October 2018

October 9, 2018 12:00PM

The Gender Pay Gap: Why We Fight The Narrative

The Economist reports on an interesting new study undertaken on differences in gender pay:

According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower‐​ranking jobs at lower‐​paying organisations.

The figures for Britain in the study break down as follows. The “raw” gender pay gap between all men and women is 28.6 percent. This falls to 9.3 percent once one controls for people being in the same level job. This falls further to 2.6 percent for the same level job at the same company, and to just 0.8 percent for the same level job at the same company with the same function. In other words, as free market economists have long explained, there is little to no evidence of overt company discrimination once one controls for observable factors (and beyond those here, things such as educational attainment, or years of continuous work experience).

Confronted with studies such as these, some commentators, and even some libertarians, pivot. They suggest that this kind of research attacks a straw man. Few people think it’s overt wage discrimination at an employer level that’s the problem, they say. The aggregate statistics though, which show women on average earn 82 percent of men’s median hourly earnings, are said to reflect other types of structural societal discrimination – in the subjects that young women are encouraged to study, hiring processes at firms, the nature of wage negotiation and much else besides.

The starting point that we would expect an aggregated pay gap of zero even in a world in which no overt or covert societal pressures exist is questionable. When free to choose, it’s unlikely gendered populations will make equal choices. And to the extent these commentators are right, it is unclear what the policy implications should be.

Nevertheless, most evidence suggests this is explicitly not what the public hear when they see talk about the gender pay gap. A recent YouGov survey in the U.K. asked the public what they thought when they heard of the term. Just 30 percent said that they thought it was about women, on aggregate, being paid less than men. A whopping 64 percent thought that it was about women being paid less than men for the same job. To be clear: the latter is not what the commonly cited aggregated statistics on the gender pay gap are about.

Gender pay gap survey

Politicians appear to misunderstand this too, and it leads to bad policy. After all, in developed countries one policy that they have pushed for is company‐​level disclosures– something that makes little sense if you are worried about society level structural problems.

It’s little surprise that the public interpret the term in this way then. Though in pure language terms both definitions might be acceptable, pay gap stories of the aggregate variety reported in the media regularly include irresponsible lines implying discrimination, such as “from this day onward, women work for free” or describe companies that have the largest gaps as “the worst offenders.”

In this environment of misinformation, it is important and worthwhile to continuously highlight what the pay gap shows, and what it doesn’t. The structuralists might have a point about broader drivers, but it’s not one helped by a raw measure that is used misleadingly and to advance policy positions which do not make sense according to the structuralist concern.

Read more on the gender pay gap here, here, and here.

October 9, 2018 11:19AM

U.S. Whitewashes Saudi War Crimes

There are indications now that the Saudi Arabian government may have murdered a prominent Saudi journalist who advocated domestic reforms and opposed Crown Prince Mohammed bin Salman. A Turkish investigation concluded that a 15‐​member “preplanned murder team” killed Jamal Khashoggi when he was visiting the Saudi consulate in Istanbul. Not surprisingly, Riyadh has flatly denied Turkey’s allegation, but that denial seems to have even less credibility than most Saudi statements. Khashoggi has contributed articles to the Washington Post and numerous other prominent Western news outlets, and he has an abundance of influential friends in such circles. They do not seem inclined to let this incident fade away.

Khashoggi’s disappearance and apparent murder—as appalling as it may be–should be overshadowed, though, by Saudi Arabia’s far more extensive human‐​rights abuses and outright war crimes. That is especially true regarding the way it has conducted the war in Yemen. There is abundant evidence of multiple atrocities that Riyadh and its United Arab Emirates (UAE) junior partner have committed and continue to commit. The coalition’s war strategy has created a famine as well as a cholera epidemic. Among the many deliberate attacks on innocent Yemeni civilians was an August incident in which coalition aircraft attacked a school bus, killing 40 children.

Yet, incredibly, just weeks later, Secretary of State Mike Pompeo certified that Saudi and UAE forces were making a reasonable attempt to avoid inflicting harm on civilians. Pompeo’s certification was necessary to meet the requirements of a congressional statute barring aid, especially military aid, to countries that do not take appropriate precautions. The latest certification preserves the fiction that Saudi and UAE forces are not guilty of war crimes and that the United States is not a willing accomplice in such crimes.

As I describe in a recent National Interest Online article, such brazenly false certifications are nothing new. Both the Trump administration and its predecessors have displayed that sickening cynicism with respect to numerous countries and their “friendly” dictatorial regimes, most notably Egypt and Pakistan. Indeed, similar phony certifications were routine fare in the 1980s, when Washington repeatedly whitewashed massive human rights abuses on the part of foreign allies. Some of the worst offenders were in our own hemisphere, including Guatemala, El Salvador, Honduras, and Colombia. More recently, the worst offenders are concentrated among Washington’s Middle East allies.

The pervasive dishonesty of U.S. officials should be a matter of national shame. Pompeo has carried on a long and dishonorable tradition. Congress may have intended that a requirement certifying that U.S. aid recipients are complying with human‐​rights standards would pressure those regimes to avoid egregious abuses. If that truly was the intent, and not just empty congressional posturing, then that strategy has failed.

If Congress intends to get serious about enforcement, the country with which to start is Saudi Arabia—especially regarding its conduct in Yemen. Congress needs to cut‐​off all military assistance to Riyadh and the UAE immediately. Beyond that issue, the legislative branch must insist that human‐​rights certifications accurately reflect reality. Even leaving aside the Saudi regime’s possible murder of a dissenting journalist, Riyadh does not come close to meeting the most basic human‐​rights standards for receiving U.S. aid. Americans have endured more than enough whitewash episodes from administrations over the decades regarding Saudi Arabia. 

October 9, 2018 9:13AM

Martinez First Woman to Win Cato Fiscal Report

Susana Martinez of New Mexico has gained the highest score on the “Fiscal Report Card on America’s Governors 2018.” She is the first woman to achieve the distinction since Cato began producing the reports in 1992.

Over eight years in office, Governor Martinez has restrained state spending, cut taxes, and vetoed tax hikes. She also scored well on Cato reports in 2014 and 2016.

The governors report assigns grades based on a calculated score between 0 and 100. Higher scores indicate more focus on cutting taxes and restraining spending. Cato has used the same methodology since 2008.

Martinez’s achievement stands out because men governors score slightly higher, on average, than women governors. Since 2008 the Cato reports have assigned 276 scores—6 reports and an average 46 governors per report. There were 242 men and 34 women. The average score for the men was 51 and for the women 49. Interestingly, the men’s scores tended to be more extreme low and high, while the women were more bunched toward the middle score of 50.

The chart shows that party is a more important factor in determining fiscal conservatism than gender. Both men and women Republican governors averaged substantially higher scores than Democratic governors. Martinez received a score of 73.

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October 9, 2018 8:55AM

Governors Fiscal Report 2018

The Cato Institute has released its 14th biennial fiscal report card on the governors.

The report uses statistical data to grade the governors on their taxing and spending records since 2016. Governors who have cut taxes and spending the most receive the highest grades, whereas those who have increased taxes and spending the most receive the lowest grades.

Five governors were awarded an A: Susana Martinez of New Mexico, Henry McMaster of South Carolina, Doug Burgum of North Dakota, Paul LePage of Maine, and Greg Abbott of Texas.

Eight governors were awarded an F: Roy Cooper of North Carolina, John Bel Edwards of Louisiana, Tom Wolf of Pennsylvania, Jim Justice of West Virginia, Dennis Daugaard of South Dakota, David Ige of Hawaii, Kate Brown of Oregon, and Jay Inslee of Washington.

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Susana Martinez received the highest score this year. She is in her eighth year in office and scored quite well on previous Cato reports. One achievement has been vetoing all tax hikes that have come to her desk. Last year, she vetoed $350 million in tax hikes.

Many Republican governors have entered office promising not to raise taxes but then capitulate to the spending lobbies. Brian Sandoval of Nevada and Charlie Baker of Massachusetts are good examples. Both governors made epic U‐​turns in approving major new taxes after being elected on no‐​tax‐​hike pledges.

So bravo to Governor Martinez for standing firm against tax increases and for restraining New Mexico’s budget during her two terms in office.

In addition to examining the tax and spending actions of each governor, the Cato report looks at recent changes in the state fiscal environment.

The Tax Cuts and Jobs Act of 2017 has shaken up state tax policy. The act changed the federal income tax base, which in turn changed state tax bases. The act also capped the federal tax deduction for state and local taxes. That reform increased the bite of state and local taxes for millions of households and may prompt higher out‐​migration from high‐​tax states.

Recent Supreme Court decisions regarding online sales taxes and public‐​sector labor unions have also affected the state fiscal environment. Lastly, the legalization of recreational marijuana has created a new source of revenue for some states.

The Fiscal Policy Report Card on America’s Governors 2018 is here.

Prior report cards are here.

The 2018 report was completed with the help of David Kemp.

October 8, 2018 9:15AM

NAFTA 2.0: The Best Trade Agreement Ever Negotiated (Except for All of the Others)

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

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October 6, 2018 8:36PM

Judge Brett Kavanaugh Confirmed for the Supreme Court

Congratulations to Judge Brett Kavanaugh, whose nomination to the Supreme Court was confirmed by the Senate today by a vote of 50 to 48. This evening at the Supreme Court, Chief Justice John Roberts administered the constitutional oath and retired Justice Anthony Kennedy, for whom Judge Kavanaugh clerked, administered the judicial oath. Now‐​Justice Kavanaugh will take his seat when the Court sits again on Tuesday. 

Judge Kavanaugh survived one of the most acrimonious judicial confirmation processes in the Senate Judiciary Committee’s history. The reasons for that are many, as I wrote in an op‐​ed in TIME magazine last week. But in one way or another, the divisions that so divide us today all come down to fundamental misunderstandings of the Constitution and, accordingly, to an expectation among so many Americans that the Court will solve the many problems that today afflict the nation. The Court, now back to full strength, may make a dent in those problems, but their roots are much deeper. Still, the Senate’s vote today is a start.

October 6, 2018 4:41PM

Bipartisanship Means Spending Taxpayers’ Money

Everybody’s deploring partisan polarization these days, especially this presidential term, especially this week. Including the Cato Institute’s president, Peter Goettler: “two years in Washington has taught me that tribalism is a huge factor in driving the political process and discourse.” On the other hand, as I’ve written before, bipartisanship is typically a conspiracy against the taxpayers. Here’s the latest example, from the Wall Street Journal:

‘We Don’t All Hate Each Other’: Senate’s Bipartisanship Obscured by Kavanaugh Fight

The intense partisanship engulfing Supreme Court nominee Brett Kavanaugh has diverted attention from a raft of recent bipartisanship in the Senate during the past few weeks, drowning out issues that could appeal to voters in the midterms.

The chamber on Wednesday passed legislation to reauthorize the Federal Aviation Administration for five years by a 93–6 vote. That legislation included a measure to double funding for big infrastructure projects around the world, combining several little‐​known government agencies into a new body with authority to do $60 billion in development financing.