A new report on federal student loans from the National Center for Education Statistics came out today, and it is troubling. Much of the media attention is likely to focus on the default rates of borrowers who attended for‐profit colleges — and they are atrocious — but the report’s contents condemn the entire system.
Delving into the data reveals that there is a whole lot of defaulting going on — among first‐time students who began school in 1995 – 96 and took out federal loans, 13.7 percent had defaulted on their most recent loan — but there’s been a whole lot of deferring payment, too. The share of borrowers who were deferring or in forbearance stood at 13.3 percent. 31.8 percent were still repaying. And the 41.3 percent listed as “paid or closed without default” hadn’t necessarily fully paid off their loans, either. No, “this includes either loans that are paid off by the borrower or forgiven [italics added].”
As for students attending for‐profit schools, yes they had the highest default rate. But, remember that for‐profits take on the students with the greatest obstacles to success while receiving essentially no state subsidies or tax‐preferred donations. Indeed, they pay taxes. Their default status for students starting in 2003 – 04 — during the for‐profit boom — is terrible at 34.8 percent. However, community colleges came in at 15.7 percent, which is also awful, given their low, directly subsidized prices and considering that, while their students often have significant obstacles, students at for‐profit schools tend to have bigger ones. Of course, a smaller percentage of community college students borrow. And default rates at about 9 percent at public and private, nonprofit, 4‑year colleges is hardly anything with which to be impressed.
The higher education system is flooded with taxpayer money producing oodles of negative results, including skyrocketing costs, credential inflation, and increasingly anemic learning. The federal loan story told by these data reinforces how much draining needs to happen, and a good place to start is phasing out federal loans.
China-based cryptocurrency exchange BTCC suspended all domestic trading in yuan last weekend. The decision came on the heels of a September 5 statement from regulatory authorities in China, which required all domestic cryptocurrency exchanges publish closing announcements, stop registering new users, and establish a schedule to cease yuan-denominated trading by September 15. Huobi and OKCoin — two other exchanges based in China — have announced similar plans to stop trading. To be clear: China has not banned the use of cryptocurrencies. It has banned cryptocurrency exchanges and initial coin offerings (ICOs). Even still, it has prompted some to consider whether a government might ban cryptocurrencies like bitcoin — and, perhaps more importantly, whether such a ban would be effective.
Earlier this afternoon, the House Judiciary Committee circulated its draft FISA Sec. 702 reauthorization bill. This is a preliminary readout of the major problems I see with this legislation.
Mandatory Data Destruction Not Mandatory
One of the biggest vulnerabilities Americans face today is the growing volume of their personal data being stored on servers in the private sector and in government. In the government counterterrorism (CT) context—and CT intelligence collection was the original rationale for this authority—there is simply no reason for the government to continue the collection and storage of the information of innocent U.S. Persons (a legal definition that includes citizens and legal permanent residents).
The bill as drafted would allow the government to do exactly that for at least 90 days for "foreign intelligence purposes" and it allows the Director of the NSA (DIRNSA) to waive that requirement on an individual and specific basis if DIRNSA determines that such waivers are "necessary to protect the national security." All this provision will do is create more paperwork for NSA, but the waiver process could no doubt be largely automated, rendering this alleged reform meaningless. A genuine reform would 1) explicitly prohibit the government from obtaining and maintaining the data of Americans unless said Americans were the actual target of an authorized criminal investigation, and 2) require mandatory external audits (read Government Accountability Office) to confirm said data destruction.
The Secretary of Homeland Security shall take such actions as may be necessary (including the removal of obstacles to detection of illegal entrants) to construct, install, deploy, operate, and maintain tactical infrastructure and technology in the vicinity of the United States border to deter, impede, and detect illegal activity in high traffic areas.
Media outlets are describing this as codifying Trump’s “border wall.” I have previously detailed the numerous problems with building a border wall, including the fact that it would require huge amounts of private land along the Southern border. This deprivation of the right to private property is serious, but it’s compounded by the fact that the government seizes the land first and only then, many years later in some cases, provides just compensation. Unfortunately, the Supreme Court has long ago signed off on this procedure. It’s a problem that Congress must fix.
The Problem of Seizing Private Land
Figure 1 is a map of the border that shows the federally owned portions in green. Tribal land, which comes with its own restrictions, is green with black stripes. The existing border fencing is in black and yellow. The yellow portions are vehicular barriers, and the bolded black is the pedestrian or “real” fence. The dotted line in Texas is the Rio Grande River. As you can see, most of Texas is without any barriers and is almost entirely privately owned.
E-Verify is the supposed silver-bullet of immigration enforcement. Despite its serious and unsolvable problems, the House Judiciary Committee was going to have a markup today on the Legal Workforce Act (LWA) that would mandate E-Verify for all new hires in the United States. Although they canceled the markup at the last moment, this is still a wonderful opportunity to explore the main reason why E-Verify is ineffective: employers ignore it.
E-Verify is a government system whereby employers enter the identity information of new hires via an online portal. The system compares these data with information held in the Social Security Administration (SSA) and Department of Homeland Security (DHS) databases. The employee is work authorized if the databases decide that the data are valid. A flag raised by either database returns a “tentative non-confirmation,” requiring the employee and employer to sort out whatever error has been flagged. If the employee and employer cannot sort out the errors then the employer must terminate the new employee through a “final non-confirmation.”
The states of Alabama, Arizona, Mississippi, and South Carolina have mandated E-Verify for all new hires in their states. Arizona was the first to mandate it on January 1, 2008, South Carolina mandated it on July 1, 2010, Mississippi on July 1, 2011, and Alabama on April 1, 2012. In those four states, the law demands that every employer must run every new hire’s identity information through the E-Verify system. The response to a Freedom of Information Act (FOIA) request filed by Cato shows that there are far fewer E-Verify cases or queries than there are new hires in these states, which means less than 100 percent of new hires are actually being run through the system (Table 1).
The other shoe is about to drop in the Boeing-Bombardier trade row. But first, some background...
Last week, smack dab in the middle of the third round of the NAFTA renegotiations taking place in Ottawa, the U.S. Department of Commerce issued a preliminary determination in a countervailing duty case brought by the Boeing Company in May. The Countervailing Duty Law provides “relief” (usually in the form of import duties) to domestic industries that can demonstrate that they are “materially injured” or threatened with material injury by reason of sales of subsidized imports.
In early summer, the U.S. International Trade Commission ruled, preliminarily, that there was a reasonable indication that U.S. manufacturers of large civil aircraft (i.e., Boeing) may be threatened with material injury by reason of prospective sales of aircraft from Bombardier to Delta Airlines, which may be offered at artificially low prices made possible by various government subsidies to the Canadian producer.
Subsequently, Commerce’s investigation turned up 16 different subsidy programs—equity infusions, launch aid, “provision of land for less than adequate remuneration,” various tax credits and incentives, and federal and provincial grants—constituting specific benefits to Bombardier by the governments of Canada, the United Kingdom, and the province of Quebec, which amounted to an aggregate subsidy rate of 219.6 percent ad valorem.
By historical standards, that is a very large number. If finalized at that rate, the duty would put the U.S. market out of reach to Bombardier and—of greater significance to the U.S. economy—put Bombardier airplanes out of reach to U.S. carriers, reinforcing Boeing’s monopoly power, and ensuring higher costs of air travel and air shipping in perpetuity.
CNBC reports that the burger chain Shake Shack is planning to trial a new restaurant in New York which will not have a traditional cashier’s counter. Instead, “guests will use digital kiosks or their mobile phones to place [and pay for] orders.” Their order will be processed immediately to the kitchen and the guest will receive a text message when their food is ready.
Great, you might think. Shake Shack is investing in innovations which could improve the productivity of remaining workers, increasing wages (indeed, they want to pay the lower relative number of staff in this restaurant at least $15 an hour). Such investments might provide a more efficient and desirable service to customers too. This frees resources and excess labor for other more productive pursuits in the economy.
But the kicker for why Shake Shack is undertaking such investments comes later in the article:
it’s likely that in the next 15 to 20 months that areas like New York, California and D.C., in which there are many Shake Shacks, will transition to a $15 minimum wage…Adopting this payment policy in Astor Place will give the company a chance to work out the kinks before it rolls out a $15 minimum wage in these locations.
Anyone who has been to a McDonald’s in France will know what’s going on here. Shake Shack suspects that the cost of labor will rise due to an increased minimum wage, and given that projection, it’s become economic to consider investments in labor‐saving technologies. Higher minimum wages act in effect as a subsidy to automation.
But these investments for productivity improvements don’t come for free. A recent paper by Grace Lordan and David Neumark finds empirical evidence showing that between 1980 and 2015, increasing the minimum wage by $1 decreased the share of low‐skilled automatable jobs by 0.43 percent in general and by 0.99 percent in manufacturing. Other jobs might be created of course, but they may well be more demanding or stressful, such as overseeing the running of multiple machines or having to have the skills to deal with technical problems etc. “Regulating to innovate,” subsidizing the rapid introduction of some technologies before they are actually high quality and cost effective, drives up prices for consumers too.
Perhaps more pertinently, low‐skilled workers younger than 25 and older than 40, especially women, tend to be particularly affected by the disemployment effects of automation and can find it very difficult to find replacement work given their productivity levels.
As I concluded in a recent Daily Telegraph article:
If we are moving into a period when technological innovations are speeding up, we could be hiking minimum wages dramatically at just the wrong time. It will prove enough of a policy challenge as it is, to equip people with new skills to adapt in a rapidly changing labor market. Making more low‐skilled jobs uneconomic by artificially hiking the cost of labor substantially could exacerbate this change at a time before new investments would otherwise make economic sense.
Being worried about this consequence is not to be anti‐technology or anti‐innovation. We all recognize that mechanization and technological innovation are the only way to sustainably raise living standards. But encouraging new investments by raising business costs and driving out low‐skilled jobs is another matter entirely.
Just because Luddite efforts to destroy machines was economically harmful does not mean that destroying low‐skilled employment opportunities would be beneficial.