Archives: 09/2018

New Economic Freedom Index, U.S. Returns to Top 10

According to the Economic Freedom of the World: 2018 Annual Report—co-published today in the United States by the Fraser Institute (Canada) and the Cato Institute—the United States has returned to the list of the top ten freest economies in the world after an absence of many years and a decline that began around the year 2000. The United States ranks 6th on the index.

“During the 2009–2016 term of President Obama, the US score initially continued to decline as it had under President Bush. From 2013 to 2016, however, the US rating increased from 7.74 to 8.03. This is still well below the high-water mark of 8.62 in 2000 at the end of the Clinton presidency,” note authors James Gwartney, Robert Lawson, Joshua Hall, and Ryan Murphy. In the aftermath of the financial crisis, the five broad areas of freedom that the report measures—size of government, legal system and property rights, monetary policy, trade openness, and regulation—saw falls in their U.S. scores that in recent years have begun to recover.

This year’s report ranks 162 countries and covers data through 2016, the most current year for which internationally comparable data is available. The index continues to find a strong relationship between economic freedom and a host of indicators of human well-being, including prosperity. The top ten countries in order are: Hong Kong, Singapore, New Zealand, Switzerland, Ireland, United States, Georgia, Mauritius, United Kingdom, and, tied at 10th place, Australia and Canada.

As a group, high income industrial countries experienced declines in their level of economic freedom that began last decade. The graph below from the report shows that those levels have improved somewhat in recent years. It also shows that the gap in economic freedom between rich and poor countries has been closing notably since 1980, with most of that gain coming from increases in developing countries’ economic freedom even as developed countries increased their freedom during the same time.

Difference between the Average EFW Summary Ratings

Find out where other countries rank and the relationship between economic freedom and longevity, gender equality, happiness, income and more here.

What If There Were Millions More Illegal Immigrants?

A recent paper published in the journal PLoS ONE claims that the number of illegal immigrants currently residing in the United States is at least 50 percent greater than previously thought and likely to be twice as high.  Researchers Mohammad M. Fazel-Zarandi, Jonathan S. Feinstein, and Edward H. Kaplan write that:

Our conservative estimate is 16.7 million for 2016, nearly fifty percent higher than the most prominent current estimate of 11.3 million, which is based on survey data and thus different sources and methods. The mean estimate based on our simulation analysis is 22.1 million, essentially double the current widely accepted estimate.

That PLos ONE paper levels a serious charge as virtually all demographers and researchers in think-tanks on both sides of the immigration issue and the government think that the real number of illegal immigrants lies somewhere between 11 and 12 million. 

Understandably, much of the media has run with this headline finding but have neglected to cite the substantive and convincing criticism published in PLoS One in the same issue.  There are three major criticisms of the paper by Fazel-Zarandi, Feinstein, and Kaplan.  The first is that their model is highly sensitive to assumptions about return migration in the 1990s.  Merely replacing the authors’ assumptions with those based on Mexican return-migrant survey data brings their estimates down to the commonly accepted level.  The second is that it is very difficult for millions of additional people to hide in the United States without leaving a demographic or statistical trail.  Their children should show up in birth and school records, their deaths should show up in death records, and more of them should be counted in the American Community Survey or U.S. Census.  The third is that they should show up in economic surveys of employment, but they do not.

Researchers, pundits, policy-makers, and members of the media should not support the PLoS ONE findings based on the quality of the criticisms.  Although my doubts line up well with those of the critics cited above, there are some interesting implications if (a very big nearly-impossible if) the results of the PLoS ONE paper turn out to accurately estimate a greater number of illegal immigrants.  

New Rule to Deny Status to Immigrants Up to 95% Self-Sufficient

The Trump administration has finally published its long awaited proposed regulation that expands a current rule denying applications to immigrants it deems “public charges”—that is, people who are likely to rely on the government for their support in the United States. As the Department of Homeland Security (DHS) explains in its proposed new rule.

The primary benefit of the proposed rule would be to help ensure that aliens who apply for admission to the United States, seek extension of stay or change of status, or apply for adjustment of status are self-sufficient, i.e. do not depend on public resources to meet their needs, but rather rely on their own capabilities and the resources of their family, sponsor, and private organizations.

My colleagues at the Cato Institute have repeatedly urged proposals that would lead to this same result. Indeed, we believe that this goal should apply to all people regardless of immigration status. For decades, we have proposed to build a wall around the welfare state, not around the country. However, while this version of the rule significantly improves upon a draft version leaked to the public earlier this year – which I commented on here – it unfortunately still retains many of the same problems as the first version. These defects will seriously undermine any fiscal benefits that the rule could provide.

Background

As I’ve explained before, since 1891, federal immigration law has denied visas or status to foreigners deemed “likely to become a public charge” in the United States. The likely public charge law does not directly prevent immigrants from legally receiving welfare. Rather, it prevents them from receiving legal status in the United States if a government bureaucrat predicts that they could end up at some point in the future depending on welfare that the law allows them to receive. This draft rule would alter the procedures governing how DHS bureaucrats make these likely public charge predictions. It would apply to anyone in the United States applying to adjust or extend their status in the country or those seeking to enter the country for the first time.

DHS’s current guidance from 1999 defines public charge to mean “primarily dependent” on welfare, as demonstrated by the receipt of certain cash welfare programs. This new rule would redefine the term to mean receipt of any government assistance in any amount greater than 15 percent of the poverty line over the course of any year of their lives (or the use of certain programs for more than 1 year). To predict the likelihood of future use, the rule requires adjudicators to consider a list of seven factors and at least 19 pieces of evidence.

Another Jones Act Absurdity

Cape Ray

As North Carolina grapples with the aftermath of Hurricane Florence, transportation officials in the state are attempting to secure the use of a U.S. government-owned vessel, the Cape Ray, to transport supplies to the port of Wilmington. With the city temporarily transformed into an island by recent flooding, the roll-on, roll-off ship—or “ro-ro” in maritime parlance—will enable trucks filled with needed goods to drive aboard.

It’s a good thing the ship is government-owned—under private ownership the Cape Ray’s provision of relief supplies would be illegal. This absurd situation is due to a nearly 100-year-old law called the Jones Act. Passed in 1920, the law mandates that ships transporting goods between two points in the United States be U.S.-owned, crewed, flagged and built. The Cape Ray, however, was built in Japan.

Even if officials sought the private sector’s help and a Jones Act-compliant ro-ro ship to transport the trucks, none are available. According to data from the U.S. Maritime Administration (MARAD) there are only seven ro-ro ships in the entire Jones Act fleet. The closest one to North Carolina, the Delta Mariner, isn’t even an ocean-going vessel but rather operates on the Tennessee River. The other six vessels ply routes between the West Coast and Alaska or Hawaii.

The picture is little improved if Jones Act containerships and general cargo ships are also included, with a total of six such vessels currently on the East or Gulf Coasts (MARAD shows five but does not include the recently commissioned El Coquí). The closest one to the North Carolina flood victims is a 47-year-old general cargo ship, the Coastal Venture, which is currently moored near Charleston.

One reason behind the dearth of ships is the fact that U.S.-built vessels cost up to eight times as much as those built overseas. Such exorbitant prices mean that fewer are purchased, with fewer available for both general commerce and emergency situations. 

In contrast, there is little difficulty locating foreign-flagged ro-ro vessels in the mid-Atlantic region. The Marshall Islands-flagged Morning Pride, for example, is making its way up the East Coast toward Philadelphia, while the Norwegian-flagged Höegh Asia is bound for Baltimore. A combination cargo/ro-ro vessel, the Saudi-flagged Bahri Tabuk, is currently off the coast of North Carolina.

But because of the Jones Act, none of these ships are eligible to take on relief supplies at a U.S. port and speed them to Wilmington.

The Jones Act’s stated purpose is to ensure that the United States “shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency.” But when faced with a genuine emergency, such as Hurricane Maria in 2017 or Hurricane Florence today, the Jones Act fleet is often found wanting.

By its own terms, the law is a failure that actually impedes the realization of its goals. It’s time for the Jones Act to go. 

HUD’s Inexperienced Bureaucrats

The Washington Post slammed Ben Carson’s Department of Housing and Urban Development today. The paper found that “loyalty eclipses expertise” in the upper ranks of the agency given that 24 of HUD’s 70 political appointees have little housing experience. Most of the 24 helped on either Trump’s or Carson’s presidential campaigns.

A few thoughts.

Washington is a revolving door of analysts and operatives moving back and forth between trade associations and businesses (when their team is out) and executive branch agencies (when their team is in). Arguably, Carson’s policy of bringing non-housing outsiders into HUD is consistent with Trump’s “drain the swamp” promise. After all, when industry insiders are appointed to federal jobs, their incentive is to steer subsidies and bend regulations toward their industry friends on the outside.

The Post argues that Obama’s HUD appointees were more expert than Trump’s. Maybe so, but as small government supporters in Washington know, a great policy asymmetry is that most of the experts on government welfare programs are the liberals and lobbyists who favor the expansive status quo. That is one reason why Washington is a self-sustaining and self-protecting ecosystem so difficult to cut.

All that said, in 2015 I also critiqued federal political appointees as amateurs who have a problematic incentive structure:

The federal executive branch is headed by an elected president who appoints about 3,000 people to top positions across the bureaucracy. Political leadership of federal agencies has some benefits, but it also causes failures. New administrations come into office eager to launch new initiatives, but they are less interested in managing what is already there. Political appointees think that they know all the answers, so they do not bother learning the lessons from past efforts, and they repeat mistakes. As each administration yanks agencies in new directions, past investments are thrown down the drain. The average tenure of federal political appointees is short—just two and half years—and so appointees tend to push superficially appealing initiatives that look good on their resumes, but they shy away from tackling longer-term, structural reforms. 

Another problem with appointees is that many of them are political partisans who lack management or technical experience. One of the reasons for the failed response to Hurricane Katrina in 2005 was that many executives in the Department of Homeland Security were inexperienced party loyalists. This lesson from Katrina has not been learned. Today, for example, many U.S. ambassadors are political donors with no experience in the countries they are posted. Another example is the current acting head of the 900-employee Federal Railroad Administration, who seems to have no background in railroads or transportation, or apparently any technical qualifications. The ticket to the top for this official appears to have been a decade of media relations jobs for members of Congress and the White House.

That is the executive branch. As for the legislative branch, inexperience is an even larger problem. Most members of Congress and their staffs have little knowledge of the complexities of the industries that they subsidize, penalize, and tax. The modern Congress is a bunch of lawyers squabbling over how to manipulate a $20 trillion economy that they do not understand.

The basic problem with the federal government is that it is too big. The problem with HUD is that officials in a faraway capital are trying to micromanage local communities, not that some HUD officials were former event managers and HVAC salesmen.

For more on executive branch failings, see this study.

For more on legislative branch failings, see this study.

For an overall analysis of federal failure, see this study.

“Fort Trump” and Mounting U.S. Tensions with Russia

Washington’s relations with Russia have been deteriorating for years, but new U.S. actions could make matters considerably worse.  One major source of irritation for the Kremlin has been NATO’s military exercises in countries on Russia’s border.  Those war games have proliferated since the onset of the Ukraine crisis in 2014, when the United States and European Union countries helped demonstrators oust Ukraine’s elected, pro-Russian president, Viktor Yanukovych, and Russia responded by annexing Crimea.

Russian anger also has been directed at “rotational” U.S. military deployments in NATO’s easternmost members.  Those supposedly temporary assignments of American units have become nearly continuous.  Now there are indications that the Trump administration may dispense entirely with the diplomatic fiction that sequential rotational deployments do not constitute a permanent U.S. military presence.

During a state visit to Washington in mid-September, Poland’s president, Andrzej Duda, promised to provide $2 billion toward construction costs if the United States built a military base in his country.  In a transparent appeal to the U.S. president’s notorious vanity, Duda even offered to name the base “Fort Trump.”  Poland “is willing to make a very major contribution to the United States to come in and have a presence in Poland,” Trump said in the Oval Office. “If they’re willing to do that, it’s something we will certainly talk about.”  He added that the United States would take Duda’s proposal “very seriously.”

American Conservative columnist Daniel Larison warned that putting a U.S. base in Poland “would further antagonize Russia, and it would create one more overseas military installation that the U.S. doesn’t need to have.  Trump is often accused of wanting to ‘retreat’ from the world, but his willingness to entertain this proposal shows that he doesn’t care about stationing U.S. forces abroad so long as someone else is footing most of the bill.”  The cost issue would be the least of the problems created by establishing a permanent U.S. military presence in a country bordering on Russia’s Kaliningrad exclave.  The rotational deployments are bad enough, but ostentatiously building a major base would escalate that provocation.

As I discuss in a recent article in the American Conservative, Washington’s growing military ties with Ukraine, a country that is an even more central security concern for Moscow, constitute an especially provocative move.  Secretary of Defense James Mattis has acknowledged that U.S. instructors are training Ukrainian military units at a base in western Ukraine.  Washington also approved two important arms sales to Kiev’s ground forces in just the past 9 months.  The more recent deal included the extremely lethal Javelin antitank missiles—the kind of weapons that Barack Obama’s administration had prudently declined to send to Kiev.

Potentially even more worrisome, former U.S. Ambassador to NATO Kurt Volker disclosed during a September first interview with the Guardian that Washington’s future military sales to Kiev would likely involve weapons for Ukraine’s air force and navy as well as the army. “The Javelins are mainly symbolic and it’s not clear if they would ever be used,” Aric Toler, a research scholar at the staunchly pro-NATO and anti-Russia Atlantic Council, asserted.  One could well dispute his sanguine conclusion, but even Toler conceded:  “Support for the Ukrainian navy and air defence would be a big deal.  That would be far more significant.”

Relations with Russia already are bad enough without pouring gasoline on the fire.  Unfortunately, the Trump administration is doing exactly that.  Perhaps the president is embracing these provocative initiatives to rebut hysterical critics who charge that he is “soft” on Russia—or even worse, is a Russian agent.  Whatever the motive, Washington’s recent actions are reckless and need to be abandoned.

 

 

China Decides To Lower Some Tariffs

Yesterday morning, in an op-ed we published in a Chinese news outlet, we made the case that assuaging the Trump administration will be difficult, and that instead of responding to Trump, China should just focus on being a good citizen of the world trading system. In this context, we said this:

China should unilaterally open up its markets to the greatest extent possible, as a sign of its good faith … includ[ing] tariff reductions.

Later in the day, we saw this Bloomberg story:

China is planning to cut average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that would lower costs for consumers as a trade war with the U.S. deepens.

The two people asked not to be named because the matter isn’t public yet. Premier Li Keqiang said Wednesday that China would reduce tariffs, though he didn’t elaborate. 

It’s not yet clear how the planned reduction would affect imports from the U.S., if at all, including Chinese retaliatory tariffs on American products amid the trade war. Those details may only emerge once the government outlines which products will enjoy lower tariffs. …

Now, we’re not claiming cause and effect here, but we’re thinking of making some more requests!

But seriously, we think it is pretty unlikely that our piece led to the Chinese government’s decision here. Nevertheless, this is a positive development. It is helpful that China is recognizing that liberalization is beneficial, and that as a major world economy, it needs to lead by example when it calls itself a defender of “the principles of free trade and the multilateral trading system.”  China has a long way to go to become a true market economy, but this is a good step.

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