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Scope of practice (SOP) restrictions in health care professions are often portrayed as a necessary intervention to protect consumer health and safety. Given how common this argument is, there have been surprisingly few studies trying to determine whether SOP restrictions actually have any impact on such outcomes. A new working paper seeks to fill this gap in the literature by determining whether SOP laws for certified nurse midwives (CNMs) affect health outcomes. On average, it turns out that the restrictions do not have a significant impact on maternal behaviors or infant health outcomes. Instead, they “primarily serve as barriers to practice and removing these restrictions has the potential to improve the efficiency of the health care system for delivery and infant care.”

SOP laws are determined at the state level, and regulate which activities and tasks certain professions can perform within the state. Physicians are generally unaffected, but other health practitioners are—in this case, CNMs specifically. Their level of restriction ranges from states with “no barriers,” where CNMs do not have oversight requirements, to states with “high barriers,” where they have to be under the direct supervision of a physician and may not write prescriptions. In heartening news, more states seem to be recognizing the wasteful nature of these laws. The recent trend for this specific case has been a move towards a more relaxed scope of practice environment.  

Scope of Practice for Certified Nurse Midwives by State, 1994 vs. 2013

Source: Markowitz et al.

There are also differences between the states as to when such SOP laws were implemented. It is these sources of variation that allow the authors to analyze the impact of CNM SOP regulations on health outcomes. They find that states that allow for full practice by CNMs have “on average, little or no differences in maternal health behaviors or infant health outcomes as compared to states with more restrictive SOP.”

While the authors fail to find significant effects there, they do find differences when it comes to rates of labor inductions, elective labor inductions, C-Sections, and elective C-Sections. This has implications for overall costs in the health care system: births at delivery cost almost $40 billion in 2013, with almost half of that amount funded through the Medicaid program. As the authors note, one of the biggest drivers of the costs associated with a delivery is whether it is via C-section. Women giving birth in “high barrier” states that are more restrictive of CNMs are 3 percentage points more likely to be induced and 1.6 percentage points more likely to have a C-section compared to those in “no barrier” states. There are small but statistically insignificant effects when comparing states that aren’t on the two extremes of SOP restrictions. The implied savings of moving states from “high barrier” to “no barrier” exceed $85 million a year due to the resulting reduction in C-section births.

These new findings are particularly illuminating when considered with another recent study that tried to determine whether occupational licensing in health care professions improved patient safety. Those authors looked at the licensing of midwives in the beginning of the 20th century and presented some evidence that the introduction of those laws reduced maternal mortality. It’s worth noting that the surrounding context a century ago was markedly different when it came to asymmetric information and a host of other factors. The new working paper highlighted here examines a recent situation that is more directly relevant to the discussion today, and finds that these SOP laws do not now have a significant impact on the related health or behavioral outcomes, on average.

Both studies seek to address a gap in our understanding of health care regulation, by finding out whether restrictions on practice actually improve health outcomes or consumer safety. While licensure for midwives may have had a positive effect a century ago, many things have changed in the intervening decades. Today, SOP restrictions act mostly as barriers to care. Where that’s the case, removing them could improve efficiency without harming patient safety.

I have chosen a provocative title, but it is fully justified. Fed officials are flying on autopilot, but the controls don’t work anymore, or at least not reliably. Fed watchers are largely clueless. The investment community and the economy may be collateral damage.

Let me begin by briefly reviewing the recent past. All through last year, Fed officials were signaling they would begin a program of rate increases. At first, there were going to be 8 increases of one quarter point. As the year progressed, the first increase faded into the future. Finally, in December 2015, the Fed finally hiked its new interest-rate targets by 25 basis points. In my opinion, the FOMC did so largely to keep its credibility.

At the time, I wrote that “the chief effect of Wednesday’s action and accompanying statement is to once again increase uncertainty in financial markets” (O’Driscoll 2015). I became convinced that, promises to the contrary notwithstanding, the Fed would not raise interest rates again before December 2016. Instead, policymakers would dither all year. I forecast the earliest rate hike would be in December 2016. Note, I did not predict the Fed would actually raise rates this December, just that they would not do so before. I think I have been vindicated.

The reasons for Fed inaction were both political and economic, and they reinforced each other. On the political front, most Fed watchers naively ignored that 2016 was a presidential election year. Yes, the FOMC has raised interest rates in election years. But I felt there would be significant pressure on the Fed no to do so this year, and, frankly, I felt the Fed has become more politicized over the years. So, political considerations argued against a rate hike.

I turn next to economic considerations. The conventional economic case for increasing short-term interest rates was really quite weak. Neither of the two Fed mandates provided much justification. Early on, some Fed officials forecast that inflation would rise as the economy neared full employment. Yet the inflation rate remained stubbornly below the two-percent target. Next, Fed officials suggested the economy was approaching full employment. With or without inflation, they argued, the FOMC needed to start raising interest rates.

In fact, this recovery has been weak by any standard measure. It is a long recovery, but a weak one. That is true whether measured by output growth or employment growth. The contention that we are at or near full employment ignored labor-market realities. The Civilian Labor Force Participation Rate has been in free fall since the Great Recession. It has only recently shown an uptick. For men, the picture is even more dismal. The participation rate is near an all-time low. It is a largely unnoticed crisis, which Nicholas Eberstadt (2016) has chronicled. He estimated that there is a “male jobs deficit” of 10 million. The economy is not close to any reasonable concept of full employment. There was no employment justification for raising short-term interest rates.

I have come to the conclusion that the stated reasons for raising rates are not the real reasons, at least not for some Fed officials. They are constrained to Humphrey-Hawkins criteria (inflation and unemployment). But there is concern over the compressed margins for banks and money-market mutual funds. For banks, spread between borrowing rates and lending rates are compressed. For money funds, yields on eligible assets are very low, and it is difficult to pay a positive return to shareholders after costs. Can you imagine Fed Chair Yellen or New York Fed President Dudley saying we need to raise interest rates to make banking more profitable?

There are also international considerations. By now, central bankers are beginning to see the folly of negative interest rates. For the ECB to get rates just back to zero, however, U.S. rates must move higher into positive territory. Then, too, there are the EU’s banking problems. The cost of bailing out European banks could be monumental. A little extra economic growth from a weaker Euro would help finance that cost. Can you imagine if Fed officials said we need to raise U.S. interest rates to bail out the Germans?

There are good reasons for raising rates. They have been too low for too long. Capital is being misallocated all over the place as a result. Instead of stimulating investment in the real economy, low interest rates have fueled stock buybacks, M&A, and financial engineering more generally. The financial sector has grown at the expense of real economic activity. Asset bubbles have been created. The Fed’s policy of buying MBSs (Mortgage-Backed Securities) has channeled credit into housing. If these considerations were paramount, however, interest rates should have been higher long ago.

Some might say that, if I am correct, the Fed is in an impossible position. The economy is too weak to raise interest rates, but asset bubbles necessitate higher rates. That would be true if current monetary policy were stimulating the economy. In fact, unconventional monetary policy has been contractionary. To repeat, the policy of very low interest rates has been contractionary, not expansionary. The Fed has been dampening economic growth.

As already noted, very low interest rates have compressed bank’s margins. One can see that in the relatively flat yield curve. The point is even more compelling if one factors in risk. Lending is a risky activity. A bank must expect to earn a positive risk-adjusted rate of return. Right now it can earn 50bp risk free on reserves on deposit at the Fed. Moreover, those reserves satisfy the mandated liquidity balances of Dodd-Frank. Speaking of Dodd-Frank, its restrictions on risk-taking greatly reinforce the effects of the Fed’s low interest rate policies. Bank lending is discouraged. That has had an especially large impact on small business lending. Small businesses are the job creators for the economy. That is another reason why employment growth has been weak.

In a forthcoming article in the Cato Journal, Professor Charles Calomiris of Columbia University has estimated that the value to a bank of acquiring a deposit is approaching zero. Banks are actually turning deposits away. That implies, of course, that the value of all those branch networks is approaching zero since they are basically deposit-gathering facilities. The traditional business of banking may not be a viable model under current monetary and regulatory policies (Calomiris 2017).

To recapitulate, higher interest rates might actually spur economic growth. And they would be good antidotes to asset bubbles. What, then, are the prospects for higher interest rates?

The Federal Reserve’s unconventional monetary policy has robbed it of the ability to influence interest rates as it has in the past. That is particularly true for raising interest rates. The necessary linkages in monetary policy have been broken, or at least damaged.

In the past (pre-2008), how did the Fed raise interest rates? It sold short-term government bonds, Treasury bills. That pushed up the interest rates on bills and put upward pressure on other short-term interest rates. Banks, attracted to higher returns, competed for federal funds to lend. That drove up the fed funds rate, which restrained lending. The fed funds market was a choke point.

All these linkages are gone.

The Fed has zero Treasury bills on its balance sheet, so it has no short-term assets to sell. The policy of large-scale asset purchases — QE — flooded banks with reserves. Banks do not need to borrow reserves; reserves are abundant. The fed funds market, greatly shrunk in size, now mainly consists of transactions between GSEs — chiefly Federal Home Loan Banks — and a few banks, mainly foreign.

So what did the Fed do in December 2015 to increase short-term interest rates? It increased the interest rate paid on reserves from 25bp to 50bp. And it posted a rate of 25bp for reverse repos at the New York Fed. It then set a target range of 25-50bp for the fed funds rate. Did it hit that fed funds target? Yes, about in the middle of the range. Did it matter? Not really, for the reasons just mentioned. The availability and pricing of fed funds no longer constrains most banks. Moreover, the goal was surely to raise market interest rates. The opposite occurred. I quote former Cleveland Fed president, Jerry Jordan, on point: “Yields of market-determined interest rates subsequently fell and remain below the levels that prevailed before the increase in administered rates” (Jordan 2016: 26).

The Fed is now largely engaged in a futile exercise to control the economy. The massive expansion of its balance sheet flooded banks with excess reserves. “Operation Twist” robbed it of short-term assets. Its influence over short-term, market interest rates is attenuated at best. Nor does it seem able to control the money supply, though that is a more complicated issue (Jordan 2016).

What financial markets have feared the most, they in reality dare not hope for. The Federal Reserve is not positioned to raise short-term, market interest rates. If the feared spike in inflation materializes, the Fed is not positioned to contain it. Markets are expecting or fearing the Fed will do things it can no longer do. The misalignment between market expectations and Fed capabilities is very dangerous, and I fear it will not end well. Not an out-of-control central bank, but a not-in-control central bank is the problem markets must confront. The Fed is not positioned to control inflation when and if that becomes a problem.

___________

This post is a revised version of a speech given to the CFA Society of Nevada, October 27, 2016.

References

Calomiris, Charles W. (2017) “The Microeconomic Perils of Monetary Policy Experiments.” Forthcoming in Cato Journal, Winter 2017, based on remarks delivered at the Shadow Open Market Committee’s Fall 2016 Meeting.

Eberstadt, N. (2016) “The Idle Army: America’s Unworking Men.” Wall Street Journal (October 2).

Jordan, J. (2016)  “Rethinking the Monetary Transmission Mechanism.”  Paper prepared for the Cato Monetary Conference, November 2016.

O’Driscoll, Jr., G. P. (2015) “The Fed’s Uncertain Leap Forward.” Wall Street Journal (December 17): A19.

[Cross-posted from Alt-M.org]

In a recent editorial, the Dallas Morning News inveighed against expanding educational choice in Texas, arguing that legislative leaders should “focus on improving public schools” instead. What the DMN editorial board means, of course, is “spend more money,” as they make clear in the penultimate paragraph. Yet although the national average annual expenditure per pupil for district school students has, after adjusting for inflation, nearly tripled in the last forty years, student performance remains flat. Moreover, there is little evidence that merely increasing spending improves school performance or student outcomes. Nevertheless, the DMN has reservations about the possible effects of expanding educational choice:

One proposal would create education savings accounts. If a parent decides against public schools, the money that would have gone with the student to the local school district would instead go to the account, for parents to use on private school.

That could decimate public schools. What about the quality of education for the students left behind?

Good question. Fortunately, a few dozen high-quality studies provide an answer. Contrary to the DMN’s assertion that educational choice “would divert scarce taxpayer dollars from already struggling public schools and do nothing to help improve them,” the research overwhelmingly finds that expanding choice and competition has a positive effect on the performance of district schools. For example:

  • A 2016 study by Anna Egalite of North Carolina State University looked at the impact of the Louisiana Scholarship Program (LSP) on Louisiana public schools. Egalite found, “The competitive threat of the LSP ranges from negligible to modestly positive in the public schools exposed to the threat of competition, with effect sizes growing in magnitude as the competitive threat looms larger.”
  • A 2014 study by David Figlio and Cassandra Hart of Northwestern University examined the competitive effects of the Florida Tax Credit Scholarship Program on public schools. They learned that more access and variety of private schools increased the competitive pressure on public schools in the wake of the policy announcement. They state in their conclusion, “The fact that we observed generalized improvements in school performance in response to the competitive threats of school vouchers, even in a state with rapid population growth, suggests that voucher competition may have effects elsewhere.”
  • A 2011 peer-reviewed study by Jay Greene of the University of Arkansas and Marcus Winters of the University of Colorado – Colorado Springs looked at the impact of Florida’s McKay special education voucher program on Florida public schools. Greene and Winters found there was approximately a “12 percent reduction in the probability that a fourth- through sixth-grade student” was diagnosed with a learning disability in a public school with average levels of competition. They also found that “being in a public school surrounded by the average number of McKay-accepting private schools was related to an increase in academic proficiency of about 0.01 standard deviations in both math and reading. The positive but very mild competitive effect is consistent with what has been found in previous research evaluating more conventional school choice policies.”
  • A 2009 study by Jay Greene and Ryan Marsh of the University of Arkansas considered the systemic effects of expanding school choice in Milwaukee. Greene and Marsh found that public school students in Milwaukee fare better academically when they have more free private options through the voucher program. They concluded, “It appears that Milwaukee public schools are more attentive to the academic needs of students when those students have more opportunities to leave those schools. This finding is robust across several different specifications of the model.”

In other words, the research finds that when parents have multiple schooling options, schools have to work harder to attract them. Throwing money at district schools hasn’t worked, but expanding educational choice does not mean abandoning the schools where most children are enrolled. Rather, empowering families with expanded educational choice gives those schools a stronger incentive to meet the needs of students and their parents. That means using resources more wisely to provide families with a learning environment that they want to affirmatively choose, rather than one where they are merely assigned based on the home they could afford.

It is irresponsible for media outlets to make grand pronouncements about the supposed effects of a policy without first looking at what the research literature actually says. Far from “decimating” district schools, dozens of studies show that educational choice policies foster improved performance. The Dallas Morning News should correct the record.

Recently, the UK Daily Telegraph ran a remarkable Op-Ed written by William Hague, the just-retired Conservative politician and former UK Foreign Secretary. The title alone was startling: “Central bankers have collectively lost the plot. They must raise interest rates or face their doom.”

Now I confess that I may be a little biased. Lord Hague’s article made many of the same points that Martin Hutchinson and I set out in a paper we have just prepared for Cato’s 34th Annual Monetary Conference next month, “From excess stimulus to monetary mayhem,” and I am pretty confident that he hasn’t seen our draft. What encourages me most about his piece is that it hints that the monetary policy Zeitgeist is changing — the failures of recent central bank policies are becoming increasingly obvious to anyone without a completely closed mind. The Overton Window might at last be moving in our direction.

In this post, I would like to summarize his argument and offer a few observations of my own.

He begins with a nice little nugget about the Tories’ response to Gordon Brown’s pronouncement, on the heels of Labour’s landslide election victory in 1997, that the Bank of England would be operationally independent from governments:

We [the Tory “survivors”] decided not to demur. In private, we had considered doing the same thing ourselves. The idea that central banks should be free of political pressures and the electoral cycle as they set interest rates had become a prevailing one across the world — with good reason after the many wild swings in inflation and interest rates over previous decades.

Many of us had guessed what the Tory leadership were thinking on this issue, but it is good to see it confirmed.

Hague goes on to suggest that central bankers have badly misused the powers that were granted them and are “now in deep trouble,” continuing to pursue “emergency policies” that are “becoming steadily more unpopular and counter-productive.” Unless a course correction comes soon, central bankers “will find their independence increasingly under attack.” He continues:

In 2008 the central banks reacted to a massive crisis they had completely failed to foresee by cutting rates to record lows and embarking on “quantitative easing” … The trouble is that eight years later they are, to varying degrees, still doing it. Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects.

To use the Marxist phrase — although one that Hague did not use — central banks are facing a legitimation crisis.

He then outlines no less than 10 serious drawbacks from ZIRP and QE that could be “politically explosive or economically unwise if continued indefinitely:”

#1: Savers find they can’t earn a worthwhile return and are driven into riskier assets whose prices rise further.

#2: Asset holders get much richer, but others are left out, seriously exacerbating social and political divides and fueling the anger behind populist campaigns.

#3: Pension funds have poor returns and therefore suffer huge deficits, causing businesses to have to put more money into them rather than finance expansion.

#4: Banks find it harder to run a viable business, a problem very evident now in Germany and Italy.

#5: Those who are able to save more do so, because they need a bigger pot of savings to get an equivalent return, i.e., low interest rates cause those people to spend less, not more.

#6: Companies have an incentive to use borrowed money to buy back shares rather than spend the money on new productive investments.

#7: Central banks are buying up corporate bonds, not just government bonds, so they are acquiring risky assets themselves and giving preference to some companies over others.

#8: Zombie companies are allowed to stay in business only because they can borrow so cheaply, which drags down productivity.

#9: Pumping up the prices of stock markets and houses without an underlying improvement in economic performance becomes ever more difficult to unwind and ultimately threatens an almighty crash when it does come to an end.

#10: When people see emergency measures going on for nearly a decade it undermines their confidence in central bankers, whom they think have lost the plot.

He then concludes:

I am not an economist but I have come to the conclusion that central banks collectively have now indeed lost the plot. The whole point of their independence was that they could be brave enough to make people confront reality. Yet in reality they are blowing up a bubble of make-believe money to avoid immediate pain, except for penalising the poor and the prudent.

Non-economist or not, Hague’s economic analysis is far better than anything I have seen published by any central bank outside of the Bundesbank.

He goes on to explain that he had put this view to senior staff at a major Far Eastern central bank — my guess the Bank of Japan. He was then astonished to discover that they agreed with him, but explained that no single central bank could reverse these policies without causing a recession for their own country, unless there was a coordinated move by all central bankers to gradually raise interest rates. He wryly notes:

The policies of any one central bank may well be perfectly rational …. But so is a decision by any one sheep to run with the flock when in danger. The trouble is that the whole flock might be heading for a cliff.

He then sticks the boot into the argument that interest rates are low merely because of a global savings glut: even if interest rates have to be low because of such a glut, that does not mean those rates have to be driven to zero or subzero levels as they are now. Then he turns on those central bankers who argue that their mandate is only to keep inflation low and that they are merely doing a technical job:

I have bad news for them. The accumulating effects of loose monetary policy globally are intensely political. When pension funds renege on promises, or inequality widens further, or savers become desperate, huge public and political anger is gong to burst over the heads of the world’s central banks.

Finally, he calls on the biggest sheep of them all to wake up to the problem and lead the others away from the cliff before they all go over:

The only way out is for the US Fed to summon the courage to lead the way to higher interest rates, and others to follow slowly but surely. If they fail to do so, the era of their much vaunted independence will come, possibly quite dramatically, to its end.

Lord Hague’s elegant analysis provides a much needed wake-up call. Unfortunately, if there is any indication that the Fed is listening, I must have missed it.

Where I would slightly beg to differ from Hague is where he claims that no central bank other than the Fed can do anything useful because the collective herd mentality is too strong to resist.

Not so. Such pressure is difficult to resist, but it is not impossible and I wouldn’t listen too much to Japanese central bankers whose funny money fantasies are increasingly delusional. Fortunately, the Bank of Canada has shown that less extreme policies can be implemented even in this international environment, and the Bundesbank has been valiantly resisting the pressures for ever looser monetary policies in Europe.

Going back to the UK, there is no sign that the Bank of England is open to his message either: on the contrary the Bank’s Monetary Policy Committee recently voted to reduce Base Rate to its lowest level ever and expand QE, and the senior management of the Bank are too invested in the inherently self-contradictory “we have fixed the banking system but still need more QE” narrative to ever acknowledge that they have had it all wrong all along.

Were I advising the Chancellor, I would be advising him to install a new senior management team in the Bank, reassert control over the Bank with a view to raising interest rates, and prepare contingency plans against the renewed financial crisis that some of us have been warning about for years. But I have zero confidence in the capabilities of either the Bank of England or the UK Treasury to do the analysis properly. That the Bank of England is discredited is amply proven by their demonstrably flawed — because empirically falsified — narrative about UK banks’ capital positions and the Bank’s laughable stress tests. That the Treasury lost its credibility is clear from its alarmist Brexit reports, which were as credible as Tony Blair’s infamous dodgy dossiers.

But just because the authorities are not listening to Lord Hague’s warnings does not invalidate them.[1] That is the problem in a nutshell.

___________________

[1] Hague does not, however, address some of the very serious issues with how central banks should change policy, but I hope to address these in one or more future posts.

[Cross-posted from Alt-M.org]

In 2014, the Cato Institute published a policy analysis that argued that Congress should create a work visa program that would allow states to select some of the foreign workers that the federal government admits—a model that Canada has used for decades. All states would benefit from this approach, since they all suffer from low federal caps on visas and since they all have the best knowledge of their local labor markets. But the states that will likely benefit the most are states with lower populations.

While there is no breakdown of the total number of visas issued to workers by state, we know how many workers enter each state annually. This number is imprecise as a measure of the total number of workers in each state because it double counts people who leave the state and reenter during the year, but it is still useful for looking at the distribution of workers among the states.

Figure 1 presents the distribution of all worker entries and entries of workers under the most important category—the H temporary work visa—by grouping the states into three roughly equal baskets: 1) the very large states with more than five percent of the entire U.S. population, 2) those in the middle with 2 to 5 percent, and 3) those with 2 percent or less. As is readily apparent, the big four states—California, Texas, New York, and Florida—receive a much higher percentage of workers than their share of the population. The middle group of states receives only slightly less than their population share for all worker entries.

On the other hand, the smallest states receive not only fewer workers in absolute terms, but disproportionately less than other states compared to their population. These 34 states are home to 30 percent of all Americans, but receive just 18.6 percent of guest workers overall—an 11.4 percent difference between population share and worker share.  A similarly large gap can be seen for worker entries under the important H category.

Figure 1: Difference Between Share of All Worker Entries and Share of U.S. Population; Share of H Worker Entries and Share of the Population in 2014

 

 

Sources: DHS (Entries); Census (Population)

Figure 2 breaks the third group in Figure 1—the smallest states—into two groups: 1) the 14 states with a population between 1 and 2 percent and 2) the 20 states with a population less than 1 percent of the overall U.S. population. As can be seen, it’s the higher-end of this less populous group that has the greatest disparity between population share and worker share. These are states like Iowa, Minnesota, Colorado, and Wisconsin. The 20 smallest states with populations between 0 percent and 1 of the population also had a difference, but it was a much smaller disparity—2.4 percent compared to 9 percent for states in the 1 to 2 percent range.

Figure 2: Difference Between State Share of U.S. Population and State Share of All Worker Entries and State Share of H Worker Entries in 2014

Source: See Figure 1

We know that this unequal distribution is not explained by differences in state labor market demand since domestic workers are actually moving from larger states to the smaller states. The real explanation is that larger and smaller states have different types of labor demand.

Figure 3 groups the states in the same manner as Figure 1, but breaks the H category into its two skill classes: H-1B high skilled workers and H-2s for lower skilled agricultural and non-agricultural workers (H-2As and H-2Bs). As you can see, the less populated states received a share of lesser skilled H-2 workers in proportion to their populations, but received half as many H-1Bs as their share of the population. For the more populous states, the reverse was true—they received much more high than low skilled workers.

Figure 3: Difference Between Share of H-1B Higher-Skilled Worker Positions and State Share of U.S. Population; Share of H-2 (H-2A and H-2B) Lesser-Skilled Worker Positions and State Share of U.S. Population in 2014

 

Sources: See Figure 1

We can take this conclusion further. Because H-1B and H-2B visas—the nonagricultural part of the H-2 class—are capped, employers actually plan to receive far more workers than they actually get under the federal system. The first step toward applying for an H visa is submitting a certification of need for a certain position to be filled by a foreign worker. The Department of Labor either approves or denies this certification. If it’s approved, then the employer submits a request to the Department of Homeland Security for visas for the workers that it wants, if there are any visas remaining.

 

This certification process allows a very rough comparison between the demand for workers and the number of workers that each state receives. It is very imprecise because other factors limit the number of certifications that can be filed. All H-1B certifications, for example, have to be filed on the same week six months before the workers arrive in the United States, so it underestimates total market demand. Yet as Figure 1 shows, smaller states received an appreciably lower share of worker entries than their shares of certifications of need. In other words, smaller states need a lot more lesser-skilled workers that they are unable to get under the current system.

Figure 4: Difference Between the Share of Certifications for H Worker Positions and Share of H Worker Entries in 2014 By State Share of U.S. Population

Source: DOL (Certifications), DHS

Overall the statistics on certifications for H workers reveal that every state is losing under the current system. On average, the Department of Labor approved an average of 22,438 certifications of need for H worker employment in 2014, but each state received only about 6,000 H workers in 2014. It is important to remember that this discrepancy is with all the current myriad federal rules and with no year-round visa available for lesser-skilled workers at all. The demand for workers surely far exceeds this amount.

The United States has a demand for foreign workers. While reforms to the federal system would be an improvement, Congress has consistently shown that it is incapable of estimating the needs of the states.

The table below presents all of this information for all 50 states and D.C.

Table: State Share of U.S. Population, Share of All Worker Entries, Share of H Temporary Worker Positions, Share of H-1Bs, Share of H-2s, Number of H-2s, and Number of H-1Bs in 2014

  % of US Pop % of All Entries % of Hs % of H2s % of H1Bs H2 Certs. H1B Certs % H2 Certs % H1B Certs California

12.1%

14.8%

15.8%

4.7%

19.8%

8,752

172,318

4.1%

18.5%

Texas

8.1%

10.1%

8.9%

11.1%

8.9%

17,028

84,612

8.1%

9.1%

New York

6.3%

14.0%

7.3%

2.8%

14.0%

7,898

76,105

3.7%

8.2%

Florida

6.1%

6.7%

4.3%

7.9%

5.2%

20,056

29,447

9.5%

3.2%

Illinois

4.2%

3.7%

4.6%

0.8%

4.9%

2,333

50,551

1.1%

5.4%

Pennsylvania

4.1%

2.4%

4.6%

1.7%

2.6%

4,397

48,550

2.1%

5.2%

Ohio

3.7%

2.0%

2.7%

1.1%

2.0%

2,715

28,518

1.3%

3.1%

Michigan

3.2%

6.2%

2.4%

1.2%

2.8%

3,492

24,469

1.7%

2.6%

Georgia

3.1%

2.4%

4.1%

4.5%

2.5%

12,166

34,841

5.8%

3.7%

North Carolina

3.1%

2.1%

3.8%

6.2%

1.9%

18,380

24,539

8.7%

2.6%

New Jersey

2.8%

3.9%

6.0%

1.1%

6.6%

3,252

65,505

1.5%

7.0%

Virginia

2.6%

1.8%

2.8%

2.6%

2.4%

6,631

25,742

3.1%

2.8%

Washington

2.2%

2.9%

3.7%

3.5%

4.4%

10,026

32,010

4.7%

3.4%

Massachusetts

2.1%

3.7%

3.2%

1.0%

4.2%

3,230

33,473

1.5%

3.6%

Indiana

2.1%

0.9%

0.9%

0.4%

0.8%

1,980

8,028

0.9%

0.9%

Arizona

2.1%

2.8%

1.7%

17.0%

1.2%

5,710

13,382

2.7%

1.4%

Tennessee

2.1%

1.0%

1.4%

1.6%

0.7%

3,426

12,868

1.6%

1.4%

Missouri

1.9%

0.7%

1.2%

1.0%

0.7%

2,992

10,938

1.4%

1.2%

Maryland

1.9%

1.4%

1.7%

1.5%

1.5%

4,436

14,788

2.1%

1.6%

Wisconsin

1.8%

0.8%

1.2%

0.2%

0.8%

842

13,088

0.4%

1.4%

Minnesota

1.7%

1.0%

1.8%

0.6%

1.3%

1,867

18,190

0.9%

1.9%

Colorado

1.6%

1.3%

1.5%

2.2%

1.0%

5,225

12,263

2.5%

1.3%

Alabama

1.5%

0.7%

0.4%

1.1%

0.3%

1,911

2,586

0.9%

0.3%

South Carolina

1.5%

0.8%

0.9%

1.5%

0.4%

4,885

4,977

2.3%

0.5%

Louisiana

1.5%

0.9%

1.3%

5.3%

0.3%

12,106

2,450

5.7%

0.3%

Kentucky

1.4%

0.8%

1.2%

3.2%

0.4%

7,438

6,166

3.5%

0.7%

Oregon

1.2%

0.7%

0.8%

0.6%

0.7%

1,639

7,505

0.8%

0.8%

Oklahoma

1.2%

0.4%

0.4%

0.8%

0.3%

1,890

3,154

0.9%

0.3%

Connecticut

1.2%

1.1%

1.8%

0.2%

1.6%

857

20,183

0.4%

2.2%

Iowa

1.0%

0.4%

0.6%

0.5%

0.4%

1,267

5,885

0.6%

0.6%

Mississippi

1.0%

0.4%

0.5%

2.1%

0.1%

5,131

868

2.4%

0.1%

Arkansas

0.9%

0.5%

0.9%

2.0%

0.4%

5,203

5,355

2.5%

0.6%

Kansas

0.9%

0.4%

0.5%

0.6%

0.4%

1,789

4,122

0.8%

0.4%

Utah

0.9%

0.4%

0.5%

0.7%

0.4%

1,644

3,905

0.8%

0.4%

Nevada

0.9%

0.6%

0.4%

0.9%

0.2%

2,138

2,305

1.0%

0.2%

New Mexico

0.7%

0.2%

0.1%

0.1%

0.1%

241

1,328

0.1%

0.1%

West Virginia

0.6%

0.1%

0.1%

0.0%

0.1%

136

574

0.1%

0.1%

Nebraska

0.6%

0.7%

0.4%

0.3%

0.7%

1,604

3,032

0.8%

0.3%

Idaho

0.5%

0.2%

0.4%

1.0%

0.1%

4,013

1,007

1.9%

0.1%

Hawaii

0.4%

0.4%

0.1%

0.0%

0.2%

39

615

0.0%

0.1%

Maine

0.4%

0.6%

0.3%

1.4%

0.1%

1,767

1,583

0.8%

0.2%

New Hampshire

0.4%

0.3%

0.3%

0.6%

0.3%

497

2,879

0.2%

0.3%

Rhode Island

0.3%

0.2%

0.5%

0.1%

0.3%

293

4,896

0.1%

0.5%

Montana

0.3%

0.2%

0.1%

0.3%

0.0%

1,130

248

0.5%

0.0%

Delaware

0.3%

0.3%

0.5%

0.2%

0.3%

359

5,139

0.2%

0.6%

South Dakota

0.3%

0.1%

0.2%

0.4%

0.1%

1,675

479

0.8%

0.1%

Alaska

0.2%

0.2%

0.1%

0.2%

0.1%

1,194

301

0.6%

0.0%

North Dakota

0.2%

0.3%

0.2%

0.5%

0.1%

1,844

748

0.9%

0.1%

Vermont

0.2%

0.3%

0.1%

0.4%

0.1%

1,074

637

0.5%

0.1%

D.C.

0.2%

1.0%

0.5%

0.0%

0.9%

1

5,848

0.0%

0.6%

Wyoming

0.2%

0.1%

0.1%

0.3%

0.0%

594

135

0.3%

0.0%

Averages          

4,141

18,297

   

Sources: See Figure 1, Figure 4

Last July, Dallas police used a robot to kill the man who fatally shot five Dallas-area police officers. Shortly after the shooting I noted that new technologies, such as robots, should prompt lawmakers to find ways to make the face-to-face interactions citizens have with officers safer and less frequent. A recent Amazon patent reveals how new technologies can play a role in improving traffic stops, one of the most common citizen-police encounters.

Amazon Technologies, Inc. recently secured a patent for small shoulder-mounted police drones. The patent abstract explains that, “The techniques and systems can include routines to provide enhanced support for police during routine traffic stops.”

Drones like the one detailed in the Amazon patent could help improve traffic stops. Drones would allow police to examine a pulled-over vehicle before approaching in person. This increased situational awareness would help police officers, providing them with valuable information about how many people are in the car and whether the driver or any passengers have their hands in sight. As drone technology improves it’s likely that police will be able to use similar drones to issue commands. 

If appropriate accountability policies are enacted, these small drones could serve as useful tools in police misconduct investigations. Drone footage of the Philando Castile and Samuel DuBose shootings, for example, would have been helpful to investigators.

But despite the potential for these small drones being useful in misconduct investigations and helping police during traffic stops, citizens may be concerned about the impact such drones could have on their civil liberties. Having a small drone buzzing around your car during a traffic stop may be unnerving, but unless the drone is outfitted with sophisticated surveillance tools it’s unlikely that it will prompt a robust Constitutional challenge.

If these small Amazon drones are equipped with traditional cameras and don’t enter a car during a traffic stop, then they will only be capturing images of material in “plain view.” Nonetheless, citizens should be wary of small police drones being outfitted with surveillance technology that could raise constitutional issues, such as thermal scanners.

New technologies such as drones and body cameras will undoubtedly play an increasingly prominent role in law enforcement. Small drones like the one described in Amazon’s patent could help make routine traffic stops safer for officers and citizens. However, as the ongoing debates about body cameras have demonstrated, these new technologies can only serve as tools for worthwhile criminal justice reform if they’re governed by good policies. It’s not hard to see how small drones could help police and citizens during traffic stops. But as police drones become more common we shouldn’t forget that they can serve as platforms for a host of technologies that threaten civil liberties.

It’s been a little over a year since Bernie Sanders assured America that the public was “sick of hearing” about Hillary Clinton’s “damn e-mails,” and to put it mildly, the claim has not aged well. Even before Friday’s announcement that the FBI had uncovered an additional cache of e-mails from Clinton’s personal assistant Huma Abedin—and the inevitable media feeding frenzy that followed—Clinton’s use of a private e-mail server during her tenure as Secretary of State had remained a central campaign issue. If anything, the controversy had metastasized: The FBI’s investigation into Clinton’s server, culminating in a recommendation that no criminal charges be brought, was received by many as evidence of a corrupt cover-up even more disturbing the underlying offense, a clear-cut case of a Beltway elite getting a pass for conduct that would have seen a normal schlub clapped in irons. It’s this, probably more than any other alleged misdeeds, that has made “lock her up!” a popular refrain at Donald Trump’s rowdy rallies.

As a frequent critic of the FBI’s routine demands for broadened surveillance powers, it’s heartening to see people recognizing that the Bureau is not somehow immune to improper political influence. Moreover, given the Obama DOJ’s unprecedented use of the Espionage Act to prosecute whistleblowers (rather than spies)—his administration has pursued more cases under that law than all his predecessors’ combined—it’s hard not to feel a twinge of schadenfreude when the public concludes that Clinton’s “extreme carelessness” with classified information (as FBI director James Comey characterized it) must surely be criminal too. But in large part because I’m uneasy about normalizing this aggressive approach to the Espionage Act, I think it’s necessary to explain why this widespread perception is wrong, and Comey’s conclusion that “no reasonable prosecutor” would have pursued charges against Clinton on the available facts was pretty clearly right. While it’s impossible to know what other damaging revelations the newly discovered tranche of e-mails may contain, it seems unlikely they will materially alter that basic legal conclusion.

One thing to get out of the way up front: None of what follows is ultimately a defense of Clinton. Beyond the poor judgement implied by her sloppy approach to classified information, the effect (and probable intent) of Clinton’s use of a private server was to hamper government transparency by giving her improper de facto control over correspondence that should be subject to Freedom of Information Act requests—which is to my mind perhaps the most troubling aspect of her conduct. (Much as this former reporter might wish otherwise, circumventing FOIA is not a criminal offense.) This post is narrowly concerned with whether she ought to have been prosecuted under the Espionage Act, specifically 18 USC §793(f). which reads:

(f) Whoever, being entrusted with or having lawful possession or control of any document, writing, code book, signal book, sketch, photograph, photographic negative, blueprint, plan, map, model, instrument, appliance, note, or information, relating to the national defense, (1) through gross negligence permits the same to be removed from its proper place of custody or delivered to anyone in violation of his trust, or to be lost, stolen, abstracted, or destroyed, or (2) having knowledge that the same has been illegally removed from its proper place of custody or delivered to anyone in violation of its trust, or lost, or stolen, abstracted, or destroyed, and fails to make prompt report of such loss, theft, abstraction, or destruction to his superior officer—Shall be fined under this title or imprisoned not more than ten years, or both.

I’m focusing on this clause because it’s the one the FBI itself seems to have considered the only plausible basis for bringing charges. There are other statutes that apply to mishandling of classified information by military personnel or other Defense Department employees, which obviously wouldn’t apply to Clinton. And there are other clauses of the Espionage Act that criminalize “willfully” providing classified information to uncleared persons, or obtaining the same “with intent or reason to believe that the information is to be used to the injury of the United States.” Nobody has seriously suggested that Clinton was deliberately trying to make classified information available to the adversaries of the United States. But what about 793(f), which requires not “willfulness” but only “gross negligence”?

There are three main obstacles to prosecution under that clause in this case: One factual, one statutory, and one constitutional. I’ll take them in turn.

The factual problem becomes clear when you ask what specific actions a prosecutor would charge—actions that could be laid at Clinton’s feet, as opposed to those of her staff. Setting up a private e-mail server, or using it to carry on professional correspondence? That surely wouldn’t fly: Having a private e-mail account doesn’t in itself constitute “mishandling” of classified information, and plenty of officials with high security clearances have done and continue to do the same. That it was Clinton’s own server, as opposed to a Gmail account, makes no difference. Indeed, while it’s certainly relevant to one’s judgment of whether Clinton was seeking to keep her e-mails beyond the reach of FOIA requests, the private server is largely a red herring when it comes to the charge of mishandling classified information. What’s of potential legal relevance is that the server was not an appropriate “place of custody” for whatever classified material ended up there: A personal server is, in that respect, no different from a commercial e-mail account or even an official but unclassified State.gov account. Moreover, being in receipt of classified information on an insecure channel would not, in itself, satisfy the elements of an offense under the statute: A classified document sent to Clinton’s account might constitute a violation by the sender, but it would by definition have to be “removed” and “delivered” by the sender—not the recipient. So the factual obstacle here is that, once we recognize that “setting up a server” is a red herring, it’s not at all clear whether the FBI found instances of Clinton, as opposed to her staff, removing or “permitting the removal” of documents stored in classified systems. (The second prong might conceivably apply if it was sufficiently clear to Clinton that classified material had been illegally removed, though we’d then be left wondering what “superior officer” the Secretary of State is obligated to notify. The president?)

The reference above to the removal of documents is deliberate, and that brings us to the statutory obstacle to prosecution. While several sections of the Espionage Act that apply a “willfulness” standard cover any inappropriate communication of classified information, §793(f) really appears to be about the exfiltration of files or documents, not the mere discussion of classified matters. As Prof. Steve Vladeck, an expert on the Espionage Act, has observed, discussing classified subjects on an insecure channel might be grounds for a reprimand or revocation of clearance, but it has not traditionally been viewed as a criminal offense—and the language and structure of the statute, as well as the history of prosecution, bear out that interpretation.

Start with the language: Discussing classified facts known to you is not, on any ordinary use of English, an instance of “removing” information from a “place of custody,” except perhaps on the strained reading that makes the cleared individual’s brain such a “place.” For confirmation, we can look to differences in the language found in other parts of the statute, as under traditional rules of legal interpretation, differences in otherwise parallel phrases should be construed as corresponding to a difference in legal effect. Whereas §793(f) applies to a person “being entrusted with or having lawful possession or control of” classified documents, it omits the language “access to” found in §793(e). Similarly, §783(f) covers allowing the materials to be “removed… delivered… lost, stolen, abstracted, or destroyed” but not “communicated” as in (e). The reading that most naturally makes sense of those differences is that (f) is about permitting the wholesale abstraction of files & documents, not merely communicating information someone may have gleaned from having access to them (or from access to classified briefings).

Structural considerations support the same conclusion. Consider: If §793(f) covers the same conduct as the rest of the statute, with the same penalties, with the only difference being the standard of “gross negligence” as opposed to “willfullness,” the structure of the whole becomes rather puzzling. Why have a separate clause to prohibit the same conduct under two standards, rather than having a unified prohibition on doing the same thing either “negligently” or “willfully”? Why, for that matter, would it make sense to penalize communication of classified information to uncleared individuals only with a strong intent requirement if communication of the same information even to cleared persons on an insecure channel would be subject to exactly the same penalties under a lower standard of negligence? Such a reading makes the statute into a patchwork quilt riddled with redundancies rather than a coherent whole.

Finally, the history of prosecutions under the law tends to support this understanding. Again, if discussing classified matters with other cleared persons on an insecure channel—as opposed to “removing” and transmitting classified documents—were understood to be a federal crime, you’d expect it wouldn’t be hard to find instances of that crime being prosecuted. But in fact, there don’t seem to be any such cases. As Ben Wittes, a former national security reporter turned think tank scholar, wrote this summer:

People simply don’t get indicted for accidental, non-malicious mishandling of classified material. I have followed leak cases for a very long time, both at the Washington Post and since starting Lawfare. I have never seen a criminal matter proceed without even an allegation of something more than mere mishandling of senstive information. Hillary Clinton is not above the law, but to indict her on these facts, she’d have to be significantly below the law.

A common refrain in discussions of the Clinton case has been that “anyone else” would have been charged in similar circumstances. Yet if you look closely at the supposedly parallel cases where lower-ranking individuals have been prosecuted for mishandling, you find that invariably the circumstances aren’t similar. You’ll find prosecutions involving classified material knowingly and intentionally provided to uncleared persons (as in the case of Gen. David Petraeus), or where large quantities of documents were literally removed from secure facilities, but I haven’t turned up any cases where conversations about classified subjects on an insecure line have been treated as a criminal matter. In a country where literally millions of individuals hold top secret clearances, we may safely assume this is not because such indiscretions never occur, but because they had not been understood to be criminal acts, and were dealt with as matters of administrative discipline.

There are, it’s worth noting, a small number of e-mail threads in which a small portion of an actual classified document does appear to have been sent to Clinton’s private account. These were apparently marked (C) for confidential, though Clinton told the FBI that, at least in the context of an e-mail (as opposed to a classified document with appropriate headers), she did not recognize that marking as a classification marking. Many have found that claim dubious, but if she testified in court that she either failed to notice it or interpreted it as a section marker (as in, text copied from a document in which it had been preceded by paragraphs A and B), I’m not sure how one would prove otherwise beyond reasonable doubt. At best, then, one would be left with a potential, albeit unprecedented, case against the staffer rather than Clinton.

At last we come to the constitutional barriers to prosecution. As Comey made clear in his testimony to Congress, while the statutory standard in §793(f) is “gross negligence,” the Justice Department has historically been reluctant to prosecute—indictments under §793(f) are vanishingly rare—without something at least approaching evidence of intent. One reason for that may be that the Supreme Court’s opinion in Gorin v. United States (1941), which suggests that the Espionage Act’s intent requirements are an important feature that save it from unconstitutional vagueness. Due process requires that the law give citizens clear notice of what conduct is criminally prohibited, and in a country that (in large part for First Amendment reasons) has never had a British-style Official Secrets Act, there would be real reason to fear it would be too easy to unwittingly commit a crime absent relatively strict intent requirements. After all, classified information is routinely (and lawfully) printed on the front pages of newspapers—it would be perverse if forwarding a New York Times article were an indictable offense—and the sheer volume of classified material means it’s often difficult for officials to keep track of whether a particular fact is classified at a given time. Add in the historical paucity of prosecutions for mere insecure discussion of classified facts and it’s easy to imagine Clinton’s attorneys successfully sinking any case with a due process argument.

At this point you may be asking the same question a conservative friend posed to me when I sketched this argument: If it’s so clear that Comey was correct, wouldn’t he and the Clinton campaign have been shouting all this from the rooftops? That did give me some pause, but there are reasons each might have incentives to be circumspect. If, as Vladeck argues in the piece linked above, the Espionage Act simply doesn’t cover a whole category of “mishandling” classified information, intelligence officials like Comey, who expect cleared persons to take their obligations seriously, might not want to advertise the fact too loudly—and may want to leave their options open for the sake of future prosecutions or threatened prosecutions. The Clinton campaign, on the other hand, probably understands that a lawyerly argument to the effect that her conduct was not technically illegal doesn’t sell terribly well on the campaign trail. Whatever the technicalities, this whole affair reflects terribly on her judgement, and they’ve likely concluded there’s no advantage to giving the issue any additional exposure, even if it’s to mount a defense. The old campaign adage “if you’re explaining, you’re losing” applies in spades here.

So do the additional e-mails recovered from Huma Abedin’s laptop change any of this? It’s certainly possible to imagine scenarios in which it might: If those e-mails contained clear evidence of intent to obstruct, or unambiguous instructions from Clinton that classified documents should be sent to her personal account. But then, one could as easily speculate about finding a confession to Vince Foster’s murder. If, instead, the e-mails include more of the same sort of correspondence the FBI has already reviewed—even if it includes more threads in which classified topics were discussed—all of the above analysis would apply.

To sum up, there’s little question that, as Clinton herself now acknowledges, the use of a private e-mail server to conduct official correspondence was a serious lapse in judgement. Individual voters can determine for themselves whether they find it disqualifying in a commander in chief. But we don’t need to resort to theorizing about political chicanery to explain why she wasn’t prosecuted for it: The simple answer is that—fortunately for all politicians—not every act of stupidity is a federal crime.

In the search for ways to reform the flawed current welfare system, some form of basic income guarantee has received more attention. My colleague Michael Tanner has reviewed some of the related pros and cons, but most of those studies confined themselves to the immediate to short-run impact on work, leaving many important questions unanswered. A new paper from Daniel Price co-authored with Jae Song offers one of the first studies to analyze the long-term impact of cash assistance from the negative income experiments that took place last century. Their findings suggest “unintended and unexpected long-term consequences for recipients” and ambiguous effects on their children. It’s important to understand these effects when considering ways to try to address the many problems with the troubled status quo.

In the 1960s and 1970s, when interest in a basic income was at a peak, there were large-scale evaluations of the idea of unconditional cash transfers in the Seattle and Denver Income Maintenance Experiments (SIME and DIME, respectively). Recipients were given an unconditional cash transfer that was phased out as earned income rose, for a period of either three or five years. There were a host of studies analyzing the impact on poverty, work impact, and other measures, but these were more focused on the short-term effects.

This paper is so important because, as the authors explain, “virtually no other research has been conducted on the impact of cash assistance—or, indeed, any other type of government assistance—on beneficiaries themselves long after the assistance has ended.” Some of this is due to data limitations, and the authors are able to combine SIME/DIME date with administrative records from the Social Security Administration and the Washington State Department of Health.

The impact on poverty and material hardship is more straightforward and easier to measure, but some of the effects on work effort and other measures are still not as well understood. In this paper the authors find some evidence that participation did seem to have an impact on both work and earnings later in life for adult recipients. Participation reduced the probability a worker was active in any given year by 3.3 percentage points, and decreased average earnings by $1,800 (about 7.4 percent of mean annual earnings).

Another way to put it: for each $1 in additional government transfers, the authors find that an individual’s discounted lifetime earnings are $4.50 lower. 

Impact on Propensity to Work and Earnings for Parents, by Age

Source: Price and Song (2016).

Notes: Each data point represents the estimate and 95% confidence interval of the coefficient on a dummy for financial treatment status in one regression, limiting the sample to data from individuals when they are a certain age. Earnings variables are based on one observation per year for all years between 1978 and 2013.

These effects are mostly concentrated towards the end of a person’s working life between ages 50 and 60. Song and Price suggest three channels that might explain this pattern of some reduced work effort during the experiment, minimal effect immediately after, and then larger effects decades later as former participants near retirement age. If these adults saved some of those transfers, they might be more able to reduce work hours or retire earlier. If they worked less, the wages they were able to command might be lower because they had less time to develop their skills and human capital. Or it could change their preferences, by making them place more importance on leisure time that they were able to increase during the experiment.

This could have significant implications for discussions about how to address some of the worst shortcomings of the current welfare system. The substantial reductions in earnings and work effort should be incorporated into how we think about the ramifications of these programs.

The parents weren’t the only ones affected by these programs, their children were too. There is a wide range of plausible effects on the children: parental benefit receipt could the probability of their children also receiving benefits and reducing work effort. It’s also possible that the additional income from transfers will allow parents to invest more in their children and increase their human capital and earning potential later in life.

In this long-term analysis, the authors find “little evidence of an effect on children for any variable studied.” These include probability of applying for disability, propensity to work, and impact on annual earned income. The results for children should be considered with caution due to the number of tests that they run on child outcomes. These findings cut both ways, in a sense: it doesn’t seem to be the case that parents getting sizable cash assistance during the program duration discouraged work for their children, but there also weren’t substantial positive effects on children’s eventual work outcomes due to more investment or other effects of having higher household income. In their words:

Taken as a whole, our results suggest that cash assistance could have unintended and unexpected long-term consequences for recipients without significantly improving their children’s earning potential or decreasing their propensity to use government benefits. On the other hand, in our context, we can rule out the idea that cash assistance creates a welfare culture that decreases children’s earned incomes or their dependency on disability benefits by a large amount.

Impact on Propensity to Work and Earnings for Children, by Age

Source: Price and Song (2016).

Notes: Data from Denver families only. Each data point represents the estimate and 95% confidence interval of the coefficient on a dummy for financial treatment status in one regression, limiting the sample to data from individuals when they are a certain age. Earnings variables are based on one observation per year for all years between 1978 and 2013.

These findings highlight why experiments with rigorous evaluation are so important because there are significant effects that aren’t yet fully understood. Studies like this can produce surprising results and new evidence that forces policymakers and researchers to update how they think about these issues. There are some aspects of cash assistance and a basic income guarantee that the authors can’t analyze here, for example these experiments treated a small share of people within their respective cities and the impact of a community wide experiment could be significantly different. The one thing we do know is that much more research in this sphere is needed to understand the limitations and unintended consequences involved.

Muslim immigrant assimilation in the United States is proceeding well. American Muslims have either similar or greater socio-economic status and levels of education than the average American. They are also active in civil and political society. However, this is not the case in Europe where Muslim immigrants tend to have worse labor market outcomes, are less well educated, and less socially integrated. The lack of assimilation and integration in Europe is affected by policies regarding multiculturalism, welfare, labor market regulation, citizenship, and guest worker laws that make integration more costly.

Integration in Europe

Social opinions show how Muslims in Europe are less integrated than in the United States. In Europe, there is a wide gap between Muslim and non-Muslim acceptance of homosexuality (Figure 1) and abortion (Figure 2) according to three surveys published in 2007 and 2009. The acceptance gap on these issues is the smallest in the United States – meaning that Muslims in the United States have opinions that are closer to the general public than in European countries (Figure 3).    

Figure 1

Is Homosexuality Morally Acceptable?

 

Sources: Pew and Gallup.

Figure 2

Is Abortion Morally Acceptable?

 

Sources: Pew and Gallup.

Figure 3

Acceptance Gap

 

Sources: Pew and Gallup.

Opinions on social issues are just one aspect of this gap in assimilation but an important one for judging how assimilated immigrants are into Western culture.  Although there are many other areas that could be compared, opinions of abortion and homosexuality show that Muslim Europeans are less well-assimilated than Muslims in the United States.

Labor Markets        

In Europe, Muslims were less likely to have a job than non-Muslims in 2009, while they were more likely to have one in the United States (Figure 4). 

Figure 4

Do You Have a Job?

 

Source: Gallup.

Immigrants in Europe are more likely to be unemployed than natives in every country except Hungary and Slovakia. Figure 5 shows the gap in native-born and Muslim unemployment. In the United States, immigrants have a lower unemployment rate than natives. However, in most European countries the unemployment rate for immigrants is far above that of natives – by almost 11 percentage points in Belgium.

Figure 5

Unemployment Gap between Immigrants and Natives

 

Source: OECD.

Virtually all Muslims in Western Europe are immigrants or the descendants of recent immigrants from outside of the EU. The employment gap, measured by subtracting the non-EU immigrant employment rate from the EU-15 employment rate, shows an even wider gap for the predominantly Muslim immigrants (Figure 6). There are other immigrants in Europe from outside of the EU that are included in this figure.    

Figure 6

Employment Gap between Non-EU Immigrants and Native-EU Citizens, 2015

 

Source: OECD.

Figure 7 addresses that problem by showing that immigrants to the EU-OECD from the Middle East and North Africa, who are predominately Muslim, fare the worst in the labor market. European labor market controls and regulations explain the differences between American and European outcomes.

Labor market regulations make it expensive for firms to hire new workers, incentivizing employers to hire workers they know and are familiar with. Since immigrants are some of the most unfamiliar workers in any labor market, regulations in Europe result in lower employment rates for Muslim immigrants. There is empirical literature documenting their relatively poor labor market integration going back decades (Kogan, 2004; Fleischmann and Dronkers, 2010; Kogan, 2010). Less employment means less hope for the future, fewer opportunities for integration, and a general sense of unease in their new societies. European labor market regulations are crushing job opportunities for Muslim immigrants and their descendants.    

Figure 7

EU-OECD Unemployment Rate by Region of Origin, 2015

Source: OECD.

A plethora of rules across countries, from minimum wages to collective bargaining to severe punishments for firing employees, all increase the cost of hiring workers (OECD EPL Database, 2013). In France, employees must be rehired if they were fired unfairly, which includes cases where the firing was done to “save money or boost profits.” In these inflexible labor markets, firms have an incentive to keep their workforces small and to entrust responsibilities to experienced employees rather than to hire unknown or unproven job seekers who are more likely to be immigrants. 

Muslim immigrant workers are generally less skilled and productive than European workers, meaning they earn a lower wage, but minimum wages prevent such legal bidding down. Labor market regulations are categorized and ranked by the OECD on a 0 to 6 scale ranging from no labor market protections to total government control. Averaging the categories shows that the United States’ labor market is significantly less regulated than Europe (Figure 8). This explains part of the employment and unemployment gap between Muslim immigrant and native Europeans.

Figure 8

Labor Market Regulations

 

Source: OECD.

Baked into the OECD labor market regulations are rules to protect trade unions, which are more powerful in most European countries than in the United States (Bisin et al., 2011). Unions exist to raise the wages of their members by decreasing the supply of labor available to employers. Immigrants increase the supply of labor so unions favor rules that exclude them from employment, benefiting the economic “insiders” who already have union jobs at the expense of the “outsiders” who are more likely to be Muslim immigrants (Lindbeck and Snower, 2001). 

The empirical literature supports the theory that inflexible labor markets disproportionately harm the employment prospects of immigrants. Bisin et al. (2011) find a statistically robust negative relationship between trade union density and the immigrant employment rate. They also find some evidence that employment protections and minimum wages reduce immigrant employment. Kogan (2006) finds that “liberal welfare regimes” with decentralized industrial-labor relations and high labor market flexibility lead to better employment outcomes for male immigrants. Gebel and Giesecke (2011) add that extensive employment protections for permanent workers increase both unemployment for low-skilled workers as well as the incidence of temporary contracts between employers and low-skilled workers. 

The United States is the least regulated labor market among the developed countries analyzed (Figure 8). American labor markets are much less rigid than their European counterparts and thus significantly less likely to disadvantage immigrants in employment, Muslim or otherwise. This partially explains the higher employment of immigrants in the U.S. labor market (Figure 5) and the higher rate of Muslim employment in the U.S. relative to the general public (Figure 4). 

Welfare

Many European countries have generous welfare states that provide extensive aid to the poor, including immigrants. This creates two significant obstacles to integration. The first is that welfare programs reduce the incentive to work. Work provides useful skills and experience, facilitates social relationships and cultural understanding, provides an incentive to learn the language and culture of the new country, and supplies hope for the future. Since many immigrant families have a large number of dependents, the incentive to collect means-tested aid rather than find employment is stronger than for natives who tend to have fewer dependents at home (Bratsberg et al., 2010). The inherent unpleasantness of work and the added difficulty of working in a new country that restricts employment because of onerous labor market regulations make welfare a particularly attractive alternative.

Figure 9 shows that EU countries spend more on social welfare as a percent of GDP than the United States. The total quantity of social welfare spending as a percent of GDP isn’t as important as how it’s spent. Benefits to working-age Europeans and immigrants will have a worse impact on the labor force than benefits to retired workers. Hansen and Lofstrom (2003) found that immigrants in Sweden were more likely to use welfare services than natives even when accounting for the negative effect of assimilation on welfare participation. 

Figure 9

Social and Welfare Spending as a Percent of GDP, 2014

 

Source: OECD.

In addition to working in a country with a smaller welfare state, poor immigrants to the United States are less likely to use means-tested welfare benefits than natives and, when they do, the dollar value of their consumption is lower than for poor natives. Borjas (1999) finds different welfare policy between American states negatively-selects immigrants but Zavodny (1997) and Kashoul (2005) find otherwise. However, the perception that immigrants overconsume welfare certainly holds an important place in partisan debate and contributes to anti-immigration sentiment (Hussey and Pearson-Merkowitz, 2013) or an anti-welfare opinion.  

Guest Workers and Quasi-Citizens

Some European countries established guest worker visas for lower-skilled workers after World War II to allow the temporary migration of workers to aid in post-war reconstruction and to fuel a rapidly recovering economy. The European governments intended the guest workers to migrate for work and to eventually resettle in their home countries, perhaps after several trips back and forth via circular-migration. This is in contrast to the United States where most Muslim immigrants originally entered as skilled workers who sent for their similarly educated and skilled relatives.    

Germany’s guest worker program operated from 1955 to 1973 (Anil, 2006). Although the workers came from many nations inside of Europe, Turkey quickly became the largest origin country (Anil, 2006). Of the 14 million guest workers who entered Germany, only 11 million returned (Anil, 2006). As soon as the guest worker program was canceled, the migrants sent for their families to join them in Germany. The Netherlands had a similar experience whereby workers, mainly Turkish and Moroccan (Buijs, 2009), and their families entered the country (Doomernik, 2012). France had a similar experience with mostly North and West African migrants. In 1974, the guest workers who had remained were legally permitted to bring over their families and gain citizenship (Salem, 2013). In Britain, this happened even sooner, with an immigration ban being instituted in 1962. Although it prevented more workers into the country, it created a system for the workers who were present to bring in their families (Leiken, 2015). To beat the ban, this “secondary migration” occurred hastily and on a great scale (Leiken, 2015).

The Dutch response to the labor migration that turned permanent was a series of multicultural programs that encouraged immigrants to retain their own culture rather than to assimilate. The German response was to treat the immigrant communities as just guest workers until the 1990s, separating them from German society (Salem, 2013). Indeed, until the German government passed citizenship reforms that granted birthright citizenship to children of immigrants who had lived on German soil for eight years and eased naturalization, these immigrants were largely in citizenship limbo (Anil, 2006).  

Citizenship remains a key component of integration. Without it, immigrants are limited in how they can interact with civil society. Citizenship gives one a greater sense of belonging (de Rooij, 2012) and can fuel both political and professional participation with others. Muslims have had a different experience in the United States because they have been able to naturalize ever since they’ve started arriving in increasing numbers since the 1960s (Salem, 2013).  

When the guest worker programs were canceled in Europe, many of the workers made the rational choice to stay and work illegally rather than return to poverty in their home countries. When guest worker programs operate, workers go back and forth secure in the knowledge that they can return for economic opportunity. When the programs end then those same workers refuse to leave because they will then never be able to return legally, thus turning a temporary worker flow into a permanently settled population. Interestingly, extending citizenship to these former guest workers or not terminating the program in the first places creates a circular flow with relatively few permanently settled residents. Increasing labor market regulations and a growing welfare state eventually pushed them out of the labor market but not out of the country. Multicultural policies separated the migrants from their neighbors while citizenship laws kept them and their descendants in a legal underclass. The United States avoided virtually all of these mistakes through not having a federal integration policy that emphasized cultural fads and by mandating birthright citizenship. Though Europe in recent years has moved away from multiculturalism towards assimilation, multicultural policy of the 1970s and 80s has left a lasting effect on integration to the present.

Cultural Barriers to Assimilation in Europe

Different histories and cultural attitudes toward immigration in Europe and the United States also help explain the different outcomes (Leiken, 2015). Immigration is engrained into the founding and continuous formation of the United States, but in a Europe defined by near-homogeneous ethnically-demarcated nation-states, immigration is recent and more troubling (Leiken, 2015). European multicultural policies made assimilation and integration more costly and helped to legitimize parallel communities. The Netherlands responded to waves of migration through “inclusionary” policies such as the Ethnic Minorities Policy of 1983 that spent government funds on religious institutions, educational programs, and immigrant media, for which immigrant communities could coexist with the native Dutch in autonomy. The result was separation (Vasta, 2007).

In Britain, multiculturalism emerged to counter discrimination, and encouraged new British subjects to live differently if they chose to (Malik, 2015), including a preservation of their cultural identity at the cost of social inclusion (Leiken, 2015). Germany’s self-conflicting identity of traditional German ethnocentrism and liberal multiculturalism both welcomes immigrants to stay without an incentive to integrate with ethnic Germans. Over time an ethnic identifier for being German might fade away and be replaced with a sense of “Germanness” like in the United States whereby being an American is not an issue of ethnicity but more of certain values, allegiances, and history.  German policies halted that process.  As a result, the large Turkish population’s social sphere remains within the Turkish community (Leiken, 2015), where Turks have become more religious and isolated (Malik, 2015), and employment opportunities continue to deteriorate.

Western Europe finds itself in a struggle between the ideals of modern universal tolerance and national ethnic-based identities that predate the current waves of immigration. European governments have made many mistakes in dealing with this issue. Inclusive programs to help these new ethnic and religious minorities created coexisting societies that run parallel to mainstream society, rather than in cohesion with their adopted homeland. The negative impact on citizenship as an institution has spilled over into other facets of life for Muslim immigrants, including employment, economic mobility, education, social acceptance, and political life.

Political Participation

In the United States, Muslims are about as politically active as their fellow countryman but not so in Western Europe. Muslim Americans are more likely to have a college degree than Americans generally while Muslim immigrants to Europe are much less well educated than native Europeans so the education difference could explain the difference (Angenendt et al., 2007). People who earn higher educations tend to be more politically active (Ayers & Hofstetter, 2008). They more readily embrace their American identity and have confidence in American institutions (Angenendt et al., 2007). Less educated European Muslims are more isolated, less economically successful, and they are less interested in participating in politics and civil society.  They have less faith in European institutions and fewer resources to devote to community building.  

Religion

Americans are more tolerant of religious differences and are more likely to recognize the positive role of religion than Europeans (Foner and Alba, 2008). Religious immigrants in the United States frequently use religion as a bridge to social inclusion and taking up American identity. For instance, religious membership serves the instrumental purpose of providing “refuge, respectability, and resources” to first- and second-generation immigrants looking for identity and sense of belonging, leadership, upward mobility, and an entryway into political life (Foner and Alba, 2008).

Europeans are less religious and there are fewer legal protections for religion. Broadly, European secularists either seek a rejection of religion from all public life or seek to promote a diversity of religious views (Mandaville, 2009). The “thick” secular view, as exemplified by the French government, seeks to marginalize religious expression as much as possible and prevent it from entering the public sphere through actions like the burqa ban (Mandaville, 2009). 

The United Kingdom is more tolerant of religious differences than France. Interestingly, some Muslims support the official establishment of the Anglican Church on the grounds that it recognizes a positive role for religion in public life (Koenig, 2005). Cooperation between the government and religious organizations is not unique to the UK. In Germany, religious groups have a strong incentive to incorporate and thereby form nationally recognized and hierarchical religious organizations that receive subsidies but Muslims have not taken advantage of that system (Warner and Wenner, 2006).  

Due to European religious institutions and government favoritism toward established churches, Muslims in Europe are at a de facto and de jure disadvantage compared to their American co-religionists who inhabit a much more religiously diverse, open, and free religious marketplace.  The American view of religion as a force for social cohesion contrasts sharply with religion practiced the more secular, state-dominated, and alien established churches of Europe.  

Conclusion

The results of Muslim immigration to the United States and Western Europe vary significantly. Muslims and their descendants are assimilating well in the United States while that is not the case in Europe.  Since the end of guest worker programs in the 1970s, Muslim immigrants have struggled to fully integrate into much of European society. The relatively stricter labor markets and large welfare states have decreased the economic well-being of immigrant groups. European governments have strived for tolerance through pretty-sounding policies that have stifled integration, too often separating immigrant populations from the larger society. Those policies along with damaging welfare and labor market regulations should be reversed. 

Special thanks to Cole Blondin and Martin Stillman for their excellent research and writing assistance on this piece.    

Following my recent blog on Obama’s Housing Toolkit, Michael Hamilton took exception with the question: “Who better to determine local needs than property owners and concerned citizens themselves?” and suggested that this type of local-centric thinking raises questions about the reach and influence of constitutional protections for property rights. 

But the Obama Toolkit does not propose protecting or amending constitutional rights. At the federal level, it suggests spending $300 million to modernize cities’ housing regulation, when the only modernization required is a reduction in zoning regulation. Theoretically, this reduction in regulation should cost nothing.

Although the language in the report is anything but explicit, given HUD’s historical preference for withholding funding from communities that fail to do the agency-approved urban policy action du jour, it’s not a stretch to suggest we could see a similar carrot-and-stick approach used by HUD in the granting of “Local Housing Policy Grants.” Actually, HUD is already punishing or rewarding municipalities this way, through the euphemistically-titled Affirmatively Furthering Fair Housing, Community Development Block Grants, Home Investment Partnerships, Emergency Solutions Grants, and other programs.

But simply because this method is employed with regularity, or even with worthy aims, doesn’t mean that we have to favor it. This carrot-and-stick approach is, for one thing, usually unconstitutional. Sadly, an unconstitutional approach is unremarkable in the climate of complete rejection/ignorance of constitutional law in which we exist.

It isn’t that cities or even “concerned citizens” aren’t often inimical to reducing regulation; they are. Property values are bolstered by zoning regulation, giving citizens every incentive to support restrictive zoning. The question is whether we would like federal or state administrative agencies involved in policing this.

But if you remain unmoved on the merits of (un)constitutionality alone, HUD’s ability to effectively and impartially police local municipalities is unproven (see: HUD’s involvement in Westchester, NY). It’s not as if HUD goes after the real zoning or affordability problems (see: San Francisco, CA). In other words, this is just bad policy.

On the other hand, local governments should be prohibited from enacting many types of zoning regulations, and one way to do that is to use higher levels of government—state or federal—to help protect people against arbitrary deprivations of property rights. That’s actually more of a “bottoms up” philosophy, individuals asserting rights, than a top-down one, expanding federal or state agency policing powers.

So, again: is there anything that can be done by the federal or state government to reduce regulations? Probably not constitutionally via agency blackmail but yes, there are things that could be done that are not suggested in Obama’s Housing Toolkit.

The federal government could overturn Euclid v. Amber, which legitimized zoning regulations via police powers to begin with, or any of the cases that have expanded zoning regulations following it.

The people could amend the Constitution to protect property owners from regulatory takings, though it’s not obvious this would be necessary: a casual reader of the Constitution has good reason to believe that the Fifth Amendment already covers this quite well when it states that “private property [shall not] be taken for public use, without just compensation.”[1] At the federal level, the Constitution really doesn’t need an addendum; it just needs adherents and adherence.

The same thing goes for states. Amending state constitutions to include language that forbids irrational local zoning regulation is fine, though that’s not what is proposed. Using the state equivalent of the Tax & Spend Clause to justify any and all state agency overreach, which is what we often see in practice, is not.

In summary, the federal government’s role is to preserve [property] rights; it is not to create new programs, new schemes, and new mechanisms for controlling cities to ensure that municipalities finally spawn the elusive urban utopia of planner’s fantasies. Property rights should be thought of as originating with the individual – yes, even with property owners who happen to be concerned citizens. Though there is much to be admired in the report overall, this does not seem to be the position of the Obama Housing Toolkit when it comes to federal or state oversight.

1. The takings clause, however, has only been used to protect citizens against full takings (e.g. eminent domain), rather than regulatory takings (e.g. zoning regulation).

With each passing day, I find myself reading wildly inaccurate reports about Venezuela’s inflation. I have already had to take no less than the Wall Street Journal to task for its misreporting. Now, it’s Zero Hedge’s one and only Tyler Durden’s time. On October 27th, he asserted that Venezuela was on the cusp of hyperinflation. Durden’s assertion is dead wrong.

Durden relies on the International Monetary Fund (IMF) for his inflation data, as well as estimates for Venezuela’s inflation. This is a big blunder, as the IMF’s reports on Venezuela contain no indication of their methodology. Indeed, it’s clear from reading their reports that they’re using a finger-in-the-wind method to measure current inflation and forecast future inflation. Durden says that Venezuela’s end of year inflation will be 481 percent, a far cry from Venezuela’s current 74.4 percent annual inflation rate courtesy of the Johns Hopkins-Cato Institute Troubled Currencies Project. The Hopkins-Cato project uses changes in black market (read: free market) exchange rates and the principle of purchasing power parity (PPP) to translate exchange rate changes into deadly accurate inflation rate estimates. 

As the accompanying chart shows, Venezuela’s inflation is not about ready to break out in hyperinflation, but has decelerated dramatically from annual rates exceeding 700 percent in 2015 to today’s still punishing rate of 74.4 percent. 

By the way, for those who play fast and loose with the word “hyperinflation,” the hyperinflation threshold is 12,875 percent, year over year. For those who are seriously interested in the topic, see the only documented treatment of all the 56 hyperinflations in the world: Steve H. Hanke and Nicholas Krus, “World Hyperinflations” in The Handbook of Major Events in Economic History, ed. Randall Parker and Robert Whaples (London: Routledge Publishing, 2013).

Once again, the 95 percent rule reigns – 95 percent of what you read in the financial press is either wrong or irrelevant.

In 2009, Canada and the European Union launched negotiations on a trade agreement, commonly known as CETA (which does not stand for Canada-EU Trade Agreement, as you might expect, but rather the Comprehensive Economic and Trade Agreement). This past weekend they reached a milestone, resolving a few outstanding issues so that the Agreement will soon be “provisionally applied” (after approval by the European Parliament). Full ratification will have to wait for some EU court decisions on the division of powers between the EU itself and the EU member states over certain issues (most importantly, the controversial investor-state dispute settlement provisions), and, depending on the court rulings, may also have to wait for approval by these member states for some aspects of the Agreement.

So if you’re counting, seven years into these trade negotiations, a final implemented deal still has not been concluded. And this is a deal with Canada, which is probably one of the least controversial trading partners around.

This all suggests that EU trade policy may face even more challenges than U.S. trade policy does right now. And this is something that worries people following the Brexit vote, in relation to upcoming UK trade negotiations to leave the EU and to come up with a new set of UK-EU trade arrangements. (They also worry more generally about the prospects for UK trade deals with anyone.) This is from the Guardian:

There are still several more chapters in the stop-start drama over the European Union’s comprehensive economic and trade agreement (Ceta) with Canada. The lifting of the Walloon veto clears the way for 28 EU governments to sign the treaty, allowing it to come into force on a temporary basis.

But 38 national and regional assemblies will have the final say on whether the treaty becomes a permanent legal document. It is a story that is likely to have implications for EU trade policy, but also for post-Brexit Britain.

“This Ceta saga has illustrated an additional layer of complexity that the UK will have to deal with,” said Lourdes Catrain, a partner at law firm Hogan Lovells. 

The British government is wary of parallels with Canada, although a government source acknowledged that Ceta showed “if we do end up in a world of an FTA [free trade agreement] outside the EU it isn’t going to be terribly easy”. …

I’ve written about how the UK should approach trade negotiations after Brexit, and I think the CETA experience confirms my earlier thoughts. If governments focus their trade deals on aspects of trade liberalization that are most beneficial and least controversial – such as lower tariffs, or mutual recognition of product regulations – the negotiations will not take very long and will generate wide support. On the other hand, if they insist on including provisions of questionable value that have strong opposition, such as investor-state dispute settlement, the process could drag on for many years. In my view, this makes a decision on what the UK should include in its trade negotiations pretty easy: Stick with the core trade liberalization issues, and get the deals done quickly.

Recently, I’ve worked with the excellent Cato Multimedia team on the first edition of a project you’ll be seeing more of: Ask a Cato Expert.

In this first episode, I’ve answered the question of “Should you take the government’s dietary advice?” I highlight the history behind our current dietary guidelines, and come to the conclusion one should not. Please take a look at the video below, and tweet us new questions at #AskACatoExpert!

 

The folks at the Kaiser Family Foundation will publish studies that explain how ObamaCare creates “an incentive to avoid enrolling people who are in worse health” such as “by making [insurance] products unattractive to people with expensive health conditions.”

Then, when their own polling shows three of the public’s top four health care concerns are the very sort of health-insurance features ObamaCare pushes insurers to adopt, they spin it as evidence the public does not want Congress to reopen ObamaCare.

As many predicted, especially us at Cato, the Affordable Care Act is beginning to make health insurance less affordable for many Americans. Part of the problem, in a nutshell, is precisely what my colleague Michael Cannon described in 2009, the young and the healthy avoiding signing up for health insurance and choosing to pay the fine, or, as Chief Justice John Roberts would call it, a tax.

MIT economist Jonathan Gruber, often described as an architect Obamacare, recently said that some of these problems can be alleviated by increasing the “tax” on those without insurance. “I think probably the most important thing experts would agree is we need a larger mandate penalty,” said Gruber.

Depending on how high the penalty goes, there could be a constitutional problem with that. In the opinion that converted the “penalty” into a constitutional “tax,” Chief Justice Roberts described the characteristics of the “shared responsibility payment” that made it, constitutionally speaking, a tax rather than a penalty. One of those characteristics is that the penalty was not too high: “for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the ‘prohibitory’ financial punishment in Drexel Furniture.” In Drexel Furniture, also known as the Child Labor Tax Case, the Court struck down a 10 percent tax on the profits of employers who used child labor in certain businesses. One reason the Court struck it down was because its “prohibitory and regulatory effect and purpose are palpable.”

Roberts actually went out of his way to describe paying the “tax” as a voluntary and permissible act. Even though they won, this should have irked the government a bit because the Chief was essentially giving millions of people permission to not buy insurance, which the government knew would severely undermine the law. In Roberts’s words:

Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law.

Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance. We would expect Congress to be troubled by that prospect if such conduct were unlawful. That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws. It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.

So could raising the “tax” turn it into a “penalty” and thus make it unconstitutional? Possibly. At some point, the tax would take on a punitive character, and, if people like Gruber get their way, the tax might have to be pretty stiff. With health insurance prices going up, it can still be cheaper to pay the “tax” rather than purchase insurance. And that tax might have to go up a lot to make some people change their minds. If the government ever tries to attach criminal penalties to noncompliance, then the argument is even stronger that it would become an unconstitutional regulation of commerce, given that the Court held that the individual mandate isn’t a valid use of the commerce power.

It’s all just another act in the ACA’s tragic comedy of errors.

When things aren’t going so well for a president, it can be useful to find a scapegoat. Foreign threats are also useful distractions. The movie “Wag the Dog” told us that, as if we hadn’t seen the pattern repeated many times in our political history.

We can see the same phenomenon in a recent Washington Post dispatch from Moscow about the Russian parliamentary elections, which resulted in a big win for political parties aligned with President Vladimir Putin. Andrew Roth interviewed a Moscow pensioner:

“The president’s party, who else would I vote for?” said Nadezhda Osetinskaya, a 67-year-old pensioner and former nurse who lined up before polls opened at 8 a.m. at a school in northwest Moscow.

Osetinskaya had her share of complaints. Prices for food and medicine are increasing, she said, and she required support from her children to live on her $250 monthly pension. She was unhappy with the quality of care at a hospital where she receives treatment for a kidney ailment. The city had carried out years of road work, she said, but the potholes on her neighborhood streets are legion, probably the result of corruption. 

But on broader questions, she enthusiastically supported Putin, lauding the recent annexation of Crimea and blaming Russia’s economic difficulties on a Western conspiracy. Voting for United Russia was a way to support Putin, she reiterated.

So this voter is unhappy with rising prices, poor health care, and government corruption. But she supports the longtime incumbent because he’s fighting a war and blaming Russia’s problems on someone else. (Maybe Snowball!) Blaming America has worked for the dictators of Cuba and Venezuela, not that they’ve ever allowed a real election.

Writers have often seen the true nature of rulers and politics. Henry Adams wrote a century ago, “Politics, as a practice, whatever its professions, had always been the systematic organization of hatreds.”

And Shakespeare understood the value of foreign military adventures to rulers long before that, when he wrote in Henry IV, Part 2,

I cut them off and had a purpose now To lead out many to the Holy Land, Lest rest and lying still might make them look Too near unto my state. Therefore, my Harry, Be it thy course to busy giddy minds With foreign quarrels… It still works. 

People shopping around on the insurance exchanges when the Affordable Care Act’s Open Enrollment period begins next week will find that the choices they have are limited and that insurance premiums have gone up significantly. A new brief from the Department of Health and Human Services reports an average increase of 22 percent for benchmark plans, and consumers in some states will face hikes as high as 116 percent in Arizona. 

The high profile exits of Aetna and UnitedHealth were covered at the time, but the report gives new insights into the aggregate effects of smaller exits and discontinuations as well. In the states included in the HHS brief, there was a net reduction of 73 issuers from last year, with Iowa and Maine being the only states to see a net increase in the number of issuers.

As might be expected, this significant drop in the number of issuers has led to a corresponding reduction in the number of choices available to consumers in most states. The trend prior to this year had been a reduction in the number of counties with only one insurer, but that quintupled this year in the wake of insurer exits, from 182 last year to 960 this year according to calculations by Sarah Frostenson.  In this year’s open enrollment 21 percent of the consumers in the 38 states the HHS brief included only had one issuer to choose from, and only 56 percent had three or more. The weighted average number of qualified health plans to choose from in a county dropped from 47 to 30.

Number of Issuers by State

Source: ASPE, “Health Plan Choice and Premiums in the 2017 Health Insurance Marketplaces.”

Note: Made with Datawrapper.

In the starkest illustration of this lack of choice and competition, 5 states have only one insurer in the entire exchange this year: Alaska, Alabama, Oklahoma, South Carolina, and Wyoming.

Two other states are in virtually the same position. Arizona, which made headlines earlier this year when it looked like Pinal County may end up with zero options on the exchange, has only on insurer in every county but one. North Carolina has only one insurer in 95 percent of its counties.

Many people are increasingly finding that when it comes to the ACA exchanges, there’s not much choice at all. Part of the reason there have been so many insurer withdrawals is that they’ve struggled to find a way to be profitable, or even sustainable, in this sphere. The plans that are remaining are implementing substantial premium increases this year, and in some cases they requested even higher increases in response to other issuers leaving in anticipation of absorbing some of their costly enrollees.

It might not be surprising that the premium increases are even higher in these states as remaining insurers aren’t being forced to compete and trying to reduce premiums as they would if there was more room for the free market here. The premium increase for the benchmark plan was well above the national average in every one of these states except for Wyoming, reaching as high as 69 percent in Oklahoma and an astronomical 116 percent in Arizona.

Premium Increases for States with Available Data

Sources: Charles Gaba, ACASignups.net for weighted average increases; ASPE for benchmark increases.

Notes: Only states included in ASPE brief are included in the figure. * is for states with requested but not approved increases. Weighted averages assume enrollees renew existing policies.  Increases listed are prior to any applicable subsidies. For the roughly 1.4 million people who are losing their plan, no estimate for increase as they cannot be assumed to re-enroll. Made with Tableau.

Not everyone has the benchmark plan, some might opt for more comprehensive Gold plans, while others might decide to go with the more affordable Bronze plans, so looking beyond the benchmark increases is also important. The weighted average increase of all plans before subsidies is roughly 25 percent according to estimates from ACASignups.net, with some variations between the sates.

While the majority of enrollees in the ACA exchanges are subsidized, those that are not and people buying plans off-exchange will have to bear the full brunt of these increases, and many of them could find maintaining coverage increasingly difficult, calling into question the ‘Affordable’ part of the law’s name. In Arizona, for example, more than a quarter of on-exchange enrollees last year were unsubsidized, and this share ranges from 9 percent to 32 percent in the states, accounting for millions of people.

Fewer choices and higher premiums are just two of the latest high-profile problems with the law. Their associated costs will feel all too real to millions of people trying to find some kind of coverage that won’t drain their pocketbooks in Open Enrollment next week. The Affordable Care Act has left a series of broken promises in its wake, but the biggest one might be in the name. 

Sam Hammond and Robert Orr of the Niskanen Center have published a very thoughtful paper proposing the establishment of a Canadian-style Universal Child Benefit. They make a compelling argument that replacing the current mish-mash of child-centered social welfare programs with a single cash benefit would be both more efficient and more humane than what we have today. But, before we get carried away and rush down the road to another new entitlement, there are many questions that need further exploration.

Hammond and Orr call for the elimination of eight existing programs (the dependent tax exemption, the portion of food stamps (SNAP) going to child recipients, five separate school nutrition programs, and the dependent care credit). They would also fold the existing Child Tax Credit (CTC) into their new benefit. This would free up $147.5 billion annually, allowing for a $2,000 per child cash grant on a budget-neutral basis.  The benefit would be phased out for incomes above $75,000 for single heads of household and $110,000 for a married couple.

There are several important advantages to this approach. First, cash is almost always preferable to in-kind programs. Cash payments are transparent, treat recipients like adults, and allow for greater flexibility of individual preferences and circumstances.  Moreover, the shift to cash will help break up the concentrated lobbying power of special interests who benefit from in-kind programs, reducing the constant pressure to increase benefits.  In general, as I have argued, we should be transitioning our entire social welfare system to cash.

Second, Hammond and Orr’s approach would treat families more equitably.  For example, current benefits reward parents who purchase external child care services, but do not benefit traditional stay-at-home parents.  Existing programs also tend to benefit those individuals, often more educated and even middle-class, who have the time and expertise to navigate the bureaucracy, rather than those families most in need.  A universal child benefit would extend benefits to many who have not been able to access them.

And, third, a universal child benefit could help reduce poverty.  Hammond and Orr estimate that their proposal would reduce poverty by 1.7 percentage points and bring some families out of deep poverty, using the Supplemental Poverty Measure.  If we can reduce poverty without any increase in expenditures, that has to be considered a positive.

Why then am I cautious about heading down this road?  First, while Hammond and Orr are sanguine about the effect on work incentives, I am less so. No doubt, the availability of funds for child care would help many mothers enter the labor force. But, at the same time, previous studies with guaranteed cash benefits have resulted in a decline in work participation.  Most recently, a study by David Price and Jae Song found some evidence that cash-assistance could lead to unintended and unanticipated long-term reductions in work effort for adult recipients, although it’s not yet clear what the underlying mechanisms are.

We should also recognize that a child benefit is a reward for having children, not for work.  Should we be in the business of redistributing from childless families to those with multiple children?  For that matter, should we be in the business of rewarding child-bearing by families well above the poverty level?  We may well want to offset the cost of having children for the poor, but do we want to do the same for the families earning $110,000?  And, what does this say about the relationship between individuals, the state, and the choices we make?

Finally, and most importantly, Hammond and Orr envision their proposal as a substitute for existing social welfare programs.  In this regard, they are heading down the road to a Universal Basic Income (UBI) advocated by Charles Murray. However, many liberal advocates of a UBI or child benefit see such a program as being added on top of existing welfare programs. Indeed, Hillary Clinton has called for doubling the current credit for children ages 4 and under, and eliminating the earnings exclusion for refundability.  Such an add-on approach would both increase dependence on government and be unaffordable. 

In particular Hammond and Orr’s call for eliminating child SNAP and school nutrition benefits would be heavy political lifting.  The demagoguery from advocates of the current welfare state would be amazingly easy.  That doesn’t mean that it’s an approach that shouldn’t be pursued.  It does mean that it should be pursued with great caution.

There are two types of markets for parking in Washington DC: the private market, which tends to charge what the market will bear, and the government, which charges a price that’s deemed to be “fair” and “non-exploitative” to the constituents in residential areas. How’s that working out for everyone?

Not very well, it turns out. The “fair” price on residential streets is just $25 a year, which is less than one percent of the private market rate. As a result there’s a large excess demand for parking on city streets, which has created a few predictable and undesirable consequences: For starters, people spend a lot of time driving around looking for “free” on-street parking, which congests streets, increases pollution, and makes streets less safe for pedestrians, as automobiles do quick U-turns and other risky maneuvers to claim a spot that suddenly opens.

The pro-free-on-street parking people will acknowledge these costs to some degree but would dismiss them in the name of “fairness” by trotting out the canard that some poor people drive to work and therefore this reduces inequality. The problem is that most people with cars parked on city streets are wealthy and most of the attendant consequences of the lousy deal are all borne by the less-well-off, most of whom do not own cars.

Making residential on-street parking nearly free means that those who avail themselves of it fight fiercely to limit competition for those spots. As a result, every proposed housing development in these neighborhoods are bitterly fought in the name of (pick one) historical preservation, neighborhood harmony, architectural purity, or some other vague sentiment that belie the true motive. In the last few years residents of Northwest DC have sought to declare an empty lot and a parking lot as “historic” and prevent any development on them, for no reason other than some fraction of those in the new apartment buildings to be constructed may also want to park on the street.

New developments in the city take years to get approved and are invariably shorter than the existing buildings they abut. The result of all this is that housing becomes more expensive, and middle-income residents find themselves struggling to remain in the neighborhood.

The city has come to realize this problem and has decided to combat it–not by tackling free parking or explicitly encouraging the construction of more housing but by strengthening rent controls in the city. Such a step would only exacerbate the housing shortage: if we are going to cap rental prices then developers will build less rental housing and either build more condos that they can sell and escape before more restrictions enter that market or else they will forego investing in housing altogether. There is already considerable backlash against developers who buy, expand, and subdivide large townhomes in the area for being “anti-family” although having four two bedroom apartments that cost $500,000 each is infinitely more amenable to middle income households than a single $2 million home.

Rent control will only make the city’s housing problem worse, but from a political perspective it works because it allows the rich progressives who benefit from the city’s inane parking giveaway to tell themselves that they aren’t the cause of the problem. Rent control helps those who currently have housing that will be protected but it hurts every middle class family who will be looking for housing in the future.

The true solution to high housing costs is simple: The government should stop giving away a scarce asset and set a market price to be charged to the wealthy residents of Washington DC who park their cars on city streets. Providing an implicit subsidy to some of the richest people in town is not only bad land-use policy but it also costs the low and middle income earners plenty by creating the economic conditions that dampen the construction of new homes, pushing up their rents.

And if the progressives and activists who make up the bulk of my neighbors have a problem with a policy change that reduces inequality, improves the environment, and makes the city more livable, they’re going to have to work a lot harder to defend their free parking. 

Some decent news to report: The latest National Assessment of Educational Progress (NAEP) science results are in, and scores for 4th and 8th graders have improved since 2009, the first year of the test. Unfortunately, 12th grade scores remained flat. Sound familiar?

Why the increases at the lower levels? A lot of people will trot out their pet reform: the Common Core, the Next Generation Science Standards, some federal program—I’ll throw in school choice—but my suspicion is none of these had much effect. My guess is people are simply focusing a little more on science than they were in 2009, driven by their personal feeling that grasping science is important, and will be increasingly so as the economy evolves. At this point many folks have probably been exposed to the mantra “STEM fields, STEM fields, STEM fields” enough times that a new emphasis on science has seeped into their brains, even if they don’t explicitly think to yell at their kids, “Jane and Johnny, STEM is important, and there’ll be no Xbox tonight unless you make a volcano in the kitchen right this instant! I mean it! I’ll get the baking soda…”

Few people could probably tell you what STEM stands for (that would be science, technology, engineering, and mathematics) but they have a strong sense science needs learnin’!

Or that could be wrong, too. If nothing else, it fails to explain why no improvement was seen in 12th grade scores. The fact is, just looking at NAEP scores tells us very little about why we got them, and the best we can do is make educated guesses. There is, frankly, no exact science when it comes to interpreting NAEP—especially given only two or three years of data—even if people may talk like there is.

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