One of the jobs of a think tanker is to synthesize information from other sources and put it in the context of his or her particular field. Hard data are particularly important to our work because data are measurable outcomes from policy and practice in the real world. No one cares what anyone at Cato “feels.” Feelings have their place, of course. Measuring the feelings of a particular group or groups of people can be useful in the aggregate because people will act in accordance with those feelings, but those feelings make up just another metric on which we collect data to explain the world. Reliable data and provable outcomes are fundamental to shaping and forming effective public policy.
As irritating as strict libertarians may find it, several bodies within the federal government are very good at collecting and analyzing data. One of these bodies is the U.S. Sentencing Commission. From the USSC website:
The U.S. Sentencing Commission, a bipartisan, independent agency located in the judicial branch of government, was created by Congress in 1984 to reduce sentencing disparities and promote transparency and proportionality in sentencing.
The Commission collects, analyzes, and distributes a broad array of information on federal sentencing practices. The Commission also continuously establishes and amends sentencing guidelines for the judicial branch and assists the other branches in developing effective and efficient crime policy.
The Commission publishes data on the impacts of sentencing, the levels of recidivism among different populations of the formerly incarcerated, and other inputs and outputs related to our federal carceral system. For criminal justice researchers of all levels, the Commission provides detailed and easily accessible information about how federal policy and law translate into practice and outcomes.
Another component of the Commission’s work is passing along recommendations about sentencing law to Congress. Reasonable people may disagree with these recommendations, but the Commission clearly bases its recommendations on the best available data they have collected and analyzed. Individuals of all ideological persuasions should want any nominee to the Commission to share this dedication to data collection and evidence‐based practices. Instead, President Trump nominated William “Bill” Otis.
Otis is an adjunct professor at Georgetown University Law Center and spent many years in the Justice Department. He has continuously lambasted bipartisan efforts to reduce sentences and remains a stalwart proponent of the “tough on crime” rhetoric of the 1980s, warning of great crime waves that will follow widespread sentencing reduction.
Otis marshals no empirical evidence for his claims—because there isn’t any. And that’s the problem.
To be clear, I’m not worried about Otis’s nomination because he’s conservative. Plenty of conservatives work on criminal justice issues, and some have led the way on reforms. Republican governors and GOP‐controlled legislatures in Georgia, Texas, and other “red” states have passed significant criminal justice reforms that reduced prison and jail populations while also reducing crime rates. When presented with evidence‐based opportunities to help individuals and save public money, many realized criminal justice reform could be a conservative cause.
The problem is, as Julie Stewart, the founder of Families Against Mandatory Minimums wrote in 2015, “Otis is impervious to facts and evidence.” Put another way, Bill Otis is interested in the politics, not the policy, of criminal justice.
The mountains of data that support less carceral policies and alternatives to incarceration have not swayed Otis’s rhetoric at all. When a man who had benefitted from reducing the sentence for a crack cocaine conviction brutally murdered a woman and two children, Otis was quick to blame the shortened sentence:
Three people, including two children, are dead today because of early release from a duly imposed, lawful and fully deserved federal drug trafficking sentence.
How many times were we lectured that those released under lowered sentencing rules would be only “low level, non‐violent offenders?” I don’t know, exactly. Hundreds if not thousands.
Question: How many more lives are the congressmen and senators who support the [Sentencing Reform and Corrections Act] willing to see sacrificed for their “we’ve-been-too-tough” agenda?
An exact number, please, gentlemen. We want to remember who you are on election day. And we will.
It’s Willie Horton all over again.
Yes, a few people who are incarcerated for drugs may do horrible things when they get out. Most of them, even those who commit new offenses, will not. According to several Commission reports, the most common reason for re‐arrest among federal drug offenders is a violation of supervision policies—that is, getting drunk or committing some other minor infraction—and certainly not murder.
The latest data from the Sentencing Commission shows no statistical difference in recidivism among those released early under new drug sentencing guidelines and those who served the longer sentences:
The recidivism rates were virtually identical for offenders who were released early through retroactive application of the [Fair Sentencing Act] Guideline Amendment and offenders who had served their full sentences before the FSA guideline reduction retroactively took effect. Over a three‐year period following their release, the “FSA Retroactivity Group” and the “Comparison Group” each had a recidivism rate of 37.9 percent.
These data coincide with previous data from the Commission that measured the effects of crack cocaine sentencing retroactivity that found no significant statistical difference between recidivism among those who got out early and those who served the full sentence.
All this is not to say that policymakers should not find ways to reduce recidivism, no matter how serious the offenses are. But Otis’s belief that serving long drug sentences will make convicted individuals more lawful citizens is at odds with what liberals, conservatives, progressives, and libertarians in criminal justice have found in years of research and by measuring the effects of new policies put into practice. The push for reducing incarceration is not a conspiracy of groups taken in by George Soros and Al Sharpton, as Otis suggested in 2016, but a broad coalition of individuals, organizations, and lawmakers who look at the evidence and formulate policy accordingly.
The Sentencing Commission provides, among many other things, a trove of information that can teach us more about how our policies do and do not work. Otis’s nomination signals a return to reactionary politics based on what some people think and feel, rather than what they can show and prove.
I was in the courtroom for this morning’s argument in Trump v. Hawaii, otherwise known as the “travel ban” case. Recall that this is Travel Ban 3.0, which is the most detailed executive action regarding entry restrictions yet. Indeed, Solicitor General Noel Francisco called it the most detailed immigration proclamation ever (in contrast to earlier ones by President Carter regarding Iranians and President Reagan regarding Cubans).
It’s an odd case: as Neal Katyal, lawyer for Hawaii and the other state and private challengers, put it, if Donald Trump hadn’t made all his various campaign statements and tweets about Muslim bans, “we wouldn’t be here.” In other words, “no president has ever said anything like this.”
In a normal case involving an executive action over national security, no court would ever second‐guess the president. But this isn’t a normal case or a typical president, so the Supreme Court struggled mightily over a travel ban that, all sides seem to agree, wouldn’t be a legal controversy if any other president had implemented it. Indeed, the whole course of the litigation would’ve been different if Travel Ban 1.0—the one President Trump signed his first week in office without interagency process or guidance to the line agents who were supposed to implement it, causing chaos at airports—had been skipped and we’d gone straight to the more fully lawyered 2.0. I doubt there would’ve been quite as much judicial resistance and treatment of this president differently from the president.
But that’s a historical counterfactual, so you go to court with the facts you have.
Of course, it’s not that unusual for a court to apply a law to factual circumstances that were never contemplated. Here, the relevant immigration provision gives the executive wide discretion to deny entry to any type of foreigner when citing great national interest—and it’s not hard to square that with other provisions regarding nondiscrimination in granting visas. Courts don’t get to review that kind of determination.
That really should be the end of it, even if one thinks, as I do, that the travel ban doesn’t do much for national security and has a greater symbolic than practical effect. And it should be the end of it regardless whether one think that in his heart of hearts Donald Trump has anti‐Muslim animus.
Chief Justice John Roberts will try mightily to cobble together a coalition to make this case go away on jurisdictional or other narrow grounds. Justice Neil Gorsuch seems ready to join him (presumably Justice Clarence Thomas too), while Justice Samuel Alito was clearly with the government on the merits. Justice Elena Kagan was the only one on the left who raised pointed questions of Katyal; given her views on administrative law and the breadth of the immigration statute here, she’s “gettable” for some sort of technical compromise. To do so, the Court would likely have to finesse Sale v. Haitian Centers Council (1993), in which it found claims against immigration‐related executive actions to be justiciable (before recognizing the executive’s broad discretion in this area).
Given that weird cases make for bad law, we can only hope that, however the Court rules, no strong precedent is set.
I wrote last month that new regulations and taxes in California’s legalized marijuana regime are likely to result in a situation in which
a few people are going to get rich in the California marijuana industry, and fewer small growers are going to earn a modest but comfortable income. Just one of the many ways that regulation contributes to inequality.
Now the East Bay Express in Oakland offers a further look at the problem:
Ask the people who grow, manufacture, and sell cannabis about the end of prohibition and you’ll hear two stories. One is that legalization is ushering a multibillion‐dollar industry into the light. Opportunities are boundless and green‐friendly cities like Oakland are going to benefit enormously. There will be thousands of new jobs, millions in new tax revenue, and a drop in crime and incarceration.
But increasingly you’ll hear another story. The state of California and the city of Oakland blew it. The new state and city cannabis regulations are too complicated, permits are too difficult and time consuming to obtain, taxes are too high, and commercial real estate is scarce and expensive. As a result, many longtime cannabis entrepreneurs are either giving up or they’re burrowing back into the underground economy, out of the taxman’s reach, and unfortunately, further away from the social benefits legal pot was supposed to deliver.…
Some longtime farmers, daunted by the regulated market’s heavy expenses, taxes, and low‐profit predictions, have shrugged and gone back to the black market where they can continue to grow as they always have: illegally but free of hassle from the state’s new pot bureaucrats armed with pocket protectors and clipboards.
Not all the complaints in the two‐part investigation are about taxes and overregulation. Some, especially in part 1, are about “loopholes” in the regulations that allow large corporations to get into the marijuana business and about “dramatic changes to Humboldt County’s cannabis culture, which had an almost pagan worship of a plant that created an alternative lifestyle in the misty hills north of the ‘Redwood Curtain.’ ”
But there’s plenty of evidence that regulations are more burdensome on newer and smaller companies than on large, established companies. Indeed, regulatory processes are often “captured” by the affected interest groups. The Wall Street Journal confirmed this just yesterday, reporting that “some of the restrictions [in Europe’s GDPR online privacy regulations] are having an unintended consequence: reinforcing the duopoly of Facebook Inc. and Alphabet Inc.‘s Google.”
Several weeks ago, the United States and Korea reached an “agreement in principle” on an amended Korea‐US Free Trade Agreement (KORUS FTA). This amendment process was minor enough that the Trump administration believed it could undertake it without having Congress vote on the changes (there will be a consultation with Congress on some tariff changes, as described here). Congress could object, as it does have the ultimate constitutional power over trade, but so far there are no signs that it plans to do so.
In an op‐ed on the new KORUS, we described the result as follows: “the KORUS renegotiation looks like a minor tweak to U.S. trade relationships, rather than the wholesale ‘populist’ revolution that is sometimes indicated by Trump’s tweets.” In this blog post, we offer a more detailed assessment of the KORUS changes that have been reported so far.
However, keep in mind that there is no final text of the amended agreement yet, so our analysis is necessarily a bit tentative. Specific wording can be important to understanding the implications of a provision, and there may be additional items that have not been reported yet. (In addition, statements by President Trump suggest the deal may be held up by other issues).
The outcomes of KORUS 2.0 can be grouped into two categories: (1) new issues that were not covered by the existing KORUS, and were negotiated as something akin to side deals to the talks, and (2) amendments or modifications to the current text. We examine each in turn.
With regard to the side deals, the biggest (and most negative) economic impact will arise from the export restrictions on steel that Korea agreed to. Pursuant to these restrictions, Korea would cap steel exports to the U.S. at 70 percent of the average volume from the past three years on a product‐by‐product basis. This was in exchange for a permanent exemption of the Trump administration’s Section 232 “national security” tariffs on steel. The impact of these quotas/tariffs will be some degree of price increase for U.S. consumers, with the amount of the increase depending on exactly how the measures are implemented. In terms of the impact on Korea, Korean producers may actually benefit, now that they have avoided the tariffs. Their sales to the U.S. will now be at higher prices, and they may find other markets for their steel to replace the lost volume in the U.S.
There are also provisions on currency manipulation. Media reporting on the currency provisions suggests they are non‐binding. It sounds like the provisions are similar to those agreed to in a side letter to the Trans Pacific Partnership (TPP). Adding these currency provisions is not particularly significant, as the Trump administration is mostly just carrying over an Obama‐era policy. However, the Trump administration may be pushing for binding currency provisions as part of the renegotiated NAFTA. This would be a bigger deal, as there have never been such detailed provisions on this issue in trade agreements, and U.S. attempts to promote such provisions in additional agreements would have significant implications. The specific terms will be important for determining the impact.
Turning to the amendments and modifications to the existing KORUS, the outcomes on automobile exports and truck imports stand out.
Under the existing KORUS, U.S.-based auto manufacturers can export up to 25,000 vehicles (per manufacturer) to Korea per year that will be deemed compliant with Korean safety standards simply by meeting U.S. standards. Through the renegotiation, this quota has now been increased to 50,000 vehicles per manufacturer. On its face, this is a good market‐opening provision, and a positive development for increasing access to the Korean market. However, the real economic value is not clear. In 2017, U.S. passenger vehicle and light truck exports to Korea totaled only 52,607 units. Ford and General Motors shipped fewer than 10,000 vehicles each. Given the low volume of U.S. exports in these products, increasing the quota may not have much impact. (And to put these figures in perspective, Canada leads the way as a destination for U.S. exports with 912,277 units, and China is second at 267,473 units.)
With regard to light trucks, it appears that the administration took a more protectionist tack, extending until 2041 a 25% U.S. tariff that was supposed to be phased out by 2021. While there will be no immediate impact, because Korea does not currently export trucks to the U.S., this change could delay any future export plans. It has been suggested that the reason Korea has not yet sold light trucks on the U.S. market is because the existing tariff has effectively blocked the possibility of exports. In an interview with CNBC, USTR Robert Lighthizer said: “The Koreans don’t ship trucks to the United States right now and the reason they don’t is because of this tariff,” and “They were going to start next year – we would have seen massive truck shipments. So, that’s put off for two decades.” This modification can therefore be seen as an attempt by the Trump administration to prevent trucks produced in Korea from being sold in the United States. However, even if the tariff had been removed as scheduled, any trucks produced for the U.S. market after 2021 may very well have been produced in the Korean companies’ existing North American factories. As a result, the claim that “massive truck shipments” have been blocked is a bit misleading.
Other reported KORUS renegotiation results sound minor, although, again, a full assessment will have to wait for the release of the text. For instance, there appears to be a new agreement on environmental testing standards for autos. This could refer to Korea’s Fuel Economy and Greenhouse Gas Standards, which are updated every five years by the Korean Ministry of Environment. Through the negotiations, Korea has agreed to base the update of these standards for the 2021–2025 period on “global trends, including U.S. standards” and increase the number of eco‐innovation credits available for auto imports to meet the fuel economy and greenhouse gas requirements. In addition, there was an agreement on harmonizing the testing requirements on gasoline engine vehicle exports so that these products will not have to be tested twice. As a result, U.S. emissions testing will be seen as equivalent to Korean testing requirements.
Last week the White House announced that Richard Clarida will be nominated to become Vice Chair of the Federal Reserve Board. More than a month ago, Clarida became the front-runner for the role. He is widely seen as a centrist and a pragmatist holding mostly conventional views on monetary policy. Mostly.
As Vice Chair, Clarida will be the third pillar of the Fed’s new leadership, joining Chair Jerome Powell and recently announced incoming NY Fed President John Williams. Having been an economics professor at Columbia University since 1988 and a Global Strategic Advisor at Pacific Investment Management Company (PIMCO) since 2006, Clarida provides a complement to both Powell’s largely business background and Williams’ career inside the Fed.
With a couple of mutual research interests, Clarida and Williams will likely work well together. They’ve both explored the natural rate of interest (r*) — Williams is the coauthor of the widely cited r* estimates and Clarida has examined natural rates from an international perspective. Another area of mutual interest is price level targeting. As I have noted previously, Williams is an advocate of the Fed adopting such a target while Clarida has also explored its merits for monetary policy.
At first blush this may be concerning, given the shortcomings of price level targeting. However, the evolution of Clarida’s post-crisis thinking on monetary policy, including towards price level targeting, shows that he may be persuaded by the superior merits of nominal GDP level targeting.
Democrats are plugging new energy into an old idea: a federal “Jobs Guarantee” program. Senator Cory Booker previously introduced legislation for a pilot in high unemployment communities. Now Senator Bernie Sanders will announce a plan guaranteeing a job or training paying $15 an hour and health‐care benefits to every American worker “who wants or needs one,” in a host of public infrastructure, care giving and environmental upkeep projects.
The scheme, seemingly based on a recommendation from the Levy Economic Institute, comes with grandiose purported benefits. It would, we are told, eliminate involuntary unemployment, deliver a living wage, boost GDP, reduce the cost of recessions, raise labor market standards, reduce environmental degradation, reduce racial inequality, and much else besides. If it sounds too good to be true, that’s because it is. There are severe problems with this idea, which can be loosely grouped under three “c’s”: costs, crowd out and corruption.
The Levy Economic Institute calculates up to 16 million could take part in such a program today (including the unemployed, those working part time seeking full time work and individuals currently inactive who might move into the labor market). Given the federal government would have to pay $15 an hour for full time jobs, plus benefits equal to 20 percent of wages, total labor costs per worker would be $37,440 per year. That’s before the cost of the materials for the programs and administration of the program itself. Even assuming some opt for part‐time positions, and ignoring the non‐labor program costs, we are talking about a gross cost of up to around 2.4 percent of GDP, significantly higher than the existing Medicaid program (2 percent of GDP).
The net cost on these assumptions will be lower, of course. People who take jobs will require less in welfare payments and pay some back in taxes. Some might wisely consider it a risk for their employment fortunes to be tied to the whims of politicians and their willingness to fund this program, and so remain in the private sector. But even taking this into account, and assuming the policy generates the macroeconomic bounty that the Levy researchers expect, they still think the annual net cost will be between 0.8 and 2 percent of GDP, with the program employing up to 10 percent of the workforce. That would in itself be a huge new commitment to finance at a time when the long‐term fiscal outlook is already dire, and the short‐term deficit already expected to balloon to over 5 percent of GDP in the coming years.
In reality, the fiscal costs are likely to be much, much higher, and the economic welfare losses even more significant, because in the labor market and broader economy, a public jobs guarantee program would significantly crowd out productive private sector activity. This type of policy will radically alter behavior of both workers and businesses, and so the supply and demand for labor.
The Census shows that, among those who worked in 2016, 70+ million Americans earned under $32,500 (the full‐time job guarantee salary would be $31,200). Yes, not all of these would seek out positions on the jobs guarantee program. But a large proportion would, especially those employed in uncertain roles with low levels of job security.
In fact, some even paid more than $31,200 might consider leaving their jobs to pursue guaranteed roles if they perceive better working conditions or an easier worklife (asked under what conditions someone would be fired from such a role, the Levy Institute paper suggests that you would be sacked for failing to go to work, but that your performance would not be judged by “private sector ‘efficiency criteria’”, for example.) It’s not inconceivable then that over 25 percent of the labor force could find itself part of the scheme.
This crowd‐out is likely to be particularly acute in low productivity regions, and (ironically) after economic downturns. A nationwide jobs guarantee program paying $15 an hour will be particularly attractive to workers in low wage regions, and by setting a de facto wage floor the program will prevent private investment in regions on the basis of cheap labor.
Though no doubt there would be some demand spillovers from well‐paid jobs, the net consequence is highly likely to be weaker private sector job creation in poor regions, which has been the experience of countries such as Britain with a nationwide minimum wages and public sector national pay bargaining. Proponents of the scheme see “higher labor standards” as a good thing, but absent productivity improvements, policies which raise labor costs significantly will reduce the quantity of workers demanded.
There’s good reason to expect the policy will reduce the efficiency and productive potential of the economy too. Taxes will eventually need to be raised to cover the net cost of the program. In infrastructure and care giving provision, costs will rise – because nobody would now work in these directly substitutable sectors for less than the wage and conditions offered in the job guarantee program. This will waste resources, and there’s highly likely to be overinvestment in lots of relatively low value ventures and programs to ensure workers are employed, especially given the explicit aim is to provide employment rather than deliver projects at low cost.
Throwing resources at regions with higher levels of unemployment and after recessions too will work directly against market signals and deter the mobility of labor (in geographic and industrial terms) and capital to its most productive uses given prevailing market conditions. This is important: yes, employment is highly likely to have some positive externalities; but the real driver of better living standards over time are productivity improvements, discovered by market‐based activity.
Proponents of this policy seem to put an enormous weight on the idea that time out of the labor market has huge scarring consequences which could be ameliorated by any type of temporary employment. But the literature on this shows that temporary jobs do not provide the workers with skills to improve longer‐term labor market outcomes.
Corruption and incentives
As if all these consequences were not bad enough, such a program will be ripe for corruption and political interference at the government, provider and individual level. Senator Sanders’ plan would be administered by the Department for Labor, with local and state governments submitting projects to regional offices for consideration. There’s a huge question mark on whether projects will be considered on economic grounds, when there might be an incentive for make‐work schemes to aid particular politicians or indeed to put resources towards “public good” causes or NGOs more in line with the ethos of the governing party. For Democrats this might be for environmental issues. For Republicans it might be, say, for a wall on the southern border.
NGOs and local public bodies themselves will have incentives to apply for federal funds for projects that would otherwise have occurred anyway, and to maximize the number of applications. Pork barrel projects would proliferate. What is more, at the individual level, the guarantee coupled with the purported unwillingness to judge worker performance on a commercial basis will incentivize low levels of work effort on the margin.
The Jobs Guarantee then is an extremely large and costly endeavor, which would have major economic consequences and risk a large federal politicization of the labor market and public project delivery.
The US does have serious labor market issues to contend with — not least depressed labor participation and a weak productivity outlook — but are things really so bad that they require such a risky and extensive policy response?
Well‐paid jobs and low levels of real unemployment are outcomes desired by all. But attempting to achieve that through this program amounts to cracking a nut with a sledgehammer, undermining what matters far more for living standards: efficiency and productivity.
This morning in Jesner v. Arab Bank, the Supreme Court split 5–4 along conventional ideological lines to confirm that it is up to Congress, not the judiciary, to decide whether and when American courts should entertain international human rights cases against foreign defendants. It thus continues the course of its 2013 Kiobel v. Royal Dutch Petroleum case, about which I wrote here at the time:
Today the U.S. Supreme Court unanimously and decisively buried the misguided, decades‐long hope of some lawyers and academics that they could turn the Alien Tort Statute (ATS) into a wide‐ranging method of hauling overseas damage claims into American courts. All nine Justices agreed with the Second Circuit that the statute does not grant jurisdiction for our courts to hear a controversy over alleged assistance in human rights violations outside the U.S. against non-U.S. plaintiffs by a non-U.S. business. A majority of five justices reiterated and relied on our law’s strong traditional presumption against extraterritoriality, that is to say, presumption against applying the law to actions that take place in other countries. While parting from this reasoning, four concurring justices nonetheless endorsed a view of ATS as applicable extraterritorially only to very extreme misconduct comparable to piracy, and also as sharply limited by considerations of comity with foreign sovereigns.
It is a good day for a realistic and modest sense of what United States courts of justice can successfully do, namely: do justice within the United States.
But in Kiobel, as Kenneth Anderson noted in the Cato Supreme Court Review that year, the Court ducked the question it had originally agreed to decide: may foreign corporations be sued in U.S. courts under the ATS, or only individuals? The correct answer is that Congress, not the courts, should decide. Issues of foreign affairs are peculiarly the province of the political branches, which can weigh (and take responsibility for) the dangers of engendering friction with foreign sovereigns by extending liability (Jordan, an important U.S. ally, has for years been riled by the attempt to go after Arab Bank over handling transactions, including some in New York, that allegedly facilitated terrorist acts abroad.)
The only time Congress chose affirmatively to create such a cause of action, in a 1991 statute providing torture victims a right to sue over abuse abroad, it placed significant limits on the right, among which was providing that only individuals could be sued. Parallel restrictions should be read into other, unenumerated causes of action under the ATS, said Justice Anthony Kennedy in his opinion for the majority today; that means that unless Congress says so, the statute would enable holding individual wrongdoers liable but not imputing their liability to an organization. Writing separately in partial or full concurrence, Justices Gorsuch, Alito, and Thomas would have gone further to make clear that courts should simply not get into the business of inventing causes of action in this area, especially given the ATS’s history as an early American enactment meant to reduce rather than exacerbate diplomatic tensions.
Not too many years ago, whole sectors of American legal academia were besotted with notions of “universal jurisdiction” in which misbehavior taking place in Africa, Latin America, or Southeast Asia could be sued over in American courts — in practice, often, in certain West Coast federal courts that welcomed such suits. The Court’s retreat from that proposition has been steady and prudent. Despite the dissent by Justice Sonia Sotomayor, no one has immunized business miscreants against anything. The Court has simply made it clear that if the United States courts are to become a sort of human rights policeman to the world, it is Congress that will need to decide to fit them out for that task.