Peter Navarro Responds to His Trade Critics (Sort of)

White House National Trade Council Director Peter Navarro’s views have been roundly criticized by economists and policy professionals from across the political and ideological spectra. There seems to be an emerging consensus that the more Navarro speaks and writes, the more he marginalizes his influence within the administration. It is with that cause and (positive) effect in mind that I continue pulling on this thread.

A couple of weeks ago, Navarro wrote an oped in the Wall Street Journal, offering some really unconventional perspectives about trade policy and revealing a profoundly unique understanding of economics. I replied (in long form) on the Cato blog and (in shorter form) with a letter to the editor of the WSJ.

This afternoon, the WSJ published a response from Navarro to me and the authors of the two other letters published in response to Navarro’s original oped. And in response to Navarro’s response, Cafe Hayek’s/Mercatus’s/GMU’s Don Boudreax wrote this letter to the WSJ editor:

22 March 2017

Editor, Wall Street Journal

1211 6th Ave.

New York, NY 10036

Dear Editor:

The headline is promising: “Peter Navarro Responds to His Trade Critics” (March 22). So I eagerly anticipated reading Navarro’s substantive defense, against knowledgeable critics, of his reasons for fearing trade deficits. Alas, disappointment. Navarro offers not a single relevant argument.

Typical is his contemptuous treatment of Dan Ikenson. To establish that Mr. Ikenson has an “Alice-in-Wonderland worldview,” Navarro merely lists some of Mr. Ikenson’s policy positions without offering as much as a syllable to inform us why these positions are untenable.

The closest Navarro comes to making a relevant argument is when he writes, responding to Desmond Lachman, that “if India agrees to lower its tariffs on Harley Davidson motorcycles, Indian consumers will buy more Harleys and save less while Harley will sell more Harleys and invest more.” Well, no one has ever denied that Indians would buy, and Harley would sell, more Harleys if India reduces its tariff on these bikes. But it doesn’t follow that Indians would necessarily, as a result, save less. (Does Navarro always save less when his cost of living falls?) And while more resources would indeed likely be invested in Harley’s operations, these resources would have to come from foreigners if Americans don’t increase their savings. Contrary, therefore, to the conclusion that Navarro wants us to draw from what he pretentiously (if inaccurately) calls “obvious general equilibrium effects,” a cut in India’s tariffs on Harleys is not remotely guaranteed to lead to a decrease the U.S. trade deficit.

Sincerely,

Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030 

Stay tuned!

Topics:

Finding Victims for Trump Budget Cuts

A Washington Post story today about one of President Trump’s budget cuts reflects what can be called victim journalism. The story focuses on the proposed ending of federal funding for the Appalachian Regional Commission (ARC). The reporter presents an interesting narrative about some ARC beneficiaries, but does not provide the balance needed to judge the overall value of the program.

The story presents individuals in Appalachia as victims, and federal money as the only savior. It does not focus on personal responsibility, local government policies, or federal program failures. The reporter does not mention any studies examining the ARC’s overall effectiveness, or whether auditors have done a benefit-cost analysis to see whether the program’s benefits outweigh the costs.

However, the main problem with the Post story is a lack of appreciation for the federal structure of American government. Statements like this bewilder me: “The federal funding [for ARC] often goes toward repairing essential services rural towns cannot afford on their own, such as fixing broken sewer systems…”

Sewer systems are indeed an essential local service. As such, they should receive a high priority in state and local budgets. If sewers in Appalachia are not being fixed, then state and local governments are failing at a core responsibility. Reporters should ask why that is.

The ARC sprinkles about $150 million a year across 13 states, from New York to Mississippi. Combined state and local spending in those states (excluding federally funded spending) is more than $800 billion a year. So the supposedly crucial ARC spending represents less than 0.02 percent of the region’s own government spending. If the ARC were eliminated, those governments could easily fill the small void with their own money.


Addendum

Let’s drill down on Kentucky, which was the focus of the Post story and is in the center of the ARC region. If all the ARC money were spent just in Kentucky, it would still be only 0.5 percent of the roughly $30 billion in state/local spending in that state.

The Post story claims “so much of the Appalachian commission’s budget — $146 million in 2016 — goes toward infrastructure projects…” Assuming that is true, why doesn’t Kentucky have room in its own budget for infrastructure such as sewers? Looking at Census data for state and local governments in Kentucky suggests why. Total capital spending on sewers and solid waste was $234 million in 2014, but spending on “public welfare” was $8 billion and spending on government worker salaries was $10 billion.

The Wrong Way to Enforce Immigration Laws

Yesterday, the Los Angeles Times noted that reports of sexual assault and domestic violence are down in Latino-dominated areas of Los Angeles. NPR also published a story yesterday about four cases of domestic violence dropped by four Latina women in Denver, Colorado. The underlying factor blamed in both stories is federal enforcement of immigration laws at local courthouses.

I wrote about the fallout of this abhorrent practice last month in the Washington Post.

Seizing a person who is seeking refuge from violence subverts the protective function of police officers. If individuals fear as much from law enforcement as they do the criminals living among and victimizing them, they will not come forward to report crimes or cooperate with criminal investigations.

While immigration enforcement is often done under the banner of “public safety,” victims of crimes will be less likely to come forward if doing so risks breaking up their families by deportation. This puts more people in harm’s way and enables abusers and predators free rein among people too fearful to ask for the help that they need.

Moreover, despite the “law and order” rhetoric touted by the Trump Campaign and now Administration, these efforts make police officers’ jobs more difficult.

One Los Angeles Police Dept. detective told the Los Angeles Times, “It is my job to investigate crimes… . And if I can’t do that, I can’t get justice for people, because all of a sudden, I’m losing my witnesses or my victims because they’re afraid that talking to me is going to lead to them getting deported.” When he recently approached a group of Latino workers to investigate a crime, they stood up and walked away. Even though Los Angeles has repeatedly asserted its self-appointed status as a “sanctuary city” for immigrants, one of the workers uttered “Trump is coming,” as he left.

All the pro-police rhetoric in the world cannot make-up for the real-world problems that misguided immigration enforcement can cause. Emboldening violent criminals by making large swaths of the population too scared to come forward not only makes police work more difficult, it can make it more dangerous.

Supporting the police means respecting their jobs and enforcement priorities, not just reciting tough-on-crime pablum. If the Administration really cares about police officers, it should start listening to what they have to say. Immigration agents can find other ways to enforce the law than to pick on the most vulnerable at their time of need.

How Strawberries and The Clash Helped Save Separation of Powers

Yesterday the Supreme Court ruled in the case of National Labor Relations Board v. SW General that an “acting” officer cannot simultaneously stand as a nominee to hold that office permanently, regardless of how the acting officer was appointed. The ruling is a double victory, both for the separation of powers between the president and Senate and for textualism.

Though technical, the statutory interpretation issue in this case was not overly complicated. The Federal Vacancies Reform Act (FVRA) lays out three methods by which someone can become an acting officer in three separate clauses, subsections (a)(1), (a)(2), and (a)(3). It also has a “disqualifying clause,” declaring that (with some exceptions not relevant here) “a person may not serve as an acting officer” if he has also been nominated for a permanent position as that same officer.

There would be no dispute that the disqualifying clause applies to all acting officers, except for one wrinkle: the disqualifying clause begins with the preamble “Notwithstanding subsection (a)(1).” Based only on this preamble, the government argued that the disqualifying clause applies only to those who became acting officers under subsection (a)(1). This would mean that anyone who became an acting officer under subsections (a)(2) or (a)(3) (including the man at the center of this case, former NLRB acting general counsel Lafe Solomon) could never be disqualified by the clause.

The decisive moment in the case may have come during oral argument, when Justice Kagan delivered a simple textual analogy to drive home the implausibility of the government’s argument:

I’m at a restaurant and I’m talking to my waiter, and I place three orders. I say, number one: I’ll have the house salad. Number two: I’ll have the steak. Number three: I’ll have the fruit cup. And then I tell the waiter: notwithstanding order number three, I can’t eat anything with strawberries.

As those in the courtroom recognized, this hypothetical maps onto the disputed text of the FVRA: the three orders are the three subsections, and “I can’t eat anything with strawberries” is the disqualifying clause. Then comes the punchline:

So on your theory, the waiter could bring me a house salad with strawberries in it. And that seems to me a quite odd interpretation of what’s a pretty clear instruction: No strawberries.

In the opinion by Chief Justice Roberts (which Kagan joined), fruit salad is sadly nowhere to be found. But in its place is a nearly identical analogy, which shows just how powerful Kagan’s argument was in shaping the Court’s textual analysis:

Suppose a radio station announces: “We play your favorite hits from the ’60s, ’70s, and ’80s. Notwithstanding the fact that we play hits from the ’60s, we do not play music by British bands.”

You would not tune in expecting to hear the 1970s British band “The Clash” any more than the 1960s “Beatles.” The station, after all, has announced that “we do not play music by British bands.” The “notwithstanding” clause just establishes that this applies even to music from the ’60s, when British bands were prominently featured on the charts.

In other words, the Court placed the textual emphasis squarely where it belonged, on the all-encompassing phrase “a person may not serve as an acting officer.”

Wrong Lessons from Canada’s Private Currency, Part 2

(Editor’s note: This is the second installment of a three-part article.)

Intervention or Private Initiative?

As I argued in my previous post addressing Fung et al.’s article on Canada’s private banknote currency, the imperfections of that currency appear, on close inspection, far less substantial than Fung et al. suggest. Moreover, what blemishes there were didn’t imply any market failure, or a need for more government regulation, for the simple reason that “imperfect” doesn’t mean “inefficient.” On the contrary: the facts suggest that heavy-handed government interventions aimed at correcting the supposed imperfections more rapidly than bankers’ own efforts might would probably have done Canadians more harm than good.

By making those points, I don’t mean to deny that the various reforms Fung et al. describe, culminating in the Bank Act of 1890, led to some genuine improvements. Yet even if they did, the reforms still don’t imply any market failure, for the simple reason that those reforms appear, for the most part, to have been ones that Canada’s private bankers themselves recommended and implemented, often in anticipation of legislation that enshrined them.

The specific reforms to which Fung et al. refer are:

  • The provision of the 1870 Bank Act imposing double liability on banks’ shareholders[1];
  • That of the 1880 Act giving note holders a first lien on banks’ assets; and
  • Those of the 1890 Act requiring banks to establish note-redemption agencies in “all of Canada’s major commercial centers,” together with a Bank Circulation Fund for the redemption of notes of failed banks, and also to provide for the payment of interest to holders of failed banks’ notes as compensation for any settlement delay.

It’s the importance Fung et al. assign to these reforms, in perfecting Canada’s commercial banknote currency, as well as their belief that the reforms were compulsory, that informs their conclusion that “some intervention by government” will be called for if digital currencies are to be made safe and uniform.

But to what extent were those 19th century reforms truly compulsory, in the sense meaning that they had to be imposed upon Canada’s bankers by government authorities?

GOP Responses to Trump Budget

President Donald Trump’s budget issued last week would cut $54 billion from nondefense spending. Budget director Mick Mulvaney did a nice job assembling an array of sensible cuts, as I discuss in this CNN op-ed and this blog.

Recipients of handouts and pro-spending activists are not happy with the proposals. But many of Mulvaney’s proposed cuts are for local activities, such as housing and schools. If programs are important, then local governments can fund them with their own taxes, which would be a more efficient, transparent, and democratic fiscal approach.

Some GOP members of Congress are not happy about the cuts either. Republicans generally consider themselves to be fiscal conservatives. But for some members, their oft-expressed concerns about deficits might be just philosophical musings, not a guide to their actual policy positions:

  • Senator Rob Portman (R-OH) responded to Trump’s cuts by coming to the defense of federal funding for Lake Erie restoration, which he called “critical.” Yet the senator’s official website complains about the federal “spending spree, piling up new deficits onto our massive debt … Washington’s fiscal irresponsibility passes the problem to future generations.”
  • Representative Michael Conway (R-TX) opposes farm subsidy cuts, saying “Agriculture has done more than its fair share” in restraining deficits. (That’s not true—farm aid has risen in recent years). Yet on his website, Conway says, “Our nation is in a budgetary crisis … As a CPA and fiscal conservative, I am committed to working with my colleagues to cut spending and put our fiscal house in order. Congress does not have a blank check; it is vitally important that we balance the federal budget.”
  • Senator Lisa Murkowski (R-AK) complained about the Trump budget as well. She “attacked plans to cut or eliminate programs that help the poor pay heating bills, provide aid for localities to deal with wastewater and subsidize air travel in rural areas like her home state of Alaska.” Yet her website says, “Senator Murkowski believes one of the most essential functions of Congress is to pass a balanced budget that sets a responsible spending plan for federal government services. For too long, the U.S. government has been spending more than it takes in and borrowing large sums of money to make up the difference. To set the nation on a more stable financial path, it is critical for Congress to set sustainable funding levels for the federal government, reduce overall spending levels.”
  • House appropriator Hal Rogers (R-KY) complained about Trump’s proposed cuts to foreign affairs activities. Yet his website says that he will “remain steadfast in fighting against government waste and any bills that increase the government’s reach on your dime.” As it turns out, foreign affairs has greatly increased its reach on our dime, and so Trump’s proposed cuts make a lot of sense.

President Trump recently signed an Executive Order requiring agencies to eliminate two regulations for each new one imposed. He should ask members of Congress to be similarly responsible on spending. For each proposed spending cut they disapprove, they should identify and pursue two similar-sized cuts elsewhere in the budget.   

The Age and Sex of Criminal Immigrants

In our recent brief on immigrant crime, we focused on the 18 to 54 age range when looking at the incarcerated and non-incarcerated populations. This was necessary because the American Community Survey data for weighted responses does not distinguish between the type of group quarters – which are prisons, universities and colleges, mental health facilities, nursing homes, and others.

By narrowing our focus to those in the 18 to 54 age range we were able to cut out about 1.4 million folks in elderly care facilities but only excluded about 206,000 prisoners or about 9.2 percent of the total. Excluding those under the age of 18 also removed most respondents in mental health facilities but only decreased the adult criminal population by 0.2 percent.

Figure 1 did not make it into our final brief but it shows a big difference in the distribution of ages between the three groups we examined. The median age of illegal immigrants and natives is 35 – almost exactly in the middle of the 18 to 54 age range. Interestingly, there is a dip in the age distribution for natives in their late thirties and early forties while the age distribution of illegal immigrants is shaped like a bell. In contrast, the median for legal immigrants was 41 which is on the older side of the distribution.

Figure 1
Age (18-54) Distribution of Illegal Immigrants, Legal Immigrants, and Natives

Source: ACS and authors’ calculations.

Criminals are disproportionately young so it would be reasonable to expect natives to be more crime-prone before the age of 27 and illegal immigrants to have a higher crime rate than legal immigrants. That could explain part of the difference in crime rates between natives and illegal immigrants. The surprising result is that illegal immigrants are so much less crime prone when immigration-only offenders are excluded even though they are younger than legal immigrants and have a median age that is the same as natives.  The young age and low education of illegal immigrants are consistent with more criminality in other populations.

The most surprising finding from our brief is that illegal immigrant women are less than half as likely to be incarcerated as women who are legal immigrants or natives (Figure 2). Illegal immigrants are slightly less likely to be women in this age range, only 48.5 percent compared to 51 percent for legal immigrants and 50 percent for natives, but that doesn’t explain the difference in rates. It could be related to low female illegal immigrant labor force participation rates (LFPR) or caused by the same mechanism that induces those lower LFPRs.

Figure 2
Characteristics of Prisoners by Sex and Nativity, Ages 18-54

 

Natives

Legal Immigrants

lllegal Immigrants

All

Female

11.47%

10.73%

4.58%

11.06%

Male

88.53%

89.27%

95.42%

88.94%

 Source: ACS and authors’ calculations.

 

 

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