201810

October 16, 2018 5:13PM

Is The Trump Administration Finally Going To Pursue Some Trade Liberalization?

The focus of the Trump administration's trade policy to date has been on renegotiating existing trade deals (with a mix of minor liberalization and modest new protectionism), putting tariffs on a wide range of imports using flimsy justifications, and engaging in a high-profile trade war with China. By contrast, it has put very little effort into pushing for significant new trade liberalization.

That may be about to change. The U.S. Trade Representative's Office has just sent letters to Congress formally notifying the administration’s intent to enter into trade negotiations with the EU, Japan, and the UK. Cato scholars have called for exactly these negotiations (see herehere, and here, and much more detail here).

There is a lot of work ahead, as these negotiations won't be easy. They would have been easier if the administration had not imposed "national security" tariffs on imports of steel and aluminum from these very same trading partners. Nevertheless, almost two years into the Trump administration, there is finally a glimmer of hope that there could be some trade liberalization coming.

October 16, 2018 4:22PM

Criminal Informants and Other Injustices in Little Rock

Over the weekend, Washington Post investigative journalist and Cato alumnus Radley Balko published a devastating report on a drug unit in Little Rock, Arkansas. The squad has been conducting a high number of no-knock raids on drug suspects on evidence supplied by a less-than-reputable criminal informant. As Balko notes, that the police quite literally signed off on some of the informant’s apparent lies is one of myriad problems he uncovered in his investigation.

There are many shocking aspects to Balko’s story, but in the end, much of what he found in Little Rock reflects a broader problem of police reliance on informants to fight the drug war. Today, I published a piece in Democracy Journal explaining the many ways informants corrupt our justice system and policing itself. An excerpt:

The rules for using confidential (also called “criminal”) informants [CIs] in criminal investigations vary from jurisdiction to jurisdiction, but generally speaking, employing CIs introduces three systemic flaws into the criminal justice system. First, the use of confidential informants definitionally requires secrecy and opacity, which shields CIs and officers alike from sufficient oversight and accountability. Second, the informant system relies on bad inputs—namely, drug-addicted individuals and other people immersed in criminal activity to act as agents of the government—and thus effectively becomes a subsidy for criminal behavior. Third, the use of confidential informants creates some bad incentives for law enforcement actors and the CIs themselves, which skew toward case production and away from public safety and security. Taken together, and in the context of our everyday justice system, these flaws produce an array of bad individual and public policy outcomes while providing only superficial benefits for law enforcement.

Coincidentally, I recently testified before the Arkansas Advisory Committee to the U.S. Commission on Civil Rights in Little Rock. The committee invited me to talk about how police practices contribute to the pronounced racial disparities in mass incarceration. Among other things, my testimony included a criticism of Little Rock police using invasive, neighborhood-based pretextual traffic stops to quell an uptick in violence. Such methods fuel community resentment of the police and have not been shown to reduce crime in the process.

You can read Balko’s piece in full here. My commentary on informants can be found here. And the written version of my testimony in Little Rock can be found here.

October 16, 2018 2:21PM

Donald Trump, 60 Minutes, and Global Warming

Earlier this week, Leslie Stahl and 60 Minutes got into the subject of global warming with President Trump.  

Her question, "Do you still think climate change is a hoax" followed background on recent hurricanes Michael, Florence, Maria, and Harvey.

The President’s response was “I think something's happening. Something's changing and it'll change back again. I don't think it's a hoax, I think there's probably a difference. But I don't know that it's manmade.” 

This is a huge walk-back from his old rhetoric, which was enough to make scientists like me cringe. 

And in the context of hurricanes, his comment is also is consistent with what the National Oceanic and Atmospheric Administration’s Geophysical Fluid Dynamics Laboratory (GFDL) said in its September 20 statement titled “Global Warming and Hurricanes”: “In the Atlantic, it is premature to conclude that human activities--and particularly greenhouse gas emissions that cause global warming--have already had a detectable impact on hurricane activity.”

It is noteworthy that GFDL’s statement was in an update, and that “Global Warming and Hurricanes” has said the same about Atlantic hurricanes for years, long predating the Trump Administration.

Stahl then went on to Greenland.  Here’s the relevant transcript:

Lesley Stahl: I wish you could go to Greenland, watch these huge chunks of ice just falling into the ocean, raising the sea levels.

President Donald Trump: And you don't know whether that would have happened with or without man. You don't know.

Another reasonable response. For reasons having nothing to do with humans, ice-covered areas in Greenland endured 6,000 years of warming centering around 118,000 years ago that, in terms of integrated heating, was larger than anything humans can do to it. Yet it only lost about 30% of its ice. There were certainly more “huge chunks of ice just falling into the ocean raising sea levels” back then, with no human influence on climate.

It’s also true that the current high-latitude north polar warming is largely (but not completely) consistent with global warming theory.

Finally, they got into a “he said, he said” discussion about climate scientists’ various viewpoints.  Here’s how it ended:

Lesley Stahl: Yeah, but what about the scientists who say it's worse than ever?

President Donald Trump: You'd have to show me the scientists because they have a very big political agenda, Lesley.

Lesley Stahl: I can't bring them in.

President Donald Trump: Look, scientists also have a political agenda.

No, 60 Minutes cannot be expected to bring in hundreds of scientists on either side of this debate to investigate whether or not they have a political agenda.  But Al Gore may have been on to something in his comments on the recent UN report claiming temperature increases of a mere 0.6°C will be catastrophic.  He said it was “torqued up a little bit, appropriately -- how [else] do they get the attention of policy-makers around the world”[?].

Hmmm. Seems like a political agenda.

October 16, 2018 1:14PM

Airbnb and Neighborhood Conflict

This month the Washington, D.C. Council voted unanimously in favor of preliminary approval of a bill that has the potential to substantially restrict Airbnb and other short-term rentals in the District. The bill, which must pass a final vote before being officially approved, creates new licensing requirements and imposes new limits on who can rent out their spare rooms or homes and for how long. Most significantly, the legislation would only permit hosts to offer short-term rentals at their primary residence and to rent out their property for a maximum of 90 days a year while not present at their home.

The bill attempts to walk a fine line between fulfilling the promises of Airbnb and similar short-term rental companies and addressing the concerns of a coalition of community activists, hotel lobbyists, and hotel-worker unions. On the one hand, Airbnb—like Uber and some other “disruptors”—allows the middle-class to turn previously underutilized consumer durables and assets into sources of extra income. On the other hand, the groups calling for increased restrictions complain that Airbnb reduces the housing supply for long-term tenants and thus raises housing prices, has allowed commercial hotel operators to skirt regulations and taxes, and disrupts communities and neighborhoods with an influx of noisy strangers.

The benefits of Airbnb to some homeowners are clear, but the complaints of the bill’s proponents aren’t entirely baseless. Community activists argue that Airbnb exacerbates housing affordability issues. As I recounted in my working paper review in the winter 2017-2018 issue of Regulation, economists Kyle Barron, Edward Kung, and Davide Proserpio examined the impact of short-term rentals on housing prices and rent and found that, though the effect is not zero, it is small: a 1 percent increase in Airbnb listings causes a 0.018 percent increase in rents and a 0.026 percent increase in house prices.

Hotels contend that Airbnb, despite cultivating an image of middle-class owners earning extra income from renting out a spare bedroom, has allowed commercial operators to circumvent taxes and health and safety regulations. They back up this claim by citing that the vast majority of Airbnb revenue comes from entire home rentals and argue that regulations are needed to level the playing field. Browse through some of the postings on Airbnb and it is clear that these commercial operators aren’t fictitious (see this host, for example, whose description overtly describes themselves as a “full-service relocation management agency” and, with 79 available units in D.C., is the largest host in the city).

But a close look at the same hotel-lobby funded research used to justify the regulations shows that commercial operators are not as widespread as they portray: over 90 percent of entire home rentals in D.C. are offered by hosts with only one listing. That number also discounts middle-class D.C. residents who may rent out a starter home on Airbnb along with their new home, and thus technically offer two units for short-term rentals but can hardly be considered commercial operators.

Finally, some District residents complain about Airbnb and the strangers it brings into their neighborhoods and apartment buildings. These residents’ concerns about congestion, noise, and safety are probably overstated, but not unfounded. (In one egregious case, for example, one homeowner in the affluent Dupont Circle neighborhood of D.C. was renting his house out for large parties, including a concert with rapper Ja Rule.)

Read the rest of this post »
October 16, 2018 10:51AM

Does Private Schooling Affect National Stability?

School choice critics often resort to fearmongering. For example, a Superintendent of Public Instruction in North Carolina contended that citizens “could be in dangerous territory” with the expansion of private school vouchers. After all, she argued, “there is nothing in the [voucher] legislation that would prevent someone from establishing a school of terror.”

The only problem is that the facts don’t support these scare tactics.

My just-published study examines whether fluctuations in the private share of schooling affect national stability within 177 countries around the globe over 16 years. The analysis does not detect contemporaneous effects of private schooling on any of the five measures national stability. However, I find evidence indicating that increases in private schooling improve measures of perceived control of corruption and rule of law – provided by the World Bank – when students become adults.

As shown in Table 1 below (and in the original study), a one-percentage point increase in the private share of schooling enrollment is associated with around a 0.01-point increase in both the perceived control of corruption and the perceived control of the rule of law even after controlling for changes in factors such as GDP, population, and government expenditures.

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Table Notes: p-values are indicated in parentheses. * p < 0.05, ** p < 0.01, *** p < 0.001. All coefficients are average marginal effects. All models use year and country fixed effects with time-variant controls added and a 7-year lag of the private share of schooling enrollment. Column 5 does not show any results for Coup d’état because the dependent variable did not vary. When the instrumental variable employed by DeAngelis and Shakeel (2018) and DeAngelis (2017)—short-run fluctuations in the demand for schooling—is used, the lag coefficient for Rule of Law remains statistically significant; however, the lag coefficient for Corrupt Control becomes statistically insignificant with a p-value of 0.11.

 

This study doesn’t provide any evidence to suggest that private schooling is dangerous to societies around the world. If anything, it appears that private schooling improves the character and citizenship skills necessary for social order. And this study isn’t alone. None of the eleven rigorous studies on the topic find that private school choice reduces social order in the U.S. The majority of these studies actually find positive effects on civic outcomes. But why?

Private schools must cater to the needs of families if they don’t want to shut down. And, of course, families want their children to become good citizens. But government schools remain open whether they teach kids character skills or not. Perhaps supporters of the status quo should consult the evidence – and basic economic theory – before resorting to scaremongering.

October 15, 2018 2:05PM

Ethanol Politics Trump Common Sense

The federal government imposes a mandate to blend corn ethanol and other biofuels into the nation’s gasoline. This “renewable fuel standard” or RFS produces a range of negative effects, as discussed in this study at DownsizingGovernment.

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The “10% Ethanol” sticker you see at the gas station indicates that the government is subverting your free choice and raising your driving costs to benefit corn farmers. The government has decided that corn farmers are more important than you are.

President Trump has supported the ethanol mandate, and he recently acted to increase the harm by allowing greater use of a 15 percent ethanol blend.

A Washington Post editorial today describes why that move is misguided:

For more than a decade, the United States has pursued the foolhardy energy policy known as the Renewable Fuel Standard, or RFS. Thanks to legislation passed by a Democratic Congress and signed into law by a Republican president, George W. Bush, in 2007, the RFS illustrates the sad-but-true principle of Washington life that bipartisanship is no guarantee of wisdom. In a nutshell, the RFS required the nation’s petroleum refiners to blend ever-increasing quantities of biofuels, chiefly ethanol, into gasoline, purportedly to promote energy independence and fight climate change.

Never mind that the United States has meanwhile become a major oil exporter, due to a production boom. Never mind that the environmental harms of ethanol arguably outweigh its benefits, because it takes massive amounts of energy to distill ethanol from corn — and massive amounts of fragile farmland to grow that crop. Never mind that diverting resources into corn production for ethanol raises the price of food. Never mind all that, because 39 percent of Iowa’s corn crop goes to create nearly 30 percent of all U.S. ethanol. And Iowa is a swing state with six crucial electoral votes and a first-in-the-nation presidential caucus; whatever Iowa wants, Iowa gets, from politicians of both parties.

Hence President Trump’s announcement, on the midterm-election campaign trail in Iowa, that he would, in effect, double down on this decreasingly justifiable policy. Mr. Trump declared that the Environmental Protection Agency will draft regulations allowing the year-round sale of motor fuel containing 15 percent ethanol, as opposed to the 10 percent limitation in effect for several months a year because of air-pollution concerns related to summertime atmospheric conditions. This would incentivize gas station owners to install pumps capable of delivering the fuel, thus boosting ethanol sales.

The point is to rescue Iowa corn farmers from adverse market conditions, which include lower prices because of retaliation from trading partners against Mr. Trump’s tariffs. The more fundamental problem is that, at its inception, the RFS assumed that ever-rising U.S. gas consumption would permit refiners to absorb huge amounts of ethanol. In fact, the year after Congress adopted the bipartisan RFS legislation, the U.S. economy went into a recession, causing a collapse in the number of miles Americans drove and the amount of fuel consumed per capita. Only last year did consumption return to pre-recession levels.

Refiners face high and rising costs when they are forced either to mix more ethanol into their motor fuels or to buy offsetting credits known, obscurely, as Renewable identification numbers (RIN). Plagued by volatility and manipulation, the market for RIN has turned into a major headache for smaller refiners, which often seek waivers of the ethanol blending requirement. The entire system adds enormous bureaucracy and complexity to the fuel market, with little or no benefit to consumers. E15, as the 15 percent ethanol blend is known, might cost less per gallon, but because of its lower energy content, motorists would probably get poorer mileage and have to fill up more often.

The petroleum industry has promised a lawsuit to stop Mr. Trump’s plan. While we hesitate to take sides between agribusiness and Big Oil, in this instance public policy clearly favors the latter.

October 15, 2018 12:54PM

Antitrust Mythology and the Decline of Sears

Sears Roebuck & Co. became the most fabled retailer in American history as the pioneer of catalogue merchandising, an innovation that revolutionized small-town life. Its then-visionary management followed up with stand-alone stores that long served as landmarks in their communities, developing brands and business lines notable in their own right such as Craftsman, Kenmore, Discover Card, and Allstate Insurance, most of which are now independent. 

In the first half of the 20th century a whole generation of antitrust and competition laws attempted to restrain the rise of chain stores, with their perceived advantages in negotiating with suppliers. "One of the dumbest laws," as Cato senior fellow Doug Bandow has called it, was the Robinson-Patman Act, amending the Clayton Antitrust Act in 1936, which (employing vague, opaque language) criminalized many arrangements in which chain stores like Sears obtained quantity discounts from manufacturers. Per one reference work, Robinson-Patman was meant to respond to "the growth of chain stores such as A&P and Sears, Roebuck," in service of the interests of independent retailers and wholesalers. "The United States Wholesale Grocers Association drafted the original bill," notes another source. 

None of which succeeded in holding back the logic of marketplace competition: under the Reagan administration's leadership of the U.S. Department of Justice's Antitrust Division, Robinson-Patman fell into disuse and the discount revolution gathered force. This morning, following a long decline, Sears filed for bankruptcy. (A&P, once demonized as a business juggernaut destined to swallow up grocery retailing, went out of business in 2015 after closing its remaining stores).  

In a column worth reading through, Joe Nocera at Bloomberg draws a lesson for policymakers about capitalism's ferment of creative destruction. "The next time you hear somebody say that the dominance of Walmart or Amazon or Facebook can never end, think about Sears. It can — and it probably will."