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President Trump’s travel ban Proclamation that bans immigration and travel from seven countries (and limits it from an eighth) is based on authority in immigration law that other presidents have used. But all but one of these bans were quite different from President Trump’s. They banned at most a few thousand—almost always specifically named—individuals based on their personal conduct, not their nationality. In the one exception, not all nationals were banned, and the requirements to end the ban were very clear. Neither of which can be said for the Trump ban.

Different in Scale

No president has attempted to ban as many foreigners with a single stroke of his pen as President Trump did this September. If fully implemented, his ban would impact the ability of 183.6 million people to apply for a visa to travel to the United States—that’s the sum total of the population in the seven banned countries, but there are millions of their nationals who live outside their borders. This compares to the 10.2 million Cubans that President Reagan partially banned in 1986. All of the other 42 bans combined barred only roughly 30,000 (see explanation at the end).

Figure 1
Number of Banned Persons (in Millions) by Order

Sources: Author’s calculation based on the Office of Foreign Assets Control, World Bank, Congressional Research Service (listing the bans)

Here’s another important point: A majority of all of those banned under the 42 orders likely would be inadmissible under existing law anyway. About a third, for example, are terrorism suspects sanctioned under a Bush administration executive order and barred from entry by President Obama. But current law already bans those people from entering. For this reason, and because very few of these people had any intention to travel to the United States anyway, hardly any visa applicants have been denied due to a presidential proclamation. From 1991 to 2016, consular officers initially determined that a presidential proclamation could apply to 5,762 visa applicants. Of them, less than half—2,626—were ultimately denied a visa. As Figure 3 highlights, several years have seen no denials at all.

Figure 2
Number of Visa Applicants Denied Due to a Presidential Proclamation, FY 1991 to 2016

Sources: U.S. Department of State, “Table XX Immigrant and Nonimmigrant Visa Ineligibilities (by Grounds for Refusal Under the Immigration and Nationality Act),” FY 1991 to FY 2016

The Supreme Court allowed the second iteration of President Trump’s travel ban to go into partial effect from June to September, allowing him to ban those without any family or connections to U.S. businesses. Unfortunately, the State Department probably will not release data on visa denials until sometime next year. But it has revealed that it was approving roughly half as many visa applications in 2017 as it did in 2016 for the banned countries. We know that 693,827 people from banned countries received a visa from 2002 to 2016, including 73,503 in 2016. If even 4 percent of this total were denied a visa due to the latest travel ban, then more visa applicants will be denied a visa under this travel ban than all bans since 1991.

Different in Methodology

Unlike President Trump’s travel ban, 98 percent of prior president’s proclamations banned individuals based on their personal conduct, and almost always—93 percent of the time—they required that the targeted person be specifically identified and named by the Department of State. Only 2 percent of the time—one case—was nationality alone the requirement for the ban, and in no case was every visa applicant with that nationality subject to the ban. Under the Trump ban, all visa applicants from Syria and North Korea are subject to the ban based on their nationality alone, and most applicants are banned from Iran, Chad, Somalia, and Yemen.

Figure 3
Pre-Trump Executive Actions to Bar Visas by Methodology for Identifying Targets, 1980-2016

Sources: Author’s calculation based on the World Bank, Congressional Research Service (listing the bans)

The personal conduct included selling military equipment in Libya, purchasing certain materials from North Korea, attacking United Nations mission, or being a member of the North Korean regime. To avoid these types of bans, the targeted persons could simply stop engaging this type of activity. (Table 1 at the end of this post lists each proclamation or executive order as well as who the ban targeted.)

Different in Application

Roughly half of all pre-Trump bans did attempt to coerce governments indirectly by targeting their officials due to actions that the government was taking. Yet in virtually all of these cases, the government’s offense is clearly stated. In 1996, for example, President Clinton faulted “the current regime in Burma” for continuing “to detain significant numbers of duly elected members of parliament, National League for Democracy activists, and other persons.” In 1988, President Reagan imposed a ban on certain Nicaraguan officials for the “unjustified expulsion from Nicaragua of the United States Ambassador and seven other United States diplomats.”

The only other case in which individuals were banned based solely on the conduct of their government—and not due to their personal participation in that conduct as government officials—was President Reagan’s ban on Cuban immigration in 1986. But this ban exempted the largest category of Cuban immigrants—immediate family members of U.S. citizens. It also had a very clearly stated objective to get the Cuban government to accept the repatriation of 2,746 Cubans, and it achieved its objective the following year in 1987.

By contrast, President Trump’s travel ban—while seeming to lay out a series of very specific criteria—does not actually ban any country based on this criteria. As I’ve detailed before, the president fails to apply the criteria to countries off his travel ban list and applies stricter criteria to make sure his chosen countries stay on the list. This inconsistency means that no country actually knows why it is banned. Moreover, since the order doesn’t apply its stated criteria, countries that currently fail them, whether they are on the list or off it, have little incentive to change their behavior. This is a very different situation than the one in 1986. Cuba knew exactly why it was on the list and what it needed to do to get off of it.  

President Trump’s travel ban will impact more people than any other, and it operates in a way different from all others. It is truly unprecedented.

 

Table 1: Presidential Proclamations to Exclude Certain Classes of Aliens

  Order Year Targeted Area/Govt Acts of Alien Identified Aliens Nationality Alone All Nationals Number*   P 9645

2017

7 Countries NO NO YES YES 184 million

1

EO 13726

2016

Libya YES YES NO NO 10

2

EO 13722

2016

North Korea YES YES NO NO 61

3

EO 13712

2015

Burundi YES YES NO NO 29

4

EO 13694

2015

Unspecified YES YES NO NO 39

5

EO 13692

2015

Venezuela YES YES NO NO 7

6

EO 13687

2015

North Korea YES YES NO NO 97

7

EO 13685

2014

Ukraine YES YES NO NO 19

8

EO 13667

2014

C. African R. YES YES NO NO 89

9

EO 13664

2014

S. Sudan YES YES NO NO 40

10

EO 13662

2014

Russia & Crimea YES YES NO NO 278

11

EO 13661

2014

Russia & Crimea YES YES NO NO 60

12

EO 13660

2014

Ukraine YES YES NO NO 218

13

EO 13645

2013

Iran YES YES NO NO 32

14

EO 13628

2012

Iran YES YES NO NO 117

15

EO 13619

2012

Burma YES YES NO NO 482

16

EO 13608

2012

Iran & Syria YES YES NO NO 9

17

EO 13606

2012

Iran & Syria YES YES NO NO 21

18

P 8697

2011

Unspecified YES YES NO NO ?

19

P 8693

2011

Unspecified & Various YES YES NO NO 22,383

20

P 8342

2009

~17 Nations YES YES NO NO ?

21

P 8158

2007

Lebanon & Iran YES YES NO NO 15

22

P 8015

2006

Belarus YES YES NO NO 195

23

P 7750

2004

Unspecified YES YES NO NO ?

24

P 7524

2002

Zimbabwe YES YES NO NO 87

25

P 7452

2001

Balkans YES YES NO NO 374

26

P 7359

2000

Sierre Leone YES YES NO NO ?

27

P 7249

1999

Serbia YES YES NO NO 2,184

28

P 7062

1998

Sierre Leone YES YES NO NO ?

29

P 7060

1997

Angola YES YES NO NO ?

30

P 6958

1996

Sudan YES YES NO NO 283

31

P 6925

1996

Burma YES YES NO NO 482

32

P 6749

1994

Bosnia YES YES NO NO 334

33

P 6730

1994

Liberia YES YES NO NO 556

34

P 6685

1994

Haiti YES YES NO NO 1194

35

P 6636

1993

Nigeria YES YES NO NO ?

36

P 6574

1993

Zaire YES YES NO NO ?

37

P 6569

1993

Haiti YES YES NO NO ?

38

EO 12807

1992

High Seas YES NO NO NO ?

39

P 5887

1988

Nicaragua YES YES NO NO ?

40

P 5829

1988

Panama YES YES NO NO ?

41

P 5517

1986

Cuba NO NO YES NO 10 million

42

P 5377

1985

Cuba YES YES NO NO 665

43

P 4865

1981

High Seas YES NO NO NO ?   Pre-2017 Share of Yes

98%

93%

2%

0%

 

Sources: Author’s calculation based on the Office of Foreign Assets Control, World Bank, Congressional Research Service (listing the bans)
*Other than the Trump ban and the Cuba ban, the number is based on the number of designations under the Office of Foreign Assets Control. This number also includes “entities” such as organizations, agencies, and businesses, so the total number is probably somewhat larger for this reason as well as the fact that the bans often included the immediate family of the targeted person. Italicized numbers indicate that the number is based on the current sanctions impacting that country.

 

Table 2: Presidential Proclamations to Exclude Certain Classes of Aliens

  Date

Target and Purpose

1 2016, Apr. 21 – Obama
Executive Order 13726, 81 Fed.
Reg. 23559 Aliens who “contributed to the situation in Libya” in enumerated ways (e.g., threatening the peace of Libya by supplying arms, impeding the political transition to a Governor of National Accord, threatening Libyan state financial institutions or Libyan National Oil Company, attacking Libyan state facilities, attacking civilians, or illegally selling Libyan oil 2 2016, Mar. 18 – Obama
Executive Order 13722, 81 Fed.
Reg. 14943
Aliens who engaged in certain transactions involving North Korea (e.g., selling or purchasing metal, graphite, coal, or software directly or indirectly to or from North Korea, or to persons acting for or on behalf of the North Korean government or the Workers’ Party of Korea) 3 2015, Nov. 25 – Obama
Executive Order 13712, 80 Fed.
Reg. 73633
Aliens who “contributed to the situation in Burundi” in enumerated ways (e.g., threatening the peace of Burundi by undermining the democratic processes of Burundi, targeting women, children, or civilians through acts of violence, assaulting freedom of expression, recruiting children to the armed forces, obstructing humanitarian assistance, or attacking United Nations missions. Suspension is justified due to “violence against civilians… and significant political repression.”) 4 2015, Apr. 2 – Obama
Executive Order 13694, 80 Fed. Reg. 18077 Aliens who engaged in “significant malicious cyber-enabled activities” (e.g., harming or significantly compromising the provision of services by a computer or computer network that supports an entity in a critical infrastructure sector) 5 2015, Mar. 11 – Obama
Executive Order 13692, 80 Fed.
Reg. 12747
Aliens who “contributed to the situation in Venezuela” in enumerated ways (e.g., undermining Democratic processes in Venezuela by conducting acts of violence against persons involved in antigovernment protests in Venezuela in or since February 2014, limiting freedom of expression or assembly, engaging in corruption by senior officials within the Government of Venezuela, or being officials of the Government of Venezuela) 6 2015, Jan. 6 – Obama
Executive Order 13687, 80 Fed.
Reg. 819
Aliens with enumerated connections to North Korea (e.g., officials of the North Korean government or the Workers’ Party of Korea) due to North Korea’s “destructive, coercive cyber-related actions during November and December 2014” 7 2014, Dec. 24 – Obama
Executive Order 13685, 79 Fed.
Reg. 77357
Aliens who engaged in certain transactions involving the Crimea region of Ukraine (e.g., materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, persons whose property or interests are blocked pursuant to the order, such as leaders of entities operating in the Crimea region of Ukraine, investors in the Crimea region of the Ukraine, and importers of goods from Crimea, or exporters of goods to Crimea) due to “the Russian occupation of the Crimea region of Ukraine” 8 2014, May 15 – Obama
Executive Order 13667, 79 Fed.
Reg. 28387
Aliens who contributed to the conflict in the Central African Republic in enumerated ways (e.g., threatening the peace of C.A.R. by obstructing transitional agreements in the political transition, targeting women, children, or civilians in acts of violence, recruiting children to armed groups, obstructing the delivery of humanitarian assistance, or attacking U.N. missions) 9 2014, Apr. 7 – Obama
Executive Order 13664, 79 Fed.
Reg. 19283
Aliens who engaged in certain conduct as to South Sudan (e.g., actions or policies that “have the purpose or effect of expanding or extending the conflict,” obstructing reconciliation or peace talks or processes, targeting civilians through acts of violence, recruiting child soldiers, or attacking against U.N. missions) 10 2014, Mar. 24 – Obama
Executive Order 13662, 79 Fed.
Reg. 16169
Aliens who contributed to the situation in Ukraine in enumerated ways (e.g., operating in the financial services, energy, metals and mining, engineering, or defense and related materiel sectors of the Russian Federation economy due to Russia’s “purported annexation of Crimea and its use of force in Ukraine”) 11 2014, Mar. 19 – Obama
Executive Order 13661, 79 Fed.
Reg. 15535
Aliens determined to have contributed to the situation in Ukraine in enumerated ways (e.g., officials of the government of the Russian Federation, or persons who operate in the arms or related materiel sector due to the “deployment of Russian Federation military forces in the Crimea region of Ukraine”) 12 2014, Mar. 10 – Obama
Executive Order 13660, 79 Fed. Reg. 13493 Aliens determined to have contributed to the situation in Ukraine in enumerated ways (e.g., engagement in or responsibility for misappropriation of state assets of Ukraine or of economically significant entities in that country) 13 2013, June 5 – Obama
Executive Order 13645, 78 Fed.
Reg. 33945
Aliens who have engaged in certain conduct related to Iran (e.g., materially assisting, sponsoring, or providing support for, or goods or services to or in support of, any Iranian person included on the list of Specially Designated Nationals and Blocked Persons) 14 2012, Oct. 12 – Obama
Executive Order 13628, 77 Fed.
Reg. 62139
Aliens who engaged in certain actions involving Iran (e.g., knowingly transferring or facilitating the transfer of goods or technologies to Iran, to entities organized under Iranian law or subject to Iranian jurisdiction, or to Iranian nationals, that are likely to be used by the Iranian government to commit serious human rights abuses against the Iranian people) 15 2012, July 13 – Obama
Executive Order 13619, 77 Fed.
Reg. 41243
Aliens who are determined to threaten the peace, security, or stability of Burma in enumerated ways (e.g., participation in the commission of human rights abuses, or importing or exporting arms or related materiel to or from North Korea) 16 2012, May 3 – Obama
Executive Order 13608, 77 Fed.
Reg. 26409
Aliens who engaged in certain conduct as to Iran and Syria (e.g., facilitating deceptive transactions for or on behalf of any person subject to U.S. sanctions concerning Iran and Syria) 17 2012, Apr. 24 – Obama
Executive Order 13606, 77 Fed.
Reg. 24571
Aliens determined to have engaged in enumerated conduct involving “grave human rights abuses by the governments of Iran and Syria via information technology” (e.g., operating or directing the operation of communications technology that facilitates computer or network disruption, monitoring, or tracking that could
assist or enable serious human rights abuses by or on behalf of these governments) 18 2011, Aug. 9 – Obama
Proclamation 8697, 76 Fed. Reg. 49277 Aliens who participate in serious human rights and humanitarian law violations and other abuses (e.g., planning, ordering, assisting, aiding and abetting, committing, or otherwise participating in “widespread or systemic violence against any civilian population” based, in whole or in part, on race, color, descent, sex, disability, language, religion, ethnicity, birth, political opinion, national origin, membership in a particular social group, membership in an indigenous group, or sexual orientation or gender identity) 19 2011, July 27 – Obama
Proclamation 8693, 76 Fed. Reg. 44751 Aliens subject to U.N. Security Council travel bans and International Emergency Economic Powers Act sanctions based on a list of 29 Executive Orders and 12 U.N. resolutions. 20 2009, Jan. 16 – Bush
Proclamation 8342, 74 Fed. Reg. 4093 Heads of ministries or agencies and officials occupying positions within the two bureaucratic levels below those top positions of foreign governments ranked more than once as Tier 3 countries in the Department of States’ annual Trafficking in Persons Report. 21 2007, July 3 – Bush
Proclamation 8158, 72 Fed. Reg. 36587 Persons that threaten Lebanon’s sovereignty and democracy (e.g., current or former Lebanese government officials and private persons who “contribute to the breakdown in the rule of law in Lebanon, including through the sponsorship of terrorism, politically motivated violence or intimidation, or the reassertion of Syrian control in Lebanon”) and Syrian officials who are directing Syria’s military presence in Lebanon or directing Syria’s support for Hamas, Hizballah, Palestinian Islamic Jihad, the Popular Front for the Liberation of Palestine, the Popular Front for the Liberation of Palestine-General Command, and any other foreign terrorist organizations. 22 2006, May 16 – Bush
Proclamation 8015, 71 Fed. Reg. 28541 Persons that threaten the transition to democracy in Belarus (e.g., Members of the government of Alyaksandr Lukashenka and other persons involved in policies or actions that “undermine or injure democratic institutions or impede the transition to democracy in Belarus” due to “the fraud perpetrated by the Belarus government during the recent Belarusian presidential campaign and election, the detention of peaceful protesters in Belarus, [and] the persistent acts of corruption by Belarusian government officials in the performance of public functions” 23 2004, Jan. 14 – Bush
Proclamation 7750, 69 Fed. Reg. 2287 Persons who have engaged in or benefitted from corruption in enumerated ways (e.g., current or former public officials whose solicitation or acceptance of articles of monetary value or other benefits has or had “serious adverse effects on the national interests of the United States”) 24 2002, Feb. 26 – Bush
Proclamation 7524, 67 Fed. Reg. 8857 Persons that threaten Zimbabwe’s democratic institutions and transition to a multi-party democracy (e.g., Senior members of the government of Robert Mugabe, persons who through their business dealings with Zimbabwe government officials derive significant financial benefit from policies that undermine or injure Zimbabwe’s democratic institutions due to the “crisis in Zimbabwe and the continued failure of President Robert Mugabe, Zimbabwean government officials, and others to support the rule of law”) 25 2001, June 29 – Bush
Proclamation 7452, 66 Fed. Reg. 34775 Persons who threaten international stabilization efforts in the Western Balkans or commit wartime atrocities in that region preventing “full implementation of the Dayton Peace Accords in Bosnia and United Nations Security Council Resolution 1244 in Kosovo” 26 2000, Oct. 13 – Clinton
Proclamation 7359, 65 Fed. Reg. 60831 Aliens who plan, engage in, or benefit from activities that support the Revolutionary United Front or otherwise impede the peace process in Sierra Leone 27 1999, Nov. 17 – Clinton
Proclamation 7249, 64 Fed. Reg. 62561 Aliens repressing the civilian population in Kosovo or policies that obstruct democracy in the Federal Republic of Yugoslavia (FRY) or otherwise lend support to the government of the FRY and the Republic of Serbia due to actions “against elements of the civilian population of Kosovo” and “to obstruct democracy and to suppress an independent media and freedom of the press in the FRY, Serbia, Montenegro, and Kosovo” 28 1998, Jan. 16 – Clinton
Proclamation 7062, 63 Fed. Reg. 2871 Members of the military junta in Sierra Leone and their family for “to permit the return to power of the democratically elected government of that country” 29 1997, Dec. 16 – Clinton
Proclamation 7060, 62 Fed. Reg. 65987 Senior officials of the National Union for the Total Independence of Angola (UNITA) and adult members of their immediate families for failure to “comply with its obligations under the Accordos de Paz” 30 1996, Nov. 26 – Clinton
Proclamation 6958, 61 Fed. Reg. 60007 Members of the government of Sudan, officials of that country, and members of the Sudanese armed forces for failing to “comply with United Nations Security Council Resolution 1044 of January 31, 1996” (failing to “extradite to Ethiopia for prosecution the three suspects sheltering in the Sudan and wanted in connection with the assassination attempt” on the Egyptian President and “assisting, supporting and facilitating terrorist activities and from giving shelter and sanctuaries to terrorist elements”) 31 1996, Oct. 7 – Clinton
Proclamation 6925, 61 Fed. Reg. 52233 Persons who “formulate, implement, or benefit from policies that impede Burma’s transition to democracy” and their immediate family members because “the current regime in Burma’s continues to detain significant numbers of duly elected members of parliament, National League for Democracy activists, and other persons attempting to promote democratic change in Burma” and “has failed to enter into serious dialogue with the democratic opposition and representatives of the country’s ethnic minorities, has failed to move toward achieving national reconciliation, and has failed to meet internationally recognized standards of human rights.” 32 1994, Oct. 27 – Clinton
Proclamation 6749, 59 Fed. Reg. 54117 Aliens described in U.N. Security Council Resolution 942 (e.g., officers of the Bosnian Serb military and paramilitary forces and those acting on their behalf, or persons found to have provided financial, material, logistical, military, or other tangible support to Bosnian Serb forces in violation of relevant U.S. Security Council resolutions) due to “the Bosnian Serb forces’ refusal to accept the proposed territorial settlement of the conflict in the Republic of Bosnia and Herzegovina, and of United Nations Security Council Resolution 942 of September 23, 1994” 33 1994, Oct. 5 – Clinton
Proclamation 6730, 59 Fed. Reg. 50683 Aliens who formulate, implement, or benefit from policies that impede Liberia’s transition to democracy and their immediate family due to “political and humanitarian crisis in Liberia” during the Liberian civil war. 34 1994, May 10 – Clinton
Proclamation 6685, 59 Fed. Reg. 24337 Aliens described in U.N. Security Council Resolution 917 (e.g., officers of the Haitian military, including the police, and their immediate families; major participants in the 1991 Haitian coup d’etat) due to “the expulsion from Haiti of President Aristide and the constitutional government.” 35 1993, Dec. 14 – Clinton
Proclamation 6636, 58 Fed. Reg. 65525 Aliens who formulate, implement, or benefit from policies that impede Nigeria’s transition to democracy and their immediate family due to the “the political crisis in Nigeria” (not stated in the Proclamation, but this followed the military’s decision to annul the presidential election results) 36 1993, June 23 – Clinton
Proclamation 6574, 58 Fed. Reg. 34209 Persons who formulate or benefit from policies that impede Zaire’s transition to democracy and their immediate family due to “the political and economic crisis in Zaire” (not stated in the Proclamation but this followed the dictator Mobutu’s refusal to step down from power) 37 1993, June 7 – Clinton
Proclamation 6569, 58 Fed. Reg. 31897 Persons who formulate, implement, or benefit from policies that impede the progress of negotiations to restore a constitutional government to Haiti and their immediate family due to “the expulsion from Haiti of President Aristide and the constitutional government” 38 1992, June 1 – Bush
Executive Order 12807, 57 Fed.
Reg. 23133
Making provisions to enforce the suspension of the entry of undocumented aliens by sea and the interdiction of any covered vessel carrying such aliens due to “a serious problem of persons attempting to come to the United States by sea without necessary documentation and otherwise illegally” 39 1988, Oct. 26 – Reagan
Proclamation 5887, 53 Fed. Reg. 43184 “Officers and employees of the Government of Nicaragua” and the Sandinista National Liberation Front due to the refusal to “allow the entry of United States diplomats to ensure the continued functioning of the U.S. embassy” and cease “suppression of free expression and press and support of subversive activities throughout Central America” 40 1988, June 14 – Reagan
Proclamation 5829, 53 Fed. Reg. 22289 Panamanian nationals who formulate or implement the policies Manuel Antonio Noriega and Manuel Solis Palma, and their immediate families for “preventing the legitimate government of President Eric Arturo Delvalle from restoring order and democracy to that country.” 41 1986, Aug. 26 – Reagan
Proclamation 5517, 51 Fed. Reg. 30470 Cuban nationals as immigrants with certain enumerated exceptions (e.g., Cuban nationals applying for admission as immediate relatives under INA § 201(b)) due to the failure to execute of the December 14, 1984 immigration agreement between the United States and Cuba (repatriation of 2,746 Cubans) 42 1985, Oct. 10 – Reagan
Proclamation 5377, 50 Fed. Reg. 41329 “Officers or employees of the Government of Cuba or the Communist Party of Cuba” due to the failure to execute of the December 14, 1984 immigration agreement between the United States and Cuba (repatriation of 2,746 Cubans) 43 1981, Oct. 1 – Reagan Proclamation 4865, 46 Fed. Reg. 48107 Undocumented aliens from the high seas, and directing the interdiction of certain vessels carrying such aliens because the “ongoing migration of persons to the United States in violation of our laws is a serious national problem detrimental to the interests of the United States.”

Class actions allow a single plaintiff, or group of plaintiffs, to represent the interest of a larger “class” of people with the same or similar legal claims. In practice, such cases are driven not by the actual plaintiffs, however, but by lawyers who conceive and control the lawsuit—and too often reap an outsized portion of the rewards. Allowing lawyers to negotiate on behalf of people who don’t even know they’re being represented creates opportunities for self-dealing, where the lawyers sell off the legal rights of absent class members in exchange for hefty attorney fees. Because of these potential conflicts of interest, courts are called upon to police class actions to a far greater extent than they are in the course of other litigation.

Amy Yang is one of these exploited absent class members. She objects to the settlement of a set of antitrust actions against various airlines serving routes between the U.S. and Asia, alleging a price-fixing conspiracy. The problem is that the certified class includes members who have no real chance of recovery at trial: those who purchased their tickets through a third party (think Expedia or Orbitz) and those whose flights originated abroad. Under the antitrust laws, only those who directly purchased tickets from airlines for flights originating in the United States are eligible for recovery, yet those sure losers are included in the class on an equal basis with as valid claims. Indeed, most of the class is probably ineligible for recovery, since most people buy tickets through third-party websites these days rather than directly from the airline.

But a larger class means a larger fee, and so the plaintiff’s lawyers—known as “class counsel”—weighed the class down with bogus claims to inflate their own payday. This is great for the lawyers, but it comes at the expense of class members with legitimate claims, who see their recovery diluted to make up the difference. Yang, represented by the Competitive Enterprise Institute’s Center for Class Action Fairness, has asked the Supreme Court to put a stop to this skullduggery. Cato filed a brief urging the Court to take the case. Our brief focuses on the constitutional imperative that courts effectively police the class-action system to ensure that all citizens are afforded constitutional due process. To do otherwise would place all our legal rights in the hands of the plaintiffs’ bar, to be auctioned off so they can buy beach houses and sports cars.

The main argument against President Trump’s plan to hire more Border Patrol agents is that the Southern border does not need them.  Even border hawks can’t argue with the evidence that Border Patrol agents are a lot less busy than they used to be.  In 1986, Border Patrol agents along the Southern border apprehended an average of 42 illegal immigrants every month.  That number fell to 2 a month by 2016 – one apprehension for every couple of weeks on the job (Figure 1).  The last month that apprehensions for all Border Patrol were above three per agent was in April 2010 and the number has steadily declined since then.  From January through September 2017, all Border Patrol agents have apprehended an average of 1.1 illegal crossers per month.  Even if you believe that the hiring spree of Border Patrol agents in recent decades stopped unlawful immigration (probably not), there is no good reason to hire more unionized government law enforcement officers to patrol a secure border.

 

Figure 1

Apprehensions Per Border Patrol Agent

Source: Customs and Border Protection.

Another good reason not to expand an expensive federal law enforcement agency that already has too little to do is that there are serious personnel and, likely, corruption issues in Border Patrol that need to be addressed first.  My recent Cato Institute Policy Analysis delved into the opaque world of corruption data in Customs and Border Protection (CBP) and found lots of poorly reported and contradictory information.  Fortunately, the Office of Personnel Management (OPM) does report the number of terminations by reason per occupation per agency.  Although OPM doesn’t specifically identify corruption, a termination for discipline or performance includes those terminated for corruption – as well as other issues.  The results were worse than I suspected: Border Patrol agents were the most likely to be terminated for poor discipline and bad performance than law enforcement officers in any other large federal law enforcement agency (Figure 2).  The second most likely to be terminated were Customs Officers.  Immigration and Customs Enforcement (ICE) agents were the fourth most likely. 

 

Figure 2

Termination Rate for Law Enforcement Officers by Federal Agency, 2006-2016

 

Sources: Office of Personnel Management, “FedScope Separations Cube, Fiscal 2006-2016”; and Office of Personnel Management, “FedScope Employment Cube, Fiscal Years 2006-2016.” Published in “Border Patrol Termination Rates: Discipline and Performance Problems Signal Need for Reform,” Cato Institute Policy Analysis, November 2, 2017.

Note: BOP = Bureau of Prisons; BP = Border Patrol; CBP-OFO = Customs and Border Protection Office of Field Operations; DEA = Drug Enforcement Administration; FBI = Federal Bureau of Investigation; ICE = Immigration and Customs Enforcement.

All in all, Border Patrol agents were twice as likely to be terminated for disciplinary infractions or poor performance as ICE agents and 49 percent more likely than CBP officers who work in the Office of Field Operations, from 2006 through 2016. Border Patrol agents were 54 percent more likely than guards at the Bureau of Prisons to be terminated for disciplinary infractions or poor performance, 6 times as likely as Federal Bureau of Investigation agents, 7.1 times as likely as Drug Enforcement Administration agents, and 12.9 times as likely as Secret Service agents. 

The lack of effective internal affairs at Border Patrol and CBP is a major reason for these problems.  There is some positive movement on Capitol Hill to address the lack of sufficient internal affairs at Border Patrol and CBP, but it is unfortunately tied to a massive and unnecessary expansion of the force itself.  Severe discipline and performance problems combined with a historic slowdown in the number of illegal immigrant border crossers are two excellent reasons not to hire 5,000 additional Border Patrol agents.

Washington Metro should raise bus fares and cut service as a part of a plan to restore its rail system to its former greatness, recommends a report by former Secretary of Transportation Ray LaHood. The report hasn’t been released yet–in fact, it has apparently been sitting on the Virginia governor’s desk for several weeks–but the Washington Post obtained a copy just in time for the report to have no influence on Virginia’s recent election.

Parts of the report are predictable, such as a recommendation that Metro obtain a source of “dedicated funds,” meaning a tax dedicated to it so it won’t have to be responsive to local politicians. However, LaHood’s mandate was to come up with a specific funding source acceptable to regional political interests, and he failed to do so.

What was not predicted was a finding that Metro “offers more [vehicle-hours of] service per rider than other large transit agencies.” Based on this finding, LaHood recommended cutting back service. The report notes that service levels were “average when compared to peers” until the opening of the Silver Line led to increased service hours coinciding with a decline in ridership.

So as the Silver Line has not only hurt the rail system, LaHood now recommends that Metro fix the problem by cutting back on service. But he does not recommend cutting back on Silver Line service. Instead, LaHood wants Metro to cut back on bus service (which he says is also above average) and raise bus fares. Ironically, this echoes my recent commentary noting that transit agencies often pay for the high cost of rail by cutting bus service.

Another of LaHood’s findings is that Metro’s costs are “average” compared with its peers. But, as former Indianapolis mayor Stephen Goldsmith once noted, you can’t find out whether a public agency’s costs are reasonable by comparing it with other public agencies; you need to compare it with private operators. For example, Denver’s RTD contracts out half its buses to private operators that consistently charge RTD about 52 to 53 percent of the amount RTD spends running its own buses.

LaHood could have recommended that Metro contract out its bus service. In 2016, it spent $15 per vehicle-revenue mile operating its buses. Denver’s RTD spent $11 per vehicle-revenue mile on its buses, but paid private contractors less than $6 per vehicle-revenue mile on the buses they operated. Based on this, Metro’s costs may be “average” but are not reasonable.

Rather than save money by contracting out service, LaHood wants bus riders, who are disproportionately black, to pay more for less service in order to make up for Metro’s incompetence in managing its rail system. Meanwhile, he did not propose to raise fares for rail riders, who are disproportionately white.

In short, LaHood’s long-awaited report not only does not come up with a magic formula for a sales tax or another tax to help pay for rehabilitating Metro rail, the proposals he makes would actually do more harm than good for Metro’s transit-dependent population. Raising bus fares and cutting service is likely to accelerate declining ridership, which is exactly the opposite of what Metro wants to do.

Meanwhile, LaHood’s proposals to change Metro’s board could be considered a way of tinkering with the deck chairs as the ship is sinking–except that it is in line with Metro’s larger objective of becoming less dependent on and less responsive to local elected officials. Metro wants to be its own taxing district with its own board that will do whatever Metro’s staff tells it. Yet there is no evidence that this model works particularly well in other regions; instead, it merely takes the agency one more step away from the users it is supposed to serve.

LaHood apparently never considered asking Metro riders to actually pay for the service they use. But if users can’t be expected to cover the costs, maybe we don’t really need to provide the service. Unfortunately, if anyone in the DC area was looking for creative solutions to Metro’s problems, LaHood was the wrong person to ask.

What is the best way to help low-income people – a group that disproportionately includes blacks and Latinos – get access to jobs? That question is certainly not answered by a report from left-wing think tank Demos. The report is aptly titled To Move Is to Thrive, but its subtitle, “Public Transit and Economic Opportunity for People of Color,” gives away its real agenda: more subsidies to the transit industry.

Written by Algernon Austin, the author of America Is Not Post-Racial, the report observes that “people of color” are less likely to own cars and more likely to be transit-dependent than white people. But Austin ignores the obvious and best solution, which is to give low-income people (regardless of color) access to cars. Instead, his report promotes “transit-focused infrastructure projects” in minority neighborhoods.

Since 1970, this nation has spent hundreds of billions of dollars on transit infrastructure projects. These projects have been disproportionately directed towards middle-class neighborhoods because middle-class people are the ones who pay for them through their taxes and the ones whose political support is needed to build them.

At the same time, the high cost of these projects has often forced transit agencies to cut bus service to low-income neighborhoods. This has happened in Atlanta, Los Angeles, the San Francisco Bay Area, and numerous other places, often resulting in overall declines in transit ridership.

The NAACP successfully sued Los Angeles Metro for cutting bus service to minority neighborhoods to pay for new rail construction to middle-class neighborhoods. The court ordered Metro to restore and maintain bus service to minority neighborhoods for ten years. That order expired in 2006. Since 2007, Metro expanded its light-rail system from 109 to 171 miles, increasing light-rail vehicle-miles of service by 58 percent. But to do so, it cut bus service by nearly 20 percent and lost 25 percent of its bus riders. By 2016, it had gained close to 21 million light-rail trips per year, but it lost more than 101 million bus trips.

What makes Austin think that more spending on transit infrastructure will have different results when the wealthy will continue to use their political power to make sure that government spending benefits themselves, not low-income minorities?

Or take Washington, DC, whose subway system (according to historian Zachary Schrag) was specifically designed to avoid low-income neighborhoods because planners assumed that low-income workers would not be able to afford to ride the trains. Under pressure from the black community, planners made a late addition of the Green Line to Anacostia/Navy Yard, a predominately black neighborhood south of the Capitol. Once the line was built, much of the area  quickly gentrified with government office buildings and tax-increment financing, pushing black residents into Prince Georges County, which has little rail service.

Again, why would Austin think more transit infrastructure would have different results, especially when rail transit is sold to local officials for its supposed ability to “rehabilitate neighborhoods” (i.e., slum clearance or gentrification)?

If Austin really wanted to help low-income people using transit, he would advocate a halt to new transit infrastructure construction, for that construction almost invariably harms transit-dependent low-income workers. But if Austin really wanted to help low-income families in general, he would advocate giving low-income people better access to automobiles, which offer people speedier trips to more potential jobs than any transit improvements.

One recent study found that low-income people with cars have access to 30 times as many jobs as low-income people dependent on transit. Not only do transit speeds average just 15 mph (see p. 9), while average auto speeds in most cities are twice that, autos allow users to go where and when they want to go, while transit riders must go where and when the transit goes, which often means less direct routes than they could drive.

An alternative to spending billions on new transit infrastructure would be to give some of the subsidies now being spent on transit to low-income people in the form of vouchers they could use on any form of transportation. Some might continue to ride transit; others might buy a used car; still others might use Lyft or other ride-sharing services.

The Ways to Work program offers low-income people low-interest loans to buy a used car or repair a car so they can more easily get to work. Loan repayment rates are high, so the program ends up costing taxpayers very little money. While the link goes to a program in Wisconsin, many other states have similar programs.

This is not only more effective than transit infrastructure, it is more sustainable because once people have a job, they will pay their own transportation costs. By comparison, transit requires heavy and continuing subsidies that are something like 40 times greater, per passenger mile, than highway subsidies. In many cases, transit subsidies to commuters are so great that it would be less expensive to simply give those commuters new cars. But the Ways to Work program doesn’t give anyone anything; it merely loans them money so they can become self-sufficient. Thus, Ways to Work can reach far more people for far less money than building new transit infrastructure.

During a debate over this issue, the general manager of one of the nation’s largest transit agencies responded to my proposals by saying, “We can’t give poor people cars; it would create too much congestion!” In other words, he was counting on both poverty and congestion to justify his job and the subsidies to his agency. 

Demos claims to be “working for an America where we all have an equal say in our democracy and an equal chance in our economy.” I certainly support that goal. But we aren’t going to reach it with a two-tiered society in which whites enjoy the mobility offered by cars while minorities are limited to destinations they can reach on mass transit, which is what Austin seems to be advocating.

Austin is right about one thing: to move is to thrive. But he failed to realize that autos allow people to move faster, cheaper, and more conveniently than transit. Demos’ goals would be better achieved by jettisoning slow, expensive mass transit systems and instead making sure everyone has equal access to urban transportation that is fast, affordable, and reaches the most jobs.

The standard explanation for the opioid epidemic blames pharmaceutical companies and doctors for overstating the benefits and understating the risks of prescription opioids.  See this essay by Robert Verbruggen, the deputy managing editor of National Review.

An alternative explanation is that opioids – like many substances – are dangerous mainly when heavily restricted or outlawed; thus, increased prescribing over the past several decades has generated overdoses by forcing more people into the black market, where they consume heroin of unknown purity that is sometimes laced with fentanyl.  See my comment on Verbruggen’s essay (or this essay by Cato scholar Jeffrey Singer).

Resolving this debate is crucial: under the standard view, policy should restrict opioid prescribing further; under the alternate view, policy should liberalize prescribing or better yet allow unrestricted legal acces to all opioids, prescription or otherwise. 

So far policymakers have been increasing restrictions, and the opioid death rate has kept climbing. I’ll let you do the math.

After a year of contentious negotiations between Illinois Governor Bruce Rauner and the American Federation of State, County, and Municipal Employees, Council 31 (“AFSCME”), the parties reached a bargaining impasse in early 2016. As a result, the governor attempted to institute reforms over AFSCME’s objections, with the union then suing to thwart implementation. Caught in the middle of this power struggle was Mark Janus, a state employee who was compelled to subsidize the union’s efforts despite his personal opposition to its position (and non-membership). These forced exactions, known as “agency fees,” essentially provide workers in the 25 states that allow them with a Hobson’s choice: Either sacrifice your First Amendment rights by funding political advocacy you may not like, or find another job.

The Supreme Court precedent allowing this unjust scenario, Abood v. Detroit Board of Education (1977), has become quite controversial. Twice in the past five years, the Court has explicitly questioned its central holding that mandatory agency fees are constitutional, and two terms ago the Court split 4-4 on the issue of whether to overturn Abood outright. Mr. Janus’s case finally provides the Court with a golden opportunity to restore the First Amendment liberties of the country’s public-sector workers. One of the union’s central arguments is that stare decisis should keep Abood in place. Stare decisis is a legal doctrine whereby courts are bound by their own precedents because of the reliance interests that have built up around them; sometimes it’s more disruptive to society to get a ruling right than to allow a possibly erroneous ruling to stand.

Because only constitutional amendments can check the Supreme Court’s constitutional rulings, however, and given that it’s increasingly hard to enact constitutional amendments, stare decisis is at its weakest when constitutional rights are being violated. In fact, when judges find that certain prudential factors weigh in favor of overturning precedent, judges have a duty to correct those past constitutional mistakes.

Abood is mistaken for several reasons. First, it improperly used the concept of “labor peace” to justify the infringement on public employees’ First Amendment rights. Before Abood, labor peace was completely unrelated to the First Amendment, instead being used to analyze whether Congress had power under the Commerce Clause to regulate labor disputes. But just because the Constitution gives Congress such authority, it doesn’t necessarily follow that Congress’s particular exercise of that power respects fundamental constitutional rights.

Moreover, Abood represents an anomaly in First Amendment jurisprudence. Abood’s confusion of powers and rights marked a significant departure from the Court’s prior jurisprudence, while subsequent decisions have rendered it no more than a remnant of an abandoned doctrine. There are also no reliance interests worthy of stare decisis protection, as employees certainly don’t rely on being deprived of their freedom of speech and association and unions’ desire to keep the money flowing isn’t a constitutionally cognizable interest.

Finally, when courts have attempted to apply the Abood standard, it has proven to be simply unworkable. Due to the inherently political nature of public-sector unions, their collective bargaining efforts and political actions are practically indistinguishable. Even if one could make such a distinction, it would be meaningless in practice because money is fungible.

With a focus on stare decisis in general and the flawed labor-peace rationale specifically, Cato—joined by the National Federation of Independent Business and Center of the American Experiment—has filed an amicus brief seeking to finally end the extensive and pernicious infringements on core constitutional principles. After the Supreme Court hears Janus v. AFSCME in the new year, it should overrule Abood and restore workers’ First Amendment rights.

 

Uwe Reinhardt, a beloved health economist at Princeton University, died Monday at the age of 80. Uwe was a giant in his profession. His combination of insightful economic analysis and wit knew no equal. I always, always looked forward to hearing what Uwe had to say. We are proud to have hosted him at the Cato Institute, to have debated him, and to have called him a friend. The Cato Institute offers its condolences to the Reinhardt family, for whom Uwe made no secret of his love, and to all those in the health policy and economics professions who will miss him dearly.

A fleet of driverless cars designed by Waymo, a project of Google’s parent company, Alphabet, is on the roads of Phoenix, Arizona. Last week, Waymo CEO John Krafcik announced that in the coming months the driverless cars will be part of the world’s first autonomous ride-hailing service. The recent news is a milestone in driverless car technology history, and it’s no exaggeration to claim that the technology behind these new cars has the potential to save hundreds of thousands – if not millions – of lives in the coming decades. Sadly, drones, another life-saving technology, have had a tougher time getting off the ground.

Waymo’s cars are not suddenly arriving on the scene. Google has been working on getting a driverless car on the road since 2009, and Waymo has been offering some lucky passengers in the Phoenix area rides since April. However, these cars had a driver at the wheel, just in case. The fleet now driving in Phoenix does not include safety drivers. 

This may prompt unease among some Phoenix residents. A clear majority of Americans are uncomfortable about getting into driverless cars. Yet human drivers are deadly. More than 90 percent of car crashes can be attributed to human error, and motor vehicle accidents killed an estimated 40,200 people on American roads last year.

Fortunately, the life-saving potential of driverless cars seems to have been a persuasive selling point to lawmakers and regulators. This is in part because of their massive unrealized benefits, but also because auto-safety regulators tend to allow car manufacturers to get their product on the market after certifying that they’re in compliance with safety standards, relying on recalls if and when safety standards are violated, as Ars Technica technology reporter Timothy Lee explained:

Another important factor is that auto-safety regulators have a tradition of being relatively deferential to car companies. Agencies like the Food and Drug Administration require companies to seek pre-market approval for their products. By contrast, the approach of the National Highway Traffic Safety Administration is to set out general guidelines requiring features like airbags and antilock brakes and then ask automakers to self-certify their compliance. NHTSA then relies on after-market recalls to deal with vehicles that turn out to be defective.

This approach creates a somewhat greater risk of defective products reaching the marketplace. But it also enables automakers to get potentially lifesaving innovations into the marketplace more quickly. And carmakers are large, bureaucratic organizations that have strong incentives to color inside the lines, so there’s not much reason to worry about small, fly-by-night manufacturers sneaking defective products into the marketplace.

We shouldn’t forget that the technology will improve lives as well as save them. For the elderly and the disabled, driverless technology offers the chance to vastly improve mobility. In fact, last year Google’s driverless car drove a blind man, Steve Mahan, in Austin. According to Mahan, “This is a hope of independence. These cars will change the life prospects of people such as myself. I want very much to become a member of the driving public again.” Parents with children busy with after-school activities will also undoubtedly benefit from the kind of driverless ride-hailing service Waymo plans to offer.

Driverless cars are not the only emerging technology that could save and improve lives. Sadly, however, these other products are governed by a tougher regulatory framework than that overseeing Waymo’s cars.   

Amazon’s experience with drones has been off to a difficult regulatory start. The Internet giant, which is interested in developing delivery drones, went to England to conduct its first drone-delivery test last year. This was despite the fact that Amazon CEO Jeff Bezos announced drone delivery plans as far back as 2013 and applied for permission from the Federal Aviation Administration (FAA) to test drones in 2014. That same year, the AP noted that other countries were outpacing the United States when it came to drone regulation:

The Federal Aviation Administration bars all commercial use of drones except for 13 companies that have been granted permits for limited operations. Permits for four of those companies were announced Wednesday, an hour before a hearing of the House Transportation and Infrastructure Committee’s aviation subcommittee. The four companies plan to use drones for aerial surveillance, construction site monitoring and oil rig flare stack inspections. The agency has received 167 requests for exemptions from commercial operators.  

Several European countries have granted commercial permits to more than a 1,000 drone operators for safety inspections of infrastructure, such as railroad tracks, or to support commercial agriculture, Gerald Dillingham of the Government Accountability Office testified. Australia has issued more than 180 permits to businesses engaged in aerial surveying, photography and other work, but limits the permits to drones weighing less than 5 pounds. And small, unmanned helicopters have been used to monitor and spray crops in Japan for more than a decade.

By the time the FAA approved Amazon’s drone it was already obsolete and out of date, with Amazon testing a more advanced drone. Amazon’s vice president of global public policy told the Senate Subcommittee on Aviation Operations, Safety, and Security in 2015, “Nowhere outside of the United States have we been required to wait more than one or two months to begin testing.”

Like driverless cars, drones are potentially life saving, with firefighters, emergency medical technicians, and building inspectors—among many others—standing to benefit from their use. Zipline, a California-based company that makes medical delivery drones, was founded in 2014. And yet, Zipline co-founder and chief executive Keller Rinaudo noted in August that, despite being based in California, Zipline had not flown any flights in the United States.

By September of this year, Zipline had flown “1,400 flights and delivered 2,600 units of blood” in rain and high winds in Rwanda.

Amazon Prime Air, by comparison, is much more restricted:

We are currently permitted to operate during daylight hours when there are low winds and good visibility, but not in rain, snow or icy conditions. Once we’ve gathered data to improve the safety and reliability of our systems and operations, we will expand the envelope. 

Fortunately, the Trump administration has taken steps to allow for a more innovative drone environment, last month launching a drone program that will allow local governments and companies to experiment with drones in a more relaxed regulatory environment.

Regulatory agencies should take an approach that allows companies to ask for forgiveness rather than permission, an approach laid out by Mercatus’ Adam Thierer in his book Permissionless Innovation. When it comes to the FAA and the Food and Drug Administration (FDA), for instance, the approach is the reverse. Almost four years ago, the FDA shut down the personal genome testing company 23andMe after it marketed its saliva collection kit “without marketing clearance or approval.” In its letter to 23andMe, the FDA did not cite any 23andMe customers who had complained about 23andMe’s product. 

It would be naive to think that there won’t be bumps in the road as more driverless cars take to the streets. For example, driverless cars could prompt regulatory fights between states and the federal government, although House and Senate driverless car legislation contain identical provisions that seek to address preemption concerns. There are also issues related to cybersecurity and insurance, but we shouldn’t forget that profit-maximizing firms have incentives to not kill or injure their customers.

Regulatory reform concerning new and emerging technology is long overdue. 3D printing, the “Internet of Things,” drones, driverless cars, and robotics, are only some of the exciting new technologies and fields that hold the potential to enrich and save lives. These benefits will be sooner realized if regulators set innovators free. The ubiquity of driverless cars won’t make the world perfect, but it will make the world better.

We often hear arguments that the World Trade Organization cannot handle an economy like China’s, with its heavy state intervention. Trade rules are just not up to this task, some people say. Here’s a recent example from a Wall Street Journal article entitled “How China Swallowed the WTO”:

Rather than fulfilling its mission of steering the Communist behemoth toward longstanding Western trading norms, the WTO instead stands accused of enabling Beijing’s state-directed mercantilism, in turn allowing China to flood the world with cheap exports while limiting foreign access to its own market.

“The WTO’s abject failure to address emerging problems caused by unfair practices from countries like China has put the U.S. at a great disadvantage,” Peter Navarro, a trade adviser to President Donald Trump, said in an interview.

China has a wide range of policies that make up its industrial policy, and we can’t address them all in a short blog post. However, we will describe one recent example, and explore briefly whether WTO rules can help. This is also from the WSJ:

Batteries have emerged as a critical front in China’s campaign to be the global leader in electric vehicles, but foreign auto makers and experts say it is rigging the market to favor domestic suppliers.

Tianjin Lishen Battery Co. here in eastern China recently agreed to sell its battery packs to Kia Motors for the EVs the South Korean company makes in China and is now in talks to supply General Motors, Mercedes-Benz and Volkswagen, a supervisor for the Chinese company said.

But that is largely because Tianjin Lishen has little foreign competition.

Foreign batteries aren’t banned in China, but auto makers must use ones from a government-approved list to qualify for generous EV subsidies. The Ministry of Industry and Information Technology’s list includes 57 manufacturers, all of them Chinese.

Foreign battery companies declined to discuss their absence. But analyst Mark Newman of Sanford C. Bernstein said the government has cited reasons such as paperwork errors to exclude foreign suppliers.

“They want to give their companies two to three years” without foreign competition to secure customers, achieve scale, and improve their technology, Mr. Newman said.

The ministry didn’t respond to questions.

So, if we accept the conventional wisdom, nothing can be done about this battery policy, right? There’s no way to prove that the policy is protectionist, so we just have to give up on the WTO as a solution here, right?

We disagree. In fact, the WTO has rules to deal with this exact kind of subtle, disguised protectionism. The WTO’s Agreement on Subsidies and Countervailing Measures prohibits subsidies that are contingent on the use of domestic goods, even where the contingency is not specified in law. If a complainant can show that the connection between the subsidies and the use of domestic goods exists on a de facto basis, the measure will be found in violation. Whether a challenge succeeds will depend on the specific facts of the case. In the electric vehicles example described above, the complainant could look for, inter alia, evidence that the electric vehicle companies which have received subsidies only use batteries on the government list, or that they switched to using the batteries on the lists after the lists were published. 

Of course, proving a case here is not going to be easy. A single WSJ article is not enough. The complainant will need to go gather some evidence and build its case. But that’s how litigation always works, and does not suggest any great flaw in the WTO.

The key point here is that what China is doing is not some novel approach to industrial policy that no one has ever seen before. Rather, it is classic protectionism that WTO litigation has handled for years. Governments do this sort of thing all the time, and many WTO cases deal with this exact kind of disguised protectionism. (As an example, in a 1999 decision examining whether certain Canadian subsidies to the aircraft industry were contingent on export, the WTO courts took into account “sixteen different factual elements” before concluding that the subsidies at issue violated the prohibition on export subsidies.) Thus, governments who are concerned with China’s policies should try to work within the WTO system to address their complaints.

It seems President Trump has aroused heightened interest in the exercise of Congress’s constitutional powers in war and peace. In a 366-30 vote this week, the House of Representatives passed a nonbinding resolution declaring the U.S. military’s role in Saudi Arabia’s war in Yemen unauthorized. That’s a start. Even more promisingly, a growing group of Senate Democrats is pushing legislation that would prohibit any use of funds for “military operations in North Korea absent an imminent threat to the United States without express congressional authorization.”

Though it merely makes more explicit something that ought to be fully understood under the Constitution, sponsors of the bill have understandable motivations here. President Trump has repeatedly claimed that he does not need Congressional authorization to initiate military action. In April, he demonstrated his commitment to this unlimited view of presidential war powers when he ordered missile strikes against a Syrian airbase in the absence of any credible claim of preemption and without legal authorization from Congress.

Two months earlier, the president gave an indication that he would not seek Congressional authorization or approval in potential military action against North Korea. In a press conference in February, when asked about it, he insisted, “I don’t have to tell you what I’m going to do in North Korea.”

In the ensuing months, the president has exacerbated the tensions between the United States and North Korea. In addition to taunting and ridiculing via his Twitter account, Trump has also made bold public threats. “North Korea best not make any more threats to the United States,” he told reporters in August, or “they will be met with fire and fury like the world has never seen.”

Adding to the heightened tensions, National Security Advisor H.R. McMaster has gone so far as to say the regime in Pyongyang is undeterrable. This is remarkably out of step with what the bulk of the academic literature says on the question, but it is also destabilizing in that the logical conclusion of such an assessment is that we must initiate a full-scale attack on North Korea. After all, if Pyongyang possesses nuclear weapons and doesn’t care about regime survival, traditional deterrence isn’t an option.

Senator Bob Corker (R-TN), who, as chair of the Senate Foreign Relations Committee would be the one to shepherd the legislation to a vote, said last month that Trump is treating the presidency like “a reality show,” and his rhetoric could set the nation “on the path to World War III.” To the extent that Trump’s advisors act as a check on the president’s erratic foreign policy inclinations, Corker added, they “separate our country from chaos.”

This escalatory rhetoric occurs in the context of a broad understanding that an outbreak of war on the Korean Peninsula would be catastrophic. Secretary of Defense James Mattis warned grimly on CBS’s Face the Nation that, “A conflict with North Korea would probably be the worst kind of fighting in most people’s lifetimes…it would be a catastrophic war if this turns into a combat if we’re not able to resolve this situation through diplomatic means.”

Scholarly and official estimates bear this out. Even a limited conventional strike by the United States against North Korean nuclear sites would risk an overwhelming number of casualties because Pyongyang’s likely response would be to immediately attack Seoul with the roughly 8,000 artillery cannons and rocket launchers positioned along the border capable of unleashing 300,000 rounds on South Korea in the first hour of the counterattack. The result would be massive destruction and hundreds of thousands of casualties in a matter of days.

And that’s if it doesn’t go nuclear, which it almost inevitably would if Pyongyang, fearful of its own destruction, found itself under attack by the world’s most powerful military. If the Kim regime targeted Seoul and Tokyo with just one nuclear weapon each, casualties would approach almost 7 million. And again, this would only generate additional escalation from all parties.

At this point, even the most cynical proponent of war would be hard pressed to identify what political end could possibly justify such devastation.

The bizarre thing about the focus on the military option is that there are plenty of worthwhile diplomatic options. American diplomats who have engaged in back-channel negotiations with North Koreans for years have made clear Pyongyang remains interested, so long as talks are conducted on the basis of mutual respect and mutual compromise, instead of demands for one-sided capitulation. Avenues include short-term confidence-building measures, like a “freeze for freeze” deal in which Pyongyang halts its nuclear weapons testing in exchange for a freeze of U.S.-South Korean joint military exercises, which the North sees as provocative. Grander bargains are also possible, but it requires a willingness on both sides to choose compromise and accommodation over rigidity and vainglory.

Explicit Congressional action prohibiting the Trump administration from initiating preventive war against North Korea may aid in checking executive war powers in this case. But only maybe. Much depends on whether the administration chooses to rely on unreasonably elastic definitions of the phrase “imminent threat.” And at the end of the day, legal constraints only have utility if the people subject to them respect them. Hopefully, the costs and risks associated with escalation will prove enough of a constraint. 

For the second week in a row, Thor: Ragnarok was the big winner at the box office, pulling in $56.6 million in North America last weekend and bringing its worldwide take to more than $650 million. Ragnarok is the mythological destruction of Asgard and the Norse gods, but in real life it has been a huge, money-making win for Marvel Studios. Meanwhile, American higher education has been declaring that it is facing its own Ragnarok in the form of the House Republican tax plan. This end time, in stark contrast to Thor: Ragnarok, will come from a distinct lack of money. As a Washington Post headline asks, is this “The Last Stand for American Higher Education?”

What the Hela

I have qualms about some of the GOP proposals. For instance, the plan would tax “tuition discounts”—basically, prices not actually charged—for graduate students. That’s not technically income, so on normative grounds I’m not sure it should be taxed. The plan also calls for an “excise tax” on the earnings of endowments worth $250,000 or more per student at private institutions. It would impact but a nano-handful of institutions—around 50 out of thousands—and amounts to little more than a politicized, “Take That, Harvard!”

That said, the idea that higher ed is somehow teetering on the edge of financial destruction is ludicrous.

Consider revenues at public colleges since the onset of the Great Recession, during which we supposedly saw massive “disinvestment.” While it is true that total state and local appropriations dipped, total public college revenue rose markedly, from $273 billion in academic year 07-08, to $347 billion in 14-15, a 27 percent increase. Even on an inflation-adjusted, per-pupil basis revenue increased: From $31,561 per student in 07-08, to $32,887 in 14-15, a 4 percent rise. To put that in perspective, per-capita income in the United States is $28,930.

Federal data on private colleges is pretty volatile—it’s not clear why, for instance, between 07-08 and 08-09 total revenue dropped from $139 billion to $69 billion—but it, too, shows little sign of penury. Between 07-08 and 14-15 total revenue rose from $139 billion to $200 billion, a 44 percent increase, and inflation-adjusted per-pupil revenue went from $51,629 to $59,270, a 15 percent increase.

Using a longer timeframe, higher ed has clearly been raking it in for decades. Inflation-adjusted spending for all of higher education ballooned from $132.7 billion in 1969-70, to an estimated $548.0 billion in 2015-16, a 283 percent increase. Meanwhile, full-time equivalent enrollment rose from 6,333,357 to 15,076,819, just a 138 percent rise. This has, of course, been accompanied by skyrocketing prices. Such supposedly draconian measures as ending the student loan interest deduction—worth about $200 per year for the average claimant—or cutting private colleges off from tax-exempt bonds for construction is not going to alter that immensely.

Then there’s the key question: What have we gotten for all this money?

Answer: A glut of increasingly empty degrees coupled with greater school opulence.

Between 1992 and 2003—the only years the assessment was given—literacy for people with four-year and advanced degrees fell precipitously. In prose literacy, the share proficient dropped from 51 percent to 41 percent among advanced degree holders! Time spent studying plummeted from about 25 hours per week in 1961, to 20 hours in 1980, to 13 in 2003. Since 2000, earnings of people with BAs and above declined as the country experienced a major surplus of degree holders. Indeed, about a third of bachelors holders are in jobs that do not require the credential, and employers increasingly call for degrees in jobs that previously did not need them and don’t appear to have substantially changed. Finally, nearly 40 percent of students who enter college do not complete their programs within eight years, and many of those likely never will. Meanwhile, schools increasingly feature such luxuries as deluxe dorms and on-campus water parks.

In light of this, the trims that could come through the GOP tax plan hardly threaten to wreak higher education Ragnarok. Indeed, they may do for colleges and universities what the latest movie did for Thor: provide a much needed haircut.

The IGM Economic Experts Panel overwhelmingly opposes a constitutional strict balanced budget amendment.

Weighted by the confidence of their answers, 99 percent of responders disagree or strongly disagree that a requirement the federal government balance the books would reduce output volatility; whilst 53 percent disagree with the view that it would lower federal borrowing costs.

 

This is timely. House Speaker Paul Ryan (R-WI) has tasked Rep. Doug Collins (R-Ga.) as part of a 22-person strong task force to consider alternative fiscal rules to the debt ceiling to help constrain the growth of US federal government debt. The task force offers its recommendations in December. Whilst the task force’s remit does not extend to constitutional change, the cost and benefits of different fiscal rules are bound to shape their thinking.

Why do economists demur over an ex-post balanced budget requirement that forces balance every year? Two main answers appear. First, there’s the Keynesian argument that fiscal policy can and should be used to smooth the business cycle, especially via discretionary deficit-spending during recessions. In this view, a balanced budget amendment can exacerbate output volatility by outlawing potentially helpful fiscal support and enforcing cuts when the economy is in a cyclical downturn.

Second, there’s Robert Barro’s “tax smoothing” argument, which says a government can minimize the distortionary impact of taxation by keeping tax rates relatively smooth or constant and allowing government debt to be a shock-absorber to unexpected shocks.

I’d add two more. The risk of major within-year changes to the funding programs greatly increase uncertainty for many individuals and households and makes budgeting very difficult. And a balanced budget amendment could incentivize governments to run up high spending and new programs during boom periods when there’s a “windfall” in terms of tax revenues. These could then prove “sticky” and difficult politically to get rid of, running the risk of even larger government overall with a higher tax burden in the long-term.

Economists have long recognized these problems, which is why other countries that have adopted forms of “balanced budget rules” have not adopted strict ex-post rules that do not permit any deficits.

Most modern rules in countries deemed to be successful instead seek to cap government expenditures in any given year based on trends in revenues or some estimate of “potential” GDP, meaning that revenues and hence spending caps are largely “cyclically adjusted.”

This “structural balance” means, in theory, surpluses during boom periods and deficits during periods where growth is weaker-than-trend or below potential. The result, if trends remain constant or potential GDP is estimated correctly, is the debt-to-GDP path falls overall during the business cycle, with nominal GDP rising and the budget balanced over the cycle.

The details, of course, are very different depending on the country. Switzerland stabilizes spending around a revenue trend with its so-called “debt brake,” with any deviations from forecasts within-year made up over longer periods. Their rule is constitutionally-grounded.

Chile targets a structural balance through spending caps based upon estimates of potential GDP and the price of copper calculated by independent committees, but with no consequences if outturns differ from forecasts.

Sweden has a rule requiring a budget surplus equal to 1 percent of GDP on average over the business cycle, but with more freedom for governments to run structural deficits (provided they make up for them later).

All of these are more complex than a simple balanced budget requirement. And they come with risks. In particular, most of them are vulnerable should trends in economic growth change substantially, or the economy’s output gap gets calculated incorrectly—highly likely, given estimating it correctly requires measuring accurately current GDP, potential GDP, and how spending and revenues would react to moving towards potential GDP. But overall, they are more economically sensible than a rigid year-on-year balanced budget rule.”

I’ll blog in the coming weeks about other countries’ specific experiences with these types of fiscal rules. But one conclusion that stands out from the vast literature is that rules require buy-in both from the political class and the broader public to be effective. It is no coincidence, for example, that Sweden introduced its rule after a budget crisis in the 1990s, and Switzerland’s constitutional rule was delivered after obtaining 85% support from voters in a 2001 referendum. Without a broad consensus behind a rule, politicians seek to circumvent them with clever accounting, off-balance-sheet wheezes, optimistic forecasts and, ultimately, abandoning the rules when they start to bind.

Asking whether particular fiscal rules could be applied to the US federal government, in a technocratic sense, puts the cart before the horse. Yes, rules can bring focus on an issue and provide a framework for budgeting. But the elephant in the room is the question: does the US have the political will to move towards fiscal discipline? Bill White’s “American’s Fiscal Constitution” shows that in the past such a consensus for fiscal probity existed. But given the federal budget is now used for so many purposes, and with the political parties so divided on the optimal size of the state, could such a consensus exist again?

As Republicans assemble their tax reform legislation, Cato has released a study on one corporate tax break that is ripe for repeal. In “Low-Income Housing Tax Credit: Costly, Complex, and Corruption-Prone,” Vanessa Brown Calder and I describe the multiple failures of this tax credit.

The LIHTC is inefficient and bureaucratic. It breeds corruption in local governments and crowds out market-based housing. But by chanting “low income” and “affordable housing,” special-interest groups have distracted attention from the large LIHTC subsidies that flow to developers and big banks.

Republicans are hunting for revenue offsets for their tax bill. Under current law, the LIHTC will reduce federal revenues by almost $100 billion over the next decade, with 95 percent of the tax benefits going to corporations. Repealing the LIHTC would simplify the tax code and generate revenues to offset the corporate tax rate cut.         

The LIHTC study is here.

Equating mere allegations of misconduct with definitive evidence is a growing habit in the United States.  That tendency is most prevalent regarding national security matters, and the trend has been building since the onset of the so-called war on terror following the 9-11 attacks.  Conservatives are especially prone to assert that “terrorists” are not entitled to constitutional rights, even if they are American citizens.  The obvious problem with that argument is that until a fair and impartial trial is held, the individuals in question are merely accused terrorists.  The whole point of due process is to determine whether a defendant is guilty or not. 

Alarmingly, George W. Bush’s administration asserted the authority to jail suspected terrorists without trial or even a hearing before an independent tribunal.  In the case of Jose Padilla, an American citizen apprehended at Chicago’s O’Hare International Airport, the government designated him an “enemy combatant” and held him (as well as inflicted torture) for nearly four years at a military prison in South Carolina before bringing charges to a grand jury.  Even then, the administration’s belated application of due process occurred only in response to the U.S. Supreme Court’s prodding.

It would be a mistake, though, to assume that only right-wing leaders embrace the notion that accusation equals guilt.  The Obama administration escalated its predecessor’s contempt for due process.  President Bush merely asserted his alleged authority to imprison American citizens without trial.  President Barack Obama asserted an authority to execute such people without trial.  That point was underscored when he authorized a September 2011 drone strike that killed radical Islamic cleric Anwar al-Awlaki, an American citizen, in Yemen.  A separate strike the following month killed Alwaki’s 16-year-old son

There is little doubt that the elder Awlaki was a committed terrorist. (The indications regarding his son are less clear.)  But that’s really not the point.  Giving the president of the United States the power to execute an American citizen based on nothing more than his determination (or more accurately, a determination by bureaucratic appointees) that the individual is guilty of terrorism sets a horrifying precedent.  It is the ultimate in the accusation- equals-guilt thesis, with devastating consequences.  An American’s right to life would then be wholly dependent not only on the reasonableness, but the infallibility, of U.S. leaders.  The republic’s founders knew better than to rely on such factors for guaranteeing liberty.

The erosion of due process in the name of national security continues to spread.  People are placed on the arbitrary terrorist watch list, and its subset, the “no-fly” list, based on the most opaque criteria.  Most cannot even discover through legal proceedings how or why they were marked for scrutiny and restrictions.  And it is a list riddled with errors.  Individuals prevented from flying have included several pre-teen children and California Republican State Senator (now U.S. Representative) Tom McClintock.  Even the late U.S. Senator Ted Kennedy was repeatedly flagged for additional screening because of faulty information.

Proponents of the accusation-equals-guilt thesis apparently are not content with violating an implied constitutional right to travel unhindered in the United States.  Gun control advocates now favor using the terrorist watch list to bar gun purchases.  Last year, congressional Democrats, including Senators Diane Feinstein and Charles Schumer, pushed legislation to impose such a restriction, a move that would deprive citizens of an explicit constitutional right under the Second Amendment.  Fortunately, the Senate rejected their measure, but the sentiment in favor of using the no-fly list for that purpose continues unabated in progressive circles.

The growing, casual indifference to basic due process standards threatens liberties that have been hard-won over centuries since the Magna Carta.  It is imperative to establish an unyielding standard that distinguishes mere allegations from proof of guilt.  Everyone, even the most suspicious or unpleasant people, are entitled to the presumption of innocence until guilt clearly has been established.  We erode that standard at our great peril.

In the middle of President Trump’s underwhelming Asia trip, other countries in the region took the opportunity to make some real progress on trade liberalization. Remember the Trans Pacific Partnership (TPP), the Asia Pacific trade deal from which President Trump withdrew soon after taking office? Well, this past weekend, the remaining countries made some pretty good progress in getting the deal done on their own, without the United States. They may have even made it better in two areas (the Cato Working Paper assessing the original TPP is here). 

The deal is not done yet, as some countries have raised additional issues they want changed. But it’s getting close.

One key aspect of this new TPP deal is that the “TPP 11” (that is, the countries other than the United States who are part of the TPP talks) would like the United States to rejoin at some point. Clearly, that is not going to happen during the Trump administration, but perhaps it could under some future administration. To allow for this possibility, the changes the TPP 11 have made to the deal are not permanent, but rather just “suspensions” of the previous terms. There were a few provisions that the United States pushed for, but many other countries did not want. These provisions will be suspended for the time being, but could be restored to their original form if the United States wants to join later.

There is also an issue that may seem minor and technical, but could be a problem for having the United States join later, which is the new name for the agreement. It is now called the “Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).” Besides being an unwieldy name, putting the word “progressive” in there will not be good for U.S. politics. For one thing, most high-profile American progressives don’t like any trade agreement, so calling it progressive is not likely to get them on board. In addition, libertarians, conservatives, and others are going to be wary of anything labeled progressive. This new name seems like a big mistake to me (especially given that the agreement is not, in fact, progressive in the way that most people would use that term!).

The larger point here is that the rest of the world is moving forward on trade liberalization, while the United States is doing next to nothing. Perhaps when U.S. businesses start to feel the impact of all this, the Trump administration will begin to do something productive on trade, but for now, it feels like we are mostly going backward.

As Dan noted, President Trump has been in Asia, making a state visit to China and then meeting with foreign leaders at an Asia-Pacific Economic Cooperation forum in Vietnam. As part of the trip, and perhaps in an effort to recapture his populist mojo amidst cratering job approval numbers back home, he has remounted one of his favorite hobby horses: decrying “unfair trade deals” that he says put America at a disadvantage with its trading partners.

The president does make oblique references to barriers that other countries place on American products entering their markets. But his comments suggest his biggest concern is the large trade deficits the United States has with some countries. According to Trump, those deficits are all the proof necessary that America is being snookered, and that current trade arrangements should be dissolved and renegotiated.

“The United States really has to change its policies because they’ve gotten so far behind on trade with China and, frankly, with many other countries,” he said in a press conference with President Xi in China. “The current trade imbalance is not acceptable,” he told reporters in Vietnam, adding: “I do not blame China or any other country, of which there are many, for taking advantage of the United States on trade. If their representatives are able to get away with it, they are just doing their jobs. I wish previous administrations in my country saw what was happening and did something about it. They did not, but I will.”

But if a trade deficit—especially a large, persistent one—is proof positive of unfair dealing, then Trump has some things to discuss with U.S. authorities about his own business empire, the Trump Organization.

Consider the tenants in his office, retail, and condo complexes, the lodgers at his hotels, and the players on his golf courses. They spend hundreds of dollars a day and thousands or millions of dollars a year on Trump products. Yet it’s highly doubtful that the Trump Organization simultaneously purchases hundreds of dollars a day or thousands and millions of dollars a year in goods from those same customers. Those customers thus have huge trade deficits with the president and his businesses. By his own logic, the Trump Organization must be treating those customers unfairly.

But wait, the president might protest, that’s not right—his businesses may not buy things from his customers, but the Trump Organization buys things from other businesses, and those businesses buy from other businesses, and sooner or later the money winds its way back to his customers.

But people in foreign countries likewise use American dollars to buy things from other countries, and invest in other countries, and some of that money winds its way back to the United States, too. Besides, even if China were to keep every U.S. dollar it receives and tuck them all away in some giant mattress, that would hardly reduce the number of dollars the United States can spend on domestic goods—after all, we own printing presses! Meanwhile, as all those dollars whirl around or get tucked away, the United States receives more and more Chinese goods—goods that we value more than the dollars we exchange to purchase them.

Unfortunately, the president ascribes to a very simplistic—and wrong—understanding of trade. The next time he launches in on the horrors of U.S. trade deficits, I hope someone asks him if there’s also a problem with the imbalanced trade the Trump Organization has with its customers. 

Members of the House Financial Services Committee made some progress on monetary reform this past week by introducing three new bills in the House on November 7th and 8th, to be marked-up in Committee on Tuesday — along with a host of other financial services related bills. The monetary measures serve as free-standing counterparts to similar provisions and goals of the comprehensive Financial CHOICE Act passed by the House earlier this year.

The Independence from Credit Policy Act (H.R. 4278), introduced by Rep. French Hill (R-AR), is intended to restrict the Fed’s asset holdings, apart from gold, foreign exchange, and IMF-issued SDRs, particularly by requiring it to swap its current MBS holdings for Treasury obligations. In future emergencies the Fed could temporarily acquire certain non-Treasury assets in connection with its 13(3) lending operations (concerning which see below); but it would be allowed to hold such assets for no more than a year, after which it would also have to trade them in for Treasury securities.

The Monetary Policy Transparency Act (H.R. 4270), introduced by Rep. Andy Barr (R-KY), is a variation on a core aspect of the Fed Oversight Reform and Modernization (FORM) Act, which was originally introduced in 2015. The FORM Act required the FOMC to adopt a specific, formal monetary policy rule, of the FOMC’s own choosing, and report to Congress when and if monetary policy deviated from the rule — although such a requirement was not to be “construed  to prevent” the FOMC from such deviations. The new measure adds a step, calling for the FOMC to announce a particular monetary policy “strategy” each year, specifying, not mathematically but “in plain English,” its policy targets and the instrument or instruments it plans to employ to achieve them. And again, report to the appropriate House and Senate Committees concerning any deviations.

Finally, Rep. Scott Tipton (R-CO) introduced the Congressional Accountability for Emergency Lending Programs of 2017 Act (H.R. 4302). That Act would further restrict the Fed’s 13(3) lending operations by requiring that they be approved by at least two-thirds of the FOMC (as opposed to the present 5-member requirement); by disallowing the use of equity as collateral for 13(3) loans; by requiring that loans be approved not only by the Federal Reserve Board but by all Federal banking regulators having jurisdiction over the prospective borrowers; and by allowing emergency lending to be extended beyond a term of 30 days only by means of a joint resolution approved by Congress.

There’s no question that these measures, if adopted, would help to impose some much-needed discipline on the Fed — especially by preventing the Fed from propping-up markets for particular securities, save those issued by the U.S. Treasury — and by making it harder for it to bail-out insolvent firms. But crucial steps toward reforming the Fed’s current system of monetary control, with its reliance upon interest payments on banks’ excess reserve holdings as an alternative to conventional open-market operations, still need to be taken.

As I’ve stressed on numerous occasions, the current system involves a far less reliable “monetary transmission mechanism” than the old one — because it divorces changes in the Fed’s policy rate settings from any corresponding changes in the quantity of bank reserves, and also because it encourages banks to hoard reserves that come their way, instead of using them to support corresponding growth in the nominal quantities of money and credit. By encouraging banks and other financial institutions to direct funds to the Fed rather than to private-market borrowers, thereby increasing the Fed’s size relative to that of the commercial banking system, the new system also limits growth by employing savings less productively. Finally, by allowing the size of the Fed’s balance sheet — formerly a crucial determinant of the Fed’s monetary policy stance — into a “free parameter,” the new set-up makes the Fed vulnerable to the Treasury’s importuning, if not to that of other borrowers.

So, while I wish the sponsors of the present legislation good luck with their efforts so far, I hope they’ll follow them up with some reforms specifically aimed at replacing the present, unreliable, and inefficient monetary control system with a more old-fashioned, but nonetheless better, alternative.

The good news is that, legislatively-speaking, the fix is relatively easy. To compel the Fed to switch from its current “leaky floor” monetary control system, based on paying banks an above-market return on their excess reserves, to a more orthodox system in which the interest rate on excess reserves defines the lower bound of a fed funds rate “corridor,” all that’s needed is a slight clarification of existing law.

According to the statute that grants the Fed authority to pay interest on reserves, the rate it pays is “not to exceed the general level of short-term interest rates.”  Unfortunately, Congress left it to the Fed to interpret “the general level of short-term interest rates” however it liked. By choosing to interpret it so loosely as to refer to the Fed’s own discount rate (or “primary rate”), among other proxies, the Fed has managed to pretend to conform to the statute, while actually thumbing its nose at it.

To put a stop to that, Congress just has to amend the law to make the “general level of short-term rates” mean what it was originally supposed to mean, to wit: the level of any of several reasonably comparable short-term market rates. Here is one way Congress could do just that — call it the Undo the Fed’s Abuse of Interest on Reserves Act:

Section 19(b)(12) of the Federal Reserve Act (12 U.S.C. 461(b)(12)) is hereby amended by inserting after Subparagraph (C)

‘(D) General level of short-term interest rates defined.—

For purposes of this paragraph, the term “general level of short-term interest rates” shall be defined as the average value over the preceding six-week interval of the Federal Reserve Bank of New York’s benchmark Broad Treasury financing rate on overnight repurchase agreements’

So, what do you say, FSC? As long as you’re tidying-up the Federal Reserve Act, a little clarification here could go a long way.

[Cross-posted from Alt-M.org]

Congress is considering the Honest Ads Act, an effort to force disclosure of political advertising on the Internet. We ought to be skeptical anytime Congress seeks to manage a private forum for purposes of improving political speech. I will return to my skepticism in a later post. For the moment, I want to examine how the managers of that private forum have responded to the bill.

Facebook has announced a host of changes to its advertising marketplace, attempting to forestall regulation by satisfying congressional concerns through private action. Facebook is acting to counter a threat of regulation and that itself is disturbing. We do not wish to see Facebook bullied into actions that run counter to their own inclinations. Yet, Facebook also has a history of seeking to satisfy its users, and it is possible that such business motives are at work. Perhaps we should avoid for now deciding that Facebook has been coerced. That said, there is good reason to believe that self-regulation can address the concerns of lawmakers more effectively than government action.

The Honest Ads Act is purportedly intended to reduce the ability of foreign governments to meddle in our elections while providing voters with access to information about the source of advertisements. Targeted advertisements, which appear only to users who match certain profiles, are of particular interest to legislators.

The bill attempts to achieve these goals by expanding the Federal Election Campaign Act in a number of ways. Firstly, it would require disclaimers in online political advertisements specifying who paid for the advertisement, to appear “in letters at least as large as the majority of the text in the communication” for text adverts, and for at least four seconds in videos. It is unclear how these requirements would apply to GIFs. Platforms, meanwhile, would have to maintain searchable records of all advertisements concerning “a national legislative issue of public importance” including descriptions of the targeted audience, the advert’s price, and the name of the candidate or issue to which the advert pertains. The FCC would be tasked with establishing rules to establish a common data format for these records, and authoring a biannual report concerning transparency in both paid and as-yet-undefined unpaid political advertising.

Facebook’s proposal provides its users with information in a far more user-friendly fashion than the bill, and in some cases, goes above and beyond what would be required by the Honest Ads Act. All advertisements, political or not, will be tied to a sponsoring page, accessible through the advertisement, which will house an archive of other advertisements the page has run in the past four years. A universal advert archive is likely to be more effective in informing Facebook users than mandated disclosure for adverts concerning “national legislative issues of public importance.” This nebulous category is either unlikely to fully capture the issues that divide America (Is “creeping sharia” a national legislative issue?) or prone to exert a chilling effect on constitutionally protected speech.

Anyone desiring to run election related advertisements, a clear, predefined category, will be required to verify their identity and location. The adverts themselves will include a built-in disclaimer, and a link to information describing the amount spend on the ad, the number of people who have viewed the ad, and demographic data concerning the advert’s intended audience. These requirements will first apply to federal elections, with planned expansion to cover state elections and referendums.

This planned, flexible, expansion is a key element of Facebook’s proposal that cannot be replicated with legislation. Unlike the Honest Ads Act, Facebook’s advertising policies can be tested and tweaked in an ongoing fashion, before their rollout in America’s 2018 midterms, they will be tested in Canada.

“Testing in one market allows us to learn the various ways an entire population uses the feature at a scale that allows us to learn and iterate.”

Legislation cannot be tested before it is implemented, let alone tested at any sort of realistic scale, and, particularly given its once-size-fits-all approach and partisan salience, is unlikely to be updated as time goes on. If enacted, attempts to amend or improve the Honest Ads Act will be politically fraught as Republicans and Democrats identify and re-litigate specific elements of the law which may seem to advance the cause of one party over the other.

Facebook’s proposal also distinguishes itself from the Honest Ads Act in ease of compliance. The Honest Ads Act requires anyone seeking to purchase a qualifying political advertisement, still a somewhat murky category, to furnish information concerning their identity and the nature of their advertising, on Facebook, this data collection is baked in, reducing the risk of noncompliance. If you fail to fill in the required information, your advertisement will not run, no ifs, ands, or buts. The wider net and evolving nature of Facebook’s proposal seems to put it above the Honest Ads Act, though the bill was likely instrumental in spurring, and setting goals for, Facebook’s political advertising policy.

Facebook is trying to govern their private forum in way that responds to congressional concerns and perhaps, the wishes of their users. We might wish Congress stay clear of the Internet, but that seems unlikely just now. Facebook’s effort may have the additional advantage of showing that private governance can work well in a forum that implicates freedom of speech.

Private governance can be practiced with varying levels of efficacy, however, last week’s Senate Intelligence Committee hearings on Russian influence demonstrated that while Congress may have the power to regulate social media platforms, it does not have the institutional expertise to deal well with Facebook and other private forums. Private governance may be the actual next alternative to new and expanding government regulation of speech on the Internet. Facebook is making that next alternative real. Those who doubt the wisdom of government control of speech forums will be hopeful about the prospects for private governance.   

President Trump seems to be feeling pretty good about himself right about now. He and Mrs. Trump were accorded the highest honors and warmest welcome in China. His hosts attended to every last detail of the visit to ensure the U.S. president had the opportunity to bask in his importance and appreciate just how highly regarded he is by China’s leadership and people. Then, in a gesture of deference to Trump’s business acumen, negotiating savvy, and commitment to results, Chinese President Xi Jinping gave the president a bill of business in the neighborhood of $250 billion—a pretty good haul by most standards.

In return, Trump lavished praise on Xi, expressing gratitude for his hospitality, admiration for his stewardship of Chinese society, and apologies for mistakenly blaming Beijing’s trade policies for the bilateral trade imbalance when the real culprit, after all, has been U.S. policies and previous administrations that let the relationship “get off kilter”: 

Our meeting this morning, in front of your representatives and my representatives, was excellent, discussing North Korea – and I do believe there’s a solution to that, as you do; discussing trade with the United States, knowing that the United States really has to change its policies because they’ve gotten so far behind on trade with China and, frankly, with many other countries.

And I have great respect for you for that, because you’re representing China. But it’s too bad that past administrations allowed it go get so far out of kilter. But we’ll make it fair, and it will be tremendous for both of us.

My feeling toward you is an incredibly warm one. As we said, there’s great chemistry, and I think we’re going to do tremendous things for both China and for the United States. And it is a very, very great honor to be with you. Thank you very much.

The hosting of the military parade this morning was magnificent, and the world was watching. I’ve already had people calling from all parts of the world. They were all watching. Nothing you can see is so beautiful.

So I just want to thank you for the very warm welcome, and I look forward to many years of success and friendship, working together to solve not only our problems but world problems, and problems of great danger and security. I believe we can solve almost all of them and probably all of them.

There is something to be said about the importance of good rapport between world leaders, but perhaps of much greater value is understanding the Chinese faculty for making flattery an art form.

My initial reaction to the reported outcomes of the meetings in Beijing was that Trump got played by Xi. After all, Trump’s a fairly easy read. He likes pomp. He likes praise. He’s fascinated by parades. He believes bilateral trade balances reveal whether trade policy has succeeded or failed. And he’s confident that he has what it takes to make trade flows adhere tightly to the script of a business contract. In buttering up Trump and sending him home with $250 billion worth of purchases and investments, Xi hopes to have put his trade problems with the United States behind him.

Chinese leaders have gone to that well many times before. What better way to respond to U.S. gripes about the trade deficit than agreeing to buy a couple dozen Boeings?  As I explained to a Chinese journalist yesterday–who sat before me, incredulous at my suggestion that Xi’s actions wouldn’t solve the problem–Americans are skeptical of big business deals conducted at the highest levels of goverment. That a U.S. president would negotiate by proxy on behalf of particular U.S. businesses reaks of crony capitalism. And, furthermore, that such buying decisions can be made with the swivel of a pen by one guy in Beijing reinforces for Americans that the Chinese economy is centrally planned and operates according to non-market principles. That makes it easier for Amercians to view China as a nemesis, and to show less resistance to protectionism directed at China.

Realistically, Xi bought a quarter of a trillion dollar insurance policy–leverage he may need to soften emerging U.S. policies, including trade and investment restrictions. By promising Trump all of this business, Xi can be sure the U.S. president is well aware of the costs of a more strident U.S. economic policy toward China. What Xi giveth, Xi can taketh away. Even so, I think Trump understands what’s going on.

Unless some serious policy changes are made to fix the structural problems afflicting the relationship, frictions over trade and investment policy will worsen. Those who think China’s full cooperation with Trump on North Korea will expunge U.S. trade policy demands have not sufficiently hauled in that the security hawks in Congress are ascendant and that the U.S. intelligence community considers China’s inexorable quest for technological supremacy to be America’s next most important security challenge.

In February 2017, I explained why a U.S.-China trade war is more likely now that at any time in the past. The safeguards that had kept the train from derailing for three decades had fallen into disrepair. Then, in July I wrote about the ongoing, cybersecurity, high-tech trade battle that would likely spark a full-fledged, gloves-off, tit-for-tat trade war. The machinery has already been mobilized to effect this outcome. The Trump adminisration launched an investigation into China’s alleged forced technology transfer policies and other forms of high tech intellectual property theft earlier this year. Affirmative findings that lead to unilateral sanctions against China (i.e., in circumvention of U.S. obligations to follow WTO protocol) would be provocative and would be likely to incite reprisals against U.S. exporters and U.S. companies in China.

Meanwhile, there is an emerging bipartisan consensus in Congress that prospective Chinese acquisitions of U.S. technology companies need much greater scrutiny, and that thresholds for blocking such acquisitions should be lowered. Legislation spearheaded by Sen. Jon Cornyn (R-TX), which would broaden the authority of the Committee on Foreign Investment in the United States to stop nearly any deal that might result in technology transfer to China, was introduced in both chambers this week. It could become law this year.

Beyond these very difficult technology, intellectual property, and cybersecurity issues, there are many other unresolved problems in the economic relationship.  One potential solution, which hasn’t received enough attention (and has too often been dismissed as a political impossibility), is for both Washington and Beijing to catologue all of their gripes, all of their issues, and put them on the negotiating table. Whatever the political obstacles may be, the costs of not pursuing a U.S.-China bilateral free trade agreement could soon be all of our biggest regrets.

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