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This makes perfect sense – in a country ruled by the Communist Party:

China plans to clamp tighter controls on Chinese companies seeking to invest overseas, intensifying efforts to slow a surge in capital fleeing offshore amid tepid growth and an uncertain economic outlook.

Of course, it would be crazy in a capitalist country ruled by a party committed to free enterprise.

As the Washington DC City Council prepares to vote on a bill that would provide workers in Washington, DC up to 11 weeks of paid family leave upon the birth of a child, a fundamental question remains unanswered: how much should government intervene in how employers compensate workers?

The federal government does so quite a bit at present. By exempting employer-provided health insurance from income taxes, our tax law is responsible for the fact that a majority of Americans get their health insurance from their employer. The exemption is also largely responsible for the fact that so many of these employers have what can only be described as overly generous health insurance plans, which can cover health care expenses both routine and exceptional.

The tax code also nudged American businesses to provide pensions as well, since the money set aside in a defined benefit plan generally isn’t taxed. When pension law created the tax breaks for employer-provided health insurance these spouted up instead.

In the heyday of unionism, labor union leaders pushed for more fringe benefits for their workers, often more fervently than they sought out wage increases. They did so in part because of the tax break—why not get a tax-free benefit for workers rather than have workers pay for the same benefit with after-tax wages, they reasoned—and partly because such benefits could be made more durable than other forms of compensation. For instance, the UAW contracts in the 1970s-1990s typically provided health insurance for laid-off workers for up to a year after they were let go, and sometimes longer.

This wasn’t necessarily a good thing for the U.S. economy. Rigid compensation meant that companies resorted to overtime when demand picked up rather than hire more workers. While it also deterred them from laying off workers when there was a downturn in demand since the attendant cost savings would be slight, the short-term stability was an ephemeral benefit to workers. There were fewer jobs available as a result and it did nothing to encourage employment growth in such industries.

Some of these benefits were jettisoned—or at least scaled back—after the bankruptcy of GM and Chrysler in 2008—fifteen years after at Caterpillar—and today the manufacturing workers in a union are much more likely to have a 401k, health insurance with co-pays, deductibles and a monthly contribution, and modest ancillary benefits.

Unions changed course only in part because of their reduced leverage after the diminution of manufacturing in the U.S. economy. They also perceived that their workers would rather have money than an additional benefit. Also, the realization that many workers’ manufacturing jobs may be less permanent than a generation ago also helped change demand. A long-term benefit means little for someone who worries that their job may not exist after the next recession.

More flexible compensation that is directly tied to a worker benefits the economy in the long run. Firms find it less expensive to contract and expand, which should increase employment in the long run. It should also increase wages, if and when we return to a full-employment economy—the tremendous wage gains in the bottom quintiles of the income distribution in the late 1990s should be the goal of every administration of both parties.

Now the DC government is countering this trend by providing a new benefit, financed not by the companies directly but via a tax of .62 percent on corporate profits. To its credit, there has been some thought put into how to efficiently create this benefit, and the Council concluded that by having the government finance it rather than having the employer pay for it directly removes any disincentive that such a benefit would have towards hiring expectant parents. It also reduced the cost, along with the attendant tax increase, by capping the benefits at roughly $1,000 a week, so it’s a little more egalitarian than it would otherwise be.

But the new benefit is still a mistake. It will end up increasing the cost of doing business in DC and will likely end up pushing a few businesses that are trying to decide between DC or Virginia or Maryland to head to one of the other states. To suggest that it’s too small of a tax to matter may sound intuitively appealing, but the notion that costs do not really matter is becoming a tired trope. It is the reason why the left says the minimum wage will not decrease employment, land-use restrictions don’t increase housing costs, or that unemployment insurance benefits don’t lengthen unemployment spells. One can argue about the degree of the impact, but to pretend firms can “swallow” costs ad infinitum is just facile.

If the DC City Council wants to do more about the plight of the working poor, it should focus more on how to encourage them to acquire a better education. DC’s aggressive embrace of charter schools has paid dividends in that respect, as I have observed firsthand. Additionally, the federal government should take steps to reduce the disincentives to work that exist in the tax code. University of Chicago economist Casey Mulligan has found in his research that most working Americans earning between $30,000 and $50,000 face an implicit marginal tax rate in excess of 50 percent.

A narrowly-focused benefit such as paid family leave will be a costly solution with unintended consequences, the least of which is serving as a harbinger for other taxes for other benefits.




There’s a lot of speculation in Washington about what a Trump Administration will do on government spending. Based on his rhetoric it’s hard to know whether he’ll be a big-spending populist or a budget-cutting businessman.

But what if that fight is pointless?

Back in October, Will Wilkinson of the Niskanen Center wrote a very interesting—albeit depressing—article about the potential futility of trying to reduce the size of government. He starts with the observation that government tends to get bigger as nations get richer.

“Wagner’s Law” says that as an economy’s per capita output grows larger over time, government spending consumes a larger share of that output. …Wagner’s Law names a real, observed, robust empirical pattern. …It’s mainly the positive relationship between rising demand for welfare services/transfers and rising GDP per capita that drives Wagner’s Law.

I’ve also written about Wagner’s Law, mostly to debunk the silly leftist interpretation that bigger government causes more wealth (in other words, they get the causality backwards), but also to point out that other policies matter and that some big-government nations have wisely mitigated the harmful economic impact of excessive spending and taxation by having very pro-market policies in areas such as trade and regulation.

In any event, Will includes a chart showing that there certainly has been a lot more redistribution spending in the United States over the past 70 years, so it certainly is true that the political process has produced results consistent with Wagner’s Law. As America has become richer, voters and politicians have figured out how to redistribute ever-larger amounts of money.

By the way, this data is completely consistent with my recent column that pointed out how defense spending plays only a minor role in America’s fiscal challenge.

But let’s get back to Will’s article. He asserts that Wagner’s Law is bad news for advocates of smaller government.

…free-marketeers tend to insist that the key to achieving higher rates of economic growth is slashing the size of government. After all, it’s true that the private sector is better than government at putting resources to their most productive use and that some public spending crowds out private investment. If you’re really committed to the idea of stronger economic growth through government contraction, you’re pretty much committed to the idea that the pattern behind Wagner’s Law is a sort of fluke—a contingent correlation without any real cause-and-effect basis—and that there’s got to be some workaround or fix.

I don’t particularly agree with his characterization. You can believe (as I surely do) that smaller government would lead to faster growth without having to disbelieve, deny, or debunk Wagner’s Law.

  • First, it’s quite possible to have decent growth along with expanding government so long as other policy levers are moving in the right direction. Which is exactly what one Spanish scholar found when examining data for developed nations during the post-World War II period.
  • Second, it’s overly simplistic to characterize this debate as government or growth. The real issue is the rate of growth. After all, even France has a bit of growth in an average year. The real issue is whether there could be more growth with a lower level of taxes and spending. In other words, would the rest of the developed world grow faster with Hong Kong-sized government?

All that being said, Will certainly is right in his article when he points out that libertarians and other advocates of smaller government haven’t done a good job of constraining government spending.

He then examines some of the ideas have been proposed by folks on the right who want to constrain spending. Beginning with the starve-the-beast hypothesis.

The idea that it is possible to “starve the beast”—to reduce the size of government by starving the government of tax revenue—springs from this hope. But the actual effect of cutting taxes below the amount necessary to sustain current levels of government spending only underscores the unforgiving lawlikeness of Wagner’s Law. As our namesake Bill Niskanen showed, tax cuts that lead to budget shortfalls don’t lead to corresponding cuts in government spending. On the contrary, financing government spending through debt rather than taxes makes voters feel that government spending is cheaper than it really is, which makes them want even more of it.

Here’s my first substantive disagreement with Will. I’m definitely not in the all-we-have-to-do-is-cut-taxes camp, but I certainly like lower tax rates and I definitely believe that higher taxes would worsen our long-run fiscal outlook.

And I’ve looked closely at the starve-the-beast academic research. Niskanen’s study has some methodological problems and the Romer & Romer study that most people cite when arguing against the starve-the-beast hypothesis actually shows that cutting taxes is somewhat effective so long as tax cuts are durable.

Will then looks at whether it would be effective to end withholding.

…withholding made tax collection cheaper and more reliable. …paying taxes automatically and with a minimum of pain makes it less likely that you’ll be livid about them when you vote. The complaint…is the libertarian/conservative argument against a VAT or national sales tax in a nutshell. It’s the same line of reasoning that leads some libertarians and conservatives to flirt with the idea that we ought to pass a law that requires us to write a single, hugely infuriating check to the IRS each year. The idea is that if voters are really ticked off about taxes, they’ll want lower tax rates. So taxes need to be as salient and painful—i.e., as inefficient and distortionary—as possible.

Will is skeptical of this approach, though I would point out that the one major developed economy that doesn’t have withholding is Hong Kong. And that’s a place that has successfully constrained government spending.

To be sure, the spending restraint could exist for other reasons (such as the spending cap in Article 107 of the jurisdiction’s Basic Law), but the hypothesis that people will want less government if taxes are painful is quite reasonable.

And, by the way, requiring lump-sum payments rather than withholding wouldn’t change the degree to which taxes are distortionary.

Will then turns his attention to the “supply-side” argument about lower tax rates.

Supply-siders generally present two scenarios, and neither helps reduce the size of government. One: If the tax cuts pushed by ticked-off taxpayers create supply-side stimulus and increase rather than decrease revenue, there’s no downward pressure on spending. …But it doesn’t make government smaller. Two: If tax cuts aren’t self-funding and simply leave a hole in the budget, the beast (as Niskanen showed) does not therefore get starved. Instead, spending feels cheap, the beast grows even more, and the tax bill gets shifted to the future.

Since I’ve already addressed the starve-the-beast issue, I’ll simply note that self-financing tax cuts (which do exist, though only in rare cases) are only possible if there’s a big uptick in growth and/or compliance. And to the extent that the revenue feedback is due to growth, that will mean that the burden of government spending will fall relative to the size of the private sector even if actual outlays stay the same.

Maybe I’m insufficiently libertarian, but I’ll take that outcome every day of the week. Heck, I’m willing to let government get bigger so long as the private sector gets to grow at a faster pace (in other words, a world in which government is shrinking as a share of overall economic output).

Now we get to Will’s main point. He suggests that maybe libertarians shouldn’t be so fixated on the size of government.

…well-funded and well-organized attempts “to convince voters to reduce their demand for the services financed by federal spending” so far have all failed. It’s time to consider the possibility that there’s no convincing them. …If we look at the world, what we see is that when people get richer, they want more welfare state. Maybe there’s nothing much we can do about that. …When people get richer, they want more welfare state. You can want Americans to get continuously wealthier and also want the government to consume a smaller share of national economic output, but there’s very little reason to think you can have both of those things. That is what the world is telling us.

To the extent that Will is simply making a prediction about the likelihood of continued government expansion, I assume (and fear) he’s right.

But to the degree he’s arguing that we should meekly acquiesce to that outcome, then I’ll strongly disagree. I may lose the fight against big government, but I intend to go down swinging.

Interestingly, Will and I may not actually disagree. This passage points out that it’s a good idea to fight against ineffective programs and to support entitlement reform.

…accepting that it’s probably not possible to shrink government would have a transformative effect on right-leaning politics. We would focus on figuring out the best ways to match receipts to outlays… You start to accept that spending cuts are ultimately more about optimizing the composition and effectiveness of spending than about the overall level of spending or its rate of growth. This doesn’t mean not fighting like hell to slash nonsense programs, or not prioritizing reforms to make entitlement programs fiscally sustainable, or not trying to balance budgets from the spending side, or not trying to minimize the rate of spending growth. This just means that you do it all knowing that the rate of spending growth isn’t going to go negative unless you hit a recession, a debt crisis, or end a major war.

And, most important, this passage also highlights the desirability of a policy to “minimize the rate of spending growth.”

Gee, I think I know someone who relentlessly argues in favor of that approach. Indeed, this guy is so fixated on that policy that he even created a “Rule” to give the concept more attention.

I can’t remember his name right now, but I’m sure he’s a swell guy.

More seriously (and to echo the point I made above), it would be a libertarian victory to have government grow slower than the productive sector of the economy. To be sure, obeying my rule (which actually does happen every so often) doesn’t mean we’ll soon reach the libertarian Nirvana of the “night watchman” state set forth in the Constitution.

But the real fiscal fight in America is whether government is becoming a bigger burden, relative to the private economy, or whether its growth is being constrained so that it’s becoming a smaller burden.

Will closes with a very sensible point about not overlooking the other policy areas where government is hindering prosperity (though that doesn’t require us to give up on the very practical quest to limit the growth of government).

Giving up on the quixotic quest to…falsify Wagner’s Law would also lead us to…focus our energy on removing regulatory barriers to economic participation, innovation, and growth.

And his concluding passage is correct, but too pessimistic.

This is just a conjecture. But when…the United States—where the freedom-as-small-government philosophy is most powerfully promoted and most widely accepted—has lost ground in economic freedom year after year for nearly two decades, it’s a conjecture worth taking very seriously.

Yes, he’s right that overall economic freedom has declined during the Bush-Obama years.

But what about the fact that overall economic freedom increased during the Reagan-Clinton years? And what about the fact that we achieved a five-year nominal spending freeze even with Obama in the White House?

In other words, there’s no need to throw in the towel. I may not be overflowing with optimism about whether we ultimately succeed in sufficiently constraining the growth of government, but I feel very confident that it’s a worthwhile fight.

P.S. While I disagree with a few of Will’s points, I think his article is very worthwhile. Moreover, a consensus on restraining the growth of government would be an excellent outcome to the debate he has triggered.

But I can’t resist being a bit more critical about something Noah Smith wrote about Will’s article. In his Bloomberg column discussing the hypothesis that libertarians should focus less on (or perhaps even give up on) the battle against government spending, he has a passage that is designed to lure readers into thinking that small government is associated with economic deprivation.

…a stark fact – the richer a country is, the more its government tends to spend. …Today, the top spenders include countries such as France, Denmark and Finland, while the small-government ranks include Sudan, Nigeria and Bangladesh.


It’s true that the burden of government spending is much higher in France, Denmark, and Finland than in Sudan, Nigeria, and Bangladesh, but let’s take a look at the overall data from Economic Freedom of the World.

France (#57), Denmark (#21), and Finland (#20) are all much more market-oriented than Sudan (unrated, but would have an awful score), Nigeria (#113), and Bangladesh (#121). Smith’s argument is akin to me saying that government-built roads cause economic misery because that’s how they do it in the hellhole of North Korea.

More important, he either ignores or is unaware of the research showing that nations such as France, Denmark, and Finland became rich when government spending was very small. Sigh, again.

Two front-page stories in the Metro section of Monday’s Washington Post depict protected service providers desperately trying to fight off innovations that might serve customers better and threaten the comfortable incomes of the established providers.

First up, Tesla and the automobile dealers:

Don Hall, president of the Virginia Automobile Dealers Association, was making the hard sell.

Staring directly into the camera, using the language of war, he urged car dealers to unite against a force that he said threatened their livelihoods: electric-car-maker Tesla….

The reason that Hall was sounding the alarm: Tesla, which sells its cars directly to consumers rather than through franchise dealers, is trying to open a second store in Virginia.

Car dealers in Virginia and across the country have been fighting Tesla, seeing the company’s direct-to-consumer sales model as a threat to the franchise system that they say protects consumers as well as their own business interests.

In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers. Like all regulatory rent-seekers, the automobile dealers have some public interest rationales, such as the claim that customers benefit by being able to shop for service among multiple dealers of the same automobile. But their arguments may rest more firmly on the fact that “over the past decade, VADA has given Virginia politicians $4 million in campaign contributions.”   Private companies aren’t the only protected providers. Just below the Tesla story was one about advocates of the federally funded school voucher program in the District of Columbia hoping that a new president will be more supportive of school choice than President Obama has been. Defenders of the traditional school monopoly are not giving up:

The prospect of an expanded voucher program is not a welcome one among the District’s elected officials, who chafe as Congress — where the District has no vote — passes laws that shape the landscape of city education. Many also are ideologically opposed and worry that an expanded voucher program could threaten the progress and growth of the city’s traditional public and public charter schools.

“I’m 100 percent opposed to public dollars going to private schools like this,” said D.C. Council Member David Grosso (I-At Large), who has spoken forcefully against the voucher program for years.

In a world where millions of students, especially low-income and urban kids, are getting a poor education, teachers unions and school bureaucracies have been fighting choice programs for more than two decades. Just like automobile dealers, they put their own interests ahead of those of their customers.

I should note that Clayton Christensen, who coined the term “disruptive innovation,” would probably say that these examples don’t qualify. Maybe I should just use the older term “creative destruction.” By any name, it’s people trying to protect their own lucrative position against competitors who think they can serve consumer needs better.

The U.S. Court of Appeals for the D.C. Circuit is considering whether the Environmental Protection Agency acted unreasonably when it issued regulations of hazardous air pollutants from coal and oil power plants under Section 112 of the Clean Air Act, regulations that provide far less than a penny in benefits for each of the nearly $10 billion in costs it imposes on the U.S. economy.

If this question sounds familiar, it’s because EPA tried this gambit before—and lost. In Michigan v. EPA (2015)—in which Cato also filed a brief—the Supreme Court rebuffed the agency for its failure to consider the costs of very the same regulations. On remand, EPA doubled down by issuing a supplemental finding that did no more than pay lip service to the Court’s admonition that rules whose benefits are greatly outweighed by their costs are irrational.

In light of the agency’s grudging concession that it could quantify only $4 to $6 million in statutorily-defined benefits to “women of child-bearing age in subsistence fishing populations who consume freshwater fish that they or their family caught” in enormous quantities, EPA attempted to justify its $10 billon rule by pointing to other non-statutory benefits, which it euphemistically calls “co-benefits.”

As we argue in our new brief, the D.C. Circuit should reject EPA’s end run around the Supreme Court’s decision and statutory limits on its regulatory authority. EPA’s failure to identify anything more than de minimis benefits for an action that will impose billions of dollars of costs is the height of arbitrariness. If EPA cannot justify the regulations forthrightly, it should withdraw them—not re-write the statute to target industries that it disfavors. 

Donald Trump is not backing away from his plan to build a wall along the U.S.-Mexico border. Here’s what you need to know about the proposal.

Public Support for a Fence or Wall

In 2013, 57 percent of likely voters told Rasmussen that they think that “the United States should continue building a border fence along the Mexican border.” In 2015, that number fell to 51 percent when asked about a “wall along the Mexican border.” CBS News asked the same question of registered voters in 2016 and found only 39 percent agreed with “a wall along the Mexican border.” Unfortunately, those surveys failed to specify the length of the fence or wall. Only 36 percent of registered voters told Pew in 2016 that they wanted to see a wall “along the entire border with Mexico.” In November, 54 percent of voters in the national exit poll also opposed to that proposal. In May, Arizona’s Cronkite News, Univision, and Dallas Morning News found that 72 percent of U.S. residents living in border cities opposed a wall.

The Wall Trump Has Proposed

When Trump announced he was launching his campaign for president in June 2015, he said that he would build a “great, great wall on our southern border.” The U.S-Mexico border is almost 2,000 miles, but he later clarified that the wall would only cover 1,000 miles due to “natural barriers.” As for the height, he has given estimates from as low as 30 feet to as high as 50 feet. His most common estimate appears to be 35 feet, and he said as recently as August that the wall would be between 35 and 45 feet high. Below is a Washington Post visualization of the size of a 35-foot wall.

Image 1: Size of Proposed Trump Wall

Source: Washington Post

In his plan released in August of 2015, he made it clear that this wall would not be rhetorical, symbolic, or “virtual,” but rather an “impenetrable physical wall on the southern border.” He described the wall being built out of “precast [concrete] plank… 30 feet long, 40 feet long, 50 feet long.” In August 2016, he said, “People are not going to be able to tunnel. We’re going to have tunnel technology.” He has also repeatedly promised a “big, fat beautiful door on the wall.”

Trump also insisted during his campaign that “a wall is better than fencing, and it’s much more powerful” and has called the current fence “a joke.” Despite this specificity, he admitted, when pressed in an interview following the election, that he would accept “some fencing,” but in “certain areas, a wall is more appropriate.”

The Fence That Already Exists

Image 2: Construction of U.S. Mexico-Border Fence between Tijuana and Imperial Beach, California

Source: Los Angeles Times

Fences were initially erected along the border in urban areas following the Immigration Reform and Control Act of 1986. In 1990, 10-foot-high welded steel fences were introduced along a 14-mile stretch in San Diego and soon reinforced with a second 9-mile layer of fencing authorized by a new law in 1996. By 2000, Border Patrol had erected about 58 miles of fencing intended to deter pedestrian crossing. Almost all of it was in urban areas. Ten miles of this was reinforced with a second layer, and another 10 miles was blocked off by vehicle barriers. Above is an image of San Diego’s double-layered portion of the fence being extended into the Pacific Ocean in 2011, and the growth in the miles of total fencing is below.

Image 3: Total Tactical Infrastructure Appropriations and Miles of U.S.-Mexico Border Fencing

Source: CRS

In 2006, Congress passed the Secure Fence Act, which required the creation of 700 total miles of fence. According to the Department of Homeland Security, there were 317 miles of pedestrian fencing of varying heights as of September 2015, and 36 miles of this was backed up with a secondary fence. The department met its mandate under the law by erecting an additional 300 miles of vehicle barriers. The map below shows what portions of the border have fencing. According to Border Patrol, there were 123 miles of pedestrian fencing in Arizona (of 373 total miles of border); 112 in Texas (of 1,241); 101 in California (of 140); and 14 in New Mexico (of 180). DHS has close-up maps of the fence in each state, but here’s a map of the border showing both pedestrian and vehicular barriers.

Image 4: Map of U.S.-Mexico Border with Fencing (Green)

Source: Customs and Border Protection

Even within the 300 miles of pedestrian border fence, the fence varies in height and quality dramatically depending on location. Border Patrol utilizes some half dozen different types of fencing—wire mesh, landing mat, chain link, bollard, aesthetic, and sheet piling just to control on-foot crossings (see image below). According to Popular Mechanics, these fences all vary in thickness and height from 6 feet to 18 feet. Popular Mechanics has maps that purport to show the exact locations of each type of fencing.

Image 5: Types of Fences along the U.S.-Mexico Border

Source: Department of Homeland Security

Legal Issues with Border Fences and Walls

Trump promised his wall would be built “ahead of schedule.” But in order for this to happen, he will need to avoid a variety of legal difficulties that the fence builders encountered. Well over two-thirds of the border is already owned by states, tribes, and private parties. As the image below shows, almost all of the land in Texas is owned by private or state parties. Comparing the image of the locations of the current fence above to the one below, it is readily apparent that the areas where the fence was constructed almost entirely overlap the areas with federal land.

Image 6: Federal or Tribal Ownership of the United States-Mexico Border Areas by Border Patrol Sector

Source: Government Accountability Office

In 2007, as the Bush administration was extending the fence, it sent letters to property owners threatening to sue them if they did not “voluntarily” hand over their rights to their land. The letters offered no compensation for the use of the land. Some intimidated property owners signed the letters thinking that they had no recourse. Others refused, and the government sued them for access. Although the government can—and did—attempt to use eminent domain to seize property from landowners, the lawsuits took years to complete (7 years in one case), causing substantial delays.

DHS’s Inspector General (IG) concluded in 2009 that “acquiring non-federal property has delayed the completion of fence construction,” and that “CBP achieved [its] progress primarily in areas where environmental and real estate issues did not cause significant delay.” The IG report again:

For example one landowner in New Mexico refused to allow CBP to acquire his land for the fence. The land ownership predated the Roosevelt easement that provides the federal government with a 60-foot border right-of-way. As a result, construction of fencing was delayed and a 1.2-mile gap in the fence existed for a time in this area. CBP later acquired this land through a negotiated settlement.

The IG found more than 480 cases in which the federal government negotiated the “voluntary” sale of property, and up to 300 cases in which condemnation would be sought through the courts. Because the right of just compensation is protected by the Constitution, there is little Donald Trump or Congress can do to expedite these issues.

A related issue is the impact on tribal lands. Although technically owned by the federal government, tribal lands are held in trust for Indian tribes, which federal law recognizes as distinct, independent, political entities. The Tohono O’odham Nation, which has land on both sides of the border, has already pledged to fight the Trump administration on building a wall there. In 2007, the tribe agreed to allow the construction of a vehicle barrier on their land, but the Bush administration then waived laws that protect tribal burial grounds, and during construction, human remains were dug up. If the tribe refuses to cooperate, the Trump administration would need a stand-alone bill from Congress condemning the land.

Even on federal lands, it can take months to get various agencies to agree to allow Border Patrol to move forward on various projects. In 2010, two-thirds of patrol agents-in-charge told the Government Accountability Office that under land management laws, the interagency compliance process had delayed or limited access to portions of some federal lands. Some 54 percent said that they were unable to obtain responses to requests for permission to use the lands in a timely manner. In one case, it took nearly 8 months for Border Patrol to get permission to install a single underground sensor. Only 15 percent, however, said that these issues adversely impacted the overall security in their areas.

Practical Problems with Border Fences and Walls

Fences are difficult to maintain because they can be knocked down in storms and erode if they are near beaches or rivers that flood, as has happened in San Diego. Fences are also relatively easy to cut through, and Border Patrol repaired more than 4,000 breaches in one year alone. Low fencing can be easily mounted from the roof of a truck. Some fences can even be driven over with a ramp. All can be climbed or tunneled under. Watch this video of two American women climbing to the top of the 18-foot border fence in under 20 seconds. Border patrol spokesperson Mike Scioli calls the fence “a speed bump in the desert.”

Image 7: Vulnerabilities in a Border Fence or Wall

Source: Huffington Post

Tunnels are typically used more for drug smuggling, but they are still a serious vulnerability in any kind of physical barrier. From 2007 to 2010, Border Patrol found more than 1 tunnel every month. “For every tunnel we find, we feel they’re building another one somewhere,” a Border Patrol tunnel expert told the New York Times this year.

Trump’s wall could address some of these problems. A concrete wall, while not “impenetrable,” would probably significantly cut down on attempts at going through it, though it is clearly not impossible (see image above). He has also claimed that no one would ever use a ladder to go over a 50-foot wall because “there’s no way to get down,” before thinking about it for a second and conceding “maybe a rope.” Nonetheless, the height might discourage some migrants from climbing, and it would certainly take them longer to do so, which would give Border Patrol more time to reach them.

Trump has also attempted to say that no one could tunnel under his wall due to “tunnel technology,” but the Science and Technology Directorate has concluded that all current technology to detect tunnels beneath the border would not be “suited to Border Patrol agents’ operational needs.” As far as dealing with water, Border Patrol agents told Fox news that a border wall would still “have to allow water to pass through, or the sheer force of raging water could damage its integrity, not to mention the legal rights of both the U.S. and Mexico to seasonal rains.”

One major obvious downside to a wall is that it would be opaque. “A cinder block or rock wall, in the traditional sense, isn’t necessarily the most effective or desirable choice,” the agents told Fox news. “Seeing through a fence allows agents to anticipate and mobilize, prior to illegal immigrants actually climbing or cutting through the fence.” For this reason, the agency is desperate to replace the landing mat fences that are also nontransparent. Popular Mechanics called this part of the fence “obsolete, in need of replacement” because they “can be easy to foil since Border Patrol agents can’t see what’s going on the other side.”

At a basic level, a wall or fence can never stop illegal immigration because a wall or fence cannot apprehend anyone. The agents that Fox News spoke to called a wall “meaningless” without agents and technology to back it up. Mayor Michael Gomez of Douglas, Arizona labeled the fence a failure in 2010, saying “they jump right over it.”

Efficacy of Border Fences and Walls

The most important question in this debate is how much illegal immigration is reduced per each additional dollar spent on a wall compared to each additional dollar spent on more manpower or other technologies. Despite the importance of this question, apparently no estimate of the impact of the current border fence on illegal immigration exists at all, let alone a comparison to other technologies. This is despite more than a decade to conduct such a study for the recent fences, and even longer to study the earlier fences.  

Rep. Henry Cuellar (D-TX) attempted to obtain the answer to this exact question from the administration as a sitting congressman on the House Homeland Security Committee and failed. A Migration Policy Institute 2016 review of the impact of walls and fences around the world turned up no academic literature specifically on the deterrent effect of physical barriers and concluded somewhat vaguely that walls appear to be “relatively ineffective.” The closest thing I could find to a cost-benefit analysis of this type was from House Homeland Security Committee Chairman Michael McCaul, a Republican from Texas, who concluded after careful study in 2015 that “it would be an inefficient use of taxpayer money to complete the fence. … We are using that money to utilize other technology to create a secure border.” Rep. McCaul, however, did not detail the methodology underlying his conclusion.

Fences could have strong local effects. The case for more fencing often relies completely on these regional effects. The San Diego border sector is probably the most commonly cited success story in the debate over the fence. From 1990 to 1993, it replaced its “totally ineffective” fence with a taller sturdier landing mat fence along 14 miles of the border. This had little impact on the number of apprehensions. The Congressional Research Service concluded, “The primary fence, by itself, did not have a discernible impact on the influx of unauthorized aliens coming across the border in San Diego.”

From 1994 to 1996, Operation Gatekeeper doubled the number of agents in the sector, but this too apparently had little effect on illegal immigration. Instead, as the image below shows, the flow dramatically moved eastward away from the Imperial Beach station and the Chula Vista station where fences were built and massively toward the other eastern stations.

Image 8: Apprehensions in San Diego Border Sector by Border Patrol Station

Source: CRS

Eventually the number of apprehensions in the San Diego sector crashed, indicating a huge shift in the flow of entries. But it is far from clear that this change actually reduced total entries. Indeed, the evidence indicates that walling off San Diego simply sent migrants looking for other means of entry further east—in the El Centro, Yuma, and Tucson sectors.

Image 9: Border Patrol Sectors in California and Arizona


From 1997 to 1999, Border Patrol installed 9 miles of secondary fencing in San Diego and extended the primary fence there. This period saw falling apprehensions in San Diego and rapidly expanding apprehensions in the adjacent sectors, almost equaling the previous flow.

Image 10: Apprehensions of Aliens at the Southwest Border by Sector in El Centro, San Diego, and Yuma

Source: Customs and Border Protection

Of course, apprehensions could have increased in El Centro or decreased in San Diego due to less enforcement activity. Image 11 provides the number of apprehensions per border agent for each sector. But controlling for the number of agents changes the picture very little. In fact, it seems to indicate that the flow rose much more dramatically in Yuma and fell further in San Diego than the number of raw apprehension figures show. The total flow by this measurement actually rose overall in these areas, while the fences were built.  

Image 11: Apprehensions Per Border Agent by Sector in El Centro, San Diego, and Yuma

Source: Customs and Border Protection (agents, apprehensions)

It would be ideal to perform the same type of analysis on the impact of the Secure Fence Act of 2006, but the problem is that the fences were rolled out at the same time as Congress doubled the size of the Border Patrol, jumping the numbers from 12,000 to 21,000. Moreover, fences went up on portions in many different sectors, so it is more difficult to isolate the effects. To complicate matters further, this period of time saw the collapse of the housing bubble, which caused a huge exodus of unauthorized workers back to Mexico even before the Great Recession hit.

This analysis reveals that Trump was likely correct to initially say that a wall only makes sense if it is truly across the entire border. But it also seems to indicate that the primary fencing alone had little impact on illegal immigration. Even the secondary fence needed to be reinforced with substantial increases in the number of border agents. It also does little to answer the question of whether a fence is worth its cost relative to other uses.

Douglas Massey, a professor at the University of Pennsylvania, argues that the true measure of efficacy should be not the flow into the United States, but also the flow out of the country. He notes that until the fences and agents were deployed in the 1990s, unauthorized immigrants typically returned home at the end of the harvest, leaving the total illegal population almost the same during the 1980s (image below). But as the costs and risks of doing so increased, they tried almost as hard to enter, while barely any tried to leave. The border security efforts essentially trapped them in and made the problem worse.

Image 12: Unauthorized Immigrant Population and Number of Border Patrol Agents (1980-2009)

Sources: Warren and Passel (1980); Census Bureau (14 and up only, 1983); Congressional Research Service (1986-1988); Pew Research Center (1990-2009); Border Patrol; CRS (fencing)

As the image above shows, the illegal population continued to rise in parallel with the growth in agents until the housing bubble burst in 2007. Growth in the fence length is also correlated to a lesser extent with increases in the illegal population over this period. Massey estimates that 5.3 million fewer people would be here illegally had enforcement not been changed and argues that a large guest worker program that mimicked the earlier illegal traffic would eliminate illegal immigration as well as lower the total immigrant population in the United States. Donald Trump has repeatedly promised doors in his wall to expedite legal immigration into the United States, so it is possible that he could follow through on this proposal, but his more specific positions on legal immigration have been targeted to decrease legal admissions, not increase them.

Financial Costs of the Border Fences

There appears to be no official estimate for the entire cost of the current fence from 1986 to today. Congress initially expected to spend $1.2 billion on the project, but actually spent $2.4 billion on just the fences—including vehicle barriers—constructed between 2006 and 2009 with another $1.1 billion appropriated ($3.5 billion total).

In 2009, Customs and Border Protection predicted that it would need another $6.5 billion over 20 years to maintain just that fencing. The Washington Post reported in 2015 that the Congressional Research Service found that this fencing had already cost $7 billion, which implies the maintenance costs were far higher than predicted. The Obama administration requested $274 million to maintain the fences in 2015—nearly $1 million per mile of pedestrian fencing. Assuming costs escalate over time, that’s close to $3 billion per decade.

If we simply divide $3.5 billion by 617 miles of fence, we get an estimate of $5.4 million per mile. Using the $7 billion figure, then each mile cost $10.9 million. We simply cannot project these costs into the future because the first fences built were in urban, flat areas that were easily accessible, so costs were lower. The General Accountability Office found that the average mile of fence for the first 70 miles cost $2.8 million. For the next 225, the average cost rose to $5 million per mile. The GAO assumed the average cost per mile for the next 26 miles would be $6.5 million. Some particular areas were astronomically high—$16 million per mile in the mountainous region east of San Diego.

Sticking with the low $6.5 million per mile number, we get some $4.4 billion to build out the existing fence to 1,000 miles—upfront cost, ignoring all later maintenance costs. We could expect another $5.4 billion for a 10-year estimate of about $10 billion. But it is almost definitely higher than this due to the costs associated with acquiring private land and building in less accessible areas. The entire 1,000 fence would have cost the government at least $18 billion (accounting for inflation) to finish. It is also important to remember that this is for a single layer of fence. A second layer, which is what many people advocate, would almost double the cost. If Trump wanted to upgrade the existing “joke” fencing and build it out to a full 1,000 miles, then it would be much higher than that.

Financial Cost of Trump’s Border Wall

Trump has insisted that his wall will not be a fence, but rather an “impenetrable physical wall,” and has also claimed that it would cost between $10 and $12 billion without revealing his methodology. But since building out the existing fence would cost more than that, his wall will undoubtedly cost even more.

Moreover, the fences were relatively inexpensive to build because they were constructed from, for example, old metal from helicopter landing pads from Vietnam or built low to the ground in certain areas. Trump has criticized the current fences on several grounds, including but not limited to their inability to prevent tunneling, their materials, their height, and their aesthetics. Trump’s wall would use, according to one engineer’s estimate, more than 1.5 times as much concrete as the Hoover Dam.

For the full 1,000 miles, Trump’s 30-foot wall (with a 10-foot tunnel barrier) would cost $31.2 billion, according to the best estimate from Massachusetts Institute of Technology engineers—that is $31.2 million per mile. If he only built 500 miles, the cost would be a more manageable, but still shocking $15.1 billion. Two other estimates placed the construction cost of the wall in the $25 billion range. Again, these are upfront construction costs, not ongoing maintenance costs, which account for roughly half of all of the fence costs over a decade.

Payment for the Wall

Donald Trump has been most insistent that Mexico will pay for the wall. He has promised a variety of ways of accomplishing this. The idea he raises most often is that Mexico can pay for the wall because it sells so much to U.S. consumers. “The wall is a fraction of the kind of money… that Mexico takes in from the United States,” he told CNN in April. “You’re talking about a trade deficit with Mexico of $58 billion.” In other words, if the Mexican government does not pay the $25 billion or more that it will take to build the wall, Trump will simply tax business with Mexico.

Of course, under this scheme, it is simply inaccurate to claim that “Mexico” will be paying for the wall since the $58 billion comes from U.S. consumers. If the United States imposes a tax on Mexican imports, then U.S. consumers will cover it. Marco Rubio told this to Trump during one of the presidential debates in January, explaining that the government “doesn’t pay the tariff—the buyer pays the tariff.” But obviously the lesson in economics failed to stick.

Trump has also proposed cutting off remittances of unauthorized immigrants to Mexico if the Mexican government refuses to cover the cost of the wall. Trump’s proposed regulatory method of doing this (claiming that cash wire transfers are actually bank accounts) is legally suspect, but even if it was legal, it would not cover the cost of the wall. Although Mexican immigrants remit $26 billion to their families in Mexico, this plan is fundamentally flawed for several reasons.

First of all, this amount is not enough to cover the cost of the wall. Second, only half of the Mexican immigrants in the United States are here illegally. Third, the majority of the remittances from unauthorized immigrants would find a way home through means other than wire transfers. Fourth, the Mexican government has no control over the remittances, so it cannot hand them over to the Trump administration. Fifth, Mexico does not want a wall, so they may be willing to take an economic hit to not have a wall.

These realities might already be occurring to Trump’s staff. Trump advisor Kris Kobach said after the election, “There’s no question the wall is going to get built. The only question is how quickly will it get done and who pays for it?” Kobach, who is part of the president-elect’s transition team, promised to find ways to begin work on the wall immediately using the existing budget.

Many Americans feel that the United States government is not in control of the border and that the lack of control is a deliberate government policy. Nothing could be further from the truth. The government has greatly expanded the scale and scope of immigration enforcement on the southern border in recent decades. 

The government built fencing on the southwest border and increased the mileage from zero in 1990 to 653 today (Figure 1). Some of that fencing is porous and much of it is made to deter vehicles, but it is located in some of the previously most heavily trafficked areas. The effect was that unlawful immigrants were forced to cross in new, more dangerous areas. President-elect Donald Trump said he wants a 1,000-mile wall at the border, which means he’s already most of the way there.

Figure 1

Border Fencing


Source: Congressional Research Service.

Similarly, the number of border patrol agents has grown more than 8-fold since 1982 compared to a 4 percent overall decrease in the number of non-military federal employees in the legislative, judicial, and executive branches (this does not include federal contractors). This vast expansion is underreported but it hasn’t dimmed the clamor for more resources and agents (Figure 2).    

Figure 2

Border Patrol and Non-Military Federal Employees Indexed to 1982


Sources: Office of Personnel Management and Customs and Border Protection.

Estimates vary, but the gross number of illegal immigrant entries has also declined. That decrease is explained in part by increased enforcement but also by poor job growth in the United States and more guest worker visas. One estimate of the gross illegal entries shows a sharper decline (Figure 3) than the other (Figure 4) but they both show a steep decline in recent years.

Figure 3

First Estimate of Gross Inflow of Illegal Immigrants


Sources: Massey and Singer, Warren and Kerwin, and Pew Hispanic Research Center.

Figure 4

Second Estimate of Gross Inflow of Illegal Immigrants


Source: Warren and Kerwin.

From 1982 to the end of 2015, 98.6 percent of all apprehended unlawful immigrants have been returned or removed (R&Rs) to their home countries (Figure 5). The Obama administration has not relaxed immigration enforcement along the border (Figure 6). Some years have more R&Rs than apprehensions because the unlawful immigrants are apprehended in the earlier year and then deported in the following year (Figure 6). 

Figure 5

Returns & Removals and Apprehensions


Sources: Yearbook of Immigration Statistics and Immigration and Customs Enforcement.

Figure 6

Ratio of Returns & Removals to Apprehensions


Source: Yearbook of Immigration Statistics and Immigration and Customs Enforcement.

The Obama administration did massively ramp up interior enforcement from 2009 to 2011. His administration increased the percentage of the entire unlawful immigrant population deported every year as well as and the total number of people deported from the interior of the United States (Figure 7).

Figure 7

Interior Removals


Source: Migration Policy Institute and Immigration and Customs Enforcement.

President Obama’s administration did substantially shift how unlawful immigrants are apprehended (Figure 8). Customs and Border Protection (CBP) apprehended over 90 percent of all unlawful immigrants prior to 2008 but in that year non-CBP agencies like Immigration and Customs Enforcement (ICE) started to play a much larger role. About 39 percent of the shift from 2007 to 2008 can be accounted for by a decrease in unlawful immigrants apprehended at the border who were deterred by the Great Recession, while about 61 percent can be accounted for by an increase in non-CBP apprehensions. That trend continued until 2011 when about equal numbers of unlawful immigrants were apprehended by CBP and non-CBP agencies. Since 2011, CBP’s proportion of apprehended unlawful immigrants has climbed to just below what it was 2007 even though the number crossing the border has fallen—a trend maintained by the 79 percent decline in non-CBP apprehensions from 2011 to 2015.    

Figure 8

How Unlawful Immigrants are Apprehended

Sources: Yearbook of Immigration Statistics, Customs and Border Protection, and Author’s Calculations.

The size of the illegal immigrant population has fallen during the entire Obama administration due to the lackluster economy, increased immigration enforcement, and more guest workers (Figure 9). President Obama managed to achieve what the last three presidents before him failed to do: leave the White House with fewer illegal immigrants in the country than when he entered without a formal amnesty. Although his reputation as the Deporter-in-Chief has dimmed in recent years due to DACA and DAPA, his administration likely will have removed as many illegal immigrants from the United States during his two terms as were removed from 1978 to 2008.   

Figure 9

Unlawful Immigrant Population


Source: Pew Hispanic Research Center.

The decline in unlawful immigrant entries means many border patrol agents are twiddling their thumbs. As recently as 2007, each border patrol agent apprehended an average of 59 unlawful immigrants (Figure 10). By 2015, that number had fallen to a mere 17. The decline in unlawful immigrants entries and the increase in border patrol has left many of them with little to do. Their numbers should be cut or, at an absolute minimum, not expanded any further.        

Figure 10

Border Apprehensions per Border Patrol Agent


Sources: Immigration and Nationalization Service, Customs and Border Protection, and Yearbook of Immigration Statistics.

A major concern over unlawful immigration is how it affects crime rates. If the border was truly a zone of lawless chaos then there should be increases in violent and property crime. Although not all counties or cities bordering Mexico report violent and property crime rates per 100,000, those that do show a steady decline in crime rates over time (Figure 11). There are certainly illegal immigrants who commit violent and property crimes but it hasn’t caused a crime wave on the U.S. border. 

Figure 11

Crime Rates in Border Counties and Police Departments


Source: FBI Uniform Crime Reporting Statistics.

President-elect Donald Trump has called for a large increase in border enforcement including the expansion of a wall. The decline in the flow of illegal immigration, relative peace at the border, 653 miles of border wall, and a huge increase in the size of the enforcement bureaucracy are evidence that the government does not need to expand immigration enforcement.  

The federal government has suffered from waste, fraud, and abuse in its spending programs for decades—actually, centuries. A federal effort in the 1790s to run Indian trading posts, for example, was plagued by inefficiency. For almost as long, studies have been documenting the waste. An 1836 Ways and Means Committee report, for example, criticized river and harbor projects for being chronically overbudget.

The wasteful spending continues today, and the latest effort to document it is Senator James Lankford’s new study, “Federal Fumbles: 100 Ways the Government Dropped the Ball.” The study describes projects such as “$495,000 to fund a temporary exhibit for sights, sounds, tastes and yes, even smells of the Medieval period” and $2 million for a “multi-year study about kids’ eating emotions, and how they don’t like to eat food that’s been sneezed on.”

Spending on such dubious projects represents only a small share of the $4 trillion federal budget. However, Lankford’s examples illustrate the broader overspending disease that afflicts Congress and the executive branch, which I discuss here and here. Lankford’s projects are not just random failures: they stem from structural features of the government that induce politicians and agency officials to spend on low-value activities.

Senator Lankford will discuss his report at a Cato forum on Capital Hill, Wednesday at noon. Tom Schatz, Justin Bogie, and I will comment on the report and examine prospects for cutting spending during the Trump administration. All are invited.

To explore the structural reasons for ongoing waste in federal spending, see “Why the Federal Government Fails” and essays here.

As China grows more economically powerful there is growing concern about how it will convert its economic power into strategic influence. In its 2016 annual report, the U.S.-China Economic and Security Review Commission recommends closer scrutiny of Chinese economic practices and advocates creating a panel to prevent China’s state-owned enterprises from gaining “effective control” over U.S. companies. Fear of China’s commercial influence has recently spread to Hollywood as well, with recent purchases of film studios and theater chains by China’s Dalian Wanda leading to a torrent of commentary warning against Beijing’s nefarious long-term intentions.

The idea that China can easily convert its economic clout into influence is attractive and intuitive given the government’s important role in the economy. In Chinese Economic Statecraft: Commercial Actors, Grand Strategy, and State Control, William J. Norris, a professor at Texas A&M University’s Bush School of Government and Public Service, casts a skeptical eye on this assumption. Norris came to the Cato Institute recently to discuss his theory of economic statecraft and shed light on the complex domestic factors that help or hinder China from using commercial actors to achieve strategic goals. (Full disclosure, as a student at Texas A&M I spent several months as Norris’s research assistant while he worked on the book.) Using a theoretical model rooted in principal-agent theory applied to several case studies, Norris is able to show that China’s political leadership and commercial actors are not always on the same page.  

Economic statecraft is the intentional manipulation of economic interaction to produce or affect some sort of strategic end. Norris finds that effective economic statecraft requires state control over commercial actors and state unity across different sectors of government. While the Chinese government may have nominal control over its state-owned enterprises, it can be very difficult to get local officials in sync with provincial or national-level officials, which impedes the effective execution of economic statecraft. In some of Norris’s case studies Chinese commercial actors made decisions with little direction or oversight from state officials that had unintended strategic effects down the road.

The most important take-away from Norris’s book is, “economic statecraft is not an easy lever of national power for [China] to wield. To be effective, many factors need to align.” China’s economy makes it easier for the government to use its companies in strategic ways, but even in the Chinese system there are numerous factors that make it difficult to use commercial actors to achieve strategic goals. While Beijing has used commercial actors to achieve strategic goals, not every move by a Chinese state-owned enterprise is a strategic master stroke designed to maximize China’s power or undermine the United States. In order to better identify the real cases of Chinese economic statecraft, it would be prudent for analysts to apply the model in Norris’s book. 

Fidel Castro died, finally. His life was consequential, but his death was anti-climactic. The world has been expecting Castro’s demise for at least 10 years when he handed power to his brother Raul because of illness, and Cubans have been waiting far longer. But like Cuban communism, Castro seemingly refused to die, even when his ideas long ago failed to inspire widespread enthusiasm, and indeed led his country to ruin and generated resignation, fear and rejection among Cubans who had to live under the only totalitarian system this hemisphere has ever seen.

Six years ago, Cuban dissident Yoani Sanchez captured the mindset that results from being forced to live according to what most Cubans considered a discredited ideology when she wrote: “Fidel Castro, fortunately, will never return.” To the vast majority of Cubans, Castro, or at least the appeal of his ideas, was already dead.

When I first visited Cuba in 2002 for a series of official and non-official meetings, it became clear to me that nobody there, except maybe two people, believed in communism. The level of cynicism was high, apparently reminiscent of the final years of Soviet socialism, and it was extensive. I met nobody who was pleased with the current state of affairs. That has not changed, though for a time Chavista Venezuela came to the rescue with oil subsidies and other support that are now unreliable with the failure of Venezuela’s own socialist experiment.

There will always be some nostalgia and belief in the region about the legend of Castro being a crusader for the poor and a champion of social equality, but fortunately, the Cuban model in today’s Latin America holds little to no appeal. And the crude reality of Castro’s legacy is more widely recognized than ever before. As the Peruvian establishment newspaper El Comercio noted, Castro was “simply, the bloodiest, most repressive and longest-lasting dictator of Latin America.” And although the authoritarian system he set up has not yet been defeated, his death marks a symbolic endpoint in the worst excesses of 20th century repression in the region.

Fidel Castro represented the worst of the worst of Latin America’s centralizing tradition. In the region’s history, nobody had so much control over so many aspects of people’s lives for so long a period as he did. He achieved it through sheer intolerance and cruelty. From the beginning of the revolution, he did not hesitate to imprison and execute his closest allies, “friends” and even children when it served his purposes. People will debate for a long time how many millions of lives he disrupted, how many thousands of political dissidents he imprisoned, and for how many tens or hundreds of thousands of lives lost he is responsible. But he was a master of deceit and a cunning manipulator of public opinion; in person, he was a “snake charmer” in the words of Peruvian novelist Mario Vargas Llosa. As Yale Professor Carlos Eire notes, “His lies were beautiful and so appealing.”

Here too, he was the most talented of Latin American dictators. Castro justified the worst crimes through the supposed achievement of the greater good—national sovereignty, universal health care and education, social equality, the fight against imperialism, etc. Never mind that the reality was quite different. With all its problems, Cuba, the most developed country in Latin America before the revolution, became relatively less developed and even more dependent on outside powers after the revolution, first on the Soviet Union, then on Venezuela. And if we are to believe Cuba’s official figures, plenty of countries around the world and in Latin America showed equal or greater gains in social development indicators without having to sacrifice civil, political or economic liberties. The extent of control that the communist nomenclatura has over others in society represents an inequality of power that Cuba had never before seen.

Castro knew that much of the outside world would overlook that reality and buy into official myths. He didn’t always lie. The use of moral equivalence in argumentation, or the old trick of suggesting that criticism of the new regime was the same as support for the old status quo went a long way. Castro knew that the world was imperfect and turned Cuba into the focal point of what Latin America had long been: a place where outsiders could project their vision of utopia or express dissatisfaction with the many things wrong in their own societies. In this way, the revolution became useful to intellectuals, journalists, activists, and countless others around the world. In this way also, Castro’s cynicism about the downtrodden, world peace or whatnot was unmatched. As my colleague Juan Carlos Hidalgo notes, just three years ago the regime hosted a summit of Latin American leaders, which called on the region to strengthen human rights and democracy.

How the future will unfold in Cuba is unpredictable, but we can expect its military dictatorship to remain in control in the short term and probably longer. The regime has been preparing for Fidel’s death for the past decade and its repression has increased over the past year. Without Fidel, though, there may be less fear to experiment with change. Whatever change comes about, however, will be undertaken by a regime intent on maintaining power. It will be a task that will be harder and harder for anybody to control.

Castro’s death gives us the opportunity to do as my friend Javier Fernandez-Lasquetty suggests, and pay homage to the millions of Cubans who have suffered under the tyranny he imposed, including writers like Heberto Padilla and Guillermo Cabrera Infante, activists like the Ladies in White or the late Oswaldo Paya, journalists and intellectuals like Antonio Rodiles, and the many, many Cuban dissenters who continue to face despotism with dignity. The world is a better place because of them.

On his radio show last night, Mark Levin asked his audience whether they thought President-elect Donald Trump would turn out to be a big-government Richard Nixon or a small-government Ronald Reagan. On the infrastructure issue, I fear that we may be headed in a big government direction.

Trump, of course, is a “populist,” not a small-government conservative. His advisor, Stephen Bannon, indicated the other day what that means:

Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” Stephen K. Bannon told the Hollywood Reporter. “The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan.

Bannon should know that on fiscal policy, Jackson’s populism was anti-debt and small government. Echoing Thomas Jefferson’s views, Jackson thought that federal debt undermined liberty, and he pushed to eradicate it. Jackson’s views were in tune with the public, which strongly supported frugality in the federal government.

Jackson and his allies were dubious of federal investments in infrastructure (“internal improvements”). His vice president, Martin Van Buren, thought that “Congress had no power to construct roads and canals within the states.” He said that spending on such projects “was sure in the end to impoverish the National Treasury by improvident grants to private companies and State works, and to corrupt Federal legislation by the opportunities it would present for favoritism.”

On assuming office, Jackson made a list of his priorities, including “the Public debt paid off, the Tariff modified and no power usurped over internal improvements.” In his first inaugural address, he promised “extinguishment of the national debt, the unnecessary duration of which is incompatible with real independence.” Jackson famously vetoed funding of Kentucky’s Maysville Road in 1830, citing constitutional objections and his goal of debt elimination.

Jackson was also skeptical of federal investments for practical reasons. In his 1830 message to Congress, he said, “Positive experience, and a more thorough consideration of the subject, have convinced me of the impropriety as well as inexpediency of such investments.” One practical concern was what we now call “crony capitalism.” Jackson noted that when the government gave some initial subsidies to companies, they tended to get hooked on the hand-outs and kept coming back for more.

In his book about the Jackson era, Carl Lane concluded that federal debt elimination, “Americans in the Jacksonian era believed, would improve the material quality of life in the United States. It would reduce taxes, increase disposable income, reduce the privileges of the creditor class, and, in general, generate greater equality as well as liberty.”

Back then, the belief was that a frugal federal government that balanced its books and did not interfere in state and local matters would secure liberty and benefit average citizens. That is the type of Jacksonian populism that Bannon and Trump should pursue.

Betsy DeVos, who has long championed private and charter school choice, has been named the next U.S. Secretary of Education. On the spectrum of education policy people, her support for choice puts her well on the correct side. But I have concerns: especially that President-elect Trump will see Ms. DeVos—or that she will see herself—not just as the education department head, but rather as the national education boss.

As I wrote yesterday, even though choice is great, it is not something people should want Washington providing. Nor—outside of the DC voucher program, military families, and maybe Native American reservations—is it something that the feds can constitutionally provide. My fear is that DeVos and Trump might not recognize the myriad problems with taking private school choice national. More concerning, the American Federation for Children, which DeVos chairs, has tended to favor more rules and regulations on choice than I would prefer. That could become a much bigger concern were rules and regs attached to national-level vouchers.

Then there’s the Common Core. DeVos has written that she does not support it, but some organizations she has backed have. She says she wants high standards, but indicates that she thinks they should be local, or at least “driven by local voices.” Assuming that means she will brook no federal influence over state standards—and I’m not sure her statement is entirely clear on that—that’s good news. The Common Core should thrive or die based on proving its worth, and people freely choosing it. You couldn’t get much further from that than the federal coercion used to get states to adopt it in the first place.

Another worry is that I have no idea where DeVos stands on early childhood or higher education issues, and the latter, especially, is gigantic, with Washington furnishing tens-of-billions of dollars in student loans, among other higher ed matters. DeVos will essentially be taking over a hugely bureaucratic lending company—with lots of regulatory power—that on a day-to-day basis could prove to be a far greater burden than she expected.

Finally, where DeVos could do immediate good is in rescinding—or something akin to that—“Dear Colleague” letters that have, for instance, pushed colleges to curb legal protections for students accused of sexual assault or harassment, or tried to force national decisions on controversial issues that involve competing rights and concerns, most notably bathroom and lockerroom access. Washington has a role in combatting discrimination by state and local governments, but should tread much more lightly.

It is good news that there will be a proven school choice champion holding the highest-profile education job in the land. But it needs to be absolutely clear that that does not make Betsy DeVos the national education boss.

The United States has recorded a trade deficit in each year since 1975. This is not surprising. After all, we spend more than we save, and this deficit is financed via a virtually unlimited U.S. line of credit with the rest of the world. In short, foreigners in countries that save more than they spend (read: record trade surpluses) ship the U.S. funds to finance America’s insatiable spending appetites.

Japan and more recently China have been the primary creditors for the savings-deficient U.S. And since their exports are largely manufactured goods, the real counterpart of their buildup of dollar claims on Americans is for them to run export surpluses in manufactured goods with the U.S. The accompanying chart shows the contribution of Japan and China to the U.S. trade deficit since the late 70s.

So, the U.S. savings deficiency has contributed to the hollowing out of American manufacturing. But, you wouldn’t know it by listening to President-elect Trump. He never mentions America’s savings deficiency. Instead, he claims that American manufacturing has been eaten alive by foreigners who use unfair trade practices and manipulate their currencies to artificially weak levels. This is nonsense.

To get a handle on why the President-elect Trump – and many others in Washington, including the newly-elected Senate Minority Leader Charles Schumer – are so misguided and dangerous, let’s take a look at Japan. From the early 1970s until 1995, Japan was America’s economic enemy. The mercantilists in Washington asserted that unfair Japanese trading practices caused the trade deficit and destroyed U.S. manufacturing. Washington also asserted that, if the yen appreciated against the dollar, America’s problems would be solved.

Washington even tried to convince Tokyo that an ever-appreciating yen would be good for Japan. Unfortunately, the Japanese caved into U.S. pressure, and the yen appreciated, moving from 360 to the greenback in 1971 to 80 in 1995. This massive yen appreciation didn’t put a dent in Japan’s exports to the U.S., with Japan contributing more than any other country to the U.S. trade deficit until 2000 (see the accompanying chart).

In April 1995, Secretary of the Treasury Robert Rubin belatedly realized that the yen’s great appreciation was causing the Japanese economy to sink into a deflationary quagmire. In consequence, the U.S. stopped bashing the Japanese government about the value of the yen, and Secretary Rubin began to evoke his now-famous strong-dollar mantra. But while this policy switch was welcomed, it was too late. Even today, Japan continues to suffer from the mess created by the yen’s appreciation.

Now, China is America’s economic enemy, and China bashing is in vogue. Indeed, hardly a day goes by without President-elect Trump railing against China, accusing it of unfair trade practices and currency manipulation. He is also threatening to impose huge tariffs on the Middle Kingdom.

At the same time, President-elect Trump is promising a set of spending and taxing policies that will cause the gap between our spending and savings to widen. This will balloon our trade deficit. And with that, Mr. Trump will, no doubt, point an accusatory finger and start a trade war with China, a country that currently contributes 48% to the U.S. trade deficit. So, the President-elect’s promised lax fiscal policies might just get us into a trade war with one of the most important countries in the world.

At the New York Times, Adam Liptak has a story on whether President-elect Trump’s business dealings–in particular the possibility that he may use his presidential power to secure business advantages–would violate the obscure Emoluments Clause of Article I, Section 9 of the Constitution. Since the clause has never been directly addressed by the Supreme Court, we’ll have to do some guesswork.

The short answer: very possibly, but it will depend upon the facts of the situation.

The longer answer: whether or not Trump’s dealings violate the text and original public meaning of the Emoluments Clause, it should be highly concerning to everyone that the President-elect seems committed to still being closely involved in his businesses. Unless he wants a pall of suspicion hanging over his every move and every phone call to a foreign official, the President-elect should immediately place his businesses in a blind trust in order to maintain at least the semblance of propriety.

In the text, the Emoluments Clause prohibits any Person holding “any Office of Profit or Trust” under the Constitution from accepting “any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.” Immediately, it is clear that the text limits the clause to gifts from foreign governments and the officials.

The original public meaning of the clause also confirms this interpretation. Foreign kings and princes once gave lavish presents to American officials, for example, a diamond-studded snuff box given to Benjamin Franklin (then ambassador to France) by Louis XVI. The Framers were concerned that these gifts would corrupt our officials, and so they prohibited them.

The next relevant consideration is whether, if Trump’s businesses receive a “gift” from a foreign government, Trump himself may be violating the Emoluments Clause. There is certainly an argument for this, since he benefits from the gift, even if only by increasing the value of his brand and stock holdings.

Finally, what sort of things would be a “gift” from a foreign state? According to one report, Trump has already asked Mauricio Macri, the Argentine president, whether he would help with permitting issues that are holding up the construction of a major office building in Buenos Aires.

If such a deal was made, would the permit be a “gift” from a foreign state? Very likely. Valuable gifts from members of foreign governments need not come in the form of diamond-studded snuff boxes, they can certainly be building permits worth several millions of dollars.

The final problem, however, is should such a gift occur, will anyone be able to bring a constitutional challenge against it? In order to bring a case to court, a plaintiff must have “standing,” meaning, among other things, that they must be actually harmed by the alleged violation. It is hard to say who would be harmed by such a gift. Perhaps a competitor of Trump businesses, but that may be a stretch.

Nothing would prevent the Congress, however, from impeaching Trump on those grounds. Over the next four years, members of Congress should remain vigilant against the possibility of President Trump using the presidency for personal gain.

As it is for all areas in which the federal government trods—which seems to be, essentially, all areas of everything—in education the big worry right now is who will be the next U.S. Secretary of Education. I worry about that, too, but much more for what the selection will signal about the incoming administration than what the eventual secretary might choose to do.

The secretary—whoever he or she is—will almost certainly take their orders from people above them. Sure, the secretary will likely provide a lot of education guidance and advice to the president, but they will not—or at least should not—be the ultimate decision maker. Former Obama education secretary Arne Duncan, for instance, presided over deplorable baskets full of stuff I didn’t like, but I’ve never seen any indication he’d gone rogue, driving policies his boss did not support.

Whether President-elect Trump chooses hard-charging—but Common Core supporting and school-choice doubting—Michelle Rhee, or Core-despising transition team member Williamson Evers, the primary concern should be what the selection indicates about the administration’s priorities, not what the ed sec might personally like. Were a Secretary Rhee inclined to incentivize states to keep Common Core, but her boss opposed that, Rhee might not energetically do what Trump wants, but it’s hard to imagine her driving an opposing policy.

Perhaps more important, from libertarian, constitutional, and just plain policy perspectives, we shouldn’t want the administration even promoting things we like. Trump has proposed spending $20 billion to incentivize more school choice. I love choice! But outside of Washington, DC—where the feds should absolutely take the voucher program off the perpetual kill list—and military installations, the feds have no constitutional authority to promote school choice. Nor should we want them to: What happens when some future administration has private schools addicted to federal dollars, and along comes the next Common Core? So long, meaningful choice!

The only thing that should quell the worries of a libertarian—or anyone acquainted with the dreary track record of federal education meddling—is the appointment of a secretary committed to phasing out all federal education programs, and locking his or her office door…forever. Anything else means the administration doesn’t understand what the federal education role should be: basically, nothing.

During the election campaign, Donald Trump complained that “our airports are like from a Third World country.” Indeed, America’s airports could be a lot better. The problem is that they are virtually all owned by governments and run as bureaucracies.

By contrast, many airports abroad are private and run in a more entrepreneurial fashion. Almost half of European Union airports have been privatized, including the main airports in Antwerp, Budapest, Edinburgh, Glasgow, Lisbon, London, Birmingham, Brussels, Copenhagen, Naples, Rome, Venice, Vienna, and Zurich.

Robert Poole and I explore airport reforms in a new Cato study, “Privatizing U.S. Airports.” We examine the early history of U.S. airports, discuss global reform trends, explain the advantages of privatization, and describe the needed policy changes.

In the early years of commercial aviation, the major airports in numerous U.S. cities were privately owned. Unfortunately, government policies squeezed out the private airports over time. We can and should correct that mistake, and bring back the entrepreneurs to the airport industry.

We don’t know yet how transportation policies will shape up under the new president, but the incoming administration should know that airports and air traffic control are ripe for major reforms.

Airports are a crucial part of America’s infrastructure. Privatization would increase efficiency and innovation, and thus generate benefits to travelers and the broader economy.

“Well we’re living here in Allentown
And they’re closing all the factories down
Out in Bethlehem they’re killing time
Filling out forms
Standing in line
Well our fathers fought the Second World War
Spent their weekends on the Jersey Shore
Met our mothers in the USO
Asked them to dance
Danced with them slow
And we’re living here in Allentown.”

– Billy Joel, “Allentown,” 1982

Nearly 35 years after the release of Billy Joel’s wistful lament about the decline of iconic Bethlehem Steel and the selfless virtues of America’s “Greatest Generation” along with it – the U.S. steel industry may be getting the last laugh. Yesterday, former Nucor Steel CEO Dan DiMicco and longtime Washington trade attorney Robert Lighthizer, who has devoted much of his professional career to building walls between foreign steel and the U.S. companies that want to buy it, were appointed heads of President-elect Trump’s “Landing Team” at the Office of the United States Trade Representative.

To those who have been holding out hope that Trump’s anti-trade campaign bluster would moderate before it could be converted to policy, the selection of DiMicco and Lighthizer is pretty devastating news. Neither has met a tariff he didn’t like or a trade agreement he did. To the non-political staff at USTR, the DiMicco/Lighthizer duo must feel like a real poke in the eye. After all, the mission of the agency is “to work toward opening markets throughout the world to create new opportunities and higher living standards.” The staff is generally committed to trade liberalism and good will among nations and their sensibilities are informed by foreign service backgrounds.  DiMicco and Lighthizer bring an enforcement and prosecution ethos to the USTR, which will send a lot of the existing staff to the exits, while ensuring that the agency’s budget is devoted primarily to bringing complaints against our trade partners, rather than negotiating new and better deals.

Of course, Trump mistakenly cites the U.S. trade deficit as evidence that the United States is losing at trade.  We are losing, he bellows, because our trade agreements are disastrous. And, they are disastrous, he reasons, because U.S. negotiators always get outsmarted by their crafty foreign counterparts. What better way not to get outsmarted than to appoint people who would take a wrecking ball to existing agreements instead of crafting new ones?

For reasons unsupported by facts, DiMicco abhors the North American Free Trade Agreement and wants it shredded.  He also wants the United States to withdraw from the Trans-Pacific Partnership – which, yesterday, became one of Trump’s Day One priorities. Trump has been outspoken about his intentions to declare China a currency manipulator and to respond with punitive unilateral measures. To the extent that Trump’s actions are constrained by U.S. treaty commitments under the World Trade Organization, Lighthizer has a long history of challenging the veracity of the WTO dispute settlement system, which he claims embodies an anti-American bias. He has long advocated for closer scrutiny and, if warranted, U.S. withdrawal from the WTO.

Ten years ago, I debated Lighthizer in this week-long back-and-forth hosted by the Council on Foreign Relations. His affinity for wanting to bend the WTO to be more responsive to U.S. demands (i.e., “All animals are equal but some are more equal than others”) was very much on display then.

The U.S. steel industry has been one of America’s most protectionist and litigious industries for more than a century. Its model was never to compete on economics or commercial considerations. It was always to invest in K Street and use the levers of politics to cordon off the U.S. market for domestic steel. As a trade attorney, Lighthizer brought hundreds of antidumping and countervailing duty cases against foreign producers with the aim of raising the cost of foreign steel to downstream, steel-consuming U.S. industries, such as appliance, automobile, and pipe and tube manufacturers. Often testifying in hearings before the U.S. International Trade Commission, where Lighthizer argued for the imposition of tariffs, was Dan DiMicco, in his capacity as Nucor CEO.

It’s not that the steel industry isn’t entitled to its day in court. The problem is that the industry’s interests are so overrepresented in Washington. After all, “primary metal” manufacturing (which is a sector that includes more than just steel-making) accounted for $56 billion of value-added output last year. That’s a lot – until you recall that total value-added in the U.S. economy last year (GDP) was over $18 trillion. In other words, the direction of the administration’s trade policy is being shaped by two men who speak on behalf of interests that account for less than 0.3 percent of the U.S. economy. What about agricultural interests?  What about the tech industry? Pharmaceuticals? Equipment manufacturers? Professional services? Will the interests of the other 99.7 percent of the U.S. economy have a voice in the formulation of trade policy? 

Most of us don’t live in Allentown.

I have been vigorously recommending that President-elect Trump replace Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB). I still think that replacing Director Cordray is necessary for reasons I’ve enumerated elsewhere; but on Friday the CFPB filed a petitionfor a rehearing of a recent and crucial case. So it’s time to talk about the legal hurdles President Trump will have to clear before he can install a new director. It is possible that there will be a long road ahead.

To understand these hurdles, we have to go back to the CFPB’s founding document, the Dodd-Frank Act. In Dodd-Frank, the Bureau was established as an independent agency. That means that although the President appoints the Director, and although that appointment must be confirmed by the Senate, the President’s ability to remove the director is very limited. Under Dodd-Frank, President Trump would be able to remove Director Cordray only for cause — e.g., for neglecting his duty or actual bad behavior. He would not be able to remove him because the two disagreed on policy or the direction the agency should take.

The rules for an independent agency can be contrasted with those for an executive agency, such as the Department of Justice or the Department of the Treasury. The Attorney General, for example, can be removed by the President at will. And there have been examples in the past when a cabinet member has resigned over policy disagreements with the sitting President.

The CFPB is not the only independent government agency. But it is unusual in that it is headed by a single individual. The Securities and Exchange Commission (SEC), for example, is an independent agency. Its Commissioners can be removed by the President only for cause. The Chair of that agency, however, serves as Chair at the President’s will. If President Obama wanted to remove the current Chair Mary Jo White, he could remove her from her position as Chair but could not prevent her continuing as a member of the Commission for the duration of her term.

All of this changed, however, last month when a federal appeals court ruled the CFPB’s structure unconstitutional. In that case, the court found that, unlike a multi-seat commission where commissioners must work together, there is no check on the Director’s power. The court ruled that, to cure the constitutional defect, the Director must serve at the will of the President. That is, the court said that the President can fire the Director for any reason at all, including a disagreement on policy.

It is customary for officials who serve at the pleasure of the President to step down when a new President is elected. For example, Chair White has announced she will step down from the SEC at the end of President Obama’s term.

But Director Cordray isn’t stepping down. Instead he’s doubling down on the law suit. Here things get technical, so bear with me. In a federal appeals court, a case is first heard by a panel of three judges. They confer and issue an opinion. This opinion is binding, but can be appealed. The first step in that process is for the losing party to seek what is called a rehearing en banc. That is when all of the judges on the court — in this court, the D.C. Circuit, there are 11 active judges — hear the case together and then issue an opinion that supersedes the opinion already issued by the three-judge panel. From there, the losing party can seek to have the case heard by the Supreme Court. No one has a right to either a rehearing en banc or a hearing before the Supreme Court; the judges and justices have discretion to take what cases they want.

Given the importance of the CFPB’s case, it is likely that Director Cordray’s petition will be granted. A clever person would say “aha, but that might take awhile and once Trump is inaugurated, he can direct the CFPB to drop its suit!” This is indeed a clever thought, but it leaves out one other important legal tool: the injunction. An injunction would prevent President Trump from removing Director Cordray from office until the case is over. To be granted an injunction, Director Cordray would have to show, among other things, that he would suffer irreparable harm without it. Since the entire case would likely end and Director Cordray would likely be booted out of office if there were no injunction, it is likely that the court would grant it. Especially given the political and public interest issues at stake.

Hearing the case en banc, the D.C. Circuit may decide that it doesn’t have to decide whether the CFPB is unconstitutional. The judiciary typically does not address constitutional questions unless it has to. The opinion issued by the three-judge panel was not unanimous; one judge dissented, saying that the CFPB was wrong in how it had handled the specific case, and that since the court could find against the CFPB on those grounds, it should not consider the question of the agency’s structure. It is possible that the entire court would agree.

As for what might happen if the case reaches the Supreme Court, that’s still anyone’s guess. It will depend on who’s sitting on the bench at that time.

What can be done, then? There are several options. First, President Trump could decide to fire Director Cordray for cause. Under Dodd-Frank, the President can remove the Director “for inefficiency, neglect of duty, or malfeasance in office.” It can be argued (and I have myself argued) that Director Cordray has violated due process in running the agency and has even been abusive in his use of the considerable power he holds. It would be a bold move on the part of the President to remove Director Cordray for cause, but if any President were to make bold moves, it would be this one. Second, Congress could pass legislation to reform the Bureau. That would most likely take the form of changing it into a commission with presumably a structure similar to the SEC’s: a five-member seat, with a chair serving at the pleasure of the President, and with a requirement that no more than three seats be filled by members of the same party. Third, President Trump could wait for Director Cordray’s term to expire, which will happen in July 2018.

It would be nice to think there would be a new Director at the CFPB come 2017, but in fact there is a long road ahead. Director Cordray’s announcement Friday just confirmed it.

[Cross-posted from]

In Federalist 10, James Madison warned of “a number of citizens, whether amounting to a majority or minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens or to the permanent and aggregate interests of the community.” These groups—“factions” in Madison’s terms—come together to seek concentrated benefits from favorable legislation and regulation rather than competing in the marketplace, while spreading the costs throughout society.

While Madison conceded that such interests could not be stopped completely, he suggested that certain steps could be taken to mitigate the “effects” of these groups, and the damage that they can do to the public interest. The First Amendment is one such protection.

The New York legislature, however, ignored the First Amendment rights of both merchants and consumers when—at the behest of the credit-card lobby—it passed a law restricting how retailers can convey pricing schemes, as well as the public’s right to know about them. New York’s no-surcharge law—like those in 10 other states—insulate credit-card companies from consumer knowledge about who is actually causing the higher prices on goods when they use their credit card (“swipe fees”). The law does this not by restricting the merchants’ ability to charge different prices as between cash and credit payments—that’s legal everywhere—but by regulating the communications about the different prices.

To put it simply: the law allows merchants to offer “discounts” to cash-paying customers, but makes it a crime to impose economically equivalent “surcharges” on those who use plastic. By mandating how these merchants convey their pricing structure, New York is restricting speech on the basis of its content, which would seem to be an obvious First Amendment violation.

A federal district court agreed—as have two other federal courts, including the U.S. Court of Appeals for the Eleventh Circuit when it struck down a similar Florida law. The district court held that the law “plainly regulates speech”—not conduct—by drawing a line between prohibited “surcharges” and permissible “discounts” based solely on words and labels. The Second Circuit disagreed, however, holding that the law regulates “merely prices,” not speech. Cato filed an amicus brief urging the Supreme Court to take up this important case, and the Court has agreed to do so.

Along with the Pacific Legal Foundation, we have now filed another brief asking the Court to rule that collusion between business interests and state government can’t be used to circumvent constitutional rights. Indeed, the Framers sought to protect speech from the type of cronyism and rent-seeking the New York’s no-surcharge law manifests.

We also argue that the Court should clarify that the First Amendment covers speech even if it involves commercial matters. When legislatures abridge these protections, judges should apply the highest form of scrutiny to these laws rather than limply deferring to majoritarian will. The law not only violates the First Amendment rights of merchants and consumers, however, but also—as often happens with laws based on cronyism—has disproportionate effects on lower-income individuals. When merchants are not allowed to effectively communicate the price difference between cash and credit, they will, in some instances, charge the higher credit price for users of both. This creates a perverse regressive subsidy from poorer consumers—who are more likely to use cash than those with a higher income—by making those cash users pay for swipe fees they could avoid if merchants could convey the price difference. 

The Framers foresaw—and sought to protect against—these types of cronyist effects, so the Supreme Court should make clear that the First Amendment will protect individuals from factions.

The Supreme Court will hear Expressions Hair Design v. Schneiderman early in the new year.

Amtrak issued its F.Y. 2016 unaudited financial results last week with a glowing press release claiming a “new ridership record and lowest operating loss ever.” Noting that “ticket sales and other revenues” covered 94 percent of Amtrak’s operating costs, Amtrak media relations called this “a world-class performance for a passenger carrying railroad.” The reality is quite a bit more dismal.

Many new high-tech firms attract investors despite losing money, but a 45-year-old company operating an 80-year-old technology shouldn’t really brag about having its “lowest loss ever.” The “world-class performance” claim is based on the assumption that passenger trains all over the world lose money, which is far from true: most passenger trains in Britain and Japan make money, partly because they are at least semi-privatized.

Moreover, a close look at the unaudited report reveals that Amtrak left a lot of things out of its press release: passenger miles carried by Amtrak declined; ticket revenues declined; and the average length of trip taken by an Amtrak passenger declined. The main reasons for Amtrak’s positive results were an increase in state subsidies (which Amtrak counts as passenger revenue) and a decrease in fuel and other costs.

Ridership grew by 1.3 percent, but passenger miles fell because the average length of trips fell by 3.1 percent. One of the biggest drops in trip lengths was on the New York-Savannah Palmetto. Starting at the beginning of F.Y. 2016, Amtrak added stops at Metropark, New Brunswick, Princeton Junction, and Baltimore-Washington Airport, effectively turning the supposedly long-distance train into a Northeast Corridor train. In 2015, the train’s average trip length was 396 miles, but in 2016 that dropped to 257 miles.

A decline in passenger miles means more empty seats. In 2015, Amtrak filled 51.4 percent of its seat-miles; in 2016, this fell to 50.0 percent. In other words, the average Amtrak train is half full; when was the last time you were on a half-full airliner? The biggest declines were on the Washington-Richmond state-supported train, the Seattle-Los Angeles Coast Starlight, and the Auto Train.

Some trains did show an increase in passenger miles. One of the biggest increases was the Chicago-Indianapolis Hoosier State, which saw an 11 percent increase in passenger miles and a 16 percent increase in revenues. This train is supported by Indiana, which got fed up with Amtrak service and contracted it out to another operator, Iowa Pacific. Amtrak is a “partner” because it allows people to make reservations on the train from its web site. But the lesson may be that privatization (or semi-privatization) can result in bigger ridership gains than Amtrak.

The biggest increase in Amtrak’s revenue was state subsidies for trains such as Washington-Norfolk, Chicago-St. Louis, Seattle-Eugene, and the California trains. In 2015, these trains earned $1.62 in total revenues for every $1 in actual ticket revenues; in 2016, this grew to $1.76 per dollar. Most of the difference between total revenues and ticket revenues is state subsidies, which grew from $222.9 million to $227.5 million. 

Decreasing costs, not increasing revenues, accounted for most of the increase in the share of operating costs covered by revenues. Fuel costs declined by $53 million. Wages fell by $12 million (though executive salaries grew by $17 million). The biggest savings was a $79 million decline in employee benefits, due to late F.Y. 2015 cuts in both pensions and health benefits.

The focus on the share of operating costs that is covered by revenues conveniently ignores the fact that not all costs are operating costs. Amtrak reported ticket revenues of $2.1 billion and total expenses of $4.2 billion, so passenger fares actually covered just 50 percent of total costs. There’s a big difference between 94 percent and 50 percent.

That difference is largely due to an issue that I’ve noted before, which is that Amtrak has defined away a lot of operating costs by calling them capital costs. It’s also difficult to tell how much Amtrak is reducing costs by deferring maintenance on its infrastructure and rolling stock.

The truth is that not much is different from 2015. Amtrak still requires well over a billion dollars in federal subsidies per year. That makes Amtrak a world-class money loser, just like most European state-owned railroads. Despite the implicit promise of “declining operating losses,” that’s not going to change anytime soon unless Congress kills the program.