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The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here.

The justification for returning to the topic now is that two recent reports, issued by the Federal Reserve Bank of San Francisco and by the European Central Bank, provide new evidence on the public’s use of large-denomination notes. This evidence is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe.

The Sands and Rogoff argument assumes that the users of large bills are almost entirely criminals; use by innocent citizens is rare. Rogoff writes in his book:

The bulk of US cash in circulation cannot be accounted for by consumer surveys. Obviously, if consumers are holding only a small fraction of all cash outstanding, they cannot possibly be holding more than a small fraction of the $100 bills in circulation, since $100 bills account for nearly 80 percent of the value of US currency.

By contrast: “The drug trade is a famously cash-intensive business at every level.”

Peter Sands declares: “Eliminating high denomination notes has limited downside since such notes play such little role in the legitimate economy.” Sands downplays any effect of eliminating large notes on the welfare of non-criminals, those he calls “legitimate” currency hoarders, on the assumption that they are at most a small minority of currency holders, while criminals are the vast majority:

The other arguments for retaining high denomination notes [besides profitability to the issuing government] largely revolve around some individuals’ desire to hoard or save cash “under the bed” given concerns about banks, or the utility of high denomination notes in emergencies, war zones or natural disasters. There probably is some legitimate hoarding, particularly in countries with a history of banking crises, but the reality is that most of the money that is hoarded in cash is kept from the banking system in order to keep its origins from scrutiny. Hoarding cash appears highly correlated with tax evasion. [Legitimate hoarding] can only account for a minute fraction of high denomination notes.

In actual reality, nobody really knows the shares of the stock of large bills held by non-criminal hoarders and by various types of criminals, because people who agree to answer survey questions have every incentive to under-report their holdings, whether acquired lawfully or otherwise. It stands to reason that ordinary citizens who hoard cash, say because they dislike surveillance of their banking activity, or fear a breakdown in banking system functionality for reasons of natural disaster (such as recently happened in Puerto Rico) or political upheaval, are the very people who are least likely to divulge the true size of their hoards to strangers, no matter what assurances of anonymity they receive.

Sands argues that in cases of legally acquired hoards, the welfare loss from banning large notes would be minimal, because “lower denomination notes offer an only slightly more inconvenient solution for ordinary people, given the sums involved. Only the very wealthy would be truly inconvenienced by having to make such a substitution.” But this is a hand-waving argument rather than a factual deduction. To securely hoard any dollar amount in $10 bills rather than $100 bills requires a safety deposit box ten times as large, or buying a lockbox ten times as large to hide at home. It is far from obvious that “only the very wealthy” hoarders would be “truly inconvenienced.”

Directly addressing the concern that large bills have legitimate uses, Sands responds [footnote call omitted]:

Some suggest that high denomination notes play an important role in economic activity. There is little evidence for this assertion. Whilst low denomination notes continue to play a significant role in legitimate economic activity even in the most advanced economies given the transactional convenience they provide, high denomination notes do not.

The new FRBSF and ECB survey evidence is most relevant to assessing claims like this one, allowing us to quantify (if imperfectly) how significant a role high-denomination notes actually play.

Shaun O’Brien’s report on “Preliminary Findings from the 2016 Diary of Consumer Payment Choice” for the San Francisco Fed unfortunately does not break down US currency use by denomination. Nonetheless it has at least three useful takeaways for the “war on cash” debate:

  • “Cash is held and used by a large majority of consumers, regardless of age and income.”
  • “[C]ash was the most, or second most, used payment instrument regardless of household income, indicating that its value to consumers as a payment instrument was not limited to lower income households that may be less likely to have access to an account at a financial institution.”
  • Cash is used to make 8 percent of all payments of $100 or more. We don’t know the mix of denominations used, but this certainly leaves open the possibility that $100 and $50 bills play a significant role in a non-negligible share of legitimate economic activity.

The ECB study by Henk Esselink and Lola Hernández, entitled “The use of cash by households in the euro area,” reports on cash use in all 19 eurozone countries, based on a 2016 survey. Two immediately relevant findings are that many ordinary members of the public store cash for emergency use, and commonly handle even the highest denomination notes:

The study confirms that cash is not only used as a means of payment, but also as a store of value, with almost a quarter of consumers keeping some cash at home as a precautionary reserve. It also shows that more people than often thought use high denomination banknotes; almost 20% of respondents reported having a €200 or €500 banknote in their possession in the year before the survey was carried out. […]

Of those respondents who acknowledged that they put cash aside, only 23 percent kept €100 or less.  22 percent kept between €101 and €250, 19 percent between €251 and €500, 15 percent between €500 and €1000, and 12 percent more than €1000. In addition 10 percent refused to specify the amount. If we assume conservatively that the non-specifiers were distributed in the same proportions as the specifiers, then those who kept more than €100 as a precautionary reserve comprised about 75 percent of respondents (almost 25 percent of those surveyed) who reported keeping cash in reserve. Thus about 18 percent of the Eurozone population has cash holdings large enough that they may benefit from using notes of €100 and above merely as a compact means of storing wealth.

By contrast with the US figure of 8 percent cash among payments over $100, Europeans use cash to make 32 percent of payments over €100. Such payments, the authors report,

amounted to 10% of the value of all cash payments at the POS [point of sale] in the euro area. The share of cash payments above €100 in the total value of cash payments at the POS was wide-ranging, from 3% in France or 5% in Belgium, to 21% in Ireland and Slovenia or 26% in Greece.

These numbers do not indicate to me that law-abiding cash use is negligible — but armed with the figures, the reader can make his or her own judgement about what level of cash use counts as non-negligible.

I want to add a somewhat tangential but related additional comment: Besides making the debatable quantitative assumption that law-abiding cash use is negligibly small, Sands and Rogoff also make a normative assumption that strongly tilts their seemingly neutral estimates of overall welfare effects. They assume that the welfare of people who use cash for illicit purposes doesn’t count, while disrupting their operations by banning large notes is pure benefit to the rest of us.

As Lemieux, Hummel, and also David Henderson have noted, however, an economic analyst may justifiably distinguish, among the set Sands lumps together as “financial criminals,” those actors who violate personal and property rights (kidnappers, thieves and fences, extortionists, terrorists) from those whose illicit activity consists of peacefully trading in illicit goods and services (drug dealers, sex workers, and the like). The first group clearly generates negative-sum outcomes, while the second group generates positive-sum outcomes — mutual gains from trade — from the point of view of the participants. Taking the point of view of the participants is the standard approach in modern welfare economics. The principle of gains from trade — gains from capitalist acts between consenting adults — applies to drug sales and sex work despite their illicit status in many jurisdictions. Banning high-denomination notes in order to raise the cost of such trades means reducing the economic welfare of the participants in those markets. To the extent that the main illicit use of high-denomination notes is in victimless markets, a policy to suppress their use is harmful rather than beneficial from this perspective

Cases of people who make or take illicit bribes, pursuing this logic, have to be sorted between trade-enhancing bribes and trade-restricting bribes. Making bribery more costly is not an unmixed blessing if without certain bribes the economy fails to function as smoothly. It likewise cannot be taken for granted that all tax evasion reduces overall economic welfare once it is recognized that some taxes may be too high from a Kaldor-Hicks efficiency standpoint, meaning at a level where their marginal deadweight loss (the uncaptured gains due to tax-blocked trades) exceeds the net gains from the government projects they finance.

[a href=”https://www.alt-m.org/2018/01/26/more-evidence-of-the-high-collateral-da…“>Cross-posted from Alt-M.org]

The White House today released four principles for immigration reform.  Overall, the Trump plan would cut legal immigration and spend about $25 billion on border security and a wall.  In exchange, the Trump administration has decided to support an amnesty and citizenship for an estimated 1.8 million DREAMers. 

It’s unclear how the administration estimates that only 1.8 million illegal immigrant DREAMers would gain citizenship as the number could be very different from that.  Most likely, they assume that many people could have earned DACA but did not.    

The conservative reaction to Trump’s support for amnesty and citizenship, even though he’s always said that he could accept such a compromise, has been swift.  Senator Ted Cruz (R-TX) preempted the rollout of Trump’s principles by stating, “I do not believe we should be granting a path to citizenship to anybody here illegally …  Doing so is inconsistent with the promises we made to the men and women who elected us.”  Cruz’s sentiment is consistent with his position during the 2013 debate over S. 744 where he favored a legalization but not an amnesty and path to citizenship for illegal immigrants.

Senator Cruz employed even more cruel rhetoric when he said, “For some reason that [amnesty] to me is utterly inexplicable, we see Republicans falling all over themselves to gallop to the left of [former President] Obama in a way that is contrary to the promises made to the voters who elected us.”  Any comparison of President Trump to former-President Obama by a Democrat is evidence that Trump’s amnesty plan will not be well received.

Representative Steve King (R-IA) has repeatedly said that he won’t vote for amnesty.  Although he hasn’t spoken about Trump’s amnesty proposal, we can safely assume that the conservative Iowa congressman, who is nothing if not consistent, is a hard “no.”  Virginia Republican gadfly and proud Trump-supporter Corey Stewart trashed Trump’s amnesty.  Republican primary challengers from Mississippi to Nevada are furious at the betrayal.

Amnesty is a toxic word among conservative immigration restrictionists.  They spent 25 years calling every proposal they disliked “amnesty” and mobilizing large numbers of people to oppose them.  The extent to which the conservative media describes President Trump’s immigration plan as amnesty will determine how unpopular it is.  The media outlet Breitbart labeled President Trump “amnesty Don” after they heard he would be supporting amnesty and a path to citizenship for DREAMers.  When the plan was released they called it “Don’s Amnesty Bonanza” and compared it to other “failed” amnesties.  The Washington Times headline is “Trump amnesty to cover 1.8 million Dreamers; triple Obama’s DACA,” – comparing Trump to Obama is toxic to the president’s base.  The story goes on to describe the amnesty as “generous.”  The Drudge Report’s Twitter account led with “Triple Obama’s DACA.”

Heritage Action, the Heritage Foundation’s political outreach arm, condemned President Trump’s amnesty as harshly as it could in order to maintain its ties to the administration.  Heritage Action’s press release called President Trump’s plan an amnesty, said amnesties always grow in size and scope, and then raised concerned about the Gang of Eight 2013 S. 744 immigration reform bill.  The Federation for American Immigration Reform is emphasizing its anti-amnesty stance to appeal to their supporters.  Daniel Horowitz, Senior Editor of conservativereview.com called it a “@#$% hole of an amnesty.”  Last, Mark Krikorian of the nativist Center for Immigration Studies fiercely criticized the Four Pillars in a post at National Review Online calling it “The Art of the Choke.”  That last piece is most significant as Krikorian was long rumored to be the Trump immigration whisperer.  

Worse than the media outlet and politicians, twitter commentators are going wild in opposition and fury at President Trump’s support for amnesty.  Interestingly, so are a lot of groups that represent DREAMers.  Check out this strongly worded press release to Four Pillars put out by United We Dream.  That is a big loss as the expanded amnesty portion of the Trump Four Pillars was meant to appeal to them.  If the DREAMer groups aren’t on board and the conservative base and media are opposed, Democrats will be emboldened to oppose this.

The amnesty portion of Trump’s plan is better than many other Republican options but the cuts in legal immigration are too great.  We’ve suggested other workarounds that won’t cut legal immigration that both the administration and Congress should consider.  At this stage, President Trump’s amnesty plan appears to be dead on arrival among his base, conservative Republicans, in the right-wing media, and DREAMers.  The best thing that may come from this is that it undercut the Goodlatte bill.

A passenger on a bus at Fort Lauderdale’s Greyhound station recently recorded disturbing footage of Customs and Border Protection (CBP) officers walking up the bus’ aisle, asking for proof of citizenship. Although nothing new, it’s sad to see American law enforcement conducting the kind of “Papers Please” stops that many Americans usually associate with foreign authoritarian governments. Thanks to advances in facial recognition technology, CBP and other law enforcement agencies will soon not have to ask us for identification. Our faces will be our papers.

 

Under current law and Supreme Court precedent, CBP’s behavior on the Greyhound bus was not illegal. Thanks to 8 U.S.C. § 1357(a)(3), CBP officers within 100 miles of the border can board and search “any railway car, aircraft, conveyance, or vehicle” in order to prevent illegal immigration. Two thirds of the people living in the United States live within this 100-mile zone, which encompasses entire states, including Florida.

The Supreme Court upheld warrantless vehicle inspections at internal checkpoints in United States v. Martinez-Fuerte (1976). In his Martinez-Fuerte dissent Justice Brennan presciently noted, “Every American citizen of Mexican ancestry, and every Mexican alien lawfully in this country, must know after today’s decision that he travels the fixed checkpoint highways at the risk of being subjected not only to a stop, but also to detention and interrogation, both prolonged and to an extent far more than for non-Mexican appearing motorists.”

The erosion of our liberties in the name of border security is not a recent development. The so-called “Border Exception” to the Fourth Amendment was expressed bluntly by Justice Rehnquist in his United States v. Ramsey (1977) majority opinion:

That searches made at the border, pursuant to the longstanding right of the sovereign to protect itself by stopping and examining persons and property crossing into this country, are reasonable simply by virtue of the fact that they occur at the border should, by now, require no extended demonstration.

Law enforcement officers who wish to identify someone usually approach that person and ask for identifying documents. Throughout the world policies governing under what circumstances law enforcement can instigate one of these interactions and what documents resident can or must carry vary widely. In Israel, for example, all residents over the age of 16 must have an national ID card, and they are legally required to have this ID with them at all times. Nefesh B’Nefesh, a nonprofit that helps those hoping to migrate to Israel, notes the disturbing degree to which national ID is embedded in the national culture:

Israelis use their ID number (Mispar Zehut) freely and it is common to give out your ID number in even the most basic and public of forms. For North Americans who are used to keeping their personal information private, it is helpful to think of your Mispar Zehut as interchangeable with your name.

Fortunately, in the United States citizens are not required to have identifying documents on them as they go about their business. Green card holders and other immigrants aren’t so lucky. Section 264(e) of the Immigration and Nationality Act (INA) requires immigrants over the age of 18 to carry their “evidence of registration document” (e.g. green card, I-94 form) at all times. In addition, Section 287(a) of the INA allows CBP officers “to interrogate any alien or person believed to be an alien as to his right to be or to remain in the United States” without a warrant. 

What CBP officers did on the bus in Fort Lauderdale is shocking, but it was legal. Yet in the near future it is unlikely that CBP will have to ask people for documents in order to verify identification.

Facial recognition technology is improving, and the law enforcement community has been taking notice.

The Department of Homeland Security (DHS) is interested in small drones with facial recognition capabilities, and body camera manufacturers are working on incorporating facial recognition into their gadgets.

Last year Axon, one of the most prominent law enforcement equipment companies, issued a report on policing technology, which stated the following:

The future of law enforcement technology looks smarter and more connected, and advancements in artificial intelligence and machine learning will have profound implications for policing. Soon, you’ll be able to tell almost immediately if someone has an outstanding warrant against them, thanks to facial recognition technology.

The report went on to quote Captain Daniel Zehnder, former manager of Las Vegas Police Department’s body-worn camera program:

But the fact that I could potentially walk down the street with a camera in real time, scanning faces, doing facial recognition while it’s recording, sending that data to the cloud for real-time analysis, have that data come back and somebody tell me, “That guy in the red hat, red shoes you just passed, he’s wanted for burglary” That type of real-time, big data analysis application would be huge.

The Axon report mentions how the merger of facial recognition and body camera technology could help officers identify people with outstanding warrants or suspects. But this technological shift will also impact innocent Americans. Around half of all American adults are already in a law enforcement facial recognition network thanks in large part to the fact that 16 states allow the Federal Bureau of Investigation (FBI) to access their driver’s license photos. 

In a world where police officers and border patrol agents are outfitted with body cameras with real-time facial recognition capability, it won’t be necessary for them to approach you and ask for ID in order for them to identify you. If real-time facial recognition becomes a normal feature of CCTV cameras, body cameras, and drones the anonymity we currently enjoy as we go about our regular business will become a luxury of the past.

In a city where real-time facial recognition is widespread, you could take steps to cover your face with a mask or large sunglasses. You could use de-identification technology to make images unrecognizable to facial recognition algorithms. However, such strategies could look suspicious to law enforcement. When surveillance is ubiquitous, those who takes steps to avoid it will stand out. Far too many people find the argument that “If you’ve got nothing to hide, you’ve got nothing to worry about” persuasive, a sad reflection of the fact that to many people attempts to secure privacy is evidence of suspicious or criminal behavior.

If you don’t like the idea of your facial images making their way to the FBI, you would have to abandon driving if you live in some states. DHS is interested in installing more facial recognition scanners at airports, and last year it issued a privacy impact assessment for its expansion of the biometric entry-exit system for international flights. In that assessment, DHS stated candidly:

the only way for an individual to ensure he or she is not subject to collection of biometric information when traveling internationally is to refrain from traveling.

For many Americans, abandoning driving and international travel is too high a price to pay in order to avoid detection via face scanners.

In the not too distant future our faces will be our “papers.” Police officers won’t need to talk to us, let alone examine ID documents, in order to identify us. Those who don’t appear in a facial recognition network or take steps to avoid facial scan detection will be the subject of extra scrutiny. Unless lawmakers take steps to ensure that only wanted suspects and those with a history of violent crime are included in law enforcement facial recognition networks those who wish to avoid being identified via facial scans will have to take steps that come at high social and economic cost.

Interactions with law enforcement can sometimes be stressful and intimidating, but if a border patrol agent or any other law enforcement officer approaches you and asks for ID I would recommend you keep the words of Clarence Harry Willcock in mind.

On December 7, 1950 a police officer in London stopped Willcock, a dry-cleaning manager, for speeding. The officer asked Wilcock to produce his national ID card. The British government had introduced ID cards during the Second World War. Despite the war being over, the ID cards remained. Wilcock refused, reportedly telling the officer, “I am a Liberal, and I am against this sort of thing.” Although he was charged, his case marked the last time someone was convicted for not producing an ID card in the U.K. Wilcock went on to found the Freedom Defence Committee, campaigning against national ID cards, going so far as to rip his ID card up on the steps of the National Liberal Club. Winston Churchill became prime minister for the second time the year after Wilcock refused to hand over his ID card and oversaw the abolition of the national ID card scheme.

At a time when civil liberties are being continually eroded in the name of national and border security it’s easy to feel despondent. It won’t change government policy, but you might be surprised how refreshing it feels to flex some liberal muscles when faced with the growth of the increasingly intrusive surveillance state. Ask to opt out of the TSA’s body and face scanners, don’t consent to searches, ask for a lawyer, and don’t talk to the police, except maybe to tell them, “I am a Liberal, and I am against this sort of thing.”

It is hard to keep track of all the waste, corruption, and mismanagement propagated by government agencies in recent years, including the DOD, PTO, VA, and others.

In researching my new study on the federal Power Marketing Administrations (PMAs), I ran across a story of federal failure that the national media has overlooked.

One of the PMAs, the Western Area Power Administration (WAPA), has been racked by scandal in recent years. WAPA is an agency of 1,450 workers within the Department of Energy.

Investigations found that WAPA employees have been using government credit cards for millions of dollars of personal spending on items such as guns, car parts, and sports equipment. ABC News reported “outlandish spending” by WAPA employees, and Sen. John McCain of Arizona charged the agency with “widespread waste and mismanagement.”

When whistleblowers inside WAPA raised concerns, they were subjected to threats from agency managers to keep quiet. WAPA has apparently accumulated a large slush fund of unobligated revenues, which has helped to facilitate the wasteful and illegal spending.

The Arizona Republic had a nice summary of the scandal last year. Here are some excerpts:

The receipts just didn’t make sense: Employees at a federal power agency in Phoenix were using U.S. government purchase cards to buy millions of dollars’ worth of items from sporting good stores like Bass Pro Shop or Cabela’s, and from specialty auto shops. Ammunition. Scopes for assault rifles. Engine superchargers. Radar detectors.

The merchandise had nothing to do with electrical grids or transmission lines.

Nate Elam, former assistant regional manager at the Western Area Power Administration office in Phoenix, shakes his head remembering his shock reviewing receipts submitted by his employees in 2014. Then he mentions something even more alarming: Instead of aggressively going after corruption, Elam alleges, WAPA’s bosses slow-walked the investigation, retaliated against those who uncovered fraud, and failed to protect them from threats.

“You see stuff everywhere,” said Elam, a 14-year federal employee who once worked for the U.S. Attorney’s Office. “But I’d never seen the corruption — or the lack of wanting to do anything about it — like I did in the Department of Energy.”

Keith Cloud, WAPA’s chief of security who worked with Elam to expose credit-card abuse, said the situation was harrowing due to a gun culture within the agency. As some employees began making threats and using intimidation tactics, Cloud said, administrators delayed protective measures and held almost no one accountable.

“We asked them to look into all of this,” Cloud said. “What’s appalling to me is, I cannot protect my staff because they just won’t do anything.”

… Cloud and Elam said the embezzlement reflects a larger problem at the federal agency — one that ultimately hurts consumers. They contend waste and mismanagement are obscured and ignored in part because WAPA has built up a $767 million reserve known as the “unobligated balance.”

… Instead of doing a full sweep to change the culture, internal critics said, the agency tried to bury its scandal. Nearly all the perpetrators went unpunished, along with supervisors who failed to prevent or detect the scams. And, according to a second audit, problems continued. From December 2014 through October 2015, investigators identified more than 11,600 potentially fraudulent transactions. One employee picked up 2,000 rounds of ammunition for a .308 rifle. Others tricked out government and personal vehicles with fancy wheels and elevated suspension systems. Receipts disappeared. So did the merchandise.

McCain and Sen. Jeff Flake have introduced legislation to increase transparency at the agency. But, as I discuss in my new Cato report, privatization would be a more durable reform for WAPA and the other PMAs. It would create incentives to avoid such waste in the first place, and it would focus managers on reducing costs and improving performance.

The new Human Freedom Index is out today. For a third year, the annual report—published by Cato, the Fraser Institute in Canada, and the Liberales Institut in Germany—paints a broad picture of personal, civil and economic freedom in the world. It uses 79 indicators in 12 areas ranging from freedom of religion to freedom to trade.

Here are some highlights. Global freedom has declined slightly compared to last year’s report and compared to 2008, the first year for which we have complete data. Switzerland is the freest country in the world, followed by Hong Kong, which fell from first place for the first time since the rankings began. The United States is ranked 17th, up from its ranking last year of 24th, but down from its ranking in 2008 when it was in 11th place. Other noteworthy countries rank as follows: the United Kingdom (9), Canada (11), Germany (16), Mexico (73), Russia (126), China (130), Egypt (155), Venezuela (158). See the top and bottom five in the chart below.

The areas that saw the largest global declines were the rule of law; freedom of movement; association, assembly and civil society; and expression and information. As a region, the Middle East and North Africa (MENA) is the least free and Western Europe the most free. MENA also saw one of the largest declines in freedom among all regions. While global freedom is slightly down, there is a lot of movement in the rankings, with about half the countries improving, and half doing worse, compared to 2008. The index captures significant declines in freedom in many countries that moved toward authoritarian populism including Russia, Venezuela, Turkey, Hungary and Argentina. The figure below shows Russia’s decline, but also Taiwan’s improvement (East and South Asia are the two regions with the greatest improvements).

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There is a strong relationship between freedom and prosperity, with countries in the top quartile enjoying an average per capita income ($38,871) that is far higher than that of the bottom quartile countries ($10,346). Find out much more here about the state of global freedom.

The success of the corporate tax cut should ultimately be judged by corporate investment levels and wage growth, not share buybacks or one-off bonuses.

Investment is the mechanism through which corporate rate cuts lead to higher productivity and higher compensation, and the Republican plan was explicitly designed to improve the marginal incentive to invest.

Yet announcements made by hundreds of businesses for one-off bonuses for workers and even share buybacks can still be a direct consequence of the tax cut.

There are two economic mechanisms at work here, which John Cochrane has outlined: “incentives” and “cashflow”. The former is the more important, but the latter is what we are seeing so far.

Follow the money. Companies have existing investments. The rate cut means they now receive a higher after-tax return than expected, and profitable firms are left with higher after-tax profits.

Each firm will examine how best to use any extra funds. They will know their near-term investment opportunities. Some will invest, and they now have a greater incentive to do so. But if the firm decides not to reinvest, then they may pay out extra cash to shareholders, or to employees in the form of bonuses. They may increase wages too, if they foresee a tighter future labor market, in part caused by the tax cuts.

Of course, some may use the tax cut as a hook to make announcements of wage increases or bonuses that they might have made anyway. It’s a free “good publicity” story, and helps entrench support for lower corporate taxes. But a firm will decide to do what it believes is best for it given its individual circumstances.

There’s a clear mechanism through which the big corporate rate cut leads to short-term bonuses, then. The claim they are due to the tax rate cut is perfectly feasible, and some of the partisan criticism of company announcements is baffling.

Critics are right to say, as I have above, that we should not read too much about the long-term effects of the rate cuts from one-off bonuses. What ultimately matters is how much investment increases, and the whole purpose of the rate cut was to incentivize this.

But if your argument is that it’s investment that matters and we should ignore short-term flows of cash, you cannot in the next breath criticize companies for large share buybacks. In fact, if you care most about investment then share buybacks are probably preferable to one-off worker bonuses. Existing shareholders do not burn the money they receive, and are probably more likely than workers on average to reinvest elsewhere in the economy.

An even worse take though is from those who believe the company announcements are just a timeline effect, completely unrelated to tax. So many people on Twitter say things like “if you’re going to claim all these bonus announcements are due to the tax cuts then Toys“R”Us shutting stores is presumably due to the tax cut too.”

No. There is a clear mechanism through which corporate tax cuts can generate worker bonuses. It’s a basic flow of cash. There is no mechanism through which the loss-making Toys“R”Us is affected by a corporate rate cut. Corporate taxes apply to profits, and Toys“R”Us is not making any.

In exchange for a deal on young immigrant Dreamers, the White House is demanding that Congress reduce legal immigration by ending the diversity visa lottery and almost all family sponsorship categories. On Fox News last week, Attorney General Jeff Sessions made the case for these changes by stating that he wants legal immigrants to “have the education and skill level to prosper in America.” He asked rhetorically, “What good does it do to bring in somebody who is illiterate in their own country, has no skills, and is going to struggle?”

But this generalization about diversity and family-sponsored immigrants is wildly inaccurate. Not only are many of them educated, they are generally much better educated than U.S.-born Americans are. Nearly half of all diversity and family-sponsored immigrants who arrived in 2015 had college degrees. Diversity and family-sponsored immigrants were 62 percent more likely than U.S.-born natives to have graduated college. At the same time, they are no more likely to have dropped out of high school than natives.

Table 1 provides the educational attainment for natives and immigrants by type of entry. As it shows, refugees, asylees, and unauthorized immigrants are among the least educated. Employer-sponsored immigrants are by far the most educated. But diversity lottery winners and immigrants sponsored by U.S. family members are right in the middle, and generally better educated than their U.S.-born counterparts.

Table 1: Adult Education Attainment of U.S.-Born and Immigrants Entering in 2015 By Method of Entry

  No High School High School College & Above Refugee-Asylees

46%

44%

10%

Employment-Based

1%

8%

92%

Family & Diversity

11%

42%

47%

Illegal

46%

40%

14%

Overall Foreign-Born

19%

38%

43%

Overall

19%

38%

43%

U.S.-Born

10%

61%

29%

Sources: Office of Refugee Resettlement; U.S. Department of Homeland Security; U.S. Department of Homeland Security; American Community Survey 2015 (5-Year Sample);

Because the Department of Homeland Security (DHS) fails to ask legal immigrants their education level when they enter, the only way to make these estimates was through other sources. To obtain the family and diversity education levels, it was necessary to work backwards from the overall foreign-born educational attainment figures for foreign-born adults over the age of 18 from the Census’s American Community Survey (ACS). Then it is possible to subtract out the other categories of immigrants from the overall figures. The Office of Refugee Resettlement, for example, reports the education level of adult refugees and asylees who entered in 2015.

Almost all employer-sponsored primary applicants in the first, second, and third preferences are required by law to have college degrees, and EB-5 millionaire investors and EB-4 broadcasters and religious workers likely do as well. I assumed that all spouses in EB-1, EB-2, and EB-5 categories had college degrees, and that 75 percent of those in the EB-3 and EB-4 categories do as well. Only 1.3 percent of the adults entering in EB categories were EB-3 “unskilled workers” and their spouses who work in jobs that do not require a college degree, and I assumed that half of these immigrants had no high school degree.

The Center for Migration Studies used ACS data to estimate the educational attainment of all adult unauthorized immigrants. For this analysis, I assumed that new border crossers have the same level of educational attainment as the overall illegal population. According to DHS, about 170,000 border crossers made it into the United States illegally. I assume three quarters were 18 years old or over. While this figure ignores visa overstays who make up roughly half of all new entrants to the illegal population in 2015, illegal immigrants are underrepresented in the ACS, so I only included 127,500. Note that assuming more unauthorized immigrants would result in diversity and family sponsored immigrants appearing more highly educated than they already do.

With these estimates, it is only necessary to subtract refugees-asylees, employment-based workers, and illegal immigrants from the overall foreign-born figures in the ACS to obtain estimates for diversity and family-sponsored immigrants, who represented 96.2 percent of all other adult legal immigrants in 2015. The other 3.8 percent primarily includes Iraqis who worked with the U.S. government in the war and illegal immigrants who received cancelation of removal or U visas as victims of crimes. It is unlikely that these populations are skewing the results in any way.

Table 2 provides the absolute figures used in this analysis. Column 1 uses DHS figures for each legal immigration category subtracting the children who entered in those categories, as well as three quarters of the illegal border crosser figures estimated by DHS in 2015. The educational distribution is based on the shares in Table 1.

Table 2: Adult Education Attainment of U.S.-Born and Immigrants Entering in 2015 By Method of Entry

  Total No High School High School College & Above Refugee-Asylees

112,261

51,752

48,833

11,675

Employment-Based

106,511

678

8,924

97,588

Family & Diversity

530,056

58,836

222,093

249,126

Illegal

127,500

58,395

51,510

17,595

Overall Foreign-Born

876,328

169,661

331,360

375,984

Sources: Office of Refugee Resettlement; U.S. Department of Homeland Security; American Community Survey 2015 (5-Year Sample); U.S. Department of Homeland Security

No matter what assumptions you use, however, it is just impossible to significantly change the broad conclusions. That’s because the family and diversity categories make up 70 percent of all adult legal immigrants to the United States, and refugees and asylees make up half of the rest and are the least educated group of legal immigrants. We know that immigrants generally are the highest educated that they’ve ever been, so given the size of the family and diversity population, it is just impossible that they are the unskilled group that the attorney general describes them to be.

Diversity and family sponsored immigrants are more highly educated than U.S.-born Americans. There are good arguments for changing the selection process for legal immigrants, but claiming that they lack any skills or education simply is not one of them.

The “Fight for $15” has broken out again in Washington, DC, with the city council considering raising the minimum wage to $15 per hour. The proposal includes a provision to extend that price floor to restaurant and other workers who receive much of their income from tips. Surprisingly—at least for some people—that has generated some push-back from tipped workers.

Over the weekend, the Washington Post ran a persuasive op-ed by local bartender Ryan Aston criticizing the idea. Aston writes in part:

There seems to be this myth going around that most tipped employees in restaurants aren’t earning a livable wage; after 13 years in the industry, this baffles me completely. I earn roughly $45 an hour with tips included; I don’t know a single server or bartender in the District whose wages have to be supplemented because they haven’t earned the minimum.

So what happens [if the provision is adopted]? Restaurant profit margins are already often razor-thin, and to be forced to pay the largest (and already highest-earning) portion of a staff four times more than before creates a real accounting problem. Generally, it means you need to bring in more money in sales and cut costs elsewhere. This translates to jacking up menu prices and laying off staff. Whom would this help?

Next, once menu prices have soared and staff has been cut, tips will dwindle. Remember, your weekly budget doesn’t change just because I got a raise. Within a few years, I’d be surprised if anyone tipped at all, and without tips, the incentive to give good service would be nonexistent. The great American bar culture would die. That would be a real tragedy.

Fight-for-$15 supporters may dismiss Aston’s concerns as hypothetical. But he has support from research by California-Irvine economist Richard McKenzie. In the spring 2016 issue of Regulation, McKenzie reports the results of surveys he conducted of food service worker on the effects such policies would have on tipping. He writes in part:

Tipping abolitionists might be surprised to learn that all servers surveyed chortled at the suggested replacement of their tip incomes with a “living wage” of $15 an hour. Most servers responded with comments of the essence,“How stupid can these people be?”

… To examine this issue, I asked the servers I interviewed if the service they provided affected their tips. All strongly agreed it did. Indeed, servers said that if they raised their service level from a “3” (average service) to a “4” (above-average), their average tip percentage (not total tips) would rise by over 25 percent. If they elevated their service from “4” to “5” (excellent service), their average percentage tip would rise another 25 percent, which means that an increase in service level from average to excellent would raise their average percentage tips by 57 percent. All servers strongly agreed that overall service quality would drop precipitously if their tip income were replaced with a fixed hourly wage, especially for “loud,” “obnoxious,” and “arrogant” customers, as well as customers with unruly and messy children.

He concludes:

Tipping abolitionists may be surprised to find that some of the most ardent opponents of tipping abolition are servers and their customers. One North Carolina server volunteered: “I made $60,000 in tips last year, reported $40,000—and had a before tax income of $80,000! That’s why I quit my teaching job.” And customers will likely suffer impaired service as the tipping incentive disappears.

A large group of House Republicans with support from President Trump has united behind comprehensive immigration reform legislation that would be their answer to the DACA impasse. Among other provisions, it would gut legal immigration, criminalize all unauthorized immigrants, and legalize a small percentage of the DACA population. But most pressing for Congress as it debates a long-term spending deal is its authorization of $130 billion in new spending over 5 years, tripling the current Customs and Border Protection budget and executing a six-fold increase in Border Patrol spending.

The Securing America’s Future Act (H.R. 4760) has 77 Republican cosponsors. It would authorize the construction of President Trump’s border wall (p. 254), 10,000 new Customs and Border Protection Officers and Border Patrol agents (p. 319), a biometric surveillance system at airports, seaports, and land ports of entry (p. 357), mandatory E-Verify employment verification program for all workers (p. 87), border drones and other border surveillance (p. 261), and much else. It would require spending more than $40 billion annually and more than $200 billion over five years.

Table: Customs and Border Protection Spending Under H.R. 4760 (In Millions$)

Sources: H.R. 4760 (pp. 349, 349, 262, 349, 349, 354, 355, 368, 368, 368); Department of Homeland Security

The level of spending that the House GOP wants over the next 5 years is twice as much as Customs and Border Protection (CBP) has spent in its entire history since its creation in 2003. For Border Patrol specifically—which is now a component with CBP—it would call for approximately six times as much spending per year and require a five-year total of $120 billion, which is more than Border Patrol has spent in its entire history. Since 1965, the agency has spent about $65 billion, roughly half the amount that the House bill requires over just the next 5 years. The figure below puts the change that the bill would make in historical context. 

Figure: Border Patrol Budget, FY 1965 to FY 2022 (in Million$)

Sources: H.R. 4760; Border Patrol; Massey

This funding request is unreasonable. It is so extreme that it alone could upend a spending-DACA deal because, due to the budget caps on discretionary spending, any new spending on the border would likely need to be offset. The bill itself reduces no other spending, and it makes virtually no serious effort to pay for the bill. Its legalization provisions do require Dreamers to pay a $1,000 border security “fee” (p. 400) but because only 10 percent of the Dreamer population would qualify for the legalization, this would raise at most $250 million—nowhere near the $130 billion in new spending that this bill requires.

It is important to note that these figures only authorize appropriations to occur. For the spending to actually occur, Congress will also need to appropriate the funds. However, White House Budget Director Mick Mulvaney told Fox News on Sunday that President Trump rejected an offer from Senator Chuck Schumer (D-NY) specifically because he only offered authorization, so certainly the expectation by the White House and House Republicans is that the Appropriations Committee will also fund the request.

What programs are House Republicans willing to cut to pay for Trump’s wall and border bureaucracy blowup? We must wait and see.

I have written before about how the House GOP DACA bill would legalize some young immigrant Dreamers, but would criminalize them if they failed to maintain an income at least 125 percent of the poverty line. Center for Immigration Studies (CIS) has written a blog post claiming that the bill, the Securing America’s Future Act (H.R. 4760), does not do this. CIS is wrong. First, on pages 390-396, we see the following:

(b) Eligibility Requirements.— (1) IN GENERAL.—An alien is eligible for contingent nonimmigrant status if the alien establishes by clear and convincing evidence that the alien meets the requirements set forth in this subsection. …

(4) GROUNDS FOR INELIGIBILITY.—An alien is ineligible for contingent nonimmigrant status if the Secretary determines that the alien— … (L) if over the age of 18, has failed to demonstrate that he or she is able to maintain himself or herself at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission as a contingent nonimmigrant …

CIS responds that this “does not require that an alien maintain him- or herself “at an annual income that is not less than 125 percent of the Federal poverty level throughout the period of admission;” rather, it conditions a grant of nonimmigrant status to a showing of an ability to do so at the time of application” (My emphasis). Nothing in the language of subsection (b) actually limits the income “demonstration” to the time of the application. Are all the other requirements also limited only to the time of the application? Can the Dreamers commit felonies and keep their status? Obviously not. But in any case, CIS’s argument ignores page 409, which clearly states that all requirements in subsection (b) are conditions of the status:

The Secretary shall revoke the status of a contingent nonimmigrant at any time if the alien— (A) no longer meets the eligibility requirements set forth in subsection (b).

But revocation of status is not the only penalty for violating the conditions of the status under the bill. On pages 171-172, we see that it creates a new federal criminal offense:

(1) ILLEGAL ENTRY OR PRESENCE.—An alien shall be subject to the penalties set forth in paragraph (2) if the alien—…(D) knowingly violates the terms or conditions of the alien’s admission or parole into the United States and has remained in violation for an aggregate period of 90 days or more

(2) CRIMINAL PENALTIES.—Any alien who violates any provision under paragraph (1)— (A) shall, for the first violation, be fined under title 18, United States Code, imprisoned not more than 6 months, or both; (B) shall, for a second or subsequent violation, or following an order of voluntary departure, be fined under such title, imprisoned not more than 2 years (or not more than 6 months in the case of a second or subsequent violation of paragraph (1)(E)), or both.

Any foreigner who violates “the terms or conditions” of an immigrant’s status will have committed a criminal offense if they did so for more than 90 days. For some reason, CIS never quotes this language. Instead, its post discusses a variety of irrelevant current regulations. The plain fact is that the House GOP would have Dreamers criminally prosecuted and sentenced to up to six months in federal prison if they drop below an annual income of 125 percent of the poverty line for 90 days.

CIS also tries to portray this requirement as no more onerous than the public charge affidavit requirement that all sponsors of legal immigrants already must sign, pledging to maintain the immigrant at an income of at least 125 percent of the poverty line. In that scenario, however, it is the sponsor who is required to demonstrate income, and the legal immigrant can enforce the affidavit against the citizen. This comparison also cuts against the notion that the income requirement is only at the time of the application, since the income requirement for the affidavit is not limited to the time of the application.

In any case, the immigrant is in absolutely no danger of deportation as a result of the citizen’s failure to sufficiently support them. Moreover, the affidavit requirement for the sponsor expires. By contrast, the House GOP bill’s requirement has no termination date. It would continue to require Dreamers to work for the rest of their lives if necessary to avoid status revocation, deportation, and the criminal penalties under this bill. As I have said in my explanation of the legalization provisions on Twitter, this bill treats Dreamers as criminals on parole, not as the Americans that the vast majority of the public considers them to be. 

This treatment makes perfect sense when you consider that the bill also makes it a criminal offense (p. 171-72) to exist in the United States for 90 days without legal status. The House GOP is so determined to see these immigrants as not just illegal, but as criminals that they have decided to try to make their view reality. Given this perspective, it seems perfectly logical to them to treat Dreamers as criminals on parole, not equal members of society.

Private-sector utilities provide the bulk of electricity generation, transmission, and distribution in the United States. But the federal government also owns a share of the nation’s electricity infrastructure.

The government owns the Tennessee Valley Authority (TVA) and four Power Marketing Administrations (PMAs). The PMAs mainly transmit power generated by hydroelectric dams owned by the Army Corps of Engineers and the Bureau of Reclamation. Federal entities account for 7 percent of U.S. power generation, and they own 14 percent of the nation’s transmission lines.

In its 2018 federal budget, the Trump administration proposed privatizing the PMAs. Today, Cato is releasing a study discussing the PMAs and the advantages of privatization. A previous study looked at privatizing the TVA.

The federal government entered the electricity business in the mid-20th century when faith in government ownership was high. But over time it has become clear that government-run businesses lag private businesses in efficiency, innovation, and environmental performance. As such, there has been a global trend toward privatization, and many nations have sold their electricity assets. 

The Trump budget said, “ownership of transmission assets is best carried out by the private sector where there are appropriate market and regulatory incentives.” And it said the proposal to “eliminate or reduce the PMA’s role in electricity transmission and increase the private sector’s role would encourage a more efficient allocation of economic resources and mitigate risk to taxpayers.”

Trump is on the right track with the PMAs. Rather than increasing infrastructure subsidies, the administration should work to improve the efficiency of existing infrastructure, and that includes clearing out the federal attic and holding a garage sale.

About three-quarters of Americans receive electric power from for-profit private utilities. There are no sound policy reasons for the other one-quarter to be supplied by government facilities and subsidized nonprofit firms. Privatizing federal generation and transmission facilities would raise government revenues from the sell-off and from the payment of income and property taxes by the privatized entities over time.

President Ronald Reagan proposed privatizing the PMAs because it would “result in a more efficient power system for electricity customers.” President Bill Clinton also proposed privatizing the PMAs. It makes sense for President Trump to dust off the Reagan and Clinton plans, and move ahead with reforms.

Privatize the PMAs here.

Privatize the TVA here.

Clearing the rest of the federal attic here

A six-page summary of the Trump infrastructure plan seems to have leaked out yesterday.

To me, it looks like a plan that President Obama would propose with more federal spending and top-down rules. Bob Poole at Reason sees it differently.

The Trump administration is expected to request $200 billion over 10 years for its infrastructure plan. The document leaked yesterday suggests where those subsidies would go:

  • “Infrastructure Incentives Initiative” would be 50 percent of the spending. The states would compete for this aid, which would be for a wide range of projects including highways, airports, and water facilities. The federal money would cover 20 percent of project costs.
  • “Rural Infrastructure Program” would be 25 percent of the spending. This aid would be handed out to the states by formula, and used for projects in defined rural areas.
  • “Transformative Projects Program” would be 10 percent of the spending. The Department of Commerce would hand out this aid to the states for projects that are risky and “ground-breaking.” The rules are complex.
  • The remaining 15 percent of spending would go to various loan programs and financing funds.

The proposals generally move in the wrong direction. New federal subsidies are not needed. Any state wanting to improve its infrastructure can do so with its own funding. States have huge revenue-raising power through income, sales, property, and gas taxes. They can issue debt for infrastructure, and charge user fees. They can also privatize infrastructure—such as airports and seaports—and end subsidies.

Federal infrastructure subsidies are often counterproductive. As I discuss here, they distort state decision making, replicate mistakes across the country, come with costly regulations, and add bureaucracy.

The Trump six-pager hints at the new bureaucracy. For the “incentive” grants, states would have to achieve “milestones” and deliver “evidence” on project efficiency, the use of technology, the economic and social returns, and other data. The “transformative” grants would create bureaucratic structures such as “partnership agreements” and an “interagency selection committee.” To get the rural subsidies, states would need to “publish a comprehensive rural infrastructure investment plan (RIIP).”

Do we really need more subsidies for rural America? On top of all the farm subsidies and rural subsidies the government already hands out?

There are measures in the Trump plan that would facilitate use of public-private partnerships. But to me the six-page memo mainly indicates an old-fashioned, top-down, subsidy approach. Globally, infrastructure is going private, but America remains stuck in the past.

Policymakers are rightly concerned that America have better infrastructure to compete in the global economy. But we are not going to get it with a system based on subsidies and government ownership. Federal policymakers should cut subsidies, privatize the infrastructure it owns, and eliminate barriers to state and local privatization.

On Saturday, January 20, six men disguised in army uniforms launched an attack within Kabul’s InterContinental Hotel, holding it under siege for over 12 hours and killing 22 people, including Americans. Harrowing accounts of survivors are emerging, with many saying that the attackers were looking for foreigners specifically and killing them on the spot. Some survivors jumped out of windows while most were rescued by Afghan security forces, who acted swiftly.

The Taliban claimed responsibility for the attack, though Javid Faisal, the deputy spokesman for Afghanistan’s executive office blamed the Haqqani Network, a militant group that fights Afghan and U.S. security forces in Afghanistan and has close ties with Pakistan. In fact, the Trump administration has called on Pakistan to end its support of militants and eradicate domestic safe havens as a myriad of D.C.-based analysts dissect Pakistan’s leverage over the Taliban and Haqqanis

While the United States and India both denounced the attack and praised the Afghan National Defense and Security Forces for their bravery, Pakistan’s condemnation seemed to be conditional. Mohammad Faisal, a spokesman for Pakistan’s Ministry of Foreign Affairs, tweeted “We reject the knee jerk allegations by some Afghan circles to point the finger at Pakistan” and instead, urged for a credible investigation into the attack.   

The attack highlights three important—and troubling—aspects of U.S. involvement in Afghanistan and its deteriorating relationship with Pakistan.

First, violence in Kabul has not only been on the rise these last few years, but has also become predictable. For example, just a few days before the attack, the U.S. State Department had issued a warning about the increased likelihood of hotels in Kabul being targeted by extremist groups, and urged all to remain alert at all times, keep a low profile, and ensure that cells phones were fully charged. In 2017, in their quarterly report to Congress, the Special Inspector General for Afghanistan Reconstruction reported that civilian casualties and targeted attacks on Afghan military, police, and Special Forces have been the highest since 2009. This latest attacks shows that the trend may continue in 2018 regardless of an increased U.S. presence in Afghanistan.

Second, even though the Taliban took responsibility for this attack, there are two more powerful insurgent groups that could have easily orchestrated an attack: the Haqqani Network and the ISIS–Khorasan (ISIS–K) group. The Haqqani Network, along with the Taliban, have been an ongoing source of tension between the United States and Pakistan, while ISIS–K’s expansion along the Afghanistan–Pakistan border poses a new set of counterinsurgency challenges for all three states: the U.S., Afghanistan, and Pakistan.

The third, and most significant, aspect of the Kabul Hotel attack is that it highlights the urgent need for a reassessment—or rather reopening—of realistic and pragmatic diplomatic avenues. The Taliban and Haqqani Network both have been growing stronger: while they may not be able to militarily defeat U.S. and NATO forces, they have proven time and time again that they can’t be defeated. As of September 2017, the Taliban controls over 40% of Afghanistan’s territory—the most since the onset of the Global War on Terror.

Pakistan is currently pursuing a strategy that consists of a combination of persuasion (i.e. trying to convince the United States that all safe havens have been eliminated), tough talk (i.e., threats to stop intelligence-sharing and suspend NATO supply routes), and restraint (i.e., measured response to Trump tweet). At the forefront of this strategy is Pakistan’s ambassador to the United States, Aizaz Chaudhry, who has spoken at Carnegie, Georgetown University, and George Washington University, explaining Pakistan’s position and its relationship with the United states. This week, at CSIS, he said that Pakistan’s relationship with United States must be “preserved and strengthened” with a focus on resettling Afghan refugees currently residing in Pakistan back to Afghanistan—even by force.  

In the aftermath of this recent attack in Kabul, Pakistan’s leverage on the Taliban and the Haqqani Network is irrelevant—and useless—for U.S. interests in the region. Instead, this attack should serve as an opening for the United States, Pakistan, and Afghanistan to come to the table to ensure that this does not mark a renewal of violence in Kabul and beyond. For Pakistan, this attack puts it at a crossroads: Pakistan can either continue to lend its support to the Taliban and Haqqanis despite experiencing a decrease in leverage or it can shift its domestic counterinsurgency to target both groups. The latter will require Pakistan to be more transparent and the United States to be more open to dialogue. 

Last week, the federal Centers for Medicare & Medicaid Services (CMS) issued a “guidance letter” that makes it easier for states to exclude abortion providers (chiefly Planned Parenthood) from Medicaid. According to the National Right to Life Committee 19 states have passed laws excluding abortion providers from Medicaid, and such laws are currently in effect in 11 states (Arizona, Arkansas, Iowa, Kansas, Kentucky, Michigan, Oklahoma, South Carolina, Tennessee, Texas, and Wisconsin). The letter does so by rescinding an Obama-era letter that, according to the new letter, “raises legal issues under the Administrative Procedure Act.”

If you support the existence of the Medicaid program, you have no right to complain about states trying to block abortion providers from the program or the Trump administration making it easier for states to do so.

Health care is where people express their deepest-held values, when it comes to both their own care and what they are willing to purchase for others. Medicaid, like all government health care programs, forces everyone to pay for health care in the manner Washington, DC deems appropriate, on pain of prison, whether they like it or not. It therefore turns such personal questions into political ones. It guarantees one side or another’s values will always get trampled. When Democrats run Medicaid, they use it to trample Republican values. They will allow abortion providers to participate in the program, even though many Republicans consider it morally repugnant that the government should force them to subsidize an organization that practices what they consider legalized murder. When Republicans run Medicaid, they use it to trample Democratic values. They will exclude abortion providers, even though Democrats find any kind of discrimination against abortion providers unconscionable. Those who complain about this change are really just complaining that they don’t get to impose their will on other people. 

Congress should instead let Republicans and Democrats keep their money and decide for themselves what health care they will purchase for the disadvantaged.

Classical liberal economists oppose minimum wage laws because they restrict mutually beneficial labor market trades.  

This is the basic economic case for complete freedom of contract. Wage floors mean potential employees who would otherwise be willing to sell their labor at a lower price are unable to. Employers are banned from employing more people or giving workers longer hours at a lower wage too.

It is in this spirit that Colorado State Rep. Dave Williams has proposed an amendment to the state’s minimum wage law. Williams’ legislation  would allow an opt-out in cases where applicants for jobs or employees and employers mutually agreed to a wage below the state minimum. Paying less than the minimum wage would essentially be legal again in cases where the employee or applicant had agreed to waive their minimum wage “right” (though the employer would still be bound by the federal minimum).

This has potential benefits similar to lowering or abolishing the state minimum wage. On the margin, it would help workers with low productivity levels looking for entry-level jobs. It would also reduce the risk of hiring for employers in cases where potential employees had little work experience. While there would of course be a not insignificant risk that employees might later claim the agreement was not truly “voluntary,” such a waiver would overall shift Colorado labor market law closer to the freedom of contract that libertarians prize.

For that reason, it will of course be opposed by most minimum wage proponents. Traditionally, minimum wage advocates have recognized that such laws outlaw exchanges. But they believe this is a good thing, asserting that market-based wage setting is unfair or exploitative, or appealing to older theories such as monopsony, which says that employers in certain industries have significant market power and are able to hold wages below productivity levels absent regulation. In such a scenario, minimum wages can even raise employment levels.

Almost all minimum wage studies these days are empirical in nature, testing whether minimum wages or increases have the classical or monopsonistic effect. Though the degree of the effect differs, the overwhelming majority find negative employment or job growth consequences from minimum wage increases. From an employment perspective then, any reform in the direction of Williams’ should be welcome.

But another benefit of a debate around this law could be educational. It is difficult to make the case for complete abolition of minimum wage laws, in part because opponents lament that some workers would see pay cuts. No doubt there would be some companies that sought to move to a model with lower pay, with attempts to get employees to sign forms waiving the wage. This is the “seen” effect. But what is not seen is that there are people out there willing to work in Colorado between the federal and state minimum wages, who are currently unable to do so.

Williams’ legislation highlights that minimum wage laws are coercive, ceasing to give us control over our own labor. Indeed, under Williams’ legislation, employers would have to post notices to inform applicants and employees that they have the right to negotiate wages. Well, above the federal minimum at least!

There is therefore a principle and a consequence at stake. The principle is freedom to contract your labor. The consequence is that minimum wage laws tend to cause “unemployment”. While complete abolition of minimum wages would be preferable, Williams’ legislation helps highlight the principle and ameliorate the consequence. 

Among last week’s news items that had colleagues asking me, “What’s your answer to this?,” was a piece by Quartz’s John Detrixhe, telling its readers that, according to “300 years of financial history,” rolling back bank regulations is a good way to trigger a financial meltdown.

Though you may be surprised to hear me say it, there’s some truth to Mr. Detrixhe’s thesis. While government intervention in banking typically does more harm than good, it’s also true that, unless it’s done carefully, deregulation can itself lead to trouble. As I put it some years ago in a Cato Journal article (reprinted recently in Money: Free and Unfree), “Dismantling bad bank regulations is like cutting wires in a time bomb: the job is risky and has to be done in carefully ordered steps, but it beats letting the thing go on ticking.”

Back in the 1980s, for example, when U.S. bank regulators phased-out depression-era regulation-Q type restrictions on the interest rates depository institutions could pay to their depositors, they unwittingly freed a moral hazard genie that those regulations had kept bottled-up for several decades.

Did that make deregulating interest rates a bad idea? It didn’t, first of all because had those rates not been deregulated banks and S&Ls would have taken a licking from new Money Market funds, and also because regulators might have avoided the moral hazard problem by allowing banks to offer competitive interest rates on uninsured deposits only. The phasing-out of reg Q and its S&L counterparts would then have proceeded only to the extent that it went hand-in-hand with deregulation of another sort, namely, more limited deposit insurance, which would have gone a long way toward avoiding the S&L crisis later that decade. (And if you think banking stability depends on deposit insurance you really do need to review some non-U.S. banking history.)

However, as the last example suggests, the fact that careless deregulation sometimes sets the stage for financial crises doesn’t mean that deregulation isn’t desirable, or that a deregulated banking system can’t be safe. On this point the three centuries of experience to which Mr. Detrixhe’s article refers speak eloquently, provided one bothers to consult the relevant case studies. Compare, for example, Canada’s banking system, especially between 1867 and 1935, to the system or systems of the U.S. Will anyone deny that Canada’s system was both far less heavily (and less heedlessly) regulated, and far more stable? The same conclusion holds for a comparison of the Scottish and English banking systems between 1772 (the year of the Ayr Bank’s failure, in which unwise regulation also played a part) and 1845 (when Scottish banks were compelled, for no good reason, to abide by Peel’s Bank Charter Act). Showing that misguided bank regulations were also an important cause of crises elsewhere than in the U.S. and England is also child’s play, provided one bothers to try. (Have a look for starters, at Charles Calomiris and Stephen Haber’s Fragile by Design.)

Not trying, especially by not even considering the performance of the world’s least-regulated banking systems, is the main reason why so many economists learn the wrong lessons from history. I made that point several years ago in reviewing Gary Gorton’s book, Misunderstanding Financial Crises; and I fear that what goes for Gary Gorton may go for Mr. Detrixhe as well.

Consider Detrixhe’s discussion of the Financial Crisis of 1825. In the years leading up to it, he notes, the prices of securities trading on the London Stock Exchange “were soaring, and members of parliament sat on the boards of some of the firms quoted on the exchange.” Quite true. But lax regulation of British banks had nothing to do with it. To the extent that England’s “country” banks (meaning all those apart from the privileged Bank of England) contributed to the boom, they did so, as I explained in my 1992 article “Bank Lending ‘Manias’ in Theory and History,” only by following the Bank of England’s lead:

The ratio of country note circulation to Bank of England issues remained within the narrow range of .64 to .663 for most of the years 1818 to 1825. The sole exceptions were 1823 and 1824 — the two years preceding the crisis — when the ratios were .572 and .588, respectively. These figures suggest that, insofar as country banks behaved unusually in the years just prior to the crisis, they did so by becoming more conservative than usual, resisting any impulse to extend their liabilities beyond levels consistent with available, liquid reserves of Bank of England notes.

The Bank of England, on the other hand, had been engaged since 1822 in what Elmer Wood (English Theories of Central Banking Control, p. 82) refers to as “a general plan for cheap money and credit expansion,” involving a reduction in its discount rate to 4 percent from its traditional value of 5 percent and an increase in the maximum maturity of bills eligible for discounting from 65 to 95 days. The country banks, and London discount houses, I observed in the above-mentioned article, having long been accustomed to treating Bank of England deposits and notes as so much cash, “could hardly be expected to do other than respond positively to the increased abundance of their own reserves, by reducing their own discount and deposit rates” (ibid.).

As for the Bank of England’s own capacity to fuel a bubble, that stemmed entirely from the Bank’s monopoly privileges, including its unique enjoyment of joint-stock status, and its monopoly of note issue within London and its surroundings.

As the Bank’s liabilities grew, its stock of bullion, which was just shy of £14 million in May 1824, declined continuously and rapidly. By the the end of 1825, it had fallen to just £1.26 million. When at last the Bank of England took steps to conserve its dwindling reserves, in part by once again raising its discount rate to 5%, the country banks, having been “kept in the dark about the status of the Bank’s bullion reserves” (ibid.), were among the firms and persons that bore the brunt of its policy reversal. “By the end of 1825,” Mr. Detrixhe observes, “markets were in a ‘full blown panic’…leading to bank runs and failures.” “A year later,” he continues, “nearly 10% of England’s banks had collapsed, sparking the first major global banking crisis.”

But did the 1825 Panic really trigger a global banking crisis? Not unless Scotland had somehow taken leave from planet earth, for as far as the British Isles were concerned, the banking crisis was an English and Welsh episode only; it left nary a trace in Scotland, whose bankers emerged from it unscathed. To a contemporary English cartoonist, the difference looked like this:

The different experiences of England and Wales on one hand and Scotland on the other reflected, not more heavy-handed regulation of the Scottish banks, but just the opposite. Most importantly, Scottish banks were, unlike their English and Welsh brethren, not subject to hampering restrictions on bank ownership, including the notorious six-partner rule. As Kevin Dowd explains (Laissez-Faire Banking, p. 35), Parliament had imposed that rule, limiting all English and Welsh banks apart from the Bank of England to six partners or less, back in 1709, as a means for reinforcing the Bank’s privileges in return for its having granted Parliament a subsidized loan. The measure

effectively prohibited reliable (that is, large) aggregations of capital in banking, as those partnerships that were allowed to enter the industry were too small to withstand any substantial shock. People knew how vulnerable the banks were and, whenever there was any disturbance, rushed to withdraw their gold (ibid.).

As Robert Jenkinson, the 2nd Lord Liverpool, told Parliament the year after the crisis, under the six-partner rule,

a cobbler or a cheesemonger, without any proof of his ability to meet them, might issue his notes, unrestricted by any check whatever; while, on the other hand, more than six persons, however respectable, were not permitted to become partners in a bank, with whose notes the whole business of a country might be transacted. Altogether, this system was one so absurd, both in theory and practice, that it would not appear to deserve the slightest support, if it was attentively considered, even for a single moment (ibid., pp. 47-8).

Thanks in part to Liverpool’s efforts, the absurd rule, enacted in the first place to gratify the Bank of England’s shareholders, was finally scrapped. In the ensuing decades, 138 English joint-stock banks were established, of which only 19 either failed or went into voluntary liquidation prior to the passage of Peel’s Act in 1844 (Newton n.d., p. 4). I hope I’m right in thinking that Mr. Detrixhe, had he also been an MP in 1826, would not have been tempted to plead for sticking to the six-partner rule on the grounds that getting rid of it would increase the risk of another financial meltdown.

Certainly Mr. Detrixhe can’t be accused of favoring any sort of government regulation. He recognizes, for example, that U.S. government housing policies contributed to the recent panic. On the other hand he seems to believe that the Dodd-Frank Act’s many provisions are capable of preventing another crisis, if only Republicans will let them stand, whereas in truth those provisions hardly address any of that crisis’s root causes.

And although Mr. Detrixhe never actually claims that the subprime meltdown itself illustrates the supposedly general tendency for panics to follow deregulation, one suspects that he, like many others, believes this to be the case. But while many have blamed the crisis on deregulation, and especially on the partial 1999 rollback of Glass-Steagall, such claims seem to be based on little more than their authors’ preconceived notions. A close look at the evidence suggests, on the contrary, that although the crisis had many causes, deregulation wasn’t one of them.

So let’s by all means learn as much as we can from 300 years of financial history. But let’s also remember that to do so one must delve deep into that history, and not just skim the surface.

[Cross-posted from Alt-M.org]

 

 

 

 

 

 

 

 

 

 

I recall quite vividly the day I first witnessed the potency of the “get out of jail free” cards issued by Police Benevolent Associations. I was a teenager in the New Jersey suburbs headed to a concert with a car full of friends, and our driver was so caught up in conversation about what a great show it was going to be that, despite our feeble warning shouts, he barrelled through a solid red light going about 40 miles per hour—a red light with a police car stopped on the opposite side of the intersection. Predictably, the police car immediately flipped on its siren and tore after us. The passengers resigned ourselves to missing the start of the show. At the very least we were going to be stuck waiting through a sobriety test. The driver was surprisingly calm. He explained that he had both a card and a silver shield in the rear window identifying him as a family member of a law enforcement officer. To our astonishment, the stop was the shortest I’ve ever sat through before or since. The officer made some small talk with the driver, asked (without checking) whether his record was clean, then apologized for the delay before sending us on our way. As our friend explained on the way to the show, an ordinary paper card—the sort given to friends of police or folks who’ve made a donation to a PBA—would have been torn up after such an encounter, providing immunity for only a single minor infraction, while the family versions were permanent.

Since I don’t own a car, I hadn’t thought about these in years, until a story in the New York Post—about officers livid that the union was cutting their allotment of cards to distribute—provoked a flurry of discussion on social media. Readers who’d never heard of the practice before reacted with shock that this form of petty corruption could be so normalized that there would actually be official cards, openly distributed by police departments or their unions, for the explicit purpose of placing friends, family, and donors above the law—even if only for relatively minor infractions. The idea that family of police might get more lenient treatment was not particularly surprising, but many seemed taken aback that the practice could be so shamelessly institutionalized on such a large scale. Is there, after all, any conceivable non-corrupt reason for issuing wallet-sized cards identifying the bearer as a relative of police?

That sense of shock was, I immediately recognized, the correct reaction. As long as laws are enforced by human beings, a bit of small-scale local nepotism in the enforcement of the law is probably unavoidable. But there is something quite toxic about institutionalizing it, to the point where officers feel so entitled to special treatment for themselves and their friends and family that they express open outrage when the law is applied to them as it would be to any other citizen. Getting out of a speeding ticket may not seem like a dire threat to the rule of law—though you do have to wonder how many cardholders feel emboldened to drive intoxicated—but I think one can reasonably draw a link between this sort of petty favoritism and the more serious abuses that leave so many minority communities regarding their local police less as public servants than an occupying force.

Think about the message these cards send to every officer who’s expected to honor them. They say that the law—or at least, some ill-defined subset of it—isn’t a body of rules binding on all of us, but something we impose on others—on the people outside our circle of personal affection. They say that in every interaction with citizens, you must pay special attention to whether they are members of the special class of people who can flout laws, or ordinary peons who deserve no such courtesy. They say that, at least within limits, officers of the law should expect to be able to break the law and not be punished for it. They say that a cop who has the temerity to hold another officer or their family to the same standards as everyone else is a kind of traitor who should expect to suffer dire consequences for the sin of failing to respect that privileged status. Moreover, they say that this is not merely some unspoken understanding—a small deviation from impartial justice to be quietly tolerated—but a formalized policy with the explicit support of police leadership.

Can we really be surprised, when a practice like this is open and normalized, that the culture it both reveals and reinforces has consequences beyond a few foregone speeding tickets? Should we wonder that police fail to hold their own accountable for serious misconduct when they’re under what amounts to explicit instructions to make exceptions for smaller infractions on a daily basis?

There is a popular approach to policing known as the “broken windows theory.” The theory encourages local governments to prioritize enforcement of minor “quality of life” laws, on the premise that when small violations of the law (such as petty vandalism) are visible in a neighborhood, it encourages more serious forms of lawbreaking. Punishing litterbugs and graffiti artists, on this line of reasoning, is important less because graffiti and litter are inherently great harms, but because they contribute to a sense of social disorder and lawlessness that encourages potential malefactors to think, if only subconsciously, that assaults and robberies are also unlikely to be punished. Criminologists continue to debate the validity of the theory and the magnitude of its effects, but whatever signal a broken window sends, it must surely be weaker than an overt policy that makes some laws applicable only to the little people.

Policies like this survive, of course, because they’re hugely popular with police and their families, while not imposing an obvious burden on everyone else. Nobody likes getting a speeding ticket, but few are going to muster too much outrage that the deputy’s spouse didn’t get one. But beyond being an affront to the ideal of the rule of law in the abstract, it seems plausible that these “get out of jail free” cards help to reinforce the sort of us-against-them mentality that alienates so many communities from their police forces. Police departments that want to demonstrate they’re serious about the principle of equality under the law shouldn’t be debating how many of these cards an average cop gets to hand out; they should be scrapping them entirely.

Private schools are the preserves of rich, white people, and if they weren’t around education would be more racially integrated. That’s probably the assumption many people have, and it could be what people reading about a recent Shanker Institute report on segregation in Washington, DC, might have gathered.

“It’s no secret that the District’s public schools are highly segregated, with a recent analysis showing that nearly three-quarters of black students attend schools where they have virtually no white peers,” began a Washington Post story on the Shanker analysis. “But a recent report examines the role that enrollment in private schools, which are disproportionately white, plays in the city’s segregation woes.” Similarly, a story on WAMU—a DC NPR affiliate—intoned: “’In a very loose sense,’ the authors explain, ‘D.C.’s private schools serve as the segregation equivalent of a suburb within a city.’ That’s because white students in D.C. tend to enroll in private schools.”

So are the city’s private schools really preserves of white people? And are they a big impediment to integration? The answer appears to be “no” to both questions.

Importantly, the Shanker report, while saying that a disproportionate share of private school students are white, also noted that African-American students in private schools had greater exposure to white students than black children in public schools, an indicator that for African-American kids in private schools the racial mix is less isolating. The typical black student in a DC public school (traditional and charter) goes to an institution in which only 3.5 percent of students are white. For the typical black private schooler, the student body is 24.5 percent white.

Those numbers indicate greater exposure to whites for African American private schoolers, but that the latter is not a much higher number also indicates that many African Americans attend private schools that are predominantly minority, which the WAMU story notes at the very bottom: “While there are fewer students of color in private schools, when they do attend private school it’s usually with students who look like them. 65 percent of an African-American student’s peers in D.C. private schools are also African-American.”

Contrary to what many people likely imagine, DC’s private schooling sector is not lily white: private schools serve all sorts of kids. Breaking down the city’s 63 private elementary and secondary schools using National Center for Education Statistics and GreatSchools.org data indicates that almost half—31 schools—serve predominantly minority student bodies, defined as more than 50 percent black and Hispanic. Roman Catholic schools—which have traditions of serving first dispossessed Catholics, then other poor and marginalized groups—disproportionately serve such populations, with 58 percent of Catholic schools doing so. Catholic schools, especially diocesan institutions, also tend to be less expensive than non-Catholic schools, making them more affordable to African Americans and Hispanics, who tend to have lower incomes.

This brings us to a powerful, underlying factor in school selection: where one lives. People typically do not want their children traveling long distances or durations to get to school, and will tend to choose schools—public, private, or charter—fairly close to home.

The map below plots the percent white in each DC private school on top of median household income by census tract. (It also indicates Catholic or non-Catholic). What is seen pretty clearly is that the predominantly white private schools are largely found in the wealthier parts of the city, the less white in the poorer. Racial stratification in DC private schools, then, does not appear to be a private school problem, but a wealth and housing issue.

There is one other, even deeper possibility to consider, and the Shanker report notes it: absent predominantly white private schools, many white families might not even be in DC, or they might move to catchment areas with predominantly white public schools. It could be that the ultimate factor in segregation, then, is neither public nor private, wealth, nor housing, but that white people tend to prefer to live with other white people, and for that matter African Americans with other African Americans, and Hispanics with other Hispanics.

That said, private schools may actually have the key ingredient, at least within education, to erode those tendencies. They are free to espouse strong, coherent values and offer unique communities, which could attract diverse students and, via their shared values and school cultures, create new, lasting identities that bridge racial divides. Of course, price would still be a major obstacle, but not if public policy were to move in the direction it should: attach education funds to students and empower families to choose.

Key House Republicans with the support of the White House have introduced the Securing America’s Future Act (H.R. 4760) as their solution to the immigration impasse in Congress. But the bill would have far-reaching negative effects on economic and labor force growth in the United States, instituting the most severe restriction on legal immigrants since the 1920s.

H.R. 4760 would reduce the number of legal immigrants by more than 420,000, or 38 percent, in 2019. This is far larger than the 260,000, or 25 percent, cut advertised by the bill’s authors. In fact, the bill has far more in common with a Trump-endorsed bill in the Senate—the RAISE Act (S. 1720)—that would reduce the entry of legal immigrants by more than 470,000, or 43 percent, in 2019. Each would further reduce legal immigration over time.

Both bills would end the diversity green card lottery and ban the entry of all legal immigrants sponsored by U.S. family members, except for spouses and minor children of U.S. citizens. The RAISE Act would also reduce the age at which U.S. citizens can sponsor minor children from 21 to 18, while the House bill would, in effect, roughly halve the number of asylees. The House bill modestly increases the employment-based quota. Shockingly, both bills immediately cancel applications for millions of people who have waited years to become legal immigrants.

Table: Existing Laws and Proposed Changes to Legal Immigration

*Based on FY 2016 figures, accounting for the FY 2018 cut in refugees

The authors of H.R. 4760 calculated a much smaller reduction in legal immigration by using the average flow of parents from 2006 to 2015 rather than the most recent level in 2016. They also ignore that the bill aims to reduce grants of asylum by, among other changes, imposing a much higher evidentiary standard even to apply (p. 233), which will likely reduce the number of new asylees by at least 50 percent.

Finally, the House Republicans assume that spouses and children of legal permanent residents will continue to receive green cards. But their bill reduces this category by the number of parolees who live here for longer than a year (p. 6). Based on available data and analysis, this number is likely larger than the quota. The authors of the RAISE Act appear to implicitly recognize this fact, which explains why their calculation of the new level under their bill is about the same as ours. House authors would have to amend the bill if they did intend to keep this category.

The RAISE Act authors also recognize that the cut will grow over time as fewer immigrants are able to obtain citizenship and sponsor new spouses and children. They estimate that after 10 years, it will have further decreased legal immigration by 100,000, leading to a 50 percent reduction. Based on this estimate, H.R. 4760 would also almost halve the number of legal immigrants by 2028. Fewer U.S. births to immigrants would further compound the damage.

In the entire history of the United States, the only policy-driven cuts in legal immigration that rival the effects of these bills were the Emergency Quota Act of 1921 and the Quota Act of 1924, which cut the number of legal immigrants by 496,000 in 1922 and 413,000 in 1925, respectively. Congress enacted these laws to keep out Italians and Eastern Europeans, specifically Jews, and were used throughout the 1930s to prevent the entry of German Jews.

These cuts lack any reasonable justification. Labor force growth is an essential component of economic growth. Immigrants already increase U.S. Gross Domestic Product by roughly $2 trillion annually. For the United States to remain competitive internationally, it needs an expanding workforce. These proposals will harm domestic growth and make it more difficult for U.S. businesses to out-produce their competitors around the world.

U.S. immigrants who primarily enter under the family sponsorship and diversity categories are the most highly educated in American history. True “merit-based” immigration reform would give these immigrants more opportunities to immigrate, not fewer. In any case, America needs workers at both ends of the skills spectrum to grow job opportunities for all Americans. There is simply no economic justification for banning so many legal immigrants.

In advance of the January 30 conference here at Cato—The Trump Doctrine at One Year—I review public attitudes toward Trump’s “America First” vision and his foreign policy handling over his first year in office. Join us for a what will undoubtedly be a spirited conversation with a fantastic group of experts.

Donald Trump’s America First rhetoric during the 2016 presidential campaign marked a sharp departure from the fundamental tenets of liberal internationalism that have guided U.S. foreign policy since World War II. Trump’s tirades against free trade, NATO allies, immigrants (legal and otherwise), and his general disinterest in engaging with the world unless there was money in it for the United States horrified the foreign policy establishment of both parties.

Beyond concerns about Trump, many observers worried that his success reflected the demise of public support for internationalism. Though the public supported robust internationalist policies after World War II and during the Cold War, Trump’s emergence coincided with rising economic insecurity and inequality, intense political polarization, and dropping confidence in government to solve the problems facing the nation. Had the public perhaps decided that internationalism’s time had come and gone? Would Trump’s presidency usher in rising support for nativist and protectionist policies and calls to turn inward, away from the international arena?

A wide array of poll data from Trump’s first year in office strongly suggests the answer is no. A large majority of Americans disapprove of Trump’s handling of foreign policy and his America First policies are among the most unpopular elements of his foreign policy.

Trump’s fiery attacks on unfair trading practices by China and Japan and his criticism of NAFTA as “the worst deal ever made” may have energized his base during the campaign, but since taking office Trump’s course on trade has not been a popular one. Though Trump pulled the United States out of the Trans-Pacific Partnership as soon as he took office and appears likely to pull out of the North American Free Trade Agreement, Americans remain committed to free trade. A June 2017 survey from the Chicago Council on Global Affairs found that 72% of the public thinks international trade is good for the United States. An October 2017 poll from the Pew Research Center echoed this result, finding that Americans are more likely to believe NAFTA is good for the United States by 56-33%. 

Trump is also clearly in the minority camp when it comes to immigration, another key pillar of the America First vision. Only 39% approved of Trump’s handling of immigration as of November 2017. Most Americans simply don’t share the president’s dim view of immigrants. Trump began his campaign in 2015 complaining of Mexican immigrants that “They’re bringing drugs. They’re bringing crime. They’re rapists.”

Last week in a meeting about immigration at the White House, Trump’s views again stirred debate after he complained about people coming from “shitholes” like Haiti and Africa and asked why the United States didn’t get more people from Norway. But according to a June 2017 Chicago Council on Global Affairs poll, just 37% of Americans see immigrants and refugees as a critical threat to U.S. interests. Seventy-one percent say that immigration is a good thing for the country today. Poll after poll finds that a majority of Americans think that even illegal immigrants should have the opportunity to stay in the United States—68% in a recent Quinnipiac poll say they should be able to apply for citizenship. Unsurprisingly, Trump and the Republicans face the same political headwinds in the debate over DACA reform. Seventy-nine percent thinks the “Dreamers”—undocumented immigrants brought to the United States as children—should be allowed to stay and become citizens.

Despite the disconnect on immigration, Trump has found somewhat more support on issues where Americans do sense security threats. During the campaign, Trump argued that refugees fleeing the civil war in Syria should not be allowed to enter the United States, a view that receives majority support. Two-thirds of Americans supported preventing Syrian refugees from coming to the United States in a June 2017 poll, for example. And though poll results have varied widely, it appears that a majority of Americans approves Trump’s “travel ban” temporarily restricting visa applicants from six Muslim-majority countries to those who can show a close family relationship. The most recent poll by Politico/Morning Consult in July 2017 found that 60% of Americans support Trump’s “travel ban.”

On the other hand, most Americans have never been keen on Trump’s favorite construction project. Despite his non-stop efforts to frame the southern border wall as a critical security issue, support for building it has remained below 40% since the month after Trump took office and a poll released last week found that Americans oppose building a wall on the Mexican border by 63-34%.

When it comes to dealing with the ultimate threat—nuclear weapons—Trump’s approach is again clearly at odds with a majority. Trump’s hard-line opposition to the Iran nuclear deal, for example, contrasts with the 67% of Americans who think the United States should not withdraw from the deal.

And though Trump’s approach to North Korea has involved a good deal of saber rattling, tough talk on Twitter, and warnings that “time is running out,” a majority of the public believes diplomacy needs more time. Fifty-nine percent of the public believes the U.S. can solve the situation with diplomacy compared to just 27% who think force will be necessary. Further, 54% think it is more important to avoid war with North Korea than to remove its nuclear arsenal, while 39% think the opposite. Overall just 36% of Americans have confidence in Trump to handle the North Korea situation.

At a more general level, many Americans worry about Trump’s temperament and his ability to handle crises. A recent poll, for example, found that 69% do not believe Trump is level-headed, while a Pew poll found that public confidence in Trump’s ability to handle an international crisis dropped from 48% in April to 39% by October 2017.

And more broadly, Americans are worried about Trump’s handling of foreign policy and the effect of the Trump Doctrine on the United States. Public support for Trump’s handling of foreign policy during his first year—at just 33% in November 2017—has been significantly lower than for other presidents at the same stage of their presidencies going back to Ronald Reagan. Furthermore, 66% of Americans think that Trump’s actions have damaged the United States’ reputation around the world, while 55% believe that Trump has weakened the country’s global leadership position compared to 31% who feel he has strengthened it.

For those who worried what Trump’s election meant about the public’s foreign policy attitudes, the polls provide a degree of solace. After a year in the White House with all the advantages conferred by his office and the bully pulpit, Donald Trump has utterly failed to increase support for the America First vision. Not only that, public confidence in Trump to manage international affairs has eroded significantly. 

At the same time, the fact that even this much support exists in the United States for the illiberal, counterproductive, and dangerous policies espoused by Trump signals to political leaders that public support is not a given. It also reveals that traditional justifications for American foreign policy no longer command such widespread support. To ensure that Trump’s combination of nativism and isolationism does not become the doctrine of the future, the United States will need other leaders to articulate a new foreign policy vision that acknowledges public concerns while doing a better job of explaining how and why the nation must engage the rest of the world.

This will not be an easy task. Globalization, automation, populism, and other powerful trends that are reshaping both international and domestic politics will not relent any time soon. To the extent that these forces help explain both Trump’s success and public attitudes, we should expect continued debate and division over the future of American foreign policy. If responsible politicians do not address these issues, Americans worried about economic competition from other nations or concerned about terrorism, immigration, and the influence of other cultures on their way of life may continue to look to leaders like Trump for answers.

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