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By removing the physical-presence requirement for charging state taxes on internet sales, the Supreme Court in South Dakota v. Wayfair has thrown this area of law into disarray. South Dakota’s tax kicks in at $100,000 or 200 transactions, but other states might set other thresholds or leave it unclear. Overturning bad precedent in and of itself isn’t bad – when old cases are really wrong and create unworkable legal regimes, they deserve to be overturned – but here the Court is saying that Quill is out of step with modern Commerce Clause precedents. That’s the wrong way to go: the Court should be conforming its jurisprudence to the original meaning of constitutional clauses, not conforming the Constitution to the times.

One other thing to note is that the justices’ voting alignment (Justice Kennedy writing the majority opinion, joined by Justices Thomas, Ginsburg, Alito, and Gorsuch, with the other four in dissent) was unusual, but not surprising in this particular case. This doctrinal area, what constitutional lawyers call the “dormant” Commerce Clause – that states can’t interfere with Congress’s implied non-regulation of interstate commerce – is the only one on which thus far I’ve found myself in disagreement with Justice Gorsuch’s views (and the only constitutional-structure area vis-a-vis Justice Thomas.)

My colleagues Trevor Burrus and Matt Larosiere will have more on this case later in the day.

President Donald Trump recently modified his policy of separating children from their families.  His new executive order requires the children of border crossers to be detained with their family members. Although a slight improvement over family separation, Trump’s decision raises different questions of whether detaining families together violates the 1997 Flores Settlement, whereby children have to be released after 20 days, which would necessitate family separation. The potential Flores problem could be mitigated entirely by Trump if he relied on alternatives to detention (ATD) programs instead of uniform detention of all border crossers. This would allow President Trump to claim that he ended catch and release without detaining migrant families at taxpayer cost.

Immigration and Customs Enforcement (ICE) manages ATDs to explore cost-effective means for asylum seekers and illegal immigrants to reside outside of detention facilities if they are not public safety threats. The ATDs help guarantee that the migrants show up at their hearings and ensure that they comply with court rulings. The 2017 budget allocated $114 million to ICE to run these programs and the Trump administration requested about $180 million for them for 2018.  

ATDs usually take at least one of three forms. The first is electronic monitoring devices whereby migrants have to wear a tracking device like an ankle bracelet. The second is assigning caseworkers to periodically check up on the migrants. The third is monetary incentives, such as bonds.  Many ATD programs mix these three. ICE runs the ATD program because they are responsible for apprehending, removing, and detaining immigrants inside of the United States. Detention costs about $170 per day for long stays and about $30 for short stays.  The proposed tent cities to house migrant children would have cost about $775 per person per night. As far as I can tell, about 100 percent of them comply with court orders as they are in government detention and therefore have no choice. The tradeoff for this extra effectiveness are the various costs of detention.

ATDs would have to be modified to accommodate recent border crossers, but that would not be difficult as the vast majority of them are not public safety threats. Asylum seekers, for example, have taken part in ATDs for over a decade. This post will explain the major ATDs, how they work, their costs, and effectiveness.

Intensive Supervision Appearance Program (ISAP)

This program started as a five-year pilot in 2004 and was for “immigrants in deportation proceedings who have been released from detention. The goal of the program is to avoid detention and allow immigrants to live with their families and continue working while their deportation proceedings are pending.” The second phase of ISAP began in 2010 and relied on electronic ankle monitors, telephone checkups that used biometric voice recognition software, unannounced home visits, employer verification, and in-person reporting to supervise participants. By February 2014, 95 percent of the participants in the ISAP II program were only monitored electronically. 

ISAP II data in 2012, the last year for which data is reliably available, showed that 17,524 people left the program. Of those, 4.9 percent absconded and 4 percent were arrested by other law enforcement agencies. The other 91.1 percent complied with their court orders and either left the country or earned some sort of legal status. Appearance rates at immigration courts were 99.6 percent.

Bonds

Bonds are common in many ATD programs and they function largely like bonds in the rest of the criminal justice system. They are only available to migrants who are not public safety threats. Just over 83 percent of those released on bonds showed up to their hearings in 2016. The median bond amount in immigration cases was $8000 in 2016. An appearance rate of 83 percent may not seem impressive, but this is costly for migrants who surrender their bond and a lot cheaper for the government.

Family Case Management Program 

The Family Case Management Program (FCMP) uses caseworkers to help migrants meet their legal and judicial obligations, such as reporting to ICE Enforcement and Removal Operations (ERO) check-ins, appearing at court hearings, and departing the United States when ordered by the courts. ICE began the program in 2015 and shut it down in mid-2017 despite some remarkable successes. About 99 percent of all migrants in the program made it to their ICE-ERO check-ins, 100 percent made it to their court appearances, and only 2 percent absconded into the black market after receiving removal orders.

Although this program was successful, it was also expensive.  The contract for the private prison contractor cost $17.5 million and there were only 954 participants, for a final price tag of over $18,000 per migrant. FCMP was also small and probably unsalable.  Its cost and small scale make this is an unlikely model for widespread use nationwide but it could be useful in special circumstances.

Community Management Programs

Community Management Programs are the non-profit versions of the FCMP. The Vera Institute of Justice had a contract with the old Immigration and Naturalization Service from 1997-2000 for migrants in removal proceedings through a program called the Appearance Assistance Program (AAP). During that time, 91 percent of the participants in the Vera AAP attended their required hearings and it cost 15 percent less, per capita, than detention throughout the court proceedings.  Parole and bonds cost 58 percent less but only 71 percent of them showed up to their hearings.  Over 78 percent of those in the Vera AAP program who were ordered removed complied with the program, including 100 percent of criminal aliens, 82 percent of asylum seekers, and 53 percent of illegal immigrant workers.

The Family Placement Alternatives run by the Lutheran Immigration and Refugee Services (LIRS) began accepting immigrants from ICE detention in June 2013. They achieved a 97 percent appearance rate in immigration court and only cost an average of $24 a day. The per-family cost of this is $50 per day according to a 2015 pilot program, much cheaper than the estimated detention cost of $798 per family.

The Catholic Charities of New Orleans worked with 39 asylum seekers released from detention and 64 indefinite detainees who could not be deported from 1999-2002. This was just one of the many Catholic Legal Immigration Network, Inc. clinics around the United States at the time. In the New Orleans program, the court appearance rate for participants was 97 percent and the program cost $1,430 per year per client. The cost and success of the programs vary considerably.

There are other private community management programs with similar success rates.

Conclusion

The Flores Settlement will limit the government’s ability to detain families indefinitely unless Congress changes the law—which they likely will not. To get around this problem, the Trump administration could expand the ISAP II program, increase bond issuances, and allow Community Management Programs to house and monitor migrant families with some sort of incentive/disincentive to make sure that the people they monitor show up to their hearings. Trump could also stop prosecuting every border crosser but that is too much to ask. If past experience is any guide, these ATD programs could ensure that 90 percent of immigration court orders are carried out. That is less than perfect compliance, but it is far cheaper, more humanitarian, and less of a political disaster for this administration.

Special thanks to Lourdes Bautista, Meagan Jacobs, Andrea Vacchiano, and Tim White for their research help.

Confirming rumors that had been circulating for weeks, the Trump administration announced that the United States will withdraw from the UN Human Rights Council. That body consists of 47 member states with rotating, staggered 3-year terms. It is tasked with protecting human rights as well as highlighting and condemning regimes that violate those rights. The Council has been controversial since its inception, especially among American conservatives. George W. Bush’s administration declined to make the United States a member when the UN General Assembly established the Council in 2006. President Obama reversed that decision in 2009.    

In announcing the U.S. withdrawal, Ambassador Nikki Haley blasted the organization as a “cesspool of political bias.” Vice President Mike Pence was equally caustic, stating that the United States was taking a stand “against some of the world’s worst human rights violators by withdrawing from the United Nations Human Rights Council. By elevating and protecting human rights violators and engaging in smear campaigns against democratic nations, the UNHRC makes a mockery of itself, its members, and the mission it was founded on. For years, the UNHRC has engaged in ever more virulent anti-American and anti-Israel invective and the days of U.S. participation are over.”

The decision has far more symbolic than substantive importance. For all of the publicity surrounding the UNHRC’s periodic condemnations of specific regimes, the body has no enforcement powers. Critics of Washington’s decision, though, see repudiating the UNHRC as another in a series of Trump administration moves to relinquish America’s “global leadership role” and retreat into an “America alone” foreign policy. They cite earlier examples such as Washington’s rejection of the Trans-Pacific Partnership (TPP), the withdrawal from the Paris agreement on climate change, and efforts to undermine the Iran nuclear agreement.

There are understandable reasons for the latest U.S. action, however. Haley correctly noted the offensive absurdity of having nations with horrific human-rights records as members of the UNHRC. But even her citation of such regimes opened the U.S. up to charges of hypocrisy. Her list of inappropriate members was heavily weighted with left-wing regimes hostile to Washington, including China, Cuba, the Democratic Republic of the Congo, and Venezuela. Notably missing from her indictment were such autocratic U.S. allies and notorious rights abusers as Saudi Arabia, Egypt, the Philippines, and Pakistan.

Such selectivity contributes to global cynicism about Washington’s ethics. So does the extreme emphasis on the UNHRC’s unfair treatment of Israel. The organization certainly is biased against that country, issuing numerous condemnations of its conduct in recent years and in 2017 describing Israel as the world’s worst human-rights violator. Given the records of such countries as North Korea, Cuba, and Saudi Arabia, that allegation is an groteque exaggeration.

However, the United States has shown a disturbing unwillingness to criticize any aspect of Israel’s policy, even its ongoing harsh treatment of Palestinians. Washington has refused to support, and often vetoes, UN resolutions criticizing Israeli conduct, even when most of America’s democratic allies are on board. That is an unhealthy, hypocritical stance, and using the UNHRC’s treatment of Israel as the primary reason for the decision to quit that body adds to a growing U.S. reputation for hypocrisy.

It also didn’t help matters that the announcement of Washington’s decision came just days after the Office of the UN’s High Commissioner for Human Rights condemned the Trump administration’s policy of separating the families of immigrants accused of illegal entry. The timing appeared to reflect a petty reaction to criticism.

Thus, while U.S. officials made a defensible policy change regarding a toothless, pretentious, and hypocritical UN agency, they could scarcely have done a worse job of managing the optics. The incident is yet another example of the Trump administration’s unduly clumsy handling of foreign affairs.

House Republicans will vote on their “compromise” immigration bill this week. Moderate Republican supporters of the bill may argue that its many restrictionist features—including draconian asylum provisions, cancelling the applications of 3 million people waiting to immigrate legally, and permanent reductions in legal immigration—are a small price to pay to help the entire Dreamer population gain a “pathway to citizenship.” However, an analysis of the Border Security and Immigration Reform Act (BSIF) shows that even under the most generous assumptions, the bill would likely initially legalize only 821,906 people, provide permanent residence (i.e. a pathway to citizenship) to 628,758, and result in citizenship for 421,268.

As provided in Table 1, only a third of the Dreamer population would likely receive status under the House plan (H.R. 6136), and just 18 percent would likely make it onto the pathway to citizenship. Only 12 percent would likely apply for and receive citizenship. Moreover, even the pathway to citizenship is tenuous, since—for all Dreamers in DACA or without legal status today—it is contingent on a future Congress appropriating money for a quite expensive (at least $25 billion) wall and security system along the Southwest border of the United States. 

Table 1: Dreamer Populations and Eligibility Under Border Security and Immigration Reform Act

Sources: Authors’ calculations (see below) based on population estimates from Migration Policy Institute (DACA eligible and total Dreamer Population based on American Hope Act); Border Security and Immigration Reform Act (H.R. 6136)
*As of December 31, 2016

If Congress wants to help a larger number of Dreamers, then it would need to establish clear legalization criteria with lower costs and fewer risks, while providing greater legal certainty for the parents of Dreamers to mitigate fears of coming forward. Members of Congress should not exaggerate the extent of the legalization of Dreamers as a way to justify politically questionable policy choices, including reducing the annual level of legal immigration and eliminating several current immigration categories.

Restrictive Criteria in the House Bill

Back in January, President Trump promised a pathway to citizenship for Dreamers—up to 1.8 million of them. That’s still just half of the 3.6 million Dreamers—unauthorized immigrants who entered the country as minors—estimated by the Migration Policy Institute (MPI) to be in the United States as of January 1, 2017, but it’s still far more than the estimated number of Dreamers who will likely receive permanent residence under the House compromise legislation that will receive a vote this week.

The BSIF Act creates a four-part framework for potentially receiving permanent residence—a “path to citizenship”—and later citizenship (see Table 2 at the end). First, Dreamers would need to meet a set of basic criteria to receive conditional nonimmigrant status, a temporary renewable legal status. Second, after six years, most would need to apply for a renewal of this status. Third, they could apply for permanent residence over a 15-year period if they met a final set of requirements. Fourth, they could apply for citizenship five years after receiving permanent residence. Each stage will reduce the population that ultimately will become U.S. citizens.

The House immigration bill would use the same restrictive basic criteria as the Deferred Action for Childhood Arrivals (DACA) program. Its authors argue that if the requirements were good enough for President Obama who created DACA in 2012, they should be good enough for Democrats today. But as an act of prosecutorial discretion, DACA was never meant to be permanent immigration law, and in any case, President Obama tried to update its eligibility requirements in 2015, only to be stopped by the courts. The bill wouldn’t stop there. The House plan imposes additional eligibility requirements that would exclude even more Dreamers from receiving permanent protection.

The House bill will exclude Dreamers who entered after June 15, 2007, who entered at any age over 15, or who were over the age of 31 on June 15, 2017 (or 37 today). By the time the bill is implemented, people who had been residing in the United States for 10 or 11 years would be excluded from receiving status under the bill. The bill also requires a high school degree or equivalent or high school enrollment if the applicant is younger than 18. These restrictions were also in DACA, but the new bill would go even further to restrict eligibility. An applicant would be disqualified for having more than a single non-traffic-related misdemeanor, including immigration-related offenses; ever having missed an immigration court appearance; or having ignored an order to leave the country.

The biggest new restriction would be the requirement that Dreamers who are not students, disabled, or primary caregivers demonstrate that they can maintain an income of at least 125 percent of the poverty line. Not only do many Dreamers have incomes beneath this threshold, but also, if they have already lost DACA or never applied, it will be impossible for them to receive a legal job offer or demonstrate legal employment for the purposes of their application. This creates a catch-22 for applicants: prove you can support yourself in order to get work authorization in order to support yourself. (This provision should also concern employers which could see their records become the focus of government attention.)

In addition, receiving status under this bill will be far more expensive than receiving status under DACA. The bill would impose a fine—what the bill refers to as a border security fee—of $1,000. In addition, applicants would need to pay a fee to cover the cost of their application. DACA also had an application fee of $495, but the fee under this new bill would likely be more than double that because it requires an in-person interview and a medical examination. This will make the legalization more like applying for permanent residence, which costs $1,225. All told, applicants would need to pay about $2,225—4.5 times as much as DACA. This comes on top of any attorney fees. Many DACA applicants cite the cost as a primary challenge. MPI’s analysis also points to income as “strongly affecting” Dreamers’ ability to apply.

Finally, the bill would impose a 1-year filing deadline. This means that applicants would have just one year to gather their information, find an attorney, and save $2,225 to apply. For comparison, only 64 percent of DACA applicants submitted applications in the first 13 months of the program. This time limit will needlessly suppress applications.

Why Relatively Few Dreamers Would Even Receive Temporary Relief

In January 2018, the Migration Policy Institute used the Census Bureau’s American Community Survey to estimate that there were 1.3 million Dreamers eligible for DACA. Another 120,000 were too young to apply for DACA, but would be eligible under this legislation so long as they were enrolled in school. However, this eligible population must be reduced based on the new requirements. We estimate conservatively that the income threshold would exclude about 15 percent of the DACA eligible population. This figure is based on the share of Central American immigrants who entered between 1982 and 2007 who are below 125 percent of the poverty line, are not in school, and are not unable to work due to disability or being the primary caregiver, as recorded in the 2017 Current Population Survey.

The misdemeanor requirement is more difficult to place a precise number to, but the government says that 17,079 DACA recipients have at least two arrests, assuming that 75 percent of those arrests ended in conviction. That would reduce 12,809, or 2 percent of the DACA recipient population. Assuming that this rate would apply to the DACA eligible population as a whole (even though it is more likely that that population has more convictions that the DACA population itself), this would reduce the eligible population by another 26,000. Thus, the maximum number of Dreamers initially eligible for status under the House bill is 1.17 million. Even this is likely an overestimate because we cannot estimate how much the noncriminal restrictions (e.g. prior removal orders, false claims of U.S. citizenship, etc.) could further reduce the eligible population.

Even fewer will actually apply. Even after six years of DACA, only 61.4 percent of the eligible population applied for and received DACA. While the promise of a pathway to citizenship could result in a higher participation rate, other elements in this bill will suppress application rates, neutralizing the greater incentives to apply. Furthermore, the initial status is temporary, and the pathway to citizenship is not guaranteed. In fact, unless Congress funds the border wall repeatedly in future years, the path to citizenship would never materialize at all. Moreover, the fact that the cost will be about 450 percent higher will prevent many Dreamers from applying (as noted above).

Many Dreamers failed to apply for DACA because they didn’t realize that they were eligible, believing that they had to have finished high school or that those who had been ordered to leave the country could not sign up. This bill’s new and more complex eligibility requirements will only introduce more confusion. The risk of a denial may keep some from taking the risk to apply. Nearly 8 percent of applicants for DACA were rejected.

The uncertainty and distrust associated with the Trump administration’s enforcement actions would only add to the concern about handing over information. As we’ve noted before, many Dreamers expressed concern that their application could be used to target their families. The House bill attempts to address this fear by limiting how their application information can be used, but it amplifies the fear in other areas by providing enforcement resources and new legal authorities to the administration to speed up deportations. A future Congress could change this privacy protection at any time, and at this point, few immigrants may trust the administration to follow this type of technical “firewall.”

According to the Congressional Budget Office (CBO), the last major legalization—the 1986 amnesty—had only a two-thirds participation rate, despite the less strict criteria than the ones contained in BSIF. Ultimately, we conservatively chose to use the CBO’s higher rate of 67 percent, rounding it up to 70 percent—10 percentage points higher than DACA’s initial enrollment rate. Based on this analysis, we can conclude that at most 820,000 Dreamers would receive initial legal status under the House GOP proposal.

Why Relatively Few Dreamers Would Receive Permanent Residence & Citizenship

Under DACA, which had no additional requirements at all to extend status other than maintaining residence in the United States for another two years, just 85 percent of initial enrollees maintained status through the end of the program. Some of this drop-off can be explained by people failing to graduate high school for a variety of reasons, but the additional cost is important as well. Under the House bill, applicants for extension of their temporary status would be required to pay a fee of another $1,225 fee (2.5 times more than DACA) and have stayed in the United States for another 6 years. Assuming this rate remains roughly the same, only 698,620 would likely end up receiving an extension under the House bill.

After receiving the extension, Dreamers—as well as some legal immigrant Dreamers*—would be able to apply for a pathway to permanent residence. The bill creates a complex points system that will prioritize applications from those with more education, longer work histories, or better language skills. But the minimum threshold for points is low enough that anyone who qualified for the initial status would be eligible to apply. Of course, there is not a strong incentive even to apply for this status, and the cost of applying for permanent residence is another $1,225. They would have to apply over the course of a 15-year period, starting five years after the initially received status. We assume that about 90 percent would apply for permanent residence. Thus, only 628,758 Dreamers would likely receive permanent residence—a path to citizenship—under the House proposal.

Finally, only about two thirds of those who receive permanent residence are likely to apply for citizenship. While Dreamers are probably more likely to apply for citizenship than other immigrants, immigrants from Mexico and Central America are much less likely to apply for citizenship than immigrants from other countries—all have naturalization rates below 50 percent—and 89 percent of DACA recipients are from Central America or Mexico. These two facts work in opposite directions, leading us to assume that Dreamers will naturalize at the average rate for all immigrants—67 percent. Based on this assumption, just 421,268 immigrants are likely to become U.S. citizens under the House compromise bill.

Conclusion

In the best case scenario, the House GOP plan would likely provide a pathway to citizenship to fewer than 630,000 Dreamers—barely a third of the president’s promise in January and just 18 percent of the entire Dreamer population. Moreover, only an estimated 421,000 immigrants are likely to become citizens.

If Congress wants to fulfill the president’s promise of a pathway to citizenship for 1.8 million Dreamers, it would need to institute a broader legalization program for Dreamers with as few risks and costs, and as little confusion, as possible. Congress would also need to provide legal certainty in some form for their parents to mitigate fear of coming forward. Members of Congress should also not exaggerate the extent of the legalization of Dreamers as part of a strategy to justify questionable policy choices, including reducing legal immigration and eliminating several immigration categories.

Table 2 compares the eligibility criteria and requirements under the BSIF Act to those under DACA and the Securing America’s Future (SAF) Act, which is the other bill under consideration this week.

Table 2: Comparison of Pathways to Status & Citizenship Under House Bills and DACA

*The legal immigrant Dreamers would slightly increase the eligible population, but there are so few who would meet the requirements (10 years of continuous residency before the bill passes plus 5 or 6 more after it is implemented) that it would not substantially alter these numbers. In any case, the estimates of the Dreamer population from MPI could include people in temporary statuses that have characteristics similar to those without status (inability to access welfare or receive certifications for legal employment).

As I noted yesterday, the Supreme Court has decided the Wisconsin gerrymandering case of Gill v. Whitford on standing grounds, without reaching the main constitutional issues: the case returns to lower courts for a chance to repair the standing issue with most or all of its central contentions intact. Much the same can be said of the Maryland claims in Benisek v. Lamone, where timing as opposed to standing was the issue.

Along the way, however, Chief Justice Roberts in his opinion for a unanimous Court in Gill paused to linger over one argument that had been raised along the way. This is the argument that the Court must act because political branches have failed to address some serious problem which as a result can be fixed by no institution other than the Court. The Gill Court takes sharp issue with this argument:  

At argument on appeal in this case, counsel for the plaintiffs argued that this Court can address the problem of partisan gerrymandering because it must: The Court should exercise its power here because it is the “only institution in the United States” capable of “solv[ing] this problem.”   Such invitations must be answered with care. “Failure of political will does not justify unconstitutional remedies.”   Our power as judges to “say what the law is” rests not on the default of politically accountable officers, but is instead grounded in and limited by the necessity of resolving, according to legal principles, a plaintiff’s particular claim of legal right.

In short, the Constitution empowers the Court to vindicate the sound legal claims of particular plaintiffs, not to step into the role of other branches that are not doing their jobs well. Note that the decision was unanimous: not a single Justice backs the notion that other branches’ irresponsible failure to act on some problem can, by itself and without more, make it legitimate for courts to step in. 

Since there remains some uncertainty on this point in some quarters of the commentariat, it’s good to hear unanimously voiced guidance from the Justices themselves.  

 

The Trump administration has released its final rule expanding so-called association health plans. The rule would allow many consumers to avoid some of ObamaCare’s unwanted regulatory costs. But the rule also highlights both the destructive power of ObamaCare and Republicans’ utter lack of imagination when it comes to health care.

Association health plans allow small businesses to claim the same federal exemption from insurance regulation that large businesses have traditionally (if unwisely) enjoyed. Small businesses have long wanted that exemption so they could escape oppressive state regulation. Now, they want it so they can escape oppressive federal regulation—i.e., ObamaCare. The consulting firm Avalere estimates the ability to avoid some of ObamaCare’s unwanted regulatory costs would induce 3.2 million people to enroll in association health plans and reduce their premiums:

Premiums in the new AHPs are projected to be approximately $2,900 a year lower compared to the small group market and $9,700 a year less compared to the individual market.

By Grabthar’s hammer, what a savings!

Even so, association health plans have always been a terrible idea that violates Republicans’ federalist principles, because they move health-insurance regulation from the state level to the federal level. But in an ironic twist, while many Republicans obsessed over health care ideas that run counter to their principles, ObamaCare just went ahead and federalized regulation of small-business health plans. So now that the federal government is (over-)regulating small-business health plans, extending that exemption to association health plans…no longer violates federalism. Credit ObamaCare with making this bad idea seem good.

The emphasis is on “seem.” Association health plans still aren’t a good an idea. Rather than offer an agenda to make health care better, more affordable, and more secure, Trump’s association health plans rule builds on the broken model of employer-sponsored health insurance. Employer-sponsored coverage is lousy coverage. It deprives workers of control of their health-insurance dollars and decisions. It sticks millions of workers with health plans they would never choose themselves. It leaves millions of workers with uninsurable preexisting conditions, because it disappears for no good reason after workers get sick. It increases prices for health care and health insurance. The failures of our government-created system of employer-sponsored coverage are what created the demand for ObamaCare in the first place. Trump’s association health plans rule works entirely within that framework. It does nothing to move Americans toward a better system of providing health insurance.

But it would allow some people to avoid some unwanted regulatory costs. So there’s that.

And that part gives rise to the only other good part of this rule, which is also the part that ObamaCare supporters hate the most: the association health plans rule will make ObamaCare’s costs more transparent. The rule will free an estimated 1 million disproportionately healthy people to escape the unwanted regulatory costs ObamaCare imposes on them in the individual market for health insurance (i.e., the Exchanges). ObamaCare imposes its highest hidden taxes, in the form of higher premiums, on the healthy. When those folks drop out of the Exchanges, the average risk in ObamaCare’s risk pools will rise. Correspondingly, ObamaCare premiums will rise, perhaps even faster than they have been

ObamaCare supporters decry this as “sabotage,” but that is a subterfuge. When ObamaCare premiums rise to reflect the cost of ObamaCare’s regulations, it is what the world calls transparency. ObamaCare supporters fear such transparency because, as ObamaCare architect Jonathan Gruber admitted, the public would have rejected the law (and still might!) if they could actually see what it does. “[If] you made explicit that healthy people pay in and sick people get money,” Gruber gloated, “it would not have passed.” And if you reach the point where you decry transparency as sabotage, it may be time to reevaluate your life. 

On page 5 of my Wall Street Journal this morning, and page 7 of my Washington Post, a full-page ad for Wells Fargo banners

Wells Fargo and NextEra Energy join together to fuel low-carbon economy throughout the U.S. 

Meanwhile, the front page of my Journal announces

Green-Power King Thrives on Government Subsidies

The article explains that NextEra Energy

has grown into a green Goliath, almost entirely under the radar, not through taking on heavy debt to expand or by touting its greenness, but by relentlessly capitalizing on government support for renewable energy, in particular the tax subsidies that help finance wind and solar projects around the country. It then sells the output to utilities, many of which must procure power from green sources to meet state mandates.

And also:

While environmentalists applaud NextEra’s commitment to building wind and solar farms outside Florida, they have criticized what they see as its attempts to slow the deployment of rooftop solar inside Florida where it would directly compete with its utility business.

As Wells Fargo tries to rescue its reputation after its account scandals, maybe it should forgo bragging about helping a company get heavy subsidies in order to sell its products to compelled buyers. Maybe as part of its apology and restitution, it should swear off participating in taxpayer-subsidized projects, as BB&T in 2006 vowed not to lend to projects that relied on eminent domain.

Would NextEra even be profitable without all these subsidies and mandates? At least it’s not Solyndra, the Obama-connected solar power company that left the taxpayers holding the bag for $500 million when it collapsed. (“Obama’s green-technology program was infused with politics at every level, The Washington Post found in an analysis of thousands of memos, company records and internal ­e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials.”)

Maybe we should drop all these subsidies, restrictions, mandates, and trade barriers and let the free market deliver the right mix of energy at the lowest cost.

President Trump set off another round of Twitter hyperventilation and financial market selling these past 18 hours with his latest threat to assess duties on another $200 billion of Chinese imports. What to make of this?

I see two (and only two) ways of looking at this. You can conclude that Trump is irrational, engaging in rhetoric and taking actions that are inconsistent with his goals, or you can see him as rational. You may not like his goals, but that doesn’t make him irrational.  And he may be rational, but that doesn’t mean he’s not misguided.  It seems to me, though, that if you think Trump’s irrational, then there’s not much use in trying to make heads or tails of the daily gyrations. There’s no basis, really, for offering much in the way of useful analysis of U.S. trade policy for the next couple of years.

I see Trump as rational, but deeply misguided. His unpredictability is risky and frustrating, but it’s also a staple of his governance. Unpredictability is the most predictable feature of this administration. But Trump’s goal is consistent and predictable.  Trump’s goal is to cut deals that make him look Herculaean. The deals he most covets are those that cast him as fixing the trade problem with China and fixing the “worst trade deal ever negotiated,” NAFTA.

From the outset, Trump set his sights on “fixing” the U.S. bilateral trade deficit with China.  Is that a worthwhile priority of trade policy?  Absolutely not. But Trump is convinced that reducing the deficit is priority number one.  He sees his high stakes engagement as worthwhile because he miscalculates the potential benefits and costs of his approach. I see the upside of Trump’s approach as offering potentially smallish benefits (getting China to do something that may benefit U.S. exporters), but the downside (a deleterious trade war that leaves the world in far worse shape) as severe and significant. My own approach would be far more risk-averse.

Trump wants the Chinese to buy more American goods and services.  On its face, this is a reasonable desire for a U.S. president to have.  But Trump wants the Chinese government to commit to purchasing more U.S. goods and services, somewhere in the neighborhood of $100 billion to $200 billion per year (which, of course, reinforces the fact that China’s economy is centrally directed, which is the basis for the legitimate problems in the economic relationship in the first place.) Threatened tariffs of 25 percent on $50 billion of imports from China, announced as result of a U.S. investigation into Chinese technology and IP practices, are Trump’s initial leverage in getting the Chinese to commit to more purchases. Beijing’s announced retaliation slightly negates that leverage, but then the administration cracked down on ZTE, the Chinese information and communications technology company that admittedly violated U.S. export control laws by selling certain products to Iran and North Korea, and was cut off from U.S. suppliers of semiconductors and other critical components.

The on-again-off-again-on-again sanctions seem to be conditioned on whether and to what extent Beijing commits to purchasing U.S. exports, and that decision now seems to be conditioned upon Trump granting a reprieve to ZTE. Trump has already given ZTE a reprieve on paper (with certain conditions and requirements), but Congress seems to have strenuous objections, and is considering an amendment to the defense authorization bill to prevent Trump’s reprieve from taking effect.

Trump’s latest threat to hit another $200 billion of Chinese products with tariffs is just as much a threat to Congress as it is to China.  Either the Chinese will relent and agree to purchase U.S. stuff (without need of reinstating ZTE) and the tariffs will be called off or Congress, fearing (more than Beijing does) a trade war that will take down U.S. manufacturing and agricultural interests and their representative in Washington, will relent on its legislative push to block ZTE.  Of course, relenting on ZTE while continuing to treat Canada, Mexico, the EU and other allies as national security threats (especially since that designation has resulted in those countries applying tariffs to U.S. agricultural and manfuacturing exports, too) isn’t going to sit well with Congress either. 

So, in order to fix these asymmetries and make Congress and U.S. allies whole (wholer, whole-ish): Congress abandons its legislation to block ZTE, which gets back in business (with conditions); the U.S.-China tariff war is called off; China signs purchasing orders for $100 billion to $200 billion of U.S. exports; the steel and aluminum tariffs on Canada, Mexico, and the EU are removed; and the NAFTA negotiations are restarted and concluded before the midterms. This gives Trump two major pyrrhic victories that will reinforce his greatness to his base.

Seems to me these are the only outcomes that could remotely explain (if not justify) the ride Trump is taking us on. I see it as misguided, but not irrational.

The United States Citizenship and Immigration Services (USCIS) released a report showing that 59,786 DACA-recipients, or about 7.8 percent of the 770,628 people who earned DACA, have been arrested since the program’s creation in 2012.  The report does not indicate convictions, only arrests.  Even worse, the report does not provide the comparable arrest rate for other populations, giving the false impression that that is a high number of arrests for such a small population.  However, some data released in the report does allow for a back of the envelope comparison between the DACA-arrest rate and the arrest rate for the non-DACA population.  The per capita arrest rate of DACA recipients is 46 percent below the non-DACA resident population.  Controlling for age, the arrest rate for DACA-kids is 63 percent below that of the non-DACA resident population.

USCIS’ report states that 7.8 percent of DACA recipients were arrested from 2012 through the first part of 2018.  The government does not record the number of people arrested elsewhere so I cannot compare the arrest rate of the population at large with the arrest rate of DACA-recipients.  However, the Bureau of Justice Statistics does record the number of arrests made per year and the USCIS report lists the number of arrests (there is a major difference between the number of arrests and the number of people arrested). 

The 59,789 DACA-recipients were arrested 88,478 times.  During the same time, there were about 67.6 million arrests of people who were not in DACA.  The number of arrests of DACA-recipients over the entire period is equal to about 11.5 percent of the entire population approved for the program.  However, the number of arrests nationwide of non-DACA recipients is equal to about 21.2 percent of the non-DACA resident population.  By this measure, there are about 46 percent fewer arrests per DACA-recipient than among non-DACA recipients.  Subtracting out immigration offenses from the DACA-recipients lowers their arrest rate to 10 percent, less than half of the non-DACA population.

Controlling for age gives an even more wildly disproportionate answer.  DACA recipients are aged 37 and below so that population is more likely to be arrested than others.  Keeping their arrest rate the same at 11.5 percent but adjusting the non-DACA population arrest rate for those aged 37 and younger to 31.4 percent means that non-DACA residents have an arrest rate about 2.7 times as great as the DACA arrest rate. 

There are many different ways to slice and dice these numbers.  Substituting different denominators for the average number of DACA recipients per year to the average U.S. resident population gives a similar arrest ratio.  USCIS points to even better results than our research on DACA criminality.  This might not be what they intended but the USCIS report shows that DACA-recipients are much less likely to be arrested than the rest of the resident U.S. population.   

On Twitter last week Stephen Williamson wrote that he was “puzzled by the infatuation with NGDP targeting. We have good reasons to care about the path for the price level and the path for real GDP. Idea seems to be that if you smooth Py that you get optimal paths for P and y. That’s hardly obvious, and doesn’t fall out of any serious theory I’m aware of.”

I’m not exactly sure what Stephen means by a “serious theory.” But if he means coherent and thoughtful theoretical arguments by well-respected (and presumably “serious”) economists, then there are all sorts of “serious theories” out there to which he might refer, with roots tracing back to the heyday of classical economics. Indeed, until the advent of the Keynesian revolution, a stable nominal GDP ideal, or something close to it, was at least as popular among highly-regarded economists as that of a stable output price level, its chief rival.

If one of today’s outstanding monetary economists isn’t familiar with these writings, it’s a good bet that many other economists don’t know about them either. So I thought it worthwhile to list here some important theoretical works favoring nominal GDP targeting over inflation or price-level targeting, in chronological order, with brief remarks concerning each, and links to those that can be read online. Those interested in a more complete survey of the relevant literature, albeit one written not quite a quarter-century ago, are encouraged to have a look at my 1995 History of Political Economy article, “The ‘Productivity Norm’ versus Zero Inflation in the History of Economic Thought.”

Astute readers will note that the works I list are ones that compare the fundamental welfare effects of stable aggregate spending to those of other monetary policy objectives. They do more, in other words, than merely suggest that nominal GDP may be a useful intermediate policy target than, say, some monetary aggregate. The articles also reject absolute stability of the price level, real output, or both as “given” policy ideals. In contrast, some other writings favoring nominal GDP targeting  (e.g. McCallum 1987Hall and Mankiw 1994, or Frankel and Chinn 1995) do so because it does a reasonably good job at stabilizing P or y or some weighted average of the two. These writings seem to me to miss the crucial point that output and price level fluctuations are themselves sometimes optimal, and that NGDP targeting is in turn desirable precisely because it allows such optimal fluctuations in y and P to occur. Those critics of NGDP targeting (e.g., George Kahn and Andrew Levin) who fault it for failing to stabilize P and y, as well as some alternative policies, likewise miss the mark. To all of these writers I especially commend the works listed here.

Finally, I leave out works by Scott Sumner, David Beckworth, and other well-known Market Monetarists, because part of my aim is to show my fellow monetary economists that Market Monetarism is but one particular, recent manifestation of a perspective that has had many distinguished adherents, representing numerous different schools of thought, throughout the long history of our discipline.

***

1837: Samuel Bailey, Money and Its Vicissitudes in Value

A splendid, early tour de force. Bailey may have been the first economist to distinguish between changes in the value of money (and, hence, the general level of prices) “originating on the side of money” and ones “originating on the side of goods” — where by the latter he means changes reflecting innovations to the “facility of supplying” goods, including “the discovery of shorter and more economical processes in the arts, and invention of machinery, [and] the abolition of monopolies and taxes.” Today’s economies make essentially the same distinction when they trace price-level changes to either “aggregate demand” or “aggregate supply” innovations. Using this distinction, Bailey goes on to show that, unlike price level changes originating on the “money” side, those originating on the “goods” side neither distort nominal (“pecuniary”) contracts nor (in the case of downward price movements) discourage industry as a whole.

1918-1933: Debate in the Ekonomisk Tidskrift

In a series of articles in the Ekonomisk Tidskrift, Stockholm School economist David Davidson took his compatriot, the great Knut Wicksell, to task for identifying a neutral (hence ideal) monetary policy with one that achieved a perfectly stable general price level. Davidson instead insisted that a neutral policy would allow the price level to vary with aggregate supply (and, particularly, productivity) innovations. Among other prominent Stockholm-School economists, Eric Lindahl and Gunnar Myrdal (see below), sided with Davidson in this debate, while Gustave Cassel sided with Wicksell. Regrettably, Davidson’s works haven’t been translated into English. But those who don’t read Swedish may consult excellent reviews of the debate by Brinley Thomas and Claes-Henric Siven. According to Thomas, “There can be little doubt that the honours in this contest went to Davidson.” A recent paper by Gunner Örn, also (alas) in Swedish, points out the practical equivalence between Davidson’s norm and recent proposals for targeting nominal GDP. “These two Swedish economists,” he writes (referring to Davidson and Lindahl), “were very early — perhaps even the world’s very first — advocates of what in today’s economics debate is called ‘nominal GDP targeting’.”

1930: Ralph G. Hawtrey, “Money and Index-Numbers

If this essay were all Hawtrey ever wrote on monetary theory, Scott Sumner might still have had reason for wanting his chair at Mercatus to be called “The Ralph  G. Hawtrey Chair of Monetary Policy.” For no-one has ever made the case for preferring a stable level of nominal income (or what Hawtrey refers to as “consumers’ income and outlay”) to a stable price level more clearly and painstakingly than Hawtrey makes it here. The only disturbances to prices that monetary policy should seek to avoid, Hawtrey concludes, are those “affecting the amount of the consumers’ income and outlay otherwise than in proportion to the factors of production.” Spot on, Ralphie boy!

1935: F.A. Hayek, Prices and Production, 2nd. ed.

Let’s be clear: my concern here is with writers who made compelling theoretical arguments for NGDP targeting, or something very close to it, regardless of whether they believed the theory could be put into practice. By this criterion, Hayek must be judged one of the more important historical precursors of Market Monetarism. Although Hayek had been critical of arguments and schemes for stabilizing the general price level for some years before he wrote Prices and Production, it was only in that work, and particularly in it’s 2nd edition, and in several subsequent writings, that he acknowledged the desirability of such money-stock changes as would serve to insulate the price level from velocity (but not real output) shocks. For further details, and a comparison of Hayek’s views on this issue with Keynes’s, see my 1999 HOPE article. Regular Alt-M contributor Larry White has written a good, sympathetic review of Hayek’s monetary thought. Rather less sympathetic is a blog post by “Lord Keynes” pointing out differences between Hayek’s stable MV ideal and his practical policy recommendations during the Great Depression.

1937: Allen G. B. Fisher, “Does an Increase in Volume of Production Call for a Corresponding Increase in Volume of Money?

Unlike his better-known American namesake, this notable New Zealand economist denied that a stable price level was always desirable. Instead he insisted that, “Apart from increases in population and from changes in the desire of individuals to hold money, economic development which takes the form of increased production per head…does not require any increase in money supply.” In other words, he favored an NGDP target with the target growth rate of NGDP set equal to the population growth rate. It is not falling prices per se but generally falling money incomes, Fisher argued, that “have a depressing effect upon business enterprise” because they disappoint “expectations of normal profit.” A decline in prices reflecting increased productive efficiency is, on the other hand, not only not harmful, but desirable, because attempts to prevent them is likely temporarily to distort profit signals, delaying desirable transfers of scarce resources among different efficient industries. Highly recommended.

1939: Gunnar Myrdal, Monetary Equilibrium

Many people know that Hayek and Myrdal shared the 1974 “Nobel” prize “for their pioneering work in the theory of money and economic fluctuations” (among other things). But relatively few have read Myrdal’s main work on monetary theory, and even fewer realize that it was originally published, in German, for a 1933 volume that Hayek edited. Least well known of all is the fact that Hayek didn’t think much of Myrdal’s analysis at the time, and that he accepted it only as a last-minute substitute for one that Eric Lindahl was supposed to prepare. For that and other (mainly ideological) reasons there was no shortage of bad blood between the two men when they crossed paths again in Stockholm. Still, nothing could excuse Myrdal’s boorish behavior both during and after the event.

Having gotten all that off my chest, the fact remains that, whatever its flaws, Myrdal’s essay is well worth reading. Among other points, Myrdal argues — convincingly, I think — that “If one desires the greatest possible diminution of the business cycle, but at the same time wants a guarantee against too great, and especially unidirectional, price movements, which naturally affect distribution most severely, then one must try to stabilize an index of those prices which are sticky in themselves. This would often lead in practice to a stabilization of wages.” In this regard Myrdal’s argument anticipates some more recent New Keynesian arguments favoring a stable NGDP growth trend over a stable price level or inflation rate.

1963: Dennis Robertson. A Memorandum Submitted to the Canadian Royal Commission on Banking and Finance

For better or worse (the last, if you ask me), Keynes’s General Theory made a clean sweep of the field of monetary economics, brushing aside competing works, including the insightful contributions of Keynes’ s Cambridge colleague. Robertson’s popularity thereafter was largely sustained by his splendid little handbook on Money, first published in 1922 and revised and reprinted many times thereafter. That’s a shame, because Robertson’s less popular works on the same subject are full of brilliant insights, including some exposing fundamental errors in Keynes’s, if not in Keynesian, monetary theory.

Robertson’s “Memorandum,” which he completed in 1962 but which was not published until a month after his death in 1963, was his last important work on monetary economics. In it he asks “how a Monetary Authority should behave in a country which was isolated from the rest of the world, and in which it was desired so far as possible to leave the pace of capital formation to be determined by the unfettered interplay of the decisions of private enterprisers and savers.” His answer is that the authority’s aim should be to stabilize, not the general price level, but the economy’s “money flow,” meaning “the flow of monetary demand for final output.” Doing so, he argues, would better “enable the participants in the growth process — enterprisers, savers and hired workers — to realize their intentions with a minimum of friction and of distortion of the true significance of the monetary contracts which they are making with one another.”

1983: Charles Bean,  Targeting Nominal Income: An Appraisal

The monetarist counterrevolution, with its emphasis on targeting monetary aggregates, ultimately helped to inspire a new round of arguments for targeting nominal income, with contributions by James Meade (in his 1977 Nobel address), James Tobin, and Sam Brittan. Bean’s assessment of them is highly analytical, and in that respect at least especially “serious.” He concludes

that a policy of targeting nominal income is an optimal response to demand shocks and to productivity shocks if labour supply is inelastic. Even if labour supply is elastic nominal income targets will still produce a better response to productivity shocks than monetary targets if the price elasticity of aggregate demand is less than unity. Growth rules are less attractive than targets for the level of nominal income.

Given the quality of this early performance, it’s a shame that Bean chose to follow it up more recently with a far less compelling speech pooh-poohing recent arguments for targeting nominal GDP as so much “old wine in a new bottle,”  and otherwise attempting to suggest that, had it been pursued during the crisis, such targeting would not really have improved much on the U.K.’s inflation targeting regime. Why “less compelling”? Here’s an example: Bean at one point argues that, because “the financial crisis has led to a fall, possibly temporarily, in the underlying rate of growth of supply,” a given or “fixed” nominal income target would have gone “hand-in-hand with a higher inflation rate, whereas a fixed inflation target would [have been] associated with lower nominal income growth.” Quite correct; and had Bean stopped there he’d surely have been compelled to conclude, as he had in 1983, that NGDP targeting would have been the better option. But instead of doing so he continues: “But this hardly provides an argument in favour of a nominal income growth target. Indeed, in this case one would surely want to set the target growth rate for nominal income lower to reflect the lower rate of growth of supply, though by how much might be hard to judge.”

Huh? What? Here we see the dangers lurking in any comparison of alternative monetary policy norms that assumes (as Bean’s does here) that deviations from some target inflation rate belong in the monetary authority’s “loss function.” The whole point of NGDP targeting is that it allows supply-side developments, and adverse ones especially, to be reflected in higher prices or (in the case of a drop in the growth rate of productivity) a higher inflation rate. A central bank that sets a target for NGDP growth only to revise it in response to supply innovations so as to maintain a constant inflation rate is targeting inflation, not NGDP.

1989: Michael Bradley and Dennis Jansen, “Understanding Nominal GNP Targeting

Short, simple, and sweet: the framework is good old aggregate supply and demand, with diagrams and all. For a bonus, there’s a nice discussion of Ben McCallum’s NGDP Rule. Read this before you try to work your way through either Bean’s 1983 article or the New Keynesian works listed further on.

1992: William Niskanen, “Political Guidance on Monetary Policy

Although he’s mainly known for his contributions to the theory of bureaucracy, and to public choice theory more generally, Bill Niskanen, Cato’s long-time chairman, was an all-round original thinker. Nor did he neglect monetary economics, where his thinking led him straight into the nominal-spending stability fold. Like Robert Gordon before him, Niskanen differed from today’s Market Monetarists mainly in preferring a nominal “final sales to domestic purchasers” target to a nominal GDP target. (On the pros and cons of these alternatives, see this excellent Bill Woolsey post.)

2005: Jinill Kim and Dale Henderson, “Inflation Targeting and Nominal-Income-Growth Targeting: When and Why Are They Suboptimal?

Using “a model of a closed economy with optimizing firms and households, monopolistic competition in both product and labor markets, and one-period nominal contracts,” Kim and Henderson “derive optimal monetary stabilization rules and compare them to simple rules under both full and partial information.” Importantly, by “optimal rules” they mean, not simply ones that minimize an ad-hoc central bank “loss function,” but ones that “maximize the unconditional expected utility of the representative agent.” They find that, while none of the simple rules quite match up to the optimal rule, among them “nominal-income-growth targeting dominates inflation targeting for plausible parameter values.” They also find, not surprisingly, that “the more important are productivity shocks…the greater the advantage of nominal-income-growth targeting over inflation targeting.” There’s nothing new in these particular conclusions, which (as we’ve seen) many previous economists arrived at with relatively little algebra, or with no algebra at all. Still, formal models like this one may prove essential to winning  over those NGDP targeting doubting Thomas’s who believe nothing until they see it drop out of a fully-articulated macro model.[1]

2010: Evan Koenig, “The Case for Nominal Income Targeting

As Senior Vice President and Principal Policy Advisor at the Dallas Fed, Koenig is among a small number of Fed insiders who have added their voices to others drawing attention to the possible advantages of targeting nominal GDP. He starts this article by listing three “desiderata” of a monetary policy rule. These are (1) that the rule should avoid waste that might otherwise result from “sluggish” prices or wage rates and other “frictions”; (2) that it should maintain low and stable long-term inflation expectations; and (3) that it should promote financial stability.  He then proceeds to explain how a nominal GDP rule might achieve them all.

Concerning price and wage rigidities, Koenig’s argument is reminiscent of Myrdal’s: “If it is primarily money wages that are sticky, not product prices,” he observes, “then it will be optimal for monetary policymakers to try to avoid surprise changes in the market-clearing money wage and let product prices move up or down as needed to clear the labor and product markets.” Furthermore, “In an economy in which the principal real disturbances are shocks to productivity,” and “the income and substitution effects that productivity shocks have on employment are offsetting — a reasonable rough approximation — then the optimal wage policy is equivalent to targeting the level of nominal spending.” Koenig shows as well that “a nominal-income target for monetary policy distributes risk more efficiently across debtors and creditors than does a price-level target.” His overall conclusion is that “A level target for nominal spending…offers enough potential advantages relative to a simple price-level target that it deserves careful study.”

2014: Kevin Sheedy, “Debt and Incomplete Financial Markets: A Case for Nominal GDP Targeting

Sheedy’s very thorough and carefully-reasoned study is concerned exclusively with the task of identifying a monetary regime best suited to an economy that relies on fixed (“non-contingent”) nominal debt contracts. As such it takes up a theme first addressed in depth by Samuel Bailey 80 years earlier. Notwithstanding the passage of so much time, and Sheedy’s far more formal framework, his conclusion is essentially the same, namely, “that when debt contracts are written in terms of money, a monetary policy of nominal GDP targeting improves the functioning of financial markets.” Commenting on Sheedy’s work, James Bullard writes that it “has considerable potential to sharpen the ongoing debate on nominal GDP targeting, an idea that has not often had an explicit modern macroeconomic model behind it.”

2016: Julio Garin, Robert Lester, and Eric Sims, “On the Desirability of Nominal GDP Targeting

It’s nice to be able to conclude my survey with a paper written by my former colleague, Julio Garin, and two co-authors. As I observed in reviewing the paper by Kim and Henderson, theirs is only one of a number of papers that use sophisticated macro models to conclude that nominal GDP targeting beats most other simple monetary rules. Garin et al. “compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule…on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages.” In other words, like Kim and Henderson, they don’t simple ask how NGDP targeting stacks up when it comes to stabilizing P or y or both — which isn’t the same thing.

Their findings? Although output gap targeting is generally ideal, nominal GDP targeting performs almost as well, and better than a Taylor rule. NGDP targeting is also a lot better than inflation targeting. Furthermore, it can even outperform output gap targeting if the output gap is observed with noise. Finally, the advantages of NGDP targeting over rival strategies increase as supply shocks become more pronounced, and in situations where wages are stickier than prices. If all this is starting to sound familiar, that’s called robustness.

***

That last remark compels me to conclude by answering a question that’s bound to  occur to many who have read this survey, to wit: if the theoretical case for nominal GDP targeting is so strong, why do so many monetary economists favor price-level or inflation targeting?

There are, I believe, two reasons. One is that these economists have tended to assume, implicitly or otherwise, a world in which (1) aggregate supply innovations, and innovations to total factor productivity in particular, are either non-existent or unimportant; and (2) factor prices are perfectly flexible or, at very least, more flexible than output prices. In such a world, nominal GDP targeting may not have any decisive advantage over price-level or inflation targeting, though it’s also unlikely to be any worse than either.

The other reason is that many monetary and macroeconomists treat fluctuations in the price level or inflation rate as bad per se, most commonly by treating them as arguments in central bankers’ “loss functions.” To say that this procedure lacks solid microfoundations is putting things mildly. A less temperate reply might be something like, “Who cares what central bankers like or don’t like? It’s peoples’ utility or welfare that matters.”

In short, if there’s a shortage of “serious” theorizing about what central banks ought to stabilize, it exists, not among proponents of nominal GDP targeting, but among those who continue to favor price-level or inflation targeting.

_____________________

[1]  For all their intricacies, there’s at least one respect in which such fully-articulated macro models still fail to provide an adequate framework for assessing the advantages of inflation or price-level targeting relative to those of targeting nominal GDP. So far as I’m aware, no one as yet has constructed a version of such a model in which the responsiveness of actual nominal prices to shocks that alter those prices general equilibrium levels depends on the nature of the shocks in question. In contrast, numerous less formal writings allow, for example, that money prices are much more responsive to supply (unit cost) innovations than they are to changes in demand. This last fact tends to further strengthen the case in favor of a stable NGDP rule.

[Cross-posted from Alt-M.org]

Now that some of the dust has settled from President Trump’s summit with North Korean leader Kim Jong Un, it’s worth taking stock of the politics surrounding it. As The Atlantic’s Peter Beinart points out, many Democrats and progressives have oddly decided to be staunch critics of the summit, harping on its limited achievements, the vague aspirations of denuclearization without concrete steps to get there, Trump’s bizarre obsequiousness in courting Kim, and this administration’s clear lack of preparation for such high-stakes diplomatic negotiations. These are all legitimate criticisms, by the way, but given how dangerously close the Trump administration came to potentially catastropic escalation only a few months ago (admittedly, a crisis of Trump’s own making), diplomacy, no matter how maladroit, is clearly preferable and should not be dismissed out of hand by those on the left.

However, the abject hypocrisy of the right is even more appalling. Republican Senate Majority Leader Mitch McConnell praised the summit as “an historic first step in negotiations.” House Speaker Paul Ryan articulated his “hope that the president has put us on a path to lasting peace in the Korean Peninsula.” Fox News host Laura Ingraham hailed  the summit as “like Gorbachev and Reagan,” to which Senator Lindsey Graham, who has argued for war and against diplomacy more often than most of his colleagues, approvingly replied, “Trump has done something no other president has done, he’s doing everything he knows how to avoid a war.” Graham went on to applaud Trump’s pledge to discontinue U.S.-South Korean military exercises: “this may be the last best chance in our lifetime for peace, and this is a bold move by the president.”

Those who follow politics in Washington, DC can see right off the bat how radical a departure all of this is from typical GOP talking points. It’s not hard to imagine the hysteria that would erupt if President Obama shook the hand of Kim Jong Un, praised the dictator’s leadership qualities, and sympathized with Pyongyang’s unease over U.S. military activities in Northeast Asia.

But to really get a flavor for it, behold this mashup of Fox News personality Sean Hannity, whose power to shape conservative views across the country should not be underestimated, railing against Obama’s nuclear diplomacy with Iran in 2013 while praising Trump’s summit with North Korea. Trump, Hannity says, “deserves a lot of credit for being willing to talk to somebody that everybody thought would be a bad idea,” adding that he sees “a lot of parallels between President Trump and Ronald Reagan.” But in 2013, he pilloried Obama’s diplomacy with Iran as “showing a lot of weakness” by “catering to the world’s dictators,” labeling Obama “literally, the Neville Chamberlain of our time.” 

Republicans and conservatives opposed diplomacy with Iran because, they said, America shouldn’t negotiate with enemies, we should batter them into submission. Now, they have apparently abandoned that principle. They also opposed the Iran nuclear deal on grounds that it was too narrow and failed to include non-nuclear issues, such as Iran’s regional behavior and its human rights violations. Now, with North Korea, they are singing a different tune. 

So far, North Korea has done little more than offer token concessions while keeping their nuclear and ballistic missile capabilities intact. By contrast, Iran forfeited 98 percent of its stockpile of enriched uranium, gave up thousands of operating centrifuges, acquiesced to severe technical restrictions on various aspects of their program for 10-25 years, and submitted to the most intrusive inspections regime in the world. And that was before they enjoyed a single day of sanctions relief.

It’s not just the GOP and conservative media that is shamelessly flip-flopping like a fish out of water. The Trump administration itself has had to engage in these contortions. Trump withdrew from the Iran nuclear deal on the basis that it was a weak giveaway to Tehran, though the likelihood of getting a more stringent agreement on North Korea is extremely remote. Secretary of State Mike Pompeo and National Security Advisor John Bolton each have a long pedigree of opposing negotiations with rogue states in favor of an uncompromising hardline approach. Now, apparently, not so much. Last year, the Trump administration obstinately rejected perfectly reasonable Chinese proposals for a “freeze-for-freeze” option with North Korea, in which, as a first-step to build confidence for negotiations, Washington would agree to suspend provocative military exercises with South Korea in exchange for Pyongyang halting its nuclear and missile tests. Now, that is roughly administration policy. 

Duplicity has always been a part of American politics. And, these days, we seem to be experiencing a truly unprecedented level of it under a president that tells outright lies as a matter of routine. The intensity of this particular moment in U.S. history can make the partisanship presented above seem mild and downright ordinary by comparison. But this kind of base dishonesty regarding core questions of war and peace makes it close to impossible to carry out foreign policy in a strategic way. I appreciate Republicans’ newfound support for diplomacy, but it is rather obviously a feature of their servile kowtowing to President Trump, not a considered position that can reliably outlast this brief moment.

The United States is remarkably insulated from foreign threats and has enormous leverage to engage in any negotiations with adversaries. Wherever and whenever diplomacy can reduce the risk of conflict, it should be pursued with confidence and vigor. Both parties must recognize the successes that peaceful engagement has yielded over the past half century of U.S. foreign policy, and the comparatively ruinous failures wrought by hardline militarism.

In unanimous decisions this morning, the Supreme Court turned away both partisan gerrymandering cases on grounds other than their ultimate merits – Gill v. Whitford (Wisconsin) by declaring the individual complainant to lack Article V standing arising from injury in his own district and sending the case back for him to establish that, and Benisek v. Lamone (Maryland) by finding it not an abuse of discretion for the lower court to deny a preliminary injunction, which does not mean the case will not be back at the regular injunction stage.

Neither decision reaches or resolves the main constitutional issues raised by the two cases, which both remain alive. As I mentioned in February, the Court had already signaled that it was not in a rush to resolve the issue right away (the calendaring was leisurely) and that Justice Anthony Kennedy was not going to prove an easy recruit for the four liberals. (He joined the conservatives in staying the Wisconsin decision below.) 

In the Wisconsin case, the majority held that the complainant needs to go back and demonstrate that his own district, and not merely others in the state, has been subject to “packing” or “cracking.” (The Maryland complainants had already made this kind of showing; they were suing over the lines of their own district, not the whole state map.) Justices Thomas and Gorsuch went further, saying the Wisconsin complainant’s failure to establish individual standing should have ended his case, rather than resulting in a do-over. 

In a concurrence on behalf of the four liberals, Justice Elena Kagan agreed on the need to send the case back for a showing of individual-district standing but emphasized that, in her view, once the complainant established that he could then introduce statewide evidence and seek statewide remedies. This would preserve more or less the full scope of what liberal litigation groups have been hoping to achieve with the Wisconsin case. Significantly, Justice Anthony Kennedy did not join the liberals on these points – although of course he could view the case as having been resolved without needing to reach such issues. Nor did the majority opinion, written by Chief Justice Roberts, concede Kagan’s assertion that courts “have a critical role to play in curbing partisan gerrymandering.”   

Whatever happens in the Court – and a North Carolina case could bring the issues back next term – there are good reasons for states to act on their own to curb the evils of partisan gerrymandering without waiting for marching orders from the nine Justices. Measures to take line-drawing out of the hands of self-interested incumbents, to prescribe strong standards of compactness and congruence with counties and other political subdivisions, to provide for transparency, open data access, and public map submission, and to ensure strong judicial review, make sense in themselves and do not require waiting on a Court that has shown a reluctance to decide. 

The Court has kicked the issue of partisan gerrymandering down the road. States shouldn’t. 

There is lots of talk from the Trump administration these days about how the U.S. is getting cheated on trade. In this context, they have done some cherry-picking of the data to emphasize high foreign tariffs, while conveniently ignoring high U.S. tariffs. For example, Trump will mention a 270% Canadian tariff on dairy products, without mentioning U.S. tariffs of up to 187% on sour cream. Or White House trade adviser Peter Navarro will mention EU auto tariffs of 10% and argue that those are much higher than the 2.5% tariffs for car imports to the U.S, but he won’t mention the 25% U.S. tariff on truck imports

So what’s the reality of tariff levels? The cherry-picking approach emphasizes particular products where tariffs are high, and as can be seen in the examples above there are still a few of these “tariff peaks,” including some imposed by the U.S.  But with so much variation on tariffs by product, an average tariff level is more informative. Unfortunately, it can be difficult to get an accurate picture of this (as discussed here). Here’s a sampling of a few countries and the EU (explanations to follow): 

  Simple Average (2016)
(WTO)
Trade Weighted Average (2016)
(World Bank)
Trade Weighted Average (2015)
(WTO)
New Zealand

2

1.3

2.5

Australia

2.5

1.2

4

US

3.5

1.6

2.4

EU

5.2

1.6

3

Japan

4

1.4

2.1

Canada

4.1

0.8

3.1

Switzerland

6.3

0

2

Mexico

7

4.4

4.5

China

9.9

3.5

4.4

Brazil

13.5

8

10.4

As you can see, the table has three categories of average tariffs. That’s because measuring tariff levels is not that easy and there are several different methodologies. The “simple average” in the first column takes all of the tariff levels set out in a country’s tariff schedules and averages them. But that figure can be misleading. For example, with some products, there might not be much trade even without a tariff in place, so counting a high tariff in the average is misleading.

The second and third columns – the first from the World Bank, and the second from the WTO and two other organizations, using different methodologies – look at tariffs applied on actually traded goods. But that can be misleading too, because a 100% tariff might eliminate all trade, and therefore a high, trade-retricting tariff would not show up in the figures.

The best approach I can see here is to provide both kinds of figures, which is what I’ve done in the table. Taking all of these tariff figures into account, it can be hard to come up with a precise ranking, but you can see that New Zealand and Australia are the low tariff leaders. The U.S., EU, Canada, Japan, and Switzerland come next, clustered closely together. Mexico has tariffs that are a bit higher. Then come China and Brazil with even higher tariffs.

One important point to note is that these are the generally applied tariffs, but some of these countries have FTAs with each other, under which special lower tariffs apply (the World Bank averages are the only ones that take into account lower FTA tariffs). For the U.S., that means NAFTA, under which almost all tariffs (dairy and peanuts, among others, excepted) are zero; the U.S. - Australia FTA; and various other FTAs.

The lower FTA tariffs lead to an important point. If you are on the Trump administration trade team, and you think foreign tariffs are too high, the solution is to negotiate trade agreements that lower them (in both directions). So far, unfortunately, that has not been their focus.

This week’s good news is that the East Antarctic Ice Sheet (EAIS), by far the world’s biggest ice mass, was largely intact during the entire Pliocene epoch.  The Pliocene was slightly less than three million years in length, and preceded the Pleistocene, the epoch of the ice ages.

The implications for human-caused warming from enhanced carbon dioxide are enormous.  The good news was published in the same issue of Nature that carried an article about the loss of slightly less than three trillion metric tons of Antarctic ice since 1992.

These things are best viewed in a larger perspective.  By itself, that ice loss would raise sea level by about a third of an inch, something probably impossible to detect with land-based tidal gauges.  But it was also likely somewhat balanced by the probability of enhanced snowfall over the continent thanks to a (very) slightly warmed surrounding ocean. But the melting of the EAIS would be apocalyptic, itself raising sea level by 175 feet.

Even though this seemed like a very remote possibility, we can now confidently say that human-induced climate change cannot make it happen.

Here’s why.

Global temperatures during the Pliocene averaged around 2-3⁰C higher than the 20th century average.  But the massive thermal inertia of Antarctica means it probably wasn’t that much warmer there.  Let’s be very conservative and say it was about one degree warmer.

The Pliocene heat load over the EAIS then becomes:

3,000,000 years X 1⁰ = 3,000,000 degree-years.

Now let’s also be conservative about how long human-induced climate change might last, say, 1000 years.  But again, climate change is attenuated over the vast ice-covered continent, so let’s posit we induce a global warming of 5⁰ (which is probably too large), and Antarctica warms half as much.

The maximum heat load over Antarctica then is:

1,000 years X2.5⁰ = 2,500 degree-years.

The Pliocene heat load was 1,200 times what humans could possibly exert on the EAIS, and it still remained largely intact.  Because of that, fears about the ultimate climate catastrophe can no longer even be entertained.

Former White House economist Gary Cohn expressed concerns yesterday that Trump’s tariffs would erode the benefits from tax reform. Since the on-again-off-again 25 percent tariffs on imports from China are—as of 3:23pm, Friday, June 15, 2018—“on again,” let me share this back-of-the-envelope analysis that shows why Cohn’s concerns are justified.

Certainly, the additional profits expected from the reduction in corporate rates from 35 to 21 percent could be entirely wiped out for the manufacturing sector. In 2017, according to Census Bureau data, the pre-tax profits of the U.S. manufacturing sector were $691 billion.  At 35 percent, the taxes on paper would be $242 billion.  At 21 percent, the average tax bill is $145 billion.  So, roughly speaking, the reduction in rates is estimated to be worth about $97 billion in terms of 2017 profits.

Well, in 2017, the value of U.S. goods imports was $2.33 trillion. Commerce Department data show that half of that value was comprised of intermediate goods (raw materials, production inputs, capital equipment)—the purchases of producers, not households. In other words, approximately $1.17 trillion of imports are U.S. costs of production.

If a tariff of, say, 10 percent were imposed on these imports, the cost of production for manufacturers would rise, roughly speaking, by $117 billion. That’s a $117 billion reduction in profits. Meanwhile, assuming foreign governments responded in kind and hit U.S. exports with 10 percent tariffs, manufacturing revenues also would take a hit.  U.S. exports of manufactured goods in 2017 amounted to $1.24 trillion.  Again, roughly speaking, that 10 percent tariff would reduce U.S. manufacturing revenues by $124 billion.  That, too, reduces profits.

The combined effect of the increased costs and reduced revenues comes to a $241 billion reduction in profits (a 35 percent reduction in manufacturing’s 2017 pre-tax profits). So, ceteris paribus, a 10 percent across-the-board tariff would reduce the U.S. manufacturing sector’s profits by about 35 percent.  With that kind of “downturn” in profitability, from where would the resources come to make capital investments, build new production facilities and R&D centers, and to offer new employment opportunities?

Let’s apply this ball park estimate to the actual situation on the ground. The tariffs Trump has already imposed or announced (steel and China tech products—leaving out aluminum, washers, and solar panels) subject $100 billion of imports to tariffs of 25 percent. The retaliation so far announced (by China, Canada, Mexico, and the EU) is commensurate—it will be approximately 25 percent on $100 billion of U.S. exports.  So, at the moment, $200 billion of U.S. trade is in the crosshairs.

But a new Trump investigation into the national security implications of auto and auto parts imports could add another $600 billion of trade to the mix—$300 billion of imports hit with 25 percent duties and $300 billion of retaliation. The president wants to get the investigation completed before the election in November, so we could be up to $800 billion of U.S. trade by year’s end.  (That’s 20 percent of all U.S. goods trade, by the way.)  

So, 25 percent duties assessed on $800 billion of trade, approximately half of which would be U.S. manufacturing inputs and U.S. manufactured exports comes out to a combined $100 billion hit on the sector’s profits (25 percent of $400 billion).  That eclipses the $97 billion gain from the corporate rate reduction.

While this is all bad news for the economy, I wonder whether the tax-reform advocates who held their noses and excused Trump’s trade transgressions because tax reform would make everything right will start to speak out. Paging Larry Kudlow, Steve Moore, and Art Laffer.

 

 

 

 

 

Would hate speech laws reduce discrimination, violence, and psychic injuries to vulnerable groups? Nadine Strossen says they would not in her new book, Hate Speech: Why We Should Resist It with Free Speech, Not Censorship. She believes we have insufficient evidence to conclude that “hate speech” in general harms others, and even less evidence that constitutionally protected “hate speech” does so.  

Naturally, proponents of “hate speech” laws blame expression for anti-social attitudes and conduct. Strossen maintains that we should refrain from censorship on the basis of expected effect, “simply because it might have bad effects.”  The perceived harmfulness of any given utterance is context contingent, depending largely on variables like location, tone of voice, relationship between speaker and listener, and personality characteristics.

Strossen draws attention to a study conducted by Laura Leets of Stanford University. Leets recruited Jewish and LGBT college students to read several anti-Semitic and homophobic slurs all drawn from real situations. The subjects then answered questions about how they would have responded if they themselves had been the targets of these messages. Interestingly, a common response by the students was that the “hate speech” would have had “no effect” upon them in either the short run or the long run. Many of the participants also expressed the belief that the speaker was motivated by ignorance, “and therefore should be the object of pity, not anger” (124).

A national survey of incoming first-year college students conducted by the UCLA Higher Education Research Institute found that “the entering freshman class of 2015 ranks among the most ambitious” in the areas of student activism, political and civic engagement. The study notes that this particular class of incoming first-years had witnessed “protests and outcries on college campuses and in communities” in response to “local incidents of bias and discrimination.” These students did not respond to “hate speech” and bias crimes with withdrawal and depression, but rather with engagement and dialogue. Such speech seems to foster political engagement within the larger community, a necessary component of a healthy democracy.

Although these studies focus on college students, Strossen notes that resources for developing one’s ability to resist the potentially negative effects of hateful speech are available to all. These tools include cognitive-behavioral therapy techniques for reducing anxiety or other negative reactions that might result from stressful situations (including exposure to “hate speech”), education about utilizing social media to respond to “hate speech,” and providing access to supportive organizations and other resources. Education and other responses may turn a negative experience into a hard-won moment in personal growth.

Strossen also addresses the question of whether “hate speech” fosters hateful and discriminatory attitudes and actions among those who hear it. She notes that “a comprehensive review of social science research about the potential links between media messages and audience behavior concluded that the effects on audience behavior are ‘weak and affect only a small percentage of audience members’” (127).

We should keep in mind that speech does not force people to act badly. Those who hear extreme utterances are responsible for their subsequent actions. British writer Kenan Malik remarks:

Racists are, of course, influenced by racist talk. It is they, however, who bear responsibility for translating racist talk into racist action. Ironically, for all the talk of using free speech responsibly, the real consequence of the demand for censorship is to moderate the responsibility of individuals for their actions.

If creators were held responsible for the anti-social acts that some individuals committed after viewing the material, “certainly neither the Bible nor the Qu’ran” would be safe, as “both have been accused of instigating countless individual and mass crimes” (128).

In summary, we should not outlaw speech because it might have bad effects. This approach would allow government to punish speech because it disfavors the speaker or the message without directly acknowledging this motive. Moreover, “given the endless array of speech about public concerns that could have such an impact, any other rule would largely muzzle democratic discourse” (127).

 

This the third post in series on Nadine Strossen’s new book, Hate Speech. The first and second posts may be found here and here.

In his Election Day tweet attacking Rep. Mark Sanford, President Trump declared that Sanford’s opponent, Katie Arrington, “is tough on crime and will continue our fight to lower taxes.” Well, maybe. She doesn’t mention either issue on her campaign website. (In fact, she has nothing but bland buzzwords about any issue.)

This tweet is typical. It seems like very time Trump tweets an endorsement or a criticism of a candidate, he calls the candidate “strong (or weak) on crime.” I count 60 Trump tweets since his inauguration that use the word “crime.” Some complain that he is being investigated for a “made up, phony crime” or charge Hillary Clinton with “many crimes.” But most seem to relate to a candidate: Dan Donovan is “strong on Borders & Crime.” Kevin Cramer of North Dakota is “strong on Crime & Borders.” Doug Jones is “WEAK on Crime.” Adam Laxalt is “tough on crime!” “Chuck and Nancy…are weak on Crime.” Ralph Northam is “weak on crime.” Also “VERY weak on crime!” “Keep our country out of the hands of High Tax, High Crime Nancy Pelosi.” And so on.

It’s not obvious that this makes political sense. Candidates aren’t talking much about crime, perhaps because they recognize the substantial decline in crime rates. In numerous Gallup polls over the past year, only 2 to 4 percent of Americans have identified crime as the country’s most important problem. Though about 50 percent of people say they worry a great deal about crime when asked that question directly.

But here’s the thing. Crime in the United States is in fact way down

Here’s a long-term look at the most visible crime, homicide:

 

Here’s a picture of broader crime rates:

And yet, as the same source illustrated, at the very time when crime rates had fallen steadily and substantially for 20 years, 68 percent of Americans said the national crime rate was getting worse. (Crime rates continued to fall after 2011, though there was an uptick in murders in 2015 and 2016. The rate appears to have fallen in 2017.)

Of course, the president is better informed than average Americans. Surely White House staff have explained the crime statistics to President Trump. So why does he talk about “this American carnage” and pound away at the “crime” issue when endorsing candidates who never talk about it? Perhaps it’s part of his continuing use of racially charged language. Perhaps “crime and borders” is just shorthand for the kinds of social change he thinks his voters fear. Or maybe it reflects the fact that he grew up in New York City during a time of sharply rising crime. We all get ideas in our youth (“American cars aren’t well made”) that may stick with us even us as the facts change.

Whatever the reason, it seems curious that he so often cites “strong and crime” as the reason to support political candidates who haven’t talked about crime.

 

Many of you are probably suffering from tariff fatigue right now. Every day, there is a new tariff in the news. Tariffs on Canada, tariffs on the EU, tariffs on China; tariffs on industrial products, tariffs on agricultural products; retaliatory tariffs by Canada, the EU and China; tariffs in effect today, tariffs going into effect soon. It’s hard to keep track of it all.

The latest is the announcement from USTR today of U.S. tariffs to be imposed on $34 billion of Chinese imports on July 6:

The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.   

On May 29, 2018, President Trump stated that USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy.  Today’s action comes after an exhaustive Section 301 investigation in which USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce. 

The list of products issued today covers 1,102 separate U.S. tariff lines valued at approximately $50 billion in 2018 trade values.  This list was compiled based on extensive interagency analysis and a thorough examination of comments and testimony from interested parties.  It generally focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.  The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.

This list of products consists of two sets of U.S tariff lines.  The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6.  These lines cover approximately $34 billion worth of imports from China.  USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public and advice from the appropriate trade advisory committees.  Customs and Border Protection will begin to collect the additional duties on July 6, 2018.

The second set contains 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy.  These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing.  After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.

Trying to divine the Trump administration’s true intent with regard to all of its various tariffs is a challenge. One view is that the administration is just negotiating, and it believes it can get the best deal by threatening tariffs, as this will cause our trading partners to offer more in the negotiations. In this view, a threat of duties to be imposed on July 6 is supposed to induce China to make more significant concessions in the ongoing negotiations that have been taking place on the various trade practices noted by USTR above.

There’s not much evidence that negotiating trade agreements in this way is effective, especially with a larger economy like China. In fact, it may make a successful negotiation more difficult. Other countries have their own politics to deal with, and no foreign leader wants to look weak by caving it to American pressure.

Another possibility is that the administration thinks it is good policy for the U.S. to impose tariffs, and while they may talk about negotiations, their real objective is to have higher tariffs. They know others will retaliate, but they think the U.S. wins on balance, maybe in part because they think manufacturing is more important than anything else, and the U.S. tariffs tend to be on manufactured products and related inputs, whereas the foreign tariffs are often on agricultural products.

If this is the adminstration’s intent, the economy may be in for a bumpy ride. The quantity of the imports subject to all of the Trump administration’s various tariffs is getting large (and may get much larger soon if they impose tariffs on auto imports), and the negative impact on the economy may, as Gary Cohn has acknowledged, become apparent once all the tariffs are in effect (the tariffs could even erase the gains from tax reform).

Things are looking pretty bleak right now for U.S. trade policy. Congress could and should step in here, but that does not look likely at the moment. Retaliation by U.S. trading partners might get the administration’s intention, but as noted, the administration may see all the additional tariffs as a win. In the end, the costs of all this to the U.S. economy will become apparent. In the meantime, all Americans will pay a price for whatever it is the administration thinks it is doing.

House Republicans may have worked out a compromise bill between House GOP leadership, some conservatives, and some moderate Republicans that will come up for a vote next week. The compromise dooms an effort by moderates to force a vote on bipartisan legislation that had the most likely chance of passing the House and Senate (though only a slim chance of a presidential signature). The draft bill has leaked, and like any compromise, it is a real mixed 293-page bag. But on net, the bill would make the immigration system worse than it is right now.

Some Very Positive Elements

Indefinitely renewable status: On the positive side, the bill provides a legal status for DACA-eligible people that is indefinitely renewable under the same criteria as DACA itself (i.e. school attendance or high school graduation). This is actually more inclusive than the Dream Act in a way, which offers only a temporary status that imposes additional requirements to be met in order to receive permanent residency. That said, as explained below, this bill restricts the application pool in other ways to result in fewer applicants than other bills including the Dream Act.   

Pathway to citizenship for DACA population & legal immigrant Dreamers: Even better, the new legislation would provide a pathway to citizenship for some DACA recipients and some legal immigrant Dreamers who meet additional education and skill qualifications on top of DACA’s requirements (i.e. high school degree). No other piece of legislation so far has provided a pathway to citizenship that doesn’t discriminate against some legal immigrants. For some time, we have been nearly alone in advocating allowing legal immigrants in temporary status, such as children of H-1Bs, to apply for any pathway to permanent residency and citizenship. The fiscal and economic benefits of keeping these young immigrants—almost entirely highly skilled—in the United States are enormous. Unfortunately, as noted below, this pathway will help very few legal immigrant Dreamers.

Repeal of per-country limits: The draft would include provisions that would repeal the discriminatory per-country limits on employer-sponsored immigrants, while raising the limits for family-sponsored immigrants. The per-country limits prevent any single nationality from receiving more than 7 percent of the total number of green cards in any given year. The result is massive wait times for more populous countries, and no wait times for others. On the employer side, for example, Indian immigrants with advanced degrees who apply right now may never see their green cards in this lifetime. We have again led the way in championing this reform.

More employer-sponsored immigration: Employer-sponsored immigration will eventually get a boost of approximately 88,400 green cards. There would be an immediate increase of 65,000 with a subsequent increase of 23,400 in 2039. Increasing high skilled immigration is unequivocally positive for the U.S. economy and labor force. My colleague Alex Nowrasteh and I have advocated this reform for many years because it has massive fiscal benefits and will promote innovation and economic growth.

Many Bad Elements

Legal immigration cuts: The biggest problem with the GOP compromise is that it would slash legal immigration significantly. It would repeal provisions of immigration law that annually provide green cards to siblings (65,000) and married children of U.S. citizens (23,400). The cut would be partially offset by an annual increase of 65,000 on the employer-sponsored side, but the 23,400 green cards for married children would disappear. In addition, it would end the diversity visa lottery entirely, which makes 55,000 green cards available to nationals of countries that send few immigrants to the United States if they have at least high school degree.

The bill rebrands this banning of legal immigrants as a way to provide permanent status for Dreamers, reallocating the diversity visas (55,000) and the married children visas (23,400) to that purpose (as if God created only a finite number of green cards). But if the Dreamers don’t use the 1.6 million reallocated green cards over 20 years, the draft legislation would just delete the extras, which gives the lie to the claim that the reallocation is necessary to keep green cards at the same sacred level that we’ve had for almost three decades. While the 23,400 visas for married children would go to the employer-sponsored side in the 21st year and after, the 55,000 diversity visas would just be flushed forever.

The bill would make it much more difficult to receive asylum in the United States (below), likely halving the number of asylum seekers (from about 26,000 to about 13,000). All told, the GOP compromise would reduce legal immigration by about 1.8 million over two decades. Even if you count the Dreamers, it would still be a net reduction of likely about a million. This is about 9.1 percent cut to legal immigration. If you count the Dreamers, it would be about a 5 percent cut relative to what 2019 will be.

It makes no sense to cut legal immigration at a time when U.S. population growth is at the lowest level since the Great Depression, and the fertility rate has plunged to its lowest level ever recorded. GDP growth depends heavily on a growing population, and shrinking the labor force would shrink the economy proportionately. Family-sponsored and diversity immigrants are better educated than Americans, compounding the economic damage. Moreover, unlike employer-sponsored immigrants who are almost always in the United States working already when they receive permanent residency, family and diversity immigrants are new arrivals from abroad, meaning that there are much more severe implications for population growth as a result of keeping them out. Family-sponsored immigrants receiving permanent residency add to the existing population, while employer-sponsored immigrants receiving permanent residency are already part of it.

The United States is already one of the least generous countries in the world on legal immigration, and this bill would make America even less competitive than it already is.

Canceling legal immigrant applications: The reductions in legal immigration are even more perverse because they come at the expense of legal immigrants who have waited in line up to two decades for the ability to immigrate legally. The bill would terminate more than 3 million applications for family-sponsored visas. Implicit in the GOP compromise is that it would cancel these people’s applications in order to legalize legal and illegal immigrant Dreamers. The party that has routinely rejected “amnesty” on the grounds that it would be “unfair” to legal immigrants is planning to take away their ability to immigrate in order to give amnesty to illegal immigrants. This outcome is massively unjust, and it will inevitably result in more illegal immigration. Not only would those who now have no way to enter legally likely consider alternative avenues, but why would anyone else wait in the lines that remain if the U.S. government could simply throw up a “Closed” sign at any time years later?

Making asylum impossible for border crossers: Under a 1996 law, asylum seekers who come to the border must first prove that they have a “credible” fear of persecution in order to then apply for asylum. Asylum officers must assess where there is a “significant possibility” that an immigration judge will approve their claim. Rather than simply presenting a claim that is internally consistent, meets the requirements for asylum, and is otherwise credible, the compromise bill will now require them to prove their statements are “more probable than not” to be true.

The standard will effectively require asylum seekers to come with proof to the border, yet as I note in this longer article on the topic, we “simply cannot expect that asylum seekers who may have had to sneak out of their country of origin in the dead of night or swim across rivers to escape persecution will have sufficient evidence the moment they arrive in the United States to meet this burden.” As the Tahiri Justice Center, which serves women fleeing violence, has stated, the “heightened screening standard will, as intended, wrongfully prevent women and girls fleeing horrific violence from even presenting their cases in court.” Any provision that would have sent Jews—who often lacked documents—back to the Holocaust simply cannot be used as the standard for America today.

Very narrow pathway to citizenship: The pathway to permanent residency would apply to a very small share of immigrant Dreamers. In order to get the initial temporary status valid for six years, it would require applicants to be under the age of 37, and to have been physically present in the country 11 years ago (12 years by the time the plan is implemented). It would restrict the DACA population to those who have an income of at least 125 percent of the poverty line unless they were in school or taking care of a young child. It would exclude Dreamers who have ignored removal orders or skipped court hearings, even if they have lived in the United States for more than a decade. It would also require the payment of a fine of $1,000 for use in border security (which would not come close to covering the cost of the $23.4 billion in border security and wall funding provided in the bill).

In order to obtain permanent residency (a green card), Dreamers would have to meet a points threshold based on English language ability, education, work, and military service. In all likelihood, this bill would grant permanent residency to at most the same number of people who received DACA (700,000), excluding roughly 80 percent of all unauthorized immigrant Dreamers who entered the United States as children before 2017 (based on Migration Policy Institute’s estimate of that population).

The Wasteful Border Wall: The bill would spend $23.4 billion on border security, including $16.6 billion on a pointless border wall. For comparison, Border Patrol has spent just $65 billion in the last five decades combined. As I have written before, the border wall is not effective at reducing illegal immigration, and even if it was, it’s construction would result in the seizure of miles of private land without reasonable due process protections.

Bottom Line

There are so many other problems with this bill that they are impossible to list in one post. There is the unnecessary and costly biometric exit system, the fast-track deportations of unaccompanied children at the border back to violence in Central America, and much else. The pathway to citizenship is simply too narrow to make up for the dramatic restrictions that this bill would impose on legal immigrants and asylum seekers. The cancellation of applications by legal immigrants who have been waiting is massively unfair and undermines the integrity of the entire legal immigration system.

The Trump administration announced it will argue in federal court that ObamaCare’s preexisting-conditions provisions are unconstitutional. Supporters of the law, including many reporters, are beside themselves with glee. Republican fools! Everyone knows ObamaCare’s preexisting-conditions provisions are the most popular part of the law! (Democrats, crush them!!)

ObamaCare’s supporters have this one exactly backward. The law’s preexisting-conditions provisions are not popular. They are wildly unpopular. Supporters of the law believe they are popular – and have fooled even Republicans into believing the same – because they have been drinking a strong brew of economic ignorance, shoddy polling, and bad journalism.

In response to the Trump administration’s announcement, Kaiser Family Foundation president Drew Altman wrote:

Protections for people with pre-existing conditions are hugely popular, and the administration may have handed Democrats their strongest health care weapon yet — because now they can make the case that the administration has gone to court to take away protections for people with pre-existing medical conditions.

The case is also likely to drag on, so it could be the political gift that keeps on giving through 2020, even if it is eventually thrown out.

The Washington Post’s Paige Winfield Cunningham wrote:

The Trump administration has given Democrats a generous political gift
Preexisting conditions health coverage is very popular.

President Trump has given Democrats the political gift that Capitol Hill Republicans were too smart to grant them last year. And Republicans know all too well it could be disastrous…

Dismayed, top Republicans have been moving quickly to put space between themselves and the administration on the matter, anxious to distance themselves from such popular consumer protections…

Politicians and policymakers are well aware that preexisting protections [sic] poll extremely well with Americans. Seventy percent of respondents to a Kaiser Family Foundation poll last year — including 59 percent of Republicans — said the federal government should continue prohibiting insurers from charging these folks more for coverage.

Less smart than Capitol Hill Republicans? Them’s fightin’ words.

The reason Altman, Cunningham, and almost everyone else in Washington believe ObamaCare’s preexisting-conditions provisions are popular is because they conduct (in the case of Altman) and rely on (in the case of Cunningham) poll questions that ask only about the presumed benefits of those provisions–as if those provisions have only benefits, and no costs. Here is the Kaiser Family Foundation poll question both of them cite.

Bad Polling

The question basically asks whether respondents want the federal government to guarantee that sick people will pay no more for health insurance than healthy people pay. It asks only about the intended benefits of ObamaCare’s preexisting-conditions provisions: lower premiums for the sick.

Kaiser Family Foundation scholars from Altman all the way down to the lowliest research assistant, as well as seasoned health-policy journalists like Cunningham, know full well that requiring insurers to charge healthy and sick enrollees the same entails significant costs as well as benefits. And they know what those costs are. But while I have seen Kaiser Family Foundation polls ask respondents to offer opinions informed by both the benefits and the costs of a certain policy, I have never seen them do so with regard to ObamaCare’s preexisting-conditions provisions.

Fortunately, we at the Cato Institute have done so. The results may shock you! 

In 2012 and again in 2017, Cato scholars fielded surveys that sought to get a more accurate picture of public attitudes toward these provisions. On both occasions, we learned that when pollsters as voters about both the benefits and the costs of ObamaCare’s preexisting-conditions provisions, voters really don’t like them.  

Take our most recent series of poll questions, conducted last year. When we asked voters essentially the same benefits-only question the Kaiser Family Foundation asked, we got essentially the same response: 2-1 support for ObamaCare’s preexisting-conditions provisions. But when we asked whether voters would still support those provisions if they increased premiums or taxes, support flipped to opposition.

But those are not the only costs of those provisions. In this blog post at Health Affairs, I discuss research showing that ObamaCare’s preexisting-conditions provisions are reducing the quality of coverage for patients with many expensive conditions. Believe it or not, and even ObamaCare’s architects know this to be true, ObamaCare’s preexisting-conditions provisions provisions literally punish insurers who offer high-quality coverage for the sick.

When we asked voters if they would still support ObamaCare’s preexisting-conditions provisions if those provisions reduced quality, voters opposed those provisions by a 2-1 margin. That’s right: the impact ObamaCare’s preexisting-conditions provisions have on quality caused initial 2-1 support for those provisions to flip all the way to 2-1 opposition.

Good Polling

This huge swing occurs because the impact that ObamaCare’s preexisting-conditions provisions have on quality causes even Democrats to turn against them.

Have a look at the below chart. Unlike Republicans and independents, Democrats are willing to endure the higher taxes and health-insurance premiums associated with those provisions – but not reductions in quality, which cause 41 percent of Democrats to flip from supporting those provisions to opposing them.

More Good Polling

The polling that Altman conducts and Cunningham cites on ObamaCare’s preexisting-conditions provisions has almost no connection to the reality of how those provisions operate, and therefore paints a misleading picture of public attitudes toward those provisions.

More responsible polling suggests not only that these provisions are unpopular, but that Republicans could turn opposition to those provisions to their political advantage–if they learn how to talk about how those provisions affect quality.

In fact, I’m so confident that ObamaCare’s preexisting-conditions provisions are unpopular, I will bet Drew Altman $100 that if the Kaiser Family Foundation polls both the benefits and costs of those provisions, their poll will show those provisions are unpopular too. What do you say, Drew?

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