Rubio Was Right on Fed Ed Power Grabbing

In last night’s GOP presidential debate, Sen. Marco Rubio (R-FL) said in response to a question about the Common Core national curriculum standards that, sooner or later, the Feds would de facto require their use. If you know your federal education – or just Common Core – history, that’s awfully hard to dispute.

Said Rubio: “The Department of Education, like every federal agency, will never be satisfied. They will not stop with it being a suggestion. They will turn it into a mandate. In fact, what they will begin to say to local communities is: ‘You will not get federal money unless you do things the way we want you to do it.’”

That is absolutely what has happened with federal education policy. It started in the 1960s with a compensatory funding model intended primarily to send money to low-income districts, but over time more and more requirements were attached to the dough as it became increasingly clear the funding was doing little good. Starting in the 1988 reauthorization of the Elementary and Secondary Education Act (ESEA) we saw requirements that schools show some level of improvement for low-income kids, and those demands grew in subsequent reauthorizations to the point where No Child Left Behind (NCLB) said if states wanted some of the money that came from their taxpaying citizens to begin with, they had to have state standards, tests, and make annual progress toward 100 math and reading “proficiency,” to be achieved by 2014.

Cato Scholars React to Last Night’s Republican Presidential Primary Debates

Last night many Cato scholars watched and live-tweeted the Republican presidential primary debates. Missed the conversation? Read our scholars’ statements below. 

“Unfortunately, neither the Fox questioners nor the candidates spent much time discussing how to limit government or expand freedom. There was too much focus on keeping immigrants out of America. Bush and Walker seemed calm and stable, and in the long run that may be what voters want. Christie and Paul both made their points strongly, including one epic confrontation, appealing to different parts of the electorate. Somebody should just set up the two of them to debate. The candidates kept talking about the ‘weak’ U.S. military. The United States spends more on the military than China, Russia, Great Britain, France, Japan, India, Saudi Arabia, Germany, Brazil, and the next 4 countries combined.” 

David Boaz, Executive Vice President of the Cato Institute 

“This was another disappointing night for those seeking a smaller, less costly, less intrusive government. Depending on the candidate, we heard calls for more spending, more domestic spying, more intervention overseas, and more control over people’s personal lives. Big-government conservatism is back with a vengeance.” 

Michael D. Tanner, Senior Fellow 

“A number of governors touted that they had balanced their state budgets. That’s no big deal because, unlike the federal government, every state is required to balance its budget every year. Fox News gave short-shrift to economic growth issues and cutting the federal budget, which are crucial issues for voters and for the future of the nation.”

Chris Edwards, Director of Tax Policy Studies at Cato and Editor of DownsizingGovernment.org

“The federal government will spend almost $4 trillion this year, and more next year. Overall, the candidates failed to detail plans on how to overhaul the federal  budget and limit its growth. Eighty-five percent of federal spending growth over the next decade is due to Social Security, our major medical programs, and interest on the national debt. Refusing to propose reforms ignores this reality.” 

Nicole Kaeding, Budget Analyst 

Rules versus Discretion: Insights from Behavioral Economics

For half a century now, the “rules versus discretion” debate in monetary economics has focused on the so-called “time inconsistency” problem.  The problem is that, although a discretionary central bank might promise not to allow the inflation rate to rise above zero (or some other ideal value), the fact that an inflation “surprise” can boost employment and output in the short run will tempt it to break its promise.  Realizing this, market participants will anticipate higher inflation.  The long-run result is a higher inflation rate with no improvement in either employment or output.  By limiting the central bankers’ options, a monetary rule solves the time inconsistency problem.

An earlier rules-versus-discretion debate had taken place in the 1920s and 1930s.1  The later one, which was inspired by the stagflation of the 1970s, differed in that it was influenced by the New Classical revolution that was taking place around the same time.  Consequently, the later critics of monetary discretion, including Finn Kydland and Edward Prescott,  Guillermo Calvo, Benn McCallum, Robert Barro and David Gordon, and John Taylor,2 differed from their predecessors by building their arguments on the premise that central bankers were both well (if not quite perfectly) informed and well intentioned.  Discretion, according to them, leads to less than ideal outcomes not because central bankers are ignorant or misguided, but because of misaligned incentives.

Republican Candidates’ Spending Increases

The Republicans took the stage in their first presidential debate Thursday night. Of the 16 major candidates, eight have gubernatorial experience. I have written a number of times recently about the fiscal records of the candidates with gubernatorial experience. Their records are instructive. A governor who promises to cut federal spending is more believable if he held spending in check when he was governor.

As my blog post earlier in the week detailed, there are a number of ways to measure how and why state spending changes. Gubernatorial policies play a large role in influencing state general fund spending. Other factors, such as the state’s budget process, legislative policies, and federal mandates, can contribute to changes in spending, but as a state’s Chief Executive, governors have impact.

Using data from the National Association of State Budget Officers, I wanted to see just how much each governor increased spending on an annual basis. Analyzing the data on an annual basis allows us to control for the length of governor tenure. George Pataki was governor of New York for twelve years, while Scott Walker has been governor of Wisconsin for only four years. Comparing Pataki’s increase of 39 percent to Walker’s increase of 16 percent is unfair to Pataki.

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.