Wasteful Spending for Trump to Cut

Presidential candidate Donald Trump says that he will balance the federal budget while also cutting taxes. Given that the gap between federal spending and revenues is more than $500 billion and rising, he is going to need lots of spending cuts to make that happen.

In his big speech last night Trump said:

We are going to ask every department head in government to provide a list of wasteful spending projects that we can eliminate in my first 100 days. The politicians have talked about this for years, but I’m going to do it.

That’s great. Here are 10 “wasteful spending projects” (with annual costs) that Trump should put in his 100-day elimination plan:

  • Farm subsidies, which enrich wealthy landowners and harm the environment, $29 billion.
  • Energy subsidies, which have been one boondoggle after another for decades, $5 billion.
  • The war on drugs, which wastes police resources and generates violence, $15 billion.
  • Federal aid for K-12 schools, which generates huge bureaucracy and stifles innovation, $25 billion.
  • Excess pay for federal workers, especially gold-plated retirement benefits, which should be cut 10 percent to save $33 billion.
  • Housing subsidies, which distort markets and damage cities, $37 billion.
  • Community development and rural subsidies, which is corporate welfare used for buying votes, $18 billion.
  • Urban transit and passenger rail funding, which is properly a local and private responsibility, $15 billion.
  • Obamacare exchange subsidies and Medicaid expansion, which should be repealed along with the overall law, $200 billion a year by 2023.
  • TSA airport screening, which Trump said last night is “a total disaster,” and which should be devolved to local and private control, $5 billion.

Economics Will Be Our Ruination II

Economics appears to be a neutral tool, but it often subtly embeds values that we are better off surfacing and discussing. In a recent post henceforth to be known as “Economics Will Be Our Runiation I,” I pointed out how, by preferring to measure the movement of dollars, orthodox economics treats leisure as a bad thing and laments advances in technology-based entertainments.

This installment of EWBOR focuses on an interesting and insightful article recently published in the University of Pennsylvania Law Review, “An Economic Understanding of Search and Seizure Law.” In it, George Washington University Law School professor Orin Kerr shows that the Fourth Amendment helps increase the efficiency of law enforcement by accounting for external costs of investigations. Here is his model:

The net benefit of any particular investigative step can be described as P*V – Ci – Ce, where P represents the increase in probability that the crime will be solved and successfully prosecuted, V represents the net value of a successful prosecution resulting from deterrence and incapacitation, Ci represents the internal costs of the investigative step, and Ce represents its external costs.

Ci means things like the cost of training and equipping police officers and paying their salaries, as well as their own use of their time. Ce, external costs, “include privacy harms and property losses that result from an investigation that is imposed on a suspect. They also include the loss of autonomy and freedom imposed directly on the subject of the investigation (who may be guilty or innocent) as well as his family or associates.” Kerr rightly includes in Ce more diffuse burdens such as community hostility to law enforcement.

Defending Green Cards

The 2016 GOP platform states that:

“In light of the alarming levels of unemployment and underemployment in this country, it is indefensible to continue offering lawful permanent residence to more than one million foreign nationals every year.”

The GOP platform statement assumes that those on green cards take jobs from Americans, an assumption that is incorrect (see here, here, and here for more information). 

What’s actually indefensible about our green card system is how few of them come here for work purposes.  First, legal immigrant inflows to the U.S. as a percent of our population are small compared to other developed countries (Figure 1).  The only countries with fewer immigrant inflows as a percent of their populations are Portugal, Korea, Mexico, and Japan.  The United States does allow more immigration as an absolute number than any other country but we also have a very large population, making these annual flow figures seem small.

Figure 1

Immigrant Inflows as a Percent of Population, 2013

 

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada.

These relatively small immigrant flows have only produced an immigrant percentage of our population that is midrange among the OECD countries (Figure 2).  New Zealand has the highest at 28.4 percent of their population while Mexico has the lowest at 0.84 percent of theirs.  The United States is in the middle at 13 percent.  Our legal immigration system is so restrictive that without unauthorized immigrants the U.S. population of the foreign-born would only be about 9.5 percent of our population – a 28 percent reduction in present numbers.

Figure 2

Immigrant Stock as a Percent of the Population, 2013

Source: OECD.

Green card workers admitted as a percentage of the total annual immigrant inflow are far lower here than in other countries (Figure 3).  Only about 7.7 percent of all green cards annually issued by the U.S. government are for workers – virtually all of them high skilled.  The employment-based green card system allowed about 140,000 green cards to be issued annually but that number also includes the family members of those workers.  In 2014, 56 percent of green cards set aside for skilled workers actually went to family while 44 percent were for the workers themselves.  The GOP platform wants to decrease this already small number of green cards for skilled workers even further.  

Visa Caps Are Protectionist Occupational Licenses on Steroids

Conservatives across the country, from—Michigan to Arizona—are challenging burdensome occupational licenses. “Insiders use the false cover of consumer protection to get laws enacted that keep out new competitors,” Minnesota Republican state Senator Chris Gerlach recently said, explaining his reform bill. While a welcome development, conservatives should extend this logic to an even more pervasive form of anti-consumer protectionism: work visa restrictions.

Work visas are licenses for foreign workers and entrepreneurs to practice their professions in the United States. And just as other occupational licenses artificially inflate prices for consumers, arbitrary visa quotas prevent consumers from accessing services that immigrants would provide. It’s protectionism, and it harms Americans every bit as much as unnecessary occupational licensing.

Yet even while the new Republican Party platform calls “excessive licensing requirements” a “structural impediment which progressives throw in the path of poor people,” it claims that it is “indefensible” that the U.S. government allows a million immigrants to live and work in the United States each year. The two positions are at odds. Occupational licenses limit the choices of American consumers in a few industries, while visa restrictions do so in every industry.

Indeed, the research on this point is clear: immigration generally lowers prices, especially for labor-intensive goods. National Research Council’s canonical report found that “the benefits of immigration from lower prices are spread quite uniformly across most types of domestic consumers.” Likewise, economist Patricia Cortes’s acclaimed 2008 study found that for every 10 percent increase in low-skilled immigrants, the price of immigrant-intensive services fell by 2.1 percent.

Economists Robert Lipsey and Birgitta Swedenborg quantified how labor restrictions harm consumers in the end. “Countries in which prices of labor-intensive services are very high, such as the Nordic countries, consume much less of them,” they wrote in a 2007 paper, meaning that people in those places simply cannot access the same range of products and services that Americans can, thanks in large part to immigration.

Visa restrictions make people in those countries poorer.

Power Always Attracts Friends and Supplicants

Napoleon Trump

A month ago Politico reported:

Donald Trump is trying to win over a skeptical Republican donor class, but they’ve closed their wallets — and they’re angry.

Today the New York Times reports a different view:

G.O.P.’s Moneyed Class Finds Its Place in New Trump World

In his unlikely rise to the Republican nomination Donald J. Trump attacked lobbyists, disparaged big donors and railed against the party’s establishment. But on the shores of Lake Erie this week, beyond the glare of television cameras, the power of the permanent political class seemed virtually undisturbed.

Though Mr. Trump promises to topple Washington’s “rigged system,” the opening rounds of his party’s quadrennial meeting accentuated a more enduring maxim: Money always adapts to power.

At a downtown barbecue joint, lobbyists cheerfully passed out stickers reading “Make Lobbying Great Again” as they schmoozed on Monday with Republican ambassadors, lawmakers and executives. At a windowless bar tucked behind the Ritz-Carlton hotel, whose rooms were set aside for the party’s most generous benefactors, allies of Mr. Trump pitched a clutch of receptive party donors on contributing to a pro-Trump “super PAC.”

To be sure, a number of individual and corporate donors stayed away from the Republican convention and seem to be unwilling to support Donald Trump. Still, the reconciliation of so many principled conservatives, prudent donors, and former targets of vicious personal attacks puts me in mind, again, of the following headlines that may have appeared in a Paris newspaper, perhaps Le Moniteur Universel, in 1815 as Napoleon escaped from exile on Elba and advanced through France:

HUD’s Latest Proposal Is Big on Good Intentions & Unintended Consequences

Even when government has good intentions, it manages to muddle things up.

The U.S. Housing and Urban Development Department (HUD) has been applauded for its latest revision to its largest housing assistance program, the Housing Choice Voucher program. The new-and-ostensibly-improved program will provide larger housing subsidies to individuals that decide to live in wealthier neighborhoods, and smaller subsidies to individuals who decide to live in poor neighborhoods. The adjustment has already been piloted in five locations, and would be widely expanded (although HUD demurs on how widely).

On the surface, it sounds like a clever solution to an age-old concern. HUD is worried that dense concentrations of urban poverty – the type that often occurs in inner cities and historically occurred as a result of government housing projects – trap generations of residents in cycles of perpetual poverty.

In fact, the housing voucher program was devised to target this precise problem by providing individuals with a ticket they could use to rent housing anywhere in the United States. But through the years, HUD realized that although the voucher program provided choices, voucher recipients weren’t making the choices that HUD wanted – namely, moving out of low-income neighborhoods. The revised program will create the incentives required to make the choice for voucher recipients more … straightforward, shall we say… and redistribute low-income families across geographies.

Of course, the analysts at HUD aren’t the only ones worried that lack of residential mobility further entrenches low-income residents in poverty. The idea is at least as old as the fall of public housing in the 1970’s. But when it gets down to brass tacks the academic literature on the topic is less-than-satisfying, as described by the Moving to Opportunity study and the follow-up analysis by Katz, Kling, and Liebman and Clampet-Lundquist. Raj Chetty’s most recent work was hailed as proof that moving to wealthier neighborhoods has positive long-term impacts on children, but even it leaves something to be desired.  

Meanwhile, the evidence that HUD cites to support its latest proposal is essentially meaningless. Rather than grapple with the real question – whether a change of neighborhood can lift a family out of poverty – HUD cites early evidence that giving the poor money to move to wealthier neighborhoods helps them move to wealthier neighborhoods. Surprising no one.

But the discussion of evidence ignores one of the more fundamental concerns – basic equity issues. First, seventy-five percent of Americans that qualify for housing assistance don’t receive it. And housing assistance is worth thousands of dollars annually to the lucky few who are selected, generally through a lottery or multi-year waitlist. Under the revised program, those that do receive assistance will be provided an even more oversized benefit (as compared with their ill-fated, voucherless peers) than they were before, assuming they decide to live in the wealthier neighborhood.

Does Trump Even Know What NAFTA Is?

Here’s an exchange between David Sanger of the New York Times and Donald Trump:

SANGER: You’ve talked about building the wall of course. Would you amend or change Nafta?

TRUMP: Oh, without question.

SANGER: Tell us how.

TRUMP: Without question. Nafta ——

SANGER: Would you pull out of Nafta?

TRUMP: If I don’t get a change, I would pull out of Nafta in a split second. Nafta is signed by Bill Clinton, perhaps the worst trade deal ever signed in the history of this country. It’s the worst trade deal ever signed in the history of this country and one of the worst trade deals ever signed anywhere in the world. Nafta is a disaster. You have to understand, I just campaigned, as you probably read, and I won all these states, and one of the reasons was because of Nafta. Because Nafta has drained manufacturing out of New York State, out of Pennsylvania, out of Ohio, out of so many different places. It’s drained. And these companies have gone to Mexico, and they’ve gone, they’ve left with the jobs. David, I have statisticians, and I know, like if I went to Pennsylvania, I say, “Give me the statistics on what is going on with respect to manufacturing.” Numbers — 45, 55, 65, I have states that are so bad. New England. Look at New England, what happened. Nafta has been a disaster for this country. And a disaster for the worker and Nafta is one of the reasons that, you know, there are people that haven’t had a wage increase 18 years in real wages. Actually, they’re lower, some are working two jobs, working much harder, then making less and they’re older. It’s supposed to work the opposite. You’re making more, you’re making more I hope.

HABERMAN: What kind of change could you make in terms of Nafta without fully withdrawing from it? How could you?

TRUMP: You’ve got to be fair to the country. Everyone is leaving. Carrier just announced they’re leaving. Ford is building a massive plant. So I have a friend who builds plants and then I have to go. I have a friend who builds plants, that’s what he does, he’s the biggest in the world, he builds plants like automobile plants, computer plants, that’s all he does. He doesn’t build apartments, he doesn’t build office space, he builds plants. I said to him the other day, “How are you doing?” He goes, “Unbelievable.” Oh, great, that’s good, thinking about the United States, right, because he’s based in the United States. So I said, “Good, so the country is doing well.” He said, “No, no, not our country, you’ve got to see what I’m doing in Mexico.” He said: “The business there is unbelievable, the new plants we are building. People moving from the United States.” That’s what he does. One-story plants. You understand?

Sanger asked some very clear questions about how Trump would change or amend NAFTA, and as you can see from the rambling answers, Trump doesn’t have anything specific to offer in response.  That may be because, in order to respond, he would need to have some idea of what’s in NAFTA, and it’s not at all clear that he does.

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