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There is great interest in how the labor market will respond to the Affordable Care Act (ACA). Much of the popular discussion focuses on the implications of the newly-implemented and widely-anticipated employer mandate, which requires firms with 50 or more workers to provide health insurance for full-time employees (defined as workers with 30 or more hours per week). The employer mandate, unsurprisingly, creates strong incentives for companies to scale back employee hours (“29 hour work weeks”) and lay off workers or consolidate part-time jobs into full-time jobs in order to get under the 50 employee threshold.

There is comparatively less discussion of the incentives faced by workers. Although the Congressional Budget Office has provided estimates and discussion of the pertinent labor market effects, one issue that tends to get lost in all of this is how increasing a household’s income creates certain “notches” in a household’s budget constraint. By “notches”, economists mean very large changes in the subsidy (known as the “Premium Tax Credit”) received by a household for extremely small changes in income. These notches are well known in other transfer programs, particularly the “Medicaid notch” and the “public housing notch”. The ACA notch occurs in both states that expanded their Medicaid program, as well as those that didn’t.

To illustrate the sheer magnitude of the ACA notch, it is helpful to examine ACA subsidies for different individuals. First, consider a person who is expensive to insure – a 64-year-old – in a locality that generally has high insurance premiums. A good example is Clay County, Georgia (where Georgia also didn’t expand its Medicaid program). As the “Plan Preview and Price Estimator” from the federal government’s exchange shows, the premium tax credit goes up dramatically for this individual at an income of $11,671 and falls dramatically at an income of $46,679.

What’s going on? Subsides – discounts off the premiums for health plans offered on the exchange (known as the premium tax credit or “PTC”) – are related to household income as well as cost factors (namely an individual’s age and price of health plans in the local marketplace). Subsidies kick in at 100% of the Federal poverty line – or $11,671 for a one-person household – and turn off at 400% of the Federal poverty line – or $46,679. Thus, small changes in income lead can lead to very large changes in the subsidy.

Before discussing the labor market consequences, it is important to note that such ACA notches are more important for expensive-to-insure individuals and couples, and the size of the ACA notch also varies by location. The following table shows a high-cost individual (the 64-year-old) and a low-cost individual (a 30-year-old) in a high-cost location (Clay County, GA) and a lower-cost location (Andersen County, TN).

Sources: https://www.healthcare.gov/see-plans/39851/?state=GA and https://www.healthcare.gov/see-plans/37705/?state=TN (Accessed 6/11/2015).

There are several things to take away from this table. First, Georgia and Tennessee are among the 21 states that have not expanded their Medicaid program. The ACA only provides subsidies for individuals at or above 100% of the Federal poverty line; in states that expanded Medicaid, individuals below 138% of the Federal poverty line would qualify for Medicaid. Second, for the 64-year-old, the first ACA notch – in states without a Medicaid expansion – creates dramatic subsidies once income reaches 100% of the Federal poverty line, or $11,671. Earning the extra $1 after $11,670 raises the subsidy by $10,849 per year in Clay County, GA, but only $5,910 in Andersen County, TN. Both of these ACA notches – which wouldn’t be present in the Medicaid expansion states – create strong incentives to increase work effort to reach this threshold. As can also be seen, the ACA notches are present but less dramatic for the younger person. Third, there are “mini ACA notches” as income exceeds certain multiples of the Federal poverty line. As the 64-year-old individual earns the extra $1 in Georgia that raises income from $15,521 to $15,522 (133% of the Federal poverty line), the subsidy falls by $157. Fourth, once income exceeds 400% of the Federal poverty line, the subsidy disappears entirely. For this individual, that entails a loss of subsidy of $6,621 from earning the extra $1 that takes income from $46,679 to $46,680. This notch is also present in Tennessee, but to a smaller extent. Finally, in all cases we can see the subsidy typically erodes quite smoothly as income goes up – this is known as a benefit reduction rate or tax rate. As income increases by $33,000 from $12,000 to $45,000, the PTC falls by $4,061, resulting in an average tax rate of 12.3% just from the ACA. For the younger individual, the subsidy erodes to $0 before income reaches 400% of the Federal poverty line in both Georgia and Tennessee.

How do things look for married couples? Much like single individuals, the subsidies kick in and turn off at multiples of the Federal poverty line. Although the unsubsidized cost of a health insurance plan for two 64-year-olds is twice that of one 64-year-old, the dollar amounts for the poverty thresholds are quite different. The dollar amounts go up less than proportionally with family size. As a consequence, the notches look quite different – and in some cases are jaw-dropping – for a married couple. Consider the two areas we just considered, and assume that two individuals of the same age are married to each other. The first column in the next table shows that the ACA notch when reaching 100% of the Federal poverty line (of $15,731) is an incredible $21,850! That is, earning the extra $1 that brings income from $15,730 to $15,731 leads to a dramatic increase in the premium tax credit. The magnitudes are clearly different, but present, for all family types illustrated. As family income goes from $15,731 to $62,919 (or 100% to 400% of the Federal poverty line), for all couples, the subsidy more-or-less is smoothly taxed away (and in, fact, the young couple in the inexpensive market loses its subsidy before 400% of the Federal poverty line). For the first couple, as income goes from $18,000 to $60,000, the PTC falls by $5,374, resulting in an average tax rate from the ACA alone of 12.8%. The notch for older couples is dramatic at 400% of the Federal poverty line; in Clay County, GA, earning the extra $1 that takes income from $62,919 to $62,920 results in a loss of subsidy of $16,152! The results in Tennessee are also large, but not nearly as large as Georgia. In Tennessee, the older couple only loses $6,275 for earning the extra $1. Younger couples don’t completely escape this punitive tax. For younger couples, the ACA notch exists in Georgia, but the PTC is eroded completely in Tennessee before income reaches 400% of the Federal poverty line, so there is no ACA notch.

Sources: https://www.healthcare.gov/see-plans/39851/?state=GA and https://www.healthcare.gov/see-plans/37705/?state=TN (Accessed 6/11/2015).

How would such incentives affect the labor market? Abstracting away from other taxes and transfers, these notches create incentives in all cases to reach the earnings threshold of 100% of the Federal poverty line in order to qualify for subsidized health insurance. Moreover, there are very strong incentives to not exceed 400% of the Federal poverty line, especially because you must repay all of the premium tax credit. In states that did not expand Medicaid, the first effect – the incentive to raise earnings above 100% of the Federal poverty line – is present, but isn’t in states that expanded Medicaid. In all 50 states and DC, the second ACA notch at 400% of the Federal poverty line will be present, to larger or smaller degrees depending on health premiums and age. The larger the ACA notch, the greater the incentive to constrain earnings under the second threshold.

It is also the case that this structure creates unusual marriage taxes and bonuses, an incentive that has been examined in the context of Medicaid expansions from an earlier era. To illustrate, imagine that two unmarried, 64-year-olds in Clay County, GA each had annual income of $10,500. The first table illustrates that neither would be eligible for the PTC. By marrying, household income is $21,000, resulting in a premium tax credit of $21,526. However, not all couples look so good. Consider these same two individuals, each earning $33,000. As single individuals, they each receive a premium tax credit of $8,094, or a cumulative amount of $16,188. By marrying, their credit would fall to $0, because household income would exceed the limit of 400% of the Federal poverty line. Evidence from the ACA mandate to cover young adults shows that marriage taxes and bonuses are an important factor.

Graphical Summary 

Cited Work:
Wall Street Journal, “Unemployed by Obamacare,” August 21, 2014, Accessed from: http://www.wsj.com/articles/unemployed-by-obamacare-1408664211

Congressional Budget Office, “The Labor Market Effects of the Affordable Care Act,” February 2014, Accessed from: http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-breako…

Internal Revenue Service, Publication 974: The Premium Tax Credit, March 2015, Accessed from: http://www.irs.gov/publications/p974/

Yelowitz, A., “The Medicaid Notch, Labor Supply and Welfare Participation: Evidence from Eligibility Expansions,” The Quarterly Journal of Economics, November 1995, 110(4): 909-939.

Yelowitz, A., “Public Housing and Labor Supply,” Mimeo, University of Kentucky, November 2001.

Kaiser Family Foundation, “Status of State Action on the Medicaid Expansion Decision,” Accessed from: http://kff.org/health-reform/state-indicator/state-activity-around-expan…

Yelowitz, A., “Will Extending Medicaid to Two Parent Families Encourage Marriage?” The Journal of Human Resources, Fall 1998, 33(4): 833-865.

Abramowitz, J., “Saying ‘I Don’t’: The Effect of the Affordable Care Act Young Adult Provision on Marriage,” Accessed from: https://appam.confex.com/appam/2014/webprogram/Paper10104.html

On the day we celebrate the 800th anniversary of Magna Carta, leave it to the New York Times to feature a boxed op-ed on its editorial pages entitled “Stop Revering Magna Carta.” As the only bow to the occasion on those pages, one imagines that the editors could not be bothered even to write a house editorial on the subject

The piece is written by one Tom Ginsburg, professor of international law and political science at the University of Chicago, an institution with which I have some acquaintance.  As suggested by its title, this is a work of deconstruction. The Charter’s fame, you see, “rests on several myths.” Indeed, “like the Holy Grail,” Ginsburg concludes, “the myth of Magna Carta seems to matter more than the reality.” And well it should. After all, history rarely springs forth in principled perfection. At best it grows one fractured event at a time, each event gradually becoming the narrative mythology of a people.

Ginsburg begins his deconstruction by claiming that Magna Carta “wasn’t effective. In fact, it was a failure.” How so? Because King John repudiated the Charter shortly after he’d signed it, whereupon the barons sought to replace him, which he avoided by dying. But the next year, we’re told, John’s young son reissued the document. Far from a failure, then, it was reissued several more times over the 13th century, culminating in the important 1297 version. Indeed, it was at that time, as the famed legal historian Edward S. Corwin wrote, well before the era of deconstruction, that the king was forced to call Parliament into existence to relieve his financial necessities. But Parliament’s subventions “were not to be had for the asking,” Corwin noted, “but were conditioned on the monarch’s pledge to maintain Magna Carta.” A failure? Hardly.

Yet another myth, Ginsburg writes, “is that the document was a ringing endorsement of liberty.” As evidence, he cites three of the Charter’s 61 chapters, each concerning matters peculiar to the time—for example, the removal of fish traps from the Thames. Yet as shown by Ginsburg’s colleague at the law school across the Midway, Professor Richard Helmholz, even that provision served in time to afford a basis for free navigation.

And therein lies that major fault of this piece. It’s a textbook example of missing the forest for the trees. To be sure, as Ginsburg writes, “Magna Carta was a result of an intra-elite struggle, in which the nobles were chiefly concerned with their own privileges.” But again, that’s how history often begins, sowing the seeds for future advances. As Corwin observed nearly a century ago, many of the Charter’s clauses were drawn in ways that did not confine their application to issues immediately at hand. Moreover, the barons realized early on that to maintain the Charter against the king, they had to get the cooperation of all classes and so too the participation of all classes in its benefits. Thus did the scope of its protections expand, much as with our own Constitution. And that’s why so many revere Magna Carta today.

 

Federal debt is piling up and spending is expected to soar in coming years. Projections show rivers of red ink unless federal policymakers enact reforms. They should cut spending in every department. A great place to start would be cutting aid-to-state programs, which cost more than $600 billion a year.

That was my message at a Senate hearing last week to a committee chaired by Senator Rand Paul. Kudos to Paul for holding the hearing and inviting an interesting array of witnesses. In the photo, that’s Romina Boccia, me, Steve Ellis, and Tom Schatz. Don Kettl also testified. We all gave the committee good ideas, now it is their job to cut.

Our testimony is here.

 

In the aftermath of 9/11, the U.S. government urged counter-terrorism experts to think “outside of the box.” What we got instead of innovative thinking was a rather conventional response to the 9/11 atrocities - invasions of Afghanistan and Iraq, followed by thousands of dead American soldiers and trillions of dollars in military spending and foreign aid. Today Iraq is, yet again, in the midst of a civil war, with large parts of Iraqi territory overrun by homicidal maniacs from ISIS. Afghanistan, if its present government is to survive, would likely require decades of American presence – something I along with millions of other Americans oppose.

Whether or not ISIS poses a threat to our homeland (and there are many doubters), the U.S. political establishment is united in believing that ISIS needs to be taken on. But, what is to be done? On the one hand, the aerial campaign does not appear to be achieving desired ends. On the other hand, the American public is understandably opposed to another ground invasion.

The rise of the nation-state has led many people to look to their governments for solutions to problems big and small. The nation-state, in turn, has crowded out other actors. When it comes to the application of violence, for example, why not try the time-honored alternative to national armies - the use of mercenaries?

This morning, The Telegraph ran an interesting story  about an Eton-educated former Scots Guard and SAS man, Simon Mann. Mann became famous for partaking in an attempted coup d’état against the tyrannical ruler of the oil-rich African country of Equatorial Guinea,Teodoro Obiang Nguema Mbasogo. The coup failed, and Mann was caught and thrown in prison. Having miraculously survived 5 years in one of Obiang’s jails, he returned to Britain. Today, Mann advocates for a mercenary approach to defeat ISIS. Should he be given a serious hearing?

To start, it is important to note that mercenary activity is more common and more beneficial than most people realize. Mann’s “previous firm, Executive Outcomes,” writes the Telegraph, “halted rebel movements in their tracks in both Angola in 1993 and Sierra Leone in 1995, the latter against the drug-crazed, limb-chopping rebels of the Revolutionary United Front. On both occasions it was in support of legitimate governments, and while some may have questioned the millions they were paid, nobody ever doubted their effectiveness…. [E]arlier this year, one of …[Mann’s] old South African partners, Colonel Eeben Barlow, was back in action, this time fielding a force of fighters to help Nigeria defeat the Islamists of Boko Haram… [T]he group spent three months fighting alongside the Nigerian military, bringing with them years of hard-won experience in South Africa’s apartheid-era bush wars. They had only around 100 men on the ground, but even in that brief time, they turned a demoralized and badly-led army into a fighting machine that finally pushed Boko Haram from its north-eastern strongholds…. With many of their men recruited from South Africa apartheid-era security forces, neither Nigeria nor the wider world has been keen to fete this achievement. But the fact remains that a group of mercenaries - or, to give them their polite name, a private military company - has succeeded in defeating one of the world’s bloodthirsty insurgent groups, partly through sheer dint of being willing to put boots on the ground.”

This is not to say mercenaries would be a panacea. America’s recent experience in Iraq and Afghanistan with private contractors like Blackwater is a case in point. Blackwater employees were roundly criticized for reckless and unrestrained behavior, including wantonly killing civilians and bribing officials of foreign governments. Classified State Department cables, according to the New York Times, reported that the use of contractors “added to the war’s chaos in Iraq.”

Furthermore, it’s not clear that private mercenaries could overcome the internal political problems in Iraq and Syria, which ultimately is what gives rise to problems like ISIS.

But is a private-sector approach to battling ISIS qualitatively better than a U.S. reinvasion of Iraq? Possibly. Let’s outline some positives:

  1. No U.S. casualties, except for those Americans who chose to join the mercenary outfit willingly. By the way, some Americans have already gone to fight ISIS as part of the Kurdish peshmerga. 
  2. No need to spend years and billions of dollars in a futile task of building up the Iraqi military. A mercenary outfit could be maintained relatively cheaply. All it would need is access to a bank account into which anyone interested in destroying ISIS could deposit money.
  3. Anyone could join the anti-ISIS mercenaries: Arabs or Americans, blacks or whites, feminists and gay rights advocates. Hopefully, the multi-national and multi-religious nature of the mercenary force would dilute anti-Americanism in the region (i.e., the U.S. would no longer be seen as one of the chief participants in the region’s conflicts).  

On the downside, a successful push against ISIS would require U.S. aerial support and, presumably, intelligence sharing. But, the U.S. is doing that already - to very limited effect.

In the abstract, I do not see any principled libertarian objection to a multi-national and multi-religious mercenary force, which would be financed by anyone interested in the demise of ISIS. Heck, I would give them money.   

Ask any first year law student “what did you learn in school today” and you’ll probably get some version of the answer: “duty-breech-causation-harm.”  While this applies specifically to tort claims, it seems axiomatic, even for non-lawyers, that you can’t sue someone who hasn’t hurt you.  Or can you?

Former AIG CEO Hank Greenburg caused a ripple of shock in late 2011 when he filed suit against the U.S. government, alleging that the government’s 2008 bailout and subsequent take-over of AIG was unlawful, and claiming $40 billion in damages.  Despite skepticism throughout the legal community, the case not only survived dismissal, but went on to a full trial, during which such heavyweights as Tim Geithner, Hank Paulson, and Ben Bernanke took the stand. 

Throughout the trial, Judge Thomas Wheeler seemed sympathetic to the claims that Greenburg brought on behalf of Starr International Company, an AIG shareholder.  Few believed that AIG had any alternative to the government’s money, except bankruptcy.  In bankruptcy, shareholders (like Starr) are paid last out of whatever remains after all the company’s debts are paid.  Which typically (and most likely in AIG’s case) means not paid at all.  Would the judge really grant Starr a $40 billion judgment – against the U.S. government – when the alternative was bankruptcy?

No.  But that doesn’t mean the government got off scot free either.  Judge Wheeler found that the federal government committed an illegal exaction.  That is, it took something it had no right to take.  (This, the judge carefully notes, is not the same as a “takings” under the Fifth Amendment.  When there is a takings, the government lawfully uses its authority to take private property for public use and then must pay the owner “just compensation” for that property.  An illegal exaction means the government took properly unlawfully.) 

In bailing out AIG, the Federal Reserve Bank of New York (FRBNY) issued the company a loan for $85 billion.  In exchange, the FRBNY took an 80 percent equity stake.  This stock was not posted as collateral for the loan, but would remain in the government’s hands even after the loan was repaid.

The FRBNY claimed it acted under a provision in the Federal Reserve Act that gives the bank the authority to act as a lender of last resort in “unusual and exigent circumstances” and to establish an interest rate for the loan.  But, the court noted, this does not allow the bank to do anything it wants in “exigent circumstances;” it can do only those things it is authorized elsewhere in the Act to do.  And taking equity stakes in companies is not one of those things.  “[T]here is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner,” found the court.  “A Federal Reserve Bank has no right to control and run a company to whom it has made a sizeable loan.”

Judge Wheeler’s opinion is peppered with zingers, calling the government’s terms for AIG’s bailout “punitive,” “draconian,” “harsh,” and “unprecedented.”  Ultimately, however, he admits his hands are tied.  “In the end,” he writes, “the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy.  In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value.”  The result is that there is no economic harm to Starr and therefore no damages can be awarded.   The court noted “a troubling feature of this outcome is that the Government is able to avoid any damages notwithstanding its plain violations of the Federal Reserve Act…Simply put, the Government often may ignore the conditions and restrictions of [the Act] knowing that it will never be ordered to pay damages.”

So Hank Greenburg won without winning.  And yet, in the midst of a crisis, the government overstepped its bounds and was subsequently called to account.  Although Judge Wheeler seems to believe that the government may act with impunity in this arena because it won’t be ordered to pay damages, there is now a case on the books that calls the FRBNY’s actions illegal.  Its lawyers will be hard-pressed to justify this type of action in the future.  And may be more careful about coloring outside the lines in general.   

Under normal conditions, the IMF is supposed to be limited to lending up to 200% of a country’s quota (each country’s capital contribution made to the IMF) in a single year and 600% in cumulative total. However, under the IMF’s “exceptional access” policy there are, in principle, virtually no limits on lending. The exceptional access policy, which was introduced in 2003, opened the door for Greece to talk its way into IMF credits worth an astounding 1,860% of Greece’s quota – a number worthy of an entry in the Guinness Book of World Records.

The IMF’s over-the-top largesse towards Greece explains why the IMF has been forced to play hardball with Greece’s left-wing Syriza government. The IMF’s imprudent over-commitment of funds to Greece leaves it no choice but to pull the plug on Athens. That is why the IMF’s negotiators packed their bags last week and returned to Washington, and that is why it will probably remain uncharacteristically immovable.

Some weeks ago, I made some critical observations concerning the Fed’s contribution to  the recovery.  In particular, I complained that, despite the decidedly mixed and ambiguous results of empirical assessments thus far, the view that Quantitative Easing has been a smashing success seemed well on its way to becoming official dogma, if not a more generally-held article of faith.

Even so, I was taken aback by the off-hand manner in which Fed Vice Chairman Stanley Fischer declared a QE victory, in the course of a speech given two weeks ago at the International Monetary Conference in Toronto.   Did the Fed’s policies work?  According to Fischer, “The econometric evidence says yes.  So does the evidence of one’s eyes” (my emphasis).

In fact, as I’ve already noted, the econometric evidence concerning the effectiveness of QE is hardly decisive.  For one thing, most studies have looked only at the interest-rate effects of the Fed’s purchases, without troubling to ask whether those effects translated into any definite changes in spending, output, and employment.  For another, the interest-rate effect estimates are themselves not to be trusted.   A fairly recent IMF study on “Foreign Investor Flows and Sovereign Bond Yields in Advanced Economies,” for example, notes — en passant as it were — that, controlling for such flows, the Fed’s large-scale asset purchases resulted, not in the 90-200 basis point decline in long-term rates reported in various other studies, but in a decline of just thirty basis points, which is peanuts.  Other studies may, in other words, have conflated the effects of the Fed’s asset purchases with those of concurrent “flights” from lower-quality Eurozone securities to higher-quality Treasuries.

But why bother with fancy econometrics when one can simply refer, as Vice Chairman Fischer did, to the “evidence of one’s eyes”?   Fischer, apparently, found in that evidence compelling proof that QE worked wonders.  Fischer actually mentions only one piece of evidence, to wit: the fact that “the recent inauguration of the ECB’s QE policy seemed to have an immediate effect not only on European interest rates, but also on longer-term rates in the United States.”  But here, as with other inferences drawn by looking at interest-rate movements, connecting the dots isn’t nearly as easy as Fischer supposes.

Evidence that some good has come from the ECB ‘s belated easing is, in any event, not evidence that the Fed’s easing did any good.  Try as I might, I just can’t seem to get my eyes to focus on any clear and unambiguous evidence that it did.  Has Fischer, I wonder, been looking at the same things I’ve looked at?  If so, is he perhaps looking through rose-colored glasses, or is it my own vision or prescription that’s faulty?

With such questions in mind, I decided to put the matter to a test.  Call it Doc Selgin’s QE Eye Test, or Eye QE Test, or whatever else you wish to call it.  The instructions are simple: eyeball the following charts, gathered from various internet sources, recording all sorts of basic information pertaining to Quantitative Easing on one hand and the post-2008 recovery on the other.  Then decide for yourself whether the evidence of your eyes agrees with Mr. Fischer’s relatively sunny impression, or with my own much gloomier one.

Please don’t misunderstand me: I am not saying that my QE Eye Test, or any eye test at all, is a good way to evaluate the effectiveness of the Fed’s post-crisis policies.  On the contrary: I only wish to cast doubt upon Vice-Chairman Fischer’s suggestion that one’s eyes are all one needs to determine that those policies worked.  My own belief, FWIW, is that it’s going to take a lot more fancy econometric footwork to arrive at convincing answers.  I just hope it doesn’t take as long to come to a proper understanding of the Fed’s role as it took following that other “Great” calamity.

*****

Doc Selgin’s QE Eye Test 1) Fed Assets and Bank Excess Reserve Holdings.

Source: Gold, Stocks, and Forex, November 12, 2014, http://goldstocksforex.com/tag/quantitative-easing/

2) Growth in Monetary Base, M2, and NGDP.

Source: Ed Dolan, EconMonitor, http://www.economonitor.com/dolanecon/2012/07/26/some-charts-that-explai…

3) Nominal GDP Gap.

Source: Michael Robert’s Blog, https://thenextrecession.wordpress.com/2014/page/5/

4) QE and Treasury Yields.

Source: Calafia Beach Pundit, October 29, 2014, http://scottgrannis.blogspot.com/2014/10/qe3-rip.html

5) Unemployment and Labor Force Participation Rates.

Source: Conversible Economist (Timothy Taylor), December 11, 2013, http://conversableeconomist.blogspot.com/2013/12/falling-unemployment-an…

6) Unemployment Using June 2009 Participation Rate.

Source: Sean Davis, The Federalist, January 10, 2014,http://thefederalist.com/2014/01/10/thank-labor-force-dropouts-not-new-j…

7) Employment as Percent of Population.

Source: Infinite Unknown, March 8, 2015, http://www.infiniteunknown.net/2015/03/09/nearly-at-full-employment-10-r…

8) Employment as Percent of Population, Comparison with Great Depression.

Source: Rise Up, the System is Broken, http://systemisbroken.blogspot.com/2014/11/great-depression-vs-great-rec…

9) Real GDP: Actual and Pre-CrisisTrend.

Source: Cecchetti and Schoenholz, The Blog (Huffington Post), https://thenextrecession.wordpress.com/2014/page/5/

10) Economic Output as Percent of Potential Output.

Source: Andrew Fieldhouse, The Blog (Huffington Post), June 26, 2014, http://www.huffingtonpost.com/andrew-fieldhouse/five-years-after-the-gre…

11) Comparison with Other Postwar Recoveries.

Source: Planet Money, March 7, 2013, http://www.npr.org/sections/money/2013/02/15/172116698/the-scariest-job-…

*****

That’s it.  If these pictures make you feel all warm and fuzzy about the great job the Fed has done, then so far as your concerned, Vice Chairman Fischer’s beliefs are vindicated.  If, on the other hand, you find yourself doubting that all those trillions of new dollars have accomplished anything, then you can either count yourself among the pessimists, or have Doc Selgin write you a prescription for some rose-colored lenses.

A widespread criticism of Trade Promotion Authority (TPA), which remains in limbo after a surprising legislative mess last Friday, has come from conservative skeptics who believe that TPA will permit President Obama to change US immigration laws unilaterally.  Originally a fringe argument, it gained momentum earlier this month when WikiLeaks published the confidential draft negotiating texts on the Trade in Services Agreement (TiSA), which is currently under negotiation.  Among those texts was an Annex on “Movement of Natural Persons” – one of the standard “modes” of supply (Mode 4) negotiated in trade agreements that cover services.  The leaked annex, TPA critics claimed, was “smoking gun” proof that President Obama was, in fact, secretly negotiating with foreign governments to liberalize US immigration restrictions without congressional input, and that TPA would grant him the power to lift such restrictions in the very near future.  The facts surrounding TPA, TiSA and global services trade, however, effectively rebut such claims.

BACKGROUND

Before getting to these facts, it’s important to understand just what TiSA is.  The TiSA is a plurilateral free trade agreement on services being negotiated among 27 participants (including the US and EU).  TiSA began in 2012 but only picked up momentum over the last year or so, as the World Trade Organization’s (WTO) Doha Round, which also included services, faded.

If signed and implemented, TiSA would likely represent a major economic win for the United States, given that (i) the vast majority of the US economy is services; (ii) the United States has a large comparative advantage in global services; and (iii) unlike goods, global trade in services remains relatively restricted.  TiSA’s basic goals include that each participant offer to all other parties, at a minimum, the best commitments that it has made in preferential FTAs, and, importantly, the eventual “multilateralization” of the agreement into the WTO such that it is open for accession by all WTO Members.  As such, the architecture and principles of the TiSA reflect those of WTO’s General Agreement on Trade in Services (GATS), which was finalized in 1995 and covers all WTO Members including the United States.  Any final, multilateralized TiSA deal would be a very good thing for those who support free markets and, of course, the US global economies.

Despite these benefits, the leaked TiSA has caused an uproar among skeptical (and in many cases, anti-immigration) conservatives.  (It’s also upset anti-trade liberals who see the deal as “global deregulation,” but that’s a canard for another time.)  As mentioned, however, there are a lot facts that undermine the argument that the TiSA represents an immigration “smoking gun.”

HISTORICAL LIMITATIONS

The most basic reason for skepticism is the history of Mode 4 negotiations.  First, the TiSA is far from the first international trade agreement to address Mode 4, which is one of the four basic “Modes of Supply” covered by the GATS:

  • Mode 1: Cross border trade (delivery of a service from the territory of one country into the territory of other country);
  • Mode 2: Consumption abroad (supply of a service of one country to the service consumer of any other country);
  • Mode 3: Commercial presence (services provided by a service supplier of one country in the territory of any other country); and
  • Mode 4: Presence of natural persons (services provided by a service supplier of one country through the temporary presence of natural persons in the territory of any other country).

The leaked TiSA Annex – despite being unfinished and heavily bracketed – is quite similar to the original GATS Annex completed over two decades ago.  These facts belie the idea that the TiSA represents some sort of pathbreaking global agreement on immigration – these issues have been with us for decades.

Second, US involvement on Mode 4 has been relatively minimal.  Despite providing major economic benefits, Mode 4 liberalization has been controversial in the United States and, as a result, no US FTA negotiated after those with Chile and Singapore includes provisions on Mode 4 (See: Congressional Research Service).  In a letter to Senate Finance Chair Orrin Hatch, US Trade Representative Froman confirmed that “the United States is not negotiating and will not agree to anything in TPP [Trans-Pacific Partnership] that would require any modification to U.S. immigration law or policy or any changes to the US visa system.”  Also, past Mode 4 commitments have been very limited.  For example, in the WTO’s Uruguay Round, “commitments scheduled under Mode 4 were largely limited to two categories: intra-company transferees regarded as ‘essential personnel’, such as managers and technical staff linked with a commercial presence in the host country; and business visitors, i.e. short-term visitors not in general gainfully employed in the host country.”  Hardly the massive immigration overhaul that some TPA critics now claim.

Third, the leaked TiSA text was not nearly as big a revelation as the TPA opponents claim: public readouts of the TiSA negotiations have long made clear that Mode 4 was under discussion.  The leak simply added details to basic concepts that were already easily Googleable.  Hysteria nevertheless has ensued, to the surprise of many who have actually been paying attention to these things for the last few years.

Fourth, even though many trade agreements to which the US is a party (e.g., the GATS) contain provisions on Mode 4, none of these agreements – even those with actual US commitments – has (i) led to a significant, unregulated increase in legal immigration (even temporary); (ii) provided US presidents, including President Obama, with a “backdoor” means of liberalizing US immigration restrictions without the full consent of Congress; or (iii) forced the US government, against its will, to change its immigration laws.  No US trading partner has used these Mode 4 provisions (e.g., through dispute settlement) to push the United States to further open its labor market – India did once yell about a proposed doubling of certain US visa fees, but never actually did anything about it.  Anyway, even if a trading partner did try to challenge the United States under Mode 4, global services agreements contain broad exceptions – including for national security (e.g., GATS Art. XIV bis) – that permit the US to derogate from these commitments (e.g., by banning temporary workers from one trading partner) for a host of reasons.  And finally, as noted below, the United States could simply refuse to comply if none of the exceptions applied.  Because the TiSA is based on, and intended to be folded into, the GATS, it will unquestionably contain similar rules and exceptions.

US LAW LIMITATIONS

US law provides other reasons for skepticism of the idea that the leaked TiSA text will cause a significant and near-term erosion of US immigration law.  As discussed in my recent analysis of TPA and the TPP, the law provides significant checks on the ability of a US president or a US trading partner to force changes to US law (including on immigration) without the full consent of Congress.  Two of these checks bear repeating:

  • First, because TiSA is a US trade agreement, it must be approved by Congress before any of its provisions may be implemented.  As such, even assuming TiSA included actual US commitments on Mode 4 (and this is far from clear), and even assuming the TiSA were completed any time soon (and this is far from certain), those provisions could not affect US immigration policy until approved by Congress and passed into law. 
  • Second, even assuming TiSA contained US commitments on Mode 4, and that Congress agreed to implement the TiSA with these commitments (again, highly unlikely), no foreign country could compel the United States to adhere to these commitments.  The United States would retain absolute authority to refuse to implement the commitments, and future US presidents or Congresses could change US law. There is nothing a TiSA party could do the United States for such a violation, other than to litigate the claim at the WTO and, possibly, eliminate certain benefits for US services exports under the TiSA.

It’s also worth reiterating that TPA would subject any agreement, including the TiSA, to ample transparency requirements – including publication long before Congress voted on the deal.  Thus, the US public would have months, if not longer, to review any trade agreement and register objections prior to any congressional vote.  As the recent furor over President Obama’s executive actions on immigration makes clear, the public objections to a global agreement broadly liberalizing US immigration law would be substantial (to put it mildly!).

Finally, according to reports, Rep. Paul Ryan has included new language in TPA that would ensure that would remove an FTA from “fast track” consideration if it contemplates changes to US immigration law.

OTHER LIMITATIONS

Outside of US law and the checks on presidential power under TPA, several other issues undermine the idea of President Obama using TiSA to liberalize US immigration restrictions.  Thus, even if you don’t trust the US congress to act as a check on President Obama’s actions under the TiSA, there are still plenty of other reasons to doubt the “smoking gun.”

 Timing.  First, there is almost no chance that TiSA will be completed while President Obama is in office.  The most ambitious timeline for completing the TiSA is December 2016.  This deadline, however, is very likely unrealistic.  (FTA negotiations are notorious for setting, and missing, deadlines for completion; TPP, for example, was originally supposed to be completed in 2012.)  Instead, it is far more likely that completion of the TiSA will fall to the next US President, because it will require:

  • Completion of the basic agreement, which includes 17 texts, none of which is reportedly completed. (Hence all the brackets in the leaked texts.)
  • Agreement among all members on all other members’ services offers, which are detailed “schedules” of specific, line-by-line commitments (or lack thereof) in listed services sectors across all 4 modes of supply.  These schedules are highly technical and involve intensive, time-consuming negotiations, offers and counter-offers.
  • Agreement among members as to membership and “multilateralization” of the agreement – i.e., folding it into the WTO GATS structure and extending TiSA commitments to all WTO Members on a “most favored nation” (MFN) basis.  The big problem here is that China wants to participate in the TiSA, but adding China and other important developing countries would greatly delay the process.  On the other hand, multilateralizing the TiSA would be politically difficult, if not impossible, if important trading countries like China remained outside as “free riders.”  It’s thus accepted that there must be a “critical mass” of TiSA participants, including large developing countries like China, before the agreement could be multilateralized.  This takes time.  Lots of it.

Text.  Second, the actual text of the leaked TiSA Annex on Mode 4 plainly establishes other major limitations on the agreement’s near-term impact on US immigration policy.  These include—

  • The text contains no actual commitments from the USA or any other TiSA party to liberalize trade in services under Mode 4.  The annex is merely the basic disciplines (transparency, non-discrimination, etc.) that would govern any agreement among TiSA parties on Mode 4 and any eventual specific liberalization commitments by TiSA members in their service schedules.  Parties to services agreements like the GATS and TiSA can, and often do, provide no such commitments in sensitive sectors/modes.  There is nothing here to suggest that the United States has made any such commitments, and, in fact, there are very few US proposals at all, even on the basic Annex disciplines.
  • It’s unfinished.  The vast majority of the Annex text (and all other leaked texts) is bracketed, thus indicating no agreement among the TiSA parties on those provisions.  Indeed, many of the bracketed proposals are explicitly opposed by other TiSA parties.  Thus, it’s literally impossible to determine from the Annex what its final text will look like.  And, as already noted, it’s far from clear when final agreement will be achieved.
  • Finished/agreed provisions establish there is no requirement to liberalize immigration.  Any such liberalization would be at a party’s discretion as set forth in its Schedule (which we haven’t seen).  The most obvious provisions are on the Annex’s first page:
    • Article 1, Paragraph 2 states: “The Agreement shall not apply to measures affecting natural persons seeking access to the employment market of a Party, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis.”  Some countries have proposed (bracketed) language in para. 3 on specific commitments (liberalization) on these measures; the United States is not one of them.
    • Article 1, Paragraph 4 states: “The Agreement shall not prevent a Party from applying measures to regulate the entry of natural persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits accruing to any Party under [the Agreement].”
    • Small scope.  Finally, other provisions make clear that any Mode 4 disciplines would relate to only temporary workers (e.g., one year or less) – they would not apply to residency, naturalization, citizenship or border security.

In conclusion, it’s impossible to change the minds of TPA skeptics who are convinced that President Obama and the GOP-controlled Congress are secretly working together, against the will of the American people and contrary to decades of precedent, to change US immigration or other laws through TPA and the trade agreements it’s intended to cover.  However, the above facts, history and law hopefully will help everyone else feel more confident that the leaked TiSA Annex, empowered by TPA, is not a “smoking gun” that proves the US government’s intention to substantially change and liberalize domestic immigration law.  I, and many others here at Cato, would welcome a more modern and open US immigration system (done in an orderly and lawful fashion, of course), but there’s simply no credible evidence that it’s happening here.

All religious faiths are victims of persecution somewhere. Over the last year “a horrified world has watched the results of what some have aptly called violence masquerading as religious devotion” in several nations, observed the U.S. Commission on International Religious Freedom in its latest annual report.

The Commission highlighted 27 countries for particularly vicious treatment of religious minorities. Nine states make the first tier, “Countries of Particular Concern,” in State Department parlance.

Burma. Despite recent reforms, noted the Commission, “these steps have not yet improved conditions for religious freedom and related human rights in the country, nor spurred the Burmese government to curtail those perpetrating abuses.”

China. President Xi Jinping’s attempt to tighten the state’s control over all dissent has impacted believers, who “continue to face arrests, fines, denials of justice, lengthy prison sentences, and in some cases, the closing or bulldozing of places of worship.”

Eritrea. Everyone suffers under a repressive, fanatical, and isolationist regime: “The government regularly tortures and beats political and religious prisoners; however, religious prisoners are sent to the harshest prisons and receive some of the cruelest punishments.”

Iran. Persecution has increased since the ascension of President Hassan Rouhani as president: “The government of Iran continues to engage in systematic, ongoing, and egregious violations of religious freedom, including prolonged detention, torture, and executions based primarily or entirely upon the religion of the accused.”

North Korea. Despite a handful of official churches, “Genuine freedom of religion or belief is non-existent. Individuals secretly engaging in religious activities are subject to arrest, torture, imprisonment, and sometimes execution.”

Saudi Arabia. Not one church, synagogue, or other house of worship is allowed to operate. The monarchy “continues to prosecute and imprison individuals for dissent, apostasy, blasphemy, and sorcery.”

Sudan. The small Christian community suffers from the government’s “policies of Islamization and Arabization.” Moreover, apostasy and conversion are punished.

Turkmenistan. In this former Soviet republic religious liberty remains highly restricted: “Police raids and harassment of registered and unregistered religious groups continued.”

 Uzbekistan. The most populous Central Asian state is determined “to enforce a highly restrictive religion law and to impose severe restrictions on all independent religious activity.”

The USCIRF also recommended that another eight nations join the forgoing as CPCs.

Central African Republic. CAR has been rent by violence between antagonistic militias. For much of last year it “was engulfed in a religious conflict.”

Egypt. Although President Abdel Fattah al-Sisi has attempted to use Coptic Christians for his political advantage, “the Egyptian government has not adequately protected religious minorities” from discrimination, prosecution, and violence.

Iraq. The situation greatly deteriorated last year. While the Islamic State was the worst perpetrator, “the Iraqi government also contributed to the deterioration in religious freedom conditions.”

Nigeria. Today the greatest threat to religious liberty is the radical Islamist group Boko Haram, which attacks Christians and moderate Muslims.

Pakistan. This U.S. ally tolerates “chronic sectarian violence” against religious minorities and the promiscuous misuse of the infamous “blasphemy” law.

Syria. Unfortunately, members of most religions now suffer at the hands of one faction or another in the multi-sided civil war.

Tajikistan. The government “suppresses and punishes all religious activity independent of state control, particularly the activities of Muslims, Protestants, and Jehovah’s Witnesses.”

Vietnam. Despite a number of economic reforms, this communist state “continues to control all religious activities through law and administrative oversight, restrict severely independent religious practice, and repress individuals and religious groups.”

Further, the Commission cited ten so-called tier 2 nations, where violations are severe, but a notch below those of the CPCs: Afghanistan, Azerbaijan, Cuba, India, Indonesia, Kazakhstan, Laos, Malaysia, Russia, and Turkey.

As I pointed out in Forbes online: “Religious liberty is the first freedom, the bedrock liberty of conscience upon which civil and political freedoms rest. With religious liberty under siege around the world, people of goodwill should stand for the rights of believers everywhere.”

America continues to protect religious liberty, but the foundation is cracking. Americans should learn the lessons overseas and redouble their efforts to prevent similar fates at home.

I estimate the current annual implied inflation rate in Ukraine to be 92%. This is the world’s second-highest inflation rate, far lower than Venezuela’s 480% but slightly higher than Syria’s 75%.

I regularly estimate the annual inflation rates for Ukraine. To calculate those inflation rates, I use dynamic purchasing power parity (PPP) theory. I computed the 92% rate by using black-market exchange rate data that the Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year.

A recent front-page feature article in the New York Times attests to the severity of Ukraine’s inflation problem. Danny Hakim’s reportage contains many anecdotes that are consistent with my inflation estimates based on PPP. For example, chocolate that used to cost 80 Ukrainian hryvnian per kilogram has dramatically increased to 203 Ukrainian hryvnia per kilogram over the past 17 months – a 154% increase. On an annualized basis, this amounts to an inflation rate of 93% – almost exactly the same number I obtained when applying the scientific PPP methodology.

As evidence of the Alice in Wonderland nature of Ukraine’s current state of affairs, President Petro Poroshenko penned an op-ed in the Wall Street Journal on June 11. The title of his unguarded, gushing piece perfectly reflects the sentiments contained in his article: We’re Making Steady Progress in Ukraine, Despite Putin.

The President failed to even allude to Ukraine’s inflation problem. He is apparently unaware of the harsh realities facing the citizens of his country. He is also apparently unaware that his finance minister, Natalie Jaresko, whom he praises to high heaven, was recently in Washington, D.C., where she used a new Ukrainian law as cover to threaten a sovereign debt default. The reportage on these threats appeared in London’s Financial Times on June 11, the same day the Wall Street Journal published President Poroshenko’s op-ed.

It is time for Ukraine to get real.

A very unexpected outcome during a series of votes on trade policy in the House of Representatives has managed to confuse pretty much everyone today. 

The most important and controversial bill in the package was Trade Promotion Authority, which narrowly passed the House 219-211 with 28 Democrats in favor and 54 Republicans opposed.  Trade Promotion Authority (TPA) will enable the President to conclude the Trans-Pacific Partnership (and other) trade negotiations and submit a final agreement to Congress for an up-or-down vote. 

But in order for TPA to go to the President’s desk, the House must also pass Trade Adjustment Assistance.  That’s because TAA was included together with TPA in the bill the Senate passed last month. 

Normally, Democrats support TAA, which is an entitlement program for people whose jobs are displaced due to import competition.  Many Republicans oppose TAA as a useless, big-government entitlement program.  House leadership chose to hold two separate votes on TAA and TPA to prevent Republicans from voting no on the package out of opposition to TAA. 

That strategy may have backfired.  Because advancing TPA required passage of TAA, Democrats were able to scuttle the whole thing by voting no on TAA.

But it’s not over yet.  Republican leadership is planning a do-over on the TAA vote in order to salvage TPA.  So there’s likely going to be another vote on TAA early next week.  In the meantime, Republican leadership and President Obama will be madly lobbying their respective party members to muster enough support.

For practical purposes, this result means that Congress has kicked the can down the road for a few more days.  Today’s vote was definitely not a win for the President or GOP leadership, but they haven’t been defeated either.  They can still pull out a victory if they can win enough votes next week to pass TAA—a bill that was defeated today by a solid 126-302.

With the temperature in Washington, D.C. in the mid-90s, it is perhaps worthwhile to recall what life was like before the arrival of air-conditioning. Below are a few excerpts from a New Yorker essay about air conditioning penned by the great Arthur Miller in 1998:

Exactly what year it was I can no longer recall—probably 1927 or ’28—there was an extraordinarily hot September, which hung on even after school had started and we were back from our Rockaway Beach bungalow. Every window in New York was open, and on the streets venders manning little carts chopped ice and sprinkled colored sugar over mounds of it for a couple of pennies. We kids would jump onto the back steps of the slow-moving, horse-drawn ice wagons and steal a chip or two; the ice smelled vaguely of manure but cooled palm and tongue…

Even through the nights, the pall of heat never broke. With a couple of other kids, I would go across 110th to the Park and walk among the hundreds of people, singles and families, who slept on the grass, next to their big alarm clocks, which set up a mild cacophony of the seconds passing, one clock’s ticks syncopating with another’s. Babies cried in the darkness, men’s deep voices murmured, and a woman let out an occasional high laugh beside the lake…

Given the heat, people smelled, of course, but some smelled a lot worse than others. One cutter in my father’s shop was a horse in this respect, and my father, who normally had no sense of smell—no one understood why—claimed that he could smell this man and would address him only from a distance…

There were still elevated trains then, along Second, Third, Sixth, and Ninth Avenues, and many of the cars were wooden, with windows that opened. Broadway had open trolleys with no side walls, in which you at least caught the breeze, hot though it was, so that desperate people, unable to endure their apartments, would simply pay a nickel and ride around aimlessly for a couple of hours to cool off. …

Elsewhere in the essay Miller writes, a “South African gentleman once told me that New York in August was hotter than any place he knew in Africa.” That was exactly the impression I got when I visited Charlottesville in August of 2000 – my first trip to the United States in summer time. I remember saying to my friends back home in Johannesburg that I have never experienced such oppressive heat on my travels through Africa.

Air-conditioning makes our lives more comfortable, but let us not forget the importance of air conditioning for the economy. As Walter Oi writes in The Welfare Implications of Invention, temperature and humidity have a strong influence on labor productivity. For example, in machine shops, labor productivity is at its peak at 65 degrees Fahrenheit with humidity between 65 and 75 percent. Productivity is 15 percent lower at 75 degrees Fahrenheit and 28 percent lower at 86 degrees Fahrenheit. Moreover, accident rates are 30 percent higher at 77 degrees Fahrenheit than at 67 degrees Fahrenheit. In many factories, temperature and humidity also affect the product, ruining paper, threads of textiles and so on. Similarly, in the old days, main-frame computers required climate control to function effectively. It was undoubtedly the introduction of air-conditioning that caused value-added per employee in manufacturing in the South to increase from 88.9 percent of the national average in 1954 to 96.3 percent of the national average in 1987.

Best of all, air-conditioning is much, much cheaper and more available than it has ever been!

 

 

 

 

Allow me to liberally paraphrase a piece from the current issue of the AMS’s publication “Notices.” Thereafter, I’ll contrast my version with the original.

The US presents particular obstacles to achieving technological improvement at a national scale, deriving from its social and economic diversity and also from an entrenched tradition of entrepreneurship and private industry which precludes a federal role in any primary initiatives. Yet to achieve real improvement at scale requires some national coherence.

The laws of physics are the same in Florida and Montana; it makes little sense in a highly mobile population for more than one cell phone technology to exist within our borders. It would be like building a national railway system with different gauge tracks in each state.

Readers will no doubt realize that this argument is undermined by the substantial advances Americans have witnessed in Cell phone technology over the years, despite—perhaps even because of—the existence of alternative suppliers developing different hardware and operating systems. All the while, we are somehow still able to call/text one another without worrying whether our interlocutor is an Apple addict or an aficionado of Android. And scale hasn’t proven to be a problem. Apple and Google have managed to serve very, very large numbers of people indeed.

So far as I know, few people are seeking a federal takeover of cell phone manufacturing or service in the hope that this would improve the user experience or increase “national coherence.”

And of course the American Mathematical Society is not propounding such a silly idea. What they actually published was a piece by award-winning mathematician Hyman Bass in which he writes:

The US presents particular obstacles to achieving educational improvement at a national scale, deriving from its social and economic diversity and also from an entrenched tradition of “local control,” which precludes a federal role in any primary initiatives. Yet to achieve effective reform at scale requires some national coherence….

Fractions are the same in Florida and Montana; it makes little sense in a highly mobile population for the math curriculum to change at state lines. It would be like building a national railway system with different gauge tracks in each state.

Why, given what we know about the diversity, interoperability, and dissemination of excellence within our private sector industries, would anyone imagine that the way to improve our centrally planned state school systems would be to centralize control over them even further, at the national level? Should we not perhaps draw the opposite conclusion? That the reason education has not enjoyed the same relentless pattern of useful innovation and the “scale-up” of excellence that we now expect in other fields is that we don’t allow the same freedoms and incentives in education that we do in all those other fields. Might it not be that state-run monopolies work no better in American education than they have ever worked in any other industry in any other country (which is to say: very poorly)?

How about freeing education from the stifling pall of monopoly, unleashing both parental choice and entrepreneurial freedom on a grand scale? It adds up.

A number of cases have been filed recently against the Securities and Exchange Commission (SEC), challenging its use of in-house administrative law judges (ALJs).  As I discussed in my earlier post on this topic, the SEC’s use of ALJs has come under close scrutiny lately because of concerns that, in the wake of a provision in Dodd-Frank expanding ALJs’ power, the SEC has elected to use its in-house procedures more frequently and that this use may have increased the SEC’s ability to prevail in enforcement actions.  Of particular concern is the fact that administrative proceedings lack many of the protections for defendants that litigation in federal courts provide, including: the option of having the case decided by a jury; access to the government’s evidence; and the ability to exclude certain evidence traditionally believed to be unreliable (such as hearsay).    

While a number of these cases have been dismissed, Monday finally garnered a win: Charles Hill succeeded in getting a federal court to issue an injunction that prohibits the SEC from continuing its case against him using its in-house ALJ.  Having been charged with insider trading and brought before an SEC ALJ, Hill filed suit against the SEC in federal court claiming the administrative proceeding was unconstitutional on three different grounds.  Although the court disagreed with two of his arguments, it found in his favor on the third – that the ALJs’ appointment violates the appointments clause because ALJs are “inferior officers.”

The constitution states: “the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”  Inferior officers are those who “exercis[e] significant authority pursuant to the laws of the United States[.]”  Because this person is “invested by legal authority with a portion of the sovereign powers of the federal Government,” the constitution requires that the person remain accountable at least indirectly to the head(s) of one of the three branches of the federal government.

Administrative Law Judges (ALJs) preside over the hearings, issuing subpoenas, hearing witness testimony, and making findings of law and fact – just like judges in courts established under Article III of the constitution (what we typically think of as “federal judges”).  Unlike Article III judges, which require presidential appointment and senate confirmation, ALJs are hired as employees of their respective agencies.  Although labeled simple “employees,” the court found that ALJs are in fact  “inferior officers” and therefore must be appointed in accordance with the constitution, which states: “the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.” 

As the judge noted in her opinion, there is a fairly easy fix available to the SEC: the five commissioners can simply appoint the existing ALJs to their current positions.  There may be some procedural hurdles to clear in other cases pending before SEC ALJs in ironing out their appointments, but these should not be too difficult to overcome.  As for Hill, the SEC can wait to re-appoint its own ALJs or it can refile the case against him in federal court.  The injunction doesn’t get him off the hook.

Although the problem may have an easy fix for the SEC, other agencies could face greater difficulties.  The constitution states that inferior officers may be appointed by “heads of departments.”  This clearly includes the 15 cabinet-level departments, and it has been found to include the SEC, but the question remains unsettled for several other agencies, including several with ALJs.  It’s unclear at this point whether other agencies will take any action in response to this ruling.  Judge May is in the Northern District of Georgia and her jurisdiction is limited to that district.  This means that other districts are not bound in any way by her ruling.  At the same time, the issue has gotten a fair amount of attention recently and agencies may already be examining their internal processes.  It’s very likely that more defendants in ALJ proceedings will file similar claims in federal court, hoping for a similar result.  

As we await a Supreme Court decision on gay marriage, we take note that 48 years ago today the Court struck down Virginia’s ban on interracial marriage.

Mildred Jeter, a black woman (though she also had Native American heritage and may have preferred to think of herself as Indian), married Richard Loving, a white man, in the District of Columbia in 1958. When they returned to their home in Caroline County, Virginia, they were arrested under Virginia’s anti-miscegenation statute, which dated to colonial times and had been reaffirmed in the Racial Integrity Act of 1924. The Lovings were indicted and pled guilty. They were sentenced to a year in jail; the state’s law didn’t just ban interracial marriage, it made such marriage a criminal offense. However, the trial judge suspended the sentence on the condition that they leave Virginia and not return together for 25 years. In his opinion, the judge stated:

Almighty God created the races white, black, yellow, malay, and red, and he placed them on separate continents. And but for the interference with his arrangement there would be no cause for such marriages. The fact that he separated the races shows that he did not intend for the races to mix.

Five years later they filed suit to have their conviction overturned. The case eventually reached the Supreme Court, which struck down Virginia’s law unanimously. Chief Justice Earl Warren wrote for the court,

The freedom to marry has long been recognized as one of the vital personal rights essential to the orderly pursuit of happiness by free men. Marriage is one of the “basic civil rights of man,” fundamental to our very existence and survival.

Here’s how ABC News reported the case on June 12, 1967:

Report on Loving Case 1967

David Boies and Ted Olson, the two lawyers who led the challenge to California’s Proposition 8, which outlawed same-sex marriage in 2008, connected the Loving case to the case of Perry v.Schwarzenegger here:

“Loving” and the Fight for Marriage Equality

In 2011, as their case proceeded through the federal courts, Boies and Olson spoke at the Cato Institute, joined by John Podesta, then president of the Center for American Progress, and Robert A. Levy, chairman of Cato. Podesta and Levy served as co-chairs of the advisory committee of the American Foundation for Equal Rights, the nonprofit group that brought the Perry case. They wrote in the Washington Post in 2010:

Now, 43 years after Loving, the courts are once again grappling with denial of equal marriage rights — this time to gay couples. We believe that a society respectful of individual liberty must end this unequal treatment under the law….

Over more than two centuries, minorities in America have gradually experienced greater freedom and been subjected to fewer discriminatory laws. But that process unfolded with great difficulty.

As the country evolved, the meaning of one small word — “all” — has evolved as well. Our nation’s Founders reaffirmed in the Declaration of Independence the self-evident truth that “all Men are created equal,” and our Pledge of Allegiance concludes with the simple and definitive words “liberty and justice for all.” Still, we have struggled mightily since our independence, often through our courts, to ensure that liberty and justice is truly available to all Americans.

Thanks to the genius of our Framers, who separated power among three branches of government, our courts have been able to take the lead — standing up to enforce equal protection, as demanded by the Constitution — even when the executive and legislative branches, and often the public as well, were unwilling to confront wrongful discrimination.

In his remarks at Cato, and in this newspaper column, Levy argued that it would be best to get the government out of marriage entirely—let marriage be a private contract and a religious ceremony, but not a government institution, a point that I have also made. For some, that’s a libertarian argument against laws and court decisions that would extend marriage to gay couples: it would be better to privatize marriage. But Levy goes on to say:

Whenever government imposes obligations or dispenses benefits, it may not “deny to any person within its jurisdiction the equal protection of the laws.” That provision is explicit in the 14th Amendment to the U.S. Constitution, applicable to the states, and implicit in the Fifth Amendment, applicable to the federal government.

When it comes to the current marriage case of Obergefell v. Hodges – and if only the Court had made the parallel case of Love v. Beshear the main case, so that the Loving decision could be followed by the Love decision – there are legitimate federalist and democratic objections. One might say that marriage law has always been a matter for the states, and it should stay that way. Let the people of each state decide what marriage will be in their state. Leave the federal courts out of it. Federalism is an important basis for liberty, and that’s a strong argument. There’s also a discomfiting argument that a Supreme Court decision striking down bans on gay marriage is undemocratic, that it would be better to let the political process work through the issue. Some people, even supporters of gay marriage, warn that a court decision could be another Roe v. Wade, with decades of cultural war over an imposed decision.

Those are valid objections. Not all issues have an obvious right side. In this case, I always ask critics of the federal court decisions striking down gay marriage bans and the possibility of a Supreme Court decision confirming those decisions, How do you feel about the Loving case? Do you think the Court should have declined to strike down state bans on interracial marriage (which were still highly popular in 1967, according to the Gallup poll)? And if you do support the Loving decision, then how are these cases different? The Cato Institute has urged the Court, in an amicus brief, to find that bans on same-sex marriage violate the equal protection clause of the Constitution.

Here is one more video, featuring the speakers from the Cato forum on Perry v. Schwarzenegger (plus me):

The Constitutional Case for Marriage Equality

Controversial Supreme Court decisions are often handed down at the end of the Court’s term, in June. A decade from now, will we celebrate the joint anniversary of the Loving and Obergefell decisions, both of which extended liberty and justice—and the freedom to marry—to all? Or will we have to explain how the Court managed not to find that the principles of Loving applied to Obergefell?

According to the South African newspaper Mail and Guardian, “African leaders on Wednesday signed a potentially historic, 26-nation free-trade pact to create a common market spanning half the continent, from Cairo to Cape Town. The deal on the Tripartite Free Trade Area (TFTA) is the culmination of five years of negotiations to set up a framework for preferential tariffs easing the movement of goods in an area that is home to 625-million people…. The deal will integrate three existing trade blocs – the East African Community, the Southern African Development Community and the Common Market for Eastern and Southern Africa (Comesa) – whose countries have a combined gross domestic product (GDP) of more than $1-trillion.”

“Potentially historic” is the right term for what could be a greatly beneficial agreement. African parliaments will have two years to ratify the agreement – and that is the easy part. Proper implementation and enforcement will be much more difficult in countries with deeply underdeveloped institutions of rule of law and protection of private property. Still, the TFTA is a step in the right direction, for it signals an important ideological shift on the part of the African elite. Historically, African governments have been deeply skeptical of free trade and capitalism. Instead, they preferred protectionism and state-led development. To the extent that they were interested in trade, the African governments emphasized access to Western markets, while eschewing liberalization of their own. The consequences were catastrophic. As I wrote in a 2005 Cato paper,  

[T]rade liberalization in the developed world as a cure for world poverty is often overemphasized. Simply abandoning developed-world protectionism would not substantially change the lives of the people in the poorest parts of the developing world. That is particularly true of sub-Saharan Africa (SSA), where the main causes of impoverishment are internal. SSA is not poor because of lack of access to world markets. SSA is poor because of political instability and because of a lack of policies and institutions, such as private property rights, that are necessary for the market economy to flourish.

Despite substantial declines in applied and bound tariffs throughout the world, protectionism [in SSA] is still very much alive. Developing countries’ average tariff rates are more than three times higher than those of developed countries… According to the WTO, only 10 percent of African (including sub-Saharan African) exports were intraregional (i.e.: traded to other African countries). In contrast, 68 percent of exports from countries in Western Europe were exported to other Western European countries. Similarly, 40 percent of North American exports were to other countries in North America.

It is hypocritical for African leaders to call for greater access to global markets while rejecting trade openness at home. It is also self-defeating, because domestic protectionism contributes to perpetuating African poverty. Research shows that countries with the greatest freedom to trade tend to grow faster than countries that restrict trading. SSA governments have complete control over the reduction of their own trade barriers. If they are truly serious about the benefits of trade liberalization, they can immediately free trade relations among SSA countries and with the rest of the world. They should do so regardless of what the developed world does.

The flow of unauthorized immigrants to the United States has collapsed.  The apprehension of illegal immigrants by Customs and Border Protection (CBP), the best proxy measurement of the flow of such people, along the Southwest Border is way down (see below). 

All Apprehensions on Southwest Border

                       

Source: Customs and Border Protection.

What explains this?  A number of factors are at play.  Economic conditions in the United States, economic or other conditions in other countries, and immigration enforcement all explain part of the decrease in unauthorized immigration over the years.    

Mark Krikorian of the Center for Immigration Studies (CIS) gives most of the credit to beefed up immigration enforcement along the border.  Krikorian seconds a quote by Marc Rosenblum, deputy director of the Migration Policy Institute, who says:

Every month or quarter that the economy continues to improve and unauthorized immigration doesn’t pick up supports the theory that border security is a bigger factor, and it’s less about the economy and we have moved into a new era.

But if immigration enforcement is the main reason why unauthorized immigration hasn’t collapsed, why are the numbers of unlawful immigrants from countries Other than Mexico (OTMs) increasing?  CBP apprehensions don’t discriminate based on country of origin because they can’t tell where the immigrants are from until they’re apprehended.

Apprehensions on Southwest Border, Mexico and OTMs

 

Source: Customs and Border Protection

OTM Apprehensions on Southwest Border and Border Patrol Agents

 

Source: Customs and Border Protection

The decrease in unlawful immigration is due entirely to the fall off in Mexicans who were 98 percent of all apprehended illegal immigrants in 2000 but just 47 percent in 2014.  From 2000 to 2014, the correlation between apprehensions of Mexicans and the number of border patrol agents is very negative (-.93 ), supporting Krikorian’s theory that enhanced border enforcement is deterring unlawful Mexicans. 

The economic indicators aren’t irrelevant though.  Mexican per capita GDP (PPP$) and apprehensions of Mexicans have a correlation of -.89, which means that as Mexican income goes up apprehensions of Mexicans goes down.  The richer Mexicans are in Mexico, fewer of them emigrate illegally to the United States.  The correlation between U.S. unemployment and Mexican unlawful immigration is less negative (-.81), showing that when unemployment is high fewer unlawful Mexican immigrants come.  The relationship between housing starts and unlawful Mexican immigration is also high (.79). 

Mexicans became richer at the same time that U.S. border enforcement increased.  Maybe throwing billions of dollars of taxpayer resources at the border or changing tactics actually worked or maybe Mexicans became rich enough that they didn’t have to come or maybe it was a combination of both of those factors and others that haven’t been considered.  Regardless, enforcement is not the only variable that has changed here.  OTMs add another wrinkle.

The number of border patrol agents and OTMs is positively correlated (0.37).  U.S. unemployment rates and housing starts have no relationship to OTM apprehensions.  OTMs are mostly Central Americans, virtually all from nations that are poorer and more violent than either the United States or Mexico.  U.S. immigration enforcement is not deterring them, what is pulling them in and pushing them out of their home countries?

Economic explanations of the flow of unlawful immigrants depend upon more than just the unemployment rate in the United States.  The economic conditions on the countries of origin must also be considered before we conclude that immigration enforcement deserves the credit and blame for stopping unlawful immigration.

Whenever someone declares opponents of the Common Core “misinformed,” get ready: there’s probably a lot more misinformation coming your way. Case in point, a new offering from Washington Post blogger Jennifer Rubin attacking Wisconsin Gov. Scott Walker (R) over his Common Core stance in a recent Des Moines Register op-ed. Her post is chock-full of misinformation, ironically intended to make Core opponents seem confused.

Start with this, in which Rubin asserts that Walker tried to conflate overall federal education funding with the Common Core:

As virtually all GOP contenders but Jeb Bush do, he then takes a swing at Common Core. “Nationwide, we want high standards but we want them set by parents, educators and school board members at the local level. That is why I oppose Common Core. Money spent at the local and state level is more efficient, more effective and more accountable. That is why I support moving money out of Washington and sending it to states and schools. Students deserve a better education.” This is confusing since Common Core per se does not affect how and where money is coming from.

This isn’t actually confusing when you read Walker’s piece, at least the online version (which I assume is like the print version, and is also likely the version Rubin read.) Why? Because Walker separated his ideas into paragraphs, which Rubin eliminated in the quote above, and the placement of the paragraphs makes clear that Walker’s Common Core thought and his federal funding thought were separate ideas. Directly from Walker’s piece:

Now, more than ever, we need to push big, bold reforms to improve our schools. If we can do it in Wisconsin, there is no reason we can’t push positive education reforms across the country.

Nationwide, we want high standards but we want them set by parents, educators and school board members at the local level. That is why I oppose Common Core.

Money spent at the local and state level is more efficient, more effective and more accountable. That is why I support moving money out of Washington and sending it to states and schools. Students deserve a better education.

And every student in the our [sic] nation’s capital should have access to a great education. Therefore, we should expand the options for families in the District of Columbia to choose the school that is best for their children.

Rubin proceeds to make the funding befuddlement worse by writing, “It is Race to the Top that affords states money if they can show either through Common Core or other standards that they are setting high expectations for students.” First, the Race to the Top that provided the primary impetus for states to adopt the Core de facto only allowed the Core – not “other standards” – saying that only states that were part of a standards-and-assessment consortium including “a majority of the States in the country” (p. 59689) could get maximum points in the funding contest. Only the Core met that criterion, and it was clearly the intent of many Core supporters and the Obama administration to have RTT push the Core specifically. That first Race to the Top, however, was basically a very powerful one-shot deal, not one that continuously “affords states money.” It was subsequent waivers out of No Child Left Behind requirements – which let states either use the Core or have a state university system certify state standards as “college- and career-ready” – that are currently in effect and offer two standards options.

Subsequent to the original Race to the Top there have been other programs with “Race to the Top” in their names, and Rubin conflates the original, which drove Common Core, with the Race to the Top–Early Learning Challenge. The conflation gives the impression that in claiming that the ELC program would help Wisconsin, as he did in 2013, Walker was praising the original Race to the Top. Rubin compounds that erroneous connection by noting that among 2016 GOP presidential candidates only Rick Perry of Texas had “turned down” RTT money – actually, he refused to compete for it – which is meaningless since Walker wasn’t governor when the original RTT was in play.

Rubin moves on to assert that it is problematic for governors to tout success in their schools that occurred while Common Core was “in place” and then attack the Core. Rubin doesn’t egregiously misrepresent facts with this observation, but everyone should refrain from crediting or blaming the Core for outcomes even after it has been in place for years. There are far too many variables at play in education to simply say that during a certain period outcomes improved, we had Common Core during that period, therefore Common Core worked.

More directly, though, Common Core hasn’t been in place for years. Indeed, for the vast majority of states – Wisconsin included – 2014-15 was the first school year that Core-connected tests were administered. That means implementation is just now being completed, and the Core wasn’t in full effect during the advances Walker cited, which he connected to his 2011 seniority and tenure reforms.

Finally, again not an egregious misrepresentation of fact, but Rubin asserts that it is a clear myth to say that the Core is a “curriculum.” But the delineation between “standards” and “curricula” is no bright line, much though Core supporters like to say it is when smearing opponents as misinformed. As an extreme illustration, if I say the “standard” is to be able to add 2 and 2 using a traditional algorithm, that’s also curriculum; it tells you “how” you must do the addition.

In this vain, the Core explicitly calls for instructionalshifts” – again, how you do things, not just what students should be able to do – and gets fairly explicit about content in much of its math and a bit of the English Language Arts sections. More important, federally funded tests go with the Core – though many states have moved away from them – and what they ask will likely de facto fill in curricular specifics over time. If every year a problem requires multiplication using area models, area models must be taught. And keep in mind that while educators may have their own definition of “curriculum” – specifics of how something is taught – the common definition is much more in line with how they define “standards”: what is broadly to be learned. As the Merriam-Webster online dictionary defines it: “1:  the courses offered by an educational institution; 2: a set of courses constituting an area of specialization.”

As I’ve opined before, Common Core advocates have made a central part of their political strategy tarring Core opponents as “misinformed.” But they are too often guilty of peddling misinformation themselves.

A new GAO report describes failures in the federal government’s information technology (IT) activities. The government spends $80 billion annually on IT. These “investments frequently fail, incur cost overruns and schedule slippages, or contribute little to mission-related outcomes,” concludes GAO.

The new report summarized some of the failures:

  • the Department of Defense’s (DOD) Expeditionary Combat Support System, which was canceled in December 2012, after spending more than a billion dollars and failing to deploy within 5 years of initially obligating funds;
  • the Department of Homeland Security’s Secure Border Initiative Network program, which was ended in January 2011, after the department obligated more than $1 billion to the program, because it did not meet cost-effectiveness and viability standards;
  • the Department of Veterans Affairs’ (VA) Financial and Logistics Integrated Technology Enterprise program, which was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011 due to challenges in managing the program;
  • the Office of Personnel Management’s Retirement Systems Modernization program, which was canceled in February 2011, after spending approximately $231 million on the agency’s third attempt to automate the processing of federal employee retirement claims;
  • the National Oceanic and Atmospheric Administration, DOD, and the National Aeronautics and Space Administration’s National Polar-orbiting Operational Environmental Satellite System, which was a tri-agency weather satellite program that the White House Office of Science and Technology stopped in February 2010 after the program spent 16 years and almost $5 billion; and
  • the VA Scheduling Replacement Project, which was terminated in September 2009 after spending an estimated $127 million over 9 years.

The GAO attributes the problems to “a lack of disciplined and effective management and inadequate executive-level oversight.” That is certainly true, but I would also point to more fundamental problems with the nature of government bureaucracy, which I discussed in testimony yesterday.

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

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Yesterday, we posted some excerpts from the Background section of our submitted Comment on the draft report on climate and health from the U.S. Global Change Research Program (USGCRP). In that section, we argued that the USGCRP was overlooking (ignoring?) a vital factor that shapes the influence of climate change on the health and well-being of Americans—that is, that the adaptive process is actually spurred by climate change itself. Without recognition of this fact, projections are often alarmist and pessimistic.

Today, we wanted to highlight what we found to be the fatal flaw in the entire USGCRP report—that the USGCRP fails to describe the net impact of climate change on public health, instead, presenting only a narrow and selective look at what they determine to be negative impacts (and even those examples tend to be miscast).

Here’s what we had to say about this:

The first sentience of the Climate and Health Assessment exposes the report’s fatal flaw “Climate change is a significant threat to the health of the American people.” This statement is based upon the untested assumption that the climate of the mid-to-late 20th century in the United States is the optimal one for the health of Americans. Yet nowhere, to our knowledge, can the basis for such an assumption be found in the scientific literature. Without establishing the ideal climate, it is pure speculation to make a statement like the one noted above. The USGCRP Climate and Health Assessment is not a comprehensive review of how climate impacts all aspects of the well-being of Americans, but rather a narrow and selective look at how projected changes in climate (projections that are largely grounded in climate model projections which have known faults and limitations) may impact some narrow and selective facets of human health. Sure, there are negatives associated with any change, but that is not the overarching question. The relevant question, and the one not answered by the USGCRP, is what is the net outcome of climate change on the population of Americans.

Admittedly, answering such a question is exceedingly difficult, if not impossible. There are so many confounding factors in play. Obvious examples include changing population demographics (including age-structure), changing medical technologies, changing health care, changing diets, and changing habits. On the climate side of things, additional complicating factors are to be found including improving weather forecasts, improving warning systems, improving observational systems, and improving preparation. But it is quite likely that it is the non-obvious influences which are most at play.

Compounding the situation is that the impacts of a changing climate are not constant over various timescales. Climate change provokes the development and adoption of adaptive measures-measures which insulate us against future impacts and lowers the future threat. Depending on the types of adaptive measures deployed, these may become effective on timescales from weeks to decades (or even longer). For example, an unusual summer heatwave may increase daily mortality in unprepared localities for a few days, but adaptive measures ranging from simple actions (community awareness programs and cooling centers) with deployment in times in weeks to months, to more elaborate (heat watch/warming systems, building design), with deployment horizons from years to decades.

And one must be careful not to fall prey to confusing climate change with climate (including climate variability).  Too often reports like these are written with blinders on that mislead the authors into thinking that all impacts are a result of climate changes, when, in fact, climate change plays but a tiny role in the overall climate—with the role of human-caused climate change extremely difficult to identify, much less even be anticipated in a robust manner.

Perhaps the largest hurdle the USGCRP has to overcome to establish a growing threat from climate change is that the simplest measure of human well-being, life expectancy, shows a large increase since the beginning of the 20th century (Figure 1).

Figure 1. Life expectancy at birth, United States, 1900-2013 (data source: Centers for Disease Control, http://www.cdc.gov/nchs/data/nvsr/nvsr64/nvsr64_02.pdf).

Life expectancy is indicative of the sum total of all influences on the well-being of Americans and shows that the overall climate has been increasing favorable. This has occurred at the same time as a rise in global and national temperatures (from whatever the cause).

But, climate (including variability and change) is eminently more complex than a simple annual average of a large area temperature can indicate (a parameter that no individual experiences). As we try to decrease the temporal and spatial scales to those relevant for human health, the complexities of the climate overwhelms our abilities to project them more than a few days into the future.

Oversimplifications therefore become commonplace, such as using coarse resolution climate model output involving a limited number of variables to downscale to local time and places. This procedure is one is widely recognized as being fraught with uncertainty, and thus produces non-robust and unreliable results.

 Our bottom line is not pretty for the USGCRP and their Climate and Health Assessment:

[This] compounds to produce a nearly intractable situation in which determining the role on anthropogenic climate change in the overall health and well-being of Americans, now and in the future, becomes fraught with nearly unavoidable pitfalls, many of which the USGCRP has stepped directly in. In doing so, the USGCRP has produced a document that serves not to inform the public as to the existing state of robust science on the topic of climate and human health, but rather to misinform them and local, state and national policy as well.

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