Obama’s Immigration Actions Shirk His Constitutional Duties

President Obama’s executive actions on immigration are now before the Supreme Court, with a hearing in United States v. Texas scheduled for April 18. As we have at the district court and appellate level, Cato has filed a brief supporting the Texas and the other plaintiff states. Although our immigration system is broken, Congress’s failure to fix it doesn’t give the president the power to institute reforms himself.

Through the Deferred Action for Parents of Americans and Lawful Permanent Residents program (DAPA), the executive branch has given temporary legal status to more than four million illegal migrants, entitling them to work authorizations and other benefits. DAPA amounts to a deliberate effort to bypass Congress and conflicts with five decades of congressional immigration policy. Perhaps most importantly, it violates the separation of powers and is thus unconstitutional.

In what has become routine under this administration, 26 states sued the federal government in response to this executive action. In February 2015, a federal district court blocked DAPA from going into effect, finding that the executive branch did not follow the proper administrative procedures before implementing what is effectively a substantive change in established immigration law. The government appealed this judgment to the U.S. Court of Appeals for the Fifth Circuit, which affirmed the temporary injunction.

When the Supreme Court decided to hear this case, it asked the parties to address four issues: (1) whether at least one state has standing to sue when DAPA will cost the state millions; (2) whether DAPA is subject to the Administrative Procedure Act’s technical procedural requirements for making regulatory changes; (3) whether DAPA violates the law as enacted by Congress in the Immigration and Naturalization Act and related statutes; and (4) whether the president’s actions violate his constitutional duty to “take care that the laws be faithfully executed.”

Cato’s brief, primarily authored by Prof. Josh Blackman and joined by Profs. Randy Barnett and Jeremy Rabkin, addresses the fourth issue, the Take Care Clause of Article II. This clause originated in response to British monarchs’ practice of suspending the law, crossing the line between executive and legislative functions. As the Framers knew well, in the wake of the Glorious Revolution, the English Bill of Rights eliminated “the pretended power of suspending … or the execution of laws by regal authority.” Nevertheless, King George III routinely refused his assent to laws enacted by colonial legislatures, insisting that they contain a provision authorizing the king to suspend their authority. This expansion of executive power yielded the first two grievances in the Declaration of Independence.

Analysis of the text of the Take Care Clause and Supreme Court precedent reveals that the president’s duty to enforce the law entails four distinct but interconnected components: the duty is mandatory and not discretionary; the president must act with care; the president must execute the law, not author new legislation; and the president must make a faithful effort to enforce the content of the laws Congress passes. DAPA amounts to a legislative act and is not a good faith or careful attempt to execute the law.

Cato thus urges the Supreme Court to affirm the judgment of the Fifth Circuit.

Alternatively, the Court should dismiss the writ of certiorari—what the “decision to decide” is called—as improvidently granted, which would leave the injunction of DAPA in place but set no precedent for the future. It’s likely that the next president will either expand or rescind DAPA, either transforming the case into something new for the lower courts to evaluate or mooting it altogether.

For more commentary about our brief, see Randy Barnett and Josh Blackman.

Free Trade Reveals, Not Causes, The Problem with America’s Labor Market

In the latest print edition of National Review, you’ll find my lengthy cover story on international trade policy and its actual effects on the U.S. economy and labor market.  The abbreviated version of my piece (though you certainly should read the whole thing!), is that, while free trade has provided overwhelming benefits for the vast majority of American families, workers and businesses, its inevitable displacement of some workers has revealed serious problems in the U.S. labor market’s ability to reallocate people from older, less productive sectors to new and innovative ones.  This collapse in “labor dynamism” is a relatively new phenomenon and is hurting not only the U.S. economy, but also American voters’ confidence in it – effects that boost, ironically, protectionist candidates like Donald Trump, even though other government policies, and certainly not trade, are likely to blame for the problem. 

Over the last few days, my article has found additional support:

  • First, there have been several new economic reports supporting the benefits of free trade for the U.S. economy.  Two highly respected economic forecasts – from Brandeis’ Peter Petri and Moody’s Analytics – have bolstered my view that Trump’s protectionism would not only fail to solve the current problems in the U.S. labor market, but actually make things much worse.  In particular, these studies each found that withdrawing the United States from the global economy would result in millions of American jobs lost, a full-bore recession (in the United States and in China and Mexico), and an actual increase in the U.S. trade deficit.  I’d also recommend this Eduardo Porter look at NAFTA and the U.S. auto industry, in which he finds that the agreement’s creation of a globally-competitive North American automotive supply chain probably saved U.S. autoworkers’ jobs – jobs that without NAFTA would have disappeared in the face of intense Asian competition.  Finally, for those who, like Trump, erroneously think that the U.S. manufacturing sector has been destroyed by trade, I invite you to check out the latest Global Manufacturing Competitiveness Index, which finds that the second-ranked United States will likely overtake China for the top spot by 2020.
  • Second, my Cato Institute colleagues have gotten in on the fun: Alan Reynolds joins GMU’s Scott Sumner as expressing serious doubts about the new study on China trade and U.S. jobs that’s driving the American punditocracy’s latest bout of protectionist pearl-clutching, while Dan Ikenson warns about blaming trade for all of the real failures of U.S. domestic policy.  Both are worth a look.
  • Finally, commentary from across the pond mirrors my thesis that the real problem in the U.S. labor market isn’t trade but the multiple policy failures that have led to our distressing lack of labor dynamism.  The Economist reiterates the “overwhelming benefits” of trade, while lamenting the U.S. economy’s sorry ability to help American workers cope with the ultimately-beneficial competitive forces unleashed by trade, automation or any other form of “creative destruction.”  Charles Kenny, author of The Upside of Down: Why the Rise of the Rest is Good for the West, says much the same thing in a lengthy interview to the Financial Times.  Kenny’s whole interview is worth reading, but this part really stuck out (emphasis mine):

I think there’s evidence from elsewhere that Chinese imports helped create jobs outside the manufacturing sector, not least by reducing prices and, in particular, reducing prices on goods purchased more by poor people. So I think there has been an effect on both consumption but also job creation outside of manufacturing, but not in the manufacturing sector. And lots of people in concentrated parts of the country lost their jobs as a response to growing Chinese imports.

The really sad part of the story is what happened next. What happened next was the Federal Government started spending some more money in those parts of the country. On what? On disability payments, on taking people out of the labour force.

This was where most of US Federal money went in response to this challenge. Not on retraining, not on helping people move to where the jobs were, not on creating new innovation, not on any of that, not on building the pie again, but on taking them out of the labour force through disability payments. That’s just chronic. I think it shows a real lack of political leadership.

Data in Kenny’s book, also excerpted in the FT, underscore these problems, and it ends with this mind-blowing statistic: “evidence suggests that about one in four hundred federal dollars helped workers retrain out of [trade-]exposed industries and the other $399 helped them retire or invalid out of those industries and the workforce completely.” 

I highlight many of these misguided policies in my NR article, tracing how each can discourage American workers from saving enough money to weather financial storms or take professional risks; from voluntarily moving from one sector to another; and from getting a new and different job after losing an old one.  As I note therein, a lot more research is needed on this issue, so it’s good to see more attention being drawn to it.  The sooner we abandon Trump’s fake solutions and get to working on the real ones, the better.

Scott Lincicome is an international trade attorney, adjunct scholar at the Cato Institute and visiting lecturer at Duke University. The views expressed are his own and do not necessarily reflect those of his employers.

This post originally appeared at National Review’s The Corner.


New Rule, Less Help for Investors

After a long wait, the Department of Labor has announced it is ready to finalize its fiduciary duty rule as early as this week.  Under this rule, brokers will be considered fiduciaries of their clients, meaning that they will be legally bound to act in their best interests.  The proposed rule has been extremely controversial.  At first blush, it’s difficult to see why.  After all, its proponents argue, don’t you want your broker acting in your best interest?   

But the reality is not so simple.  There is a difference between a broker choosing to act in a client’s best interest and being legally obliged to do so.  And the difference will likely mean that many investors, in particular low- and middle-income investors, will lose out. 

Under existing rules, brokers are bound to a suitability standard.  This means that if they offer you a product it must be suitable for your needs.  If you’re an 80 year old retiree, a fund full of high-risk equities is probably not suitable for you.  But as long as the products are suitable, a broker is free to recommend one fund over another, even if the broker’s reason for making the recommendation is that the recommended fund will provide a better commission, not because it’s a better investment for you.

Since many brokers already put their clients’ interests first, isn’t this just holding everyone to the practices of the best brokers?

Should Low-Skill Workers Eat Cake?

Yesterday, the governors of California and New York signed legislation to raise their states’ minimum wage over the next few years to $15 an hour throughout California and much of New York. Similar proposals are percolating in other state and local governments, and Democratic presidential candidate Bernie Sanders has called for a national minimum wage of $15/hour.

Predictably, critics of raising the minimum wage are arguing that the higher wage floor will hurt employment for low-skill workers, the very people the wage floor is intended to help. A worker will be employed only if the value of his output is greater than the cost of employing him—a cost that includes wages, employer payroll taxes (e.g., Social Security, Medicare, unemployment insurance), training and outfitting costs, the new health care mandate and other benefits, etc. According to these opponents, the higher wage floor will reduce employment for low-skill workers and encourage employers to find non-labor ways to accomplish low-skill tasks (e.g., ATM machines, self-serve gas pumps, vending machines, automated phone answering systems).

Wage-increase supporters dismiss this concern, claiming there’s no proof that a higher wage floor hurts employment. A very large body of empirical research indicates otherwise, however, with the negative effects falling mainly on workers below age 25 (which isn’t surprising, as 77% of workers earning the federal minimum wage are below age 25, and they have few demonstrated work skills). Wage-increase supporters can argue the research isn’t unanimous, but given the one-sidedness of the extensive empirical evidence, that argument sounds a bit like climate change denial—if not creation science.

More thoughtful wage-increase supporters have begun offering a different argument: Yes, they concede, raising the minimum wage can hurt low-skill employment. But that harm is a worthwhile tradeoff for better wages for the remaining low-skill work: some workers may lose their jobs or some work hours, but others will get a raise.

This argument is important and interesting—in a Marie Antoinette* sort of way.

FAA Seeks to Trump State Drone Regulations

Amid the proliferation of drones many states have passed or considered legislation regulating unmanned aircraft. Yet, if the latest Federal Aviation Administration (FAA) Reauthorization bill is passed as written, states will no longer able to pass drone regulations and the FAA will be the country’s sole drone regulator. Such a proposal is a federal preemption of state authority that won’t allow states to handle issues best addressed at the local level.

Section 2142 (a) of the almost 300-page FAA authorization bill reads:

FEDERAL PREEMPTION.—No State or political subdivision of a State may enact or enforce any law, regulation, or other provision having the force and effect of law relating to the design, manufacture, testing, licensing, registration, certification, operation, or maintenance of an unmanned aircraft system, including airspace, altitude, flight paths, equipment or technology requirements, purpose of operations, and pilot, operator, and observer qualifications, training, and certification.

The bill does allow for states to deal with issues that arise from drone use that concern “nuisance, voyeurism, harassment, reckless endangerment, wrongful death, personal injury, property damage,” but the text above leaves little doubt about which entity will be overseeing the bulk of drone regulation.

Writing in The Wall Street Journal, Troy Rule, a professor at Arizona State University’s Sandra Day O’Connor College of Law, highlights a number of potential problems associated with Sec. 2142:

many other aspects of civilian drone regulation involve questions that only states and local governments are equipped to address. For example, during what hours of the day should drone-assisted pizza deliveries be permitted in dense urban neighborhoods? Under what conditions should real-estate photographers in a beachfront community be permitted to use drones to capture aerial views of homes being listed for sale? Or how close to a suburban high school’s football stadium should drone flying be allowed on game nights?

Centralized federal agencies are incapable of tailoring drone-use restrictions to fit the unique characteristics and preferences of every local jurisdiction. Given the obvious advantages of involving states and municipalities in the regulation of drones, why is Congress seriously considering statutory language that would effectively prohibit local drone-use restrictions?

Big East…I Mean, Villanova…Wins!

As a fan of the Georgetown University Hoyas, I’ve been pretty pessimistic about the state of college hoops over the last few years. In pursuit of the potentially huge bucks associated with college football, conferences have been realigning and schools without football have been left behind. And while some private universities have come out ahead in these gridiron games, private schools generally can’t compete with public institutions in football. They don’t have the state-subsidized scale needed to gather huge student bodies, nor do they “represent” their states, both of which help fill football stadiums and bring eyeballs to television sets. So I have feared doom for private schools left out of the “Power Five” conferences, especially those in the “new” Big East.

Then Villanova won the NCAA championship. And I had to ask: Has my trepidation and depression been misplaced?

Maybe it has. While the revenue potential of college hoops is significantly smaller than it is for football, the costs are also much lower. There are far fewer players and coaches, the equipment is less costly, and you don’t need nearly as big a band. That means you don’t need as much TV money, or as many posteriors in seats, as you do for football. And if you don’t have football, as some Big East players recently pointed out, hoops is the school’s flagship sport, and the basketball players are the biggest campus stars. That may be a recruiting edge.

Or maybe Villanova’s championship is just long odds that played out, as opposed to a sign the odds are not that bad. Indeed, the Big East overall has struggled a bit in the Tourney since the conference’s reinvention three years ago. It was also lucky that it formed at the same time Fox Sports was putting together a new sports channel – FS1 – and needed programming to fill the hours. Fox offered the Big East a princely (for basketball) sum of about $4.2 million per school per year over a 12 year period. But so far the ratings have been pretty paltry: the first two conference championships had only about 702,000 and 414,000 viewers, respectively, and even though this year’s was on the full Fox network, it only attracted 1.4 million viewers. In contrast, this year’s Big Ten championship game drew 3.2 million eyeballs.

Ranking States for Income Taxes and Government Efficiency

There’s no agreement on the most important variable for state tax competitiveness.

I’m sympathetic to the final option, in part because of my disdain for the income tax. And if an income tax is imposed, I prefer a simple and fair flat tax.

With that in mind, here’s a fascinating infographic I received via email. I don’t know if Reboot Illinois is left wing, right wing, or apolitical, but they did a very good job. I particularly like the map showing zero-income tax states (gray), flat tax states (red), and states with so-called progressive tax schemes (blue).

For what it’s worth, Illinois taxpayers should fight as hard as possible to preserve the state’s flat tax. If the politicians get the power to discriminate among income classes, it will just be a matter of time before all taxpayers are hit by higher rates.

Now let’s shift to the spending side of the fiscal ledger.

Like any good libertarian, I generally focus on the size of government. I compare France with Hong Kong and that tells me that big is bad and small is good.

But regardless of whether a government is large or small, it’s desirable if it spends money efficiently and generates some benefit. I shared, for instance, a fascinating study on “public sector efficiency” from the European Central Bank and was not surprised to see that nations with smaller public sectors got much more bang for the buck (with Singapore easily winning the prize for the most efficient government).

So I was very interested to see that WalletHub put together a report showing each state’s “return on investment” based on how effectively it uses tax monies to achieve desirable outcomes for education, health, safety, economy, and infrastructure, and pollution.

I’m not completely comfortable with the methodology (is it a state government’s fault if the population is more obese and therefore less healthy, for instance, and what about adjusting for demographic factors such as age and race?), but I nonetheless think the study is both useful and interesting.

Here are the best and worst states.

One thing that should stand out is that the best states are dominated by zero-income tax states and flat tax states.

The worst states, by contrast, tend to have punitive tax systems (Alaska is a bit of an outlier because it collects - and squanders - a lot of revenue from oil).

P.S. WalletHub put together some fascinating data on which cities get a good return on investment (i.e., bang for the back) for spending on police and education.