August 30, 2018 8:33AM

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

By Ilya Shapiro and Matthew Larosiere

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.

August 29, 2018 2:07PM

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]

August 28, 2018 12:03PM

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.

August 28, 2018 9:20AM

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.

Causes of Changed Bank Reserve Ratios

That historic booms haven't typically been fueled by falling bank reserve ratios, meaning ratios of commercial bank reserves to commercial bank demand deposits and notes, doesn't mean that those ratios never decline. In fact they may decline for several reasons. But when they do change, commercial bank reserve ratios usually change gradually rather than rapidly. In contrast central banks, and fiat-money issuing central banks especially, can and sometimes do occasionally expand their balance sheets quite rapidly, if not to a dramatic extent. It's for this reason that monetary booms are more likely to be fueled by central bank credit operations than by commercial banks' decision to "skimp" more than usual on reserves.

There are, however, some exceptions to the rule that reserve ratios tend to change only gradually. One of these stems from government regulations, changes in which can lead to reserve ratio changes that are both more substantial and more sudden. Thus in the U.S. during the 1990s changes to minimum bank reserve requirements and the manner of their enforcement led to a considerable decline in actual bank reserve ratios. In contrast, the Federal Reserve's decision to begin paying interest on bank reserves starting in October 2008, followed by its various rounds of Quantitative Easing, caused bank reserve ratios to increase dramatically.

The other exception concerns cases in which fractional reserve banking is just developing. Obviously as that happens a switch from 100-percent reserves, or its equivalent, to some considerably lower fraction, might take place over a relatively short time span. In England during the last half of the 17th century, for example, the rise first of the goldsmith banks and then of the Bank of England led to a considerable reduction in the demand for monetary gold, its place being taken by a combination of paper notes and readily redeemable deposits.

Yet even that revolutionary change involved a less rapid increase in the role of fiduciary media, with even less significant cyclical implications, than one might first suppose, for several reasons. First, only a relatively small number of persons dealt with banks at first: for the vast majority of people, "money" still meant nothing other than copper and silver coins, plus (for the relatively well-heeled) the occasional gold guinea. Second, bank reserve ratios remained fairly high at first — the best estimates put them at around 30 percent or so — declining only gradually from that relatively high level. Finally, the fact that the change was as yet limited to England and one or two other economies meant that, instead of resulting in any substantial change England's money stock, level of spending, or price level, it led to a largely contemporaneous outflow of now-surplus gold to the rest of the world. By allowing paper to stand in for specie, in other words, England was able to export that much more precious metal. The same thing occurred in Scotland over the course of the next century, only to a considerably greater degree thanks to the greater freedom enjoyed by Scotland's banks. It was that development that caused Adam Smith to wax eloquent on the Scottish banking system's contribution to Scottish economic growth.

Eventually, however, any fractional-reserve banking system tends to settle into a relatively "mature" state, after which, barring changes to government regulations, bank reserve ratios are likely to decline only gradually, if they decline at all, in response to numerous factors including improvements in settlement arrangements, economies of scale, and changes in the liquidity of marketability of banks' non-reserve assets. For this reason it's perfectly absurd to treat the relatively rapid expansion of fiduciary media in a fractional-reserve banking system that's just taking root as illustrating tendencies present within established fractional-reserve banking systems.

Yet that's just what some proponents of 100-percent banking appear to do. For example, in a relatively recent blog Robert Murphy serves-up the following "standard story of fractional reserve banking":

Starting originally from a position of 100% reserve banking on demand deposits, the commercial banks look at all of their customers’ deposits of gold in their vaults, and take 80% of them, and lend them out into the community. This pushes down interest rates. But the original rich depositors don’t alter their behavior. Somebody who had planned on spending 8 of his 10 gold coins still does that. So aggregate consumption in the community doesn’t drop. Therefore, to the extent that the sudden drop in interest rates induces new investment projects that wouldn’t have occurred otherwise, there is an unsustainable boom that must eventually end in a bust.

Let pass Murphy's unfounded — and by now repeatedly-refuted — suggestion that fractional reserve banking started out with bankers' lending customers' deposits without the customers knowing it. And forget as well, for the moment, that any banker who funds loans using deposits that the depositors themselves intend spend immediately will go bust in short order. The awkward fact remains that, once a fractional-reserve banking system is established, it cannot go on being established again and again, but instead settles down to a relatively stable reserve ratio. So instead of explaining how fractional reserve banking can give rise to recurring business cycles, the story Murphy offers is one that accounts for only a single, never to be repeated fractional-reserve based cyclical event.

Desirable and Undesirable Reserve Ratio Changes

Finally, a declining banking system reserve ratio doesn't necessarily imply excessive money creation, lending, or bank maturity mismatching. That's because, notwithstanding what Murphy and others claim, competing commercial banks generally can't create money, or loans, out of thin air. Instead, their capacity to lend, like that of other intermediaries, depends crucially on their success at getting members of the public to hold on to their IOUs. The more IOUs bankers' customers are willing to hold on to, and the fewer they choose to cash in, the more the bankers can afford to lend. If, on the other hand, instead of holding onto a competing bank's IOUs, the bank's customers all decide to spend them at once, the bank will fail in short order, and will do so even if its ordinary customers never stage a run on it. All of this goes for the readily redeemable bank IOUs that make up the stock of bank-supplied money no less than for IOUs of other sorts. In other words, contrary to what Robert Murphy suggests in his passage quoted above, it matters a great deal to any banker whether or not persons who have exchanged basic money for his banks' redeemable claims plan to go on spending, thereby drawing on those claims, or not.

Furthermore, as I show in part II of my book on free banking, in a free or relatively free banking system, meaning one in which there are no legal reserve requirements and banks are free to issue their own circulating currency, bank reserve ratios will tend to change mainly in response to changes in the public's demand to hold on to bank-money balances. When people choose to increase their holdings of (that is, to put off spending) bank deposits or notes or both, the banks can profitably "stretch" their reserves further, making them support a correspondingly higher quantity of bank money. If, on the other hand, people choose to reduce their holdings of bank money by trying to spend them more aggressively, the banks will be compelled to restrict their lending and raise their reserve ratios. The stock of bank-created money will, in other words, tend to adjust so as to offset opposite changes in money's velocity, thereby stabilizing the product of the two.

This last result, far from implying a means by which fractional-reserve banks might fuel business cycles, suggests on the contrary that the equilibrium reserve ratio changes in a free banking system can actually help to avoid such cycles. For according to Friedrich Hayek's writings of the 1930s, in which he develops his theory of the business cycle most fully, avoiding such cycles is a matter of maintaining, not a constant money stock (M), but a constant "total money stream" (MV).

Voluntary and Involuntary Saving

Hayek's view is, of course, distinct from Murray Rothbard's, and also from that of many other Austrian critics of fractional reserve banking. But it is also more intuitively appealing. For the Austrian theory of the business cycle attributes unsustainable booms to occasions when bank-financed investment exceeds voluntary saving. Such booms are unsustainable because the unnaturally low interest rates with which they're associated inevitably give way to higher ones consistent with the public's voluntary willingness to save. But why should rates rise? They rise because lending in excess of voluntary savings means adding more to the "total money stream" than savers take out of that stream. Eventually that increased money stream will serve to bid up prices. Higher prices will in term raise the demand for loans, pushing interest rates back up. The increase in rates in turn brings the boom to an end, launching the "bust" stage of the cycle.

If, in contrast, banks lend more only to the extent that doing so compensates for the public's attempts to accumulate balances of bank money, the money stream remains constant. Consequently the increase in bank lending doesn't result in any general increase in the demand for or prices of goods. There is, in this case, no tendency for either the demand for credit or interest rates to increase. Instead of being self-reversing, the investment "boom," if it can be called such, is not inevitably self-reversing. Instead, it can go on for as long as the increased demand for fiduciary media persists, and perhaps forever.

As I'm not saying anything here that I haven't said before, I have a pretty darn good idea what sort of counterarguments to anticipate. Among others I expect to see claims to the effect that people who hold onto balances of bank money (or fiduciary media or "money substitutes" or whatever one wishes to call bank -issued IOUs that serve as regularly-accepted means of exchange) are not "really" engaged in acts of voluntary saving, because they might choose to part with those balances at any time, or because a bank deposit balance or banknote is "neither a present nor a future good," or something alone these lines.

Balderdash. To "save" is merely to refrain from spending one's earnings; and one can save by holding on or adding to a bank deposit balance or redeemable banknote no less than by holding on to or accumulating Treasury bonds. That persons who choose to save by accumulating demand deposits do not commit themselves to saving any definite amount for any definite length of time does not make their decision to save any less real: so long as they hold on to bank-issued IOUs, they are devoting a quantity of savings precisely equal to the value of those IOUs to the banks that have them on their books: as Murray Rothbard himself might have put it — though he certainly never did so with regard to the case at hand — such persons have a "demonstrated preference" for not spending, that is, for saving, to the extent that they hold bank IOUs, where "demonstrated preference" refers to the ("praxeological") insight that, regardless of what some outside expert might claim, peoples' actual acts of choice supply the only real proof of what they desire or don't desire.  According to that insight, so long as someone holds a bank balance or IOU, he desires the balance or IOU, and not the things that could be had for it, or any part of it. That is, he desires to be a creditor to the bank against which he holds the balance or IOU.

And so long as banks expand their lending in accord with their customers' demonstrated preference such acts of saving, and no more, while contracting it as their customers' willingness to direct their savings to them subsides, the banks' lending will not contribute to business cycles, Austrian or otherwise.

Of course, real-world monetary systems don't always conform to the ideal sort of banking system I've described, issuing more fiduciary media only to the extent that the public's real demand for such media has itself increased. While  free banking systems of the sort I theorize about in my book tend to approximate this ideal, real world systems can and sometimes do create credit in excess of the public's voluntary savings, occasionally without, though (as we've seen) most often with, the help of accommodative central banks. But that's no reason to condemn fractional reserve banking. Instead it's a reason for looking more deeply into the circumstances that sometimes allow banking and monetary systems to promote business cycles.

In other words, instead of repeating the facile cliché that fractional reserve banking causes business cycles, or condemning fiduciary media tout court, Austrian economists who want to put a stop to such cycles, and to do so without undermining beneficial bank undertakings, should inquire into the factors that sometimes cause banks to create more fiduciary media than their customers either want or need.

[Cross-posted from Alt-M.org]

August 27, 2018 4:37PM

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.


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.

The Government’s Argument

1) “Although the Court’s analysis should begin with the INA’s text, the meaning the Court ascribes to the statutory text must reflect the statute’s ‘context.’” -P. 19

The most incredible thing about the government’s response is that it explicitly eschews any effort to explain its practice using the language of section 203(d). I expected them to make the incorrect argument that because an immigrant has the “same status” as another immigrant, they are both subject to the same quota. But this is obviously false, for reasons I explain here. Adult children of U.S. citizens are subject to a quota under subsection (a) of section 203, while minor children are not subject to a quota under section 201(b), yet both receive the same immigrant status. What matters is not the status an immigrant has, but under which provision they receive that status—one with a cap or one without a cap. Yet this bad argument is better than what the government argues in its response, which is nothing at all.

2) “Section 203(d) is a means by which a derivative spouse or child can obtain a visa under their principal’s applicable category in Section 203(a), (b) or (c).” Emphasis added, P. 22

This is as close to an explanation as the government gives for its interpretation. It is asserting that dependents don’t receive status under subsection (d) of section 203 which has no quota, but under subsections (a), (b), and (c) which do have quotas. Yet it provides zero textual support for this view. In fact, the investors’ brief (p. 17) cites several provisions where Congress explicitly describes dependents as receiving status under subsection (d): 8 U.S.C. 1101(a)(15)(V); 8 U.S.C. 1154(l)(2)(C); 8 U.S.C. 1186b; 8 U.S.C. 1255(i)(1)(B); and Public Law 107 – 56.

3) “The country cap also explicitly applies to derivatives, as stated in INA section 202(b). . . . And since the country cap is a subset of the overall family and employment-based caps, then equally clearly, if the country cap applies to derivatives, then so too do the overall caps” -Pp. 25-26

There are two types of immigration quotas: 1) “worldwide levels” that limit the absolute number of immigrants, and 2) “per-country” levels that limit the share of the worldwide level that a single nationality can receive. Section 202 of the INA does mention rules for counting some spouses and minor children against the per-country limits, but it never references spouses and minor children admitted under section 203(d). That is notable because subsection (d) of section 203 explicitly describes two types of spouses and minor children—those entitled to status under subsection (d) and those “otherwise entitled to immigrant status… under subsection (a), (b), or (c).”

This second group includes, for example, certain special immigrants under subsection (b)(4). The reason that spouses and children of these special immigrants are counted against the limits is that they are part of the definition of a special immigrant (see section 101(a)(27)).  That means that these derivatives have to be counted because they receive status, not under subsection (d) of section 203 which has no cap, but under the capped sections of section 203. Under the government’s view, these provisions that include spouses and children as part of the definition of special immigrants serve no purpose at all, which violates a basic cannon of statutory interpretation. The government is attempting to confuse the two types of derivatives in order to save its erroneous interpretation.

4) “Congressional intent is further demonstrated by the fact that when Congress exempts derivative spouses and children from an applicable numerical cap, it almost always does so explicitly.” -P. 38.

This statement is the opposite of the truth. In support of its statement, it cites a number of categories of nonimmigrants (H-1Bs, H-2Bs, H1-B1s, E-3s, Ts, Us) and special immigrant Iraqis and Afghanis, but in almost every one of its cases that it cites, the spouse or child is part of the definition of the eligible category. For example, H-1Bs are defined in section 101(a)(15)(H) as “an alien. . . who is coming temporarily to the United States to perform services. . . in a specialty occupation. . . and the alien spouse and minor children of any such alien.” In other words, spouses and children start out eligible, and so subject to the quota, so if Congress wanted to exempt them, it had to do so explicitly. But in section 203, spouses and children start out ineligible, and so not subject to a cap, and are separately made eligible under subsection (d), which has no quota so there is no need to explicitly exempt them.

In every comparable case, where the spouses and children start out ineligible and then separately are made eligible, Congress specifically required them to be counted. The Refugee Act of 1980, section 207 of the INA, has a directly comparable provision. Spouses and children are not eligible under the definition of a refugee under section 101(a)(42) and so not subject to the cap on refugees in section 207(a), but section 207(c)(2)(A) makes them eligible, and when it does so, it explicitly states, “Upon the spouse’s or child’s admission to the United States, such admission shall be charged against the numerical limitation . . .” In other words, exactly the language that isn’t in section 203(d).

 5) “There is a particular reason why Congress would have specified derivative counting in this way in the Refugee Act: unlike the caps at issue in this case, which are set by statute, the refugee cap is established by the President. Thus, the specific derivative provision is a deliberate check on the very broad authority that Congress had otherwise delegated to the President in the Refugee Act.” -P. 40

This explanation simply doesn’t work for the government. Why would Congress need a special “check” on his authority to not count derivatives if, on the government’s theory, the statute requires them to be counted to begin with? It doesn’t make any sense.

6) “Plaintiffs point to a single allegedly contrary provision in the Refugee Act of 1980.” -P. 39

This is just false. The investors’ motion also cites three other directly comparable instances, all of which were enacted at the exact same time as section 203 in 1990 (pp. 21-22). These provisions provided green cards to Hong Kong employees, displaced Tibetans, and transitional diversity visa applicants. In each case, Congress created the category for principal applicants and separately created the eligibility for their spouses and minor children using almost exactly the same language as section 203(d). But in 1991, it amended each provision to require that spouses and children be counted against those quotas. Did the government not actually read the motion or did it misrepresent it?

7) “The 1990 Act contained exactly the same language as the 1965 Act. . . . When Congress repeats language with a well understood construction in a new statute, it is presumed to intend to continue that same construction.” -P. 23

This is also false. Under the Immigration Act of 1965, derivatives were explicitly required to be counted, being listed in a subsection that began “Aliens who are subject to the numerical limitations specified in section 201(a) shall be allotted visas . . . as follows:”. The last category was a “spouse or child” of a primary applicant. In 1990, spouses and children became their own subsection, not included in the categories subject to the worldwide limits. The government’s claim is simply untrue.

8) “Plaintiffs contend that the restructuring of Section 203 in the 1990 Act had huge substantive effects by taking EB-5 investors’ spouses and children. . . completely out of the preference system altogether.”

This is again false. Spouses and children of investors are still part of the preference system as their eligibility is tied to their parents or spouses, and they must wait alongside them. They cannot simply enter “outside the preference system.”

9) “Not once in the thirty years since the 1990 Act was passed has any court ever interpreted the INA in the way Plaintiffs now claim Congress intended all along.” -P. 35

First, the EB-5 backlog didn’t exist until 2014, so they never would have had standing to sue prior to then. Second, this isn’t the first time that the government has been caught miscounting green cards years after it implemented the policy. The Johnson, Nixon, and Ford administrations interpreted the Cuban Adjustment Act of 1966 to count Cubans against the immigration quotas, and almost a decade after the bill’s passage, the Ford administration was sued, and it admitted in court that it was wrong to count them all along. The fact that a practice has occurred for many years does not mean that the practice is correct.

10) “The D.C. Circuit has cautioned that ‘legislative posturing serves no useful purpose . . .’ . . .  The isolated floor statements that Plaintiffs cite thus carry little weight in constructing the meaning of the INA’s provisions respecting counting derivatives towards the annual allotments of EB-5 visas.” -P. 33

The government dismisses evidence that I reported on here that clearly indicates that members of Congress explicitly expected that the EB-5 program would admit 10,000 investors, not 3,500 investors and 6,500 derivatives. Some members explicitly described the process through which they envisioned spouses and children entering. While the government is correct that this shouldn’t trump the text of the law, it doesn’t—it reinforces what is already there. The government responds by citing an ambiguous conference committee report on the final bill that does not contradict the floor statements of the members and does not explicitly explain how it deals with the issue of derivatives. This could be because the conference committee was just as interested in determining the outcome of the bill as those individual members and didn’t want to lose members by stating one way or another.

11) “No legislative history even remotely supports the proposition that Congress meant to exclude all derivatives from applicable caps . . .” -P. 34

This is also false. As explained above, in the Immigration Act of 1990, Congress enacted provisions providing green cards for Hong Kong employees, displaced Tibetans, and transitional diversity visa applicants using the same language as section 203(d). In 1991, Congress amended the 1990 act to explicitly require counting of spouses and minor children of the principals. Here is an example with the change in bold:

(a) In General.--Notwithstanding the numerical limitations in sections 201 and 202 of the Immigration and Nationality Act, there shall be made available to qualified displaced Tibetans described in subsection (b) (or in subsection (d) as the spouse or child of such an alien) 1,000 immigrant visas in the 3-fiscal-year period beginning with fiscal year 1991.

. . .

(d) Derivative Status for Spouses and Children.--A spouse or child . . . shall, if not otherwise entitled to an immigrant status and the immediate issuance of a visa under this section, be entitled to the same status, and the same order of consideration, provided under this section, if accompanying, or following to join, his spouse or parent.

If derivatives were already required to be counted against the quota, it would not have needed to insert any language into this provision, but it did anyway, making its interpretation of this language manifest to all. Congress made this amendment in every relevant place except one: subsection (d) of section 203. This is as close as it gets to positive proof of Congress’s interpretation of the statute.


In summation, the government provides no theory at all of how the plain language of the statute requires counting. Its indirect textual evidence falls flat and even contradicts its claims, and it repeatedly misstates the legislative history. The government concludes by fearmongering about how much legal immigration would increase if it were forced to implement the statute Congress actually passed. But legal immigration isn’t scary, and even it were, it is even scarier to allow the government the power to amend the laws without Congress.

August 27, 2018 4:28PM

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.

August 27, 2018 3:12PM

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.

Along the same lines, reports suggest there is a provision that would allow the United States to charge tariffs above the normal 2.5 percent tariff rate (which applies to countries that don’t have a trade agreement with the United States) for any new auto factories built in Mexico. It is not clear from today’s announcement whether this is included in the newly agreed provisions.

The impact of these changes, if the NAFTA talks are completed and the new rules go into effect, will vary by producer, so it is hard to give a precise assessment of how much it will raise costs overall. The 25 percent auto tariff that the Trump administration is currently considering -- ostensibly based on national security, but really just protectionism -- is likely to raise auto prices a lot. A recent study estimates that if Trump implements his proposed 25 percent tariff on auto imports, the average price of a compact car would increase by $1,408 to $2,057, while luxury SUVs and crossover vehicle prices could increase by $4,708 to $6,972. No similar study has yet been done for the new NAFTA content requirements, but whatever the final figure may be, it is clear that these stricter content requirements will raise prices to some extent, which will make autos more expensive for consumers and potentially make North American production less competitive.

The NAFTA renegotiation has led to great market uncertainty, and it would be nice to get this all resolved. But before we applaud the completion of any deal, what matters most is in the details. From what we know at the moment, those details suggest that NAFTA may have been made worse, not better. And there are a still a lot of details to work out. A full assessment of the new NAFTA will have to await all of the final terms.

Furthermore, President Trump suggested that while Canada can join soon, it may not be part of the agreement at all, and instead could face a tariff on car exports to the United States. Leaving Canada out of a new NAFTA would be a mistake. On the phone during the announcement, Mexican President Enrique Pena Nieto remarked on more than one occasion that he was looking forward to Canada rejoining the talks. This should be received positively as it suggests Mexico is still committed to a trilateral deal.  What happens next is anyone’s guess, but we should keep our eyes open for the return of Canada’s Foreign Minister Chrystia Freeland to Washington to wrap up the discussions soon. Let's hope the other changes still under discussion point us in a more positive direction.