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In previous postings, we investigated the likelihood of a serious climate-related concern expressed by the United Nations Intergovernmental Panel on Climate Change (IPCC), that CO2-induced global warming will lead to a future increase in the number of heat related deaths worldwide (see, for example, On The Bright Side: Declining Deaths Due to Hot and Cold Temperatures in Hong Kong and Response to Heat Stress in the United States: Are More Dying or Are More Adapting?). In short, we found there is an absence of empirical data to support the IPCC’s claim.

The latest study to investigate this topic comes from Arbuthnott et al. (2016), who introduce their work by noting that “interest in understanding temperature related health effects is growing.” And as their contribution to the subject, they set out to examine “variations in temperature related mortality risks over the 20th and 21st centuries [in order to] determine whether population adaptation to heat and/or cold has occurred.”

A search of 9183 titles and abstracts dealing with the subject returned eleven studies examining the effects of ambient temperature over time (i.e., relative risk or RR) and six studies comparing the effect of different heatwaves at specific points in time. Out of the eleven RR studies, with respect to the hot end of the temperature spectrum, Arbuthnott et al. report “all except one found some evidence of decreasing susceptibility,” leading the team of four UK researchers to conclude that “susceptibility to heat [has] appeared to stabilize over the last part of the century.” Interestingly, however, at the cold end of the temperature spectrum, they say “there is little consistent evidence for decreasing cold related mortality, especially over the latter part of the last century.”

With respect to the impacts of specific heatwave events on human health, Arbuthnott et al. state that four of the six papers included in this portion of their analysis revealed “a decrease in expected mortality,” again signaling there has been a decrease in the vulnerability of the human populations studied over time. As for the cause(s) of the observed temperature-induced mortality declines, the authors acknowledge their methods are incapable of making that determination.  However, they opine that it may, in part, be related to physiological acclimatization (human adaptation) to temperature.

Whatever the cause, one thing is certain: despite current temperatures rising to levels characterized by the IPCC and others as unprecedented over the past two millennia or more, the relative risk of temperature-related human mortality events has not increased, which observation is just the opposite of climate alarmist projections.

 

Reference

Arbuthnott, K., Hajat, S., Heaviside, C. and Vardoulakis, S. 2016. Changes in population susceptibility to heat and cold over time: assessing adaptation to climate change. Environmental Health 15: 33, DOI 10.1186/s12940-016-0102-7.

Only 17 percent of Italy’s money supply (M3) is accounted for by State money produced by the European Central Bank (ECB). The remaining 87 percent is Bank money produced by commercial banks through deposit creation. So, Italy’s banks are an important contributor to the money supply and, ultimately, the economy.

In anticipation of poor results from the Italian banks’ stress tests (which will be reported on July 29th), Italy’s Prime Minister, Matteo Renzi, has indicated that his government will unilaterally pump billions of euros into Italy’s troubled banks to recapitalize them, so that they can continue to extend credit and contribute to the growth of Italy’s broad money supply. There is a problem with this approach: it is not allowed under new EU rules. These rules require that bank bondholders take losses (a bail-in) before government bailout money can be deployed. But, in Italy, a big chunk of bank debt (bonds) is held by retail investors. These retail investors vote in large numbers. So, the EU bail-in regulation, if invoked, will certainly put Renzi’s neck on the chopping block. And that will come sooner rather than later because the Prime Minister has called for a referendum on Italy’s constitution in October and stated that he’ll resign if the referendum is voted down.

It’s no surprise that Renzi has his eye on banks. It’s also easy to see why he is worried and ready to pull the trigger on a state-sponsored bank bailout. The accompanying chart on non-performing loans should be cause for concern.

To put the non-performing loans into perspective, there is nothing better than the Texas Ratio (TR). The TR is the book value of all non-performing assets divided by equity capital plus loan loss reserves. Only tangible equity capital is included in the denominator. Intangible capital — like goodwill — is excluded.

So, the denominator is the defense against bad loans wiping the bank out, forcing it into insolvency. A TR over 100 percent means that a bank is skating on thin ice. Indeed, if the non-performing loans were written off, a bank with a TR in excess of 100 percent would be wiped out. All of the five big Italian banks in the accompanying table — including the Banca Monte dei Paschi di Siena (BMPS), the world’s oldest bank — fall into this ignominious category.

They need to be recapitalized. This could be done by issuing new shares on the market. But, all these banks’ shares are trading well below their book values. BMPS’ price is only about 10 percent of its book value, and Intesa Sanpaolo (the best of the lot) is only about 66 percent. In consequence, any new shares issued on the market would dilute existing shareholders and be unattractive. This is why an Italian state rescue is the most attractive source for the recapitalization.

As the Financial Times reported on 12 July, Saudi Arabia’s oil-output reached record highs in June 2016. Increasing production 280,000 barrels/day to 10.6m b/d, Saudi Arabia has once again waved off OPEC’s request not to glut the market with oil. 

As it turns out, economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping. 

Let’s take a look at the simple analytics of production. The economic production rate for oil is determined by the following equation: P – V = MC, where P is the current market price of a barrel of oil, V is the present value of a barrel of reserves, and MC is the marginal recovery cost of a barrel of oil.

To understand the economics that drive the Saudis to increase their production, we must understand the forces that tend to raise the Saudis’ discount rates. To determine the present value of a barrel of reserves (V in our production equation), we must forecast the price that would be received from liquidating a barrel of reserves at some future date and then discount this price to present value. In consequence, when the discount rate is raised, the value of reserves (V) falls, the gross value of current production (P – V) rises, and increased rates of current production are justified.

When it comes to the political instability in the Middle East, the popular view is that increased tensions in the region will reduce oil production. However, economic analysis suggests that political instability and tensions (read: less certain property rights) will work to increase oil production.

Let’s suppose that the real risk-adjusted rate of discount, without any prospect of property expropriation, is 20% for the Saudis. Now, consider what happens to the discount rate if there is a 50-50 chance that a belligerent will overthrow the House of Saud within the next 10 years. In this case, in any given year, there would be a 6.7% chance of an overthrow. This risk to the Saudis would cause them to compute a new real risk-adjusted rate of discount, with the prospect of having their oil reserves expropriated. In this example, the relevant discount rate would increase to 28.6% from 20% (see the accompanying table for alternative scenarios). This increase in the discount rate will cause the present value of reserves to decrease dramatically. For example, the present value of $1 in 10 years at 20% is $0.16, while it is worth only $0.08 at 28.6%. The reduction in the present value of reserves will make increased current production more attractive because the gross value of current production (P – V) will be higher.

 

So, the Saudi princes are panicked and pumping oil today – a take the money and run strategy – because they know the oil reserves might not be theirs tomorrow. As they say, the neighborhood is unstable. In consequence, property rights are problematic. This state of affairs results in the rapid exploitation of oil reserves.

Ah, tax credits. The answer to all of our environmental, social, and urban cares. Or so they say.

This spring, Senator Maria Cantwell (D-WA) and Senator Orrin Hatch (R-UT) cheerfully joined forces to expand the Low Income Housing Tax Credit (LIHTC) program. Their bill was subsequently referred to the Senate Finance Committee, which Hatch chairs. LIHTC provides select developers with tax credits for building affordable housing units, and the newly minted Affordable Housing Credit Improvement Act of 2016 would enlarge the LIHTC program by 50%, which puts the program at about $11 billion annually. If it’s anything like previous expansions of the program, it will surely draw broad bi-partisan support.

This brings us to a rather heartwarming aspect of tax credit programs more generally: tax credits appeal to democrats and republicans alike. In an age of acute political polarization, such collaboration seems to be the essence of civility and fraternization that the American public so longs for. Or is it?

Enter the alternative hypothesis: tax credits get a free pass because people think that tax credits are free. Unfortunately, as Milton Friedman said, TANSTAAFL, or “there ain’t no such thing as a free lunch,” and someone, somewhere paid for that hotdog and chips. So the question is who’s paying for tax credits?

The answer – if you’re not utilizing the credits – is probably you. That is because although select businesses or individuals are writing off taxes owed, the total U.S. tax burden is consistent or growing. Unlike across-the-board cuts that reduce taxes for everyone and are designed to support economic growth, LIHTC and other tax credit programs choose special businesses or individuals to reduce taxes for. So in the absence of reductions in spending, you’re just moving the money around, akin to any other direct subsidy (e.g. ethanol). When Uncle Sam needs to collect, the American tax payer is still on the hook.

Of course indirectly, we all “pay” for tax credits due to the slower economic growth caused by the misallocation of capital.

What’s more, tax credits operate outside of the annual Congressional appropriations process, and do not appear as an expenditure on the federal budget. In other words, a tax credit program may be completely ineffective at accomplishing program goals and never warrant so much as a side-eye come budget season.

This is particularly problematic for LIHTC, which National Bureau of Economic Research, Journal of Housing Economics, and Journal of Public Economics studies all found subsidize affordable units by displacing affordable units that would otherwise be provided by the private market. Economist Ed Glaeser agrees: “current research finds that LIHTC is not very effective along any important dimension—other than to benefit developers and their investors.” In other words, rather than improving welfare, LIHTC may actually just improve corporate welfare.

In the case of LIHTC and other tax credit programs, regular budgetary oversight would provide an opportunity to determine whether there is a better use for our collective resources, whether the program is achieving its objectives, and whether the country has the political will to continue supporting the program. Yet tax credit programs are protected from these basic questions by their very design.

And that is why tax credits are a problem. But out of sight on the federal budget outlay, out of mind. In the meantime, Congress will continue to play a cute little bipartisan game until American taxpayers get suspicious about all of that celebrated bipartisan collaboration happening in Washington. 

“We are going to have an immigration system that works, but one that works for the American people,” Donald Trump told the Republican National Convention last week. “Decades of record immigration have produced lower wages and higher unemployment for our citizens.” But the candidate is wrong in two respects. First, the United States has not seen “record” immigration in recent years, and second, higher immigration is not associated with higher unemployment. Immigrants are heralds of growth, not portents of economic disaster. 

Recent immigration is no record

The amount of immigration to the United States can be measured in two ways. The most obvious is the absolute number of people receiving permanent residency in the United States. By this measure, the peak year was 1991 with 1.8 million. Even by this measure, Trump is wrong. Rather than “decades of record immigration,” out of the top ten highest levels of all time, five occurred since 1990 and five before 1915.

But measuring immigration in terms of the absolute number of permanent residents is narrow and misleading. The biggest problem is that it implies that a million immigrants entering China, with a population of 1.4 billion, would have the same effect on employment as a million entering Estonia with a population of 1.2 million. Clearly, to understand the impact of immigration, you need to control for the size of the destination country.

Table 1: Top Ten Immigration Rates and Immigration Levels 1820 to 2014

  Year Rate   Year Number 1 1854 1.61% 1 1991 1,826,595 2 1850 1.59% 2 1990 1,535,872 3 1851 1.58% 3 1907 1,285,349 4 1882 1.50% 4 2006 1,266,129 5 1852 1.49% 5 1914 1,218,480 6 1907 1.48% 6 1913 1,197,892 7 1853 1.43% 7 2009 1,130,818 8 1849 1.31% 8 2005 1,122,257 9 1881 1.30% 9 2008 1,107,126 10 1906 1.29% 10 1906 1,100,735 Present 2014 0.32% Present 2014 1,016,518

Source: Department of Homeland Security. “2014 Yearbook of Immigration Statistics.”  

By this measure, that “record year” of 1990 comes in 52nd overall. Rather than decades of record immigration, we see decades of below average immigration. Indeed, per capita immigration during the current decade is almost 30 percent lower than the historical average, and five times less than the record rates in the 19th and 20th centuries.

Figure 1: Immigration Rates (1820 to 2014) and Unemployment Rates (1890 to 2014)

Sources: Immigration: Department of Homeland Security. “2014 Yearbook of Immigration Statistics.” Unemployment: Census Bureau. “Bicentennial Edition: Historical Statistics of the United States, Colonial Times to 1970.” p. 135 and Bureau of Labor Statistics via Federal Reserve Bank of St. Louis. “Fred Economic Data: Civil Unemployment Rate.” 

Higher immigration is not associated with higher unemployment

The other obvious aspect of the above visual is that the years with higher immigration do not coincide with the years with highest unemployment.* In fact, the reverse is true. Unemployment is highest when immigration is lowest. During years when immigration was above the historical average, unemployment was 5.7 percent. During all other years, it was 7.2 percent, a difference of 1.5 percent. If you exclude years where unemployment dropped solely because of the draft, during the World Wars, the difference rises to 1.8 percent.

Figure 2: Unemployment During Years with Immigration Rates Above and Below the Average (1890-2014)

Sources: See figure 1.

This relationship is statistically significant, but its magnitude is obscured by non-market phenomena, such as the draft as well as immigration quotas that interfere with market forces. If we confine our focus to the pre-World War I period, we can see a much higher degree of coincidence between low unemployment and high immigration.

Figure 3: Immigration and Unemployment Rates (1890 to 1915)

Sources: See figure 1.

The years in which the immigration rate exceeded the average for the period had an unemployment rate 5.5 percent lower than those below the average. The magnitude of the relationship is also quite large: roughly 20 percent of the variability in the immigration rate can be explained by the unemployment rate alone over this period.

The relationship becomes much stronger when you focus on economic migrants only. I’ve previously noted this phenomenon in H-1B temporary work visa applications. When unemployment is high in the top H-1B fields, employers submit dramatically fewer applications. Companies hire foreign workers when they are making general increases in employment, not when they are laying off workers.

To be clear, immigrants are not causing the unemployment rate to move up or down. The economic literature on this point is quite unambiguous: immigrants cause essentially no effect on the unemployment rate one way or another. Rather, the causation is the other direction. Immigrants come during periods of economic growth when companies are hiring new workers, both immigrants and natives.

Trump is mistaken to associate unemployment with immigrants. They are a sign of good times, not bad.

 

*Unemployment did not begin in 1890, but that is the first year in which comparable numbers are available. Note that pre-1948 numbers refer to individuals over the age of 14, all others over 16

On June 23, Britain voted by a margin of 52 to 48 percent to leave the European Union (EU). Much ink has already been spilled on the policy implications of that vote and, indeed, its long-run consequences may prove quite profound. When it comes to financial regulation, however, it is difficult to see any significant changes emerging in the short- to medium-term. There are a couple of fundamental reasons for this.

The first stems from the fact that the British financial sector is desperate to maintain its current access to the European Economic Area (EEA), also known as the “single market.” As things stand, a process known as “passporting” allows British financial firms to do business throughout the single market, whether on a cross-border basis or by establishing branches, without having to get separate regulatory approval in every jurisdiction. This arrangement is important to the industry and — given that financial services produce 8 percent of the UK’s output — the British government is likely to make its continuation after Brexit a priority.

But how can they bring that about? The most straightforward path is for Britain to leave the EU, but remain a member of the EEA. This approach, often referred to as the “Norway option,” would see Britain exit the EU’s centralized political institutions, while still participating fully in its “four freedoms” — that is, the free movement of goods, services, capital, and people. There is much to commend such a settlement, as I’ve written before. But if it did come to pass, Britain’s financial sector would clearly be subject to EU rules in much the same way as it is now.

There’s also a political problem with EEA membership: namely, it wouldn’t allow the British government to pursue its stated aim of controlling immigration from the EU. That suggests that the obvious alternative — a bilateral, post-Brexit trade treaty — might be the more likely outcome of Britain’s eventual withdrawal. Such a treaty could, theoretically, protect the British financial sector’s passporting rights. However, the quid pro quo for market access of that sort would undoubtedly be regulatory equivalence — that is, the European Commission would have to deem British regulation equivalent to EU rules before any passporting could take place. The handful of existing EU directives that provide “third country” financial firms access to the single market work in precisely this way. Ultimately, then, there are unlikely to be any major reforms to British financial regulation so long as the British financial services industry maintains access to the single market.

What if the Brexit negotiations do not result in single market access for British financial firms? This is by no means an improbable outcome: the UK will have to give something up if it wants to restrict EU immigration, and EU negotiators may consider financial services trade the best area in which to extract their pound of flesh (not least because Paris, Amsterdam, and Frankfurt are ready to capture any business that Britain loses). In those circumstances, the British government might just consider a program of regulatory reform, designed to make the City of London more competitive against light-touch financial centers like Hong Kong and Singapore.

But I wouldn’t count on that, because it’s not just the desire for continued single market access that suggests British financial regulation is unlikely to change much after Brexit. In fact, one of the most important — and perhaps least remarked upon — developments in post-crisis financial regulation is that it increasingly starts at the global level. Take the EU’s Capital Requirements Directive IV (CRD IV), which sets out prudential rules for banks, building societies, and investment firms: prima facie, that’s EU legislation, which the UK might no longer be bound by after Brexit; in reality, though, CRD IV mostly implements the Basel III agreement, which means the essence of that directive would continue to apply to Britain whatever happens at the EU level. And CRD IV is just the tip of the iceberg: from insurance to accounting standards, more and more financial regulation is coming from global institutions.*

Britain, moreover, has been an enthusiastic participant in the globalization of financial regulation—so much so that Mark Carney, the governor of the Bank of England (and Britain’s de facto chief financial regulator), is also the chairman of the G20’s Financial Stability Board, which coordinates the regulatory work of national authorities and international standard-setting bodies. As a House of Lords report on the post-crisis EU financial regulatory framework put it, “it is likely that the UK would have implemented the vast bulk of the financial sector regulatory framework had it acted unilaterally, not least because it was closely engaged in the development of the international standards from which much EU legislation derives.” None of this bodes well for those hoping Brexit will lead to liberalization.

There is, however, a larger point to be made here, and that’s that it isn’t at all clear globalized financial regulation is a good thing. There’s nothing wrong with regulators sharing best practices, of course, and still less to object to in efforts to eliminate regulatory barriers to trade. Nevertheless, the global harmonization of financial regulation may actually pose a threat to financial stability, since it tends to impose a single view of risk on financial firms around the world, and therefore encourages herding around particular investments and business strategies. If the regulators’ view of risk turns out to be wrong (let’s imagine that globally-agreed rules encourage banks to invest in, say, mortgage-backed derivatives, or Greek sovereign debt), you may end up with a systemic, global crisis on your hands—precisely the opposite of what regulatory harmonizers set out to achieve. Financial regulators would do better, I think, to let a thousand flowers bloom — both domestically, and internationally.

Sadly, I wouldn’t bank on Brexit doing anything to advance that point of view.

_______________

*Chapter 16 of “Flexcit: A plan for leaving the European Union” offers a helpful analysis of the extent to which EU financial regulation has international origins. This report, originally authored by Richard A. E. North, is also where I discovered the quote from the House of Lords European Union Committee that I have reproduced and linked to above.

[Cross-posted from Alt-M.org]

Cato adjunct scholar Flemming Rose who recently won the 2016 Friedman Prize for Advancing Liberty has been disinvited from speaking at the University of Cape Town in South Africa. The academic freedom committee of the university had asked Rose to give the annual TB Davie Academic Freedom Lecture. The Vice Chancellor of the university rescinded the invitation. He argued that Rose’s lecture might divide the campus leading to protests and even violence. He also said having Rose “might retard rather than advance academic freedom on campus”. The last statement will remind many people of Doublespeak.

Fortunately, this injustice has prompted several principled defenses of free speech.

Kenan Malik, an English writer and broadcaster, who gave the TB Davie lecture last year, makes the case for open debate and defends Rose.

Nadine Strossen, a former ACLU president and current law professor at New York University, quickly provided a comprehensive critique of the decision. Professor Strossen adds her comments about Flemming Rose that she gave at the Friedman Prize dinner.

Ronald K.L. Collins, a law professor at the University of Washington who runs the First Amendment News blog, has challenged an administrator at the University of Cape Town to reply to these critiques. Collins has done the right thing: a bad decision has led to critical speech which now invites a response.

Finally, Flemming Rose himself has replied, citing his recent defense of free speech for radical imams: “A more diverse society needs more free speech, not less.” He continues:

It’s really a sign of poor judgment and bad academic standards to disinvite me on the basis of what other people say about me, when I have published a book that covers my own story, which tells how my views on politics were formed and analyses the history of tolerance and free speech. The book is not only focusing on Islam. I write about the Russian Orthodox’ Church silencing of criticism, Hindu-nationalists attacks on an Indian Muslim artist and so on and so forth. Why use second-hand sources when you can read the primary source in English and make up your mind?

Why not indeed? Rose’s book, The Tyranny of Silence: How One Cartoon Ignited a Global Debate on the Future of Free Speech published by Cato in 2014 may be found here or at your local bookseller.

 

Last year, a company called Flytenow was poised to revolutionize air travel by allowing private pilots already going to a destination to share their costs with would-be travelers—kind of like a college rideshare bulletin board, but on the Internet. The service would pair pilots with potential passengers, for a small fee no greater than the cost of fuel. It’s been called “Uber in the sky.” But in December, Flytenow shut down after the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Aviation Administration’s determination that the service must obtain the highest levels of licensing, akin to what major airlines and their pilots secure.

The FAA decided that these pilots were not simple private individuals sharing cost, but were “common carriers,” subject to heightened liability and expensive professional licensing. Common carriers—like buses, trains, and commercial airlines—have been treated specially in the law since medieval times, and they differ from Flytenow’s online bulletin board.

As Flytenow seeks review in the Supreme Court, Cato Institute, joined by TechFreedom, has filed an amicus brief in support.

First, “common carriage” is a term defined by common law, stretching back to way before the founding of the FAA—indeed hundreds of years before the Wright Brothers—and the FAA’s interpretation here directly contravenes that established meaning. One glaring consistency across the last 600 years of common law is that the carrier must hold itself out for indiscriminate public hire. Flytenow pilots, as a matter of right, can turn down any passenger for any reason (or no reason) and thus are by definition not common carriers. This alone is reason enough to reverse the court’s decision and overturn the FAA ruling.

But second, and more basically, the D.C. Circuit granted very broad deference to the FAA’s interpretation of what constitutes common carriage, despite that being a term defined at common law. Courts often defer to an agency’s expertise in a particular subject matter—which essentially means that the agency’s decision is usually upheld under some “deference” framework. But according to the Supreme Court’s ruling in Texas Gas Transmission Corp. v. Shell Oil Co. (1960), when an agency interprets the common law, a reviewing court shouldn’t simply defer to the agency’s interpretation.

That makes perfect sense: there is no greater expert in the common law than the courts, and the FAA lacks the expertise to engage in judicial decisionmaking. But instead of applying any existing law on the negligible deference that is due to agencies interpreting common-law terms, the D.C. Circuit went off on a doctrinal frolic entirely of its own invention. The lower court thereby not only contravened Texas Gas, but also went far beyond what little latitude any other circuit court had given agencies interpreting common-law terms.

By doing so, the court plainly delegates to the FAA what is “the province and duty of the judicial department,” which is to “interpret” the common law and “say what the law is.” Marbury v. Madison (1803). Such a delegation offends constitutional order and the separation of powers. Because the D.C. Circuit has neatly packed an abdication of the judicial role into a decision that contravenes 600 years of established law, we urge the Supreme Court to take up the case.

The justices will decide early in the new term this fall whether to review Flytenow, Inc. v. FAA.

 

The recent abortive military coup in Turkey has led not to a restoration of democracy and the rule of law in that country, but to an acceleration of already worrisome trends toward a dictatorship with Islamist overtones.  When the would-be junta made its play for power, the Obama administration quickly expressed support for President Recep Tayyip Erdogan’s beleaguered government, as did most of Turkey’s NATO partners.  When the coup attempt collapsed, leaders of those governments breathed a sigh of relief that the Alliance did not have to confront the embarrassment (or worse) of a member state governed by a military dictatorship.

That sense of relief was short lived.  In a matter of days, Erdogan purged not only hundreds of high-ranking military officers, (a step for which there was at least reasonable justification), he went after other institutions that had long impeded his attempts at increasingly autocratic rule.  Nearly 3,000 judges were removed and arrested.  He even fired 21,000 teachers from the country’s school system.  The extent and speed of the systematic purge confirms that Erdogan simply used the attempted coup as a pretext for a plan long in place.  The United States now confronts the problem of a NATO ally that is a dictatorship in all but name.

The frustrations with Turkey should have been building for years, if not decades.  After all, U.S. officials were under pressure to look the other way as Turkey invaded Cyprus in 1974 and continued to illegally occupy the northern portion of that country ever since.  Washington offered no more than feeble protests when Ankara established the puppet Turkish Republic of Northern Cyprus in the occupied territories and moved in tens of thousands of settlers from the Turkish mainland.  Such indifference makes U.S. expressions of outrage over Russia’s annexation of Crimea seem more than a little hypocritical.

More recently, Erdogan has systematically eroded the foundations of not only Turkey’s democratic institutions, but even the secular orientation put in place by modern Turkey’s founder, Mustafa Kemal Ataturk, after World War I.  The crackdown on a free press and the harassment of political opponents has grown steadily worse over the past two or three years.  Even before the post-coup purges, those authoritarian trends had reached alarming levels.  Today’s Turkey more closely resembles Putin’s Russia than it does a genuine Western democracy.

When the nation’s vital security interests are truly imperiled, it is sometimes necessary to make common cause with even sleazy allies.  Britain and the United States had to cooperate with Josef Stalin’s murderous Soviet Union to counter Adolf Hitler.  But such moral compromises need to be extraordinary exceptions, not done casually.  As Turkey sinks into blatantly authoritarian rule, the primary justification for retaining a close security relationship is Ankara’s relevance in sustaining Washington’s hyper-interventionist policy in the Middle East.  Since the evidence is overwhelming that that policy is a disaster and should be rescinded, U.S. officials also ought to reconsider its ties to Turkey. 

As part of that process, Washington should, as it applies to Turkey, immediately repudiate the provision in article 5 of the North Atlantic Treaty that considers an attack on one member as an attack on all and obligates the United States to render assistance.  It is bad enough for U.S. leaders to risk the lives of the American people to defend a liberal democratic ally that is not essential to the security of the republic.  It is much worse to incur such a risk to defend a thinly disguised dictatorship that is not essential to America’s security.  Yet that is the situation we now face with Turkey.  We need to adopt a much more cautious relationship with an increasingly unsavory regime. 

In an act of extreme tangent tying, former New Mexico governor Bill Richardson just penned an op-ed linking Donald Trump’s wall-building immigration stance to his attacks on the Common Core national curriculum standards. The message Richardson may be trying to send: bigots don’t want Hispanics in the country, or able to access “high academic standards” when they’re here.

I’ll let others debate Trump’s motives, but I can speak for myself—and probably the vast majority of Core opponents—that none of my opposition to the Core is based on anti-Hispanic sentiment or a desire to keep anyone down. It is rooted only in the concerns I have constantly expressed: having a single, federally driven set of standards would stifle innovation; makes little sense considering that all children are unique individuals; and has no meaningful research backing. Others believe that the Core simply is not a good enough set of standards.

Richardson offers no evidence to refute any of the highly substantive objections that have been made for years and have helped render the Core a largely bipartisan pariah. He just pronounces that the standards “equip students with the critical thinking and problem-solving skills that are essential to success in the 21st-century economy.” Then he attacks Trump again.

Far too often Core defenders have ignored powerful, important objections—and dodged serious debate—in favor of caricaturing Core opponents. Awkwardly tying Core opposition to anti-Hispanic animus seems to be more of the same.

The Pentagon awaits authority from Congress to repurpose military bases. Fears of the potentially harmfully economic effects on local communities when bases close largely explain Congress’s intransigence. The Base Realignment and Closure (BRAC) process was created in the late 1980s to allow closures to occur without forcing individual members to vote for them. It was a dodge, to be sure, but it worked: in five successive rounds, the military was able to eliminate some of its excess infrastructure and overhead.

But the problem hasn’t gone away. The Pentagon estimates that its physical footprint will exceed its needs by more than 20 percent by 2019.

A few Democrats in Congress are trying to help.

“We need to provide the Department of Defense flexibility to find savings and efficiencies wherever it can in order to support our warfighters,” explained Rep. Adam Smith (D-Wash.), top Democrat on the House Armed Services Committee. “That is especially true now, as Congress continues to strain the military by funding it through short-term budget agreements. We should not be making the military cut training and supplies while at the same time refusing to let DOD save money that we know is not being used productively.”

Smith has a point. But base reuse is about much more than allowing the military to allocate its resources wisely. Transitioning bases to non-military uses allows local communities to do so, too.

While the Democrats are in Philadelphia this week for their nominating convention, they should take a trip to visit one of the bases closed during the BRAC process – now known as The Navy Yard. POLITICO has a great profile of the place here. I wrote about it in this new book.

As I explain over at The Skeptics:

the C in BRAC is misleading. Bases aren’t closed. Properly managed, and with a little bit of luck, most former military facilities are repurposed for other chiefly nonmilitary pursuits. And some make the transition quite quickly.

Of the fifteen instances of defense conversion that I’ve studied so far, Philadelphia’s Navy Yard is one of the most impressive….

[…]

Philadelphia has a lot of things going for it, but I hope city officials make a point of bragging to visitors from the nation’s capital this week about what has happened to their former military base. They might even give them a tour. If they do, it could weaken opposition in Congress to another round of base closures, which is so desperately needed. Indeed, the opponents might come around to the view that the opening of a nearby base is precisely the boost that a flagging local economy needs.

Here’s an idea. Six other Democrats co-sponsored Rep. Smith’s latest bill that would allow a new BRAC: Reps. Sam Farr (Calif.), Susan Davis (Calif.), Jim Cooper (Tenn.), Madeleine Bordallo (Guam), Jackie Speier (Calif.) and Beto O’Rourke (Texas). I’ll bet that a few of them will be in Philly.

Last month, Rep. O’Rourke tried to attach an amendment to the National Defense Authorization Act that would have lifted the ban on base closures, but it was soundly defeated, 263-157. 53 Democrats, listed below, voted no. I’m guessing that they’ll be at the convention, too.

Perhaps Smith and his six co-sponsors could escort a few of them down to the Navy Yard? I think they’ll all like the trip.

Does the American Dream exist? Are poor but highly skilled individuals able to achieve their full potential? These questions are at the heart of recent episodes of Malcom Gladwell’s new podcast, Revisionist History.

In “Carlos Doesn’t Remember,” Gladwell examines the idea of “capitalization,” or how well America makes use of its human potential. Americans typically believe people are able to climb the ladder to success through hard work and determination, but Gladwell uses the story of one smart, low-income student to express doubts about American meritocracy.

“Carlos” is a bright but low-income student in Los Angeles, who secured a spot at an elite private school thanks to entertainment lawyer Eric Eisner’s YES program. The episode is a stark reminder that low-income students—even the most talented ones—face large barriers to success. Gladwell calls Carlos’ journey a “one in a million shot.” He identifies two large obstacles that smart, low-income students must overcome, but fails to discuss the best solution to these problems: school choice. The public education system traps students like Carlos in underperforming schools that Gladwell likens to concentration camps, but choice policies could help more poor students like Carlos access good schools.

The first barrier to success is a lack of advocates for talented, low-income students. But must it take an Eric Eisner to discover such kids and help them capitalize on their potential? The underlying assumption is that advocates will not be parents or teachers, but only rare, outside forces.

Really? Most parents want the best for their children, and work hard to give them opportunities for success. The problem may well be that wealthier families can access private institutions or choose expensive homes zoned for high-quality public schools, while low-income families are relegated to cheap addresses assigning them to subpar schools. Low-income parents, as Gladwell and others imply, are not necessarily uninformed or uncaring. They just lack the resources of wealthier families.

School choice policies help to give parents those resources. In The School Choice Journey, Thomas Stewart and Patrick Wolf show that given choices, low-income parents transition from passive clients to active consumers, seeking out information on options for their children.

Carlos’ situation is different: his parents were not in a position to advocate for him, and he spent time in foster care. But choice also benefits students like him by spurring quality improvements in public schools. Thirty-one of 33 studies found that the competition from school choice had positive effects on neighboring public school performance. Moreover, as more talented students take advantage of choice programs, there remain fewer students for the Eric Eisners of the world to discover. Gladwell’s narrative suggests the capitalization issue is predominantly about students like Carlos, but Carlos’ case is extreme, and school choice has the potential to greatly improve capitalization for the majority of low-income students.

Teachers can also serve as advocates for low-income students, but underperforming public schools are less likely to staff and retain good quality teachers. In a study of in-school inputs and educational achievement, Eric Hanushek identified teacher quality as the most important factor to student success and upward mobility. By empowering low-income students to access schools with superior teachers, school choice would position students to capitalize on their potential.

The second barrier to success that Gladwell identifies is geographic location. Carlos had to travel long distances to find the best school. This anecdote squares with research suggesting a negative relationship between urban sprawl and upward mobility. The odds of economic success vary by neighborhood, with the best opportunities for success largely in relatively wealthy neighborhoods. However, residential income segregation is at least partially a result of assigning schools based on home address, with well-to-do families choosing districts with good schools. School choice policies have the potential to sever this link, enabling economic integration in urban areas. Thomas Nechyba sums it up: “To the extent that a voucher causes someone who previously chose public schools to switch to private schools, the same price incentive to settle in the poor rather than the rich district applies.”

Gladwell ends by saying, “Don’t call this story inspirational, because it’s not. It’s depressing.” Carlos was lucky, but Gladwell cites a disheartening study estimating that there are 35,000 smart, poor students every year who don’t apply to top colleges. They don’t have the resources and information to access top schools, and there aren’t enough Eric Eisners to help them all. School choice policies could set such kids on a successful track from an earlier age, giving them the tools to capitalize on their talent.

The story Gladwell tells is depressing, but school choice could make it inspirational.

Why is government so often dysfunctional? Why is it, in contrast to the voluntary sector of society, so often slow, inefficient, wasteful, and counterproductive? Peter Schuck explored the question at length recently in his book Why Government Fails So Often. Chris Edwards offers a shorter and more libertarian analysis in a recent Cato policy study. But maybe these two new stories from the past few days shed some light on the question, first from Washington, D.C.:

Metro officials fired a senior mechanic just weeks after the L’Enfant Plaza smoke incident last year, alleging that he failed to properly inspect a tunnel fan, falsified an inspection report, and later lied about it to investigators.

But now, the largest union representing Metro workers is fighting the transit agency to have the mechanic reinstated.

Seyoum Haile, a 13-year Metro veteran, was terminated one month after the January 2015 incident that resulted in the death of a passenger — but arbitrators said he should be suspended instead, and now the Amalgamated Transit Union Local 689 is suing to get him back on the job.

Meanwhile, in Miami:

National condemnation has been swift today after video showed Charles Kinsey, an unarmed black behavioral tech trying to help an autistic patient, holding his arms in the air before a North Miami Police officer shoots him. But Miami’s two most prominent police union chiefs have now leaped to the officer’s defense. 

John Rivera, who leads the Dade County Police Benevolent Association, says the officer was actually trying to protect Kinsey because he believed the autistic man, who was holding a toy truck, had a gun — but then he accidentally shot Kinsey instead. 

For more on the consequences of government employee unions, see here and here.

Presidential candidate Hillary Clinton has named Senator Tim Kaine as her running mate. Kaine was governor of Virginia from January 2006 to January 2010. I assessed Kaine on Cato’s fiscal report card in 2008, and he received a low grade of “D.”

I found:

Governor Kaine has campaigned vigorously to raise taxes and fees to fund higher transportation spending. In 2007, Kaine helped pass a large revenue package that included tax and fee increases, higher penalties for driving infractions, and the creation of regional taxing authorities within Virginia. The Virginia Supreme Court struck down the unelected tax authorities, and citizens hated the new driver penalties so much that they were repealed. Kaine supported a few tax cuts in 2007, including an increase in the bottom threshold of the individual income tax and a repeal of the estate tax. But in 2008, he is promoting an even bigger transportation plan that would increase taxes and fees by $1.1 billion annually, and he is advocating higher state borrowing to fund education and transportation. On spending, Kaine promoted a big increase in his first budget, but has favored greater restraint since then.

In Kaine’s first year, general fund spending jumped a remarkable 17 percent. But spending was flat the second year, and then declined 14 percent during Kaine’s final two years as the economy entered recession. Richmond Times-Dispatch columnist Bart Hinkle gives Kaine credit for the spending cuts, but notes, “it’s clear that Kaine would much rather have preferred to balance the state budget by raising taxes.”

That was probably true of many governors at the time facing declining revenues from the sour economy. But thanks to balanced budget requirements, general fund spending across the 50 states was cut 9 percent those two years that Kaine was cutting.

Politifact says that Kaine tried unsuccessfully to raise taxes by $4 billion, which is a lot of money for a mid-sized state. Researching Kaine two and half years into his term, I included net proposed tax increases of $1.1 billion in my report. I included only one of his proposed transportation funding packages because I didn’t want to double count. Politifact may have included multiple transportation packages in its tally. Also, my report did not cover Kaine’s $1.9 billion proposed income tax increase in 2009, which the Washington Post discusses here.

Hinkle calls Kaine an “affable ideologue.” That’s a good description of Trump running mate Mike Pence as well, whose fiscal ideology of spending restraint and tax cutting earned him an “A” from Cato.

Now a study has attached numbers to what we’ve known for a long time: giving attention to terrorists encourages terrorism. A study by Michael Jetter, professor at the School of Economics and Finance at Universidad EAFIT in Medellín, Colombia, and research fellow at the Institute for the Study of Labour in Bonn, Germany, finds a clear link between the number of news articles devoted to an initial terrorist incident and the number of follow-up attacks. A New York Times article about an attack in a particular country will increase the number of ensuing attacks in the same country by between 11 percent and 15 percent.

The simple solution is disallowed by our fundamental law of free speech. But consumers can demand less aggrandizement of terror incidents from the media and politicians. The practice in journalism of declining to name rape victims could be extended in modified form to terror organizations and leaders.

There is no reason to keep information about terrorists and terror groups secret, but more muted references to them will decrease the success of attacks by reducing the awareness of potential recruits, for example. Potential terrorists are susceptible to discouragement through diminished public information because many have a room temperature IQ (on the Celsius scale).

In our edited volume, Terrorizing Ourselves, Chris Preble, Ben Friedman, and I included two chapters that relate to this topic: “The Impact of Fear on Public Thinking about Counterterrorism Policy: Implications for Communicators,” by Priscilla Lewis, and “Communicating about Threat: Toward a Resilient Response to Terrorism,” by William Burns.

Several senators recently introduced a bill that would delay the hiring of H-1B high skilled foreign workers in order to give Americans extra time to apply, saying it would make the program “consistent with Congress’s original intent.” But the lack of this provision was no oversight. The authors of the H-1B law wanted the visa to be able to rapidly respond to U.S. labor market needs, not get bogged down in regulatory red tape.

The Immigration Act of 1990 created the H-1B visa. Previously, there was just one H-1 category for skilled professionals that was uncapped and had no labor restrictions. The 1990 act imposed a cap for the first time and required that H-1Bs be paid the “prevailing wage” for their occupation in the area of employment. The theory was that U.S. businesses would have no reason to prefer foreign workers if they had to pay them as much as they paid Americans.

Although the bill did have several restrictive measures, the absence of a recruitment mandate was intentionally left out for a very good reason. 

Just 3 years prior to the introduction of the 1990 Immigration Act, Congress created the H-2A visa for seasonal farm workers and mandated that H-2A employers make “positive recruitment efforts” of U.S. workers prior to hiring foreign workers. Regulators translated this to mean that a farmer needed to spend 60 days advertising and accepting referrals of U.S. employees from state employment offices.

If H-1B crafters wanted to impose a recruitment requirement, they knew how. Indeed, the lead cosponsor of the 1990 bill, Sen. Alan Simpson, was also the author of the H-2A language. “Congress also expressly determined,” wrote immigration attorney Angelo Paparelli just after the enacting regulations were announced in 1991, “that the H-1B ‘attestation-like’ procedures… should be a speedy streamlined process with no recruitment requirement.”

The senators who drafted the 1990 act had a very specific reason in mind when they declined to include such language. Unlike the H-2A, H-1B jobs are not limited to “seasonal” positions, meaning that any recruitment would typically have to take place while the job was open. This means that an H-1B recruitment requirement would have guaranteed that companies would be losing productivity throughout the period.

For example, if Facebook, Amazon, Microsoft, Apple, or Google misses out on a higher-skilled worker for 60 days, the economic damage would be a sixth of the person’s annual salary, and since their typical H-1B worker’s annual salary is more than $100,000, that’s more than $16,600 in losses that such a mandate would automatically impose per hire. In recent years, Microsoft has submitted about 4,000 H-1B applications each year. That would be $66 million in guaranteed losses every year for a single company.

This lost productivity translates into fewer innovations and higher prices for American consumers. That’s why the Senate Judiciary Committee’s report on the 1990 bill emphasized that “the H(i)(b) ‘specialty occupations’ are subject to a modified attestation without a recruitment requirement, or challenge except after the attestation is in effect and the alien has entered the country” (emphasis in original).

This concern about delays for high skilled immigrants was widespread. Sen. Arlen Specter noted at the time, “Those waiting [for a green card] have to wait a full year to come in. The United States is deprived of their talents for a full year.” Sen. Slade Gorton joined him, bemoaning “time delays in transferring highly skilled or professional personnel to U.S. businesses.”

Sen. Jesse Helms added that “it is frankly embarrassing to hear foreign business leaders tell of the uncertainty and frustration they encounter when applying for permission to transfer key managers to our country.” On these grounds, Sen. Specter’s amendment to increase employment-based green cards passed overwhelmingly.

While it is true that those green cards required a labor market test, the bill authors included a provision specifically intended to allow companies who needed workers immediately to use the H-1B while they worked through this process. The provision, known as dual intent, allows H-1B workers, unlike all other temporary workers, to adjust their status to permanent residency while already working in the United States.

The H-1B authors constructed a system where it was difficult to obtain a green card, but specifically wanted to prevent businesses from losing money while they met its requirements, so they designed the H-1B as a temporary “bridge” to a green card for a limited number of workers. Today 95 percent of all skilled immigrants use this bridge to adjust from temporary status to permanent residency.

In 1998, Congress revisited the idea of a recruitment requirement in the American Competitiveness and Workforce Improvement Act, and rejected it for all companies that were not “H-1B dependent,” meaning that they had a low proportion of H-1Bs. In explaining his opposition to a blanket recruitment requirement, the author of the bill, Senator Spencer Abraham, excoriated the proposal:

We have…a recruitment process in place for permanent workers. It takes 2 years before the various hoops and regulations can be met. I am not saying that is wrong, but I am saying it is unworkable in the context of temporary workers….We cannot wait 2 years to bring in additional workers to cure the year 2000 problem [for example] because we will already be in the year 2000. In a similar sense, we simply cannot take the existing program and undermine it with these complicated bureaucratic Department of Labor regulations…

An increase in the cap would be meaningless and totally nullified if these kinds of labor provisions are included. They go too far. They would undermine the whole program… This is not a situation where we are dealing in a zero sum game. People coming in under the H-1B program are not taking jobs away from Americans…. they are creating more opportunities. That is the evidence we had before us in the committee.

That is indeed what the evidence continues to show in the vast majority of cases. But whatever the right policy, the idea that a recruitment rule would make the law “consistent with Congress’s original intent” is utterly false. Congress specifically intended to allow companies to use the H-1B to quickly respond to labor market needs. There are actions, consistent with this intent, that would help American workers compete, but a recruitment rule simply is not one of them.

Presidential candidate Donald Trump says that he will balance the federal budget while also cutting taxes. Given that the gap between federal spending and revenues is more than $500 billion and rising, he is going to need lots of spending cuts to make that happen.

In his big speech last night Trump said:

We are going to ask every department head in government to provide a list of wasteful spending projects that we can eliminate in my first 100 days. The politicians have talked about this for years, but I’m going to do it.

That’s great. Here are 10 “wasteful spending projects” (with annual costs) that Trump should put in his 100-day elimination plan:

  • Farm subsidies, which enrich wealthy landowners and harm the environment, $29 billion.
  • Energy subsidies, which have been one boondoggle after another for decades, $5 billion.
  • The war on drugs, which wastes police resources and generates violence, $15 billion.
  • Federal aid for K-12 schools, which generates huge bureaucracy and stifles innovation, $25 billion.
  • Excess pay for federal workers, especially gold-plated retirement benefits, which should be cut 10 percent to save $33 billion.
  • Housing subsidies, which distort markets and damage cities, $37 billion.
  • Community development and rural subsidies, which is corporate welfare used for buying votes, $18 billion.
  • Urban transit and passenger rail funding, which is properly a local and private responsibility, $15 billion.
  • Obamacare exchange subsidies and Medicaid expansion, which should be repealed along with the overall law, $200 billion a year by 2023.
  • TSA airport screening, which Trump said last night is “a total disaster,” and which should be devolved to local and private control, $5 billion.

In November 2008, President Obama promised to “go through our federal budget – page by page, line by line – eliminating those programs we don’t need.” He did not follow through, and neither do most politicians on such promises, as Trump noted.

Would Trump be any different? I have no idea. But I do know that the next president—whether Trump, Clinton, or Johnson—will face huge budget pressures as deficits soar and the economy possibly descends into another recession.

Federal spending cuts would help avert a fiscal crisis and boost growth by reducing economic distortions. We’ve got plenty of reform ideas at www.cato.org and DownsizingGovernment.org, and the Heritage Foundation has an impressive new study on budget reforms as well. So think tank experts know how to balance the budget—the real question is whether the next president will want to make it happen.

Economics appears to be a neutral tool, but it often subtly embeds values that we are better off surfacing and discussing. In a recent post henceforth to be known as “Economics Will Be Our Runiation I,” I pointed out how, by preferring to measure the movement of dollars, orthodox economics treats leisure as a bad thing and laments advances in technology-based entertainments.

This installment of EWBOR focuses on an interesting and insightful article recently published in the University of Pennsylvania Law Review, “An Economic Understanding of Search and Seizure Law.” In it, George Washington University Law School professor Orin Kerr shows that the Fourth Amendment helps increase the efficiency of law enforcement by accounting for external costs of investigations. Here is his model:

The net benefit of any particular investigative step can be described as P*V – Ci – Ce, where P represents the increase in probability that the crime will be solved and successfully prosecuted, V represents the net value of a successful prosecution resulting from deterrence and incapacitation, Ci represents the internal costs of the investigative step, and Ce represents its external costs.

Ci means things like the cost of training and equipping police officers and paying their salaries, as well as their own use of their time. Ce, external costs, “include privacy harms and property losses that result from an investigation that is imposed on a suspect. They also include the loss of autonomy and freedom imposed directly on the subject of the investigation (who may be guilty or innocent) as well as his family or associates.” Kerr rightly includes in Ce more diffuse burdens such as community hostility to law enforcement.

The model helps reveal interesting things. “In conducting Fourth Amendment balancing,” Kerr notes, “courts often compare absolute costs to marginal benefits or marginal costs to absolute benefits.” An example is In re Terrorist Bombings of U.S. Embassies in East Africa, 552 F.3d 157 (2008). In that case, the Second Circuit Court of Appeals found surveillance of a particular target reasonable because of “the self-evident need to investigate threats to national security presented by foreign terrorist organizations.” The court should have compared the costs of this particular instance of surveillence to the potential benefits of this particular instance of surveillance.

Kerr illustrates the merits of his model with a hypothetical in which a stolen necklace is in one of ten houses. Thirty utility units are on offer to this small society if the necklace can be found and the thief locked away. It costs five “utils” to forcibly search each house, far fewer to get consent or a warrant. The model shows that the Fourth Amendment curtails law enforcement’s inclination to impose excessive costs on the public. The public interest is served by the Fourth Amendment’s welfare-enhancing rules.

But here’s what’s hidden in this otherwise interesting and helpful thought experiment: Kerr has developed an economic model of the the Fourth Amendment as a group right. An incautious reader might be lead to believe that enhancement of the general welfare is the sine qua non of the Fourth Amendment.

You only have to tweak the numbers in Kerr’s example to see how it can be used to undercut the Fourth Amendment. Change the stolen necklace to a terrorist and up the “utils” in finding him to fifty-five. For the public good, the police can now break into and search each and every house.

The Fourth Amendment is not a group right. The sine qua non of the Fourth Amendment is “a man’s home is his castle,” with similar treatment given to his or her person, papers, and effects. The Fourth Amendment gives people an individual right against unreasonable searches and seizures, public welfare be damned. Searches and seizures must be reasonable as to that person in that particular instance, not on the whole. The Fourth Amendment allows individuals to impose inefficiency in law enforcement on society as a whole in service to the greater good of letting each individual live in a free society. There’s probably a way to model that, but I don’t know what it is.

A good defense to my criticism is that Professor Kerr’s model is intended for strictly rational assessment of V (the value of apprehension, etc.). You wouldn’t get a benefit from catching a terrorist that is greater than the cost of searching all homes. But that begs the question that the Fourth Amendment is there to answer. It’s a counter-majoritarian protection because our society and government can be expected to calculate the benefits of searching and seizing us and our things wrongly.

In the name of liberty, beware the embedded values in economics and economic models! They might not be yours!

The 2016 GOP platform states that:

“In light of the alarming levels of unemployment and underemployment in this country, it is indefensible to continue offering lawful permanent residence to more than one million foreign nationals every year.”

The GOP platform statement assumes that those on green cards take jobs from Americans, an assumption that is incorrect (see here, here, and here for more information). 

What’s actually indefensible about our green card system is how few of them come here for work purposes.  First, legal immigrant inflows to the U.S. as a percent of our population are small compared to other developed countries (Figure 1).  The only countries with fewer immigrant inflows as a percent of their populations are Portugal, Korea, Mexico, and Japan.  The United States does allow more immigration as an absolute number than any other country but we also have a very large population, making these annual flow figures seem small.

Figure 1

Immigrant Inflows as a Percent of Population, 2013

 

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada.

These relatively small immigrant flows have only produced an immigrant percentage of our population that is midrange among the OECD countries (Figure 2).  New Zealand has the highest at 28.4 percent of their population while Mexico has the lowest at 0.84 percent of theirs.  The United States is in the middle at 13 percent.  Our legal immigration system is so restrictive that without unauthorized immigrants the U.S. population of the foreign-born would only be about 9.5 percent of our population – a 28 percent reduction in present numbers.

Figure 2

Immigrant Stock as a Percent of the Population, 2013

Source: OECD.

Green card workers admitted as a percentage of the total annual immigrant inflow are far lower here than in other countries (Figure 3).  Only about 7.7 percent of all green cards annually issued by the U.S. government are for workers – virtually all of them high skilled.  The employment-based green card system allowed about 140,000 green cards to be issued annually but that number also includes the family members of those workers.  In 2014, 56 percent of green cards set aside for skilled workers actually went to family while 44 percent were for the workers themselves.  The GOP platform wants to decrease this already small number of green cards for skilled workers even further.  

Figure 3

Immigrant Workers as a Percent of All Immigrants, 2013

 

Source: OECD.

To put the silliness of the GOP platform into further context, the 2013 inflow of green cards for workers was equal to 0.04 percent of all native-born workers (Figure 4).  In Australia, the annual inflow of immigrant workers as a percent of native Aussie workers is 12 times as great.  In 2013, native labor force participation rates in Australia were 6.6 percentage points higher than in the United States according to the OECD.  Do you still think immigrant workers cause unemployment?   

Figure 4

Immigrant Workers as a Percent of Native Workers, Annual Flow, 2013

 

Source: OECD.

Immigrants issued green cards for working purposes are not the only immigrants who work, of course.  Most immigrants in the United States arrive as relatives of Americans or other immigrants, more than in any other country (Figure 5).  However, about half of those family immigrants work even though they didn’t receive and employment-based green card.

Figure 5

Immigrant Family Members as a Percent of All Immigrants, 2013

 

Source: OECD.

Australia, New Zealand, Canada and most of the other countries with more open immigration policies emphasize skilled immigration.  The current U.S. green card system also emphasizes skilled immigration among the workers it lets in but by setting aside most green cards for families, our system ends up skewing them toward lower-skilled workers related to Americans.  Ultimately, the United States should liberalize the immigrationoorf both lower and higher-skilled foreign workers.  The GOP platform wants to go in the opposite direction, further shrinking the already paltry quantity of skilled immigrant workers allowed in. 

Immigration is not like a budget that must eventually be balanced.  The United States government can allow in more skilled immigrant workers, more family-based immigrants, and more lower-skilled foreigners – no numerical offsets are required.   The number of immigrants allowed in annually, roughly one million, is neither set by legislation nor is it determined by the laws of economics as the complex legal quota system has naturally settled at an equilibrium of about that number.  Liberalizing high skilled worker immigration has the most political support and will have the greatest impact, per immigrant, for the U.S. economy.  That seems like an easy place to start.

Conservatives across the country, from—Michigan to Arizona—are challenging burdensome occupational licenses. “Insiders use the false cover of consumer protection to get laws enacted that keep out new competitors,” Minnesota Republican state Senator Chris Gerlach recently said, explaining his reform bill. While a welcome development, conservatives should extend this logic to an even more pervasive form of anti-consumer protectionism: work visa restrictions.

Work visas are licenses for foreign workers and entrepreneurs to practice their professions in the United States. And just as other occupational licenses artificially inflate prices for consumers, arbitrary visa quotas prevent consumers from accessing services that immigrants would provide. It’s protectionism, and it harms Americans every bit as much as unnecessary occupational licensing.

Yet even while the new Republican Party platform calls “excessive licensing requirements” a “structural impediment which progressives throw in the path of poor people,” it claims that it is “indefensible” that the U.S. government allows a million immigrants to live and work in the United States each year. The two positions are at odds. Occupational licenses limit the choices of American consumers in a few industries, while visa restrictions do so in every industry.

Indeed, the research on this point is clear: immigration generally lowers prices, especially for labor-intensive goods. National Research Council’s canonical report found that “the benefits of immigration from lower prices are spread quite uniformly across most types of domestic consumers.” Likewise, economist Patricia Cortes’s acclaimed 2008 study found that for every 10 percent increase in low-skilled immigrants, the price of immigrant-intensive services fell by 2.1 percent.

Economists Robert Lipsey and Birgitta Swedenborg quantified how labor restrictions harm consumers in the end. “Countries in which prices of labor-intensive services are very high, such as the Nordic countries, consume much less of them,” they wrote in a 2007 paper, meaning that people in those places simply cannot access the same range of products and services that Americans can, thanks in large part to immigration.

Visa restrictions make people in those countries poorer.

Naturally, opponents of immigration still claim that immigration restrictions are good for Americans because it protects their jobs from competition. And it’s true that new work visas will create more competition for current U.S. residents—just as fewer occupational licensing laws will result in more competition for those people who currently have the licenses.

But that doesn’t mean Americans will be worse off. Here’s why: it’s certainly nice to have a monopoly, but it’s only nice so long as you are the only one with one. If your industry can inflate its prices, that’s great for you. But if every industry can, then everything you buy becomes more expensive, and you become poorer no matter what privileges your industry happens to receive.

That’s the situation in immigration. Every industry is “protected” more or less equally, which results in a general increase in prices for everyone. We all get poorer—even the cronies who asked for these regulations.

That’s why economists, even noted immigration skeptic and Harvard economist George Borjas, agree that immigration makes natives better off. When immigrants—or other new workers, ideas, or technologies—enter a market and lower prices, consumers (i.e. all of us) can buy more or different products and services, creating new and better opportunities for employment in other industries. This is how economic growth happens.

Conservatives point to absurd examples of licensing laws—interior decorating, hair braiding, and cosmetology licenses that require years of training—as a reason to oppose licensing requirements. Yet in these cases, there is at least some process. For many immigrants, there is none at all.

For lower-skilled foreign workers, for example, the U.S. government issues not a single visa for non-seasonal jobs. Even foreign workers already here on work visas, such as H-1B workers, can face absurd restrictions on work. They cannot, for example, start or own a business while they wait in line for a permanent visa.  

America’s immigration laws are a web of protectionist regulations worse than any licensing regime. Even a moderate reform of these laws to allow more foreign workers and entrepreneurs to enter and contribute to the U.S. economy would greatly benefit Americans and immigrants alike.

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