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In early September 2013, Americans rose up in opposition to the suggestion that the United States might undertake a limited military operation to punish Syrian President Bashar al Assad for using chemical weapons in the civil war there.

Even though Secretary of State John Kerry gave assurances that the punitive strikes would be “unbelievably small,” and were unlikely to draw the United States deeper into yet another Middle Eastern war, the mere possibility that they might do so was too great a risk for many Americans who had grown weary of inconclusive conflicts that didn’t serve U.S. vital security interests. They bombarded congressional offices with phone calls and emails saying “stay out.” At the time, Newt Gingrich was one of a very few Washington insiders who made a succinct case against intervention on behalf of the wider public: “A) I don’t understand why it’s our problem, B) I doubt very much that we can fix it, and C) the guys who are against Assad strike me as about as sick as Assad is.”

In the face of such opposition, President Obama’s decision to submit the question to Congress effectively shelved the idea.

Hawks were dismayed, though most blamed Barack Obama for taking public attitudes into account. The political class would have preferred that he simply ignore the fact that Americans weren’t clamoring for more war, much as they wanted him to disregard popular sentiment with respect to leaving U.S. troops in Iraq. 

Now, according to Secretary of State Rex Tillerson, the United States is embarked on a much wider mission in Syria, with the ultimate object of regime change there. The U.S. military presence will be “conditions-based,” meaning open-ended – and, if at all like Iraq and Afghanistan, effectively indefinite. He concedes that some Americans are opposed, but claims it is vital for the United States to remain engaged.

It isn’t vital. Who rules Syria, and whether they do so poorly or well, does not affect the lives and safety of Americans. Nor is it clear that a U.S. military presence on the ground in Syria serves a humanitarian purpose, and is necessary to bring an end to the civil war. It may, in fact, prolong the conflict, and thus the suffering of the Syrian people.

Who exactly is advising the Trump administration on this strategy? Where do these ideas come from? They bear no resemblance to positions that Donald Trump adopted as candidate. In October 2016, for example, he accused Hillary Clinton of risking World War III with Russia by calling for Assad’s ouster. Back then, Trump was content to leave Assad in power, and focus American attention and firepower on ISIS.

Now, barely 15 months later, Assad has reasserted control in parts of Syria, which means dislodging him will be even harder. ISIS, meanwhile, has been shattered, which makes the rationale for U.S. military action even less compelling. The American people aren’t looking to give the already-overburdened U.S. military more tasks to accomplish, and yet that is precisely what the Trump administration appears to be doing.

Why are they moving the goalposts? An explanation by the Secretary of State before a friendly audience at the Hoover Institution should not suffice. At a minimum, Tillerson’s latest announcement should prompt a wide-ranging debate over U.S. goals in Syria, and throughout the Middle East (to include the shameful Saudi-led war in Yemen). In short, Congress should reassert its oversight role, and demand that the Trump administration explain the reasons behind this major policy shift.

If that occurs, it is reasonable to expect, as in 2013, widespread public skepticism. If anything, Americans might be even more opposed, and incensed by the apparent bait-and-switch. And at least some of the people who voted for Donald Trump believing he would be less inclined than Hillary Clinton to expand existing wars, and start new ones, should be feeling a case of buyer’s remorse. He promised change, but he hasn’t delivered

 

Trade negotiators from Canada, Mexico and the United States will meet in Montreal next week for a crucial round of talks on renegotiating NAFTA. This is the 6th round of negotiations, and the major demands and proposals are now on the table. Can the parties begin to work out their differences and make progress towards a deal? Here are some key issues to watch.

Poison Pills

The United States (i.e., the Trump administration) was the only NAFTA country that was pushing to renegotiate the existing agreement, so its views are important for determining whether a new NAFTA can be worked out. The Trump administration has made a number of proposals that are probably unacceptable to Canada and Mexico (and also to many members of Congress, as well as other groups). These have been referred to as “poison pills,” with some speculation that the administration offered them in the hopes that the proposals would kill the talks and give the U.S. an excuse to withdraw from NAFTA. Three of the biggest poison pills are:

– A weaker enforcement mechanism for policing violations of the agreement (not weaker than most areas of international law, but a big step backwards from what currently exists in U.S. trade agreements).

– A “sunset clause” that would have the agreement expire after five years unless the parties affirmatively decided to renew it.

– A requirement that in order for automobiles to benefit from the zero tariffs under NAFTA, 50% of their content must be from U.S. sources.

The key question for these proposals is whether the U.S. is going to keep insisting on them, or whether it is willing to accept less (e.g., a review mechanism rather than an automatic expiration clause) or even, ideally, to abandon the proposals completely.

Market Opening/Closing

A frustrating part of trade negotiations is how countries bargain over liberalization: one country liberalizes only if others do so. If they were smart, they would be competing to see who could liberalize the most and the fastest. But that’s not where we are with trade politics right now.

Instead, in the NAFTA renegotiation, some of the U.S. proposals are designed to scale back existing liberalization. For example, the U.S. wants more flexibility to follow Buy America rules in government procurement; and it wants a higher level of regional content (i.e., from Canada, Mexico, and the U.S.) in automobiles in order for them to qualify for NAFTA’s zero tariffs (this is a less egregious variation on the U.S. content requirement noted above).

At the same time, the U.S. is also pushing for market opening by others, including a demand that Canada remove some restrictions on dairy imports. Asking trading partners to open their markets is a more traditional approach to trade negotiations, and would probably get much more emphasis in these trade negotiations from any other U.S. administration. For example, the U.S. could be prodding Canada and Mexico to open up various markets for services (e.g., legal and medical services).

Specialized International Courts

While some of the U.S. NAFTA proposals are controversial and hugely problematic, others are controversial but actually have some basis. In this regard, in addition to the proposals related to basic enforcement provisions noted above, the U.S. is also complaining about two other dispute mechanisms in NAFTA, referred to by the chapters in which they fall: Chapter 19 and Chapter 11.

Chapter 19 involves a special review mechanism for domestic anti-dumping/countervailing duties that was originally demanded by Canada as part of the Canada - U.S. FTA, and was then carried over into NAFTA. Normally, anti-dumping/countervailing duties can be appealed to domestic courts; under Chapter 19, they can also be appealed to a special NAFTA panel of experts, which considers the consistency of the agency decisions with domestic law. It is arguably unconstitutional to have an international court apply U.S. law in this way, and it is not clear that the NAFTA panels offer stricter oversight than U.S. courts do. The Trump administration wants to eliminate these provisions; the Canadians are pretty adamant about keeping them.

Chapter 11 contains the notorious investor state dispute settlement mechanism. In my view, the economic value of these provisions is uncertain at best, and they are not worth the uproar they cause. This is something that the U.S. has pushed for in the past, but the Trump administration seems to be reconsidering it. 

Modernizing

Finally, there is the easy part of the NAFTA renegotiation: modernizing it. NAFTA was negotiated in the early 1990s. Since then, the economy has changed a lot, and trade agreements have evolved. One relatively simple part of NAFTA will be to borrow provisions from other recent agreements, covering issues such as state-owned enterprises, e-commerce, labor, and the environment. 

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There are lots of rumors these days about whether the Trump administration is going to withdraw from NAFTA, whether the Canadians think the Trump administration is going to withdraw from NAFTA, and (in a tweet that I remember but can’t seem to dig up) what the Trump administration thinks about the Canadians thinking that the Trump administration is going to withdraw from NAFTA. I don’t know what to make of any of that. I’m just going to focus on the substance of Round 6, after which we may have a better sense of what is actually possible and likely here.

Writing in The Hill last week, retired Brigadier General John Adams declared global overcapacity in the aluminum sector to be a national security threat and urged President Trump to “impose meaningful relief” for domestic industry. With Trump widely expected to make a decision in the coming months—or perhaps even sooner—on whether to impose new restrictions on aluminum imports as part of a Section 232 investigation initiated last year, it’s the type of argument we are likely to see more of in the weeks ahead. While no one should doubt the sincerity of Adams’ concern for U.S. national security, his description of the industry’s travails and claim that its salvation lies in the raising of import barriers is deserving of closer scrutiny.

Stating that aluminum prices have “come under pressure” since 2009, Adams notes that this correlates with both the addition of 17 million metric tons of new capacity by state-owned smelters and a 60 percent reduction in U.S. primary aluminum (produced directly from mined ore) capacity along with the loss of over 4,000 jobs. Perhaps more alarmingly, he points out that the lone U.S. smelter capable of producing “high-purity, American-made aluminum” used in a variety of defense platforms is currently operating “at only 40 percent capacity and under great economic pressure to compete with Chinese dumping.”

In case the implied narrative of imports driving U.S. job losses wasn’t already obvious Adams later makes it plain:

Illegally-subsidized foreign aluminum is distorting global pricing and flooding American marketplaces, driving down domestic prices, depleting production, and forcing manufacturing facilities across the nation to close their doors. Relief is needed and needed soon to ensure that this historic and vital American industry can stay afloat. Relief against China alone won’t revitalize the industry.

…Imagine a world where we are 100 percent dependent on China, the United Arab Emirates and Russia to equip our armed forces and build critical infrastructure. We need broad and effective relief to protect thousands of American jobs and ensure that the U.S. primary aluminum industry will continue to play a vital role in U.S. national security.

This seemingly grim picture is at best incomplete, beginning with the fact that any decline in the price of aluminum is a boon to the many U.S. industries—ranging from beer cans to cars to airplanes—for which the commodity is an important production input. Talk of rising capacity among state-owned firms and prices under pressure, meanwhile, suggests a notable decline in the historical price of this commodity, but that is at odds with the historical data. For over two years aluminum has seen a steady upward trend in price, and it can only be considered cheap relative to the commodities super-cycle of the last decade.

 

If the price of aluminum is not particularly cheap by historical standards, what then explains the decline in U.S. production capacity and loss of jobs? It helps to first understand that a key variable in the production cost of aluminum is electricity (aluminum smelters account for roughly 3.5 percent of global electric power consumption) and that aluminum smelters are frequently placed in close proximity to cheap sources of power such as hydroelectric. Electricity prices in the United States, however, are more expensive than those which can be found elsewhere, prompting a search by U.S. firms for lower cost locales in order to remain competitive. Simply put, much of the industry has left for greener, or rather cheaper, pastures as noted by The New York Times:

Alcoa, formerly the Aluminum Company of America, and another American company, Century Aluminum, have opened factories like this in Iceland, and closed factories in the United States, for a simple reason: Electricity is much cheaper here. This year, tiny Iceland is on pace to make more aluminum than the United States. So are its fellow hydropower superpowers, Canada and Norway.

Indeed, beyond Iceland Alcoa owns an additional three smelters in Quebec. It should be stressed that this is hardly an example of a “race to the bottom,” with Canada and Iceland known neither for their cheap labor or lax environmental policies.

And despite Adams’ warning of a future in which the United States is forced to rely on China, Russia, and the UAE for its defense and infrastructure needs, the top source of U.S. aluminum imports in recent years by some distance has been Canada, which supplies more aluminum to the United States than the nine next largest sources combined.

Not only is Canada the largest U.S. supplier, it is also considered such a close strategic partner that it has been designated as part of the national technology and industrial base (along with Australia and the United Kingdom) and its firms are legally obligated to supply American military contractors in exchange for their exemption to Buy American provisions. If the day ever does come that the United States cannot meet its own aluminum needs for national security, why not simply purchase from our neighbors to the north?

Such an eventuality, however, is difficult to imagine. Even if every U.S. aluminum smelter were to close, this does not necessarily mean their productive capacity has been forever lost as facilities can later be brought out of mothballs. As this industry publication notes, the United States currently has “a little more than a million tons of capacity lying idled, ready for restart if the conditions are right.” In addition, to the extent excess capacity exists in the U.S. aluminum industry this could be considered a national security asset as it allows for a quick ramping up of production should a wartime emergency arise.

Lastly, if global overcapacity is the chief culprit for the ills faced by the domestic aluminum industry as Adams claims, it is unclear how the type of remedy he seeks—“significant comprehensive relief across all aluminum imports”—is the appropriate solution. By providing an incentive for the re-opening of shuttered domestic smelters to meet demand previously filled by imports, the problem could actually be worsened as capacity is further expanded. That Canada and other foreign allies would be harmed, straining relations and leading to possible retaliatory measures, further calls the wisdom of such a move into question. Indeed, as Dan Ikenson warns, other governments likely would follow the U.S. lead and cite national security concerns of their own in order to “bestow protectionist favors on their own favored domestic interests.” The opening of this Pandora’s box, he adds, would soon lead to an unraveling of the international trading system. 

Rather than sweeping protectionist actions, the United States would be better advised to follow the advice given by the Aluminum Association of Canada in its comments on the 232 investigation (and echoed by other groups such as the National Foreign Trade Council). Emphasizing the need for a do no harm approach, the organization calls for Canada, the United States, and Europe to “engage with China within an appropriate international forum to formally assess the situation in full transparency and take action to quickly and progressively resolve the issues affecting the world aluminum market.” With China already engaged in production cuts in the aluminum sector, the potential for such talks to reach a successful conclusion should not be casually dismissed.

National security arguments are in many ways the gateway drug of protectionism, using an appeal to patriotism to convince otherwise sensible people to support self-destructive policies. So too it would be with new restrictions on the importation of aluminum, which would come at a considerable cost to the many downstream industries that rely on this commodity to produce their goods. The underlying issues which have harmed the competitiveness of U.S. aluminum smelters such as electricity costs and overseas capacity, meanwhile, would be left addressed or conceivably worsened. When it comes to new tariffs on imports of aluminum President Trump should just say no. 

If you are interested in national issues such as defense, foreign policy, and trade, and want to hold public office, you should run for Congress. If you are interested in roads, beaches, subways, and policing, you should run for city council or the state legislature.

The push to restore earmarks in Congress is led by politicians who got elected to the wrong democratic body. In a pro-earmark story today, the Washington Post highlights projects that members say justify the narrow spending set-asides:

  • “There is a 14-mile gap in Interstate 49 outside Fort Smith, Ark., and Rep. Steve Womack, who represents the area, would very much like to secure the estimated $300 million in federal taxpayer money needed to fill it.”
  • “Rep. Thomas J. Rooney (R-Fla.), who is pushing a proposal that would allow Congress to earmark money for … a pair of water projects he said have been neglected in his district: a beach restoration in an area where the Gulf of Mexico is starting to lap at homes, and repairs to the massive Herbert Hoover Dike that surrounds Lake Okeechobee.
  • “The Second Avenue Subway in New York City, which opened last year, received more than $600 million.”
  • “Dozens of police departments received money to improve their equipment and communications systems. 

I have questions for the members supporting federal spending on these projects:

  • Why doesn’t the Arkansas legislature fund the I-49?
  • If Florida beach restoration is important but neglected, why don’t landowners and city councils along the coast fund it?
  • New Yorkers may support their subway project, but why should taxpayers elsewhere pay for it? And when asked to vote on it, how could members from other states judge whether it made any sense?
  • Since policing is a crucial function of local government, wouldn’t citizens support local taxes to buy needed equipment?

The earmark issue is usually framed as a battle of the purse between federal politicians and federal bureaucrats. But the more important issue is ensuring that activities are funded at the level of government that makes the most sense. I discuss here why state and local funding makes sense for state and local activities. As for Congress, it suffers from structural failures that cause it to spend wastefully much of the time, so the less money flowing through it the better.

Last week, the House of Representatives voted to reauthorize the FISA Amendments Act—and its controversial Section 702, which establishes general warrants for wiretapping foreigners—and rejected an amendment offered by Rep. Justin Amash that would have at least required the FBI agents to obtain a warrant before sifting through the NSA’s massive database of intercepted communications for Americans’ messages. As I noted in a blog post at the time,  the few supposed “reforms” embedded in the authorization bill are cosmetic at best, and more likely will serve to actually expand the scope of warrantless surveillance. But at least Amash’s amendment got a vote, although without the benefit of much in the way of substantive debate.  

This evening the Senate is poised for a cloture vote that will advance 702 reauthorization toward passage later this week, not only with minimal debate, but without even permitting amendments to be offered.  Even supporters of the law should regard this as an extraordinary dereliction of duty.

 As Sharon Bradford Franklin of New America’s Open Technology Institute observes, we’ve learned an enormous amount about how Section 702 is used since it was last reauthorized five years ago—in part because of the now-notorious disclosures by Edward Snowden, but also in part because of the unprecedented quantity of information released since then by the government itself, whether voluntarily or in response to Freedom of Information lawsuits.  

We’ve learned about the intelligence community’s struggles to follow its own rules, and to keep the Foreign Intelligence Surveillance Court (FISC) and other oversight bodies fully and promptly informed about such “compliance incidents.”  We’ve learned about the massive number of foreigners targeted for collection under 702—more than 106,000 last year— though, despite repeated pledges from intelligence officials (ultimately repudiated last year by the new Director of National Intelligence Dan Coats) we haven’t learned how many Americans find their communications caught up in the process.

 We’ve learned about “about collection“—wherein NSA routinely intercepted Internet messages (including Americans’ messages) that were neither to nor from a foreign surveillance target, but only made reference to a target.  (When the Supreme Court blocked a challenge to the law from proceeding in the case Clapper v. Amnesty International, on standing grounds, it repeatedly cited the government’s inaccurate representation that only Americans in direct communication with a foreign target were at risk of having their communications intercepted.)  Even the normally deferential FISC eventually balked at this practice, forcing NSA to wind it down.  Yet the reauthorization bill the Senate is preparing to advance actually codifies it explicitly for the first time—requiring only that Congress be informed if it is resumed.  While it is vanishingly unlikely that Congress would actually intervene in the event of such a notice, this is likely to be read by the FISC as a congressional blessing of the practice, making its resumption more likely.  

A Senate more concerned with fulfilling its oversight responsibilities would invite extensive public debate and discussion of these issues and more, as well as proposals to address them. Instead, as we’ve seen so often with other intelligence authorities, the looming expiration of 702—which following a temporary extension is set to laps on January 19—is invoked to create a false sense of urgency: No time to debate, no time to consider alternatives, just an up or down vote on the reauthorization already approved by the House. The deadline here is, of course, entirely artificial: Congress already passed one temporary extension before its last recess, and could approve another.  Even if it did not, even if the law were to lapse, the warrantless surveillance authorized under 702 could continue uninterrupted until April.

The rush to reauthorization is particularly incongruous at a political moment when you might expect both parties to welcome the opportunity to contemplate additional checks on spying powers.  Democrats routinely worry that the Trump Administration is eager to use its control over law enforcement institutions to go after Donald Trump’s political adversaries—not least because Trump himself demands that they do so on a regular basis.  Republicans, in turn, routinely complain about an insidious “Deep State” embedded within the Justice Department and intelligence community, which they believe may have already illegally leaked information gleaned from surveillance to press as part of an effort to undermine the administration.  You might think concerns of this sort would, at the very least, make legislators more inclined to consider reforms such as requiring court approval to pull up an American’s correspondence from a vast database of foreign intelligence intercepts.  Yet for all the talk of “resistance” on the left and “Deep State” perfidy on the right, the majority in Congress seem determined to extend and expand these spying authorities—both quickly and quietly.

The Departments of Homeland Security and Justice (DHS/DOJ) released a report this morning on the threat of international terrorism.  This report was required by President Donald Trump’s executive order that, among other things, originally established the infamous travel ban.  The new DHS/DOJ report produces little new information on immigration and terrorism and portrays some misleading and meaningless statistics as important findings.  Interestingly, the draft version of the report had more interesting and useful information that was mysteriously edited out of the final public version.  It’s remarkable that, given almost a year to produce such a report and with the vast resources of the federal government combined with reams of government information unavailable to the public, that they were able to produce a report of so little of value.     

The DHS/DOJ report found that about 73 percent of those convicted of international terrorism-related offenses from 9/11 through the end of 2016 were foreign-born.  That means that 27 percent of them were native-born Americans.  By focusing exclusively on international terrorism-related charges, this report intentionally ignores domestic terrorists unaffiliated with international terrorists.  Thus, the results of the DHS/DOJ report are, at best, a snapshot of the international subset of terrorism that ignores the purely domestic variety. 

The DHS/DOJ report ignores the most important statistic: how many people were actually killed by these terrorists on U.S. soil.  In our updated terrorism information that runs through the end of 2017, we found that a total of 155 people were killed on U.S. soil in terrorist attacks since January 1, 2002, 34 of them by foreign-born terrorists and 121 of them by domestic terrorists (going back to September 12, 2001 does not add any deaths by identifiable terrorists on U.S. soil but would diminish the chance of dying, so I excluded it from this blog post to bias the results against me).  Since the beginning of 2002, native-born Americans were responsible for 78 percent of all murders in terrorist attacks committed on U.S. soil while foreign-born terrorists only committed 22 percent.  Including the actual number of deaths caused by terrorists flips the DHS/DOJ statistics on its head.     

From the beginning of 2002 through 2017, about the period of time covered by the DHS/DOJ report, the chance of being murdered in a terrorist attack committed by a native-born American on U.S. soil was about one in 40.6 million per year.  During the same period, the chance of being murdered by a foreign-born terrorist was about 145 million per year.  The total chance was about one in 32 million a year.  To put that one in 32 million a year chance in perspective, the annual chance of being murdered in a non-terrorist homicide was about one in 19,325 per year or about 1,641 times as great as being killed in any terrorist attack since 9/11.  These numbers are based on updated and expanded data that we plan on publishing in the near future (available upon request). 

The DHS/DOJ report found that at least 549 people were convicted of international terrorism-related charges in federal court from 9/11 to the end of 2016.  These are fewer than the 627 convictions that the DOJ reported through the end of 2015.  What accounts for the 78 fewer convictions over a longer period?  The DHS/DOJ report does not attempt to reconcile their report here with what they have reported previously.  Furthermore, the DHS/DOJ report does not supply the relevant information about the numbers of convictions for terrorism-related offenses, their names, or the actual offenses they committed.  The DHS/DOJ report should have published this information just as the government has done in the past in request to FOIAs.

The DHS/DOJ relies on “terrorism-related convictions” as their important metric, a definition that encompasses numerous convictions that have nothing to do with terrorism.  There is no definition of “terrorism-related” as a crime in U.S. statutes.  The phrase “terrorism-related” appears mostly in reference to actions of government officials in response to terrorism such as a “terrorism-related travel advisory.”  The anti-terrorism Information Sharing Environment, which integrates information which the GAO, defines “terrorism-related” as relating to “terrorism, homeland security, and law enforcement, as well as other information.” That is a definition that so broad “terrorism-related” is not synonymous with “terrorism.” 

The DHS/DOJ report reveals that the DHS had 2,554 encounters with individuals on the terrorist watch list via the FBI’s Terrorists Screening Database (TSDB) in FY 2017.  That means that DHS could have had multiple encounters with the same individuals who were all counted as separate “encounters.”  The TSDB includes the identities of hundreds of thousands of known and suspected terrorists who are both native-born Americans, foreign-born travelers and immigrants to the United States, and foreigners who have not traveled here.  According to a DOJ audit of the TSDB, frontline officers conducted about 270 million checks against the TSDB every month in 2007 with a total of about 3.24 billion checks per year.  Assuming those numbers were unchanged for FY 2017, even though that number has likely increased, and that only 10 percent of them were conducted by DHS, means that about 0.0008 percent of all TSDB checks conducted by DHS resulted in a TSDB hit, or about one for about every 127,000 checks.  That does sound dangerous until you realize that people flagged by the TSDB are not necessarily terrorists.  Even U.S. Senators and Congressmen have been included on the TSDB list.  Getting one’s name on the TSDB list is easy but getting off is very difficult.  As the DOJ audit of the TSDB noted:

[O]ur file review found that the State Department and the DHS’s Customs and Border Protection did not revise encounter records in a screening database in a timely fashion to reflect modified or removed terrorist identities.

 

Thus, the DHS/DOJ reported TSDB encounters statistic is virtually meaningless.  It’s a count of people the government is concerned about without evidence or a clear way of being removed.  The DHS/DOJ report could have told us how many of these folks actually committed a terrorist attack, eventually did so over time, or were arrested for a terrorism offense but they missed that opportunity. 

The DHS/DOJ report on international terrorism reveals little new information on the international terrorist threat to Americans on U.S. soil.  Unusual for a government report on terrorism, it isn’t even capable of providing many scary-sounding statistics that could frighten people.  While that last point is an improvement, future reports on this topic should seek to provide information on this important topic that isn’t publicly known.  This report fails to do that.

As an optimist, and I hereby proclaim 2018 “Year of Federal Spending Cuts.” To kick-off the celebrations, Cato has published Downsizing Federal Government Spending.

The new book discusses federal spending cuts on agriculture, education, health care, infrastructure, welfare, and many other activities. The cuts would save money, boost growth, and increase freedom.

Congress needs to kick the deficit-spending habit, and the new book can help kick-start reforms. Do lawmakers really want to kick younger generations in the teeth by growing the debt? I hope not, but the way some of them spend, it’s as if they know they will kick the bucket before the bill comes due.

You will get a kick out of this book. The kicker? It’s just $9.99 from Amazon.com

The federal government owns 640 million acres of land—mainly in the West—which is 28 percent of land in the United States. For more than a century after the nation’s founding, the federal government aimed to sell or give away western lands to individuals, businesses, and state governments. But by the turn of the 20th century, federal policy came under the sway of progressives, who favored increased federal control.

Progressives had a misguided notion that federal ownership would be efficient and environmentally sound. Broadly speaking, they were wrong. Experience has shown that federal agencies mismanage land from both economic and environmental perspectives, as discussed here and here. The solution is to devolve ownership of most federal land to the states and private sector.

The Bureau of Land Management (BLM) owns about 250 million acres of land, of which about 160 million acres are used for livestock grazing. Cato scholar Steve Hanke championed BLM land privatization as an economist for President Ronald Reagan. He proposed that ranchers be allowed to buy the grazing land that they currently rent from the BLM.

Privatization would create benefits by securing property rights. Currently, ranchers are uncertain about their future access to the federal grazing lands they use, so they have incentives to overstock the lands and disincentives to make capital improvements. Privatization would allow ranchers to plan for the best economic and environmental rangeland management over the long term.

In a new Forbes article, Hanke discusses the privatization proposal he designed in the 1980s, a proposal that Reagan approved of. Hanke’s reform would be fair and efficient for both ranchers and the government. Here are some excerpts:

On Jan. 8, Judge Gloria M. Navarro of the Federal District Court in Las Vegas dismissed charges against Cliven Bundy and his sons Ammon and Ryan, as well as a supporter Ryan W. Payne. The case stemmed from a 2014 armed standoff at the Bundy ranch in Bunkerville, Nevada. The standoff arose over a dispute about government grazing fees, pitting the Bundys against federal officials.

The dispute would not have occurred if the proposal I developed for President Reagan when I served as Senior Economist on his Council of Economic Advisers had been implemented. The proposal was contained in the President’s Budget Message for 1983 fiscal year.

…Until the passage of the Taylor Grazing Act in 1934, the public domain was operated as a large commons. Since the Act, a more orderly method of utilization has been in effect. For the right to use public grazing lands, which cover approximately 155 million acres, ranchers must acquire grazing permits. To obtain these permits, ranchers must pay annual rents to the U.S. Government. By custom, the grazing permits, which number approximately 24,500, are attached to specific parcels of private land.

The linkage between public permits and private land has had a profound impact on the market for private land. The annual public grazing fees have been set below market-clearing levels. As a result, the grazing permit market has been cleared—supply has been equated with demand—not through the public grazing permit market itself, but through the market for the private lands that are linked to the public permits. So, the difference between the public grazing fees that are charged and those that would clear the market for grazing permits has been capitalized into the value of the private lands that permits are attached to.

The linkage, through the capitalization process, between the market for public permits and that for private land has important implications. With the exception of those who obtained the original permits, all ranchers have had to pay two prices for their public permits—a public price, in the form of an annual grazing fee, and a private price, in the form of a premium for their private land.

…To privatize public grazing lands and transfer public grazing permits (surface rights) to private ranchers on an equitable basis, a lump-sum amount should be charged to ranchers. This charge should be set so that it is equivalent, in present value terms, to the amount that the U.S. government would receive in grazing fees over time if the government retained title to the lands and continued to charge an annual grazing fee or rent. In effect, the government would be put in a position in which it is indifferent between receiving a lump-sum payment today or a stream of annual rents over time. Moreover, ranchers would be charged for only that portion of the permits’ value that had not already been paid for through premiums for private land.

…[W]hat would be the benefits associated with this privatization proposal?

First, the productivity of federal grazing lands would increase.

Second, federal revenues would be generated. Instead of receiving annual grazing fees, the federal government would receive an equivalent lump-sum payment.

Third, the annual federal costs…exceed the annual revenues generated from federal grazing lands. Therefore, privatization would eliminate negative cash flows for the federal government. This would obviously benefit all U.S. taxpayers, who must now pay taxes to support the federal government’s retention of public grazing lands.

Lastly, a state and local property tax base would be created. Western dependence on Washington, D.C. would be reduced and federalism would be enhanced.

Rachel Campos-Duffy, the wife of Rep. Sean Duffy (R-WI), cohosting “Outnumbered” on Fox News Friday, complained that Democrats “make our country look bad” by revealing what President Trump said in a meeting with members of Congress:

“I still have a problem with people in a private meeting going out and saying what the president said….It makes our country look bad. I think the Democrats, in this case, should have used some discretion. And even if he did say something like that, not repeat it for the benefit of the country.”

Her comments reminded me of one of my favorite parliamentary exchanges. 

Helen Suzman, the longtime leader of the parliamentary opposition to apartheid, rarely won any votes in the South African parliament. But she did use her position to advocate for human rights and to ask tough questions. 

In a famous exchange a certain minister shouted: “You put these questions just to embarrass South Africa overseas.” To which she coolly replied: “It is not my questions that embarrass South Africa – it is your answers.” 

Republicans who don’t want the country embarrassed by the president’s insult to dozens of countries and millions of Americans should encourage him not to issue such insults.

The Trump administration will release its long-waited infrastructure plan in coming weeks. The plan is expected to include $200 billion over 10 years of federal funding. Where will the money come from? The president has pondered raising the federal gas tax.

Revenues from the 18.4 cent-per-gallon federal gas tax go into the Highway Trust Fund, and then are dished out to the states. But 98 percent of U.S. streets and highways are owned by state and local governments, and the owners should do the funding. States that need to improve their highways can increase their own gas taxes, sales taxes, issue debt, add user charges, or pursue public-private partnerships.

There is no advantage in raising federal highway revenues rather than the states raising their own. The states can tackle their own infrastructure challenges, and about half of them have raised their transportation taxes in the past five years.

Supporters of a federal gas tax hike say that the tax has not been raised since 1993, and its real value has been eroded by inflation. That is true. But the federal gas tax rate more than quadrupled between 1983 and 1993 from 4 cents to 18.4 cents, as shown in the chart below. The 4-cent rate would be 9.8 cents in today’s dollars, so the real gas tax rate has risen substantially since the early 1980s.

The chart shows that the states have steadily raised their own gas taxes in recent years. API discusses state gas taxes here, and they emailed me data back to 1994. (I’ve interpolated a few missing years). The state average—currently 33 cents—includes both gasoline excise taxes and other taxes on gasoline.

I hope Trump does not go down the road of gas tax increases. Pumping more money through the federal bureaucracies would fuel more top-down planning and inefficiency. Funding for highways and other infrastructure should be handled by state and local governments and the private sector.  

More on infrastructure here and here

As the trade paparazzi speculate about whether and when Trump will impose trade sanctions on China and what those sanctions will be, a trade war is already widening right under their noses. For more than a decade, the United States and China have been quietly waging a trade war in the shadows of public policy.

China’s pursuit of technological know-how has included objectionable tactics, such as the implementation of discriminatory innovation policies, intellectual property theft, forced technology transfer, and cyber-espionage. The U.S. government’s response has included the informal decision to put the U.S. market off limits to China’s most successful technology companies and to make U.S. technology more difficult for Chinese companies to acquire. What that means is that globally successful information and communication technology (ICT) companies, such as Huawei Technologies, have been informally blacklisted from selling network gear to America’s telecommunications companies, and selling computers, smartphones, and other electronic devices to U.S. consumers. 

It also means that the Committee on Foreign Investment in the United States (CFIUS), through imminent legislative and regulatory changes, will soon complete its metamorphosis from a body that reviews proposed foreign acquisitions and helps the parties mitigate potential security risks associated with those deals into an insurmountable obstacle to any significant acquisitions of U.S. technology by Chinese companies.

I wrote about this metastasizing trade war and its adverse repercussions in Forbes the other day, but wanted to provide an update on the rapidly changing landscape.

On January 9, Rep. Mike Conaway (R, TX, 11th) introduced legislation that not only forbids U.S. government agencies from purchasing ICT equipment produced by Huawei, ZTE (another Chinese ICT company), or their subsidiaries and affiliates, but also forbids those agencies from doing business with any entity that uses equipment produced by those companies.

Should HR 4747, the “Defending U.S. Government Communications Act,” become law, it’s difficult to imagine that Beijing would remain welcoming of U.S. technology companies and products in China for much longer.

In my estimation, this is going to be the most explosive trade issue of 2018 and beyond.

 

 

President Trump is promoting comprehensive immigration legislation drafted by key House Republicans that touches on all aspects of the system. The bill would provide legal status to young immigrants, cut legal immigration, and provide for more border agents, but one provision should not be ignored: a biometric exit system. It’s a big waste of money, and Congress should resist efforts to fund it.

Biometric exit’s logistics are difficult

Current law requires the Department of Homeland Security (DHS) to collect a biometric identifier—in practice, fingerprints and digital photos—from foreign visitors entering and leaving the United States. In theory, this system would allow them to identify individuals who overstay their temporary visas. After 9/11, DHS implemented the entry half, but it still has not rolled out a system for those exiting.

The biometric entry system—known as US-VISIT—was relatively easy to implement because foreign visitors to the United States already underwent screening at ports of entry, and as a security tool, it made sense. It allows DHS to confirm that a person trying to enter is the same person who applied for a visa overseas, which undermined visa fraud and the use of aliases in the visa entry process.

The biometric exit system has no similarly easy path to implementation. Airports are not set up to screen travelers exiting the United States. As the Government Accountability Office (GAO) has found, “airports generally do not have designated and secure exit areas for conducting outbound immigration inspections, nor are there checkpoints for travelers to pass through where their departure is recorded by a U.S. immigration officer.”

At land ports of entry, the situation is even more hopeless. GAO found that “many land POEs do not have sufficient space to deploy equipment and staff.” Moreover, a biometric exit system would require motorists to stop and physically leave their vehicles. GAO notes that this “would cause extensive delays.” DHS did test biometric exit kiosks for pedestrian traffic, but these failed because agents had to spend too much time helping people and desert conditions damaged the equipment.

Biometric exit is an unnecessary expense

Nor does biometric exit have the same benefits. DHS already tracks most overstays using airline flight manifests. Airlines send DHS the names of anyone who has boarded an outbound flight, and DHS compares this information against US-VISIT entry information. In 2016, this flight manifest system identified 544,676 people as having overstayed and not left the country—1 percent of all air and sea entries.

While some share of these people—mainly Canadians and Mexicans—may have left through ports of entry, this system identifies a massive pool of people who DHS could target for removal operations, but they don’t. DHS spends only 2 percent of its time investigating overstays. Of the nearly 700,000 foreign visitors that DHS has identified as overstays from 2004 to 2012, it arrested only 9,000 (1.2 percent).

Expanding an exit system to land ports of entry would only add to the massive stack of uninvestigated visa overstays. Biometric exit without much more aggressive interior enforcement serves little purpose, while coming at a great cost. The Senate Judiciary Committee in 2013 obtained an estimate from DHS that full biometric exit would cost $25 billion—airports would cost $6.4 billion alone.

This only includes the cost to the government. It ignores costs to travelers and businesses who are delayed leaving the country. Delays entering the United States along the southern border already cost the U.S. economy billions—more than $6 billion in California alone. Congress should work first to reduce these delays that have serious negative impacts on the economy before imposing an expensive system with a dubious purpose.

Overstay crackdown isn’t worth it

Some might argue that the biometric exit would be valuable if DHS simply spent more time targeting overstays. But the department’s priorities make sense. Every visitor to the United States receives thorough vetting before entry, while people who cross the border do not. Thus, starting with border crossers is logical from a security perspective.

Overstay investigations are exceptionally labor intensive for low priority offenders. Consider that of the 44,500 overstay leads that DHS investigated from 2004 to 2012, it arrested just 9,000, mainly because nearly half ended up leaving the country or adjusting to a legal status before an apprehension was made. Another quarter were never located. This is a huge investment for few arrests.

By contrast, DHS currently apprehends illegal immigrants—including some overstays—mainly after states and localities arrest them for local crimes. Prioritizing overstays would mean passing on people who 1) are guaranteed arrests and 2) are alleged to have committed some other violation of law beyond immigration offense. To target both overstays and those arrested by local police would require far more resources than Congress currently spends on enforcement. Even then, it’s not clear that overstays would be DHS’s priority. There are criminal fugitives who could be tracked down.

Biometric exit is a costly enforcement hammer without any nails to strike. DHS is already well aware of many visa overstays, but prioritizing them would mean ignoring higher priority and easier arrests. Without dramatic reductions in the illegal population, a crackdown on visa overstays will never make much sense, making biometric exit almost entirely superfluous.

With school board elections approaching, Tammy Holland purchased ad space in her local paper to inform her neighbors about their available options when it came time to vote. For this brazen exercise of her free speech rights, Ms. Holland found herself forced to expend considerable time and resources to defend her actions in court, twice. You might wonder how this could happen in a “free” country that ostensibly enjoys the blessings of the First Amendment. Unfortunately, Colorado’s byzantine system of campaign and political finance regulations not only turn a blind eye to First Amendment concerns, but actively incentivizes politically motivated, retaliatory litigation. 

Colorado is unique in being the only state to effectively outsource enforcement of its campaign finance regulations by allowing “any person who believes” that campaign finance laws are being violated to “file a written complaint with the secretary of state.” Filing a complaint triggers a litigation process culminating in a court hearing before an Administrative Law Judge, much like a trial. After Ms. Holland was dragged into court on the whim of individuals who took issue with her speech, Campaign Integrity Watchdog (CIW)—an outside group that was not a party to the litigation—filed a motion requesting the court seal otherwise public records because they contain information related to campaign finance settlements. If the court grants CIW’s request, the public will never be able to access vital information about how these cases are resolved. In an effort to protect the public’s right to know, Cato has joined the Reason Foundation to file an objection to CIW’s motion.

Citizens should be able to access information about how their campaign finance laws are enforced. As the United States Supreme Court has long held, it is presumptively the right of the public to access and know the contents of court filings. Judges are obligated to avoid secret trials, which are anathema to a free society. And, in the context of Colorado’s campaign finance laws, which encourage individuals to function as an arm of the state by instructing them to “prosecute” perceived violations, it is doubly important that the public have access to relevant court filings and records. Denying CIW’s motion and allowing access remains faithful to the presumption that, in the criminal context, plea agreements should be open. Sealing the records would contravene the long-established common law right of access to judicial records and the local rules of the District Court of Colorado. In the interest of transparency, public access, and freedom from political prosecution, CIW’s motion to restrict should be denied.

Readers of this blog may recall Cato’s filing an amicus brief for an appeal in the Eighth Circuit supporting two Missouri women’s challenge to state requirements that they become licensed as cosmetologists or barbers before being allowed to work as African-style hair braiders. Obtaining the mandatory license from the Missouri Board of Cosmetology & Barber Examiners entailed undergoing a minimum of 1,000 hours of mostly irrelevant training and passing an exam with both written and “practical” (term used loosely) components. 

Not only is over 90 percent of the required training completely inapplicable to the practice of African-style hair braiding, but seven of the nine board members are barbers, cosmetologists, or cosmetology school owners with a direct financial incentive to limit competition.

None of that mattered to the three judges on the Eighth Circuit panel, who yesterday after a full year of foot-dragging issued a perfunctory opinion upholding the district court ruling in the board’s favor. Instead of finally providing two aspiring entrepreneurs their day in court before a neutral arbiter, this ruling continues the pattern of courts’ violating bedrock due-process principles by rubber-stamping occupational regulations under the flimsiest of rationales.

Beginning with a single footnote in the 1938 case United States v. Carolene Products Co., the Supreme Court has scrutinized rights violations differently depending on how it classifies the right in question and whether the violation harmed “discreet and insular minorities.” (Ironically, the plaintiffs in Niang are both women and African Americans—two classes traditionally protected under this principle.) For a law that infringes so-called “fundamental” rights, courts apply what is known as “strict scrutiny” and require governments to prove that the law is narrowly tailored toward achieving a compelling government interest. 

On the other end of the spectrum are economic rights that courts have decided are less important, with infringements only being reviewed under the much less rigorous “rational basis” standard. Under this lower standard, it is up to the person challenging the law to prove that it is not “rationally related” to a “legitimate” (real or imagined) government interest. 

In 1955, the Supreme Court extended this standard to new extremes in Williamson v. Lee Optical Co., upholding a law that allowed only optometrists and ophthalmologists (but not mere opticians) to fit or duplicate lenses for glasses. After conjuring a number of potential justifications, the Court dismissively ruled that it was “enough that there is an evil at hand for correction, and that it might be thought that the particular legislative measure was a rational way to correct it (emphasis added).” While the entire concept of tiered scrutiny is itself deeply flawed, the district and now Circuit courts in Niang failed to meaningfully apply even the over-deferential rational basis standard, choosing instead to parrot (and even surpass!) Lee Optical as a means of tipping the balance further in favor of the Board.

In its initial ruling upholding the challenged licensing scheme, the district court engaged in factually unsupported speculation and invented justifications that the board itself had failed to imagine, thus denying the challengers any way to challenge either the rationality of the government’s means or the legitimacy of its ends. Now, by reiterating that the district court was “not bound to consider only the stated purpose of a legislature,” the Eighth Circuit has blessed the practice of trial judges’ acting as the government’s de facto co-counsel. 

Even more outrageously, the opinion cited the absurd language from FCC v. Beach Communications (1993) holding that challengers must not only refute any justifications actually advanced by the state, but also negate “every conceivable basis which might support” the statute or regulation under review. What are the actual limits of this amorphous standard? Could a court rationalize requiring a hair braider to obtain a degree in economics to properly price her services? A medical degree with experience in pain management in order to protect the tender-headed? Mandatory viewing of 80’s hair metal videos in order to warn against the dangers of hair styling gone terribly wrong? 

Not only must such decidedly irrational rationales be addressed, but challengers apparently must also invent time travel in order to challenge judicial justifications that only appear after all briefing and argument has been completed!

In any event, this will be appealed to the Supreme Court, where the justices will have the opportunity to reevaluate both the proper level of scrutiny used to assess occupational licensing and how levels of scrutiny are to be applied by courts more broadly. And while the panel opinion is certainly troubling, legal scholar and Cato senior fellow Randy Barnett offered an important reminder:

Court of Appeals judges are limited by precedent. We need [Supreme Court] Justices who will reconsider this constitutional wrong turn. But decisions like this don’t tell us if they will if elevated. And sadly neither will confirmation hearings.

One further disturbing aspect of the ruling is thus that one of the panelists, Judge Steven Colloton, appears on President Trump’s list of potential Supreme Court nominees. By contrast, another member of the Trump shortlist, newly confirmed Fifth Circuit Judge Don Willett, wrote a concurrence while on the Texas Supreme Court that addressed this very issue of overly burdensome occupational licensing in a manner that properly considered plaintiffs’ right to earn an honest living in the face of arbitrary government regulations.

If nothing else, Niang should remind us all of the need for substantive debate at future judicial confirmation hearings, not frivolous demagoguery.

Our thanks to research assistant Anthony Gruzdis for his help with the post.

Donald Trump’s whiplash-inducing Twitter comments about the surveillance legislation his administration had just endorsed didn’t stop the House of Representatives from approving a bill to reauthorize the FISA Amendments Act for another six years, but if you watched the floor debate, you might come away thinking civil libertarians won at least a few concessions in the process. Defenders of the statute’s controversial Section 702, which authorizes warrantless survellance of foreigners’ communications, rejected a proposal to require FBI agents to seek a warrant before querying the vast 702 database for Americans’ communications—a practice critics have dubbed a “backdoor search”—but did accept a narrower warrant requirement for queries conducted for criminal investigations unrelated to national security. Is this, as the bill’s boosters repeatedly insistence, a “compromise” that should provide some small consolation to civil libertarians?

Alas, no. There’s a good reason you won’t find any privacy advocates cheering even a partial victory following Thursday’s vote.  First, as I noted back in October, such a narrow warrant requirement would do almost nothing to prevent abuses of the sort it’s most reasonable to worry about: historical abuses of spying power have nearly all been clothed in invocations of national security.  But it’s worse than that.  The limited warrant requirement in the House bill not only exempts a potpourri of ordinary crimes—among them any involving the risk of death or serious injury, cybersecurity, or offenses against minors—it applies only to what are known as “predicated” or “full” investigations.  

What this means, perversely, is that when FBI agents are conducting “preliminary” investigations—which are essentially inquiries into whether a crime worth investigating may have been committed—they are free to search for Americans’ intercepted communciations.  The requirement to obtain a warrant kicks in only when there is enough evidence of wrongdoing—a “factual predicate”—to open a full-blown criminal investigation.  In other words, Americans will actually enjoy greater privacy protections when the government has evidence they’re involved in criminal activity.  That should seem inherently rather backwards, but it also sets up some pretty terrible incentives.  In effect, it tells investigators: “You’d better go hunting for people’s private communications in the preliminary stages of an inquiry, when it’s less clear who or what actually merits scrutiny, because once you’ve developed actual evidence you won’t be able to do it without jumping through additional hoops.”  This inverts the normal progression of investigations, where more intrusive methods become available as evidence of criminal conduct accumulates.

This also incentivizes the unseemly practice of “parallel construction,” wherein information obtained by intelligence methods is passed along to ordinary law enforcement agencies, which then conceal its intelligence origins, often fabricating an alternative story of how that information was discovered before bringing a case to court. As a new report from the group Human Rights Watch details, the practice appears to be disturbingly routine, despite the serious and obvious due process questions it raises. Now Congress is poised to give explicity statutory blessing to the warrantless querying of intelligence intercepts for ordinary criminal investigative purposes.  A probable unintended consqeuence is to make parallel construction even more attractive: agents can develop preliminary leads without being burdened by court oversight, then offload the task of building a case to bring before a judge on state and local authorities (or other federal agencies, such as the Drug Enforcement Administration).  

Finally, it’s worth noting a tension in the arguments offered by 702’s defenders that came out with unusual clarity in Thursday’s floor debate.  One representative after another insisted that civil liberties concerns about 702 were misplaced since, after all, it was focused on “targeting” only foreigners on foreign soil.  Yet again and again, the very same representatives insisted that the intelligence value of 702 would be “crippled” if the government could not routinely query the database of intercepted communications for information about Americans.  It does not take advanced training in logic to see that those claims cannot both be true. 

The Wall Street Journal had a flattering piece about Governor Jerry Brown’s budgeting today:

California Gov. Jerry Brown appears poised to exit office next year with a top political priority in hand: free from the massive budget deficits that had weighed on his predecessors.

… Mr. Brown has been preaching frugality for years—he kicked off one past budget talk with Aesop’s fable about the thrifty ant and the lazy grasshopper.

Mr. Brown took office in 2011 with a $27 billion deficit and drastically slashed spending. In 2012, he staked his governorship on a tax increase that voters approved that year and reauthorized in 2016.

Brown might have been “preaching frugality,” but his high-speed rail boondoggle is about as spendthrift as you can get.

As for state deficits, they generally arise when states project high future spending growth even when revenues are stagnating. They have more to do with excessively optimistic forecasts than they do with real gaps between current spending and revenues.  

California general fund spending increases have been substantial under Brown, as shown in the chart below using the latest state data.

Spending fell 6 percent Brown’s first year, but then bounced back strongly, rising 46 percent from 2012 to the enacted level for 2018.

During the whole period, 2011 to 2018, general fund spending rose 38 percent in California, compared to an average 27 percent in the other 49 states, per NASBO data.

Total California spending (general and nongeneral funds) has risen 44 percent under Brown, 2011-2018. Perhaps Brown did too much preaching, and not enough actual cutting.

In the Cato 2016 Governors Report Card, I assigned Brown an “F.” Look for another Report Card this October.

Two months of drama in the House of Representatives over the soon-to-expire FISA Section 702 mass surveillance program came to an end this morning, with a bipartisan group of House members first defeating a FISA reform amendment (USA RIGHTS Act) offered by Rep. Justin Amash (R-MI), then passing the GOP House leadership bill. The key votes in support of the GOP House leadership effort came from Democrats, including Minority Leader Nancy Pelosi (D-CA) and House Intelligence Committee Ranking Member Adam Schiff (D-CA).

The progressive activist group Demand Progress, which spearheaded the campaign on the political left for meaningful surveillance reforms, issued a blistering statement after the vote, the key paragraph of which follows:

Demand Progress has opposed the FISA Amendments Reauthorization Act from the start and has instead urged the House to pass strong reform legislation, like the USA RIGHTS Act, which was offered as an amendment but defeated 183-233, despite strong support from members of both parties. 55 Democrats voted against the amendment, where a swing of 26 votes would have meant its adoption and the protection of Americans’ privacy. The USA RIGHTS amendment would have enacted meaningful reforms to Section 702, which are imperative given the government’s historical abuse of surveillance authorities and the danger posed by future abuses.

Amash garnered 58 GOP votes for his amendment (offered with several other Democratic and Republican House members), by far his best showing since his first attempt to rein in federal mass surveillance programs in the summer of 2013, in the wake of Edward Snowden’s revelations. 

The FISA Amendments Act was first passed in 2008, when Pelosi was Speaker. In her floor speech in support of the FISA Amendments Act on June 20, 2008, Pelosi made this claim:

Some in the press have said that under this legislation, this bill would allow warrantless surveillance of Americans. That is not true. This bill does not allow warrantless surveillance of Americans. I just think we have to stipulate to some set of facts.

In fact, as Demand Progress noted in their 2017 report on Section 702, the FISA Court itself found the federal government had done exactly that in a number of cases. But as is so often the case in politics, it is emotion and perception, not facts and reason, that dominate debate on Capitol Hill. Today was another one of those days.

 

A surprising Politico story this morning laid out the contours of a rough deal to legalize the DACA recipients.  There are several welcome developments.  First, it would be a wider DREAM Act that goes beyond the DACA recipients.  In exchange, it would restrict the legalized DREAMers from sponsoring their parents (essentially duplicating current law), but it does allow the parents 3-year renewable legal status.  This is a fine compromise.  Second, it would not eliminate any of the family-sponsored green card categories, a wonderful development.  Third, it would use the 50,000 annual diversity green cards, also known as the visa lottery, to legalize Salvadorans here on Temporary Protected Status (TPS) who just had their status canceled (this status will expire in 18 months).  This third point is the most potentially troubling depending on what happens to those green card numbers after the 200,000 or so Salvadorans are legalized.

If the green cards from the diversity visa that are allocated to legalize those on TPS are canceled after the Salvadorans are legalized, then this would be a bad move.  Green cards are rare and valuable commodities that are beneficial to the United States and to the immigrants themselves.  The Salvadorans should be legalized, but not at the cost of reducing legal immigrants by substantially more.

 

I propose three ways of dealing with the diversity green cards after the Salvadoran TPS holders are legalized:

 

  1. The 50,000 diversity green cards are recaptured and allocated to a new lawful permanent residency program based on the RAISE Act proposed by Senators Tom Cotton (R-AR) and David Perdue (R-GA).  This new green card category would allocate 50,000 green cards a year to applicants living overseas who have the greatest number of points according to the RAISE Act’s proposed system.  This is a great way to co-opt a portion of the RAISE Act for a positive purpose while making the United States immigration system more merit-based – one of the stated goals of the RAISE Act.  Crucially, creating a new merit-based category does not cut legal immigration like the RAISE Act would nor would it destroy the current employment-based green card system.  It would also make sure that the recipients of this merit-based category continue to come from abroad, just like most of the recipients of the diversity green card lottery currently do.  The diversity visa program won’t last forever, so this is a less harmful way for it to end
  2. The diversity visa starts up again after all of the TPS workers are legalized without any other changes.  This would probably satisfy the Congressional Black and Hispanic Caucuses. 
  3. Congress auctions the 50,000 green cards every year to the highest bidders who are non-excludable under current law.  An annual auction of 50,000 green cards could raise substantial revenue for the federal government.  The median wage gain for immigrants from developing nations to the United States is about four-fold.  Estimates of the annual wage premiums for earning a green card are between $11,860 and $20,000 for adjustments of status, meaning that such an auction could command a very high price.  Some American firms have even offered to pay $10,000 to $15,000 for an H-1B visa or a green card.  Nobel Prize-winning economist Gary Becker thought the government could sell a green card for $50,000 back in 2011.  Based on those statements, an auction of 50,000 green cards would raise $500 million to $2.5 billion per year and, potentially, far more.  This extra revenue could sweeten the pot.  Additionally, this new auction category would attract richer and more educated immigrants who think they have a promising economic future in the United States – a decent measure of merit.        

 

It’s wonderful that Congress is moving away from some of the more radical cuts in lawful immigration that have been discussed over the last year.  However, the future of the green cards currently allocated under the diversity visa is important to resolve.  There should not be any net-cut in the number of green cards issued.  If the diversity visa program is going to end then those green cards so be reallocated to more valuable uses rather than extinguished entirely.

Over at The National Interest, I review some recent articles (e.g. here, here and here) claiming that President Donald Trump has completely reoriented U.S. foreign policy in the span of one year. If true, that would be a pretty mean feat. After all, Barack Obama claimed to have tried to do the same thing, and he essentially admitted to being rolled by what Obama adviser Ben Rhodes labeled “the blob.”

But, it turns out, it isn’t true. Trump hasn’t, for example, restructured U.S. alliances.

On the contrary, he allowed Montenegro’s admission to NATO to go forward, the first new member in ten years. Last month, he backed the sale of weapons to Ukraine’s government as it struggles to put down a Russia-backed insurgency. He increased the number of U.S. troops in Europe. None of these decisions advance U.S. security—arguably, they undermine it—so it is hardly consistent with what most Americans think of when they hear “America First.”

Aside from his running feud with North Korea’s Kim Jong Un, the U.S. presence in Asia remains largely unchanged.

The U.S. Navy continues to operate extensively throughout the Asia-Pacific. There are still tens of thousands of troops in Korea and Japan, and the Trump administration has shown no signs of reducing that permanent presence, despite the president’s stated misgivings, and the dubious connection between such a presence and U.S. safety.

And, in the Greater Middle East, Trump’s approach isn’t so different from Obama and Bush 43, except for the fact that many more civilians are being killed. And Trump’s decision to continue the war in Afghanistan indefinitely provides the most obvious evidence that the foreign policy establishment is winning.

“To be sure,” I observe:

Donald Trump has pushed through a number of changes to U.S. foreign policy that neither Obama nor Clinton would have (e.g. withdrawal from the Paris climate accord; reversal on better relations with Cuba; threats to undo the Iran nuclear deal; calls for recognizing Jerusalem as Israel’s capital). Indeed, if there is a single theme connecting his disparate actions it seems to be “If Obama did it, it must be wrong.” But, on matters of substance, and particularly with respect to the U.S. global military posture, Donald Trump hasn’t changed that much.

So, why all the fuss? Because Trump is different. Words matter, and Trump’s Twitter rants and ill-considered off-hand comments have not made us, or the world, safer.

Unsurprisingly, European leaders, from Angela Merkel to Emmanuel Macron to Theresa May, have pushed back against Trump–but also, more broadly, against U.S. leadership. “We Europeans must really take our destiny into our own hands,” Merkel said in May. “The times in which we can fully count on others—they are somewhat over.”

She’s not alone. “Germany can no longer simply react to U.S. policy but must establish its own position,” German Foreign Minister Sigmar Gabriel explained in early December, “even after Trump leaves the White House, relations with the U.S. will never be the same.”

To be honest, I think we should be encouraged that the leaders of other countries, appropriately unsettled by Trump’s unpredictability, now question the wisdom of basing their security on the wishes and whims of an American president–even if future chief executives aren’t as mercurial as Donald J. Trump. Whether they act on those concerns, however, remains to be seen. A lot will depend not on what Trump says, but on what he actually does.

In the meantime, I conclude:

We should be disappointed…that concerns about Trump and Trumpism haven’t prompted a more serious debate over the future of U.S. foreign policy. Instead we get lamentations that all is lost, followed by a forlorn hope to go back to the way it was before.

You can read the whole thing here.

Many commentators have compared Bitcoin to gold as an investment asset. “Can Bitcoin Be Gold 2.0?,” asks a portfolio analyst. “Bitcoin is increasingly set to replace gold as a hedge against uncertainty,” suggests a Cointelegraph reporter.

Economists, by contrast, are more interested in considering how a monetary system based on Bitcoin compares to a gold-standard monetary system. In a noteworthy journal article published in 2015, George Selgin characterized Bitcoin as a “synthetic commodity money.” Monetary historian Warren Weber in 2016 released an interesting Bank of Canada working paper entitled “A Bitcoin Standard: Lessons from the Gold Standard,” which analyzes a hypothetical international Bitcoin-based monetary system on the supposition that “the Bitcoin standard would closely resemble the gold standard” of the pre-WWI era. More recently, University of Chicago economist John Cochrane in a blog post has characterized Bitcoin as “an electronic version of gold.”

In what important respects are the Bitcoin system and a gold standard similar? In what other important respects are they different?

Bitcoin is similar to a gold standard in at least two ways. (1) Both Bitcoin and gold are stateless, so they either provide an international base money that is not the creature of any national central bank or finance ministry. (2) Both provide a base money that is reliably limited in quantity (this is the grounding for Selgin’s characterization), unlike a fiat money that a central bank can create in any quantity it likes, “out of thin air.”

Bitcoin and the gold standard are obviously different in other ways. Gold is a tangible physical commodity; bitcoin is a purely digital asset. This difference is not important for the customer’s experience in paying them out, as ownership of (or a claim to) either asset can be transferred online, or in person by phone app or card. The “front ends” of payments are basically the same nowadays. The “back ends” can be different. Gold payments can go peer to peer without third-party involvement only when a physical coin or bar is handed over. Electronic gold payments require a trusted vault-keeping intermediary. Bitcoin payments operate on a distributed ledger and can go peer-to-peer electronically without the help of a financial institution. In practice, however, many Bitcoin transactions use the services of commercial storage and exchange providers like Coinbase.

The most important difference between Bitcoin and gold lies in their contrasting supply and demand mechanisms, which give them very different degrees of purchasing power stability. The stock of gold above ground is slowly augmented each year by gold mines around the world, at a rate that responds to, and stabilizes, the purchasing power of gold. Commodity (non-monetary) demands also respond to the price of gold and dampen movements in its value. The rate of Bitcoin creation, by contrast, is entirely programmed. It does not respond to its purchasing power, and there are no commodity demands.

Let’s consider supply in more detail. Secularly, annual production of gold has been a small percentage (typically 1% to 4%) of the existing stock but not zero. Because the absorption of gold by non-monetary uses from which it is not recoverable (like tooth fillings that will go into graves and stay there, but unlike jewelry) is small, the total stock of gold grows over time. Historically this has produced a near-zero secular rate of inflation in gold standard countries. The number of BTC in circulation was programmed to expand at 4.0 percent in 2017, but the expansion rate is programmed to fall progressively in the future and to reach zero in 2140. At that point, assuming that real demand to hold BTC grows merely at the same rate as real GDP, Bitcoin would exhibit mild secular growth in its purchasing power, or equivalently we would see mild deflation in BTC-denominated prices of goods and services. (Warren Weber’s paper similarly derives this result.) This kind of growth-driven deflation is benign, but the difference is small in real economic welfare consequences between a money stock that steadily grows 3% per year and one that grows 0%.

The key difference in the supply mechanisms is in the induced variation in the rate of production of monetary gold in response to its purchasing power, by contrast to the non-variation in BTC. A rise in the purchasing power of BTC does not provoke any change in the quantity of BTC in the short run or in the long run. In Econ 101 language, the supply curve for BTC is always vertical. (The supply curve is, however, programmed to shift to the right over time, ever more slowly, until it stops at 21 million units). By contrast, a non-transitory rise in the purchasing power of gold brings about some small increase in the quantity of monetary gold in the short run by incentivizing owners of non-monetary gold items (jewelry and candlesticks) to melt some of them down and monetize them (assuming open mints) in response to the rising opportunity cost of holding them and to the owners’ increased wealth. The short-run supply curve is not vertical. Still more importantly, the rise will bring about a much larger increase in the longer run by incentivizing owners of gold mines to increase their output. The “long-run stock supply curve” for monetary gold is fairly flat. (I walk through the stock-flow supply dynamics in greater detail in chapter 2 of my monetary theory text.) The purchasing power of gold is mean-reverting over the long run, a pattern seen clearly in the historical record.

Because its quantity is pre-programmed, the stock of BTC is free from supply shocks, unlike that of monetary gold. Supply shocks from gold discoveries under the gold standard were historically small, however. The largest on record was the joint impact of the California and Australian gold rushes, which (according to Hugh Rockoff) together created only 6.39 percent annual growth in the world stock of gold during the decade 1849-59, resulting in less than 1.5 percent annual inflation in gold-standard countries over that decade. For reference, the average of decade-averaged annual growth rates over 1839-1919 was about 2.9 percent.

As a result of the long-run price-elasticity of gold supply combined with the smallness and infrequency of supply shocks, the purchasing power of gold under the classical gold standard was more predictable, especially over 10+ year horizons, than the purchasing power of the post-WWII fiat dollar has been under the Federal Reserve. As I have written previously: “Under a gold standard, the price level can be trusted not to wander far over the next 30 years because it is constrained by impersonal market forces. Any sizable price level increase (fall in the purchasing power of gold) caused by a reduced demand to hold gold would reduce the quantity of gold mined, thereby reversing the price level movement. Conversely, any sizable price level decrease (rise in the purchasing power of gold) caused by an increased demand to hold gold would increase the quantity mined, thereby reversing that price level movement.” Bitcoin lacks any such supply response. There is no mean-reversion to be expected in the purchasing power of BTC, and thus its purchasing power is much harder to predict at any horizon.

Describing gold supply, Warren Weber writes: “Changes in the world stock of gold were determined by gold discoveries and the invention of new techniques for extracting gold from gold-bearing ores.” This is not well put. Changes in the world stock of monetary gold come about every year from normal mining. Gold strikes and technical improvements in extraction brought about changes in the growth rate (not the level) of the stock. Historically, the changes in the growth rate were not dramatic by comparison to changes in the postwar growth rates of fiat monies. As often as not, the changes in gold stock growth rates were equilibrating, speeding the return of the purchasing power of gold to trend from above trend. As Rockoff noted, some important gold strikes (like the Klondike in the 1890s) and some important technical breakthroughs (like the cyanide process of 1887) were induced by the high purchasing power of gold at the time, which gave added incentive for prospecting and research.

The phrase from John Cochrane quoted above is part of a sentence that reads in its entirety: “It’s an electronic version of gold, and the price variation should be a warning to economists who long for a return to gold.” From the consideration of the mean reverting character of the purchasing power of gold, by contrast to Bitcoin’s lack of such a character, we can see that the second half of Cochrane’s statement is incorrect. The inelastic supply mechanism that produces price variation in Bitcoin should give pause to those who predict that Bitcoin will become a commonly accepted medium of exchange. It says nothing about the purchasing power of gold under a gold standard.

[Cross-posted from Alt-M.org]

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