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Thanassis Cambanis argues in Politico that, contrary to what we may think, America’s role as global policeman, defender of more than 50 different countries, buyer of more than a third of worldwide military spending, etc. is not a costly burden compared to the benefits it yields. All this talk about how allies free ride off our security commitments and how the promiscuous use of U.S. military power imposes significant economic and geopolitical costs on the homeland are off base, according to Cambanis. Being the policeman of the world makes us richer, he says.

Since the United States is so extravagantly rich in relative international terms but also historically speaking, identifying even major costs can be difficult. But Cambanis misses the mark with some selective accounting. He makes his case with three main points. First:

[M]ost of America’s defense spending functions as a massive, job creating subsidy for the U.S. defense industry. According to a Deloitte study, the aerospace and defense sector directly employed 1.2 million workers in 2014, and another 3.2 million indirectly. Obama’s 2017 budget calls for $619 billion in defense spending, which is a direct giveback to the American economy…

Of course, a “giveback” to the American economy implies the real truth: that in order to create jobs by massively subsidizing the military industrial complex, the government has to first extract resources from the more productive sectors of the private economy. If the U.S. pared back its global role and initiated serious restraint-oriented cuts to the defense budget, it could produce something on the order of $150 billion in annual savings. That could serve as quite a stimulus if left in taxpayers’ pockets.

Second:

America’s steering role in numerous regions – NATO, Latin America, and the Arabian peninsula – gives it leverage to call the shots on matters of great important to American security and the bottom line. For all the friction with Saudi Arabia, for instance, the Gulf monarchy has propped up the American economy with massive Treasury bill purchases, and by adjusting oil production at America’s request to cushion the effect of policy priorities like the U.S. invasion of Iraq in 2003.

Active international engagement certainly gives a peerless superpower like the United States more leverage to secure its interests more efficiently, but Cambanis inadvertently draws attention to the benefit-outweighing costs of that “steering role” we’ve played in the world. The Iraq War is not synonymous with Liberal Hegemony, but if America had not been playing the role of global policeman, it’s hard to imagine the invasion of Iraq having happened in the first place. It served mostly as an achievable item on a pre-existing laundry list of errands that the Bush administration thought would serve as a useful show of force following the 9/11 attacks. It cost trillions of dollars and hundreds of thousands of lives and it destabilized the region in a way that continues to eat up lives and resources to this very day. And the U.S. relationship with the Saudi regime has hardly been a net positive for U.S. interests.  

Third:

America’s “global cop” role means that shipping lanes, free trade agreements, oil exploration deals, ad hoc military coalitions, and so on are maintained to the benefit of the U.S. government or U.S. corporations. The truth is that America puts its thumb on the scale to tilt the world’s not-entirely free markets to America’s benefit. Nobody would be more thrilled for America to pull back than its economic rivals, like China.

It’s not clear to me that America secures better oil exploration deals as a result of its expansive grand strategy. Nor am I convinced that the ability to organize ad hoc military coalitions always serves U.S. interests; too often they have been used as a veneer of international legitimacy for reckless interventions. It seems a good thing, for example, that the U.K. parliament refused to go along with Obama’s plan to bomb the Assad regime in 2013. According to Secretary of State John Kerry, that was the pivotal moment in derailing a war that was deeply unpopular with the American public and that Congress wouldn’t even formally approve.

More interesting is Cambanis’s argument that America’s “global cop” role keeps shipping lanes open and facilitates free trade agreements. I think America’s post-war and early Cold War role in setting up international institutions that liberalized economies and encouraged the lowering of trade barriers was important, but the notion that global free trade today depends on U.S. hegemony is dubious. Most countries have learned the lesson that freer trade and globalization is a net economic benefit; they don’t need U.S. military bases to continue to be convinced. And certainly America’s frequent “global cop” military interventions don’t help. Moreover, as Joshua Shifrinson and Sameer Lalwani write in a chapter for a Cato Institute book on threat perception and U.S. national security, “Although more actors are increasingly capable of disrupting American command [of the seas], none are capable of systematically undermining the maritime status quo.” Indeed, any state interested in gaining global power and influence will strive to keep shipping lanes open and engage in free trade. Just ask China.

And as for the argument that China would be “thrilled for America to pull back,” I seriously doubt it. China certainly prefers an American withdrawal from the South and East China Seas, but, as a recent RAND Corporation study found, China is all too eager to let the U.S. carry the burden for Middle East energy security, believing (erroneously) that American military presence there helps secure the free flow of oil out of the Persian Gulf, incidentally a region that China relies on for oil imports far more than the U.S. does.

Much of this debate boils down to whether or not U.S. primacy deserves credit for the decline of interstate war, and thus for the increase in global economic productivity, since 1945. Many argue that it does, but there are competing arguments. Nuclear weapons and the destructive power of modern conventional militaries have created an environment of “defense dominance” in which war and conquest are either prohibitively costly or just plain infeasible. Economic interdependence, which developed long before America’s rise to superpower status, also creates incentives to keep the peace and get rich instead – so the cause-effect variable could very well be the reverse of what Cambanis and others claim. Cato’s own John Mueller has long argued that a normative shift in the way most societies see war, from a glorified practice to an abhorrent last resort, is the real reason for the decline of international conflict.

Cambanis predicts that, contrary to the prognostications of some fearful commentators, Trump will not reduce America’s role in the world because he will soon realize that it is a net benefit to the country’s interests and its bottom line. I agree Trump is unlikely to pare back U.S. predominance, but I think it will have more to do with his predilection for exercising immense power than anything else.

Senators Dick Durbin and Lindsey Graham have introduced a bill to extend the Deferred Action for Childhood Arrivals (DACA) program, which since 2012 has provided work permits and lawful presence to 800,000 young immigrants brought illegally to the United States as children. One difficulty for the bill is that the GOP House passed a bill to end DACA in 2014, arguing that DACA caused a surge of young children to come to the border starting in 2012 and reaching its peak in 2014.

At the time, my colleague Alex Nowrasteh published an article arguing against this thesis. First, he noted that DACA specifically prohibited recent arrivals from applying for the benefits. DACA applicants had to be under the age of 31, have arrived in the United States before they were the age of 16, and have continuously resided in the United States since June 15, 2007. Second, Nowrasteh explained that the surge began well before DACA was unexpectedly announced on June 15, 2012. He wrote:

From October 2011 through March 2012, there was a 93 percent increase in UAC arrivals over the same period in Fiscal Year 2011.  Texas Governor Rick Perry warned President Obama about the rapid increase in UAC at the border in early May 2012 – more than a full month before DACA was announced.  In early June 2012, Mexico was detaining twice as many Central American children as in 2011.  The surge in unaccompanied children (UAC) began before DACA was announced.

As the bill was being debated on the House floor, Rep. Zoe Lofgren, the ranking member of the House Subcommittee on Immigration and Border Security, proceeded to introduce Nowrasteh’s article into the record as evidence against the underlying reason for the bill. Unfortunately, Border Patrol had not yet released their monthly UAC arrival figures for 2012, so Nowrasteh’s report had to rely on comments from border agents and local officials about the increases in arrivals rather than the raw Border Patrol data. The anti-DACA bill passed on a party-line vote.

UAC crisis began before DACA was announced

Now, however, the Border Patrol has made available the monthly numbers for 2012. These figures vindicate the Cato argument from 2014, showing unequivocally that all of the increase in children coming to the border in 2012 began before the DACA announcement in mid-June. Figure 1 shows the trend in UAC arrivals for 2011 and 2012. From December 2011 to April 2012, the number of UACs more than doubled from 1,259 to 2,703. Thereafter, the numbers fell and did not recover their peak again until 2013.

Figure 1: Unaccompanied Alien Children (UACs) Arriving in 2011 and 2012 by Month

Source: Customs and Border Protection (CBP)

It is true that more than six months after DACA in 2013, the monthly UAC numbers finally rose above the pre-DACA level. But when seen in the broader context, the largest growth occurred much later, shooting up in early 2014. Moreover, as Figure 2 shows, UAC arrivals have fluctuated month-to-month and year-to-year totally without regard to the number of new DACA applications. To the extent that there is a relationship, it is the other way—almost all DACA approvals occurred at a time of relatively low UAC arrivals.

Figure 2: Unaccompanied Alien Children (UACs) Arrivals and Deferred Action for Childhood Arrivals (DACA) Approvals

Sources: USCIS, CBP

Annual UAC figures confirm this impression. The percentage growth in UAC arrivals was the largest in 2009, and while it rose in 2012, the rate of growth remained similar in 2013 and 2014. In 2015, UAC arrivals plunged before rising again in 2016. The first two months of 2017 have seen a remarkable growth over the numbers in those same months in 2016.

Table: UAC Arrivals and UAC Growth Rates

 

2008

2009

2010

2011

2012

UACs

8,041

19,668

18,634

16,056

24,481

UAC growth

 

145%

-5%

-14%

52%

 

2013

2014

2015

2016

2017*

UACs

38,833

68,631

39,970

59,692

14,128*

UAC growth

59%

77%

-42%

49%

134%**

*Based on the first two months of the fiscal year, **Compared to the first two months of FY 2016
Source: CBP, CBP

DACA expansion announcement led to no increase in UACs

It would be nice to be able to conduct an experiment to see if announcements of deferring the deportations of minors result in more children coming to the border. While it is impossible to conduct an experiment of this kind perfectly, President Obama provided the next best option in 2014. In November 2014, he announced that he would expand DACA to include anyone of any age—not just those under 31—who arrived before 2010 and would grant three-year work authorizations to recipients.

Figure 3 provides the monthly UAC arrivals for fiscal years 2014 and 2015 and notes when the expanded DACA announcement occurred. It is true that the numbers rose slightly over the course of the year, but the peak month saw half as many arrivals as the peak in 2014. Just as DACA did not cause a crisis, the expanded DACA program announcement did not cause one either, and it provides more evidence against the theory that allowing DACA recipients to stay is a significant influence on the children coming to the border.

Figure 3: UAC Arrivals in Fiscal Years 2014 and 2015

Source: See table above

Expanded DACA’s implementation was prevented due to a preliminary injunction issued by a federal judge on February 16, 2015. But three months had already passed since the announcement with no increase in UAC arrivals. Moreover, advocates were hopeful that the injunction would be quickly overturned, and the program implemented that year. In any case, the basis for the purported link between UAC and DACA is that the UACs mistakenly believe that they will be eligible for these programs, not that they actually will be, so it is not clear why the judge’s order would have had any more of an impact on these confused children than President Obama’s specific criteria making them ineligible.

Child migrants are not a recent phenomenon

Perhaps the most important argument against the idea that the child migrant crisis was caused by the actions of the Obama administration is that a similar crisis occurred during the Bush administration as well. Unfortunately, CBP has not made available its UAC numbers prior to 2008, but before the recession, its statistics show that huge numbers of children were coming to the border. The New York Times ran an article about the issue as far back as 2003, noting that Border Patrol was struggling to handle the flow of children. It appears that juvenile arrivals are simply returning to their pre-recession trend.

Figure 4: UAC Arrivals and all Juvenile Arrivals from Fiscal Year 2001 to 2016

Source: CBP, DHS

Another reason to believe that the UAC crisis is not related to confusion around DACA is that the recent surge in children is concentrated among non-Mexican arrivals. All of the increase in UAC arrivals is from Central American children. But this surge in UACs has been paralleled by an even larger, in absolute terms, increase among non-UACs—the vast majority of whom are adults who would be ineligible for DACA. Since 2009, the number of overall Mexican apprehensions has steadily dropped year after year, falling over 50 percent over that time, and UAC apprehensions have dropped by a third. These facts point to causes of the surge that are specifically impacting Central America, not Mexico, and all Central Americans, not just children.

Figure 5: Apprehensions of Non-Mexicans by Border Patrol

Source: See Figure 4

Moreover, the surge was not simply driven by non-Mexican countries generally—which could lead to the conclusion that perhaps something unique is happening in Mexico—but rather was driven entirely from three countries—Guatemala, Honduras, and El Salvador, known collectively as the Northern Triangle. As Figure 6 shows, the rise in child migration is a phenomenon that solely impacted these three countries. This makes it extremely unlikely that the cause of the crisis is a general confusion about DACA among children outside of the country.

Figure 6: UAC Arrivals by Country of Origin

Source: See Figure 4, Figure 1

DACA was not a contributor to the child migrant crisis, so it should not be used as a justification to end the program. If DACA was an example of executive overreach, Congress should replace it with a permanent program that recognizes that America is home for the vast majority of these young immigrants.

As Obama administration officials head for the door at the Department of the Treasury, they have released a new study on infrastructure. The study—completed by outside consultants—profiles 40 large transportation and water projects that the authors believe would generate economic growth.

For each project, the study gives the estimated benefits, costs, and benefit-cost ratio. Many of the 40 projects appear to be worthwhile, such as an $8 billion Hampton Roads highway project with a benefit-cost ratio of 4.0. The report is silent on who should fund each project, but such high returns suggest that the states have a strong incentive to invest by themselves without aid from Washington.

What the states need from Washington is not money but to get out of the way. The Treasury report suggests that some “major challenges to completion” of projects are imposed by governments.

One challenge is “significantly increased capital costs:”

Capital costs of transportation and water infrastructure have increased much faster than the general rate of inflation over the past 20 years … Increased capital costs are also a product of enhanced design standards and regulatory requirements related to performance, safety, environmental protection, reliability, and resiliency.

Another challenge is “extended program and project review and permitting processes:”

Successful completion of the review and permitting processes required by the National Environmental Policy Act of 1969 (NEPA), which requires federal agencies to assess the environmental effects of their proposed actions, is an important part of project development. NEPA helps promote efforts to prevent or eliminate damage to the environment, but has also extended the schedule and generally increased the cost of implementing major infrastructure projects. This is a long-standing challenge that has spanned the last 20 to 30 years. Studies conducted for the Federal Highway Administration (FHWA) concluded that the average time to complete a NEPA study increased from 2.2 years in the 1970s, to 4.4 years in the 1980s, to 5.1 years in the 1995 to 2001 period, to 6.6 years in 2011.

Other FHWA data show that the number of environmental laws and executive orders creating barriers to transportation projects increased from 26 in 1970 to about 70 today, as shown in the chart below sourced from a trade association.

The upshot? The incoming Trump administration can spur infrastructure investment by working with Congress to repeal rules that unnecessarily delay projects and increase costs. Other steps include cutting the corporate tax rate to increase private investment and ending the bias against the private provision of facilities such as airports.

For more on infrastructure, see here, here, and here.

 

Texas State Senator Charles Schwertner (R-Georgetown) recently filed SB 23, a bill that would put into statute Governor Rick Perry’s executive order mandating E-Verify for all state contractors and force all state contracts to include a paragraph specifying that they must participate in the program. There’s a good faith exemption, in case the contractor receives inaccurate information from the E-Verify system (false confirmations that later come to light). SB 23 adds an enforcement mechanism that Governor Perry’s executive order lacked. Under the proposed law, a contractor’s failure to use E-Verify would bar them from receiving state contracts for five years and make the state comptroller responsible for enforcement. The legislature already mandated E-Verify for state agencies and universities.  

SB 23 won’t much affect Texas because it probably won’t be enforced. Nebraska mandates E-Verify for all public contractors, but a 2011 Nebraska report found that only 23 percent of registered state contractors were even enrolled in the system. If Texas is as uninterested in enforcing E-Verify as Nebraska, then the results will be similar.    

The real damage from SB 23 is that it brings Texas one step close to universally mandated E-Verify and all of its systematic problems. E-Verify is a government run system that is free for the user if you exclude the taxes, time, and money spent on maintaining it, using it, and resolving any identification problems that arise. E-Verify also doesn’t work well, as accuracy rates are poor, there are many ways for illegal workers to obtain SSNs from deceased Americans to fool the system, and many employers in states where the system is mandated don’t bother to use it at all. Furthermore, E-Verify doesn’t dim the job magnetE-Verify is an expensive system that doesn’t work.

SB 23 is a stepping stone toward universal mandated E-Verify in Texas and all of the problems it creates. For that reason alone, SB 23 is a rotten deal for Texans. 

Special thanks to Scott Platton for his help in researching this blog post.

Cato Senior Fellow Nat Hentoff passed away on Saturday evening at age 91.  He was a leading authority on the Bill of Rights and most especially the First Amendment.  He authored 37 books and countless newspaper and magazine articles.  He is perhaps most well-known for his opinion articles in the Village Voice, where he wrote for 51 years, from 1957 until 2008.  He joined the Cato staff in 2009 and never stopped researching and writing.  A few years ago, he told me that he was following Duke Ellington’s guide with respect to his own work in defense of the American Constitution:

Rule 1: Don’t Quit

Rule 2: Reread Rule #1

Nat actually knew Duke and many other luminaries, from Malcolm X to Supreme Court Justice William Brennan.  He was a jazz expert, writing on music for the Wall Street Journal.  He often said that “jazz and the Constitution were his main reasons for being.”  He said his passion for jazz and liberty overlapped because they were both about respecting everyone’s individuality.  

Nat was bemused by both his fan mail and hate mail as the years passed.  He didn’t play the political game—he would condemn Democrats and Republicans alike if they attacked constitutional principles. And he was always enthusiastic when he found a member of Congress coming to the defense of the Constitution, such as Senator Russ Feingold’s (D-WI) lone vote (in the Senate) against the Patriot Act in 2001, or, more recently, Senator Rand Paul’s (R-KY) efforts to scale back the surveillance state.  Go here to view an interview with his thoughts on other current events.

Nat said one of best things about losing his job at the Village Voice in 2008 was that it afforded him the opportunity to (sort of) read his own obituaries.  “Dig this one!,” he would tell me over the phone with a chuckle. 

Interestingly, when asked about his proudest achievement, he would say it was not anything he wrote.  He got an opportunity to work as a producer for a television special about jazz music in 1957.  He jumped at the chance to bring beautiful jazz music into the living rooms of folks who had never really been exposed to it before.  Here is Billy Holiday’s Fine and Mellow from that special.  According to Nat’s relatives, he passed away while listening to his favorite jazz tunes.

We’re sad you’re gone, but we celebrate your good life.  Rest in peace.

An article cited in the Cato Clips late yesterday caught my eye: “Libertarian Judicial Activism Isn’t What the Courts Need.” Written by Texas attorney Mark Pulliam, a sometime contributor to such libertarian publications as Reason and The Freeman, among others, it was posted at a site called “Southeastern Texas Record” and a day earlier at “American Greatness” (I leave it to the reader to discern what that site is about). The title speaks for itself. As the first named target of the piece, I’m given to respond, briefly.  Others, in order of appearance, are Randy Barnett, Clark Neily, Ilya Shapiro, Kermit Roosevelt III, Dick Carpenter, Anthony Sanders, and, by implication (their book, The Dirty Dozen, is cited), Bob Levy and Chip Mellor—a veritable rogues gallery of libertarian legal scholars.

Could we all be wrong? Apparently so. We’ve “devised a novel theory that the Constitution, properly understood, protects a person’s ‘right to do those acts which do not harm others,’” Pulliam argues, “enforceable against the federal government and the states,” and “it is only judges who get to decide whether a particular law is justified constitutionally.” What’s worse, we’re urging President-elect Trump to appoint adherents of this “fanciful theory” to the Court.

And why is that theory “unsound and misguided”? To begin, Pulliam claims that it

rests on the premise that the Constitution was not so much an arrangement among the individual states (which themselves were separate Lockean social compacts) as it was a very limited delegation to the federal government of individual sovereignty (harkening back to the Declaration of Independence and its reliance on “natural rights”).

To be sure, the Constitution was ratified through state conventions. But as the Preamble makes crystal clear, it’s theory of legitimacy, drawing from the Declaration’s theory, rests on the idea that “We the people,” in our individual capacities, for the purposes indicated, came together to “ordain and establish this Constitution.” And as is also clear from the very next sentence—the first sentence of Article I—we “granted” such legislative powers as we did to a Congress, a very limited delegation, as Article I, Section 8 indicates. So what’s the problem?

To get a hint, notice the scare-quotes (sneer-quotes?) around “natural rights.” “In this rubric,” Pulliam writes, “individuals continue to possess all unalienable rights to which they were endowed in the ‘state of nature,’ other than the federal powers specifically enumerated in the Constitution.” Well, yes, that’s plain from background theory, text, and numerous explanations in the Federalist. How else could it be? Is it that there are no rights but only powers, which we “granted”? By what right, then, did we “ordain,” “establish,” and “grant”? Of course, none of that makes sense if natural rights and state-of-nature theory are dismissed out of hand. But the Founders and Framers took those ideas seriously. They did not view the Constitution as a mere compact among the states, grounded simply in will.

Insofar as it pertains to the federal government, Pulliam concludes his understanding of libertarian constitutional theory as follows:

“Natural rights,” [libertarians] claim, are protected by the reference to “liberty” in the due process clause of the Fifth Amendment, and the Ninth and 10th Amendments preserve to the people—as individuals, not as states—all rights not specifically surrendered to the federal government.

No. To be sure, the rights “retained” by “the people” through the Ninth Amendment and the powers “reserved” to “the states respectively, or to the people” by the Tenth Amendment were retained and reserved to the people as individuals, not as states. Indeed, why would the Framer’s switch from individual to collective rights when they got to the Ninth, especially since the contrast the Amendment draws is between enumerated and unenumerated rights, not between individual and collective rights, and because the idea of “retained” rights is perfectly consistent with the basic theory of the Constitution—enumerated powers, retained pre-existing natural rights (see just below)? Moreover, why would the Tenth speak of both “the people” and “the states” if the powers thus reserved were meant to be reserved to the people collectively, “as states”?  Reservation to “the people” would be redundant.

But second, and more fundamentally, as the Federalist argues throughout, natural rights are protected mainly not by the Bill of Rights—there was none when the Federalist was written—but by the enumeration of powers, for by the logic of the matter, where there is no power there is a right. After all, did we not have rights against the federal government during the two years before the Bill of Rights was added? Of course we did. Since the government had only limited powers, we had a vast sea of rights, all unenumerated. But are we then to imagine that by adding a Bill of Rights we actually lost most of those rights? That’s the conclusion implicit in the contention by Pulliam and many conservatives that we have only enumerated rights—as if the Bill of Rights were a grant of rights. It was not. It was simply a muniment of certain rights. And all of that was made clear by the Ninth and Tenth Amendments, which memorialized the very theory of the Constitution—as adumbrated in the Declaration’s theory of moral and political legitimacy. When understood properly, it all goes together elegantly. (See here for more on this.)

But what about the states? Here, Pulliam believes, is the libertarians’ Achilles’ heel:

Libertarians have a facile “solution” to the potentially vexing question of the states’ police powers,” which antedated the drafting and ratification of the Constitution: they contend that the 14th Amendment applied the Fifth Amendment (including the protection of “liberty” in the due process clause) to the states, particularly through the “privileges or immunities” clause, which libertarians believe was erroneously drained of its intended meaning in the incorrectly decided Slaughter-House Cases in 1873.

Drawing from the text plus the debates in the 39th Congress and in the ratifying conventions, we do indeed believe that the Fourteenth Amendment applied the guarantees of the Bill of Rights against the states, ab initio; that the Privileges or Immunities Clause means what it says, that “No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States”; and that the Court egregiously misread that law in 1873. But we’re hardly alone in believing that. Most other scholars today do as well.

We come, then, to the heart of the matter. If both enumerated and unenumerated rights are among our privileges or immunities as citizens of the United States, as those who drafted and ratified the Fourteenth Amendment believed, then no state shall abridge them. And further—now we hit Pulliam’s sore spot—it falls ultimately to the courts to enforce those privileges or immunities, all of them—not only the right to speak but the right to an honest calling, the right to buy and use contraceptives (a right “that nowhere appears in the Constitution,” he says), and more, much more.

Thus, it’s our call for “judicial engagement” that most vexes Pulliam—he calls it “a judicially managed state of anarchy.” Fearing “judicial activism,” he would limit judges to enforcing only enumerated rights, the text and underlying theory of the Constitution notwithstanding—and in the name of “originalism,” no less. Well that itself is a form of “activism”—ignoring the law in deference to wide-ranging majoritarian rule inconsistent with that law. At bottom, then, the difference between Pulliam and libertarians is over what the Constitution itself says. Like many conservatives, he has allowed his fear of what he sees as judicial activism to color his reading of the Constitution. Is there judicial activism? Of course there is. But the answer to bad judging is not judicial abdication. It’s better judging. And that starts, and ends, with a careful but correct reading the Constitution.

So why did this piece appear just now at “American Greatness” and a day later at “Southeastern Texas Record”? Pulliam answers that by reference in his final sentence: “President Trump should avoid jurists in any way sympathetic to this badly misguided theory.” The link is to a June 2015 decision by Texas Supreme Court Justice Don Willet, one of Mr. Trump’s “21,” upholding a claim to economic liberty, a right the Founders and the Civil War Amendment’s Framers would have thought fundamental in the Constitution’s plan for ordered liberty—and one that Mr. Trump may find attractive as well.

The federal government spent $147 billion on research and development in 2016, including $77 billion on defense and $70 billion on nondefense. Federal R&D spending has risen in recent decades on a constant-dollar basis, but has dipped as a share of gross domestic product. The AAAS has the data here.

How much should the federal government spend on R&D? AAAS data show that 23 percent of federal spending is for “basic” research, 25 percent is for “applied” research, and 52 percent is for “development.” Most economists would support the basic part, but be more skeptical of the applied and development parts because the private sector handles those activities.

The largest portion of federal nondefense R&D is for health care. In the Wall Street Journal today, a professor emeritus at Harvard Medical School questions the value of this funding. Tom Stossel argues that the private sector makes most medical advances:

The assumption seems to be that the root of all medical innovation is university research, primarily funded by federal grants. This is mistaken. The private economy, not the government, actually discovers and develops most of the insights and products that advance health. The history of medical progress supports this conclusion.  

… In America, innovation came from physicians in universities and research institutes that were supported by philanthropy. Private industry provided chemicals used in the studies and then manufactured therapies on a mass scale.

… Since then, improvements in health have accumulated. Life expectancy has increased. Deaths from heart attack and stroke have radically decreased, and cancer mortality has declined. New drugs and devices have ameliorated the pain and immobility of diseases like arthritis. Yet the question remains: Is the government responsible for these improvements? The answer is largely no. Washington-centric research, rather, might slow progress.

… By contrast, private investment in medicine has kept pace with the aging population and is the principal engine for advancement. More than 80% of new drug approvals originate from work solely performed in private companies.

Cato’s Terence Kealey is also a skeptic of government-funded science.

In most jurisdictions, local police departments typically conduct internal investigations of police officer shooting and misconduct complaints.[1] However, 79% of Americans would prefer that an “outside law enforcement agency take over the investigation” when an officer is suspected of criminal wrongdoing. Alternatively, 21% favor police departments conducting internal investigations of their own officers.

The proposal to have outside investigations of misconduct, rather than internal department investigations, enjoys broad public support. Overwhelming majorities across demographics and partisan groups, including majorities of blacks (82%), whites (81%), Hispanics (66%), Republicans (76%), independents (77%), and Democrats (83%), all favor outside investigations and prosecutions of officers accused of misconduct.

Find the full public opinion report here. 

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

 The Cato Institute/YouGov national survey of 2000 adults was conducted June 6–22, 2016 using a sample drawn  from YouGov’s online panel, which is designed to be representative of the U.S. population. YouGov uses a method  called sample matching, and restrictions are put in place to ensure that only the people selected and contacted by  YouGov are allowed to participate. The margin of sampling error for all respondents is +/-3.19 percentage points.  The full report can be found here, toplines results can be found here, full methodological details can be found here.

 

[1] USCCR, “Revisiting Who Is Guarding the Guardians? A Report on Police Practices and Civil Rights in America,” U.S. Commission on Civil Rights, November 2000, http://www.usccr.gov/pubs/guard/main.htm.

In December, Russia, Turkey, and Iran began high-level talks to work toward a political settlement of the brutal civil war in Syria. Much to the chagrin of Washington officials and commentators, these countries have deliberately excluded the U.S. from the negotiations.

One broad sketch of their approach to a settlement, according to some reports, is to first achieve a cease-fire on the ground, as best they can, and then negotiate a division of Syria into three separate regions in which Assad’s Damascus-based Allawite sect would share power in a federal structure. Assad himself would step down at the end of his current term. The plan is in its infancy, subject to change, and would of course require agreement from the regime and opposition forces, before ultimately seeking buy in from the Gulf states, the U.S., and the European Union.

There is no indication that this latest push is going to be any more successful than previous diplomatic efforts to resolve the Syrian civil war. Nationalism is a powerful force and, as recent history suggests, plans to simply divide war-torn states into federated systems get tossed into the trash bin pretty quickly, as happened with Iraq and with Bosnia and Herzegovina. That said, the players have clear interests at stake. Russia has real leverage with the Syrian regime and has now staked its prestige on mitigating the conflict on favorable terms. Turkey borders Syria and has not only borne the brunt of the spillover effects with regard to refugees and militancy, but also has a strong national interest in preventing the Kurds from carving out territory along the border so as to keep a lid on its own Kurdish separatist movement. And Syria is Iran’s only Shiite ally in the region and has proven a strategic asset for Iran on several fronts, not least in its proximity to Lebanon’s Hezbollah. When the stakes are high for the negotiating parties, they tend to take care in constructing a settlement.

While I’m hopeful for a peaceful settlement, I wouldn’t put good money on the prospects for success in these negotiations. But they at least demonstrate that the United States does not necessarily need to take the lead in trying to solve every problem in the world. Other countries with clearer interests at stake and more local knowledge than America can do the heavy lifting. And perhaps do it much more effectively.

Much of the handwringing in Washington over Russia’s leadership in the negotiations centers on a fear that America might be demoted in its status as the indispensable nation if a geopolitical competitor like Russia successfully negotiates a resolution to one of the world’s worst conflicts while the U.S. sits it out. This concern is misplaced for at least two reasons. First, status and prestige are overrated assets in international politics. They can play an important role at certain times, but they pale in comparison to more material security and economic interests. Rooting against the success of peace talks just because we don’t want Russia to regain a modicum of the great power status it once had betrays a rather unbecoming lack of self-esteem that is wholly unfair to the millions of Syrians that would benefit from even a brief hiatus in daily violence and besiegement.

Secondly, one wonders what benefits the U.S. has derived from all its leadership (such as it is) in the greater Middle East. I’m inclined to agree with Andrew Bacevich that the sum of our dominant role in the region since the 1980s has been mostly failure. As he writes, through our “naivety, short-sightedness, and hubris, we have actually made things worse — at very considerable cost to ourselves and to others.” If our record of embarrassingly stalemated diplomacy, costly failed wars, troublesome allies, and elective military envelopment in the Middle East is anything to go by, Americans shouldn’t be overly covetous of Russia’s latest attempt to steal our thunder in Syria – a conflict, I might add, which our “leadership” to date has mostly made worse

Although Americans are divided in their perceptions of how police do their jobs, majorities across demographic and partisan groups agree on what law enforcement’s top priorities ought to be.

A newly released Cato Institute/YouGov survey of 2,000 Americans finds that when people are asked to select their top three priorities for the police they choose the following:

  1. Investigating violent crime like murder, assaults, and domestic violence (78%)
  2. Protecting individuals from violent crime (64%)
  3. Investigating property crime and robbery (58%)

Notably, only 30% think police should make enforcing drug laws a top three priority. Some may find these results surprising, given that police made more arrests for drug abuse violations (1.6 million) than they did for violent crimes (498,666) in 2014. The estimated number of violent crimes committed that year was 1.2 million.

Find the full public opinion report here.

Nineteen percent (19%) say police should make enforcing traffic laws a top priority. In other words, Americans de-prioritize the task leading to the most common interaction individuals have with the police—receiving a traffic ticket.[1]

Another 18% think police should prioritize going beyond traditional law enforcement responsibilities by “providing guidance and social services to troubled young adults.” And another 12% say police enforcing public nuisance laws is most important. 

Black, white, and Hispanic Americans, Democrats and Republicans prioritize the same top three tasks for law enforcement. However, groups differ in their intensity of support. African Americans and Hispanics (45%) and Democrats (51%) are less likely than white Americans (63%) and Republicans (63%) to prioritize the police investigating property crime and robbery. (Although this difference largely dissipates among individuals above the median income.) African Americans, Latinos, and Democrats (27%) are about twice as likely as whites (15%) and three times as likely as Republicans (9%) to say the police should prioritize “providing guidance and social services to troubled young adults.”

No racial group is more likely to prioritize the police enforcing drug laws—30% of whites, Hispanics, and blacks each say it should be a top priority. Even partisans generally de-prioritize fighting the drug war. Thirty-five percent (35%) of Republicans and 27% of Democrats say it should be a top three priority.

Despite these modest differences, Americans across partisanship and demographics agree that the police should prioritize fighting violent and property crime and protecting people from being victims of violence. 

For public opinion analysis sign up here to receive Cato’s upcoming digest of Public Opinion Insights and public opinion studies.

The Cato Institute/YouGov national survey of 2,000 adults was conducted June 6–22, 2016 using a sample drawn from YouGov’s online panel, which is designed to be representative of the U.S. population. YouGov uses a method called sample matching, and restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of sampling error for all respondents is +/-3.19 percentage points. The full report can be found here, topline results can be found here, and full methodological details can be found here.

[1] Christine Eith and Matthew R. Durose, Contacts between Police and the Public, 2008, edited by Bureau of Justice Statistics (Washington, D.C.: U.S. Department of Justice, 2011), https://www.bjs.gov/content/pub/pdf/cpp08.pdf.

In his press conference last month, President Barack Obama sternly voiced concern about “potential foreign influence in our election process.”

The goal may be a valid one, but it cloaks hypocrisy of staggering proportions. The United States has been assiduously intervening in foreign elections for decades—perhaps even for centuries.

The central issue in the 2016 election was with some hacked emails, published by Wikileaks, indicating that some top members of the Democratic National Committee were rooting for Hillary Clinton to win their party’s nomination for president. This seems to have been the extent of the “interference,” and there has been a concerted effort to suggest that Russian hackers were the source of the information, a contention Wikileaks has strongly and repeatedly denied.

The revelations can scarcely have come as much of a surprise to anybody following the campaign, and it seems highly unlikely that they swung many votes—my guess, erring on the high side, would be perhaps six or seven.

The American record in election interference (always, of course, with the best of intentions) is much more extensive.          

Exhibit number one is surely the Italian election of 1948 in which the CIA furnished a million dollars to congenial parties and may have published forged letters designed to discredit leaders of the Communist Party. Meanwhile, there was a concerted effort to get Italian-Americans to write home urging relatives and friends to vote the right way.

In more recent times, I remember talking with a member of the political opposition in Serbia in 2001 who expressed his appreciation for funds that had been supplied the year before by agencies of the U.S. government—“we never would have been able to launch such an extensive campaign without it.”

As a public service, Michael Brenner of the University of Pittsburgh, has, with a little help from his friends, provided a list of countries where the United States has intervened in elections (he points out that the U.S. has also participated in a number of coups, but these are not included).

Going back a few decades, his list includes Greece, Turkey, Italy, France, and Portugal. More recently there have been Macedonia, Serbia, Albania, Bosnia, Ukraine, Russia (especially Yeltsin’s 1995-96 campaign), Algeria, Lebanon, Palestine, Cyprus, Iraq, Pakistan, Afghanistan, Kyrgyzstan, Tajikistan, Yemen, Vietnam, Indonesia, Japan, South Korea, Philippines, Congo and several other countries in Africa, and, in Latin America, every country multiple times including within the last fifteen years Haiti, Dominican Republic, Honduras, Panama, Nicaragua, Venezuela, Columbia, Paraguay, Peru, Ecuador, Bolivia, Brazil, and Argentina.

Brenner’s list is an ongoing project. It does not include Canada, and just possibly there are some Canadians who might find that omission to be unjustified.

The federal government owns 28 percent of the land in the United States, including about half of the land in the 11 westernmost states. Federal agencies are poor land managers in many ways, and the government’s top-down regulations on land use are frustrating to many Westerners, as I discuss in studies here and here.

Much federal land would generate more value if it were owned by the states or the private sector. Economic and environmental needs would be better balanced by local policymakers than by the unaccountable bureaucracies in faraway Washington. Increased federal control over lands does not automatically benefit the environment, as liberals seem to think. Instead, it usually creates disincentives for sound environmental management.

The good news is that the House took a step toward devolving federal lands yesterday, as reported by the Washington Post:

House Republicans on Tuesday changed the way Congress calculates the cost of transferring federal lands to the states and other entities, a move that will make it easier for members of the new Congress to cede federal control of public lands.

Many Republicans, including House Natural Resources Committee Chairman Rob Bishop (R-Utah), have been pushing to hand over large areas of federal land to state and local authorities, on the grounds that they will be more responsive to the concerns of local residents.

But…

Rep. Raul Grijalva (Ariz.), the top Democrat on the Natural Resources Committee, sent a letter Tuesday to fellow Democrats urging them to oppose the rules package on the basis of that proposal.

“The House Republican plan to give away America’s public lands for free is outrageous and absurd,” Grijalva said in a statement. “This proposed rule change would make it easier to implement this plan by allowing the Congress to give away every single piece of property we own, for free, and pretend we have lost nothing of any value.”

Rep. Grijalva gets it backwards. Devolving ownership would increase the value of federal lands to Americans, not reduce it. And far from being “outrageous and absurd,” devolution was the general policy of the government for much of the nations’ history. The federal government privatized 792 million acres of land between 1781 and 1940, and it transferred 470 million acres of land to the states.

President-elect Donald Trump and his nominee to head the Department of the Interior apparently lean against devolving federal lands. But I hope they reconsider, as there are 640 million acres of diverse lands we are talking about here. I am not saying that we should privatize Yellowstone. But what about the Bureau of Land Management’s 250 million acres, which is mainly used for cattle grazing?

Today, artificially low federal grazing fees encourage overgrazing. Federal ownership also makes ranchers insecure about their tenures, such that they have an incentive to overstock grazing lands and a disincentive to make long-term investments to improve the lands. Privatizing grazing lands would create more secure property rights, and thus encourage ranchers to improve their stewardship of the lands. That would benefit the economy and the environment.

A good first step for the Trump administration would be to create a detailed inventory of federal land holdings. Then the administration should work with Congress and the states to identify those parcels that might be better managed by state and local governments, nonprofit groups, and businesses.

 

I wrote yesterday to praise the Better Way tax plan put forth by House Republicans, but I added a very important caveat: The “destination-based” nature of the revised corporate income tax could be a poison pill for reform.

I listed five concerns about a so-called destination-based cash flow tax (DBCFT), most notably my concerns that it would undermine tax competition (folks on the left think it creates a “race to the bottom” when governments have to compete with each other) and also that it could (because of international trade treaties) be an inadvertent stepping stone for a government-expanding value-added tax.

Brian Garst of the Center for Freedom and Prosperity has just authored a new study on the DBCFT. Here’s his summary description of the tax.

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation. This mercantilist system is based on the same “destination” principle as European value-added taxes, which means that it is explicitly designed to preclude tax competition.

Since CF&P was created to protect and promote tax competition, you won’t be surprised to learn that the DBCFT’s anti-tax competition structure is a primary objection to this new tax.

First, the DBCFT is likely to grow government in the long-run due to its weakening of international tax competition and the loss of its disciplinary impact on political behavior. … Tax competition works because assets are mobile. This provides pressure on politicians to keep rates from climbing too high. When the tax base shifts heavily toward immobile economic activity, such competition is dramatically weakened. This is cited as a benefit of the tax by those seeking higher and more progressive rates. …Alan Auerbach, touts that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and that it would “alter fundamentally the terms of international tax competition.” This raises the obvious question—would those businesses and economists that favor the DBCFT at a 20% rate be so supportive at a higher rate?

Brian also shares my concern that the plan may morph into a VAT if the WTO ultimately decides that is violates trade rules.

Second, the DBCFT almost certainly violates World Trade Organization commitments. …Unfortunately, it is quite possible that lawmakers will try to “fix” the tax by making it into an actual value-added tax rather than something that is merely based on the same anti-tax competition principles as European-style VATs. …the close similarity of the VAT and the DBCFT is worrisome… Before VATs were widely adopted, European nations featured similar levels of government spending as the United States… Feeding at least in part off the easy revenue generate by their VATs, European nations grew much more drastically over the last half century than the United States and now feature higher burdens of government spending. The lack of a VAT-like revenue engine in the U.S. constrained efforts to put the United States on a similar trajectory as European nations.

And if you’re wondering why a VAT would be a bad idea, here’s a chart from Brian’s paper showing how the burden of government spending in Europe increased once that tax was imposed.

In the new report, Brian elaborates on the downsides of a VAT.

If the DBCFT turns into a subtraction-method VAT, its costs would be further hidden from taxpayers. Workers would not easily understand that their employers were paying a big VAT withholding tax (in addition to withholding for income tax). This makes it easier for politicians to raise rates in the future. …Keep in mind that European nations have corporate income tax systems in addition to their onerous VAT regimes.

And he points out that those who support the DBCFT for protectionist reasons will be disappointed at the final outcome.

…if other nations were to follow suit and adopt a destination-based system as proponents suggest, it will mean more taxes on U.S. exports. Due to the resulting decline in competitive downward pressure on tax rates, the long-run result would be higher tax burdens across the board and a worse global economic environment.

Brian concludes with some advice for Republicans.

Lawmakers should always consider what is likely to happen once the other side eventually returns to power, especially when they embark upon politically risky endeavors… In this case, left-leaning politicians would see the DBCFT not as something to be undone, but as a jumping off point for new and higher taxes. A highly probable outcome is that the United States’ corporate tax environment becomes more like that of Europe, consisting of both consumption and income taxes. The long-run consequences will thus be the opposite of what today’s lawmakers hope to achieve. Instead of a less destructive tax code, the eventual result could be bigger government, higher taxes, and slower economic growth.

Amen.

My concern with the DBCFT is partly based on theoretical objections, but what really motivates me is that I don’t want to accidentally or inadvertently help statists expand the size and scope of government. And that will happen if we undermine tax competition and/or set in motion events that could lead to a value-added tax.

Let’s close with three hopefully helpful observations.

Helpful Reminder #1: Congressional supporters want a destination-based system as a “pay for” to help finance pro-growth tax reforms, but they should keep in mind that leftists want a destination-based system for bad reasons.

Based on dozens of conversations, I think it’s fair to say that the supporters of the Better Way plan don’t have strong feelings for destination-based taxation as an economic principle. Instead, they simply chose that approach because it is projected to generate $1.2 trillion of revenue and they want to use that money to “pay for” the good tax cuts in the overall plan.

That’s a legitimate choice. But they also should keep in mind why other people prefer that approach. Folks on the left want a destination-based tax system because they don’t like tax competition. They understand that tax competition restrains the ability of governments to over-tax and over-spend. Governments in Europe chose destination-based value-added taxes to prevent consumers from being able to buy goods and services where VAT rates are lower. In other words, to neuter tax competition. Some state governments with high sales taxes in the United States are pushing a destination-based system for sales taxes because they want to hinder consumers from buying goods and services from states with low (or no) sales taxes. Again, their goal is to cripple tax competition.

Something else to keep in mind is that leftist supporters of the DBCFT also presumably see the plan as being a big step toward achieving a value-added tax, which they support as the most effective way of enabling bigger government in the United States.

Helpful Reminder #2: Choosing the right tax base (i.e., taxing income only one time, otherwise known as a consumption-base system) does not require choosing a destination-based approach.

The proponents of the Better Way plan want a “consumption-base” tax. This is a worthy goal. After all, that principle means a system where economic activity is taxed only one time. But that choice is completely independent of the decision whether the tax system should be “origin-based” or “destination-based.”

The gold standard of tax reform has always been the Hall-Rabushka flat tax, which is a consumption-base tax because there is no double taxation of income that is saved and invested. It also is an “origin-based” tax because economic activity is taxed (only one time!) where income is earned rather than where income is consumed.

The bottom line is that you can have the right tax base with either an origin-based system or a destination-based system.

Helpful Reminder #3: The good reforms of the Better Way plan can be achieved without the downside risks of a destination-based tax system.

The Tax Foundation, even in rare instances when I disagree with its conclusions, always does very good work. And they are the go-to place for estimates of how policy changes will affect tax receipts and the economy. Here is a chart with their estimates of the revenue impact of various changes to business taxation in the Better Way plan. As you can see, the switch to a destination-based system (“border adjustment”) pulls in about $1.2 trillion over 10 years. And you can also see all the good reforms (expensing, rate reduction, etc) that are being financed with the various “pay fors” in the plan.

I am constantly asked how the numbers can work if “border adjustment” is removed from the plan. That’s a very fair question.

But there are lots of potential answers, including:

  • Make a virtue out of necessity by reducing government revenue by $1.2 trillion.
  • Reduce the growth of government spending to generate offsetting savings.
  • Find other “pay fors” in the tax code (my first choice would be the healthcare exclusion).
  • Reduce the size of the tax cuts in the Better Way plan by $1.2 trillion.

I’m not pretending that any of these options are politically easy. If they were, the drafters of the Better Way plan probably would have picked them already. But I am suggesting that any of those options would be better than adopting a destination-based system for business taxation.

Ultimately, the debate over the DBCFT is about how different people assess political risks. House Republicans advocating the plan want good things, and they obviously think the downside risks in the future are outweighed by the ability to finance a larger level of good tax reforms today. Skeptics appreciate that those proponents want good policy, but we worry about the long-run consequences of changes that may (especially when the left sooner or late regains control) enable bigger government.

P.S. This is not the first time that advocates of good policy have bickered with each other. During the 2016 nomination battle, Rand Paul and Ted Cruz proposed tax reform plans that fixed many of the bad problems in the tax code. But they financed some of those changes by including value-added taxes in their plans. In the short run, either plan would have been much better than the current system. But I was critical because I worried that the inclusion of VATs would eventually give statists a tool to further increase the burden of government.

“Trump’s pick for SEC chair criticized U.S. anti-bribery enforcement in 2011 as too zealous,” gasps one tweet reacting to President-elect Donald Trump’s selection of Sullivan & Cromwell attorney Jay Clayton to head the Securities and Exchange Commission. In a subhead, the WSJ says Clayton “criticized SEC and [Department of] Justice handling of Foreign Corrupt Practices Act as overly aggressive.”

Good! Clayton is right to voice such criticisms. As I’ve argued in this space, the 1977 FCPA “is a feel-good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage”: it is extraterritorialvicariouspunitive, and vague. It is not clear that a more carefully drafted law would have been a good idea; my Cato colleague Jeffrey Miron writes that while curtailing Americans’ involvement in overseas corruption may be a well-intentioned goal, FCPA “discourages U.S. companies from doing business abroad in the first place,” is readily circumvented in many situations, fails to distinguish between the most corrosive forms of bribery and those in which favors to officials are “an attempt to get around laws that make little sense in the first place”—such as restrictions on entering markets—and leaves some countries to welter in poverty if they cannot fix a local culture of baksheesh.

All of this was made worse by the Obama administration’s decision to step up the pace of FCPA prosecution, which ran into a series of rebukes from federal judges throwing out high-profile cases. Allegations of FCPA violations led to a great furor about Wal-Mart’s operations in Mexico that mostly fizzled later, while other prosecutions have been based on purported corruption oddly reminiscent of practices that go on right here in the U.S. without anyone prosecuting, such as Western banks’ alleged practice overseas of hiring young relatives of influential persons, something that has been known to happen in politics and the media here in Washington, D.C.

Don’t back down, Mr. Clayton.

Antonio Buehler was arrested in Austin, Texas, after recording a woman he believed was getting abused by police. The officer even threatened other innocent bystanders with arrest if they didn’t stop paying attention to what was going on. The officer later said that he arrested Buehler for spitting on him, but the video and independent witnesses dispute this and a grand jury refused to indict him for it. The grand jury did, however, indict Buehler for failure to obey the officer in putting his hands behind his back—but even on this charge he was found not guilty.

Now Buehler is trying to sue the police because he believes his arrest, along with two earlier arrests, were in retaliation for his video recording—a First Amendment-protected activity. The Austin Police Department moved for summary judgment on this lawsuit, claiming that the police should not be liable even if Buehler’s account is correct because he was indicted—and that indictment is conclusive evidence of the probable cause justifying his arrest. The federal district court granted this motion, dismissing the case, and the U.S. Court of Appeals for the Fifth Circuit affirmed that result.

Cato, joined by the National Press Photographers Association and five other media organizations, has filed an amicus brief asking the Supreme Court to take this case and give Buehler his chance to prove that the facts underlying the grand jury indictment were false. Instead of taking the grand jury determination as conclusive, the Fifth Circuit should have relied on the Supreme Court’s holding in Hartman v. Moore (2006) that probable cause “is not necessarily dispositive,” and even if it was that the plaintiff need only “plead and prove its absence.” Buehler has pled the absence of probable cause and seeks only to prove it.

Considering the facts that he has pled, where the officer explicitly told him after he was arrested that “it would have been so much easier if you would just pay attention to your own selves,” it’s reasonable for a jury to infer that this was the real reason for the arrest.

Sadly, Buehler’s travails aren’t isolated happenstance. Police around the country have been trying to put the technological genie back in the bottle by harassing those who are just trying to record what the police do. Even credentialed journalists have not been immune and many have been arrested on trumped up charges.

It’s for this reason that it’s critically important that the Court takes this case, not just to secure justice (or even a day in court) for Mr. Buehler, but to help all people like him who are pretextually arrested by police just because they choose to record what these law-enforcement agents do. Everyone deserves the opportunity to prove that the facts underlying one’s arrest aren’t true and to be awarded compensation for the government’s violation of our rights.

The Supreme Court will decide later this winter whether to take Buehler v. Austin Police Department.

Senator Tom Cotton (R-AR) recently penned an op-ed for the New York Times in which he calls for a large reduction in legal immigration, something he believes will raise American wages. It’s nice when immigration restrictionists are honest about their intention to cut legal immigration, but Senator Cotton would be disappointed if his policy ever came to fruition. Senator Cotton does make some cursory arguments for expanding high-skilled immigration—a positive policy—but I will focus here on his argument to restrict it. I will respond to a few of Senator Cotton’s comments below. His will be in block quotes while my responses will follow. 

Higher wages, better benefits and more security for American workers are features, not bugs, of sound immigration reform. For too long, our immigration policy has skewed toward the interests of the wealthy and powerful: Employers get cheaper labor, and professionals get cheaper personal services like housekeeping. We now need an immigration policy that focuses less on the most powerful and more on everyone else.

Senator Cotton argues that skilled native workers are complementary to low-skilled immigrants, meaning that the former’s wages rise rather than fall when more of the latter arrive. This is because low-skilled immigrants and higher skilled workers don’t compete for the same jobs but instead work together, expanding productivity and compensation for both parties. These complementarities do exist, but there is also much evidence that lower-skilled American workers are actually complementary with low-skilled immigrants. Economists Gianmarco Ottaviano and Giovanni Peri found that immigration had a small positive relative effect on the wages of native workers with no high school degree (between +0.6 percent and +1.7 percent) and a small positive effect on average native wages (+0.6%) from 1990 to 2006. Immigrants are complementary to native workers but substitutable for other immigrants who experienced a substantial relative negative effect (−6.7 percent) from immigration. It should not be surprising that new immigrants compete with older immigrants who both share similar skills while native-born American workers benefit overall.

Language differences are a major reason why immigrants and natives with the same skill level are complementary according to economists Peri and Chad Sparber. Low-skilled immigration incentivizes low-skilled natives to specialize in jobs that require communication in English. Meanwhile, immigrants specialize in jobs that are more manual-labor intensive and require less English-language proficiency. Communication jobs are more highly compensated than manual-labor jobs. This complementary task specialization reduces the downward wage pressure because natives react by adapting and specializing in more highly paid occupations, not by dropping out of the job market or accepting lower wages. This effect decreases wage competition between lower-skilled natives and immigrants by around 75 percent. Economist Peter Henry also found that low-skilled immigrants to an area induced natives to improve their school performance so that they wouldn’t have to compete with lower-skilled immigrants. Immigrants tend to push Americans upward rather than downward.

More low-skilled workers incentivize more Americans to enter the labor market. A good example of this is provided by economists Patricia Cortes and Jose Tessada, who found that skilled American women with young children reentered the workforce faster when they lived in cities with many low-skilled immigrants who could work as nannies. In this case, an immigrant with a job increases the number of working skilled American women. 

After all, the law of supply and demand is not magically suspended in the labor market. As immigrant labor has flooded the country, working-class wages have collapsed. Wages for Americans with only high school diplomas have declined by 2 percent since the late 1970s, and for those who didn’t finish high school, they have declined by nearly 20 percent, according to Economic Policy Institute figures.

Senator Cotton rightly tells us to pay attention to the law of supply and demand but then promptly ignores demand. Immigrants boost demand by buying goods and services, which create more jobs than are occupied by the immigrant workers themselves according to research by Gihoon Hong and John McLaren. If immigrants are removed from an area they take their purchasing power, and the jobs that their purchases support, with them. An example will help explain this. Let’s say you own a small local business. One day the government rounds up half of your customers, some of whom are your employees, and deports them. As a business owner, would you be eager to hire more workers at a higher wage to replace those who were deported or would you refrain because your revenues are about to take a substantial hit? The answer is obvious. Now multiply that by 11 million unauthorized immigrant consumers.

Some will claim that money sent abroad by immigrants in the form of remittances, about $135 billion in 2015, does nothing to help the U.S. economy. First off, most of that money wouldn’t have been made had it not been for immigrants earning it—the economy is not a fixed pie. Secondly, that money eventually returns to the United States in the form of exports or foreign investment.

There is not a fixed number of jobs in the economy, so an employed immigrant does not automatically force a native out of the job market. Immigrants “taking” jobs from natives, also known as displacement, is a minor phenomenon when it exists at all. One prominent study found that an increase in the foreigner share of a population by 10 percent reduces native employment by 0.2 to 0.7 percent, a result exacerbated by labor market regulations. Many of those Americans displaced by immigrants tend to get better-paid jobs that exist due to the complementarities described above. David Card and Ethan Lewis found that most of the workers displaced were actually immigrants themselves, although this was confined to just a handful of cities.

The wage decline figures provided by the left-wing Economic Policy Institute have been soundly rebutted when proper deflators are used.  A forthcoming Mercatus Center paper by Scott Winship, a visiting fellow at the Foundation for Research on Equal Opportunity, finds that wages for workers in the 20th percentile who are most likely to be only high school graduates have increased slightly since 1970. Wages for workers with less than a high school degree have likely fallen somewhat since 1970.

However, the U.S. workforce is a lot more educated than it was in 1970. In that year, there were 47.2 million native-born American high school dropouts who were 25 years or older. They comprised 46.4 percent of the native population in that age category. In 2015, there were only 16.8 million native high school dropouts in the same age range and they comprised a mere 9.4 percent of the natives. Both the absolute and percentage of native-born Americans with less than a high school degree has crashed since 1970.

The number of natives who are at least 25 years old with only a high school degree increased from 43.5 million in 1970 to 51.1 million in 2015, but their percentage of the population dropped from 42.8 to 28.6 percent. Native high school dropouts and those with only a high school degree numbered almost 91 million in 1970 and comprised 89 percent of natives who were at least 25 years old. In 2015, they numbered 67.9 million and a mere 38 percent of natives in the same age range. Even if Senator Cotton’s figures were correct (they aren’t) the percentage and number of native-born Americans who suffer is much reduced from 45 years ago.

Interestingly, workers with only a high school degree might be the most complementary to those with less than a high school degree. There is some evidence that Miamians with less than a high school degree suffered wage declines after the Mariel Boaltift dropped about 125,000 mostly low-skilled Cubans in Miami in 1980. However, the wages for native-born Miamians with only a high school degree shot up afterward and likely overwhelmed the wage decline for those with less than a high school degree. If these results are generalizable (a huge if) then halting immigrants with less than a high school degree could stop wage growth for high school graduates. That’s disincentives climbing the skills ladder.

It’s been a quarter-century since Congress substantially reformed the immigration system. In that time, the population of people who are in this country illegally has nearly tripled, to more than 11 million. We’ve also accepted one million legal immigrants annually — and a vast majority are unskilled or low-skilled.

If controlling immigration to the United States was as easy as flipping a policy switch, then there would be no debate over immigration reform. There would be no illegal immigrants and the system would behave as its designers intended. In the real world, people respond to incentives and are not passive objects that just accept government laws. When laws, like our heavily restrictive immigration laws, erect legal barriers to voluntary exchange then the result is a vast black market represented by 11 to 12 million illegal immigrants. More restrictions are unlikely to reduce the size of the black market. Assume, for the sake of argument, that Senator Cotton is correct that wages for Americans with less than a high school degree will rise if millions of illegal immigrants are deported and the future legal flow is halted. Foreigners will then have even more of an incentive to sneak in illegally to work, overstay visas, or find other ways to circumvent American labor market regulations. More comprehensive enforcement will just raise wages, which will attract more illegal immigrants, who will then lower wages again, which in turn will be countered by better enforcement—and so on in a familiar and predictable cycle. All is not hopeless, however: there is a way out.

The only times in American history when our immigration laws were largely obeyed was when the Great Depression turned off the “jobs magnet,” a world war prevented the crossing of borders, and a large-scale guest-worker program funneled would-be illegal immigrants into the legal system (the Bracero program). Since 1964, we have not had a Great Depression (thank God), world war (double-thank God), or a functional guest-worker visa program for lower-skilled workers. As a result, we have a large problem with illegal immigration that enforcement cannot halt except by triggering a world war or economic depression. Foreigners want to sell their labor to Americans and Americans want to buy it. The law does dent that flow but there will always be a large black market so long as the government tries to enforce laws that conflict so much with reality. A functional legal immigration system can prevent or substantially reduce illegal immigration far more cheaply and effectively than expanding an already vast border bureaucracy.

Immigration produces a net-benefit for Americans. Economist David Card called research on the topic “the elusive search for negative wage impacts of immigration.” Although some noted economists like George Borjas at Harvard do find relative wage declines for some groups of American workers, even his work shows that wages for native-born Americans benefit overall, although by a small amount. An honest discussion of immigration policy must consider the known economic benefits of immigration as well as the costs.

Inside U.S. Trade reports that there may be a confirmation hearing for President-elect Trump’s pick for Commerce secretary, Wilbur Ross, “as early as next week.” Here are some questions I would ask him. Some of these are designed to poke him a bit on inconsistent statements he has made, but for others, I’m just curious to see what exactly the Trump adminstration has in mind for its trade policy.

Regional vs. Bilateral Trade Agreements

You have been critical of regional trade agreements, and supportive of bilateral ones, and in this regard you once said, “The problem with regional trade agreements is you get picked apart by the first country. Then you negotiate with the second you get picked apart. And you go with the third one. You get picked apart again.”

But you also praised the CAFTA-DR, a regional agreement, and criticized the bilateral US-Korea trade agreement. Doesn’t your praise for CAFTA-DR and criticism of the US-Korea agreement contradict your view that regional trade agreements are bad deals?

Also related to this point, other countries seem eager to negotiate regional deals. If they can engage in regional trade negotiations without getting picked apart, why can’t the U.S.?

And finally, with regard to your praise for CAFTA-DR and criticism of the US-Korea FTA, these two agreements are based on the same model, and have very similar provisions. In your view, what were the substantive differences between the two agreements that led to different results?

Renegotiating NAFTA

You have talked about a NAFTA renegotiation on Day 1 of a Trump Presidency. Can you tell us some of the specific provisions in NAFTA you don’t like and would want to see changed, and some of those you like and think should be maintained?

The TPP

In May of 2016, you said that you did not agree with Donald Trump on the TPP,  saying that you “like[d] the TPP.” But now you are opposed to it. What changed your mind?

A US-UK Trade Agreement 

There has been a lot of recent talk about a US-UK trade agreement. Do you support such an agreement? If so, would you hope to start these trade negotiations right away, or would they have to wait until after the UK completes its exit from the EU? 

Foreign Investment Treaties

Trade gets most of the attention, but foreign investment is important too. The U.S. and China have been negotiating an investment treaty for many years. Would you continue this effort? If so, what topics would you want to see included? What is your view of the investor-state dispute mechanism that is a key feature of U.S. investment treaties?

The Republicans in the House of Representatives, led by Ways & Means Chairman Kevin Brady and Speaker Paul Ryan, have proposed a “Better Way” tax plan that has many very desirable features.

And there are many other provisions that would reduce penalties on work, saving, investment, and entrepreneurship. No, it’s not quite a flat tax, which is the gold standard of tax reform, but it is a very pro-growth initiative worthy of praise.

That being said, there is a feature of the plan that merits closer inspection. The plan would radically change the structure of business taxation by imposing a 20 percent tax on all imports and providing a special exemption for all export-related income. This approach, known as “border adjustability,” is part of the plan to create a “destination-based cash flow tax” (DBCFT).

When I spoke about the Better Way plan at the Heritage Foundation last month (my portion of the panel starts about 1:11:00 if you want to skip ahead), I highlighted the good features of the plan in the first few minutes of my brief remarks, but raised my concerns about the DBCFT in my final few minutes.

Tax Reform in the Next Congress

Allow me to elaborate on those comments with five specific worries about the proposal.

Concern #1: Is the DBCFT protectionist?

It certainly sounds protectionist. Here’s how the Financial Times described the plan.

The border tax adjustment would work by denying US companies their current ability to deduct import costs from their taxable income, meaning companies selling imported products would effectively be taxed on the full value of the sale rather than just the profit. Export revenues, meanwhile, would be excluded from company tax bases, giving net exporters the equivalent of a subsidy that would make them big beneficiaries of the change.

Charles Lane of the Washington Post explains how it works.

…the DBCFT would impose a flat 20 percent tax only on earnings from sales of output consumed within the United States… It gets complicated, but the upshot is that the cost of imported supplies would no longer be deductible from taxable income, while all revenue from exports would be. This would be a huge incentive to import less and export more, significant change indeed for an economy deeply dependent on global supply chains.

That certainly sounds protectionist as well. A tax on imports and a special exemption for exports.

But proponents say there’s no protectionism because the tax is neutral if the benchmark is where products are consumed rather than where income is earned. Moreover, they claim exchange rates will adjust to offset the impact of the tax changes. Here’s how Lane explains the issue.

…the greenback would have to rise 25 percent to offset what would be a new 20 percent tax on imported inputs — propelling the U.S. currency to its highest level on record. The international consequences of that are unforeseeable, but unlikely to be totally benign for everyone. Bear in mind that many other countries — China comes to mind — can and will manipulate exchange rates to protect their own short-term interests.

For what it’s worth, I accept the argument that the dollar will rise in value, thus blunting the protectionist impact of border adjustability. It would remain to be seen, though, how quickly or how completely the value of the dollar would change.

Concern #2: Is the DBCFT compliant with WTO obligations?

The United States is part of the World Trade Organization (WTO) and we have ratified various agreements designed to liberalize world trade. This is great for the global economy, but it might not be good news for the Better Way plan because WTO rules only allow border adjustability for indirect taxes like a credit-invoice value-added tax. The DBCFT, by contrast, is a version of a corporate income tax, which is a direct tax.

The column by Charles Lane explains one of the specific problems.

Trading partners could also challenge the GOP plan as a discriminatory subsidy at the World Trade Organization. That’s because it includes a deduction for wages paid by U.S.-located firms, importers and exporters alike — a break that would obviously not be available to competitors abroad.

Advocates argue that the DBCFT is a consumption-base tax, like a VAT. And since credit-invoice VATs are border adjustable, they assert their plan also should get the same treatment. But the WTO rules say that only “indirect” taxes are eligible for border adjustability. The New York Times reports that the WTO therefore would almost surely reject the plan.

Michael Graetz, a tax expert at the Columbia Law School, said he doubted that argument would prevail in Geneva. “W.T.O. lawyers do not take the view that things that look the same economically are acceptable,” Mr. Graetz said.

A story in the Wall Street Journal considers the potential for an adverse ruling from the World Trade Organization.

Even though it’s economically similar to, and probably better than, the value-added taxes (VATs) many other countries use, it may be illegal under World Trade Organization rules. An international clash over taxes is something the world can ill afford when protectionist sentiment is already running high. …The controversy is over whether border adjustability discriminates against trade partners. …the WTO operates not according to economics but trade treaties, which generally treat tax exemptions on exports as illegal unless they are consumption taxes, such as the VAT. …the U.S. has lost similar disputes before. In 1971 it introduced a tax break for exporters that, despite several revamps, the WTO ruled illegal in 2002.

And a Washington Post editorial is similarly concerned.

Republicans are going to have to figure out how to make such a huge de facto shift in the U.S. tax treatment of imports compliant with international trade law. In its current iteration, the proposal would allow corporations to deduct the costs of wages paid within this country — a nice reward for hiring Americans and paying them well, which for complex reasons could be construed as a discriminatory subsidy under existing World Trade Organization doctrine.

Concern #3: Is the DBCFT a stepping stone to a VAT?

If the plan is adopted, it will be challenged. And if it is challenged, it presumably will be rejected by the WTO. At that point, we would be in uncharted territory.

Would that force the folks in Washington to entirely rewrite the tax system? Would they be more surgical and just repeal border adjustability? Would they ignore the WTO, which would give other nations the right to impose tariffs on American exports?

One worrisome option is that they might simply turn the DBCFT into a subtraction-method value-added tax (VAT) by tweaking the law so that employers no longer could deduct  expenses for labor compensation. This change would be seen as more likely to get approval from the WTO since credit-invoice VATs are border adjustable.

This possibility is already being discussed. The Wall Street Journal story about the WTO issue points out that there is a relatively simple way of making the DBCFT fit within America’s trade obligations, and that’s to turn it into a value-added tax.

One way to avoid such a confrontation would be to revise the cash flow tax to make it a de facto VAT.

The Economist shares this assessment.

…unless America switches to a full-fledged VAT, border adjustability may also be judged to breach World Trade Organisation rules.

Steve Forbes is blunt about this possibility.

One tax initiative that should be strangled before it sees the light of day is to give a tax rebate to exporters and to impose taxes on imports. …It’s a bad idea. Why do we want to make American consumers pay more for products while subsidizing foreign buyers? It also could put us on the slippery slope to our own VAT.

And that’s not a slope we want to be on. Unless the income tax is fully repealed (sadly not an option), a VAT would be a recipe for turning America into a European-style welfare state.

Concern #4: Does the DBCFT undermine tax competition and give politicians more ability to increase tax burdens?

Alan Auerbach, an academic from California who previously was an adviser for John Kerry and also worked at the Joint Committee on Taxation when Democrats controlled Capitol Hill, is the main advocate of a DBCFT (the New York Times wrote that he is the “principal intellectual champion” of the idea).

He wrote a paper several years ago for the Center for American Progress, a hard-left group closely associated with Hillary Clinton. Auerbach explicitly argued that this new tax scheme is good because politicians no longer would feel any pressure to lower tax rates. The very first subtitle of his paper even refers to “ending the race to the bottom.”

This…alternative treatment of international transactions that would relieve the international pressure to reduce rates while attracting foreign business activity to the United States. It addresses concerns about the effect of rising international competition for multinational business operations on the sustainability of the current corporate tax system. With rising international capital flows, multinational corporations, and cross-border investment, countries’ tax rates and tax structures are of increasing importance. Indeed, part of the explanation for declining corporate tax rates abroad is competition among countries for business activity. …my proposed reforms…builds on the [Obama] Administration’s approach…and alleviates the pressure to reduce the corporate tax rate.

This is very troubling. Tax competition is a very valuable liberalizing force in the world economy. It partially offsets the public choice pressures on politicians to over-tax and over-spend. If governments no longer had to worry that taxable activity could escape across national borders, they would boost tax rates and engage in more class warfare.

Also, it’s worth noting that the so-called Marketplace Fairness Act, which is designed to undermine tax competition and create a sales tax cartel among American states, uses the same “destination-based” model as the DBCFT.

Concern #5: Does the DBCFT create needless conflict and division among supporters of tax reform?

As I pointed out in my remarks at the Heritage Foundation, there’s normally near-unanimous support from the business community for pro-growth tax reforms.

That’s not the case with the DBCFT.

The Washington Examiner reports on the divisions in the business community.

Major retailers are skeptical of the House Republican plan to revamp the tax code, fearing that the GOP call to border-adjust corporate taxes could harm them even if they win a significant cut to their tax rate. As a result, retailers, oil refiners and other industries that import goods to sell in the U.S. could provide a major obstacle to the Republican effort to reform taxes. …The effect of the border adjustment, retailers fear, would be that the goods they import to sell to consumers would face a 20 percent mark-up, one that would force retailers like Walmart, the Home Depot and Sears…to raise prices and lose customers.

A story from CNBC highlights why retailers are so concerned.

…retailers are nervous. Very nervous. …About 95 percent of clothing and shoes sold in the U.S. are manufactured overseas, which means imports make up a vast majority of many U.S. retailers’ merchandise. …If the GOP plan were adopted as it’s currently laid out, Gap pays 20 percent corporate tax on the $5 profit from the sweater, or $1. Plus, 20 percent tax on the $80 cost it paid for that sweater from the overseas supplier, or $16. That means the tax goes from $1.75 to $17 for that sweater, more than three times the profit on that sweater. Talk about a hit to margins. …Retailers certainly aren’t taking a lot of comfort in the economic theory of dollar appreciation. …the tax reform plan will dilute specialty retailers’ earnings by an average of 132 percent. …Athletic manufacturers could take a 40 percent earnings hit… Gap, Carter’s , Urban Outfitters , Fossil and Under Armour are most at risk under the plan.

And here’s another article from the Washington Examiner that explains why folks in the energy industry are concerned.

…the border adjustment would raise costs for refiners that import oil. In turn, that could raise prices for consumers. The border adjustment would amount to a $10-a-barrel tax on imported crude oil, raising costs for drivers buying gasoline by up to 25 cents a gallon, the energy analyst group PIRA Energy Group warned this week. The report warned of a “potential huge impact across the petroleum industry,” even while noting that the tax reform plan faces many obstacles to passage.

Concern #6: What happens when other nations adopt their versions of a DBCFT?

Advocates of the DBCFT plausibly argue that if the WTO somehow approves their plan, then other nations will almost certainly copy the new American system.

That will be a significant blow to tax competition, which would be very bad news for the global economy.

But is also has negative implications for the fight to protect America from a VAT. The main selling point for advocates of the DBCFT is that we need a border-adjustable tax to offset the supposed advantage that other nations have because of border-adjustable VATs (both Paul Krugman and I agree that this is nonsense, but it still manages to be persuasive for some people).

So what happens when other nations turn their corporate income taxes into DBCFTs, which presumably will happen? We’re than back where we started and misguided people will say we need our own VAT to balance out the VATs in other nations.

The bottom line is that a DBCFT is not the answer to America’s wretched business tax system. There are simply too many risks associated with this proposal. I’ll elaborate tomorrow in Part II and also explain some good ways of pursuing tax reform without a DBCFT.

Former Reagan administration deputy U.S. trade representative and longtime trade-remedies attorney, Robert Lighthizer, is President-elect Trump’s choice for United States Trade Representative. Considered in conjunction with the appointments of Peter Navarro to head the newly-created National Trade Council at the White House (my take) and Wilbur Ross at the Commerce Department (my take), Lighthizer’s selection seems to confirm fears that U.S. trade policy is descending into darkness.  At the very least, it is reasonable to assume that for the foreseeable future trade policy will be overwhelmingly enforcement-oriented, while trade agreements and other forms of liberalization will be relegated to the doghouse.

For many years, Lighthizer has represented U.S. steel companies, America’s most trade-litigious industry, filing dozens of antidumping and countervailing duty petitions to keep foreign steel out of the United States. Some of the cases in which he was involved were brought before WTO dispute settlement, where the panels and Appellate Body ruled that the United States was administering its antidumping law in ways that violated U.S. commitments under the WTO Antidumping Agreement.

Perhaps, as a result of those experiences, Lighthizer has been a strident critic of the WTO’s dispute settlement body, which he accuses of overreach and usurpation of U.S. sovereignty. (Here is a debate from 10 years ago between Lighthizer and me on the merits of the WTO.) The fact is that there may be somewhat of a pro-complainant “bias” at the WTO because governments don’t bring cases to dispute settlement unless they are reasonably certain of victory.  There is a selection bias.  When the United States is the complainant, it wins most of the issues in most of the cases.  When the United States is the defendant, it loses most of the issues in most of the cases. It just so happens that the United States has had to defend its indefensible antidumping regime many times at the WTO, and in most cases it has lost.  Antidumping litigation is Lighthizer’s bread and butter.

Lighthizer has advocated for the formal establishment of a committee composed of retired federal judges to review WTO dispute panel and Appellate Body findings that are adverse to the U.S. government’s position. While that is not, in and of itself, necessarily provocative, the ultimate purpose of such a committee would be to collect evidence that the WTO has an anti-American bias, which might be used to advocate WTO withdrawal. The Uruguay Round Agreements Act, which was passed by the U.S. Congress in 1994, contains a provision that effectively requires Congress to vote every five years on whether the United States should remain a member of the WTO.

From Lighthizer’s view, this process would send a signal to the WTO and its members that if the United States doesn’t get its way, it might bolt the system.  And that would give the United States some extra leverage, which might deter the filing of formal complaints and add a corrupting political dimension to dispute settlement determinations. Or, perhaps worse, Lighthizer could use his perch at USTR to lobby Congress to vote for WTO withdrawal.

Lighthizer fancies himself a conservative, although he is more aptly characterized as an economic nationalist with deep disdain for free trade.  He has argued that true conservatives throughout American history have been suspicious of free trade and favored protectionism.  He proudly notes that Ronald Reagan – often pegged as a free trader – imposed all sorts of protectionist measures against imported cars, motorcycles, steel, textiles, and sugar.  And all of these measures were “successful,” he claims.

Despite conclusions reached after the appointments of Ross and Navarro, USTR’s role in formulating trade policy won’t be diminished, but dramatically altered. Enforcement will be the mantra and, I suspect, much of the enforcement effort will be directed at China, Mexico, and developing countries alleged to be the destinations for massive amounts of U.S. outsourcing.  But the targets may change when the Trump administration comes to realize that most U.S. outward investment goes, not to China or Mexico, but to Europe. Actually, the EU is likely to come under greater scrutiny because Trump and the GOP Congress want to overhaul the tax code, and some of the changes being considered may run afoul of U.S. WTO obligations, possibly prompting complaints from Brussels. Having added leverage to suppress formal EU complaints about border tax adjustments seems like it would dovetail neatly with Trump’s approach.

Whether and how long the imbalance between enforcement and liberalization persists will be determined, in part, by how provocative and unilateral U.S. enforcement efforts become. Raising import barriers will have an immediate and deleterious impact on the U.S. economy, especially on manufacturers who rely heavily on imported intermediate goods and capital equipment. Raising those barriers unilaterally – or in circumvention of WTO rules – would likely spark retaliation, which would reduce export revenues and exacerbate the economic damage. 

My best guess remains that Trump doesn’t want to kill the economy, will eventually recognize the folly of this approach, and will reverse course before too long.  But, buckle up.  It’s going to be a bumpy ride.

Harvard economist George Borjas recently published an important paper on how the unexpected surge of 125,000 Cubans (henceforth Marielitos) to Miami in 1980 lowered the wages of native-born male Miamians with less than a high-school degree. Because at least 60 percent of the Marielitos were high school dropouts, Borjas found that the negative wage effects were concentrated on Miamians with the same level of education.  

There are excellent criticisms of Borjas’ paper that show his results hinge on the control cities he chose, his exclusion of women, the age group of the workers, whether Hispanics are included, whether high-school-or-less or no-high-school-at-all are included, and whether datasets with the larger samples are used. For the sake of argument, supposing that Borjas made the correct methodological choices on every single point above, the Mariel Boatlift still raised the wages for low-skilled U.S. workers collectively due to wage complementarities. That’s because native-born Miamians with only a high school degree (no associate degree, no education after high school) experienced significant wage increases immediately after Mariel relative to workers with the same levels of education in the control groups, or placebos, of other cities. Borjas’ supporters ignore this finding but he does not. 

In his Mariel paper, Borjas reports the wage of high school dropouts relative to high school graduates in Figure 3(C) and the wage of Miami high school graduates across an all cities permutation in Figure 4(B), but he doesn’t have a dramatic graph like this that shows what happened to the relative wages of high school graduates after Mariel. 

Another working paper by Borjas and Monras on the wage effects of refugees also found that “the rate of wage growth for high school graduates, a group whose size was only increased modestly by the Marielitos, is noticeably higher in Miami than outside Miami.”  They go on to write that, “the predominantly low-skill Marielitos … raised the wage of workers with a high school education, and this effect is both numerically and statistically significant. The cross-wage elasticity is about +0.7 [compared to -0.9 for high school dropouts].”  They do not find any employment effects for high school dropouts but they did uncover positive and statistically significant employment gains for those with a high school degree. Furthermore, Figure 7.5 on page 148 of Borjas’ new book We Wanted Workers hints at a wage increase for high school graduates immediately after Mariel.              

My intern Cole Blondin and I followed Borjas’ methods to create graphs for the wages of high school graduates before and after the Boatlift. We used the March Current Population survey (March CPS) and combined the May Current Population Survey and the May Outgoing Rotation Group (May CPS-ORG) datasets. The only differences are that we present the figures in dollars rather than logs, we did not use three-year averages to smooth the data, and we did not recreate the synthetic control. One final note, the wage effect of the Marielitos must be compared to placebos because there was only one Miami in 1980 and we can’t actually observe what would have happened to that city had the Marielitos not arrived. We used the same sets of placebo cities as Borjas.

Even under Borjas’ assumptions, native-born male Miamians with a high school degree or less saw a ­net-wage increase after the Mariel Boatlift.    

March CPS 

Just as Borjas reported, there is a significant drop in the wages for male native-born Miamians with less than a high school degree who were 25 to 59 years old after 1980 relative to workers with the same characteristics in the placebos (Figure 1).  By contrast, the wages for Miamians with only a high school degree also increased after the Mariel Boatlift (Figure 2). The wage changes in both figures are statistically significant relative to the placebos. Miamians with just a high school degree are complementary to high school dropouts. Figure 3 shows the wages for high school dropouts and high school graduates in Miami.       

Figure 1

High School Dropouts, March CPS

 

Figure 2

High School Only Graduates, March CPS

 

Figure 3

High School Dropout and High School Only Graduate Wages 1977-2002, March CPS

 

Relative wages for high school dropouts reached their nadir in 1985 and 1986 while the wages for workers with only a high school degree reached their peak in 1984. A mere 19 percent of Miami workers in the March CPS sample had less than a high school degree but 36 percent had only a high school degree which means that more low-skilled American workers experienced a wage gain than a wage decline after Mariel.  

We compare the pre- and post-Mariel Miami wages, weighted by the relative size of the native educational cohorts in the March CPS, to produce a rough estimate of Mariel’s net impact on native wages.  For instance, if there are 10 high school dropouts who each lose $1 and 20 high school only graduates who each gained $0.60, then the net wages earned by Americans increased by $2 [(20*$0.60)-(10*$1)]. In such a scenario, total wages rise for Americans who are high school dropouts and high school graduates. 

We compared the post-Mariel period of 1981 to 1986 to the pre-Mariel period of 1976-1979. The total wage gain for high school graduates outweighs the total losses for high school dropouts in the “All Cities” placebo (the placebo that produced Borjas’ stunning graph). The Card and Low-Skill placebos also returned slightly net wage losses while the employment placebo returned a deeply negative result (Table 1).  The average for all the placebos from the March CPS data was -5.85.       

Table 1

Net Wage Effects, March CPS

          March CPS Differences in Differences Changes (1976-1979, 1981-1986)   Card Cities Employment Cities Low-Skill Cities All Cities No HS, Wage Changes Times Pop

-9.7804

-21.2793

-10.0078

-9.41663

HS Only, Wage Changes Times Pop

5.471363

4.892769

6.571003

10.13576

Net effect

-4.30904

-16.3865

-3.4368

0.71913

May CPS-ORG

Professor Borjas also used the May CPS-ORG data to test whether Mariel lowered the wages of similarly-skilled Miamians. The May CPS-ORG dataset returned a much smaller wage decrease for high school dropouts in Borjas’ paper. This is important by itself because the May CPS-ORG dataset is superior for two widely-reported reasons: First, the May CPS-ORG contains fewer errors because it asks respondents about their wages last week rather than last year (which is the case for the March CPS). Second, it has a larger sample size than the CPS in every year from 1979 onward.  

Regardless, we confirmed Professor Borjas’ findings that the wages of male high school dropouts in the relevant age range fell after the Mariel Boatlift, although they fell less than in the March CPS data (Figure 4). We also found that the wages for high school graduates in the May CPS-ORG dataset increased relative to the placebo cities after the Mariel Boatlift (Figure 5).

Figure 4

High School Dropouts, May CPS-ORG

 

Figure 5

High School Only Graduates, May CPS-ORG

 

The wage gains for high school graduates outweigh the losses of male high school dropouts in Miami for each placebo group—using the March CPS weight of the population by education (Table 2). The Card Cities, Low-Skill Cities, and All Cities placebos all returned very positive results.  The Employment Cities placebo was the only one that returned a slightly negative result. The average net gain for high school graduates and dropouts across the placebos is a positive +17.43. 

Table 2

Net Wage Effects, May CPS-ORG

May CPS-ORG Differences in Differences Changes (1976-1979, 1981-1986)   Card Cities Employment Cities Low-Skill Cities All Cities No HS, Wage Changes Times Pop

-2.20452

-8.33419

-1.67613

-1.91032

HS Only, Wage Changes Times Pop

28.30903

7.618387

25.00548

22.89419

Net effect

26.10452

-0.71581

23.32935

20.98387

To further check our results, we also weighted the wage changes by the May CPS-ORG survey’s estimate of Miami’s education level. The May CPS-ORG survey found that the share of Miami’s native population without a high school education is higher and the percentage with only a high school degree is lower than in the March CPS. Using the May CPS-ORG education weights returns a reduced net positive wage impact for the Card, Low-Skill, and All Cities groups while the Employment Cities group is more negative. Using the May CPS-ORG education estimates, the average is still a positive +10.09.    

Evaluating the Complementary Effects from the March CPS and May CPS-ORG

We ran Borjas’ four different sets of placebo cities on two educational groups of male workers in two different datasets—the March CPS and the May CPS-ORG. There were eight final estimates of the net effects, four in the March CPS and four in the May CPS-ORG.  Four of the eight showed a positive net-wage impact – three in the May CPS-ORG and one in the March CPS.  Four of the eight also showed a negative net-wage impact—three in the March CPS and one in the May CPS-ORG. For each placebo, the positive net-wage gains in the May CPS-ORG results were far larger than the estimated loss in either the May CPS-ORG or the March CPS.

Conclusion

The Mariel Boatlift provides a wonderful natural experiment to test how a sudden, exogenous surge of immigrants affects wages. Professor Borjas’ examination of how Marielitos substituted for native-born Miamians with the same level of education is an important component of that story. However, most have ignored the important complementary effects of the Marielitos on the wages of workers with only a high school degree. A full understanding of Professor Borjas’ contributions to this subject requires acknowledging these complementary effects. To borrow the language used by Professor Borjas, the Marielitos’ redistributed wages from dropouts to workers with only a high school degree with a net positive effect on all low-skill workers.  

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