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EPA Secretary Scott Pruitt has argued that the Paris Agreement on Climate Change is a bad deal for the U.S. because it doesn’t bind China and India. But that implies it could be fixed by imposing the same ruinous terms on developing countries—which would in fact just spread the damage. The real reason for pulling of the Paris Accord is that it is a futile gesture based on empty and dishonest premises.

The first thing to note is that the same computer models that say global warming is a problem also say that Paris will not fix it. If one were to graph the standard warming projections over the next century with and without Paris, the two lines overlap almost exactly. Whatever greenhouse gas (GHG) concentration we would have reached in the year 2100 without Paris, we will reach it shortly thereafter with. For all its costs, the Paris treaty will have almost no effect on global warming, and by depleting global income it will make it harder for countries to adapt and innovate in response to whatever changes occur. Thus not only does Paris not solve the problem, it arguably makes it worse.

This, by the way, was equally true of the earlier Kyoto Protocol: all cost and no benefit. Under current technology and economic realities we have only two options: do nothing and adapt to whatever changes the climate will undergo over the next century, or take a lot of costly and futile actions today and adapt to whatever changes the climate will undergo over the next century. There has never been a third option involving costly actions today that stop the climate from changing.

Paris binds countries to meet their self-imposed Nationally Determined Contributions, or NDCs. The Obama Administration submitted an NDC that committed the U.S. to a twenty six percent reduction in GHG emissions below 2005 levels by 2025 through specific regulatory measures, all of which were enacted by Executive Order rather than by passing laws in Congress. It amounts to an attempt by one Administration to bind all future Administrations despite lacking legislative warrant. If the U.S. NDC was supposed to be legally binding then it should have gone through Congress. And now that some of those measures have been repealed by the current Administration, it is dishonest to keep the existing NDC as part of the Paris Agreement.

Paris embeds an inconsistency between calling for the use of the “best available science” while also prejudging what that science is allowed to say. The Accord’s preamble calls climate change an “urgent threat” even though mainstream climate science and economics does not imply this, instead placing global warming rather low on the list of problems confronting the world. The Agreement enshrines the ill-defined and arbitrary target of holding “the” global average temperature to 2oC above pre-industrial levels while completely ignoring the critical question of how it should be measured. Nor does it say how much of the warming is natural and should not be counted against the 2oC limit. This omission alone makes the overall target absurd, since it could bind the world to taking actions to prevent the sun from shining brighter.

The Paris Agreement also veers into absurdity by its political and ideological language, requiring countries to address extraneous themes like gender equity, biodiversity, poverty eradication, migrants, disabled persons, a “just transition of the workforce,” “creation of decent work,” and so on. Having larded the treaty with social justice slogans, its authors cannot be surprised if they become points of contention. It is not surprising that conservative governments will dislike these items, and if the authors respond that they can simply be ignored, then they should not have been in the treaty to begin with.

Finally, a proponent might acknowledge all these problems yet still defend Paris as a “good first step” in the expectation that later steps will yield big benefits.  But this is flawed reasoning. In any well-structured policy transition the first step yields the highest benefits at the lowest cost—the so-called low hanging fruit. Subsequent steps cost more and yield less, until the point is reached where costs exceed benefits and the process stops. Paris, like Kyoto, cost too much to implement while yielding unmeasurably small benefits. Subsequent steps will only be worse. It is a bad first step on a road to nowhere.

Pulling out of the Paris treaty would send a signal that the U.S. will not bind itself to bad deals based on hype and empty slogans. If this is the best global climate diplomacy could come up with then it is time to pursue other options.

The Trump administration has released proposals to guide the Republican push for major tax reform. The proposals are mainly supply side in nature, meaning cuts to marginal tax rates and other changes designed to increase economic growth. Major tax reforms are needed desperately, so kudos to Trump for taking charge and thinking boldly, particularly on business tax reforms. There are, however, a few misguided parts in his new plan.

Here are thoughts on the proposed business tax reforms:

  • Cutting the corporate tax rate from 35 percent to 15 percent would have a huge positive effect on the U.S. economy over time. It would encourage more capital investment and hiring, and it would reduce the incentive for corporations to avoid and evade taxes. Such a rate cut would cause the income tax base to expand automatically and substantially over time.
  • Cutting the tax rate on “pass-through” businesses to 15 percent, however, is a mistake. Policymakers should aim to equalize the overall rates on income earned by each type of business. So if the corporate rate is 15 percent, corporate income would face a combined tax rate of 15 percent plus the individual dividend rate of, say, 15 percent under tax reform, for a total of about 28 percent (0.15+0.85*0.15). Thus, the top rate on pass-through income should be cut to the same 28 percent.
  • Switching from a worldwide to a territorial system for corporations would encourage multinationals to move their headquarters to the United States. It would reverse the trend toward reincorporating abroad.
  • Ditching the misguided “border adjustment” provision the House proposed is a good move. Paul Ryan and Kevin Brady need to drop it so that tax reform can move ahead.

Here are thoughts on the proposed individual reforms:

  • Reducing the number of tax brackets from 7 to 3 (10, 25, and 35 percent) is a good reform. Cutting marginal rates reduces distortions, increases incentives to engage in productive activities, and reduces avoidance and evasion.
  • Repealing the special 3.8% investment tax is a good reform.
  • Eliminating itemized deductions—such as the state/local tax deduction—is a good reform. But we should also eliminate, or at least cap, the mortgage interest deduction.
  • Expanding child care benefits is a mistake. It would add complexity and distortion to what should be a private area of activity in the economy.
  • Ending the alternative minimum tax and the estate tax are both long overdue reforms.

What about the effects of tax reform on the deficit? Policymakers should put that concern aside for the corporate rate cut portion of Trump’s plan because the automatic expansion of the corporate tax base would mean that the government would lose little if any revenue over the long term. Exhibit A: Canada and Exhibit B: Britain.

However, policymakers should be concerned about the deficit effects of individual tax changes. Optimally, the budget impact of reduced individual tax rates should be offset by eliminating deductions and credits, spending cuts, and dynamic growth effects.

All in all, the Trump proposals push tax reform in a good direction. Trump, his advisors, and House leaders seem to understand the urgency of passing major tax reforms. But we need Republican senators to step up to the plate and think boldly as well. Republicans have an opportunity this year to pass reforms that would generate large and lasting benefits in terms income and opportunity for every American family.

For foreign policy wonks, Trump’s first hundred days have been a bit like a roller coaster ride. In just over three months, the new administration has veered from one crisis to another, from Syria to North Korea, China to Canada. Sudden Trumpian reversals on various foreign policy issues have been sharp enough to produce whiplash. Meanwhile, a dizzying barrage of strange foreign policy choices and statements makes it difficult to guess what’s coming next.

Nevertheless, amid all the confusion, there are a couple of big takeaways from these first 100 days that may help us better understand where Trump’s foreign policy approach is headed:

1. There really is no such thing as the Trump Doctrine

Trump’s reversals on issues like NATO have been hailed by some as bringing him closer to a “normal” presidency. Indeed, it is not always obvious from a President’s campaign what his broad foreign policy approach will end up being, or the obstacles and inertia that he will face in trying to alter American foreign policy. Yet even by these standards, Trump’s approach to the world remains unclear. A recent attempt by White House Chief of Staff Reince Preibus to outline what he sees as the Trump Doctrine merely adds to this confusion:

Trump is “reshaping our position in the world,” Priebus said, and “really establishing, I think, a Trump Doctrine in setting some certain lines of where we’re not going to allow people like [Syrian President Bashar al-Assad] to go, but at the same time making it clear that we’re not interested in long-term, you know, ground wars in the Middle East, but obviously focusing in on ISIS and what we’re doing in the Middle East to protect us here in the United States, working with China on ongoing issues with North Korea that are very real and are serious issues that takes cooperation within the region to handle appropriately.”

Another official “added that Trump’s status as ‘an incredible negotiator’ is also central to the doctrine.” As these statements suggest, Trump’s foreign policy so far has been highly reactive – responding to crises – but with no indication of an overarching strategy. 

2. Trump is escalating the War on Terror

Though the most visible indicator of this escalation was the use of a MOAB (Massive Ordnance Air Blast bomb), affectionately known as the ‘Mother of all Bombs,’ in Afghanistan, the new administration has chosen to escalate conflicts in a number of countries. More troops are being sent to the greater Middle East, in particular to join the fight against ISIS in Syria and Iraq, and U.S. Special Operations Forces are now engaging in ground actions against Al Qaeda in Yemen.

The administration has also loosened the rules of engagement in Yemen, Afghanistan, Somalia and elsewhere, and has increased the number of bombing raids and drone strikes. According to at least one watchdog group, Trump’s choice to give his generals a free hand in these conflicts has resulted in a massive increase in civilian casualties in these areas.

3. Brinksmanship may be back  

The new president appears to have a gift for raising tensions around the world. Though his administration did certify that Iran is complying with the Obama-era nuclear deal, they also announced a 90-day review of the deal. Various officials are using increasingly tough rhetoric towards Iran. The administration has also indicated that it intends to step up support for the GCC campaign in Yemen against the Houthis, a group often described as an Iranian proxy.

Trump is also taking an increasingly hard line towards North Korea, with Vice President Mike Pence warning the DPRK that “all options are on the table” in the case of further missile or nuclear tests. Tensions around the peninsula are high, with joint U.S.-South Korean drills, and a North Korean live fire exercise taking place this week. Whether the new administration’s statements are accurate indicators of their position, or merely heated rhetoric, such statements can easily raise the potential for conflict.

4. Advisors really matter

Political science research has shown that even experienced advisors cannot substitute for an inexperienced president. Unfortunately, Trump is anything but experienced on foreign policy. And while some of his appointments have been reassuringly experienced (such as James Mattis, now Secretary of Defense), others are either inexperienced (such as Jared Kushner) or have disturbing worldviews (i.e., Steve Bannon).

Infighting between advisors inside the administration has been notable during these first hundred days, and Trump’s policies seem to vary depending on which individuals he is listening to on any given day. If you are interested in the internal dynamics of the Trump administration, you can check out my recent article at War on the Rocks, which explores the civil war in the White House. The Cliffs Notes version? Advisors really matter, and it’s still unclear which faction – if any – will triumph in the struggle for influence between Trump’s teams of rivals.

5. Competence is key

Some of Trump’s foreign policy decisions appear to be trending closer to a traditionally hawkish Republican line, while some of the problems that he faces – such as Turkish-Kurdish tensions in Northern Syria, or the intractable conflict in Afghanistan – have been around for far longer than this administration. Yet it is worth noting that the new administration’s response to various crises has often been less than competent. Some of this is the result of inexperience and a lack of appointed officials in key positions at the Departments of State and Defense, but others are self-inflicted wounds. The administration’s immigration bans and TPP withdrawal are cases in point.

Other foreign policy incidents have been frankly bizarre. Trump’s first National Security Advisor, Mike Flynn, was forced to resign after only 25 days for misleading the administration on his lobbying and ties to Turkey and Russia. In an oval office meeting, Trump refused to shake Angela Merkel’s hand, later claiming that he didn’t hear the request. He phoned Turkish premier Recep Tayyip Erdogun to congratulate him on a questionable referendum victory that consolidated his dictatorial power. Moreover, the administration misplaced an aircraft carrier, announcing that the USS Carl Vinson was heading for the Korean Peninsula as a show of force, when in fact, it was near Australia, moving in the other direction.

Taken alone, these incidents are concerning. But when considered in the broader context of Trump’s tendency to bluster and saber-rattle, his support for escalating the war on terror, and his inability to articulate any coherent strategy for U.S. foreign policy, they raise even bigger questions. If Trump’s first hundred days are truly representative of his foreign policy approach, it’s going to be a bumpy four years.

Senator Ted Cruz (R-TX) recently introduced the Ensuring Lawful Collection of Hidden Assets to Provide Order Act, also known as the “El Chapo Act,” to fund President Trump’s proposed border wall.  The media reports that Cruz’s bill is similar to one introduced by Representative Jim Sensenbrenner (R-WI) in February.  Cruz’s bill would apportion some money seized from drug lords like El Chapo to the construction of a border wall. 

There are several problems with this idea.

First, cash seizures cannot pay for the border wall.  The inspector general at the Department of Justice found that the DEA, ATF, and FBI only seized assets and cash worth $5.36 billion from 2007 through 2016.  A raid in Mexico in 2007 yielded $205 million in seized cash.  The agencies spent those funds, gave them to local or state law enforcement, or returned some of them to victims.  As my colleague David Bier and I wrote, building and maintaining a border wall over the next decade will cost about $44 to $99 billion.  If 100 percent of the seized funds from 2007 to 2016 went toward border wall construction, then 126 to 310 miles of it would have been built by now along the roughly 2000 mile long border.  That amounts to an average of 14 to 35 miles a year. 

Even if the federal government seized all $14 billion from El Chapo (it won’t), that would at most cover a third of the decade-long cost of the border wall and likely no more than a seventh.         

Second, just because money seized from Mexican drug dealers is funneled to paying for the wall doesn’t mean that Mexico would be paying for the wall.  That money was going to be seized anyway by the federal government and mainly spent by U.S. law enforcement agencies.  By redirecting the flow toward the construction of a border wall, this bill will make those U.S. law enforcement agencies pay for it in foregone revenue.  A redirection of revenue that was already coming in cannot be a new stream of revenue to pay for a border wall.  At best, it is an accounting trick to make it look like Mexico is paying for the wall.  I am not endorsing the government’s seizure of drug money, the War on Drugs, or even the current budgets of other U.S. law enforcement agencies – I am merely pointing out that other U.S. agencies will be foregoing these funds.  I doubt that Congress or the Trump administration will let their revenues shrink, so taxpayers will likely plug any spending gap caused by the redirection of funds toward a border wall.

Third, much of the disagreement over the cost of the border wall concerns the cost of eminent domain.  Most of the land that the government will need to seize through eminent domain to build the border wall is in Texas where most of the land along the border is privately owned – which is one reason why 61 percent of Texas adults oppose the border wall.   

Fourth, the stock of illegal immigrants is at its lowest point in a decade and annual cross-border apprehensions are at or near a 17-year low.  Even if a border wall was a cheap and effective way to stop illegal immigration, the sustained collapse in cross-border apprehensions makes it a silly expenditure.  It’s like a perfectly healthy person putting their formerly broken-but-now-healed arm in a cast 9 years after the injury healed.

In essence, Cruz’s bill would redirect seized drug money in order to fund further seizures of private property along the border and to pay for an expensive wall that is unnecessary.

A post at The American Interest, vaguely attributed to “Walter Russell Mead and staff” criticizes the Iran nuclear deal as “worse than we knew.” That judgement is based on a Politico article discussing the seven individuals that the Obama administration agreed to release from U.S. custody, and another fourteen fugitives for whom they agreed to drop charges, as part of a “one-time gesture” to sweeten the deal for the Iranians.

Politico reports on some of the charges these individuals were accused of: three of them “allegedly sought to lease Boeing aircraft for an Iranian airline that authorities say had supported Hezbollah”; another tried to “buy thousands of U.S.-made assault rifles and illegally import them into Iran”; another “was charged with smuggling U.S. military antennas to Hong Kong and Singapore for use in Iran,” and so on.

The American Interest claims these are “far more serious threats to national security than was previously disclosed.”  But what the Politico article reveals is more detail about the allegations made of men already revealed to be smugglers. And to describe them as “serious threats to national security” is an exaggeration. It’s not clear, for example, what exactly is threatening about an Iranian airline with some vague association with Hezbollah leasing a Boeing aircraft, or whether Iran importing more assault rifles meaningfully aids its military capability. Moreover, the fourteen people that saw their indictments dropped weren’t in U.S. custody and thus weren’t about to have their smuggling efforts stopped, though indictment limited their ability to travel. Letting them slide did not obviously increase their threat.

More importantly, neither Politico nor The American Interest directly confronts the Obama administration’s evident judgement that the nuclear freeze it got from Iran was worth letting some shady people off the hook. Does the risk from the releases hold a candle to the problem of nuclear proliferation? How about the danger posed by U.S. hawks ever-eager to use Iran’s nuclear program as a justification for launching another war in the Middle East? Surely, those menacing scenarios are worse than one the released smugglers posed.

The post continues:

[T]he Iran nuclear deal was a gift to Iranian hardliners who, in return for delaying their nuclear ambitions, were rewarded with carte blanche for all of their other activities by an Obama administration that was willing to turn a blind eye in order to preserve the deal.

As Secretary of State Tillerson has noted, while Iran has remained compliant on the nuclear portion, their other activities constitute “alarming ongoing provocations.” The Trump administration, by understanding the threat posed to U.S. interests by Iran’s non-nuclear activities, including these global smuggling operations that support Iran’s deadly agenda, seems likely to change the calculus on U.S. policy towards Iran.

As to the deal being a gift to Iranian hardliners, the Iranian hardliners themselves seem to disagree. In fact, it was hardliners in Iran that objected most to the nuclear deal, arguing that it conceded too much. And it’s hardliners that today seem to benefit politically from Trump’s threats to undo the deal. With regard to “Iran’s deadly agenda,” the truth is that the Iranian regime has always been reprehensible, but too many in the U.S. foreign policy community habitually inflate the threat Iran actually poses in the region, where its posture is largely defensive and its military capabilities are modest compared to most of its neighbors.

Tillerson’s comments, and The American Interest’s take on them, are a typical example of opponents of the Iran deal grounding their opposition on the non-nuclear aspects of Iran’s behavior. But the deal was narrowly conceived to address Iran’s nuclear program. It was a strict non-proliferation agreement. Addressing all problematic aspects of Iran’s behavior would have meant no deal was possible. The right measure of the deal is not whether it made Iran saintly, but whether it improves U.S. security. 

The Congressional Budget Office has released a report on compensation of federal government workers. It finds that compensation is 17 percent higher, on average, for federal civilian workers than for private sector workers, after adjusting for factors such as education levels.

The CBO found that federal wages were a little elevated, but that federal benefits were substantially higher than benefits in the private sector. Generally, less-skilled and medium-skilled workers do better on both wages and benefits in the government, but the highest-skilled workers do better on wages in the private sector.

Wages are 3 percent higher in the government than the private sector, on average, but the CBO finds substantial variation depending on education level:

  • Federal workers with no more than a high school education earned 34 percent more, on average, than similar workers in the private sector.
  • Federal workers whose highest level of education was a bachelor’s degree earned 5 percent more, on average, in the federal government than in the private sector.
  • Federal workers with a professional degree or doctorate earned 24 percent less, on average, than their private-sector counterparts.

Benefits are 47 percent higher in the government, on average, but there is variation as follows:

  • Average benefits were 93 percent higher for federal employees with no more than a high school education than for their private-sector counterparts.
  • Average benefits were 52 percent higher for federal employees whose highest level of education was a bachelor’s degree than for similar private-sector employees.
  • Among employees with a doctorate or professional degree, by contrast, average benefits were about the same in the two sectors.

The Trump administration and Congress should try to bring federal pay and workplace conditions in line with the rest of the nation. Reforms should include cutting the overly generous federal benefits package and reducing the hurdles to firing poorly performing federal workers.

For further analysis on federal wages, benefits, and firing, see here.

The noted political theorist Benjamin Barber died yesterday. He was 77.

Ben wrote many books among the best known of which might be Jihad vs. McWorld: Terrorism’s Challenge to Democracy, published first in 1996, when it became a bestseller. It had a renewed life after September 11th. His latest and last book, Cool Cities: Urban Sovereignty and the Fix for Global Warming, appeared one week ago.  He was a critic of libertarianism specifically and (classical) liberalism more generally, perhaps most starkly in his 2008 book Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole and earlier in his major academic work, Strong Democracy: Participatory Politics for a New Age (1984). I have nothing to say now about his critique save that libertarians should attend to it.  He was a learned friend of democracy who thought the adjective in “liberal democracy” tended to undermine the noun.

Ben Barber interacted with Cato several times over the years. He debated Tyler Cowen at Cato in 2003. My colleague Brink Lindsey reviewed Consumed. Tom G. Palmer found Ben’s economic views open to question. Other colleagues at various times noted Barber’s books and opinions.

I knew Ben well some years ago, and my remarks here draw on those memories. I remember a man who was both a liberal and democrat. In my experience his liberalism served his commitment to democratic discussion: he welcomed both Nozickians and neo-Marxists to his seminars. He gave them and the rest of us an argument but never pushed dissent to the margins. He encouraged his graduate students to go their own way,  and I did, all the way to the Cato Institute which might have been annoying for another man but not for Ben. He joked about my change of mind but never expressed the slightest disapproval. I was not the only one. Over the years his students included people who became participatory democrats, feminists, the hard-to-pigeonhole, as well as libertarians and libertarian leaners. Of course, if you encourage people to go their own way, you will end up with a menagerie of former students rather than disciplined disciples. But Barber did more than tolerate differences. He encouraged his students to engage thinkers well outside conventional opinion like the libertarian-conservative philosopher Michael Oakeshott among others.

Libertarians benefitted from Ben’s criticisms while others will miss the democratic spirit of his writings. Those who knew him will miss most of all a man who evinced the liberal virtues of openness and engagement, virtues now needed more than ever.

A new Washington Post/ABC News poll finds that Americans say they support Affordable Care Act regulations that require health insurance companies in all states to cover a particular set of services (62%) and prohibit insurers in all states from charging higher prices to people with pre-existing conditions (70%).

However, the poll did not find out what Americans would be willing to give up to obtain these regulatory benefits.

Fortunately, a recent Cato Institute/YouGov health care survey investigated how Americans make trade-offs when it comes to their health care. In short, support for once popular regulations plummets as soon as voters consider their costs.

At first, and similar to the Washington Post/ABC poll, the Cato survey found by a margin of 63% to 33% Americans support prohibiting insurance companies from charging higher premiums because of pre-existing conditions—also known as “community rating.” But support flips, and majorities come to oppose community rating…

  • if it limited access to medical tests and treatments: 66% oppose, 27% support
  • If it limited access to top rated medical facilities and treatment centers: 62% oppose, 31% support
  • If one had to wait several months before seeing a specialists for necessary care: 65% oppose, 25% support
  • if premiums increased: 55% oppose, 39% favor
  • if taxes increased: 53% oppose, 40% favor

The Cato Institute survey found the same pattern for a nationwide standard requiring insurers offer coverage to people with pre-existing conditions (guaranteed issue). Americans support it if it’s free, but oppose it if it costs them higher premiums but particularly if it harms the quality of health care.

While it is well known that premiums are rising, and nearly a third of health insurers have abandoned the exchanges—many do not know how ACA regulations are harming the quality of health care in the U.S.

Academic research shows that these regulations are harming the availability of health services and access to top hospitals, surgeons, and doctors—particularly for the most vulnerable Americans. Why? Economists find that in order to comply with costly rules like community rating and guaranteed issue, health insurers are driven to limit access to medical treatments, “star” hospitals and specialists to discourage expensive customers from applying for coverage. This is a prime example of unintended consequences—regulations intended to help people turn out to also harm people.

All government policies come with a price. These costs can come in the form of higher taxes, higher priced goods and services, fewer jobs, slower economic growth, sluggish innovation, rationing, long lines, etc. Some costs voters are willing to bear, but others they are not.

But far too often, policy is made without voters fully understanding the costs of policies their elected officials and unelected regulators implement. A truly representative and accountable democracy depends on government officials being honest and clear with voters about what sacrifices voters will need to make in order to obtain a policy benefit.

Furthermore, it’s important for policymakers to understand if voters are willing to shoulder the costs to get a particular government benefit. Thus, it is incumbent upon polling organizations to investigate what trade-offs Americans are willing to make—and that which they are not.

In sum, before declaring overwhelming public support for a public policy, one should always check public willingness to bear its costs.

U.S. - Canada trade relations are in the news, and not in a good way.  There are two particular products at issue: lumber and dairy. Here’s what Commerce Secretary Wilbur Ross had to say yesterday: 

It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us. This is not our idea of a properly functioning Free Trade Agreement. 

As background, there are two separate issues. First, on dairy, there are allegations that a Canadian government program, in combination with certain private sector practices, has led to reductions in U.S. dairy exports to Canada.  There may be something to this claim, and I can imagine the U.S. might file a complaint at the World Trade Organization.  Trump’s tweets may make it sound like there will be some kind of harsh tariff retaliation outside the context of the WTO, but I’m skeptical.  We haven’t yet seen any blatant trade law violations of this sort from the Trump administration (and hopefully we won’t), and I think it’s more likely they will go the WTO. 

Then there’s lumber.  This is a long-standing U.S. - Canada trade dispute (my colleague Dan Ikenson gives the background here), and it is picking up again, as the Department of Commerce made a preliminary determination of countervailable subsidies on imports of softwood lumber from Canada.  This is from the fact sheet they issued: 

Commerce calculated preliminary subsidy rates for five mandatory respondents: for Canfor Corporation, 20.26 percent; for J.D. Irving, Limited, 3.02 percent; for Resolute FP Canada, Ltd., 12.82 percent; for Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50 percent; and, for West Fraser Mills, Ltd., 24.12 percent. Commerce established a preliminary subsidy rate of 19.88 percent for all other producers/exporters in Canada.

Before anybody panics, let me reiterate that this is nothing new.  Note that there was a preliminary determination on subsidized Canadian lumber back in August 2001, where DOC calculated a single country-wide subsidy rate of 19.31%.  While there are a lot of potentially system-destroying trade actions from the Trump administration to worry about, this one is just the usual, routine kind of trade remedy action.  Not that I support this sort of thing, of course, but it’s part of the system. Also note that it is just a preliminary determination, subject to a final review by the Commerce Department, as well as a final injury determination by the International Trade Commission. And the parties may be able to work out an agreement, as they have in the post. 

Unfortunately, some people in the media don’t understand all this.  Here’s Breitbart:

President Donald Trump announced that he wanted a 20 percent tax on softwood lumber coming from Canada, telling conservative media he thought the country was treating Canada “very unfairly.”

“We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the United States from Canada,” Trump announced during a meeting with conservative journalists. He also signaled he wanted action on Canadian dairy products as well.

“We’re going to start doing lumber in our country, it’s going to mean that farmers are going to start selling milk in our country,” Trump said.

The president’s decision is the latest sign that he will keep his promises on trade deal negotiations. 

To be clear, this has nothing to do with the President keeping any promises.  This is the trade remedy system being used by U.S. industry in the same way they always use it.   And here’s CNN:

The Trump administration is hitting Canada with stiff tariffs of up to 24% on lumber shipped into the United States.

These are the first tariffs imposed by President Trump, who during his election campaign threatened to use them on imports from both China and Mexico.

The decision on Monday evening is bound to lead to a standoff and could stoke fears of a trade war between the U.S. and Canada, two of the world’s largest trade powers.

Commerce Secretary Wilbur Ross said the tariffs, or taxes, announced Monday evening were being imposed after trade talks on dairy products fell through.

Well, technically, these are Trump’s first tariffs, but again, they are not some blatant violation of trade agreements, like a 40% across the board tariff on imports would be.  Rather, they are imposed pursuant to domestic law, and authorized by international trade rules in certain circumstances.  What will happen is that Canada will challenge the decision to impose duties, through complaints at the WTO and under NAFTA, and there will be a ruling on whether the Commerce Department acted consistently with trade rules in imposing the duties.  This is trade litigation, not a trade war.  (The sentence about these tariffs being imposed “after trade talks on dairy products fell through” is very misleading.  The lumber tariffs are simply part of the lumber CVD process, and are not linked to dairy issues).   Summing up: There may be reasons to panic about Trump’s trade policies at some point, as a number of very radical protectionist measures are under consideration.  However, what happened yesterday with lumber tariffs is just the usual trade remedy nonsense.

In case you missed it, 60 Minutes aired a great interview with Judge Alex Kozinski last evening.

I have been at work editing a collection of Judge Kozinski’s best opinions. It’s going to be a great book.

To watch the epic debate that I hosted between Judge Kozinski and Judge Wilkinson on the American criminal justice system, go here.

Many of the problems with litigation under our federal system, as I’ve noted before, arise when state courts can reach out to project their power onto litigants and disputes outside their borders. Public choice economics suggests that when courts are answerable to the political and legal classes of a single state only–say, California or Montana–they might not be ideally responsive to the interests and due process rights of out-of-state parties who have been compelled by force to show up and defend a lawsuit. Even if state judges and juries manage to avoid the temptation of “home cooking”–dishing out tastier outcomes to down-home litigants and lawyers than to outsiders–the remains the wider problem of forum-shopping, in which–even if no forum intends to act other than impartially–lawyers can bring an action in whichever of multiple available forums is most gainful for their side and unwelcome for their opponent.

A great deal, therefore, hangs on when state courts can compel absent parties to show up and defend a lawsuit. When may a state assert jurisdiction over a distant party even though it lacks one of the relatively uncontroversial grounds for doing so, such as that the events being sued over happened within its borders? 

And here there has been good news to report in recent years. Our system relies largely on the federal judiciary to police overreaching by state courts in their jurisdictional claims, and after decades of irresolution, the U.S. Supreme Court has lately been getting much more serious and confident about drawing the right sorts of lines. Importantly, it has done so with support from both liberal and conservative wings of the Court. In the most significant recent case, Daimler AG v. Bauman (2014), Justice Ruth Bader Ginsburg wrote for a unanimous Court, with only Justice Sotomayor writing a separate concurrence. (The case dealt with an international as distinct from interstate claim of jurisdiction, but made precedent for both). 

But some states have pushed back against Daimler, which may be why the Court granted review of two cases on which it will hear oral argument tomorrow, April 25. In Bristol-Myers Squibb Co. v. Superior Court, California courts took jurisdiction over hundreds of cases from other states alleging side effects from the drug Plavix, even though the other cases had no particular connection with California other than that their lawyers wanted to convoy them in along with the actual California cases. In BNSF Railway Co. v. Tyrrell, Montana opened its doors to litigation against a railroad based elsewhere over injuries that did not occur within Montana. 

It seems unlikely that the Court will declare a change of heart and back off its 2014 near-unanimity. Helpfully, the Trump Justice Department has filed an amicus brief arguing that the California Supreme Court overstepped the line when (over a dissent from three of its members) it found jurisdiction over the out-of-state drug cases. Still, lawyers will be looking at the possibility that some distinctive sub-pattern in one or both of tomorrow’s cases (such as federal law’s recognition of the railroad industry as having a distinctively national workforce) might justify carving out an exception to its rule.

The stronger outcome would be for a united Court to say unambiguously, about its Daimler holding: we said it, and we meant it. 

With this blog post, I’m taking a quick break from trying to figure out President Trump’s trade policies. (Is this going to be the most protectionist presidency ever? Or will it end up looking not too different from a typical presidency? The conflicting signals are making my head spin!) Instead, I want to talk about an issue that Dean Baker keeps raising: Whether U.S. trade policymakers are hypocritical because they have liberalized a lot of trade in manufactured products such as steel, but not very much trade in professional services such as medical care. (See here, here, here, here, here, here, and here for examples of his references to this. I think there are more–he talks about this a lot!–but those links are a start). Here is his latest:

We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

I agree with Dean that we should have more free trade in medical services, but the question is, why has this not happened? Is it because, as he says, “trade negotiators may feel this protectionism is justified”? As with many things, the answer is complex and has a number of components, but the short answer is that trade negotiators are not saying that protectionism is justified here. To understand the actual hurdles to liberalization in this area, you need to know how trade liberalization happens as part of a trade negotiation. If trade negotiations were run by pure free traders, they would be quick and easy. Both sides would just show up and explain that they were liberalizing all of their goods and services trade. That would be the end of it. In reality, though, there is a mercantilist logic to trade agreements. One side demands that the other open up its market in particular sectors, and the other side demands similar market opening in sectors of interest to it. In response to these demands, each side may resist opening up its own market to some extent, but it will nevertheless make what are referred to as market opening “concessions” in its domestic market in order to get the other side to open its market. It’s not pretty, and it’s not ideal, but this approach has had a good amount of success in liberalizing trade over the past few decades.

The importance of this process to Dean’s point is that U.S. trade negotiators generally don’t go into a trade negotiation offering up market opening. Rather, they respond to demands from the other side.

With this in mind, turning to the medical sector, the question is, are foreign governments demanding that the U.S. government liberalize its process for allowing foreign doctors to work here, and are U.S. trade negotiators resisting? 

I have never heard that this is happening, but if Dean has evidence otherwise, I would love to hear it. And I can imagine a reason why it is not happening. Would foreign governments really want to press for something that would lead to their doctors leaving their country? For this reason, I suspect most of them are not pushing this as an area of liberalization (and more generally, the large role of many governments in the health care sector probably makes them reluctant to put these services on the negotiating table). Overall, then, I’m skeptical that his story of U.S. trade negotiators resisting liberalization in medical services is accurate.

My challenge to Dean, then, if he really wants to see the U.S. medical services market liberalized (he may just be using this as an excuse to criticize trade liberalizaton in other sectors), is to sort through the various domestic reasons–at the federal and state level – why the U.S. market is still somewhat closed in this area. Then, he would have to figure out the key actors involved who would need to be convinced to change the existing system, and talk to them directly. It would be a lot of work, and much of it will be at the state level. But it’s a task worth doing (and I’m happy to help him on it!). The solution would likely involve some form of mutual recognition agreements between governments allowing doctors to practice across borders. 

By contrast, his criticism of trade negotiators misunderstands the hurdles to liberalization here, and is not likely to help solve the problem.

Recent budget talks between the White House and Congress shows that President Trump puts a high value on funding the construction of a border wall. Crucial to this debate is how much a border wall will cost to construct and maintain. Center for Immigration Studies (CIS) published a brief report purporting to show that building a wall along the southern border would pay for itself if it keeps out only 160,000 to 200,000 border crossers over the next decade. That means the border wall would only have to deter about 9 to 12 percent of all illegal border crossers who would have successfully made it into the United States during that period. The report uses a variety of assumptions that unrealistically lower the cost of the wall as well as inflate the fiscal cost of border crossers.

We used more recent and precise data to update CIS’s analysis without altering its methodology. Simply using newer numbers—with no changes to the report’s unrealistic underlying assumptions—proves that the border wall cannot pay for itself. Despite fanciful promises to the contrary, a border wall is too expensive and will deter too few illegal immigrants to pay for itself—even under assumptions that are extremely generous to those who support a wall.

Updating CIS’ Analysis

The first update was to factor in a more recent estimate of the cost of a border wall. The CIS study chose to rely on a statement made by Senator Majority Leader Mitch McConnell (R-KY) rather than any actual cost estimate. We used an official estimate from the Department of Homeland Security (DHS) issued after the majority leader’s comment. This placed the cost of building a 1,250-mile border wall at $21.6 billion, or $17,280,000 per mile, that includes all costs such as the condemnation of private property through eminent domain. We also include the yearly maintenance costs. 

The second is that we adjust CIS’ fiscal cost estimate by controlling for the age of the border crossers. The National Academy of Sciences (NAS) fiscal cost estimates show that the immigrant age of arrival is vital for estimating their fiscal impact. CIS used a 2010 education of Mexican illegal immigrants as a proxy for the education level of all future border crossers. We used the March CPS to adjust for this by assuming that the education of future illegal immigrants will be more similar to those arriving in 2015 than 2010. We further divided up the illegal border crossers by age and education to get a more accurate view of their potential fiscal impact. 

Using a more recent estimate of the border wall cost as well as the age of entry and education levels for unlawful border crossers shows that the border wall would have to deter the entry of about 1 million illegal immigrants over the next ten years to break even—an estimated 5 to 6.3 times as many as CIS estimated. Furthermore, this means that the border wall would have to permanently deter 59 percent of the predicted border crossers over the next ten years to break even. This does not include the cost of any additional enforcement measures such as hiring more border agents, border returns, or border deportations. 

Calculating the Fiscal Cost

First, we used the 2016 March CPS to look at the ages and education of new immigrants from Mexico and Central America who comprise virtually all unlawful immigrants who enter as border crossers (Table 1).

Table 1

New Central American & Mexican Immigrants by Age & Education in 2015





Less than HS 18.93% 25.73% 1.94% HS Grad 10.19% 18.45% 0.49% SC 2.91% 9.22% 0.97% College 0.97% 5.83% 0.00% College+ 0.00% 4.37% 0.00%

Source: 2016 March CPS.

Second, we took the average fiscal net present value (NPV) for each education-age cell from the NAS’ Table 8-12 (Table 2). We chose Table 8-12 because that was the table chosen by the author of the CIS report. 

Table 2

Fiscal Net Present Value of Immigrants by Age of Arrival & Education in 2015





Less than HS -24,000 -225,500 -265,625 HS Grad 77,625 -105,125 -174,625 SC 156,625 12,375 -161,000 College 210,125 213,750 -179,875 College+ 199,375 547,125 -122,375

Source: National Academy of Sciences, averages from Table 8-12.

Third, we used CIS’ downward adjustment numbers to diminish the fiscal NPV to account for them being illegal immigrants (Table 3). This is the most objectionable part of the CIS study. Their downward adjustment figure is based on numbers from a notoriously flawed report, assumes a non-discounted household fiscal value is comparable to the NAS’ individual level fiscal net present value estimate, adjusts benefits and tax revenues down equally even though illegal immigrants receive virtually zero welfare benefits, and are unadjusted by age. We kept this highly flawed step to show that we did not have to change CIS’ methods to get drastically different results. A better downward adjustment figure would decrease government expenditures on illegal immigrants more than their tax payments. 

Table 3

Adjustment Downward





Less than HS 0.676 0.676 0.676 HS Grad 0.799 0.799 0.799 SC 0.893 0.893 0.893 College 0.221 0.221 0.221 College+ 0.221 0.221 0.221

Source: Center for Immigration Studies.

Fourth, we multiplied each cell by its corresponding cell in the above charts to get the fiscal NPV of illegal immigrants by age, education, and the percentage of immigrants by age/education cell (Table 4). This table is not useful outside of this cost projection as it is merely a means to add together the average NPV of a new border crosser. 

Table 4

Fiscal Net Present Value of Immigrants by Age of Arrival & Education in 2015

  0-24 25-64 65+ Less than HS -3,072 -39,219 -3,487 HS Grad 6,323 -15,494 -677 SC 4,074 1,019 -1,396 College 451 2,752 0 College+ 0 5,283 0

Source: Authors’ Calculations.

Adjusting for age and education, the average NPV fiscal cost of a new illegal immigrant border crosser is -$43,444, which is 42 percent less than CIS’ estimate of -$74,722.

Calculating the Cost of the Border Wall 

Calculating the cost of the border wall over the next ten years is the second portion of this model. We use the newer DHS cost estimate, assume all construction costs occur in the first year, and that the length of the new border fence will cover the remaining 1,637 miles of the border where there currently isn’t a pedestrian fence. We also included annual maintenance costs not counted in the CIS estimate for the entire length of the wall (Table 5). Our more realistic ten-year cost estimate for the border wall is $43.8 billion – 2.9 to 3.7 times as high as CIS’ estimate. 

Table 5

Cost of Border Wall

Year Construction Costs (Per Mile) New Fence (Miles) Border (Miles) Current Fence (Miles) Construction Costs (Total) Maintenance Costs (Per Mile) Maintenance Costs (Total) Total Cost 1 $17,280,000 1,637 1,954 317 $28.3 billion $864,353 $274,000,000 $28.6 billion 2 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 3 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 4 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 5 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 6 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 7 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 8 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 9 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 10 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion

Source: DHS, Reuters, Authors’ Calculations.


Comparing the adjusted fiscal NPV of -$43,444 to the adjusted wall cost of $43.8 billion reveals that the wall would have to deter just over 1 million illegal immigrants who would have otherwise entered the United States. That means the border wall, by itself, would have to deter about 59 percent of all border crossers who would have otherwise successfully entered. This result only comes from using more updates and specific numbers than CIS did and not by changing their underlying methods. 

Three Additional Simulations

We ran three additional simulations to see how CIS’ estimate holds up under slightly different assumptions. Our first simulation uses a different fiscal cost estimate. Our second relies on a different assumption about the flow of illegal immigrant border crossers. Our third relies on a different border wall cost of construction estimate.

Our first simulation kept every table above as the same except we replaced Table 2 with the better fiscal cost estimate from Table 6. The new Table 6 contains the fiscal NPV of immigrants for the federal government only and excludes the incremental costs of public goods. This is the best table because the federal government will actually be paying for the wall and because spending on pure public goods does not increase due to more immigrants because they are non-rivalrous and non-excludable. Table 6, combined with the other tables above, produced an average fiscal NPV of -$33,932 for each illegal border crosser. Plugging that higher fiscal NPV into our model shows that the border wall would have to deter 1.3 million unlawful immigrant border crossers, or 73 percent of all those who would come without the wall, to break even—a number 6.2 to 7.8 times as high as CIS’ estimates.

Table 6

Federal Only NPV Per Immigrant, Public Goods Excluded





Less than HS 13,000 -215,000 -229,000 HS Grad 108,000 -109,000 -152,000 SC 189,000 2,000 -149,000 College 264,000 220,000 -159,000 College+ 271,000 567,000 -104,000

Source: National Academy of Sciences, averages from Table 8-15.

The second simulation we ran uses CIS’ tables but assumes that the 50 percent reduction in illegal immigrant entries during February and March of 2017, relative to the same months in 2016, continues for the next decade. This means that there would be an estimated 850,000 successful border crossers over the next decade rather than the higher pre-Trump estimate of 1.7 million. However, the costs of the wall do not budge. In this situation, the border wall would have to deter 118.5 percent of the number of estimated border crossers over the next decade to break even—a mathematically impossible feat. 

The third simulation we ran uses the Massachusetts Institute of Technology (MIT) cost estimate for the border wall, which is similar to a cost estimate produced by Senate Democrats on the House Homeland Security and Government Affairs Committee. The only difference is that we took MIT’s per mile estimate and added 36.3 percent for the cost of land acquisition. This brings the 10-year border wall construction and maintenance costs up to $98.6 billion. Under this scenario, the border wall would have to deter 2.3 million to 2.9 million border crossers over the next decade to break even—an estimate 134 percent to 171 percent of all the border crossers that the government predict to come over the next ten years. That is mathematically impossible.

A Better Cost Estimate Should Include These Variables

A better fiscal cost analysis of the border wall will include the more detailed demographic and age profile of anticipated illegal immigrant border crossers as well as several other factors listed below.

  1. The wall will not prevent nearly as many apprehensions as assumed. CIS’ report does not provide any evidence that the wall will stop illegal immigrant border crossers. There is virtually no evidence that the current border barriers—particularly those outside of urban areas—have any impact on the net flow of illegal entries. The main effect of border barriers is to channel illegal border crossers into more remote areas. The Congressional Research Service concluded, “The primary fence, by itself, did not have a discernible impact on the influx of unauthorized aliens coming across the border in San Diego.”
  2. Marginal apprehensions are costly. CIS also assumes that catching people has zero fiscal cost. A proper fiscal accounting compares all of the taxpayer costs and benefits of apprehension with all of the costs and benefits of the illegal border crosser living and working in the United States. Ideally, such an estimate would also compare the costs and benefits of allowing the worker into the United States legally with a guest worker visa or some sort of other employment authorization document. According to the Department of Homeland Security, each removal of an unauthorized immigrant costs taxpayers almost $9,000. Almost half of the immigrants included in this estimate were apprehended in the interior as opposed to the border. Assuming that border removals are half as costly as those in the interior, apprehending 1.7 million illegal border crossers and deporting them will cost $7.65 billion dollars. 
  3. Walls don’t apprehend border crossers. Government employees do, and they are expensive. CIS also assumes that enforcement of the wall will require no additional personnel, despite the fact that the executive order requiring its creation mandates the hiring of 5,000 additional border agents. “If you build a wall, you would still have to back that wall up with patrolling by human beings,” Homeland Security Secretary John Kelly recently told Congress. The annual average cost of a federal employee including benefits is $123,160. This makes the ten-year cost of 5,000 new employees roughly $6.2 billion on top of the cost of apprehensions.
  4. Not all border crossers retire in the United States. CIS assumes that border crossers retire in the United States at the same rate as other immigrants. This point is important because a large proportion of the fiscal costs are incurred after the worker retires and becomes eligible for Social Security and Medicare. However, border crossers are much more likely to return to their home countries than retire in the United States. Harvard economist George Borjas found that 42 percent of Mexican immigrants, who make the largest share of the illegal immigrant population, emigrated in the 1990s while the worldwide average was just 18 percent. Mexican illegal immigrants are most likely to be illegal border crossers. Some research indicates that the illegal immigrant emigration rate could even be 50 percent. Thus, fiscal costs later in life need to be adjusted downward for age and rates of immigration for illegal border crossers.
  5. Border crossers are younger than the average immigrant. The age of the border crossers changes the estimates of the net fiscal impact. CIS and Cato rely on older and imperfect estimates from the Current Population Survey. The latest Border Patrol estimate of the age of apprehended border crossers is from 2010 and the huge surge of Unaccompanied Alien Children has since decreased their average age. The NAS report acknowledges that the younger age profile of illegal immigrants reduces their net fiscal cost: 

“These estimates suggest that unauthorized immigrants as a group may have a more positive fiscal impact than authorized immigrants, but only because of their age structure. The average undocumented immigrant is of younger working age than the average documented immigrant (there are very few undocumented immigrants of retirement age); thus, the net fiscal impact of the former is more positive at the federal level and overall. Also, as detailed in Chapter 3, undocumented individuals, young unauthorized immigrants who qualify for the Deferred Action for Childhood Arrivals program, temporary visa holders, and recent legal permanent residents are ineligible to receive benefits from some programs; and unauthorized immigrants do not qualify for the earned income tax credit. Nonetheless, since, at any given age, unauthorized immigrants tend to earn less than their authorized counterparts, controlling for age, they are less of a benefit to public finances than authorized immigrants (p. 280).”

  1. Unauthorized immigrants expand economic growth, which increases tax revenues. Any fiscal cost estimate needs to consider the lost tax revenue from reduced economic growth. 


Those who support Trump’s border wall should be able to make the case without relying on unrealistically cheap construction costs and outrageous estimates of the number of illegal immigrants that it will deter. Assuming future border crossers have similar ages and educations as more recent crossers make it virtually impossible for the border wall to pay for itself. Adjusting for higher border wall construction costs estimated by MIT means the wall, by itself, would have to deter more people who are estimated to even enter over the next decade without a wall. Whatever the purported benefits of such a wall, its construction will cost a great deal more than it will save even under very generous assumptions. 

Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:

Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co-opt congressional Republicans to expand it a lot.

I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.

It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.

ObamaCare requires participating insurers to offer more comprehensive coverage to low-income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so-called cost-sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.

By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost-sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.

That was the state of play when President Trump took office. His administration now has three choices.

  1. It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community-rating price controls that are causing health insurance markets to collapse.
  2. It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
  3. It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost-sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.

According to Reuters, the Trump administration has chosen option #3:

President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…

Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low-income Americans pay for health insurance, if Democrats accept funding for the wall.

Reuters actually got that last part wrong. Cost-sharing subsidies do not help low-income Americans pay for health insurance. Even without the subsidies, participating insurers would have to keep offering low-income enrollees the same comprehensive coverage they did before. The amount that low-income consumers pay for Exchange coverage would not go down with these subsidies, and would not go up without them. They are a pure bailout for insurance companies.

Think about what this would mean. Republicans are unanimous that President Obama violated the U.S. Constitution by spending billions of dollars without a Congressional appropriation. If Republicans respond by just appropriating that funding themselves, they will be rewarding illegal behavior. If Republicans fund ObamaCare’s cost-sharing subsidies, they will encourage future presidents to spend money illegally, because they will be telling future presidents that they can get away with it.

If Hillary Clinton were president, Republicans would still be defending the Constitution, and would still be fighting this bailout.

Like all states, California has licensed medical centers of every kind. One particular type, often known as a “crisis pregnancy center,” provides pregnancy-related services with the goal of helping women to make choices other than abortion. Based on opposition to these centers, the California legislature enacted a law requiring licensed clinics “whose primary purpose is providing family planning or pregnancy-related services” to deliver to each of their clients the following message: “California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women.” But the law also creates an exception for clinics that actually enroll clients in these programs—so, in effect, it applies only to clinics that oppose the very program they must advertise.

Several of these crisis pregnancy centers sued to block the law, arguing that it violated their First Amendment rights by forcing them to express a message to which they are opposed. But the U.S. Court of Appeals for the Ninth Circuit upheld the law, holding that it regulates only “professional speech” and therefore should be reviewed under a more deferential standard, rather than the normal strict judicial scrutiny that applies to laws compelling speech. The centers have petitioned the Supreme Court to review their case; Cato has filed a brief supporting that petition.

In our brief, we explain that the definition of “professional speech” that the Ninth Circuit applied is dangerously overbroad. Regulation of patient-physician speech is justified by the notion that when doctors speak to their patients, they assume a special obligation to communicate their expertise fully and truthfully. These regulations protect patients, who can’t be expected to have the same specialized knowledge as their medical providers. But they can’t be extended beyond that bright line of specialized knowledge: if a state can force its doctors to read a pre-written advertisement to their patients, it can force them to say anything the state wants.

Compelling licensed professionals to speak the government’s message is dangerous for precisely the reasons compelled speech is always dangerous. Most importantly, it allows the government to impermissibly put its thumb on the scale in a social debate, by conscripting individuals to help spread a particular message. (Tellingly, California has no equivalent law forcing clinics to advertise adoption agencies or other choices.)

Further, the law burdens the conscience of speakers, by forcing them to promote programs that they morally oppose. This is precisely the invasion of “the sphere of intellect and spirit” that Justice Robert Jackson warned of 70 years ago, in the first Supreme Court case to strike down a compelled-speech law, West Virginia Board of Education v. Barnette (1943). The Court should review National Institute of Family & Life Advocates v. Becerra, reject the Ninth Circuit’s dangerous “professional speech” doctrine, and apply the lesson of Barnette in striking down this law.

In 2012, Stanford’s Daniele Fanelli published a provocative paper, “Negative Results are Disappearing in Most Disciplines and Countries” in the prestigious about-science journal Scientometrics. It demonstrated a remarkable increase in the number of papers reporting “positive” results, meaning those that found data in support of a prior hypothesis.

The reasons are manifold and in part to do with the way that we fund science. Research proposals usually include some statements of hypotheses that serve as the rationale for funding. For example, one might hypothesize that global warming will increase heat-related death, reduce crop yields, or cause wars. And, almost always, the funded scientists will find evidence to support each hypothesis.

Part of this has to do with the way agencies dole out the dough. There’s usually a meeting of five or so folks who wade through maybe a hundred proposals. There’s general discussion about which ones are worth funding, often centering around objectives and hypotheses. Upon funding, research that does not support a funded hypothesis will threaten a grant renewal.

“Ocean Acidification” will be, in our humble opinion, the next in a long line of ends-of-the-worlds that we have come to be used to. Global cooling, acid rain, stratospheric ozone depletion, tropospheric ozone increases, and global warming come to mind, in sequential order, soon to be followed by ocean acidification as our environmentalist friends become frustrated with any real meaningful policies to forestall our heretofore torpid warming.

Oddly enough, there are vast areas of the central Atlantic and Pacific oceans with naturally very low pH, or relative acidity, compared to the rest of the sea, and their relative acidity changes are large, compared to any small changes that humans have foisted on the ocean. Given that there’s often considerable biodiversity in these regions, isn’t it odd that virtually all research findings show ocean acidification to be deleterious? Kloekel (2010) performed a meta-analysis of nearly 600 findings and found approximately 97% deleterious results. That only 3% were salutary seems odd on a world where ocean pH naturally varies so much.

A recent “exception” was just published—deVries et al. (2016) in Scientific Reports. They set out to “examine the long-term effects of moderate increases in pCO2 and temperature” on the stress physiology and the hard exoskeleton of shrimp. It is a standard meme that decreasing pH, in general, is bad for hard-shelled organisms. They varied the pH and the temperature in a controlled laboratory setting. The working hypothesis was that lowered pH (more “acidic”) along with high temperature would elicit a stress response and render the shell more brittle.

Didn’t happen. Contrary to their initial thinking, the mantis shrimp exhibited an “apparently large tolerance range for changes in environmental pH and temperature.” More specifically, they found that “N. bredini showed no changes in growth, molting, enzymatic and protein indicators of oxidative stress, exoskeleton morphology, calcium content, or mechanical properties in response to experimental pH and temperature stressors,” which findings, in their words, suggest “that this species has evolved compensation mechanisms to cope with significant environmental change.” And if this one species has developed compensation mechanisms, it is not an illogical stretch to assume that other intertidal species have done so too.

Consequently, alarmist concerns for the future well-being of marine life in response to the twin evils of ocean acidification and warming are tempered (again) by observations showing that life tends to find a way to cope with the many challenges it faces.



deVries, M.S., Webb, S.J., Tu, J., Cory, E., Morgan, V., Sah, R.L., Deheyn, D.D. and Taylor, J.R.A. 2016. Stress physiology and weapon integrity of intertidal mantis shrimp under future ocean conditions. Scientific Reports 6: 38637, DOI:10.1038/srep38637.

Kroeker, K.J., et al, 2010. Meta-analysis reveals negative yet variable effects of ocean acidification on marine organisms.  Ecology Letters, (2010) 13: 1419–1434 doi: 10.1111/j.1461-0248.2010.01518.x

President Donald Trump and congressional Republicans are proposing to cut the corporate tax rate. With any tax cut, members of Congress want to know how much revenue the government may lose from the reform. I do not think that cutting our 35 percent federal corporate tax rate to 20 percent or so would lose the government any money over the long term. U.S. and foreign corporations would invest more in the United States, which would boost our economy, and corporations would avoid and evade taxes less.

Canada provides us with a real-world trial run of corporate tax cuts, and new budget data includes the latest revenue estimates. The nation slashed its federal corporate tax rate from 38 percent in the mid-1980s, to 29 percent by 2000, to 15 percent by 2012, as shown in Chart 1 below. Has the government lost revenue?

You be the judge. Chart 2 shows that corporate tax revenues in Canada have fluctuated with the ups and downs in the economy—revenues fell, for example, during recessions in the early 1990s and 2009. But even with the modest Canadian economic growth of recent years, revenues have held up under a much lower rate. Corporate tax revenues are 2.1 percent of gross domestic product (GDP) today, which is a bit higher than in the mid-1980s when the rate was more than twice as high.

Let’s compare to the United States. While Canada’s 15 percent federal corporate tax will raise 2.1 percent of GDP this year, the 35 percent U.S. federal corporate tax will raise just 1.7 percent. Thus, the Canadian corporate tax raises relatively more than the U.S. tax—even though the rate is less than half the U.S rate.



Canada historic tax revenues here. New Canadian budget data here.


Election law expert Nathaniel Persily has written an interesting article about the Internet and the 2016 election. The problems Nate (and others) see in 2016 will inform the debate about free speech now and in future elections.

Persily notes that the 2016 campaign saw an “online explosion of campaign-relevant communication from all corners of cyberspace.” Here’s his description of the Trump campaign’s social media efforts:

Employing traditional web-based communication, event promotions, new apps, native advertising (in which web ads are designed to look like articles in the publication containing them), and new uses of social media, the campaign launched 4,000 different ad campaigns and placed 1.4 billion web impressions (meaning ads and other communications visible to individual users)…the campaign targeted 13.5 million persuadable voters in sixteen battleground states, discovering the hidden Trump voters, especially in the Midwest, whom the polls had ignored.”

Trump himself tweeted a great deal, having 13 million followers by election day. But the mainstream media also picked up the tweets and prompted wide discussion and attention to them. Trump garnered about $4 billion in free media during the primaries and the general election, an astonishing sum. The new media thus drove the agenda for the mainstream media; in the past, the latter shaped the agenda for everyone.

From a First Amendment perspective, 2016 saw more speech by more people than previous elections. The election also showed that you can win the White House without dominating fundraising, an outcome that weakens the case for campaign finance regulation. Both results seem good for free speech.

However, Nate Persily is a learned and sensible analyst, and his concerns about 2016 merit our attention.

He writes, “Those who worry about the implications of the 2016 campaign are left to wonder whether it illustrates the vulnerabilities of democracy in the Internet age, especially when it comes to the integrity of the information voters will access as they choose between candidates.”

In particular, he worries about “fake news” understood as propaganda.

Propaganda can overlap with satire, profit-seeking fake news, and conspiracy theories, but it involves much more: It is the deliberate use of misinformation to influence attitudes on an issue or toward a candidate. Fake news as propaganda can originate from any node on the diffuse party network and campaign organization described above. It can come from official campaign organs, unofficially allied interest groups, friendly media organizations and websites, foreign actors, or even the candidate himself. In the age of social media, fake news ricochets among these different campaign nodes, moving online and offline as the campaigns, their supporters, and the media repeat stories in the news. The complexity of the network that produces and retransmits fake news often makes it hard to pinpoint the source of a false claim. This is all the more true when the candidate himself retransmits or creates false claims through his social-media account. [italics added]

Lies, the other word for fake news, distorts voter decisions:

False stories create a blanket of fog that obscures the real news and information communicated by the campaigns. The available academic evidence suggests that viewers have considerable difficulty distinguishing between real and fake news, and that trust in the media is already at an all-time low. The prevalence of false stories online erects barriers to educated political decision making and renders it less likely that voters will choose on the basis of genuine information rather than lies or misleading ‘spin.’

Of course, lies have always been a problem for voters and democracy. What to do? Maybe nothing. Persily notes: “We do not yet know how big an effect fake news had on the 2016 campaign.” He cites an early study that indicates fake news did not change the election; television remained very important and the most important source of news for voters, who were no more likely to believe fake news than placebo stories.

In any case, the courts and the First Amendment say keep government out of speech regulation and allow voters to decide what is true and what is not. I often meet people who believe the government should repress untrue political speech. (Ohio even set up a truth commission for that purpose, later learning they had violated the First Amendment). To be clear, Persily is not proposing Congress censor “fake news.” But the nature of online political speech in 2016 (and the outcome of the election) may encourage the thought that “something ought to be done” about false and ugly speech. Free speech advocates should be prepared.

Persily also wonders whether fake news might “demobilize voters by fanning cynicism regarding the candidates and the election.” Maybe the actual turnout in those elections could have been higher but it was about the same as 2008 and 2012, elections that “had seemed to confirm Internet utopians’ belief that digital tools enhance democracy by expanding citizen empowerment and engagement.”

The Internet’s ability to deliver targeted information also may engender “bubbles, filters, and echo chambers that shelter people from information that might challenge the messages sent to them by campaigns, partisan media, or social networks.” Bubbles are bad no doubt, but forcing people to consider views they dislike or abhor seems worse.  No doubt we will hear much about “improving” debate in days to come. The quality of public debate, however, is not a purpose of government or within its ambit.

Persily thinks anonymity (including anonymous speech) poses dangers beyond fake news. It enables foreign powers to intervene in U.S. elections, and it allows trolls to “commit racial and sexual harassment.” Anonymous speech and anonymity has a long history in American politics. It has been both protected (in voting and in some speech) and not protected (with campaign contributions). We should expect a renewed debate about anonymity, a debate that will be worth having for no other reason than the alternatives are so much worse for free speech.

Persily looks closely at private responses to 2016. Twitter, Google, and Facebook have all taken actions to reveal and presumably eliminate fake news or ugly speech. He thinks these actions and those likely to come from these businesses are unlikely to match the scope of the problem, primarily because the need to make money cuts against troubling customers.

As private firms, the Internet giants are less restrained in limiting speech. The First Amendment applies to the U.S. government at all levels, not to U.S. businesses. However, I would worry that the line between public and private here will not remain bright. These companies may avoid angering politicians and thus crack down on dissent. But if they crack down on speech in response to the demands of their customers?

Finally, Persily says 2016 shows “the liberating, anti-establishment potential [of the Internet] can be harnessed by demagogues who appeal to the worst impulses of the mob.” But what limited demagogues before the Internet, assuming they had much less influence? Nate argues that the influence of demagogues rose as that of political parties and the mainstream media fell. He doubts parties and the media can once again limit the worst impulses of the mob. But both institutions have lost the confidence of many if not most Americans. What is needed are new or reformed institutions that can foster a measure of faith from the public while preserving the free part of freedom of speech.

It has been widely reported that President Trump may impose high tariffs on steel imports on national security grounds. Scott Sumner has a good summary on why this rationale is not particularly convincing. But even if President Trump is not persuaded by Sumner on national security, perhaps he will be interested to hear how protectionism will affect the other manufacturing industries he purports to want to flourish.

Last year, a paper by economist Bruce Blonigen explored the impact of industrial policies in steel on downstream industries, i.e. those where steel is an input to the production process. Unsurprisingly, less openness to foreign competition through direct protection or state support or privileges raises the price of steel within a country. This in turn raises costs for downstream industries such as fabricated metals and machinery manufacturers.

More pertinently given Trump’s obsession with trade deficits, Blonigen’s work suggests the effect of this cost increase is to significantly reduce exports from these industries. The headline result is that a one standard deviation increase in industrial policies associated with steel leads to a 1.2 percent decline in the export competitiveness of the average manufacturing sector in the years immediately after implementation. For those that use steel intensively, the decline is as large as 6 percent.

If President Trump really wants an export-led manufacturing jobs boom then, his steel policies are utterly self-defeating.

On Wednesday, the Supreme Court decided a relatively small but important case out of my home state of Colorado. Colorado, like many states, imposes certain monetary penalties and costs on convicted defendants. Those can include court costs, docket fees, and payments into victim restitution funds. What happens, however, if a defendant’s conviction is later overturned, either by a higher court or on a re-trial? Can the once-convicted defendants easily get their money back, as would seem to be only fair? Not in Colorado, which is (was) unique in requiring that exonerated defendants go to court again to prove their innocence by clear and convincing evidence before they could get their money back. Thankfully, the Supreme Court, in a 7-1 opinion (Justice Gorsuch only began participating in cases in the last two weeks), held that Colorado’s “Exoneration Act” violates the due process guarantee of the Fourteenth Amendment.

Nelson v. Colorado is a combination of two different cases. One concerned Shannon Nelson, who was convicted by a jury of two felonies and three misdemeanors arising from the alleged sexual and physical abuse of her four children. Nelson conviction was reversed on appeal, however, and on retrial she was acquitted of all charges. In the course of her ordeal, Nelson paid $8,192.50 in costs and fees.

Louis Madden, the petitioner in the other case, was convicted of patronizing a child prostitute and third-degree sexual assault. His conviction was later overturned by the Colorado Supreme Court, and the state declined to retry the case. Madden paid the state $1,977.75 in the course of his legal troubles.

Although Madden and Nelson were innocent of their crimes in the eyes of the law–remember everyone is innocent until proven guilty by a legally proper trial (Cato’s brief in the case focused on the deep historical roots of the presumption of innocence)–they were faced with having to prove their innocence in a subsequent civil proceeding if they were to get their money back. Instead, they went all the way to the Supreme Court, arguing that it was unconstitutional to require them to do anything more to prove their innocence.

Writing for the Court, Justice Ruth Bader Ginsburg made fairly short work of Colorado’s law. “The sole legal basis for these assessments was the fact of Nelson’s and Madden’s convictions,” she wrote, and “absent those convictions” Colorado has “no legal right to exact and retain petitioners’ funds.” Once the convictions were erased, “the presumption of their innocence was restored” and “Colorado may not presume a person adjudged guilty of no crime, nonetheless guilty enough for monetary exactions.”

Justice Samuel Alito concurred in the result–he agreed that Colorado’s law was unconstitutional–but wrote separately to argue that the majority should have narrowed their opinion. Alito was concerned that the majority’s reasoning could be stretched too far. He posed an interesting question: “if the status quo ante must be restored, why shouldn’t the defendant be compensated for all the adverse consequences of the wrongful conviction?” For example, attorney’s fees, lost work, or harm to reputation?

The lone dissenter was Justice Clarence Thomas, who provocatively argued, as he has many times, that the Due Process Clause of the Fourteenth Amendment conveys no substantive rights, such as the right to have your money back after having a conviction overturned. Any such substantive right must be granted by state law, argued Thomas, and that wasn’t the case here.

Because Colorado was the only state with such an “Exoneration Act,” the Court’s ruling will have only limited effect. But for many former criminal defendants in Colorado, the ruling can help them get their money back and, perhaps, a little dignity too. More broadly, Nelson v. Colorado affirmed the importance of the presumption of innocence, which is a cornerstone of our system of justice.