Last week’s job market numbers were strong. The unemployment rate fell to 6.0 percent – the lowest since the start of the COVID-19 pandemic – and total nonfarm payroll employment rose by 916,000 in March. But signs already suggest that the employment bounce-back is being restrained from its full potential by Congress’s decision to entrench a $300 weekly unemployment benefit supplement through September.

Combined with state unemployment benefits, around 37 percent of workers can currently make more unemployed than in work. A low-income worker in Massachusetts previously earning $535 per week faced a pre-pandemic replacement rate of unemployment insurance benefits to earnings of 48 percent ($257). Now, the same worker would obtain benefits worth 104 percent of their pre-recession earnings ($557).

In New Mexico, someone previously earning $342 per week would see a replacement rate of 141 percent from the expanded benefits ($483). The disincentive to work this creates reduces the labor supply, raising market wages but by squeezing employment levels as fewer workers make themselves available for job opportunities that are economic to offer for businesses.

Using evidence from last year when supplementary benefits were a massive $600 per week, many argue there is little to no work disincentive. True, plenty of workers will think longer-term and re-enter the labor market if they think a job now provides more security after the pandemic. But last year conditions were very different. After the outbreak of the crisis, few firms were hiring, meaning that a fall in applications from those earning more out-of-work didn’t much change overall employment numbers. At that time, most returnees to work were also recalls to their old employers, who risked losing benefits if they refused.

Now, matters are very different. The prospects for a meaningful reopening are real and imminent, with a potentially large flood of demand in previously shuttered sectors. Longer-term, permanent unemployment is much more of a problem, with recalls much less of an issue. And far from uncertainty about benefit continuation, a Democratic Congress and Presidency probably reassures those unemployed that the checks will keep coming. Even though we should still expect a robust employment recovery—ending the pandemic will be the biggest “stimulus” of all—there are therefore reasons to expect high UI benefits are holding back the jobs recovery.

A few recent pieces of data heighten these concerns.

In case you haven't noticed, U.S. industrial policy is having (yet another) moment. Armed with the latest data and cross-country comparisons, a large and bipartisan cadre of industrial policy advocates in Washington are eager to shovel billions of taxpayer dollars into the open arms of American manufacturers of "essential goods" and "critical technologies." The risks (China, pandemics, whatever), so the theory goes, greatly outweigh any harms that a few, scattered industrial policy failures might cause along the way, so why not just throw money at the (perceived) problems? These advocates, however, rarely acknowledge the frequency of such failures - caused by a host of well-known obstacles to effective American industrial policy (e.g., the "knowledge problem," public choice, unintended consequences, budgetary overruns, opportunity costs, and plain ol' inefficacy) - or fully account for the harms that industrial policies can impose on the U.S. economy and the very objectives that the policies seek to achieve. I documented some of these industrial policy failures in a recent Cato paper, but yesterday's New York Times provides the best example that I've seen in a long, long time:

WASHINGTON — More than eight years ago, the federal government invested in an insurance policy against vaccine shortages during a pandemic. It paid Emergent BioSolutions, a Maryland biotech firm known for producing anthrax vaccines, to have a factory in Baltimore always at the ready.

When the coronavirus pandemic arrived, the factory became the main U.S. location for manufacturing Covid-19 vaccines developed by Johnson & Johnson and AstraZeneca, churning out about 150 million doses as of last week.

But so far not a single dose has been usable because regulators have not yet certified the factory to allow the vaccines to be distributed to the public. Last week, Emergent said it would destroy up to 15 million doses’ worth of the Johnson & Johnson vaccine after contamination with the AstraZeneca vaccine was discovered.

Emergent and government health officials have long touted their partnership as a success, but an examination by The New York Times of manufacturing practices at the Baltimore facility found serious problems, including a corporate culture that often ignored or deflected missteps and a government sponsor, the Biomedical Advanced Research and Development Authority, that acted more as a partner than a policeman.

But wait, there's more:

In his first speech as a member of the Federal Reserve’s Board of Governors, Christopher Waller defended Fed independence and reassured his audience that “deficit financing and debt servicing issues play no role in our policy decisions and never will.” His goal was to dispel the “narrative” that, with massive federal debt and fiscal deficits, the Fed may become subservient to the Treasury. Large‐​scale debt monetization could then lead to inflation and a loss of Fed independence.

Waller was adamant that the Fed would not “succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government.” Despite his statement, there may be reason to fear fiscal dominance. As Harvard economist Greg Mankiw warns, “It would be a mistake to put too much faith in the prescience and skill of central bankers.”

Fiscal dominance occurs when central banks use their monetary powers to support the prices of government securities and to peg interest rates at low levels to reduce the costs of servicing sovereign debt. Although the Fed may not call its unconventional monetary policies “fiscal dominance,” there is no doubt that the distance between fiscal and monetary policy has narrowed since the 2007–2008 financial crisis, and especially since the pandemic.

Downplaying the risk of the Fed financing the fisc by monetary accommodation—and complacency about the consequent risk of inflation—is itself risky. As former Treasury Secretary Lawrence H. Summers declared,

As I look at $3 trillion of stimulus, $2 trillion of savings overhang, a major acceleration coming from COVID in the rear‐​view mirror, rates expected by the Federal Reserve to be at zero for three years even in a booming economy, record growth this year, major expansion of the Fed balance sheet, and much new fiscal stimulus to come—I’m worried.

In the remainder of this article, I will delve into the question of whether there is after all good reason to fear a future episode of fiscal dominance.

Monopolies in business usually lead to bloated costs and high prices. As such, economists generally favor opening industries to competition in order to promote efficiency and product quality. Governments are monopolies that also tend to be bloated and inefficient, and so we should favor ways to subject them to competition also.

Cross‐​border competition for people, businesses, and investment dollars is one way to do it. Within the United States, people and businesses can weigh the costs and benefits of different states and cities, and freely move when they find a better deal. That creates pressure on state and local policymakers to restrain taxes and provide quality services.

National policymakers now face similar pressures as globalization has intensified over the years. To attract investment, many countries have reformed the most damaging parts of their tax codes, including cutting high marginal tax rates on corporate income. Cutting corporate tax rates would be beneficial even without globalization, but cross‐​border competition has nudged policymakers in the right direction.

U.S. Treasury Secretary Janet Yellen has a different view. She recently complained about a “30‐​year race to the bottom” in corporate tax rates. The average corporate tax rate across OECD nations has fallen from 41 percent in 1990 to 25 percent today. But this has been a race to reduce the economic damage of corporate taxation, which in turn has promoted broad‐​based economic growth. As I discuss here, if workers were a lobby group defending their self‐​interest, they should favor slashing corporate tax rates. Workers and capital are complements in production, and more capital generally leads to higher wages.

Yellen seems to make the mistake of assuming that international tax competition is a zero‐​sum game. In fact, it is a positive‐​sum game. Reductions in corporate tax rates generate growth and expand the global economy to the benefit of all.

The race‐​to‐​the‐​bottom claim is off‐​base in another way. Yellen said, “It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion,” and she wants governments to raise “sufficient revenue.” But reducing corporate tax rates tends to expand corporate tax bases, with the result that corporate tax revenues across major countries have not fallen. Average corporate income tax revenues in the OECD have risen from 2.4 percent of GDP in 1990 to 3.1 percent in 2018.

Yellen said she would work “with our allies on a global tax regime that protects American competitiveness while ensuring corporations pay their fair share.” But the corporate tax revenue share of GDP has risen, as noted. Besides, the corporate tax burden ultimately lands on individuals, so it is meaningless to talk about corporate “fair” shares.

If Yellen is concerned about fairness, she should rethink her idea of imposing a global minimum corporate tax rate. That would be an arrogant move by a big and powerful country such as the United States. The corporate income tax is an inefficient tax, and so poor countries that want to attract investment and grow should cut them. Just a few decades ago, Ireland was much poorer than Britain, but its implementation of a low corporate tax rate has helped the Emerald Isle grow strongly and surpass Britain in living standards. Yellen’s approach would unfairly deny small and poor nations the ability to adopt Ireland’s powerful reform approach.

Smaller countries tend to have lower corporate tax rates because they know that they need to be welcoming to investment to compete with giants such as the United States. The chart shows average corporate tax rates for the 24 largest and 24 smallest economies in Europe, based on KPMG data. Yellen’s global minimum tax rate would undermine small‐​country growth prospects, and that would not be fair at all.

For background on international tax competition, see Global Tax Revolution. For the chart, 48 European countries were sorted by GDP.

Today, New Mexico Governor Michelle Lujan Grisham signed into law House Bill 4, otherwise known as the New Mexico Civil Rights Act. This landmark piece of legislation creates a state‐​law cause of action against any public official who violates someone’s rights under the New Mexico State Constitution, and it specifically provides that qualified immunity is not available as a defense. The statute is therefore quite similar to both Colorado’s Law Enforcement Integrity and Accountability Act, enacted in June 2020, and the civil‐​rights legislation approved by the New York City Council last month, both of which also created causes of action that do not allow qualified immunity. But whereas the Colorado and NYC bills were both limited to police officers, the New Mexico Civil Rights Act applies more broadly to all public officials.

Although many have summarized the effect of HB 4 as “ending” or “eliminating” qualified immunity in New Mexico, that is not exactly correct. In a formal sense, “qualified immunity” is a federal doctrine available in federal lawsuits brought under Section 1983, and states obviously can’t change federal law. But what they can do is create “state analogues” to Section 1983, which is exactly what HB 4 does. Whereas Section 1983 allows individuals whose rights are violated under the federal Constitution to bring a lawsuit for damages in federal court, HB 4 allows individuals whose rights are violated under the state constitution to bring a lawsuit for damages in state court. And because this new cause of action is a matter of state law, the legislature is free to clarify that qualified immunity won’t apply to these state‐​law claims.

The operative language of the New Mexico Civil Rights Act is simple and straightforward. Section 3 of the law provides that:

A person who claims to have suffered a deprivation of any rights, privileges or immunities pursuant to the constitution of New Mexico due to acts or omissions of a public body or person acting on behalf of, under color of or within the course and scope of the authority of a public body may maintain an action to establish liability and recover actual damages and equitable or injunctive relief in any New Mexico district court.

“Public body” in turn is defined broadly as “a state or local government, an advisory board, a commission, an agency or an entity created by the constitution of New Mexico or any branch of government that receives public funding, including political subdivisions, special tax districts, school districts and institutions of higher education.” In other words, any government entity, or person acting on behalf of such an entity, is liable if they violate someone’s rights under the state constitution, and “no public body or person acting on behalf of … shall enjoy the defense of qualified immunity.” (Note, however, that Section 10 of the statute clarifies that HB 4 does not eliminate legislative or judicial immunity, which are separate doctrines from qualified immunity).

The New Mexico Constitution, like most state constitutions, has a bill of rights that largely mirrors the federal Constitution, which means that HB 4 will allow citizens to get redress for the same sort of injuries they could pursue in a federal lawsuit. Section 5 of the statute also allows courts to award “reasonable attorney fees and costs” to prevailing plaintiffs. Section 6 does set a damages cap of $2,000,000, but that cap is actually much higher than any of the damages caps otherwise set by the New Mexico Tort Claims Act. On the whole, this means the new cause of action under HB 4 should provide a robust and meaningful remedy for citizens whose constitutional rights are violated by government agents.

Besides the difference in scope (i.e., police officers vs. all public officials), the one other notable difference between the New Mexico, Colorado, and NYC laws concerns the question of individual liability and indemnification. The Colorado statute presumptively provides that police officers sued under the new law will be indemnified, but if the officer’s employer determines that “the officer did not act upon a good faith and reasonable belief that the action was lawful,” then the officer could be required to personally contribute a small portion of the judgment. The NYC bill creates liability for both the individual who caused the violation and their employer. Section 8 of New Mexico’s HB 4, however, for complete and automatic indemnification, which means the individual defendant can never be personally liable for the injury they cause.

In this particular respect, I think Colorado and NYC actually struck the better balance of competing concerns. Even though indemnification is and will continue to be the norm in civil rights suits, it’s better to ensure that individual government agents — especially police officers — have some skin in the game when it comes to the risk of personal liability. After all, civil rights laws are intended to have both a remedial and a deterrent effect. But removing any possibility at all for personal liability — even modest contributions, like Colorado allowed for — may somewhat undermine the individualized accountability that laws like HB 4 are intended to provide.

Nevertheless, HB 4 gets the most fundamental policy judgment exactly right: a citizen whose rights are violated will get a complete remedy, and qualified immunity will not stand in the way. New Mexico has therefore made history as the first state to enact legislative qualified immunity reform for all public officials. As both Congress and other states around the country continue to debate policing reform in general and qualified immunity in particular, the enactment of the New Mexico Civil Rights Law is a welcome beacon of hope.

A new federal court ruling has invalidated some of President Trump’s “national security” tariffs, and in the process addressed one problematic procedural aspect of one of the worst U.S. trade laws on the books. Congressional action is still needed, however, to fix the statute’s many other problems.

This week, the U.S. Court of International Trade ruled against the Trump administration’s January 2020 action (Proclamation 9980) to expand tariffs of 25% on steel and 10% on aluminum, implemented pursuant to Section 232 of the of the Trade Expansion Act of 1962, to “derivative” (downstream) products like nails and car fenders. As we discussed in a recent policy analysis, Section 232 allows the president to “adjust” imports that “threaten to impair the national security,” but the statute suffers from numerous procedural and substantive flaws – errors that allow the executive branch to declare imports of almost anything a threat and cut procedural corners in restricting those imports.

The new USCIT case, brought by PrimeSource Building Products, Inc., addresses one of those corners, which we discussed in our paper:

After the tariffs went into effect, an importer of Turkish steel sued the Trump administration in the USCIT, arguing (among other claims) that the president cut corners in the procedures required by law. In November 2019, a unanimous three‐ judge panel agreed that “the President’s expansive view of his power under Section 232 is mistaken, and at odds with the language of the statute, its legislative history, and its purpose.”

Despite the court’s order that the Trump administration’s “expansive view” of presidential power is “mistaken,” however, President Trump soon advanced an even more expansive view of his power. On January 24, 2020, Trump announced that he was broadening the original “national security” tariffs to include “derivative” steel and aluminum products such as nails, pins, and staples. Again, he pointed to the original proclamations as his source of legal authority—the same justification that the USCIT had denied weeks earlier. Furthermore, the tariffs were scheduled to go into effect on February 8, 2020, just 16 days after the announcement, leaving little room for public consultation and thorough consideration of the impact of such actions. Several companies filed lawsuits against these tariffs at the USCIT, challenging the actions being taken outside Section 232’s prescribed 90‐ day window, the lack of public consultations, and disrespect to their due process. Since February 13, 2020, the USCIT has granted injunctions to these companies, preventing U.S. Customs and Border Protection from collecting tariffs on their “derivative” steel and aluminum imports, until it hears their cases.

Trump’s derivatives tariffs clearly violated the law’s time limits for implementing an “action” against imports (the president has 90 days to decide whether to act, and 15 more days to take any such action), and they were a prime example of cascading protectionism. On the latter point, the Trump administration admitted as such in the proclamation expanding the Section 232 tariffs to steel and aluminum “derivates” where it asserted that the original tariffs (25% on steel and 10% on aluminum) had not achieved the administration’s initial capacity utilization goals, in part because the tariffs lead to price increases in steel and aluminum imports (as one would expect when you tax something), and this prompted industrial consumers to purchase “derivative” products from abroad, which ended up hurting domestic derivative products producers and depressing domestic demand for the tariffed metals.

The USCIT ruled narrowly on the former point (the deadlines for action). The court’s decision will likely be extended to other companies that filed lawsuits similar to Primesource’s and should be welcomed by free traders and importers – particularly U.S. construction companies that are now reeling from sky high materials prices.

It does not, however, solve the problem of Section 232.

As we explain in our paper, Trump did far more than simply ignore this procedural requirement in implementing the steel and aluminum tariffs and investigating other products under Section 232. His administration’s actions revealed several major substantive and procedural flaws in Section 232 – flaws that are in desperate need of reform but that the USCIT, by its own admission, won’t touch. Absent legislative action, the abuse of Section 232 will thus remain a serious risk – checked only by the president’s self‐​restraint.

The ruling will also provide a test for the Biden administration because it can appeal the USCIT’s decision, thus keeping Trump’s derivatives tariffs alive, and defending Trump’s expansive (abusive) interpretation of executive power. Doing so, however, would not only hurt many U.S. companies (and the economy more broadly) but also provide a clear and unfortunate indication that the Biden administration – for all its talk of countering Trump’s trade abuses and restoring U.S. alliances – condones Trump’s approach to Section 232 and “national security” and might even seek to open pandora’s box even further.

Last week, I reported that Senate Judiciary Chairman Dick Durbin (D-IL) had introduced the S. 963, the Domestic Terrorism and Hate Crimes Prevention Act of 2021–the companion bill to Rep. Brad Schneider’s (D-IL) H.R. 350. Both bills would create new “Domestic Terrorism” bureaucracies inside the Departments of Justice and Homeland Security, and direct both departments to put special emphasis on a requirement for “anti‐​terrorism” training for federal, state, tribal, and local law enforcement agencies for the purpose of “understanding, detecting, deterring, and investigating acts of domestic terrorism and White supremacist and neo‐​Nazi infiltration of law enforcement and corrections agencies.”

As I’ve previously noted, both bills suffer from the same underlying flaw: the assumption that membership in a particular group–be it racial, religious, or political–has predictive value vis a vis an intent to commit a violent act. As we saw last week with the tragic, deadly incident involving Noah Green (an unemployed African American man) and U.S. Capitol Police Officer William Evans, that assumption is baseless and itself dangerous.

During more than 10 years working for then‐​Rep. Rush Holt (D-NJ), our office regularly received threats from individuals; every single House and Senate office does. Most never amount to more than violent (and often obscene) rants by persons upset about a government policy they dislike or an action the government has not taken that they believe it should. Quite simply, it comes with the territory when you serve in the House or Senate–and unless a particular individual has a known, documented history of violence, predicting who will be the potential lethal threat is impossible.

Despite that reality, the Durbin bill is now officially scheduled for Senate floor consideration, as this screenshot from Con​gress​.gov shows:

What this means is that the bill is skipping the usual Senate Judiciary Committee hearing and mark‐​up process and is being brought directly to the Senate floor for consideration. At this moment, the exact date for consideration is unknown, but action well before the Memorial Day break seems highly likely unless one or more Senators indicate an intention to filibuster the legislation.

The same fear‐​driven impulse that gave us the PATRIOT Act is at work with the push to pass the Durbin bill.

Congress enacted the PATRIOT Act just six weeks after the 9/11 attacks on the basis of claims by Executive branch officials that only sweeping new surveillance powers could stop a similar calamity from happening again. As we subsequently learned from the Congressional Joint Inquiry report in 2002, those claims were false. It was a lack of coordination, not lack of information, that allowed Al Qaeda to succeed on 9/11. The 9/11 Commission reached the same conclusion in 2004. And as we’ve already seen from just the limited investigations conducted to date regarding the January 6, 2021 attempted insurrection on Capitol Hill, that same issue–a lack of coordination, not a lack of information–was the prime reason why the House chamber and the Capitol building were overrun by a pro‐​Trump mob.

There is a pressing problem with Capitol Hill security that does need fixing: a streamlined chain of command that allows Washington, D.C.‘s Mayor Muriel Bowser and her successors to deploy the D.C. National Guard to assist with protecting the Capitol grounds in the event of an emergency.

Delegate Eleanor Holmes‐​Norton (D-DC) and Senator Chris Van Hollen (D-MD) have introduced the District of Columbia National Guard Home Rule Act (H.R. 657 and S. 130, respectively). That House and Senate Democratic leaders have not fast‐​tracked the Holmes‐​Norton/​Van Hollen legislation is mind boggling. Had Mayor Bowser enjoyed direct control over the D.C. National Guard, those units likely could have been deployed well before the Capitol building was breached.

Rationalizing the chain of command, as well as improving pre‐​event coordination and response planning between the Capitol Police and the D.C. National Guard, is a far more urgent–and solvable–problem than passing “feel good” domestic terrorism legislation that will do nothing to prevent another attack on the Capitol. Whether the Senate will hit the “Pause” button on S. 963 and consider a more logical, effective response to the January 6 insurrection remains to be seen,