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The Cato 2017 Free Speech and Tolerance Survey, a new national poll of 2,300 U.S. adults, finds that 71% Americans believe that political correctness has silenced important discussions our society needs to have. The consequences are personal—58% of Americans believe the political climate prevents them from sharing their own political beliefs.

Democrats are unique, however, in that a slim majority (53%) do not feel the need to self-censor. Conversely, strong majorities of Republicans (73%) and independents (58%) say they keep some political beliefs to themselves.

Full survey results and report found here.

It follows that a solid majority (59%) of Americans think people should be allowed to express unpopular opinions in public, even those deeply offensive to others. On the other hand, 40% think government should prevent hate speech. Despite this, the survey also found Americans willing to censor, regulate, or punish a wide variety of speech and expression they personally find offensive:

  • 51% of staunch liberals say it’s “morally acceptable” to punch Nazis.
  • 53% of Republicans favor stripping U.S. citizenship from people who burn the American flag.
  • 51% of Democrats support a law that requires Americans use transgender people’s preferred gender pronouns.
  • 65% of Republicans say NFL players should be fired if they refuse to stand for the anthem.
  • 58% of Democrats say employers should punish employees for offensive Facebook posts.
  • 47% of Republicans favor bans on building new mosques.

Americans also can’t agree what speech is hateful, offensive, or simply a political opinion:

  • 59% of liberals say it’s hate speech to say transgender people have a mental disorder; only 17% of conservatives agree.
  • 39% of conservatives believe it’s hate speech to say the police are racist; only 17% of liberals agree.
  • 80% of liberals say it’s hateful or offensive to say illegal immigrants should be deported; only 36% of conservatives agree.
  • 87% of liberals say it’s hateful or offensive to say women shouldn’t fight in military combat roles, while 47% of conservatives agree.
  • 90% of liberals say it’s hateful or offensive to say homosexuality is a sin, while 47% of conservatives agree. 

Americans Oppose Hate Speech Bans, But Say Hate Speech is Morally Unacceptable

Although Americans oppose (59%) outright bans on public hate speech, that doesn’t mean they think hate speech is acceptable. An overwhelming majority (79%) say it’s “morally unacceptable” to say offensive things about racial or religious groups. 

Black, Hispanic, and White Americans Disagree about How Free Speech Operates

African Americans and Hispanics are more likely than white Americans to believe:

  • Free speech does more to protect majority opinions, not minority viewpoints (59%, 49%, 34%).
  • Supporting someone’s right to say racist things is as bad as holding racist views yourself (65%, 61%, 34%).
  • People who don’t respect others don’t deserve the right of free speech (59%, 62%, 36%).
  • Hate speech is an act of violence (75%, 72%, 46%).
  • Our society can prohibit hate speech and still protect free speech (69%, 71%, 49%).
  • People usually have bad intentions when they express offensive opinions (70%, 75%, 52%).

However, black, Hispanic, and white Americans agree that free speech ensures the truth will ultimately prevail (68%, 70%, 66%). Majorities also agree that it would be difficult to ban hate speech since people can’t agree what hate speech is (59%, 77%, 87%).

Two-Thirds Say Colleges Aren’t Doing Enough to Teach the Value of Free Speech

Two-thirds of Americans (66%) say colleges and universities aren’t doing enough to teach young Americans today about the value of free speech. When asked which is more important, 65% say colleges should expose students to “all types of viewpoints even if they are offensive or biased against certain groups.” About a third (34%) say colleges should “prohibit offensive speech that is biased against certain groups.” 

But Americans are conflicted. Despite their desire for viewpoint diversity, a slim majority (53%) also agree that “colleges have an obligation to protect students from offensive speech and ideas that could create a difficult learning environment.” This share rises to 66% among Democrats; 57% of Republicans disagree.

76% Say Students Shutting Down Offensive Speakers Reveals “Broader Pattern” of How Students Cope

More than three-fourths (76%) of Americans say that recent campus protests and cancellations of controversial speakers are part of a “broader pattern” of how college students deal with offensive ideas. About a quarter (22%) think these protests and shutdowns are simply isolated incidents.

However, when asked about specific speakers, about half of Americans with college experience think a wide variety should not be allowed to speak at their college:

  • A speaker who says that all white people are racist (51%)
  • A speaker who says Muslims shouldn’t be allowed to come to the U.S. (50%)
  • A speaker who says that transgender people have a mental disorder (50%)
  • A speaker who publicly criticizes and disrespects the police (49%)
  • A speaker who says all Christians are backwards and brainwashed (49%)
  • A speaker who says the average IQ of whites and Asians is higher than African Americans and Hispanics (48%)
  • A speaker who says the police are justified in stopping African Americans at higher rates than other groups (48%)
  • A speaker who says all illegal immigrants should be deported (41%)
  • A speaker who says men on average are better at math than women (40%)

Nevertheless, few endorse shutting down speakers by shouting loudly (4%) or forcing the speaker off the stage (3%). Current college and graduate students aren’t much different; only about 7% support forcibly shutting down offensive speakers.

65% Say Colleges Should Discipline Students Who Shut Down Invited Campus Speakers

Two-thirds (65%) say colleges need to discipline students who disrupt invited speakers and prevent them from speaking. However, the public is divided about how: 46% want to give students a warning, 31% want the incident noted on the student’s academic record, 22% want them to pay a fine, 20% want to suspend them, 19% favor arresting the students, 13% want to fully expel the students. Three-fourths (75%) of Republicans support some form of punishment for these students, compared to 42% of Democrats.

People of Color Don’t Find Most Microaggressions Offensive

The survey finds that many microaggressions colleges and universities advise faculty and students to avoid aren’t considered offensive by most people of color. The percentage of African Americans and Latinos who say these microaggressions are not offensive are as follows:

  • Telling a recent immigrant: “You speak good English” Black: 67% Latino: 77%
  • Telling a racial minority: “You are so articulate” Black: 56% Latino: 63%
  • Saying “I don’t notice people’s race” Black: 71% Latino: 80%
  • Saying “America is a melting pot” Black: 77% Latino: 70%
  • Saying “Everyone can succeed in this society if they work hard enough.” Black: 77% Latino: 89%
  • Saying “America is the land of opportunity” Black: 93% Latino: 89%

The one microaggression that African Americans (68%) agree is offensive is telling a racial minority “you are a credit to your race.”

Americans Don’t Think Colleges Need to Advise Students on Halloween Costumes

Nearly two-thirds (65%) say colleges shouldn’t advise students about offensive Halloween costumes and should instead let students work it out on their own. A third (33%) think it is the responsibility of the university to remind students not to wear costumes that stereotype racial or ethnic groups at off-campus parties.

20% of Current Students Say College Faculty Has Balanced Mix of Political Views

Only 20% of current college and graduate students believe their college or university faculty has a balanced mix of political views. A plurality (39%) say most college and university professors are liberal, 27% believe most are politically moderate, and 12% believe most are conservative.

Democratic and Republican students see their college campuses differently. A majority (59%) of Republican college students believe that most faculty members are liberal. In contrast, only 35% of Democratic college students agree most professors are liberal.

What Beliefs Should Get People Fired?

Americans tend to oppose firing people for their beliefs. Nevertheless, Democrats are more likely than Republicans to say a business executive should be fired if she or he believes transgender people have a mental disorder (44% vs 14%), that homosexuality is a sin (32% vs 10%), and that psychological differences help explain why there are more male than female engineers (34% vs. 14%). Conversely, Republicans are more likely than Democrats to say a business executive should be fired if they burned the American flag at a weekend political protest (54% vs. 38%).

Republicans Say Journalists Are an Enemy of the American People

A majority (63%) of Republicans agree with President Trump that journalists today are an “enemy of the American people.” Conversely, most Americans (64%), as well as 89% of Democrats and 61% of independents, do not view journalists as the enemy.

These results aren’t surprising given that most Americans believe many major news outlets have a liberal bias, including The New York Times (52%), CNN (50%), and MSNBC (59%).  Fox is the one news station in which a majority (56%) believe it has a conservative bias.

Democrats, however, believe most major news organizations are balanced in their reporting including The New York Times (55%), CNN (55%), and CBS (72%). A plurality (44%) also believe the Wall Street Journal is balanced. The two exceptions are that a plurality (47%) believe MSNBC has a liberal tilt and a strong majority (71%) say Fox has a conservative bias.

Republicans, on the other hand, see things differently. Overwhelming majorities believe liberal bias colors reporting at The New York Times (80%), CNN (81%), CBS (73%), and MSNBC (80%). A plurality also feel the Wall Street Journal (48%) has a liberal bias. One exception is that a plurality (44%) believe Fox News has a conservative bias, while 41% believe it provides unbiased reporting.

Despite perceptions of bias, only 29% of the public want the government to prevent media outlets from publishing a story that government officials say is biased or inaccurate. Instead, a strong majority (70%) say government should not have the power to stop such news stories.

Americans Say Wedding Businesses Should Be Required to Serve LGBT People, Not Weddings

The public distinguishes between a business serving people and servicing weddings:

  • A plurality (50%) of Americans say that businesses should be required to “provide services to gay and lesbian people,” even if doing so violates the business owners’ religious beliefs.
  • But, 68% say a baker should not be required to provide a special-order wedding cake for a same-sex wedding if doing so violates their religious convictions.

Few support punishing wedding businesses who refuse service to same-sex weddings. Two-thirds (66%) say nothing should happen to a bakery which refuses to bake a cake for a same-sex wedding. A fifth (20%) would boycott the bakery, another 22% think government should sanction the bakery in some way, such as fining the bakery (12%), requiring an apology (10%), issuing a warning (8%), taking away their business license (6%), or sending the baker to jail (1%).

Clinton Voters Can’t Be Friends with Trump Voters

Nearly two-thirds (61%) of Hillary Clinton’s voters agree that it’s “hard” to be friends with Donald Trump’s voters. However, only 34% of Trump’s voters feel the same way about Clinton’s. Instead, nearly two-thirds (64%) of Trump voters don’t think it’s hard to be friends with Clinton voters.

Sign up here to receive forthcoming Cato Institute survey reports

The Cato Institute 2017 Free Speech and Tolerance Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online August 15-23, 2017 from a national sample of 2,300 Americans 18 years of age and older. The margin of error for the survey is +/- 3.00 percentage points at the 95% level of confidence.

Many Americans want immigrants to “get in line.” But they cannot do so on their own. They need to get a sponsor, either a U.S. citizen family member or a U.S. employer, to petition the government to grant them permanent residency (a “green card”). Even if immigrants do obtain sponsors, there isn’t just one line to get into. Rather, immigrants have separate lines based on the type of sponsorship and their country of origin, and these lines all move at different speeds. Even two immigrants working in essentially the same position whose employer petitions for them on the same day can end up receiving their green cards decades apart if they were born different places.

How America still discriminates based on nationality

This bizarre fact is a consequence of the racist history of U.S. immigration law. In 1921, Congress created the first quota on legal immigration (the “worldwide limit” ). Three years later, it created limits for individual nationalities (the “per-country limits”). The per-country limits give each nationality a share of the worldwide limit. If nationals of a certain country use up their share of the green cards, they have to wait, and immigrants from other countries get to skip ahead of them in line. (And no, Congress made sure that immigrants can’t evade the per-country quotas by getting citizenship somewhere else. Birthplace is all that matters.)

Initially, the per-country limits openly discriminated against “undesirable” immigrants, defined as Asians, Africans, and Eastern Europeans (mostly Jews). But in 1965, Congress made the per-country limits uniform across countries. Today, no country can receive more than 7 percent of the worldwide limit in any green card category. But this reform just shifted the discrimination toward nationalities with the highest demand for green cards. The goal here was not any less racist. The debates over the law abounded with “liberals” reassuring conservatives that America wouldn’t be flooded with Asians.

In order to apply for a green card, green cards must be available under both the worldwide limit and the per-country limit for the relevant category. After their sponsors petition for them to receive a green card, immigrants wait in line to apply for the green card themselves. The State Department releases a green card bulletin every month to inform immigrants of which ones can apply that month. Immigrants whose sponsor petitioned for them before a certain date—called the “priority date”—can apply. Everyone else must continue to wait.

Right now, for example, Filipinos can apply for a green card this month if their U.S. citizen siblings petitioned for them before June 8, 1994—23 years ago. But here’s the critical point: this “priority date” tells Filipinos nothing about how long they will have to wait if their sibling petitioned for them today. If a lot fewer U.S. citizens applied for Filipino siblings after June 8, 1994, they might be able to receive their green cards a decade or more sooner than those receiving them today. However, if the number of petitions increased, then the wait could be even longer—maybe decades longer.

For example, the priority date for Filipino siblings of U.S. citizens in June 1994—when those who are today receiving their green cards started the process—was June 1977. In other words, Filipino siblings filing green card applications in June 1994 had waited from 1977 to 1994. The U.S. citizen who filed an immigrant petition on June 8, 1994 may have looked at the green card bulletin and thought his Filipino sibling would have to wait “only” 17 years. In fact, he had to wait 23.

How green card time moves backwards

To know when an immigrant entering the process today will receive a visa, the government would need to know the number of petitions filed in each year under each green card category, the nationality of the beneficiary of each petition, and the nationalities of any spouses and children of the petition beneficiary.

A precise estimate is impossible because some applicants abandon their petitions, apply sometime after their priority date comes up, have additional children, get married, become ineligible, etc. But one would think that the government would attempt to track the basic information carefully, so it could give at least a decent estimate of the future wait times. But being the government, it naturally doesn’t, so whenever the State Department moves up the “priority date,” it essentially guesses how many people more will apply. If the State Department guesses wrong, it realizes its mistake and moves the priority date back in time. In other words, green card waiting time doesn’t move linearly like real time does. It stops, starts, and even runs in reverse. The government calls movement backward a “retrogression.” 

Figure 1 below highlights how priority dates move in the green card backlog for Indian college graduates sponsored by U.S. employers under the employment-based third preference category. When priority dates move ahead in time, the orange line goes up. When they move back in time, it goes down. When the priority date is the same as the current date for multiple months, it goes in a straight line at about a 45-degree angle, progressing steadily upward with each month. As Figure 1 shows, from October 2002 through December 2004, priority dates were current.

Immigrants who were the beneficiary of a green card in December 2004 would have thought, if they had looked only at the priority date, that they would receive their visa almost immediately. In fact, they had to wait more than a decade—until September 2015 to apply. Then, when they finally did apply, the priority immediately retrogressed again. When this happens, the government sets their applications aside until the date becomes current again. Since December 2004, there have been seven significant retrogressions and several other smaller ones.

Figure 1
Priority Dates for Employment-Based (EB-3) Immigrants from India, October 2002 to November 2017

Source: U.S. Department of State

The big retrogression in 2005—when the priority date moved back to 1998—isn’t quite as meaningful as it appears. The State Department moved the dates back that far just to prevent anyone from applying. It’s not that the wait really grew quite that much. (If you want to know why the big jump happened, skip to this endnote.[1]) In any case, starting from March 2006—right after the big dip where Figure 1 shows “1-Jan-01”—green card time moved about half as fast as actual time. Priority dates have advanced five years and ten months, while actual time moved forward 11 years in eight months. Figure 2 shows the wait for Indian immigrants to apply more than doubled from 5 years to 11 years, while waits for all other immigrants (excluding China, Philippines, and Mexico) have disappeared.

Figure 2
How Long Applicants Had to Wait to Apply for Green Cards from India and Elsewhere*, October 2002 to November 2017

Source: U.S. Department of State
*Excluding China, Philippines, and Mexico

Wait times are actually longer than Figure 2 shows. Figure 2 only shows the wait to apply, not to receive an approval. As I mentioned before, when the State Department moves the dates forward, and more applicants apply than there are slots available, their applications are held in abeyance until numbers are available again. This post-application waiting period still happens today. In fact, nearly 140,000 immigrants are waiting at this stage in the employment-based categories, and more than a third of them are Indians. It will take several years to clear just these cases from the backlog.

So how long will Indian immigrant workers have to wait going forward? Again, no one really knows for certain. In 2012, Stuart Anderson of the National Foundation for American Policy estimated 70 years. In 2014, the government estimated that 234,000 high skilled workers were waiting to apply for green cards. The family of the workers, however, use up a little more than half of the green card quotas, so there are probably now roughly half a million green card holders in line.

For the two employment-based categories with the longest waits, Indians can only receive 5,600 green cards (out of 80,000). We would need to know what share of those in line are Indian and what share are waiting in which of the employment-based categories to provide a good estimate of the wait for immigrants applying today. This information isn’t available. But if even half of these workers are Indians in the EB-3 category—which seems very likely given how much longer Indians in this category have already been waiting than other nationalities—then their wait would be about a century.

In other words, it’s possible that almost all of the Indian workers applying today will die before they receive permanent residency, while other immigrant workers will receive their green cards almost right away. This is the system that Congress refuses to reform.

[1] Two factors apparently combined to slam the breaks on Indian workers—and everyone else in the EB-3 green card category—in 2005. First, Congress passed a law at the start of FY 2001 that eliminated the backlog temporarily in 2003 and 2004. The law waived the per-country limits in situations where the worldwide limit for the category otherwise would not be filled, and it temporarily increased the number of green cards by recapturing visas that went unused in 1999 and 2000 (unused visas are a crazy topic for another post).

At the very same time, Congress created a new agency—U.S. Citizenship and Immigration Services (USCIS)—to adjudicate green card applications from temporary workers in the United States, and it was developing new procedures to adjudicate applications. Even though the State Department kept telling immigrants that they could apply, USCIS wasn’t processing them quickly enough. This led to a growing backlog in green card applications. Once USCIS instituted measures to catch up, the State Department realized that it let far too many applicants apply and slammed on the breaks. These applications are then held in abeyance.

“The FCC said in a notice it was removing ‘outmoded regulations’ on telegraphs effective in November.” And none too soon: “The last Western Union telegram in the United States was sent in 2006” and the “last major telegram service worldwide ended in India in 2013.” Reuters reports:

AT&T Inc, originally known as the American Telephone and Telegraph Company, in 2013 lamented the FCC’s failure to formally stop enforcing some telegraph rules.

“Regulations have a tendency to persist long after they outlived any usefulness and it takes real focus and effort to ultimately remove them from the books even when everyone agrees that it is the common sense thing to do,” the company said.

In 2011, I observed that Connecticut had yet to get around to repealing old state laws like those regulating the working conditions of telegraph messengers (cross-posted and adapted from Overlawyered).

Does the federal government enjoy plenary power to regulate every aspect of corporeal existence, down to the rodents living in your backyard? People for the Ethical Treatment of Property Owners (PETPO), an organization of concerned citizens from Utah, say no, and want the Supreme Court to hear them out.

Article I of the Constitution lists the federal legislative powers: Congress may only act pursuant to one of these enumerated powers. One of these powers is the regulation of commerce “among the several states.” Starting with the New Deal, however, Congress has increasingly looked upon that power as a license to do whatever it likes. And for decades, the courts rubber-stamped these increasingly expansive federal intrusions into areas traditionally reserved to the states.

But in a series of cases, starting with 1995’s United States v. Lopez, the Supreme Court began to push back, reaffirming that federal regulation under the Commerce Clause must be, well, commercial. Recall that while Chief Justice John Roberts ultimately saved Obamacare by transmogrifying the individual mandate into a tax, he and the Court majority rejected the government’s arguments regarding the Commerce and Necessary and Proper Clauses.

That brings us to the current case. The Utah prairie dog, which resides only within a small corner of southwest Utah, has no commercial value: there is no market for it—they make terrible pets—or any product made from it. Moreover, the current population is large and expanding. Yet it is listed as “threatened” under the federal Endangered Species Act.

Its legal status derives from the distribution of its population: the government deems the 70% residing on private land a nullity, counting only the federal-land population, on the theory that the citizens of Utah would declare open-hunting on privately domiciled prairie dogs if the species were delisted. And, according to the U.S. Court of Appeals for the 10th Circuit, it doesn’t matter that the varmint is commercially worthless; other unrelated animals have commercial value, so the federal government can stick its nose into whichever animal it likes. Under this theory, of course, all organic life in the United States is subject to congressional whim, because some conjectural private party might impose some vaguely defined harm at some hypothetical future date.

PETPO has filed a petition asking the Supreme Court to review the case. Cato, joined by the Reason Foundation and the Individual Rights Foundation, has filed an amicus brief urging the Court to review PETPO v. U.S. Fish & Wildlife Service. At stake is not simply the beleaguered citizenry of Utah who wish to live their lives unmolested by pests—neither those living underground nor in the District of Columbia—but also the very system of enumerated powers that has protected the liberty of all Americans since the Founding.

Eric Asimov at the New York Times has an excellent, detailed, and highly discouraging look at the reversal of one of the favorable trends for freedom of commerce in recent years, the greater ease of interstate wine shipment.  Excerpt: 

In the last year or so, carriers like United Parcel Service and FedEx have told retailers that they will no longer accept out-of-state shipments of alcoholic beverages unless they are bound for one of 14 states (along with Washington, D.C.) that explicitly permit such interstate commerce….

Strictly speaking, it was probably never entirely legal in New York or in many other states to have wine shipped in from out-of-state retailers. Yet, these laws requiring a license for interstate wine shipments seemed vague and were rarely enforced….

But now, states — urged on by wine and spirits wholesalers who oppose any sort of interstate alcohol commerce that bypasses them — have stepped up enforcement efforts. Retailers say that the carriers began sending out letters to them a year ago saying they would no longer handle their shipments.

Asimov notes that the cost of restraints on commerce falls most heavily on those who live far from high-end markets: 

For consumers who live in states stocked with fine-wine retailers, like New York, the restrictions are an inconvenience. For consumers in states with few retail options, they are disastrous. It’s hard enough outside major metropolitan areas to find wines from small producers. The crackdown makes it that much harder.

Unfortunately, alcohol wholesalers are among the most powerful of state-level lobbies, and intent on keeping a system that serves their interests. They invoke far-fetched health and safety rationales, claiming that restraints on interstate shipment are “all that protects the wine and spirits business from descending into chaos. The Supreme Court did not buy the argument in 2005, and to me, their economic interest seems a far more likely motivation than public health,” writes Asimov.

The Supreme Court’s constitutional pronouncements in this area, alas, provide only spotty and indirect protection for consumers’ rights to do business with willing providers, concentrating instead on improper protectionism directed by states against other states. Ilya Shapiro analyzed the case law in this 2011 post and related podcast. Brandon Arnold, then Cato’s director of government affairs, wrote about a 2010 attempt by wholesalers to get their way through federal legislation. And while state-by-state liberalization efforts are underway in many state capitals, they are routinely stymied by the well-entrenched wholesaler lobby. For more background reading, the California-centric Wine Institute has this FAQ.

The Bitcoin system has the great virtue of securely sending value directly from stranger to stranger. It is open to anyone, anywhere in the world. The sender does not need to trust the recipient, nor any bank or other institution, to accurately record the transfer. The Bitcoin “blockchain” provides a readily consulted online public ledger with immutable records. Transfers are indelibly captured, like flies in amber, and made tamperproof by massive duplication and reconciliation of the ledger over thousands of nodes.

Bitcoin also has well-known limitations as a currency, however. First, it doesn’t scale well. The Bitcoin blockchain can process about four transactions per second, whereas Paypal does hundreds, Visa or Mastercard thousands. The blockchain has become congested as the number of transactions has grown. (Reducing the congestion was the motivation for the proposals to enlarge the block size that recently roiled the bitcoin world.) Validation takes at least ten minutes, longer for more secure validation, and even longer when the system is congested.

Cryptocurrency pioneer Nick Szabo has clearly explained that this tradeoff — high security at the cost of slow transaction speed and low capacity for transaction validations per second — is built into Bitcoin’s massive-duplication design:

Bitcoin’s automated integrity comes at high costs in its performance and resource usage. Nobody has discovered any way to greatly increase the computational scalability of the Bitcoin blockchain, for example its transaction throughput, and demonstrated that this improvement does not compromise Bitcoin’s security. … Compared to existing financial IT, Satoshi [Bitcoin’s pseudonymous designer] made radical tradeoffs in favor of security and against performance.

Thus a blockchain system like Bitcoin is not itself capable of quickly processing large numbers of retail payments.

Second, there is the network property of a monetary standard: each of us prefers to be paid in the currency accepted by the largest number of our potential trading partners. This property favors the incumbent standard (the fiat dollar in the US) over both bitcoin and gold. It reinforces the volatility drawback: when your rent and utility bills are denominated in dollars, it is risky to hold a bitcoin balance for the purpose of paying them.

Third, bitcoin’s purchasing power is for now highly volatile.  Broader holding of bitcoin as a medium of exchange would reduce volatility, but all three problems impede that.

These drawbacks have inspired initiatives to combine the benefits of blockchain technology with the use of gold-denominated tokens in place of bitcoin. Gold as a potential medium of exchange arguably has lesser limitations than bitcoin on all three scores. First, its payment processes scale well. Second, its value (in dollars or in purchasing power) is somewhat less volatile over daily to monthly horizons, and is much less volatile over longer horizons. Third, its popularity as an asset in private hands is greater. As of 15 October, 2017, total bitcoin balances are worth $92 billion, whereas worldwide private investment holdings of gold coins, bullion, and ETFs are estimated at $1.7 trillion. Gold holdings are more than 18 times larger; bitcoin holdings are less than 6% of gold in private hands.

Initial popularity matters for gaining widespread use in the face of an incumbent currency. Popular dollarization in Latin America and elsewhere gives us a model of how a non-incumbent currency gains a toehold and then spreads. Popular dollarization typically begins with the dollarization of savings, when the local peso becomes a less reliable long-term store of value than the dollar. Dollarization of pricing and payments spread when the peso inflation rate rises to double digits, requiring more frequent revision of peso prices, and imposing a high cost of holding pesos even from paycheck to paycheck.

Several about-to-launch new projects, described below, hope to create gold-based payment systems, while using some form of blockchain technology to enhance the security of holdings and transfers. If gold-backed accounts or digital gold currency tokens with cryptographically secured transfers are successfully launched, users will be able to adopt a modern gold standard as easily as they can now adopt the bitcoin standard.

Gold holding is already widespread as an investment (a saving and tail-risk-hedging) vehicle, as noted, but convenient gold payment mechanisms have been lacking. The enterprise called E-gold was a prototype — a service for individuals to buy, hold, and easily transfer gold account balances — until it was shut down by US authorities in 2005 for nonconformity with US Treasury “anti-money-laundering” and “know your customer” rules. The upcoming new enterprises all promise to comply with AML and KYC requirements for money service businesses.

A gold-denominated digital payment system will have to operate very differently from bitcoin (or any other cryptocurrency). For this reason it is highly misleading to call it “Cryptocurrency backed by gold” as one promotional article has.

A gold-backed account or digital token rests on a commitment to redemption at par, or a price commitment, by contrast to bitcoin’s commitment to the quantity in circulation. The payment processing system will also be different. It cannot be purely peer-to-peer because it requires a gold vault-keeper or equivalent trusted intermediary to maintain the price commitment. But the use of a single trusted limited-access ledger, rather than Bitcoin’s distributed trustless open ledger with its massive duplication in record-keeping, brings a large advantage in the speed and cheapness of payment processing.

Investment Platforms

The first three projects I will describe do not aim at providing a payment system so much as a low-cost platform for investing in gold. Think of them as would-be competitors to gold ETFs or to bullion warehousing services with easy conversions from and into US dollars, like GoldMoney. I will then turn to projects with more potential to generate a sizable payment system.

1. Royal Mint Gold

On its website, Royal Mint Gold (RMG®) calls itself “The New Digital Gold Standard.” This is misleading because, unlike a gold standard in the usual sense, it isn’t a payment system. It elsewhere more accurately calls itself “an investment product” and “a new, cost-effective, convenient and secure way to trade physical gold” with online access and distributed-ledger transparency.

RMG, which promises to come online before the end of 2017, offers much to interest gold investors. It partners The Royal Mint (hereafter TRM), owned by the UK government, with the Chicago Mercantile Exchange (CME). Both are venerable and credible. (There was talk about privatizing TRM in 2011, but it didn’t happen. As a state-owned enterprise, does TRM enjoy sovereign immunity against lawsuits? I don’t know.) TRM will manage the gold vault, and the CME Group will provide the trading platform for electronic warehouse claims to allocated gold in the vault. The RMG system promises that “For every RMG that’s on the network, there’s one gram of gold that’s sitting in our vault.” A proprietary blockchain will be used to record and track whose gold is in the Royal Mint vault. There will be “live, transparent pricing” on the CME trading platform.

To attract gold investors, RMG promises zero “ongoing” management and storage costs. The RMG webpage compares how value grows with the price of gold under its 0% fees, “giving an investment in RMG a projected higher return than physical gold” held in “a traditional gold ETF [that] is assumed to charge an average 0.4% annual storage and management fee.” But where, you might cynically wonder, do the revenues come from to cover TRM’s vault costs?

Here: You buy in at a premium over the spot price of gold (how high is not yet revealed), so TRM gets some float. (They promise to maintain the premium by buying back unwanted RMG as necessary.) You sell out for a transaction fee. You can cash out, and take physical delivery of gold, only in the form of “physical gold bars and coins produced by The Royal Mint,” for which there is a “fabrication and delivery” fee that is presumably large (not yet specified, and it is not clear whether it will be contractually fixed in advance.)

A system that runs on transaction fees even for internal transfers among account-holders discourages using its accounts as checking accounts.

How big does RMG hope to be? “The initial amount of RMG at launch could be up to $1 billion worth of gold. It will be offered through investment providers. Further RMG will then be issued based on market demand.” For perspective, gold ETFs added $2.3 billion on net in the second quarter of 2017.

To summarize, RMG is not a payment system or a currency, much less a cryptocurrency. It is a warehouse claim to gold in a specific vault. It will be salable to the extent that there are many bidders for claims to gold in that vault, but you can’t transfer it to another RMG holder at a zero transaction fee, like writing a check, the way you could with E-gold.

Incidentally, there are two London wholesale payment systems marrying gold to blockchain. A Bloomberg Markets article explains the business case:

About $27 billion of gold changes hands every day in over-the-counter markets where settlements can sometimes take days, leaving price risk for buyers and sellers. Using blockchain promises more transparency, security and speedier deals.

One project to provide this service is called Tradewind, supposed to launch in early 2018. Another is Bankchain Precious Metals. Tradewind promises to provide “a distributed ledger that will handle trade settlement, account management and record-keeping.” Bankchain Precious Metals promises “the instantaneous transfer of payments and ownership of the bullion stored in various vaults in London.”

2. OneGram

Launched in Dubai, OneGram offers a gold-backed (and Sharia-compliant) cryptoasset with blockchain features. Investors in OneGram will be shareholders in a vault full of gold, and will profit as and when the vault accumulates more gold per share.

Its white paper explains:

OneGram aims [at] using blockchain technology to create a new kind of cryptocurrency, where each coin is backed by one gram of gold at launch. In addition, each transaction of OneGram Coin (OGC) generates a small transaction fee which is reinvested in more gold (net of admin costs), thus increasing the amount of gold that backs each OneGram. Therefore, each OGC increases in real value over time, making OneGram unique among cryptocurrencies.

The vault will be located in the Dubai Airport Free Zone. OneGram promises that it will be audited by PricewaterhouseCoopers.

OneGram promotes its cryptoasset as a payment medium, declaring that the “payment institution license is already in place.” But transfers of OGC will be subject to a transaction fee of 1%. The promoters call the fee “small,” but it is high enough compared to ordinary deposit transfer to discourage using OGC as a payment medium.

How the price of gold will be continuously transmitted to the OGC cryptocoin is unclear, because it isn’t clear how the cryptocoin can be converted into the quantity of gold that it is supposed to represent. OneGram promises to have a “payment gateway” for OGC in Dubai and Abu Dhabi, “with fiat conversion.” But how conversion to fiat will be priced is not specified.

OneGram’s ICO (initial coin offering) ran from May 21 through September 4, 2017. It offered 12,400,786 coins, priced at the spot price of one gram of gold (which averaged around $41 during the period) plus 10%, for total revenue of about $550 million if all the coins sold. A  September 6 press release, which announced that the initial coin sale had ended, curiously omitted mention of the quantity of coins actually sold. It also announced that launch of the cryptocoin has been pushed back from October 2017 to “the first quarter of 2018 to ensure that we launch a solid and secure technology solution.”

Critically limiting the potential of OGC to become an important medium of exchange is the feature that no more OGC will be created even if new adopters want in: “100% of total coin supply is pre-mined.” This means that the size of OneGram payment community in value terms will at most grow only slowly with transaction fees, assuming that the price of OGC remains tied to the value of the gold in the vault.

3. OzCoinGold

Much like OneGram, the Australian/American project OzCoinGold promises a limited issue (in this case 100,000 troy ounces maximum, giving a potential market cap of only $128 million at the recent gold price of $1280 per ounce). As with OneGram, the quantity limit prevents widespread use as a medium of exchange. Each cryptoasset token, labelled OzGLD, will be “100% backed” by gold, but with two catches: only one-third of the gold reserves will be above ground as bullion (the other two-thirds will be the proven reserves of a gold mining company), and the tokens can be redeemed for gold only after five years. Audit reports will be uploaded to a blockchain. Accordingly the main sales pitch is as an investment vehicle: it hopes to be “the easiest, most effective and cheapest way to own or invest in gold.”

Payments Platforms

Moving on to gold-blockchain combinations better designed to be payment services, I consider four, beginning with those farthest from launch.

1. Digix Gold Tokens

Although its software is not yet fully coded, the developers of Digix gold tokens have at least spelled out their concept in detail. Digix is headquartered in London. As explained in a press release on Medium, Digix aims at “tokenizing valuable real-world assets” on the Ethereum blockchain. It “intends to be the first to launch a fully trackable and auditable crypto gold token.” A DGX 1 token “contains the right to 1 gram of gold that is stored in an audited vault.” As a claim to gold, like a transferable warehouse receipt, the token “can be easily traded or pledged against a loan without moving the physical gold” from its vault. Validity of ownership is certified through a “Proof of Asset protocol.”

What exactly does it mean to “tokenize” gold? Consider a universal open shared ledger, running on top of the Ethereum blockchain, that records ownership, and transfers of ownership, of a numbered 10g gold bar stored in a known vault. The gold bar has been “tokenized.” As with a unit of bitcoin, once I record a transfer of ownership to you on the blockchain, you can now further pass on the token, or redeem it, and I no longer can.

In other words, DGX is a spendable digital warehouse claim for gold, with ownership validation on the Ethereum blockchain. Of course, payment by transferring claims to vault gold without moving the gold is pretty old hat. Italian banks were doing it around 1200 AD. What’s new is that these claims are warehouse rather than debt claims, and transfers take place in currency-like fashion on the blockchain rather than by use of named account balances on the books of the depository.

The Digix sales pitch is both to gold investors, and to transactors who want to hold purchasing power in spendable cryptoasset form at least temporarily. Unlike unbacked IOU-nothing cryptocurrencies, DGX tokens are claims to physical gold expected to trade at a price tied to the price of physical gold. Gold exhibits less purchasing power volatility than BTC or ETH.

But if reduced volatility of purchasing power is what you want, why not hold the cryptoasset Tether, the price of which has been held fairly steady (so far) at $1? Some people don’t trust Tether. Tether claims to have 100% dollar reserves parked in audited accounts in licensed banks, but it lacks full transparency and there has been controversy over its terms of service. Digix promises greater transparency: warehousing of gold in vaults that are certified members of LMBA, the London Metal Bullion Association, with “Realtime Transparency; immutable on-chain auditing records for your viewing from Inspectorate and PWC; accessible at anytime, anywhere.”

To warehouse your gold, whether purely for storage or (combined with a transfer mechanism) for use as a payment medium, requires you to pay a fee to cover the cost of storage. A typical arrangement is for the warehouse to deduct a percentage storage fee periodically from each account. Gold ETFs typically charge around 0.4% per year. If there is a transfer mechanism, the warehouse may also charge a transaction fee when fulfilling a transfer request. The planned Digix fees appear to be similar to ETF fees. Storage fees will be 0.4% per year to the vault owner. In addition, an Administration fee of 0.2% per year will be charged by the Digix organization, making total annual fees 0.6%. Transaction fees will be 0.1% of transacted amount.

The medieval Italian banks already mentioned introduced the option of accounts with lower fees for customers who wanted not pure storage but rather transaction services, a way to pay people without lugging gold coins around. Such customers brought in loose rather than bagged coins, and consented to fractional reserves, allowing the bank to cover its (reduced) storage costs by interest earned in lending out most of the gold. The advantage for the bank was of course the interest income on the coins lent out. The advantage to the customer was lower storage and transaction fees. Competition among fractional-reserve banks soon reduced storage fees to zero, and even led banks to pay interest on transaction accounts.

Digix promises to tie the price of DGX to the price of gold the old-fashioned way, by redeemability: “Physical Gold Redeemable at any time at our partnering custodial vaults.” The holder of DGX can “Redeem 100 DGX tokens for 100g of physical gold” in person or by mail. However it has not yet specified whether redemption will be at a zero or a positive price. In traditional banking the redemption fee is zero, but it can be zero in this warehousing system only if storage fees are high enough.

The most impressive evidence that Digix intends to promote DGX as a widely used medium of exchange is that they have partnered with a payment card provider (Monolith Studio, whose platform is called TokenCard) to provide an “Ethereum powered” gold-backed debit card. The announced aim is “to ensure gold tokens can be spent efficiently at minimal cost.”

The intriguing vision of Digix and TokenCard is that people will put themselves on a new digital gold standard. A news account quotes Monolith’s co-founder as saying: “Together with Digix, we will be able to offer one of the only true commodity backed debit cards, and bring back the gold standard in a meaningful way.”

2. Glint

The Glint webpage describes its project as a “new global currency, account and app.” Although it says that the project is “Launching in Q4 2017,” no specific roll-out date is offered. Headquartered in London, Glint Pay Services Ltd claims “permission to issue electronic money and provide payment services” from the Financial Conduct Authority under the Bank of England. Its co-founder is CEO of GoldMadeSimple.com, an online bullion dealer.

The project has curiously little press coverage online, only a single article which reads like a paid press-release placement. It is very sketchy on details. “Glint is a stealthy London fintech startup that promises to turn gold into a ‘new global currency’. … Glint will offer a frictionless way to both store and spend your money in gold, including at the point of sale, just like a regular local currency. The bigger picture is that gold historically has been a better storage of value than any government-created currency, and therefore — with the aid of technology — is (arguably) a good candidate for an alternative global currency.”

Obviously more details are needed.

3. DinarCoin (DNC)

Despite “dinar” being the Arabic name for a gold coin (derived from the Roman denarius), DinarCoin (DNC) is not linked to Islamic finance. The parent firm DinarDirham is registered in Hong Kong, with offices in Singapore and Kuala Lumpur. It describes the DNC as a “unique digital currency created … on the Ethereum blockchain. The value of each DNC is based on the worldwide gold spot price. DNC can be used for trading, investment and also to make payments.”

Here’s the sales pitch:

If you’re a person that’s interested in precious metals, but are concerned with storage, security, and actually being able to use your metals as cash for purchases, then DinarDirham is for you. You can actually store, secure, and use your gold on the blockchain, and have the ease and convenience of not needing to have it on your person, and accessing it worldwide in minutes.

It will be

a simpler way to transfer gold, as akin to PayPal with dollars. The aim of the DinarDirham is not only to provide additional value and stability to the coin but also to perpetuate the use of bullion as an accepted form of digital currency.

Of course, physical gold isn’t stored on the blockchain. But the record of a contractual claim to gold can be. The promoters promise that “For the lifetime of a DNC a corresponding value of XAU [physical gold] will be held in escrow.  … [W]hen DNC is created it is registered on the Ethereum Blockchain and the Bitcoin Blockchain. The total amount of DNC in circulation can be verified on either Blockchain, and audited against the total XAU held in escrow … by DinarDirham.” Of course, the accuracy of such a comparison is only as great as the accuracy of the reports of the “total XAU held in escrow.” Unlike consensus-validated bitcoin ledger changes, the accuracy of unilaterally altered ledger entries relating to external facts, like the volume of vaulted gold held by DinarDirham, is not ensured by the blockchain.

Unlike OneGram, the volume of DNC payments has the capacity to grow should it catch on as a medium of exchange. If demand growth begins to push the bid price of DNC slightly above the spot price of gold, either the parent firm or one of its “liquidity providers” stands to make an arbitrage profit by buying physical gold, putting it in an escrow vault, and selling additional DNC into the market, until the premium subsides. The vaults are associated with Associated Bullion Exchange, an electronic exchange for allocated precious metals in storage.

The “redemption” mechanism is not straightforward. DNC “can be redeemed for physical gold,” the website says, via a DinarDirham blockchain-recorded digital asset called a Gold Smart Contract (GSC). Unless 1 DNC can always procure 1 GSC, however, “used to purchase” would be more accurate than “redeemed for.” Another account does say that a DNC holder can “purchase” a GSC and then use it “to collect gold from one of many available vaults.” If in fact 1 DNC trades at a variable price for 1 GSC, which is redeemable for 1 gram of gold, it isn’t clear how the price of DNC is supposed to be pegged to the price of gold.

The announced payment-system plans are ambitious. The CEO says:

We are building an entire ecosystem around DinarCoin — exchange, DinarCoin ATM, merchant gateway and debit cards to allow our users to use their digital assets anywhere in the world. Also, physical Dinar Gold Coin (4.25 grams) is already available to order in South East Asia.

How far along is the project right now? Unclear. It hasn’t posted much lately. DNC isn’t listed on CoinMarketCap. I could not find any report on the value of DNC coins currently in circulation.

4. GoldMint

GoldMint is based in Russia. Surf to its webpage from a US location, and you are immediately confronted by a black drop-down box that declares that you may not invest in its ICO if you are domiciled in the US, Canada, China, or Singapore. Its first phase is an ICO ending this month (hoped-for sales, $49 million) for a token called MNTP. A “prelaunch” coin running on the Ethereum blockchain, MNTP will migrate in Q2 2018 to become MNT — the “stake” in the proof-of-stake GoldMint blockchain — which will process transactions in a gold-backed cryptoasset confusingly named GOLD (all caps).

What is most novel and remarkable about GoldMint is that the parent firm claims to be developing hardware called “Custody Bot automated storage facilities,” which it plans to deploy at pawn shops and shopping centers worldwide. Custody Bots will be “programmed to automatically identify and store gold jewelry, small ingots (up to 100 grams) and coins, without human intervention,” taking escrow custody of them for people who want to take out loans collateralized by the gold. (Loans collateralized by gold jewelry are already popular in India, by the way.) Through the spread of Custody Bot automated storage facilities, according to the GoldMint white paper, the firm hopes eventually to handle the storage of gold reserves worth, in US dollars, tens of billions.

More importantly for currency purposes, Bot-stored gold can alternatively be tokenized and traded as the cryptoasset GOLD, which “will become the trading unit for these operations.” GoldMint promises that units of GOLD will always be “100% backed by physical gold and ETF” that the firm holds.

Because the price of gold is less volatile than the price of bitcoin, the firm’s pitch goes, “Crypto traders and enthusiasts can hedge the risks of storing their assets in [a] highly volatile crypto market environment by transferring their savings to cryptoassets GOLD. [Also:] Low volatile GOLD cryptoassets can be used as a payment unit both for companies and individuals.”

GoldMint will not redeem GOLD for gold at par, but it promises to sell you 1 GOLD cryptoasset for a 5% premium over the London spot price of one ounce of gold, and to buy it back at a 3% premium. Thus the total fee for making the round-trip fiat-GOLD-fiat will be 2%. In addition it will assess an “On-Chain transaction fee” of 0.3%, three-fourths of which will go to the miners on the GoldMint blockchain. These seem like fairly competitive fees.

The most important questions about the potential of GoldMint as an important gold-backed currency are about the trustworthiness of its buyback promise, and the reliability of its blockchain for payment validation.

Conclusion

I am not endorsing or recommending investment in any of these projects. Caveat emptor. But I think the last three listed warrant our attention as attempts, in the spirit of E-gold, to provide modern gold-based payment systems with online access. All three explicitly promise not to hold fractional reserves, and say that you can track the volume of cryptoasset on their ledger to see that it matches the number of gold grams or ounces held in their vaults. But if one of them becomes popular as a one-hundred-percent-reserved  gold payment system, perhaps a subsequent innovator will offer zero storage fees and interest on account balances by re-introducing gold-denominated fractional reserve banking. Such a bank, supposing that it surmounts legal obstacles but lacks government deposit insurance, would have to provide as much transparency as potential clients demand to show that it has enough gold and other liquid assets available to redeem promptly all claims that are likely to be presented.

Stay tuned.

[Cross-posted from Alt-M.org]

A recent paper by David Autor of MIT, Lawrence Katz of Harvard and others, “The Fall of the Labor Share and the Rise of Superstar Firms,” begins by posing a mystery: “The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain.”  They construct a model to blame it on U.S. businesses that are too successful with consumers.  

Five broad industries, they found, became more dominated by fewer firms between 1982 and 2012: retailing, finance, wholesaling, manufacturing and services. But those aren’t industries at all, much less relevant markets: they’re gigantic, diverse sectors. Is all manufacturing becoming monopolized? Really? Census data ignores imports, but why ruin this bad story with good facts.

Noah Smith at Bloomberg ran an audacious headline about this tenuous paper: “Monopolies drive down labor’s share of GDP.” Smith writes that, “The division of the economy into labor and capital is one place where Karl Marx has left an enduring legacy on the economics profession.” He goes on to claim that “at least since 2000 – and possibly since the 1970s – capital has been taking steadily more of the pie.” Yet, Jason Furman and Peter Orszag found “the decline in the labor share of income is not due to an increase in the share of income going to productive capital—which has largely been stable—but instead is due to the increased share of income going to housing capital.” Depreciation and government, they noted, also gained an increased share (i.e., grew faster than labor income.) 

President Obama’s Council of Economic Advisers, under Jason Furman, nonetheless worried that the 50 [!] largest firms in just 10 “industries” (if you can imagine retailing and real estate to be industries) had a larger share of sales in 2012 than in 1997 (using Census data that excludes imports). They concluded that, “many industries may be becoming more concentrated.” Noah Smith, Paul Krugman and many others have suggested that this nebulous “concentration” allowed monopoly profits to rise at the expense of the working class, supposedly explaining labor’s falling share of GDP during the high-tech boom. A quixotic search for even one actual example of monopoly soon morphed into advice about using unconstrained antitrust to constrain Amazon, which is apparently feared to have monopoly profits invisible to the rest of us.  

Research that starts with such a meaningless question as “labor’s share of GDP” was never likely to lead us to any profound answers. Workers do not receive shares of GDP – they receive shares of personal or household income.   

Contrary to popular confusion, dividing employee compensation (wages and benefits) by GDP does not measure how a capitalist private economy (e.g., “superstar firms”) divides income between labor and capital. Most obviously, the government makes up a huge share of GDP, including nonmarket goods like defense and public schools. Nonprofits also account for a lot of GDP, with no obvious payout to labor or capital. Less obviously, depreciation makes up another huge share of GDP, including wear and tear on public highways and bridges as well as private equipment, homes, and buildings. The “imputed rent on owner-occupied homes” is another large piece of GDP. Asking if labor is getting a fair share of defense, depreciation and imputed rent is a truly foolish question. Net private factor income would be a better gauge than GDP, for the purpose at hand, but still flawed.  

The ratio of compensation to GDP uses the wrong numerator as well as an untenable denominator. Labor income must add the labor of self-employed proprietors.

When people say “labor’s share is falling,” they surely mean income people receive from work has not kept up with income people (often the same people) receive from property: dividends, interest, and rent. But, that crude Piketty-Marx labor/capital dichotomy ignores another increasingly important source of personal income: namely, government transfer payments from taxpayers to those entitled to cash and in-kind benefits.  

The first graph shows shares of income from labor, property, and transfers. The property share peaked at 21.1% in 1984-85, as the Fed kept interest rates very high, but averaged 19.3% and was 19.4% in 2016 (after dropping to 17.8% in 2009).  The labor share averaged 66.5% but was 63.3% in 2016 even though property owners’ share was virtually flat. What went up? Transfer payments. Transfers rose from 11.7% of personal income in 1988 to 17.4% in 2016. Personal income that has been growing persistently faster than income from work has not been income from property (since the 1980s), but income from Social Security, Disability, Medicare, Medicaid, EITC, TANF, SNAP, SSI, UI, and so on.

Some might object that personal income leaves out retained corporate profits. But profits not paid out as dividends add to people’s income only if they are reinvested wisely enough to lift the value of the firm and thus generate capital gains. Personal income excludes capital gains because national income statistics measure flows of income from current production, not asset sales. That is also true of GDP, adding another reason to discard GDP as the basis of comparison.

However, Congressional Budget Office reports on the distribution of income do include realized capital gains when assets are sold (turning wealth into income). 

The second graph shows that labor’s share of household income is highest in deep recessions (77.5% in 1982, 76.2% in 2009) and lowest at cyclical peaks (70.6% in 2000, 68.3% in 2007). The higher labor share in recessions does not mean recessions are good for workers, of course, but that they are even worse for business and investors. Those who equate a higher labor share of income (e.g., during recessions) with higher real income for workers are making a basic and very large mistake. 

Capital income was highest in the early 1980s because the Federal Reserve kept interest rates very high, and capital income (dividends, interest, and rent) has shown no upward trend since then. Dividends and rent are up, but interest income is down.

Capital gains rose at specific times, but there has been no upward trend. There was a spike in capital gains in 1986 because the tax on gains jumped to 28% the following year. Realized gains also rose for four years after the capital gains tax was brought back down to 20% in 1997, and again after the capital gains tax was cut to 15% in mid-2003.

The white space at the top is important because it increases by four percentage points from 1990 (15.3%) to 2016 (20.3%) while labor’s share fell by 2.5 percentage points (from 75% to 72.5%). That white space is transfer payments: income from neither labor or capital. As the first graph showed, labor’s somewhat smaller share of income is not because of any sustained rise of capital income or capital gains. It is because of a sustained rise in the share of income from transfer payments and a sustained fall in the labor force participation rate.

Meanwhile, household income from owning a closely-held private business doubled since 1986: from 4% of household income in 1986 to 8% in 2013. That reflects the well-known shift of income from corporate to “pass-through” entities after 1986 as the top individual tax rate became even lower than the corporate tax rate (1988-92) or about the same dropped to the same as the corporate rate (35% 2003-2012)) or lower. That did not mean that “business” grabbed a bigger share at the expense of “labor,” but that a larger share of business income shifted from corporate to personal data.

The frequently repeated angst about “the fall of labor’s share of GDP in the United States” is based on a serious yet elementary misunderstanding of both labor income and GDP. “Labor’s share of GDP” is fundamentally nonsensical, because so much of GDP (depreciation, defense, etc.) could not possibly be paid to workers, and because the measure of labor income is too narrow (excluding the self-employed). 

Labor’s share of the CBO’s broadly-defined household income also fell (unevenly) because the share devoted to transfers rose, but also because the share moved from corporate to household accounts (and individual tax returns) also rose. Business income counted within CBO’s household income has increased its share of such income since the Tax Reform Act of 1986, but that just reflects a change in organizational form from C-Corporation to pass-through status.

Labor’s share of personal income fell mainly because the share devoted to government transfer payments rose. Labor’s share of GDP fell for other reasons (rising shares going to housing, government, and depreciation), but it is a fundamentally misconstrued statistic used to rationalize irresponsible remedies to an illusory problem of “monopolies.”

 

 

Because the Second Amendment protects the right to bear all arms in common lawful use, any law that limits that right has to pass certain standards to be constitutionally permissible. The courts haven’t yet ironed out exactly what kind of scrutiny laws implicating the Second Amendment must pass, but such laws must have an important government objective and not be so broad as to burden protected activities unrelated to the harm they’re designed to address.

California requires most firearm purchasers to wait 10 days before they can bring their gun home, regardless of whether they already own one, or how long it takes to pass a background check. Several California residents who already own firearms challenged the 10-day waiting period and prevailed in federal district court because the state could only assert a general interest in a “cooling off” period.

The U.S. Court of Appeals for the Ninth Circuit ignored that the burden was on California to prove its case—and the state could show no evidence that the wait would have any public-safety effect when the purchaser already owns other arms. Instead, the court speculated as to what kind of harms the law might conceivably prevent, not any important interest it does actually serve. In the face of a decision that would allow California to arbitrarily infringe their Second Amendment rights, the challengers now seek Supreme Court review.

Cato has filed a brief supporting their petition. Silvester v. Becerra is an important case that the Court should not let slip by, because it presents an opportunity to provide much needed guidance in an area where lower courts have failed to reach a consensus on anything from what is protected by the right to keep and bear arms to the appropriate level of scrutiny judges should apply when considering lawsuits involving Second Amendment rights.

The morass of case law that has developed since District of Columbia v. Heller (2008) and McDonald v. City of Chicago (2010) is so divergent that the opinions of individual circuits read as though there was no precedent in this area whatsoever. From the Fourth Circuit’s holding that common semi-automatic weapons are “beyond the scope” of constitutional protection, to the Second Circuit’s deciding that only “severe” restrictions of the right to bear arms warrant any form of heightened scrutiny, all that’s clear is that the Supreme Court needs to clarify what hurdles the government must cross to justify violating what it itself held in Heller is a fundamental right.

The case here is quite narrow, covering only the application of an arbitrary waiting period to people who already own guns. The Court’s input, then, would not upset the diverse tapestry of gun laws that have developed across the country. Instead, it could help enable lower courts to competently move forward in developing Second Amendment jurisprudence. Because the case is small, the facts straightforward, the error below so clear, and the issue so constitutionally significant, the Supreme Court should step in and remind the Ninth Circuit what was said in McDonald, that the Second Amendment is not a “second-class” right for the circuit courts to “single out for special—and specially unfavorable—treatment.”

The Washington Post sums up the situation:

It was a party scarred by the madness, cruelty and famine that one man had prompted through disastrous policies….

Senior officials lined up, one after the other, to laud what they described as [the leader’s] profound, courageous, thrilling, insightful masterpiece of a speech….

And the drumbeat of propaganda about loyalty to his leadership — combined with the constant threat of an unforgiving … campaign that has taken down several powerful rivals — makes it more difficult for anyone who dares challenge him….

[His] message promotes a nationalist, assertive [country] with a much stronger military — a country that he says will not threaten the world but will resolutely defend its interests.

If you are uncertain about which country and which leader, click here.

Campaign finance has captured Congress’s attention once again, which rarely bodes well for democracy. Senators Amy Klobuchar, Mark Warner, and (of course) John McCain have introduced the Honest Ads Act. The bill requires “those who purchase and publish [online political advertisements]to disclose information about the advertisements to the public…”

Specifically, the bill requires those who paid for an online ad to disclose their name and additional information in the ad itself or in another fashion that can be easily accessed. The bill takes several pages to specify exactly how these disclosures should look or sound. The bill also requires those who purchase $500 or more of ads to disclose substantial information about themselves; what must be disclosed takes up a page and a half of the bill.

The Federal Election Commission makes disclosed campaign contributions public. With this bill, large Internet companies (that is, platforms with 50 million unique visitors from the United States monthly) are given that task. They are supposed to maintain records about ads that concern “any political matter of national importance.” This category goes well beyond speech seeking to elect or defeat a candidate for office.

Why does the nation need this new law? The bill discusses Russian efforts to affect the 2016 election. It mentions the $100,000 spent by “Russian entities” to purchase 3,000 ads. The bill does not mention that Mark Penn, a former campaign advisor to Bill and Hillary Clinton, has estimated that only $6,500 of the $100,000 actually sought to elect or defeat a candidate for office. It also omits Penn’s sense of perspective:

Hillary Clinton’s total campaign budget, including associated committees, was $1.4 billion. Mr. Trump and his allies had about $1 billion. Even a full $100,000 of Russian ads would have erased just 0.025% of Hillary’s financial advantage. In the last week of the campaign alone, Mrs. Clinton’s super PAC dumped $6 million in ads into Florida, Pennsylvania and Wisconsin.

Still, Congress has criminalized foreign nationals trying to spend any money to influence American elections. You would think the “Russian intervention” would be a matter for the Department of Justice or other federal law enforcement agencies. Instead, everyone has to disclose their political activities, and tech companies have to make “reasonable efforts” to make sure foreign nationals do not buy political ads on any subject whatever. What will constitute “reasonable efforts”? Congress will presumably decide. Meanwhile tech companies will have to guess, and they can hardly be expected to err on the side of free speech. After all, ads that do not appear are hardly a cost to Congress. But unintentionally running an ad by a foreign national could severely damage a tech company. The companies have incentives to make Congress happy. Some protected speech will be excluded.

The bill is not just about Russia and an unexpected election outcome in 2016. It states that “the electorate bears the right to be fully informed” about “political advertisements made online.” What is the source of this right? The Constitution contains no explicit “right to be fully informed.” Perhaps it is a penumbra or emanation of the First Amendment or other parts of the Constitution? Or maybe one of the unenumerated rights alluded to in the Ninth Amendment? No, this is just Congress doing what it wants to do anyway and using the language of the Constitution. The putative “right to be fully informed” is really a sign of how far we have traveled from constitutional government.

Congress finds in this bill that the content of online speech justifies regulation:

Social media platforms…can target portions of the electorate with direct, ephemeral advertisements often on the basis of private information the platform has on individuals, enabling political advertisements that are contradictory, racially or socially inflammatory, or materially false [emphasis added].

Later, the bill laments that information on social media sites is often “uncurated,” “inaccurate,” or “more easily manipulable than in prior eras.”

Those familiar with the struggles over campaign finance in recent decades will recall that Congress often sees regulation of spending as way to improve speech. Unregulated spending supposedly contributed to “negative ads” which in turn harmed our democracy. In truth, negative ads attracted attention and increased voter turnout and knowledge.

The bill’s focus on allegedly “bad speech” raises two issues. First, mandating disclosure of who bought the ad may not improve the speech. Second, and more importantly, the content of speech is protected by the First Amendment. Congress does not have the power to “improve” speech by regulating ad financing or by any other means.

The larger picture here is more disturbing. Congress appears to be using a panic induced by Russian electoral meddling to impose itself on a largely unregulated Internet. Mandated disclosure of ad spending is the first but not the last step toward Facebook and Google becoming public utilities. Anyone who cares about free speech should be skeptical about such disclosure.

Last night, the Senate voted (51-50, with Vice President Pence breaking the tie) to repeal one of the most recent rules issued by the Consumer Financial Protection Bureau (CFPB). The rule would have prevented most financial companies from requiring that disputes between a company and its customers be determined through arbitration and without the use of class actions.

Those who support the rule have noted that the majority of contracts between customers and financial firms include clauses that require disputes to be resolved through arbitration, which means no class actions. This is true. Arbitration clauses are fairly standard in these contracts. But, as I said in an earlier post on the rule, the ubiquity of such clauses might just mean that customers are okay with them. If customers really cared about arbitration clauses, financial firms could distinguish themselves from competition by offering arbitration-free contracts. The lack of such options for customers seems to suggest that customers don’t really care.

The response to such an argument may be that these clauses are hidden in fine print and most customers don’t even know they exist. Okay, let’s say for the moment that’s true; that most customers didn’t know arbitration clauses existed. But that shouldn’t be the case now. Not now we’ve had national news about this rule, lots of debate, ample time for the rule’s supporters to educate the public, breaking news drama involving a late night vote in the Senate, and reports tracking the Vice President’s progress to the Hill to cast his deciding vote. My phone was flashing with news alerts all through the evening. If the public was unaware of arbitration clauses before, they have had plenty of opportunities now to become familiar with them.

So now, if the public really wants to be free of arbitration clauses, the next step is obvious, right? A company should emerge announcing that it is offering arbitration-free contracts for all of its customers. If arbitration harms consumers, as proponents of the rule have argued, consumers should clamor for contracts that allow them to go to court and to join together in class actions. Companies, including financial companies, make their money giving customers what they want. If arbitration-free contracts become popular, we will know that this was what consumers wanted. If they don’t become popular, well, we’ll have an answer then, too. But, either way, consumers will get what they want without a new regulation.

It was on the 16th anniversary of the 9-11 terrorist attack, as it happens, that the Government Accountability Office posted its reply to a request by six members of Congress to review the Transportation Security Commission’s aviation security measures.

The GAO was none too happy with what it found. In particular, it faulted the TSA for failing to set up a coherent system to analyze the cost and effectiveness of its various counterterrorism measures—many of them quite expensive. And it was specifically critical of TSA’s inability to evaluate the degree to which its layers of security deter attacks.

The following day, Elsevier published a book Mark Stewart and I have written, titled Are We Safe Enough? Measuring and Assessing Aviation Security. Among other things, the book tries (successfully, we think) to do exactly what the GAO asked for. A free Google preview of portions of the book is available at the publisher’s website, and further information about the book is posted here.

The TSA, says GAO, has put together a (secret) tool called RTSPA (you don’t want to know what that stands for) to analyze the effectiveness of its security layers. However, the tool only applies to a subset of the layers and is, according to GAO, “resource intensive.”

Ours, by contrast, has a full model of the security system mainly constructed by my co-author, a civil engineer and risk analyst at the University of Newcastle in Australia. It describes the effectiveness, risk reduction, and cost of each layer of security (including a few the TSA doesn’t include), from policing and intelligence, to checkpoint passenger screening, to armed pilots on the flight deck. It is also fully transparent and can be varied and sized-up with just a hand calculator.

Put into action, the model concludes that it is entirely possible to attain the same degree of safety at far lower cost by shifting expenditures from measures that provide little security at high cost to ones that provide more security at lower cost. One modest proposal, for example, would increase security while saving both the taxpayers and the airlines hundreds of millions of dollars every year.

In addition, the model strongly suggests that the PreCheck program not only generates a hundred million dollars a year in efficiency improvement, but billions of dollars of value in passenger satisfaction—all this while actually increasing security slightly.

And the model proves to be extremely robust: you can change the assumptions that make it up substantially without materially altering the conclusions it comes up with.

The book also tackles the deterrence issue—indeed, it is central to the model.

In general, the model is biased to favor the terrorist chances of success. For example, we do not include terrorist amateurishness and incompetence as a security layer—though we do discuss that issue extensively both in this book and in our previous one, Chasing Ghosts: The Policing of Terrorism. But even with that bias in place, a terrorist group’s chance of pulling off a successful on-board bombing is one in 50, while its chances of a successful hijacking are around one in 150.

That is likely to be an effective deterrent—pretty much taking airlines off the terrorists’ target list.

However, it is also important to consider whether there are actually many terrorists out there to deter. As both the GAO and the TSA recognize, terrorists deterred from attacking a hard target like an airliner can only too readily transfer their attention to any one of a nearly infinite number of other potential targets that are anything but secure—congregations of people in restaurants, in offices, at sporting events, or standing in security lines at the airport.

Yet terrorism, however tragic and newsworthy, remains a remarkably rare phenomenon in the United States and in the rest of the developed world—Islamist terrorists have killed a total of six people a year since 9/11 in the United States. If security measures were deterring large numbers of people from attacking airliners we would expect far more mayhem in other places.

Perhaps we are already safe enough.

In the latest edition of the Cato Journal, economist Bryan Roberts argues that immigration enforcement has significantly diminished the flow of illegal immigrants across the Southwest border. Contra Roberts, sociologist Doug Massey argues that border enforcement had virtually no impact on the flow of unlawful immigrants prior to 2010. This post takes a slightly different approach and uses additional sources of data to look at the causes behind the decline of illegal immigration in the aftermath of the Great Recession. This is especially relevant as the House Judiciary Committee is marking up the Agricultural Guest Worker Act (Ag Act) that would increase the flow of temporary visas for workers in farming and related sectors. An increase in visas like those supplied by the Ag Act will likely further diminish unauthorized border crossings. 

Model and Data

This blog is intended to reveal whether the quantity of Mexican legal immigrants (green cards issued overseas and temporary migrants) or border security is responsible for the decline of illegal immigrants from Mexico. Our dependent variable is the estimated gross annual flow of Mexican illegal immigrants. The American unemployment rate, the difference between Mexican and American GDP per capita (PPP), line-watch hours at the Southwest border, and legal Mexican immigration are our independent variables.

We chose a log-linear OLS model to compensate for non-linearity. OLS is a type of regression that helps identify the relationship between independent variables that we anticipate will explain how dependent variables behave. We then ran an autoregressive model (AR (1)) that will help us account for a particular empirical anomaly, the serial dependence between current and immediate past variables that could affect an OLS regression. We then ran a series of regressions with the yearly aggregates beginning in 1960 and ending in 2009. Data limitations prevented us from going beyond 2009 and prior to 1960.

Technical Note

We also ran numerous OLS, bi-weight, quantile, and AR(1) regressions that we excluded from Table 1 because they did not change the significance or signs of any of the coefficients. We tried sample-specific dummies for the combined datasets that did not change the significance of signs.

Data

Massey and Pren (2012) and Warren and Warren (2013) supply the estimates for the annual gross number of illegal Mexican entries.  Annual Immigration Yearbooks from the Department of Homeland Security and the old Immigration and Naturalization Service supply the number of temporary and permanent visas issued to Mexicans abroad. The Bureau of Labor Statistics supplied the American unemployment rate data and the World Bank supplied the relative U.S.-Mexican GDP per capita PPP.

Results

Table 1 reports results of the OLS regression (with robust standard errors in parentheses) and AR(1) for three datasets: the Massey and Pren (2012) data, the Warren and Warren (2013) data, and a combination of the two. When running AR(1), we included a lagged immigrant flow for the independent variable because immigrant flows tend to be dependent on the flows of the immediate past. We also included a lag of legal visas and GDP per capita PPP where we assume the decision to immigrate is based on the immediate past state of the economy and legal immigration trends. 

Our most robust finding is that more legal visas reduce the flow of illegal immigrants (Table 1). The variable is significant in five out of the six specifications. Line-watch hours are positively correlated with the flow of illegal immigrants in two specifications and negatively so in one. This isn’t surprising as Congress increases border security in response to greater unlawful immigrant flows. A higher unemployment rate is negatively related to illegal immigrant flows in three specifications while the difference between Mexican and U.S. GDP PPP is significant at the 5 percent level in only one.

Table 1

Effects of Legal Visas and Border Security on Gross Illegal Immigrant Flow for Mexicans

  Massey and Pren Combined M&P and Warren & Warren Warren & Warren   OLS AR (1) OLS AR (1) OLS AR (1) Legal visas   

 

-1.34   

(.16)***

-.16   

(.06)**

-1.20   

(.15)***

-.08   

(.04)*

-.40   

(.16)*

-.08   

(.13)

Line-watch hours .76   

(.14)***

-.09   

(.05)**

1.28   

(.13)***

-.03   

(.05)

.08   

(.12)

-.04   

(12)

Unemployment USA .15   

(.09)

.02   

(.01)

.06   

(0.8)

-.05   

(.01)***

-.17   

(.03)***

-.05   

(.02)**

USA-Mexico GDP (PPP) .28   

(.38)

-.25   

(.11)**

.24   

(.36)

-.02   

(.08)

-.25   

(.14)

-.01   

(.10)

Observations 49 48 49 48 28 27  RSQ .59 .98 .67 .95 .59 .88

* significant at 10%; ** significant at 5%; *** significant at 1%.

Standard errors in parentheses.

Figure 1 shows the statistically significant inverse relationship between the number of visas issued to Mexicans and the gross flow of illegal Mexican entries. The early period with a high number of legal entries shows the Bracero program. It is followed by a spike in gross Mexican illegal inflows that occurred when the number of legal entries is very low. The number of gross Mexican illegal entries declines most especially as the number of new entries increases in the 1990s and 2000s. We suspect that this relationship is causal – that more legal immigration reduces the flow of unlawful immigrants.

Figure 1

Annual Flows of Legal and Illegal Mexican Immigrants

Sources: Massey and Pren (2012), USCIS, and INS.

Conclusion

This simple OLS regression analysis shows an inverse relationship between flows of Mexican legal and illegal immigrants. These findings cry out for additional research to test how the number of visas affects illegal immigrant flows, especially by examining other measures of border security such as budgets, the number of agents, or apprehensions. The findings of this blog are broadly consistent with a small empirical literature on how border security affects immigration flows. Other researchers should use a more complicated model to account for the dynamics of illegal immigration, such as feedback effects that occur between border security and illegal flow. Time-series methods are one way to potentially address these effects. Regardless, this is some evidence that supports the theory that immigration liberalization will reduce illegal immigrant flows.

Special thanks to Jen Sidorova for her superb work on this blog post and the empirics that support it.

Today is the 250th anniversary of the birth of Benjamin Constant, a prominent French liberal in the postrevolutionary era, whom Isaiah Berlin called “the most eloquent of all defenders of freedom and privacy.” He is perhaps best known in our time as the author of an essay – actually a speech in 1833 – called “The Liberty of the Ancients Compared with That of the Moderns.” He argued that the ancient concept of liberty as political participation was not suited to modern society, in which people were busy with the production of wealth. Modern people want autonomy, the freedom to live their lives as they choose, more than full-time participation in politics. The essay was enormously influential in the development of Continental liberalism, and in the past few decades has become better known in the English-speaking world thanks to the influence of Berlin. Constant began his speech this way: 

First ask yourselves, Gentlemen, what an Englishman, a Frenchman, and a citizen of the United States of America understand today by the word “liberty.”

For each of them it is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings.

It is everyone’s right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims.

Finally it is everyone’s right to exercise some influence on the administration of the government, either by electing all or particular officials, or through representations, petitions, demands to which the authorities are more or less compelled to pay heed. 

By contrast, he said, the liberty of the ancients, meaning Greece and Rome,

consisted in exercising collectively, but directly, several parts of the complete sovereignty; in deliberating, in the public square, over war and peace; in forming alliances with foreign governments; in voting laws, in pronouncing judgements; in examining the accounts, the acts, the stewardship of the magistrates; in calling them to appear in front of the assembled people, in accusing, condemning or absolving them. But if this was what the ancients called liberty, they admitted as compatible with this collective freedom the complete subjection of the individual to the authority of the community. You find among them almost none of the enjoyments which we have just seen form part of the liberty of the moderns. All private actions were submitted to a severe surveillance. No importance was given to individual independence, neither in relation to opinions, nor to labour, nor, above all, to religion. The right to choose one’s own religious affiliation, a right which we regard as one of the most precious, would have seemed to the ancients a crime and a sacrilege. In the domains which seem to us the most useful, the authority of the social body interposed itself and obstructed the will of individuals.

He noted three reasons for the difference: First, that the ancient republics were small enough for individuals to feel influential in public discussions; second, that commerce, the principal activity of moderns, doesn’t leave long periods of idleness as war did; third, that commerce inspires a love of individual independence; and fourth, that in the ancient republics “slaves took care of most of the work. Without the slave population of Athens, 20,000 Athenians could never have spent every day at the public square in discussions.”

He concluded by exhorting his audience to insist that modern governments respect modern liberty and leave individuals free to make their own decisions:

The danger of ancient liberty was that men, exclusively concerned with securing their share of social power, might attach too little value to individual rights and enjoyments.

The danger of modern liberty is that, absorbed in the enjoyment of our private independence, and in the pursuit of our particular interests, we should surrender our right to share in political power too easily.

The holders of authority are only too anxious to encourage us to do so. They are so ready to spare us all sort of troubles, except those of obeying and paying! They will say to us: what, in the end, is the aim of your efforts, the motive of your labours, the object of all your hopes? Is it not happiness? Well, leave this happiness to us and we shall give it to you. No, Sirs, we must not leave it to them. No matter how touching such a tender commitment may be, let us ask the authorities to keep within their limits. Let them confine themselves to being just. We shall assume the responsibility of being happy for ourselves.

Read more of the essay in The Libertarian Reader. Learn more about Constant at the Online Library of Liberty.

Sen. Jeff Flake (R-Arizona) has announced that he will not run for reelection. He announced his decision on the Senate floor in a searing speech about the state of our political culture, especially at the hands of President Trump:

It is time for our complicity and our accommodation of the unacceptable to end.

In this century, a new phrase has entered the language to describe the accommodation of a new and undesirable order – that phrase being “the new normal.” But we must never adjust to the present coarseness of our national dialogue – with the tone set at the top.

We must never regard as “normal” the regular and casual undermining of our democratic norms and ideals. We must never meekly accept the daily sundering of our country - the personal attacks, the threats against principles, freedoms, and institutions, the flagrant disregard for truth or decency, the reckless provocations, most often for the pettiest and most personal reasons, reasons having nothing whatsoever to do with the fortunes of the people that we have all been elected to serve.

Flake was anticipating a rough 2018 in Arizona. In polls a year ahead of the Republican primary, he was running well behind a former state senator who held a town hall on “chemtrails.” And Democrats have a strong candidate in Rep. Kyrsten Sinema, who promptly reached out to Flake supporters and Goldwater Republicans, telling the Arizona Republic, “It’s been an honor to know and serve with Jeff. He is a man of integrity and a statesman who is true to his convictions – an Arizonan through and through.”

Despite his political challenges, it’s disappointing that another of the few Republicans willing to call out President Trump for his misguided positions, his coarseness, and his damage to “our democratic norms and ideals” will be leaving the Senate. This is precisely the moment when clear-eyed senators such as Flake and Sen. Bob Corker (R-Tennessee) are needed. Flake and Corker do have another 14 months in the Senate. If they use their time well, they will deserve a new chapter in Profiles in Courage, John F. Kennedy’s book about senators who suffered criticism and electoral losses after taking a stand on principle.

It’s also unfortunate that Trump and Steve Bannon are seeking to drive out of the Republican party Reaganite leaders and replace them with protectionist populists. As Flake said:

It is clear at this moment that a traditional conservative who believes in limited government and free markets, who is devoted to free trade, and who is pro-immigration, has a narrower and narrower path to nomination in the Republican party – the party that for so long has defined itself by belief in those things. It is also clear to me for the moment we have given in or given up on those core principles in favor of the more viscerally satisfying anger and resentment. To be clear, the anger and resentment that the people feel at the royal mess we have created are justified. But anger and resentment are not a governing philosophy.

He said more on these topics in his recent book with the consciously Goldwateresque title Conscience of a Conservative: A Rejection of Destructive Politics and a Return to Principle, which is well worth reading.

I hope Senator Flake will find ways to serve the cause of limited and republican government over the next 14 months and beyond.

The Trump administration acquiesced to the ethanol lobby in a recent decision on the costly Renewable Fuel Standard (RFS), says the Wall Street Journal. Under a Bush-era 2007 law, the mandated amount of biofuels in your gas tank is increasing, which puts upward pressure on gas and food prices and likely harms the environment.

Rather than supporting repeal of the anti-environmental RFS, the EPA announced it “won’t reduce its proposed 19.24 gallon biofuels quota for 2018, and many even increase it,” said the WSJ. Sadly, the administration “caved under pressure from the ethanol lobby and political extortion from Republican Senators Joni Ernst, Deb Fischer, and Chuck Grassley.”

At DownsizingGovernment.org, Nicholas Loris explains how the RFS harms consumers, damages the economy, and produces negative environmental effects. The RFS is also a bureaucratic nightmare, and has spawned a complex credit-trading system, which investor Carl Icahn said is a “$15 billion market full of manipulation, speculation and fraud.”

Loris notes that ethanol has only two-thirds the energy content of regular gas, so drivers get fewer miles per gallon the higher the share of ethanol and other biofuels mixed into their tanks.

So the next time you are pumping gas and see that “10% Ethanol” sticker, remember it’s a Big Government swindle perpetrated by the GOP.

For more on ethanol, see here.

The headline of Megan McArdle’s latest Bloomberg View piece stings, at least for a libertarian whose job is to advance educational freedom: “We Libertarians Were Really Wrong About School Vouchers.”

Ouch! But to this I say: Speak for yourself!

To be fair, I don’t know how things work for big-time columnists, but there’s a good chance McArdle didn’t pen her own headline. Pubs need clicks, and the shrewd marketeers at Bloomberg were no doubt well aware that such an inflammatory header would draw in all roughly ten professional libertarian school choicers, boosting readership by huge hundredths of a percent. And it is worth saying: While I’m not sure you would call them libertarians, John Chubb and Terry Moe’s Politics, Markets, and America’s Schools was seminal in launching the modern choice movement, and they did assert that choice would be a “panacea.” If that is what libertarians expected from the tiny choice programs we’ve gotten so far, yes, we were wrong. But that is not what libertarians should have expected.

The fact is we have not even come close to getting what we need—real, broad freedom, which McArdle and lots of libertarians call “the market.” (I’ve decided, by the way, that a “market” is a horrible way to conceptualize what libertarians want, because it implies education is all about efficient financial transactions. What we want is full-on human freedom.) None of the voucher, charter, scholarship tax credit, or education savings account programs we have gotten have even come close to a free market, as many libertarians have been decrying for decades.

How far are we? Thankfully, you don’t have to dig into old books to find out—we give you the lowdown in Educational Freedom: Remembering Andrew Coulson, Debating His Ideas (available in free PDF version or wherever fine books are sold)! Andrew was a leading critic of the kinds of hamstrung programs many choice supporters lauded for years—a few thousand kids with small vouchers here, public charter schools there—and the book contains multiple chapters examining what is needed for a true free market. As the Heartland Institute’s George Clowes lays out:

  • Parental choice of school
  • Direct parental financial responsibility
  • Freedom for educators to establish different types of schools
  • Explicit competition among educators
  • The profit motive for educators (and the need for a reliable revenue stream)
  • Universal access (including low- and high-income families)
  • Per-pupil funding comparable to the public schools, with the funding following the child

Man, are we far from a market! Charter schools cannot teach devotional religion and are part of the same state standards-and-testing accountability regimes as traditional public schools, cramping how meaningful a choice they can be, or how free their educators. Meanwhile, full per-pupil funding rarely makes its way out of traditional public schools and into charters, and establishing a new school can often be an excruciating and ultimately futile effort.

How about private school choice programs? The good news, at least in theory, is “private” means “real choice,” with schools free to teach whatever they want, how they want. And they come closer than charters, with religion allowed, and sometimes no state testing-based accountability. But some programs require state testing and boot schools that don’t get good grades—Indiana has about 35,000 voucher students, and those rules—and others have less stringent requirements, but testing nonetheless. Even more handicapping is that choice programs are usually poorly funded relative to the public schools and have mandated or de facto enrollment caps due to eligibility requirements or funding limits. In DC, for instance, a voucher is worth around a third of what is spent per-pupil in the public schools (and significantly less than charters) while enrollment is capped at about 2,000 students by the program’s budget. And allowing the profit motive to work is seen as the Mark of Cain, even though it is the lynchpin for taking quality and innovation to scale.

As a libertarian it is easy to get depressed, but only because we’ve barely scratched the surface of freedom. Indeed, the evidence even from this sad state of affairs strongly suggests freedom works. For one thing, Andrew Coulson analyzed the “market-ness” of education systems around the world—where school choice is often embraced more warmly than the home of Cowboy Capitalism—and he found that the more market-like a system, the better the outcomes. We have seen that in the U.S., too, where the “gold-standard” research has typically found that choice delivers slightly better test scores, and much higher graduation rates, at a fraction of the cost of traditional public schools. Even the research McArdle cites to help explain why choice has turned out to be a bummer—a study of centrally managed choice among only public high schools in New York City—suggests that the schools people choose produce better academic outcomes. It’s just that parents seem to prefer schools because they have better performing students rather than explicitly greater learning gains. But it turns out that signal works: “We find preferences are positively correlated with both peer quality and causal effects on student outcomes.”

Of course, what should ultimately thrill libertarians—and everyone else—about choice is not test bumps or dollars saved, but that it is the only education system that lets all people pursue what they believe is important in education without having to impose their views on everyone else, or live under the constant threat of having someone else’s values imposed on them. It is the only education system consistent with a truly free and equal society.

Megan McArdle is absolutely right to be disappointed that we are not where we need to be in education. But that is not because libertarian ideas are a bust. It is because we are so far from seeing them fully implemented.

Reversing a trial court, the Third Circuit has ruled (McGann v. Cinemark) that a deaf/blind man is entitled to sue Cinemark under the Americans with Disabilities Act (ADA) demanding that it provide a “tactile interpreter” so that he can experience the movie Gone Girl. Each interpreter — two would be required because of the movie’s feature length — would narrate the film in American Sign Language (ASL) while McGann places his hand in contact with theirs to read the signs. The appellate judges rejected the argument that because of the need for subjective stylistic judgments about how to describe the movie’s action, on-the-fly translation would “fundamentally alter the nature of the good, service, facility, privilege, advantage, or accommodation being offered,” an exception that the law recognizes to its accommodation requirement. It sent the case back for further proceedings on whether the theater can plead “undue hardship,” a narrow defense that is often unavailable to large businesses which (it is argued) can cover even very high costs of accommodation with revenues earned from other patrons.

Like the Berkeley online courses fiasco, and the Main Street shakedown mills, and the emerging industry of web accessibility suit-filing, these are all developments to keep in mind when you hear people say that the courts are capable of working out the problems with the Americans with Disabilities Act by themselves and that Congress need not turn its attention to reform. (cross-posted and adapted from Overlawyered)

One of the big demands of the Trump administration is that trade, and trade agreements, must be “reciprocal.” Their concerns about reciprocity are misplaced, and miss the point about why we open our markets in the first place. Sure it’s great when other countries also open their markets, but there is more to be gained from unilateral opening than no liberalization at all. Frédéric Bastiat explained this peculiar desire for reciprocity in Economic Sophisms, where he wrote:

There are people (a small number, it is true, but there are some) who are beginning to understand that obstacles are no less obstacles for being artificial, and that we have more to gain from free trade than from a policy of protectionism, for precisely the same reason that a canal is more favorable to traffic than a “hilly, sandy, difficult road.” 

But, they say, free trade must be reciprocal. If we lowered the barriers we have erected against the admission of Spanish goods, and if the Spaniards did not lower the barriers they have erected against the admission of ours, we should be victimized. Let us therefore make commercial treaties on the basis of exact reciprocity; let us make concessions in return for concessions; let us make the sacrifice of buying in order to obtain the advantage of selling.

People who reason in this way, I regret to say, are, whether they realize it or not, protectionists in principle; they are merely a little more inconsistent than the pure protectionists, just as the latter are more inconsistent than the advocates of total and absolute exclusion of all foreign products. 

This principle applies not just to border measures such as tariffs, but also to internal measures such as government procurement. Closing our procurement market to foreigners ignores the value of greater choice and competition. Politicians tend to oversell the advantages of selling (exports) over buying (imports), and incorrectly frame imports as a loss and exports as a gain. In fact, increased competition from foreign firms bidding on government contracts can get more value out of taxpayer dollars by increasing efficiency and gains in quality. 

Nonetheless, if people are going to make these demands for reciprocity, they should at least have some reasonable basis for determining whether there is, in fact, reciprocity. To paraphrase a famous line from the Princess Bride: They keep using that word, but it does not mean what they think it means. A recent demand from the Trump administration in the NAFTA renegotiation, related to government procurement, distorts the concept of reciprocity beyond recognition.  Here’s a Politico report on Commerce Secretary Wilbur Ross’ remarks on the subject: 

Ross was pressed on whether he thought the U.S. proposal on government procurement access was fair, given that it might result in less market access for Canada and Mexico than is granted to other countries through the WTO.

The U.S. proposal would cap Mexican and Canadian access to U.S. government projects at the combined total access those two countries provide to U.S. firms.

“It’s very good faith, our market is 10 times the size of either of those markets, so if you gave equal percentage market share we’d be giving them 10 for one, how is that good arithmetic?” Ross said. “It is actually to the benefit of the parties because it is the cumulative total of two economies rather than the individual one.”

Ross said the proposal helps address “one of the fundamental flaws, the president feels and I agree, that exists in NAFTA to begin with.”

“The fact is we think it was absurd in general to give away 10 times as much market access as you are getting back,” he said.

Ross’ view appears to be that, in order for there to be reciprocity, the Canadian, Mexican, and U.S. procurement markets should all be open to foreign competition in the same nominal amounts. So, to take an illustrative example, if $10 billion of U.S. procurement is open to foreign competition, $10 billion of Canadian procurement and $10 billion of Mexican procurement should also be open. In his view, that is fair. And just to be nice, he says the U.S. will offer the combined amount that Canada and Mexico offer, so the U.S. will offer $20 billion. See, more than fair, right?

No, not at all! What he leaves out is that the differing size of the economies has an impact on outcomes. The share of the procurement market that each country has open to foreign competition is much different when the nominal amounts are the same, with a far smaller portion of the U.S. market open. And because the U.S. economy is much bigger, the United States has more companies that can compete for contracts.  So, if Canada opens up $10 billion of procurement to foreign competition, the U.S. is going to grab a big chunk of that. By contrast, if the U.S. opens up $10 billion (or even $20 billion) to foreign competition, Canada won’t take very much. The result is that the approach Ross is pushing won’t lead to reciprocity. Rather, with the nominal amount of market access the same, and the U.S. economy so much bigger, there will almost certainly be more sales by U.S. companies than by Canadian companies.

If you want to get somewhere close to reciprocity (again, not that we’re advocating it), the way to do so is to open up a percentage of the procurement market to foreign competition. For example, each country could open up 10% of its procurement contracts. This is roughly the approach governments usually take now. Opening up procurement markets on a percentage basis is the best way to get us to a result where roughly the same amount of procurement contracts flow in both directions.

Ross doesn’t like the current approach, saying that the U.S. has given away “10 times as much.” But we haven’t, for the reasons noted: There are fewer Canadian and Mexican companies, so they don’t have the same ability to compete for procurement contracts. 

Adding additional restrictions to the government procurement market, which is valued at $4.4 trillion annually, will be a step in the wrong direction. If the U.S. undertakes measures to further restrict its procurement market, it will be equivalent to a self-inflicted wound. It may also be inevitable that other countries will follow suit, reducing international business opportunities for both foreign and U.S. firms around the world. 

While Congress is rightly concerned about providing a pathway to citizenship for immigrant Dreamers without legal status, thousands of legal immigrants who are in the same position are being left behind. This decision to exclude legal immigrant Dreamers is not just inequitable. It is costly.

H-1B high-skilled foreign workers can bring their spouses and minor children with them to the United States on H-4 visas. The H-4 is a temporary visa that is valid for as long as the H-1B is. Once the child turns 21, however, the H-4 is canceled. Most employers also sponsor their H-1B employees for permanent residency (a “green card”), and their minor children can receive green cards with them. But again, if their children turn 21 while they are waiting, the law boots them from the line.

In a functioning immigration system, these situations would happen rarely, if ever. But because Congress has failed to update the limits on permanent residency since 1990 and because it discriminates against immigrants from populous countries, H-1B workers from India have to wait at least several decades for green cards. During this time, their children grow up as Americans, but then “age out,” losing both their H-4 status and their place in the green card line on their 21st birthday.

These kids are in almost the exact same position as those in the DACA program right now. Their parents brought them to the United States as young children; they grew up here; they have a temporary status now, but they will lose it if Congress fails to change the law. Yet the DREAM Act and other legislative solutions for immigrant Dreamers expressly and inexplicably exclude these legal immigrants. It is not hyperbole to say that the DREAM Act requires applicants to violate the law to qualify.

Why? Legal immigrant Dreamers would certainly qualify under the bill’s other requirements. Virtually all graduate U.S. high schools and enroll in U.S. colleges, and virtually none have criminal records that would disqualify them. Children of H-1Bs are some of the highest achieving children in American society today. In fact, 75 percent of the 2016 finalists for the Intel Science Talent Search—the leading science competition for U.S. high schoolers—had parents who were at one time on an H-1B visa.

This talent is a gigantic economic asset to the United States. According to the National Academy of Science’s 2016 report (NAS) on the fiscal effects of immigration, immigrants who enter as children and who have at least one college graduate parent—as all H-1B workers do—create a massive fiscal surplus. The NAS estimates that each H-4 child would have a 75-year net fiscal present value of between $143,000 and $316,000 to all levels of the U.S. government—federal, state, and local. Averaging NAS’s estimates from Table 8-14 for kids with college grad parents or parents with advanced degrees yields an estimated $252,000 net present value for each legal immigrant Dreamer.

Net present value estimates apply a discount rate to future costs and benefits on the (correct) theory that money today is more valuable than the same amount of money received three decades from now. One way to understand the net present value concept is to envision each one of these kids cutting a check to the government for $252,000 when they arrive in the country that would then be invested at 3 percent per year for the next 75 years.

The DREAM Act is already a big fiscal boost to the United States, but including the legal immigrant Dreamers would increase its fiscal benefits. The government doesn’t produce estimates of the number of children with H-4 status or how many are waiting in the backlog for green cards who could potentially qualify. However, DHS did estimate that 125,000 spouses of H-1Bs on H-4 visas had resided in the United States for at least 6 years as of 2015. Conservatively estimating that each married couple brought an average of one child with them, that’s a population of 125,000 kids. $252,000 multiplied by 125,000 kids is $31.4 billion in net fiscal benefits.

This number is likely low because it only counts H-4s. There are some, albeit fewer, legal immigrant Dreamers on the whole range of alphabet soup visas (E, O, J, L, P, etc.). All of these kids are children of skilled professionals in the United States, so their impacts are probably similar. The country likely will receive some of these benefits whether legal immigrants are included in the DREAM Act or not, as some kids will find a way to stay on their own, but to fully realize all of them, Congress needs to provide them with permanent residency.

The United States gains nothing from kicking legal immigrant Dreamers out or forcing them to maneuver America’s impossible immigration system to find other temporary statuses to stay in the country that is their home. And here’s the thing: the sponsors of the DREAM Act or any other proposal don’t need to add legal immigrant Dreamers or do anything special for them. They just need to not exclude them or go out of their way to treat them worse than other immigrants, as they have right now. All they need to do is strike the requirement that DREAM Act applicants break the law. Few changes so simple could benefit the United States so much.

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