White House Cites Cato in Report on Occupational Licensing

Occupational licensing needlessly regulates scores of workers in the United States. Indeed, despite years of criticisms from economists, the percentage of workers required to hold a license has risen substantially in recent years. The Cato Institute has been talking about the problem for years. But some of our readers might be surprised to see the latest critics: A recent White House report critiquing and evaluating  licensing requirements, Occupational Licensing: A Framework for Policymakers. We’re particularly pleased that the report cited both an essay in Cato’s monthly online magazine, Cato Unbound, and one of the entries in Cato’s online forum, “Reviving Economic Growth,” which will soon be published as an ebook.  

The White House report, which was prepared by the Department of the Treasury Office of Economic Policy, the Council of Economic Advisers, and the Department of Labor, documented the massive growth of licensing in the last few decades. Over a quarter of U.S. workers now need licenses to do their jobs, and the percent of workers who need state-issued licenses has increased five-fold since the 1950s. The report concluded that this can harm employment opportunities and inflate costs for consumers. It also disproportionately affects certain populations, including immigrants and anyone with a criminal history.

The report cited Mercatus Center scholars Tyler Cowen and Alex Tabarrok, who argued against the effectiveness of licensing in “The End of Asymmetric Information” for Cato Unbound. “Yelp, Angie’s List, and Amazon Reviews all make it easy for past buyers to report their observations on seller quality and for future buyers to observe a seller’s accumulated reputation,they wrote. Thus, they said, one of licensing’s supposed benefits, helping consumers identify quality work, is becoming obsolete.

A Poor Defense of Bernie Sanders

I am not surprised that Bernie Sanders is opposed to open borders.  There is a long tradition of socialists, labor unions, and Marxists opposing open borders in the United States.  Many left-wing intellectuals oppose liberalized immigration, let alone open borders, because it will destroy political support for redistribution and state control of the economy – and they might be right

However, I was surprised by the poor arguments made by Richard Eskrow in defense of Sanders.  On how immigrants affect Americans, there is little difference between the expressed opinions of Senator Sanders and Senator Sessions (see here for a rebuttal I wrote to Senator Sessions, some of the following is borrowed from it).  Senator Sanders, at least, wants to legalize the unauthorized immigrants who are here and probably doesn’t want to seriously limit future immigration.

Below I will block quote Eskrow’s arguments and respond to each one.

“Like many libertarian ideas, ‘open borders’ is bold, has superficial intellectual appeal – and is incapable of withstanding thoughtful scrutiny. It would benefit the wealthy few at the expense of the many, here and abroad.”

One of the main criticisms of immigration by restrictionists is that poor immigrants gain far more than Americans do.  Harvard professor George Borjas’ famous paper on the wage effects of immigration found that Americans benefitted very slightly from it while almost all of the gains go toward the immigrants themselves.  Even excluding the economic benefits to the immigrants themselves, poor Americans just aren’t hurt by having more people here.  Borjas did find that immigrants decrease the wages of lower skilled Americans relative to higher skilled American, but his work is the most negative in the economics literature and should be taken with several big grains of salt.  In that paper, he holds the supply of capital as fixed – an assumption that may be fine for an academic publication but it is not useful for making an argument against immigration in the real world.  The stock of capital is dynamic and increases with the populationIgnoring that important effect would make any increase in population decrease wages.  It should further be noted that Borjas, like other economists, admits that immigration does help Americans more than it harms them, but with some distributional consequences.

Taiwan Tensions Return

The Taiwan issue, which has been mercifully quiescent since the election of Ma Ying-jeou as Taiwan’s president in 2008, shows increasing signs of returning as a major source of geopolitical tensions.  That point was underscored this week when Zhang Zhijun, the head of China’s Taiwan Affairs Office, the agency with primary responsibility for dealing with the self-ruled island, warned the Taiwanese that they must not return to “the evil ways of independence.”  He added that the Taiwanese people would “soon have to choose” between continuing the development of peaceful economic and political ties with the mainland that have taken place since 2008 or reigniting the animosity that existed during the administration of Democratic Progressive Party (DPP) leader Chen Shui-bian from 2000 to 20008.

That warning reflects growing worries in Beijing that the DPP is poised to return to power in next year’s elections.  Given the pervasive unpopularity of Ma and the governing Kuomintang Party (KMT) among Taiwanese voters, a DPP victory is indeed probable. That outcome has become even more likely with the entry of James Soong, chairman of the People First Party, into the presidential race.  Soong is certain to siphon votes from the already beleaguered KMT.

A DPP triumph does not necessarily mean an immediate crisis.  DPP leader Tsai Ing-wen is considerably more circumspect than Chen and less inclined to provoke Beijing.  Moreover, the surge of economic links with the mainland over the past seven years has benefited key DPP constituencies and dampened the enthusiasm for aggressively pushing the party’s official independence agenda.

Nevertheless, a DPP electoral victory will make Beijing deeply unhappy and increase cross-strait tensions.  China’s strategy toward Taiwan since Ma’s election has been to draw the island into an ever tighter economic embrace, with an underlying assumption that the growth of such ties will gradually erode support for independence and lead to a corresponding receptivity to political reunification with the mainland.  

It was always a flawed strategy.  Most Taiwanese show no enthusiasm for reunification, even as economic relations with the mainland have surged. Wide majorities prefer the status quo of de facto independence, and many would prefer formal independence, if they did not fear that Beijing would use force to prevent such an outcome.  Understandably, few Taiwanese want to merge their democratic capitalist society with a mainland ruled by a one-party dictatorship.  Indeed, given the economic and cultural differences between the two societies that have developed over more than a century, many Taiwanese would be reluctant to relinquish control of their own affairs and have their island become merely one small province of a vast country even if the mainland was fully democratic.

Tonight — #Cato2016 Coverage Continues With the GOP Debates

Politics is America’s national sport, so it’s not too surprising that political rhetoric focuses more on playing the game than on real-world policy solutions. While this might make for more entertaining television, viewing political discourse in this way can be a serious detriment to our society.

That’s why Cato scholars will be injecting insightful commentary and hard-hitting policy analysis into the national conversation throughout the 2016 campaign season, using the Twitter hashtag #Cato2016.

The coverage started with Mondays’s Voters First Forum (highlights here), and will continue today with the two national debates to be aired by Fox at 5:00 p.m. and 9:00 p.m. tonight.

Tune in and join the conversation on Twitter using #Cato2016.

Why the World’s Poor Choose to Pay Private School Tuition

In The Beautiful Tree: A Personal Journey Into How the World’s Poorest People Are Educating Themselves, researcher James Tooley documented how low-cost private schools operated in the world’s poorest areas, from the slums of Hyderabad in India to remote mountain villages in China and shanty towns in Kenya. According to the international development crowd, these schools shouldn’t exist – after all, the governments in these areas provide schooling at no charge. Why would the poorest of the world’s poor pay for something they could get for free?   

The answer, of course, is that they know they get what they pay for. As one father in poverty-stricken Makoko, Nigeria put it:

“Going to the public school here in Nigeria, particularly in this area in Lagos State, is just… wasting the time of day… because they don’t teach them anything. The difference is clear… the children of the private school can speak very well, they know what they are doing but there in the public [schools], the children are abandoned.”   (Page 129, emphasis in the original.)

A recent article in The Economist illustrates this phenomenon:

THE Ken Ade Private School is not much to look at. Its classrooms are corrugated tin shacks scattered through the stinking streets of Makoko, Lagos’s best-known slum, two grades to a room. The windows are glassless; the light sockets without bulbs. The ceiling fans are still. But by mid-morning deafening chants rise above the mess, as teachers lead gingham-clad pupils in educational games and dance. Chalk-boards spell out the A-B-Cs for the day. A smart, two-storey government school looms over its ramshackle private neighbour. Its children sit twiddling their thumbs. The teachers have not shown up. 

What’s the difference? It mostly comes down to a matter of incentives. Asked why parents choose to pay private school tuition when the government schools are “free,” one government school principal in Ghana explained: 

It’s supervision. Proprietors are very tough. If teachers don’t show up and teach, the parents react. Private schools need to make a profit, with the profit they pay their teachers, and so they need as many students as they can get. So they are tough with their teachers and supervise them carefully. I can’t do that with my teachers. I can’t sack them. I can’t even remove them from [the payroll] if they are late or don’t turn up. Only the District Office can. And it’s very rare for a teacher to be sacked. (Page 71.)

It’s no wonder then that private schools are proliferating in the world’s poorest areas. According to The Economist, hundreds of new private schools are opening in Lagos, Nigeria, many of them charging less than $1 a week. In poor countries, official estimates show that private schools now educate more than one-fifth of all students, double the proportion a decade ago. And even that figure probably underestimates private school enrollment since a high proportion of private schools in poor countries are unregistered. As The Economist notes, “A school census in Lagos in 2010-11, for example, found four times as many private schools as in government records.”

The market is still emerging and although the private schools tend to outperform the government alternatives, that isn’t a very high bar. Parents often lack access to information about school performance from reliable sources. Schools have an incentive to exaggerate their performance, so some in the international aid community want the government to set and enforce national standards and mandate national exams. However, there is no good evidence that national standards or testing drive performance. Moreover, as The Economist observed, ”where governments are hostile to private schools, regulation is often a pretext to harass them.” 

The absence of government standards does not imply the lack of any standards. In a competitive market, schools have an interest in demonstrating to parents that they provide high-quality education. The rapidly expansion of the private sector will create opportunities for non-profit or for-profit private certifiers to separate the wheat from the chaff. Indeed, as The Economist highlights, there are low-cost ways to provide parents with the information they need:

In a joint study by the World Bank, Harvard University and Punjab’s government, parents in some villages were given report cards showing the test scores of their children and the average for schools nearby, both public and private. A year later participating villages had more children in school and their test scores in maths, English and Urdu were higher than in comparable villages where the cards were not distributed. The scheme was very cheap, and the improvement in results larger than that from some much pricier interventions, such as paying parents to send their children to school.

In a corresponding editorial, The Economist calls on the governments of poor countries to “boost” private education through school vouchers “or get out of the way.” The editorial also argues that “ideally” the governments should “regulate schools to ensure quality” and “run public exams to help parents make informed choices” but also observes that “governments that cannot run decent public schools may not be able to these things well; and doing them badly may be worse than not doing them at all.” Indeed

Rather than lobby the often-corrupt and/or incompetent Third World governments, the best thing NGOs could do to improve education would be to grant scholarships directly to the poor and provide private certification and/or expert reviews of schools. If we want to ensure that even the world’s poorest children have access to a quality education, schools should be held directly accountable to parents empowered with the means to choose a school and the information to choose wisely. 

Too Hot in Washington: A Climate Mystery?

After the purportedly all-time record high May temperature was reported at D.C.’s Reagan National Airport (the “official” Washington weather station), I noted something very funny with its temperatures. When 2015’s monthly temperatures are stated as departures from the 1981-2010 average, which is the standard reporting procedure, the departures from average at Reagan (DCA) were always warmer than those at Dulles Airport (IAD), about 25 miles to the northwest.

Note that the departures are from the average at each location. So when DCA reports a temperature of three degrees below average, that is three degrees below the average at Reagan. Similarly for the departure at Dulles. It’s compared to the average at Dulles.

So, we’re not talking about raw temperature here. Of course DCA is going to be intrinsically warmer than IAD. It’s several hundred feet lower in elevation and its being additionally heated by the bricks, buildings, and the pavement of urban Washington, as well as the waste heat from all your money changing hands. What is interesting is that the departures from normal, or “anomalies,” at DCA were all running hot compared to the departures from normal at IAD.   

For example, last month was 1.7°F above the average at DCA, while Dulles was 0.7°F below its average, for a difference of +2.4°, where the expected difference should be near zero. The record hot May departure from normal was 1.5° greater at Reagan than Dulles. Adjusting the Reagan temperature down to where it should be would take it out of the record books.

Maui: A Good Start Toward Finishing the TPP

Trade ministers from the twelve nations negotiating the Trans-Pacific Partnership (TPP) met last week in Maui.  Some observers had expressed hopes that the Maui ministerial meeting would produce a final TPP agreement.  The “collapse” in Hawaii has caused some commentators to voice fears that it may not be possible to conclude TPP anytime soon.  Those fears are overblown.  My view is that the Maui meeting qualifies as quite a good start toward actually finishing the TPP. 

Bear in mind that the TPP negotiations have been going on for several years.  The United States became an active participant during President Obama’s first term.  However, until recently, U.S. negotiators have been handicapped by lack of Trade Promotion Authority (TPA, also known as “fast track”).  Other countries were understandably reluctant to try to conclude TPP without assurance that Congress would be willing to vote up or down on the agreement, rather than picking it to pieces with amendments.  So all previous negotiating sessions amounted to warm-up rounds, with the most serious discussions being held in abeyance until the United States finally was ready to engage without reservations.

Maui was the first TPP ministerial at which U.S. negotiators actually were in a position to consider closing the deal.  If all other countries had the same perspective on the issues as the Obama administration, the agreement could have been concluded.  Not surprisingly, other countries have various opinions on key topics.  The Maui talks allowed ministers to put those differences clearly on the table. Undoubtedly, negotiators now have a much better idea of the realm of possible outcomes.  They know what they will be expected to give in order to receive what they want in return.  By last Friday afternoon, it was time for ministers to leave Maui and head back to their capitals for high-level consultations.