“Consider Some History”

As a battered and weary country peers into the hellmouth of Election 2016, contemplating the “bleak choice between a ‘liar’ and your ‘drunk uncle,’” along come two of (Anglo-) America’s premier public intellectuals with a plan for getting honest, sober policies out of our next president. “We urge the next president to establish a White House Council of Historical Advisers,” Niall Ferguson and Graham Allison write in this month’s Atlantic. Modeled on the Council of Economic Advisers, the CHA would bring together the country’s finest historical minds, backed by a professional staff, to help close the “history deficit” at 1600 Pennsylvania.

It’s one of those buzzworthy notions that seems ingenious on first airing—a presidential “Dream Team of Historians”!—but gets less shiny the closer you examine it. 

Arthur Schlesinger, Jr., speaking truth to JFK's power!Arthur Schlesinger, Jr.: speaking truth to JFK’s power

“I think there would be more than enough work for a council of applied historians,” says Harvard’s Allison. What kind of work? As Ferguson and Allison envision it, the Council could help presidents avoid unforced historical errors, like the invasion of Iraq. When Bush “chose to topple Saddam Hussein,” they write, “he did not appear to fully appreciate either the difference between Sunni and Shiite Muslims,” and “he failed to heed warnings that the predictable consequence of his actions would be a Shiite-dominated Baghdad beholden to the Shiite champion in the Middle East—Iran.”

It’s a fair critique, but neither Ferguson nor Allison is in a great position to make it. It wasn’t what either of them were saying at the time.

During the war fever of 2002-03, Ferguson wasn’t urging the administration to rethink the Iraq adventure, lest they inadvertently empower Iran–he was cheering the disaster on. “By showing them just how easily Saddam’s vicious little tyranny could be overthrown,” he wrote in the Daily Mail (“Empire of the Gun,” June 21, 2003), “Mr. Bush has made it clear to the leaders of Iran, Syria and Saudi Arabia that he is in deadly earnest. If their countries continue to sponsor terrorism as all three notoriously do, Saddam’s fate could befall them too. Such saber-rattling evidently works.” Further: “Historians may well look back on 2003 as a turning point in the troubled politics of the Middle East. And they will give much of the credit for that transformation to the courageous and undoubtedly risky strategy adopted by President George Bush.” Just the hard truths Bush needed to hear!

Trial by Jury on Life Support

Earlier this month, the New York Times ran a headline “Trial by Jury, a Hallowed American Right, Is Vanishing.”  This is very true.  It’s a trend that we at Cato have been lamenting for many years.  Despite the clear language of the Sixth Amendment, that the accused shall enjoy the right to trial by jury in “all criminal prosecutions,” the government manages to oversee a system where jury trials are quite rare–only about 1 percent of the criminal cases will be decided by juries.

Fortunately, there’s a new book that calls attention to this problem, The Missing American Jury, by Professor Suja Thomas.  Entrepreneur Mark Cuban recommends the book, saying jury trial “is a right that you never think you will need … until you do.”  Precisely.  Beyond the criminal area, the administrative state is also trampling the right to jury trial in the civil area

For a podcast interview with Suja Thomas, go here.

For related Cato scholarship, go here and here.

After Welfare Reform, Immigrants Thrived Without Federal Benefits

Twenty years ago last week, Congress enacted the most extensive welfare reform law since the 1960s, the Personal Responsibility and Work Opportunity Reconciliation Act. Cato scholars have long championed a particular aspect of the reform bill that excluded recent legal immigrants from federal means-tested public benefits and have argued for extending the law’s restrictions. Welfare reform was successful: immigrants thrived without government support.

The theory behind welfare reform was that depriving benefits from immigrants would incentivize those already here to find jobs and encourage only those who wanted to work to come. This theory has appeared to work out in practice. Following the law’s enactment, immigrants who were most likely to be targeted by its restrictions responded by working more, which decreased the prevalence of poverty in their households.  

Trump’s Trade Deficit Obsession

My previous attempts at asking a Trump trade adviser directly about trade policy failed. I’m now going to try another approach: Interpreting something surprising two other Trump advisers said.

Here’s what Wilbur Ross and Peter Navarro wrote recently:

The saddest fact here is that Hillary Clinton doesn’t know the difference between a good trade deal and a bad one. Exhibit A is the Central American Free Trade Agreement (CAFTA-DR).

In her economic speech in Detroit, Clinton bragged that she voted against the one multilateral trade deal that came before the Senate while she was there. That was indeed CAFTA-DR, a multilateral deal involving the U.S. along with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

Here’s what Clinton did not confess to: She was wrong to oppose CAFTA-DR. In 2014, we had a favorable trade in goods balance with the CAFTA-DR countries of $2.7 billion. By 2015, that jumped to $5 billion. This pattern continued in the first half of 2016 with a surplus of $2.4 billion.

Did you catch that?  Trump’s trade advisers are praising a U.S. trade agreement.  That doesn’t sound very Trump-like, as Trump has been saying NAFTA is a “disaster” and has been calling the Trans Pacific Partnership (TPP) the “rape” of our country.  

So why do they like the CAFTA-DR?  Because in 2014 (9 years after the deal went into effect), there was a U.S. surplus in trade in goods with the various members of CAFTA-DR.  That by itself tells them it was a good deal. 

They follow this up with their typical criticism of NAFTA and the US-Korea FTA, complaining that these agreements led to a trade deficit:

Now what about the very poorly negotiated trade deals Hillary Clinton did support? Take NAFTA, which she lobbied for and her husband, former President Bill Clinton, signed in 1993. At the time, our trade in goods with Mexico was roughly in balance, with a small surplus of $1.7 billion. Today, we run a trade deficit in goods of roughly $60 billion — an astonishing leap. 

NAFTA is hardly a bad trade deal outlier in the Clinton oeuvre. As Secretary of State, Hillary Clinton helped draft the South Korea Bilateral Agreement, describing it as “cutting edge.” She was right. It cut 75,000 American jobs, according to the EPI, rather than the 70,000 gain promised by the White House. Meanwhile, our trade deficit with South Korea has doubled.

So the argument seems to be this: There are good trade agreements that lead to trade surpluses and bad trade agreements that lead to trade deficits. A good negotiator can get you an agreement with a surplus; with bad negotiators, you will end up with a deficit.

In reality, this is complete nonsense. These agreements were all negotiated by basically the same people (the U.S. Trade Representative’s Office), and they all say basically the same thing: They all lower tariffs; they all open services and procurement markets to some degree; they all protect intellectual property; and they all have rules on investor protection. There wasn’t some tricky maneuver the U.S. trade negotiators carried out it in the CAFTA-DR context to get a trade surplus, but forgot to use in the other trade agreements.

So why the variation in trade flows between agreements? Well, it’s complicated. These trade numbers actually fluctuate quite a bit from year to year.  See below for tables showing the U.S. trade balance over the years with several CAFTA-DR countries:

Trade in goods balance with Costa Rica

Trade in goods balance with Dominican Republic

Trade in goods balance with Nicaragua

There are a lot of reasons for these fluctuations. Among other things, there are overall trends in the global economy and in specific national economies; and there are the decisions of private actors operating in the marketplace (it is these actors who are the ones actually doing the trading), which affect particular sectors over time. Thus, citing a trade surplus with CAFTA-DR countries – especially when it focuses on only the brief period 2014-2016 – as a reason for the success of the agreement vastly oversimplifies the impact of trade agreements on trade flows. Again, it is not the skill of the CAFTA-DR negotiators vs. the incompetence of the NAFTA or US-Korea FTA negotiators that led to the different results here.  As noted, it was basically the same people on each.  This is not like baseball. Trade negotiators do not have an off year and negotiate a bad trade agreement one year, but then come back a couple years later and have a career year by negotiating a good trade agreement.

But Trump’s advisers don’t realize that, probably because they don’t really know much about the substantive details of trade agreement.  They are simply looking at U.S. trade deficits or surpluses that arise after the fact, which generally matter very little (as my colleague Dan Ikenson has explained), and certainly don’t matter much at all in the context of trade between the U.S. and individual countries.

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RIP, TTIP?

U.S. Trade Representative Michael Froman is having a bad week.  First, Senate Majority Leader Mitch McConnell put the kibosh on lingering prospects that his chamber would consider ratification of the Trans-Pacific Partnership deal this year.  Then Germany’s economy minister proclaimed the 3-year-old Transatlantic Trade and Investment Partnership negotiations had “de facto” failed, with the French trade minister promising to pursue formal termination of the talks – adding that “the Americans give nothing or just crumbs” (which puts the USTR beneath Marie Antoinette, who at least offered cake). 
 
Whether McConnell is being coy in hopes of extracting concessions from the administration on TPP is unclear, but either way the likelihood is approaching certainty that ratification of the Pacific trade deal will become the responsibility of the next president and Congress.  For reasons given here and here, I’m bullish on that outcome within two years.
 
But the TTIP is a different story.  Although the negotiations are not officially dead, they might as well be. Talks were doomed from the outset, laden with too many intractable issues, too many red lines, a thorough lack of realism concerning the time and effort required for success, and a profound asymmetry in the desire to get a deal done. With U.S. negotiators focused on completing the TPP, the EU’s embrace and commitment to the TTIP became a case of unrequited love.  With each EU overture, the U.S. negotiators could play hard to get.  And they did.
 
Now, the United Kingdom’s likely departure from the EU complicates matters further, with uncertainty about the future composition of the EU impeding proper evaluation of the expected tradeoffs from a prospective TTIP. So, while the prevailing uncertainty likely means TTIP stasis for the next couple of years, Brexit would give U.S. negotiators even more leverage in TTIP than they already have. The possibility of a US-UK free trade agreement or a UK accession to the TPP would undoubtedly shift TTIP dynamics further in favor of U.S. negotiators – and give the UK added leverage in negotiating its own post-Brexit relationship with the EU.
 
TTIP isn’t dead. It’s in a coma. For it to have any hope of recovery and real success – an outcome with real liberalization that is – a restoration of some semblance of symmetry in demand for that outcome is necessary. With the existing imbalance, it’s better to have no deal at all because the misguided objectives of negotiators are to open foreign markets as much as possible, while keeping their own as closed as possible. Negotiators with leverage are more likely to succeed at keeping their own markets closed, depriving their fellow citizens of the real benefits of trade. For Americans to realize the most important benefits of trade liberalization, its negotiators must be matched up against foreign negotiators with approximately the same strength (or leverage). When the foreign trade negotiators don’t have enough leverage, U.S. consumers and import-consuming industries lose.
 
For any TTIP outcome to be considered successful, the deal must tackle U.S. restrictions on competition in shipping (repealing the Jones Act), commercial air services, and government procurement projects. Trillions of dollars of annual economic activity in the United States is provided by domestic suppliers facing no foreign competition, which represents an enormous drag on U.S. growth.  In the TTIP negotiations to date, the United States hasn’t budged an inch to accommodate any liberalization in those areas.  Until that is no longer the case, the TTIP should be considered a failure.
 
When the TTIP negotiations were launched in 2013, I warned in this paper that the talks included the seeds of its own destruction and that a successful outcome would require a new approach:

As great as the benefits may be, the TTIP was not borne of any genuine enthusiasm for the enterprise. In Europe, it was seen as a last resort. Frustrated by the failures of monetary policy and restricted by the imperative of fiscal austerity, policymakers were looking for something—anything—to embrace as a potential economic tonic. Whether they actually thought TTIP likely to bear fruit is an entirely different matter. They wanted something to behold as evidence that Greece did not represent Europe’s fate. Potential voter wrath, political backlash, and stalemate–historically effective deterrents to initiating transatlantic trade talks–took a back seat to the affirmative optics of embracing some plausible initiative that might steer Europe from the abyss.

For U.S. policymakers, the main motivation for launching TTIP was to assuage EU concerns that the United States had written her off in its “pivot” to Asia.
 
Other rationales for pursuing TTIP include the argument that the world needs the United States and European Union to reassert global economic leadership at a time when no other country or group of countries is willing or able to do so. Another is that there is a race to establish global production standards and TTIP, representing half the world’s output, presents an opportunity to establish them here and now. A third ex-post rationale is that by establishing disciplines on issues where other trade agreements are silent—issues like currency manipulation, the operations of state-owned enterprises, local content rules, and others—the United States and EU could establish rules that China and others would eventually have to heed.
 
It is within this context that TTIP emerged. But none of those rationales–pursuing TTIP as a last resort, assuaging hurt feelings, establishing standards, disciplining China and others–seem likely to provide the motivation for negotiators and governments to dig deep and remain committed enough to make difficult choices that may carry political consequences. As the talks drag, will governments remain committed to the goals? Will governments motivated by the “last resort” rationale continue to invest seriously in the negotiations if their economies experience growth and the political costs of TTIP no longer look so necessary to incur? Already there have been signs of retreat from the ambitious goals articulated at the outset.
 
From the outset, negotiators erred by setting a 2014 completion date for the negotiations. There is absolutely no plausibility to that deadline and, frankly, failure to amend the timetable with realistic deadlines will only undermine the credibility of the undertaking with a public already skeptical of trade negotiations.

There are dozens of issues on the table of varying complexity that will likely take several years to resolve. Rather than have a single deadline for a single undertaking, the negotiators should announce that their intention is to achieve a multi-tiered agreement that yields multiple harvests at established time intervals. Some analysts have referred to the TTIP as a “living agreement,” although a common understanding of that concept is not evident nor, to my knowledge, have the governments or their negotiators used this characterization in any official context. They should. And it should work something like this.

Negotiators would take stock of the issues on the table and rank them in order of importance to a successful TTIP conclusion. They would then rank those same issues in terms of order of difficulty to resolve. Based on averaging and some agreed upon weighting of those two sets of rankings, negotiators would identify what they and their counterparts see as the most important and least important issues, as well as the most difficult and least difficult issues to resolve. That exercise would produce a road map for how to proceed.

When the dust settles and greater certainty emerges, the United States and EU (and UK) might consider relaunching the TTIP negotiations along these lines. But the parties should come to the table with a genuine willingness to liberalize everything (including sacred cows) because that is what will generate the interest, excitement, and leverage to achieve a really successful outcome.

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New Support for a European Union Army

While the American news media were preoccupied with Donald Trump’s latest tweet or Hillary’s Clinton’s latest explanation for a scandal that barely passed the straight face test, a more important development took place in Europe that received scant attention.  The prime ministers of both Hungary and the Czech Republic urged the European Union to build its own army.  That is a very significant shift in attitude.  Until now, the European countries had been content to channel security matters through NATO and to focus the EU’s attention on economic issues. 

The insistence on NATO’s primacy also reflected Washington’s wishes, since it guaranteed U.S. control of transatlantic security decisions.  That control came at a high cost, however, since it enabled the European allies to free ride on Washington’s security exertions.

U.S. leaders have repeatedly discouraged independent security initiatives on the part of the European nations.  There was a tremendous opportunity to change policy and off load security burdens with the end of the Cold War.  Perhaps the clearest opportunity was when Yugoslavia began to disintegrate in the early 1990s.  When the initial European diplomatic and peacekeeping efforts faltered and, predictably, the allies then sought U.S. “leadership,” the Clinton administration’s response should have been a firm rejection. 

U.S. officials should have told their European counterparts that the turmoil in the Balkans was a regional matter that had little impact on the United States.  And just as we would have no right to expect them to take a leading role in resolving a similar parochial bout of disorder in Central America or the Caribbean, they had no right to expect U.S. military involvement in the Balkans. Such a stance would have pressured the Europeans to address security issues in their region as competent adults instead of hapless dependents.

Instead, Washington continued to play a dominant role in the Balkans through NATO, first with the Bosnia intervention in 1995 and then with the Kosovo intervention in 1999.  Democratic Europe’s security dependence continued unabated.  Indeed, NATO’s prominence and Washington’s risk exposure increased steadily as the alliance expanded first into Central Europe and then into Eastern Europe.  As defense analyst Nikolas K. Gvosdev laments, the U.S. Senate, in a monumental dereliction of its constitutional duty, failed to ask the hard questions that needed to be asked as Washington undertook increasingly far-flung, questionable security obligations.  With a few exceptions, that was also true of the broader foreign policy community.

The Weird World of Data (and Your Privacy)

In 2007, Judge Richard Posner found it “untenable” that attaching a tracking device to a car is a seizure. But the Supreme Court struck down warrantless attachment of a GPS device to a car on that basis in 2012. Putting a tracking device on a car makes use of it without the owner’s permission, and it deprives the owner of the right to exclude others from the car.

The weird world of data requires us to recognize seizures when government agents take any of our property rights, including the right to use and the right to exclude others. There’s more to property than the right to possession.

In an amicus brief filed with the U.S. Court of Appeals for the D.C. Circuit last week, we argued for Fourth Amendment protection of property rights in data. Recognition of such rights is essential if the protections of the Fourth Amendment are going to make it into the Information Age.

The case arises because the government seized data about the movements of a criminal suspect from his cell phone provider. The government argues that it can do so under the Stored Communications Act, which requires the government to provide “specific and articulable facts showing that there are reasonable grounds to believe that [data] are relevant and material to an ongoing criminal investigation.” That’s a lower standard than the probable cause standard of the Fourth Amendment.

As we all do, the defendant had a contract with his cell phone provider that required it to share data with others only based on “lawful” or “valid” legal processes. The better reading of that industry-standard contract language is that it gives telecom customers their full right to exclude others from data about them. If you want to take data about us that telecom companies hold for us under contract, you have to get a warrant.

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