201812

December 13, 2018 4:00PM

DEFENSE DOWNLOAD: Week of 12/13

Welcome to the Defense Download! This new round-up is intended to highlight what we at the Cato Institute are keeping tabs on in the world of defense politics every week. The three-to-five trending stories will vary depending on the news cycle, what policymakers are talking about, and will pull from all sides of the political spectrum. If you would like to recieve more frequent updates on what I’m reading, writing, and listening to—you can follow me on Twitter via @CDDorminey.  

  1. The Senate just passed (and I mean, just passed, that's why the Defense Download is going out a bit late today) SJ Res 54: Ordering the withdrawal of U.S. military support for the war in Yemen as a function of the War Powers Resolution. Expect to see a lot of media coverage over the next few days on what this could mean moving forward. If you want to catch up on how we got here, take some time to view the event we held here at Cato last week. 
  2. "Options for Reducing the Deficit: 2019-2028," Congressional Budget Office. All the budget wonks like me are rejoicing over a new edition of this report. The 2017 version was significantly outdated because many of the long-term plans have changed substantially in two years. 
  3. "U.S. Budget Deficit Hits Wildest on Record for Month of November," Sarah McGregor. If there was any doubt that the CBO report was badly needed and that the federal budget is hurdling in an unsustainable direction, read this piece. 
  4. "New defense topline could break budget cap by $100B; analysts question strategy," Tony Bertuca. You've probably heard a lot of defense topline numbers from the Trump administration over the past two weeks: originally it was $744B request for 2019, then the President wanted to cut that number to $700B, and has now reversed course and might actually seek a $750B request for next year. Click through to see what experts from across the political spectrum have to say about these prospective changes. 
December 13, 2018 3:44PM

Jones Act Reform Gaining Momentum

Last week was a busy one for advocates of reforming the Jones Act. On Thursday the Cato Institute held a well-attended conference on the subject that featured a veritable Who’s Who of Jones Act experts and reform advocates. Video of the conference has now been posted, and those who were unable to participate or watch live should make sure to check out the many outstanding presentations that were made.

But ours was not the only gathering where the law was placed under scrutiny. Last week also saw a panel discussion held on the Jones Act as part of the National Hispanic Caucus of State Legislators’ (NHCSL) annual summit in San Diego. Unfortunately, the panel consisted only of myself and a moderator as invitations to groups supportive of the 1920 law apparently went unanswered. Nevertheless, the discussion was lively and opposition to the law in abundance.

Just how abundant became clear the next day, when the NHCSL voted on a resolution calling for the law’s repeal. Co-sponsored by New Jersey State Senator Nellie Pou and Pennsylvania State Representative Ángel Cruz, it passed by an overwhelming 56-10 margin.

The resolution, whose provisions include a call for NHCSL members to put forward similar measures in their respective legislatures calling for the Jones Act’s repeal, already appears to be bearing fruit. Puerto Rico Rep. José Aponte has announced his intention to introduce such a resolution. Others are sure to follow.

These are only the latest signs of support, particularly at the grassroots level, for reform of this failed law. Earlier this year, for example, the New York City Bar Association endorsed a permanent Jones Act exemption for Puerto Rico.

Unfortunately, too many in Washington still don’t grasp the necessity of revisiting the Jones Act. But even here in D.C. there is good news to be found, with reform advocates set to be bolstered by the arrival of newly elected Rep. Ed Case of Hawaii. A longtime opponent of the law, Case was victorious in his race against another Jones Act critic, Cam Cavasso. Congressional races where the nominees from both major political parties compete to burnish their anti-Jones Act credentials is certainly a refreshing change and would seem to speak to mounting opposition to the law.

The Jones Act has existed for over 98 years, and the edifice’s immediate collapse is unlikely. But cracks in the foundation are beginning to appear. 

December 13, 2018 3:35PM

Why Is the U.S. Economy Successful?

In a recent talk, my Harvard colleague Martin Feldstein posits ten answers:

divAn entrepreneurial culture. Individuals in the U.S. demonstrate a desire to start businesses and to grow them. There is little opprobrium in the U.S. for failing and starting again.

A financial system that supports entrepreneurship. The United States has a more developed system of equity finance than the countries of Europe, including angel investors who are willing to finance startups and a very active venture capital market that helps finance those firms as they grow. The U.S. also has a large decentralized banking system with more than 7,000 small banks that provide loans to entrepreneurs.

World-­‐class research universities. Universities provide much of the basic research that drives high-­‐tech entrepreneurship. Faculty members and doctoral students often spend time with nearby startups, and the culture of the universities and the businesses encourages this activity. Top research universities attract the best students from around the world, many of whom end up staying in the United States.

Efficient labor markets. U.S. labor markets link workers and jobs, unimpeded by labor unions, state owned industries and excessively restrictive labor regulations. Less than 7 percent of the private sector U.S. labor force is unionized, and there are virtually no state owned enterprises. While the U.S. does regulate working conditions and hiring, the rules are much less onerous than in Europe. As a result, workers have a better chance of finding the right job, firms find it easier to innovate, and new firms find it easier to get started and grow.

A population that is growing, including from immigration, and geographically mobile within the United States. America’s growing population means a younger and therefore more trainable and flexible workforce. Although there are restrictions on immigration to the United States, there are also special rules to provide access to the U.S. economy and a path to citizenship based on individual talent and industrial sponsorship. A separate “green card lottery” system provides a way for eager people to come to the United States. The country’s ability to attract qualified immigrants has been an important reason for its prosperity.

A culture and a tax system that encourage hard work and long hours. The average employee works 1,800 hours per year, substantially more than the 1,500 hours worked in France and the 1,400 hours worked in Germany (although not as much as the 2,200 hours in Hong Kong, Singapore and South Korea.) In general, working longer hours means producing more and therefore means higher real incomes.

A supply of energy that makes North America energy independent. Natural gas fracking in particular has provided U.S. businesses with plentiful and relatively inexpensive energy.

A favorable regulatory environment. Although U.S. regulations are far from perfect, they are less burdensome on businesses than the regulations imposed by European countries and the European Union.

A smaller government than in other industrial countries. According to the OECD, outlays of the US governments at the federal, state and local levels totaled 38% of GDP while the corresponding figure was 44% in Germany, 51% in Italy and 57% in France. The higher level of government spending in in other countries implies not only a higher share of income taken in taxes but also higher transfer payments that reduce incentives to work.

A decentralized political system in which states and local governments compete.Competition among states and communities encourages entrepreneurship and work. States also compete for businesses and for individual residents with their legal rules and tax regimes. Some states have no income taxes and have labor laws that limit unionization. The United States is perhaps unique among major high-­‐ income nations in its degree of political decentralization.

divNote that most of these credit small government, directly or indirectly, for U.S. economic success. Government is bigger in the United States than libertarians would like; but overall, still better (i.e., smaller) than in most countries.

December 13, 2018 2:31PM

The United Nations Migration Compact — In Context

Some member states of the United Nations just adopted the “Global Compact for Safe, Orderly and Regular Migration.”  The compact is a legally non-binding statement of principles regarding the treatment of non-humanitarian immigrants, the sharing of information, support for the rule of law in adjudicating immigration matters, and international cooperation.  Practically, this compact does not amount to much as it is legally non-binding and doesn’t change any laws.  However, the compact has garnered a lot of international attention since the United States, Austria, Australia, Chile, the Czech Republic, Italy, Hungary, Poland, Latvia, Slovakia, and the Dominican Republic pulled out of the drafting and negotiation process. 

 

The obvious context of the contentious debate over the compact is the rise of anti-immigration politics in much of the world – especially in the countries that dropped out of drafting the compact.  Additional context comes from the United Nations World Population Policies Database, which was last updated in 2015.  It designated the legal immigration policies of countries in the recent past.  The broad policies are to maintain current levels of immigration, raise them, lower them, no intervention, and no official legal immigration policy.  The database is constructed of answers to multiple choice questions about legal immigration policy by bureaucrats in national immigration departments and bureaus that implement immigration policy. 

 

Of the ten countries that dropped out of the migration compact, seven had a government policy to maintain levels of legal immigration, two had a policy to raise legal immigration, and one had no official policy on the matter as of 2015.  Over the following three years, all ten of these countries dropped out of the migration compact.  Dropping out doesn’t matter for actual policy today as the migration compact doesn’t change any laws, but it does signal how rapidly national policy positions can change in just a short time.  The 2017 responses to these questions have not been released yet, but I suspect that bureaucrats in those countries will have very different answers from what they gave in 2015.

 

Globally, 61 percent of governments in the world had a policy to maintain their current levels of immigration as of 2015 (Figure 1).  Twelve percent had policies to raise their levels of immigration and 13 percent to lower them.  In 1996, 30 percent of governments had policies to maintain levels of immigration, 4 percent had policies to raise the level of immigration, and 40 percent sought to lower the levels.  Worldwide immigration policies changed dramatically from 1996 to 2015 and they are likely to be shifting back somewhat. 

 

 

Figure 2 shows national immigration policies in 2015 controlling for population.  Fifty-five percent of the world’s population lived in a country with a policy to maintain the level of legal immigration in 2015, compared to 29 percent who lived in a country with a policy of raising it, and 10 percent with a country that wanted to lower it.  The results here are quite different relative to Figure 1 where each country is weighted equally.  Many more people lived in countries with policies to raise levels of immigration than in countries to lower them. 

 

Over time, the difference is even starker.  In 1996, 59 percent of people in the world lived in countries with a policy to maintain current levels of legal immigration, 30 percent lived in countries with a policy to lower immigration, and only 0.4 percent lived in countries with a policy to increase legal immigration.  As a percentage of the world population, 74 times as many people lived in countries with more open immigration policies in 2015 than in 1996.

 

 

The ten countries that dropped out of the Global Migration Compact show that many governments in the world are turning against legal immigration in symbolic ways.  Their individual national policies have likely shifted in a more restrictive direction as well.  However, countries in the world had much more open immigration policies in 2015 than in 1996.  Although the current global trend is worrying, it would be very difficult to roll back all the global gains over the last several decades. 

 

December 13, 2018 9:57AM

Savings Accounts for Family Leave

Both conservatives and liberals have proposed a federal entitlement program to provide paid family leave benefits. Ivanka Trump wants a new national plan, as does Alexandria Ocasio-Cortez. Some conservatives want to raid Social Security to provide paid leave benefits.

However, Vanessa Brown Calder has explained why government paid leave benefits are not the answer. Family leave is an expense that should be covered by employers voluntarily or by personal savings.

People should plan ahead for life’s contingencies and inevitabilities. Young people should learn to restrain their consumption and save so that they are prepared for costs down the road, including the costs of family leave, unemployment, and retirement.

Unfortunately, the natural inclination to save has been undermined by government. Rising hand-outs of all types have reduced the desire to save as well as the ability to save as taxes have risen to pay for the welfare state.

Fortunately, the government hasn’t yet completely killed a belief in personal responsibility and financial prudence.

A new survey by Emily Ekins examined public views about a possible government paid leave program. As an alternative to a new spending scheme, one survey question asked whether people favored tax-advantaged savings accounts that could be used for family leave costs. More than three-fourths (78%) of Americans approved, with strong support from Democrats, Republicans, men, and women.

Media Name: paid_leave.jpg

Family leave expenses could be handled by Universal Savings Accounts (USAs), which would be a simple and flexible method for all Americans to save for all types of planned and unplanned expenses. The problem now, as Adam Michel notes, is that federal tax rules tell people, “Don’t bother saving unless you save for retirement.” But all types of personal savings are good, and none would face tax penalties with USAs within annual contribution limits.

As for paid leave proposals, there is a knee-jerk tendency in Washington to think that new spending programs are the answer to every challenge that people face. But the goal of public policy should be to wean people off government and remove barriers to self-sufficiency. USAs would be one step toward that goal.

December 12, 2018 3:25PM

Trump Ignores Rising Debt

On the campaign trail in 2016, Donald Trump railed against the federal government’s almost $20 trillion of debt, and he boldly promised to eliminate it “over a period of eight years.”

That would have been nearly impossible, and now that he is president, Trump has changed his mind anyway. Told by his advisors that the soaring debt may generate a crisis years down the road, Trump said bluntly, “Yeah, but I won’t be here,” according to The Daily Beast.

Sure enough, Trump is acting like the debt is someone else’s problem. Last year’s tax cut increased deficits, the discretionary spending deal earlier this year was a budget buster, and soaring entitlement costs have garnered little interest from the Oval Office.

For the rest of this piece, see The Hill.

December 12, 2018 3:18PM

“Late Capitalism” May Be Earlier Than You Think

"Late Capitalism," with its implication of a system due to come to an end, is such an irritatingly pretentious trope. Noah Rothman at Commentary traces some of its recent appearances in complaints that "range from lamentations over long work weeks and the commodification of blood donations to violent fantasies about the prospect of an inter-class shooting war in America," those examples being taken from Vice News alone. Last year Annie Lowrey traced the lefty roots of the phrase (Werner Sombart and Frankfurt School via Frederic Jameson) and noted that "late capitalism" has become a popular wording in places like The New Yorker and The Atlantic, the outlet in which she was writing. 

It's definitely not the sort of phrase that's novel any more, its circulation having taken off in the 1970s per Google Ngram. My theory is that by now it's been Late Capitalism for so long that we've moved on to the insomniac Late Late and Late Late Late versions. Then you glance outside and what do you know? It's Capitalism Dawn.