Archives: 08/2018

The Most Common Firearm in America is Not a ‘Weapon of War’

A Massachusetts statute prohibits ownership of “assault weapons,” the statutory definition of which includes the most popular semi-automatic rifles in the country, as well as “copies or duplicates” of any such weapons. As for what that means, your guess is as good as ours. A group of plaintiffs, including two firearm dealers and the Gun Owners’ Action League challenged the law as a violation of the Second Amendment. Unfortunately, federal district court judge William Young upheld the ban.

Judge Young followed the lead of the Fourth Circuit case of Kolbe v. Hogan (in which Cato filed a brief supporting a petition to the Supreme Court) which misconstrued from a shred of the landmark 2008 District of Columbia v. Heller case that the test for whether a class of weapons could be banned was whether it was “like an M-16,” contravening the core of Heller—that all weapons in common civilian use are constitutionally protected. What’s worse is that Judge Young seemed to go a step further, rejecting the argument that an “M-16” is a machine gun, unlike the weapons banned by Massachusetts, and deciding that semi-automatics are “almost identical to the M16, except for the mode of firing.” (The mode of firing is, of course, the principle distinction between automatic and semi-automatic firearms.)

The plaintiffs are appealing to the U.S. Court of Appeals for the First Circuit. Cato, joined by several organizations interested in the protection of our civil liberties and a group of professors who teach the Second Amendment, has filed a brief supporting the plaintiffs. We point out that the Massachusetts law classifies the common semi-automatic firearms used by police officers as “dangerous and unusual” weapons of war, alienating officers from their communities and undermining policing by consent.

Where for generations Americans needed look no further than the belt of their local deputies for guidance in selecting a defensive firearm, Massachusetts’ restrictions prohibit these very same arms from civilians. Those firearms selected by experts for reliability and overall utility as defensive weapons, would be unavailable for the lawful purpose of self-defense. According to Massachusetts, these law enforcement tools aren’t defensive, but instead implements of war designed to inflict mass carnage.

Where tensions between police and policed are a sensitive issue, Massachusetts sets up a framework where the people can be fired upon by police with what the state fancies as an instrument of war, a suggestion that only serves to drive a wedge between police and citizenry.

Further, the district court incorrectly framed the question as whether the banned weapons were actually used in defensive shootings, instead of following Supreme Court precedent and asking whether the arms were possessed for lawful purposes (as they unquestionably were). This skewing of legal frameworks is especially troublesome where the Supreme Court has remained silent on the scope of the right to keep and bear arms for the last decade, leading to a fractured and unpredictable state of the law.

Today, the majority of firearms sold in the United States for self-defense are illegal in Massachusetts. The district court erred in upholding this abridgment of Bay State residents’ rights. The Massachusetts law is unconstitutional on its face and the reasoning upholding it lacks legal or historical foundation.

Powell’s Jackson Hole Speech Should Give NGDP Advocates Optimism

Last weekend the Federal Reserve Bank of Kansas City hosted its annual symposium in Jackson Hole. Despite being the Fed’s largest annual event, the symposium has been “fairly boring” for years, in terms of what can be learned about the future of actual policy. This year’s program, Changing Market Structures and Implications for Monetary Policy, was firmly in that tradition—making Jerome Powell’s speech, his first there as Fed Chair, the main event. In it, he covered familiar ground, suggesting that the changes he has begun as Chair are likely to continue.

Powell constructed his remarks around a nautical metaphor of “shifting stars.” In macroeconomic equations a variable has a star superscript (*) on it to indicate it is a fundamental structural feature of the economy. In Powell’s words, these starred values in conventional economic models are the “normal, or “natural,” or “desired” values (e.g. u* for the natural rate of unemployment, r* for the neutral rate of interest, and π* for the optimal inflation rate). In these models the actual data are supposed to fluctuate around these stars. However, the models require estimates for many star values (the exception being desired inflation, which the Fed has chosen to be a 2% annual rate) because they cannot be directly observed, and therefore must be inferred.

These models then use the gaps between actual values and the starred values to guide—or navigate, in Powell’s metaphor—the path of monetary policy. The most famous example being, of course, the Taylor Rule, which calls for interest rate adjustments depending on how far the actual inflation rate is from desired inflation and how far real GDP is from its estimated potential. Powell’s thesis is that as these fundamental values change, particularly as the estimates become more uncertain—as the stars shift so to speak—using them as guides to monetary policy becomes more difficult and less desirable.

His thesis echoes a point he made during his second press conference as Fed Chair when he said policymakers “can’t be too attached to these unobservable variables.” It also underscores Powell’s expressed desire to move the Fed in new directions: less wedded to formal models, open to a broader range of economic views, and potentially towards using monetary policy rules. To be clear, while Powell has outlined these new directions it remains to be seen how and whether such changes will actually be implemented.

A specific example of a new direction—and to my mind the most important comment in the Jackson Hole speech—was Powell’s suggestion that the Fed look beyond inflation in order to detect troubling signs in the economy. A preoccupation with inflation is a serious problem at the Fed, and one that had disastrous consequences in 2008. Indeed, Powell noted that the “destabilizing excesses,” (a term that he should have defined) in advance of the last two recessions showed up in financial market data rather than inflation metrics.

While Powell is more open to monetary policy rules than his predecessors, he’s yet to formally endorse them as anything other than helpful guides in the policymaking process. At Jackson Hole he remarked, “[o]ne general finding is that no single, simple approach to monetary policy is likely to be appropriate across a broad range of plausible scenarios.” This was seen as a rejection of rule-based monetary policy by Mark Spindel, noted Fed watcher and co-author of a political history of the Fed. However, given the shifting stars context of the speech, Powell’s comment should be interpreted as saying that when the uncertainty surrounding the stars is increasing, the usefulness of the policy rules that rely on those stars as inputs is decreasing. In other words, Powell is questioning the use of a mechanical rule, not monetary policy rules more generally.

Such an interpretation is very much in keeping with past statements made by Powell. For example, in 2015, as a Fed Governor, he said he was not in favor of a policy rule that was a simple equation for the Fed to follow in a mechanical fashion. Two years later, Powell said that traditional rules were backward looking, but that monetary policy needs to be forward looking and not overly reliant on past data. Upon becoming Fed Chair early this year, Powell made it a point to tell Congress he found monetary policy rules helpful—a sentiment he reiterated when testifying on the Hill last month.

The good news is that there is a monetary policy rule that is forward looking, not concerned with estimating the “stars,” and robust against an inflation fixation. I am referring to a nominal GDP level target, of course; a monetary policy rule that has been gaining advocates.

Like in years past, there was not a lot of discussion about the future of actual monetary policy at the Jackson Hole symposium. But if Powell really is moving the Federal Reserve towards adopting a rule, he is also beginning to outline a framework that should make a nominal GDP rule the first choice.

[Cross-posted from Alt-M.org]

Partisan Gerrymandering: Another Supreme Court Showdown?

It would have been natural to assume that partisan gerrymandering would not return as an issue to the Supreme Court until next year at the earliest, the election calendar for this year being too far advanced. But yesterday a federal judicial panel ruled that North Carolina’s U.S. House lines were unconstitutionally biased toward the interests of the Republican Party and suggested that it might impose new lines for November’s vote, even though there would be no time in which to hold a primary for the revised districts. Conducting an election without a primary might seem like a radical remedy, but the court pointed to other offices for which the state of North Carolina provides for election without a preceding primary stage.

If the court takes such a step, it would seem inevitable that defenders of the map will ask for a stay of the ruling from the U.S. Supreme Court. In June, as we know, the Court declined to reach the big constitutional issues on partisan gerrymandering, instead finding ways to send the two cases before it (Gill v. Whitford from Wisconsin and Benisek v. Lamone from Maryland) back to lower courts for more processing. 

In my forthcoming article on Gill and Benisek in the Cato Supreme Court Review, I suggest that with the retirement of Justice Anthony Kennedy, who’d been the swing vote on the issue, litigators from liberal good-government groups might find it prudent to refrain for a while from steering the question back up to the high court, instead biding their time in hopes of new appointments. After all, Kennedy’s replacement, given current political winds, is likely to side with the conservative bloc. But a contrasting and far more daring tactic would be to take advantage of the vacancy to make a move in lower courts now. To quote Rick Hasen’s new analysis at Election Law Blog, “given the current 4-4 split on the Supreme Court, any emergency action could well fail, leaving the lower court opinion in place.” And Hasen spells out the political implications: “if the lower court orders new districts for 2018, and the Supreme Court deadlocks 4-4 on an emergency request to overturn that order, we could have new districts for 2018 only, and that could help Democrats retake control of the U.S. House.”

Those are very big “ifs,” however. As Hasen concedes, “We know that the Supreme Court has not liked interim remedies in redistricting and election cases close to the election, and it has often rolled back such changes.” Moreover, Justices Breyer and Kagan in particular have lately shown considerable willingness to join with conservatives where necessary to find narrow grounds for decision that keep the Court’s steps small and incremental, so as not to risk landmark defeats at the hands of a mobilized 5-4 conservative court. It would not be surprising if one or more liberal Justices join a stay of a drastic order in the North Carolina case rather than set up a 2019 confrontation in such a way as to ensure a maximally ruffled conservative wing.

Some of these issues might come up at Cato’s 17th annual Constitution Day Sept. 17 – mark your calendar now! – where I’ll be discussing the gerrymandering cases on the mid-afternoon panel.

Fractional Reserve Banking and “Austrian” Business Cycles, Part III

In the first of this series of posts, I explained that the mere presence of fractional-reserve banks itself has little bearing on an economy’s rate of money growth, which mainly depends on the growth rate of its stock of basic (commodity or fiat) money. The one exception to this rule, I said, consists of episodes in which growth in an economy’s money stock, defined broadly to include the public’s holdings of readily-redeemable bank IOUs as well as its holdings of basic money, is due in whole or in part to a decline in bank reserve ratios

In a second post, I pointed out that, while falling bank reserve ratios might in theory be to blame for business booms, a look at some of the more notorious booms shows that they did not in fact coincide with any substantial decline in bank reserve ratios.

In this third and final post, I complete my critique of the “Fractional Reserves lead to Austrian Business Cycles” (FR=ABC) thesis, by showing that, when fractional-reserve banking system reserve ratios do decline, the decline doesn’t necessarily result in a malinvestment boom.

The Government’s Poor Defense of Counting Derivatives against Immigration Quotas

As I reported before, a group of Chinese investors under the EB-5 immigration program have challenged the government’s illegal practice of counting spouses and minor children of investors against the immigration quota for investors. This practice, however, hurts all legal immigrants because the same provision governs the admission of derivatives of all legal immigrants. Counting derivatives dramatically reduces legal immigration, harming people trying to immigrate legally to the United States. The government finally responded to the lawsuit on Friday, and its response leaves much to be desired.

Background

Section 203 of the Immigration and Nationality Act (INA) provides three broad pathways for legal immigrants to receive green cards (i.e. permanent residence):

(a) Preference allocation for family-sponsored immigrants.—Aliens subject to the worldwide level specified in section 201(c) of this title for family-sponsored immigrants shall be allotted visas as follows …

(b) Preference allocation for employment-based immigrants.—Aliens subject to the worldwide level specified in section 201(d) of this title for employment-based immigrants in a fiscal year shall be allotted visas as follows …

(c) Diversity immigrants… aliens subject to the worldwide level specified in section 201(e) of this title for diversity immigrants shall be allotted visas each fiscal year as follows …

Subsections (a), (b), and (c) of section 203 do not make the spouses and minor children of the family members, employees-investors, or diversity lottery winners eligible for status. It is only subsection (d) that creates an opportunity for them to immigrate:

(d) Treatment of family members.—A spouse or child… shall, if not otherwise entitled to an immigrant status and the immediate issuance of a visa under subsection (a), (b), or (c), be entitled to the same status, and the same order of consideration provided in the respective subsection, if accompanying or following to join, the spouse or parent.

Nothing in subsection (d) of section 203 applies the “worldwide levels” (or quotas) under subsection (a), (b), or (c) to the spouses and minor children of immigrants. They are then presumptively not subject to those limits.

Rauner Veto Preserves Consumer Protections in Short-Term Plans, Improves ObamaCare’s Risk Pools

Hours ago, Illinois Gov. Bruce Rauner (R) vetoed legislation that would have subjected enrollees in short-term health insurance plans to higher deductibles, higher administrative costs, higher premiums, and lost coverage. The vetoed bill would have blocked the consumer protections made available in that market by a final rule issued earlier this month by the U.S. Department of Health and Human Services, and would have (further) jeopardized ObamaCare’s risk pools by forcing even more sick patients into those pools.

Short-term plans are exempt from federal health insurance regulations, and as a result offer broader access to providers at a cost that is often 70 percent less than ObamaCare plans.

Rather than allow open competition between those two ways of providing health-insurance protection, the Obama administration sabatoged short-term plans. It forced short-term plan deductibles to reset after three months, and forced consumers in those plans to reenroll every three months, changes that increased administrative costs in that market.

The Obama administration further subjected short-term plan enrollees to medical underwriting after they fell ill – which meant higher premiums and cancelled coverage for the sick. Prior to the Obama rule, a consumer who purchased a short-term plan in January and developed cancer in February would have coverage until the end of December, at which point she could enroll in an ObamaCare plan. The National Association of Insurance Commissioners complained that the Obama rule required that her coverage expire at the end of March – effectively cancelling her coverage and leaving her with no coverage for up to nine months. The Obama administration stripped consumer protections from this market by expanding medical underwriting after enrollees get sick – something Congress has consistently tried to reduce.

Earlier this month, HHS restored and expanded the consumer protections the Obama administration gutted. It allowed short-term plans to cover enrollees for up to 12 months, and allowed insurers to extend short-term plans for up to an additional 24 months, for a total of up to 36 months. These changes allow short-term plans to offer deductibles tallied on an annual basis, rather than deductibles that reset every three months. They spare enrollees and insurers the expense of re-enrolling every three months. Most important, they allow short-term plans to protect enrollees who get sick from medical underwriting at least until they again become eligible to enroll in an ObamaCare plan the following January.

Indeed, HHS clarified that because the agency has no authority to regulate standalone “renewal guarantees” that allow short-term plan enrollees who fall ill to continue paying healthy-person premiums, “it may be possible for a consumer to maintain coverage under short-term, limited-duration insurance policies for extended periods of time” by “stringing together coverage under separate policies offered by the same or different issuers, for total coverage periods that would exceed 36 months.” As HHS Secretary Alex Azar explains, this helps ObamaCare:

Our decision to allow renewability and separate premium protections could also allow consumers to hold on to their short-term coverage if they get sick, rather than going to the exchanges, which improves the exchange risk pools.

I made that very argument in my comments on the proposed rule.

Illinois law automatically adopts whatever rules and definitions the federal government creates for short-term plans. If Illinois legislators had just done nothing, millions of Illinois residents automatically would have had a health insurance option that is more affordable and provides better coverage than ObamaCare.

But this is Illinois.

In their infinite wisdom, Illinois legislators passed legislation that once again would have exposed short-term plan enrollees higher deductibles, higher administrative costs, higher premiums, and cancelled coverage. The bill would have:

  • Required that initial contract terms for short-term plans last no longer than six months. It further provided that such plans could be extended for no more than six additional months.
  • Mandated that consumers who wish to keep purchasing consecutive short-term plans go uninsured for 60 days. Some consumers would inevitably develop expensive conditions during that period, and therefore be left with no coverage until the next ObamaCare open enrollment period. 
  • Prohibited renewal guarantees. The legislation specifically cut off this option. As a result, it would have dumped every single short-term plan enrollee with an expensive illness into the Exchanges. Ironically, Illinois legislators who thought they were bolstering ObamaCare actually passed a bill that would have sabotaged it.

Thankfully, Gov. Rauner stopped this ignorant, ridiculous effort to deny consumer protections to short-term plan enrollees. All eyes now turn to California, where Gov. Jerry Brown (D) must sign or veto legislation that would deny medical care to those who miss ObamaCare’s open enrollment period – by banning short-term plans altogether.

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Today’s U.S.-Mexico Trade Deal: What Was Agreed and What Comes Next

The Trump administration reached a deal with Mexico today on some bilateral issues in the renegotiation of the North American Free Trade Agreement (NAFTA). Some details of what was agreed are here. Other issues have been reported by the press as having been agreed, but until we see official government announcements, we are skeptical that those issues have been fully resolved.

This is not the conclusion of the NAFTA talks, because there are a number of outstanding issues, and Canada has to be brought back to the table as well. Nevertheless, today’s United States - Mexico deal is in some sense, “progress.” In another sense, however, it is a step backwards. To illustrate this, let’s look at the example of what was agreed on auto tariffs.

NAFTA eliminates tariffs on trade between Canada, Mexico, and the United States, but only for products that meet specific requirements to qualify as being made in North America. For example, you couldn’t make a car in China, ship it to Mexico and put the tires on, and then export it to the United States at the NAFTA zero tariff. Under current NAFTA rules, in order to qualify for duty free treatment, 62.5 percent of the content of a vehicle has to be from the NAFTA countries. 

The Trump administration has been opposed to this content threshold, arguing that it needs to be higher. A key part of the bilateral talks between the United States and Mexico was to address this issue, and also add some conditions related to wage levels.

With regard to the content threshold, the United States has asked for this requirement to be raised, and according to the fact sheet released by USTR, the new content requirement will be increased to 75 percent. On the wage levels, the United States has pushed for a provision that requires 40 percent of the content of light trucks and 45 percent of pickup trucks to be made by workers that earn at least $16 an hour, and Mexico appears to have agreed to this as well. These changes make it harder for Mexican producers to satisfy the conditions to get the zero tariffs, while Canada and the United States would not be affected by this change.

So what’s the point of all this? The goal of the Trump administration’s negotiators was to make it more difficult for autos to qualify for the zero tariffs. In other words, they are taking some of the free trade out of NAFTA.

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