems and strict price controls, so they segment markets and price their drugs differentially, garnering such profits as they can from each market. Naturally, therefore, they have to guard against “parallel markets”—vendors in low-price markets reselling the drugs (at a profit) in high-price markets, especially when supply limitations and no-resale contracts are legally suspect. That’s where the reimportation ban comes in. If low-price drugs sold abroad flood the American market, displacing higher-priced domestic drugs, there go the profits—and there goes the R&D needed to discover new drugs.

Naturally, Americans resent having to subsidize the rest of the world, in effect, which is why letting them import cheap drugs from abroad plays so well politically. But we’re faced here with a Hobson’s Choice—which I’ve only sketched in this post. As I said, it’s a complex issue, involving treaty arrangements, patent law, and much more, rooted ultimately in the socialized medical systems we find abroad, toward which, alas, we ourselves are moving. In fact, the ultimate aim of many of the reimportation proponents is to have the federal government subsidize, if not do, the R&D needed to bring new drugs on line. Talk about bad medicine.

The market approach to this problem that I originally proposed would have to allow drug companies to protect themselves through contractual arrangements that limited supplies and policed parallel markets. That may not be the only solution to this problem, however. In fact, Cato adjunct scholar Dr. David Hyman and attorney Charles Silver have a book coming this spring from Cato entitled Overcharged: Why Americans Pay Too Much for Health Care in which they propose, if anything, an even more complex “prize regime” to reduce drug costs. It’s a clever proposal that addresses even the orphan drug problem, but because it would involve both changes to our patent system and a measure of public funding, the authors grant that it faces a steep uphill battle.

As a political matter, therefore, the more likely approach will be the one we’ve seen from time to time that simply lifts the ban and includes a few other touches. If so, members will need to think it through carefully. The current arrangements did not come about by accident. But it’s hardly a stretch to say that the administration and Congress could make things worse.

 

Residents of Berkeley, California are a little bit scared about potential radio-frequency exposure from cellphones. Despite the FCC’s conclusion that there’s “no scientific evidence” linking “wireless device use and cancer or other illnesses,” the city mandated that any party buying or leasing cellphones communicate a specific message to every customer about radio-frequency exposure. Getting bad vibes from that requirement, CTIA (the wireless industry’s trade group) sued Berkeley for violating the First Amendment by compelling that speech.

It’s a cornerstone of First Amendment law that the right to speak necessarily entails the right to remain silent. This principle ensures the freedom of conscience and prevents citizens from being conscripted to serve as unwilling bullhorns for government communications. Likewise, it is a bedrock principle of First Amendment law—recently affirmed by the Supreme Court—that content-based restrictions of speech must survive the strictest scrutiny to pass constitutional muster.

Unfortunately, these rules don’t apply with the same force to regulations of “commercial speech,” which the Supreme Court has ruled need not meet the same rigorous standards of review as other types of speech. In a 1985 case called Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, the Court went further and created an additional narrow exception. Zauderer allowed courts to apply less rigorous scrutiny when analyzing the constitutionality of disclosures of “purely factual and uncontroversial information” when mandated in an effort to combat misleading commercial speech. The Zauderer standard also requires that any disclosures not be “unduly burdensome” and be “reasonably related to the State’s interest in preventing deception of consumers.”  

In ruling against CTIA, the U.S. Court of Appeals for the Ninth Circuit further eroded that already lax standard of judicial review. Instead of requiring Berkeley to show a need to combat consumer deception – and how the mandated disclosure provision alleviates that need – the Ninth Circuit skipped right over Zauderer to find that compelling speech content posed no constitutional issues because mandated disclosures need only be reasonably related to “non-trivial” government purposes. This dangerous dilution would allow government entities to compel a nearly unending amount of speech on any number of controversial topics, even if the compelled script was itself misleading.  

CTIA is now petitioning the Supreme Court to review that flawed decision. The Cato Institute, joined by the Competitive Enterprise Institute and Cause of Action Institute, has filed an amicus brief supporting that petition.

This important area of law desperately needs clarification, particularly at a time when compelled-disclosure regimes have proliferated and some courts have distorted the already insufficient Zauderer standard beyond recognition. To remain faithful to the First Amendment and the Court’s jurisprudence on compelled speech and content-based speech regulations, courts should apply strict scrutiny – meaning the government needs a really good reason and can’t achieve its goal any other way – to review laws that force market participants to disparage their own products and participate in policy debates they wish to avoid.

The Supreme Court will decide whether to take up CTIA v. City of Berkeley later this winter or spring.

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