201812

December 12, 2018 11:33AM

Farm Bill Socialism in Senate

Republicans have criticized the socialism of Democrats such as Rep. Alexandria Ocasio-Cortez, but they should reflect on their own party’s socialist vote in the Senate yesterday. The upper chamber voted 87-13 for the bloated monstrosity known as the farm bill, which funds farm subsidies and food stamps. Republicans in the Senate voted in favor 38-13.

It is not hyperbole to call the farm bill “socialism.” It will spend $867 billion over the next decade, thus pushing up government debt and taxes. It includes large-scale wealth redistribution in the form of food stamps. At its core is central planning, which is obvious when you consider that the bill is 807 pages of legalese laying out excruciating details on crop prices, acres, yields, and other micromanagement. Furthermore, the bill lines the pockets of wealthy elites (landowners), which is a central feature of socialism in practice around the world.

The bill does not represent incremental reform toward smaller government. It is an extension and expansion of big government programs.

Many Republican senators who claim to be conservative voted for farm bill socialism yesterday. They voted for wealth redistribution, central planning, and ultimately higher taxes. Yet on their official Senate websites, these members who approved socialism yesterday nonetheless claim to favor conservative budget policies.

In alphabetical order . . .

Sen. Roy Blunt: “Unfortunately, bigger government, more spending, higher taxes, and more debt has created an inequality crisis of opportunity in our country.”

Sen. Bill Cassidy: “The national debt is more than $20 trillion. Fiscal responsibility is not an option, it’s a necessity to ensure the long term financial health of the United States. We must get federal spending under control by cutting wasteful, duplicative programs and ensuring taxpayer dollars are spent wisely.”

Sen. Bob Corker: “A key leader on our nation’s fiscal challenges, Bob is one of the few members of Congress to put pen to paper and produce a bill that would set our country on a path to fiscal solvency. As one of the most fiscally conservative members of Congress, he continues to fight against Washington’s all too common practice of generational theft.”

Sen. John Cornyn: “Congress must also be careful stewards of your tax dollars, focusing on lowering annual deficits and recovering from our $18 trillion debt so future generations can enjoy the same opportunities available today. By eliminating excessive spending and increasing economic activity over time, we can reduce the current budget deficit.”

Sen. Mike Crapo: “Our nation faces many threats but perhaps the biggest is our growing, unsustainable national debt … It is an urgent issue for many Idahoans who agree we must reduce our spending and balance the federal budget.”

Sen. Ted Cruz: “He has consistently voted against raising the debt ceiling, insisting that any debt ceiling increase be accompanied by structural reforms, such as a balanced budget amendment, to better control the way Washington spends money. Sen. Cruz believes that Washington’s out-of-control spending robs prosperity from our children and grandchildren, and that economic growth necessitates a smaller, less regulation-heavy federal government.”

We are only up to “C” in the alphabet here, but you can see the dissonance between the conservative self-image of many Republican members and their actual behavior.

These folks get elected because they claim to be conservative and claim to be worried about overspending and debt. But actions speak louder than words.

More on the farm bill here and here.

December 12, 2018 9:40AM

When a Cop Says “Stop!” It’s Not a Request

In the foundational criminal-procedure case of People v. De Bour (1976), the New York Court of Appeals (the state’s highest court) held that a police officer may approach a private citizen on the street to request information as long as there is “some articulable reason sufficient to justify the police action which was undertaken”—which need not rise to an indication of criminal activity. De Bour distinguished this “level one” encounter from more intrusive police actions, such as (1) a “common-law inquiry” of individuals, which must be supported by a “founded suspicion that criminality is afoot,” (2) a forcible stop of an individual that must be supported by reasonable suspicion that person was involved in a crime, and (3) an arrest of an individual, which must be supported by probable cause.

This framework remains in effect, but with one wrinkle: in 1994, the Court of Appeals in People v. Reyes held that an officer’s shouted command to “stop!” is a level-one encounter. The conviction of one Ali Cisse depends on the continued validity of Reyes.

On the night of his arrest, Mr. Cisse, then 17, was walking with three friends in Manhattan. A uniformed officer directed Cisse to stop, “hold up and turn around.” Cisse complied, and the officer noticed an L-shaped bulge in Cisse’s clothing that the officer identified as a firearm. The officer arrested Cisse and seized the firearm and other evidence, which placed Mr. Cisse near the scene of a robbery. The trial court denied Cisse’s motion to suppress the evidence and, relying on Reyes, the state appellate court affirmed.

Yet, the hallmark of a level-one encounter is that it is not “threatening” or “intimidating.” Mr. Cisse thus filed a petition with the Court of Appeals to argue that the police officer performed a “common-law inquiry,” which is a more intrusive interaction than authorized in that circumstance. He maintains that the lower courts misapplied the De Bour framework by relying on Reyes.

Cato and the Brennan Center for Justice have joined together on an amicus brief in support of Cisse. We ask the court to overrule Reyes and hold that an officer’s command to “stop” represents a level-two encounter under De Bour. Twenty-five years of developments in both the law and social science show that a police command to “stop” is more than a mere request for information. Nationwide and state-level research confirms that citizens (including New Yorkers) find police commands to be “threatening” and “intimidating.” Reports show that officers frequently resort to physical force when a subject does not immediately respond to verbal commands, even where the subject poses no imminent threat to the officer or others.

For a level-one encounter, we argue that the “right to walk away” must be restored. Citizens have a right to walk away from police encounters unless they have been seized. “Flight” may give rise to reasonable suspicion when “combined with other specific circumstances indicating that the suspect may be engaged in criminal activity”. The problem lies is the fact that “flight” is often indistinguishable from a suspect’s refusal to abide by a command to stop. To reinstate the right to walk away, the court should require the police to have a basic level of suspicion before they issue a command to stop. 

December 11, 2018 3:01PM

Martin Feldstein vs. Fed Chairman Powell and Irving Fisher

In a November 27 Wall Street Journal article, “Raise Rates Today to Fight a Recession Tomorrow,” Martin Feldstein reminded us he has been repeatedly cheerleading since 2013 for the Fed to raise interest rates faster and higher “to prevent the overvaluation of assets” whose prices “will collapse when long-term interest rates rise.” I critiqued one of Feldstein’s similar articles in 2017.

November 27 was an odd time to be fretting about overvaluation. The day before Mr. Feldstein’s article appeared, a headline in the same newspaper – “Stocks, Bonds Face Year in Red” – observed that “stocks, bonds and commodities are staging a rare simultaneous retreat” 

Yet Feldstein urged the Fed to keep pushing short-term rates higher (3.4% “will not be high enough”) to somehow ease the pain of a supposedly inevitable increase in long-term interest rates (even if inflation stays near 2%), and to also make it easier to lower short-term rates in response to some future recession, a recession probably caused by the Fed raising rates too much (see graph).

Mr. Feldstein defined “overvalued assets” in terms of historical averages. “The price-earnings ratio is nearly 40% above its long-term average,” he warned. But that is because long-term interest rates are more than 50% below their long-term average. The yield on 10-year Treasury bonds averaged 6.5% since 1970, ranging from 1.8% in 2012 to 13.9% in 1981.  The p/e ratio almost always moves higher when long-term interest rates move lower.  

Why are long-term interest rates so low? Because inflation has remained persistently low, and because the Fed can’t push short-term rates much above inflation for long without provoking asset liquidation and recession.  The graph uses the GNP deflator (blue line) to gauge inflation because it covers the whole economy and is available over many decades. The fed funds rate clearly rises with higher inflation and falls with lower inflation, so the notion of raising the funds rate to reduce inflation is self-contradictory. Even before Irving Fisher (1896) economists such as Thornton and Mill understood that nominal interest rates rise and fall with inflation, with real interest rates being cyclical but relatively stable.   

Fed funds rate tracks inflation

When Feldstein predicted a stock market crash “when long-term interest rates rise” he explicitly did not predict a rise in inflation. His prediction relied instead on a key conceptual ambiguity: What does a “normal” interest rate mean, and why should we presume that global bond markets gravitate toward such a historical norm?

Former Senator Phil Gramm and Michael Solon, writing in the December 11 Wall Street Journal, redefine “normal” to mean arbitrarily excluding the high interest rates of 1977-82 and also the low interest rates of 2009-2018. After further subtracting inflation, this leaves them with a postwar trimmed average rate of 1.2% for real Treasury “borrowing costs” (presumably a weighted blend of short-term and long-term rates). “This suggests,” they conclude, “that if the Fed could meet its 2% inflation target during this recovery, Treasury borrowing costs might stay close to the 3.2% range.” 

The authors nevertheless raise concerns that if borrowing costs rose to 4.8% – which implies 3.6% inflation – it could become difficult to roll over the accumulated Obama-era debt without the Fed monetizing too many Treasury bills and bonds (paying for them by crediting bank reserves that currently pay interest). They conclude, convincingly, that firm spending caps and making peace on trade would make the future economy far more predictable and secure.

The day after Feldstein’s article, Fed Chairman Jerome Powell questioned the wisdom of continually raising short-term interest rates regardless of economic reality.  His comments greatly increased prices of stocks and bonds until “Tariff Man Tuesday” terrified world investors. Yet Chairman Powell’s changing conjectures about the fed funds rate being either near or far from to some unknowable “neutral rate” seem nearly as arbitrary and unsettling as Mr. Feldstein’s divinations about U.S. long-term rates reverting to an ancient average.

To sum this all up: 1. Stock prices have been high relative to earnings because bond yields have been low; 2. Bond yields have been low because the fed funds rate has been low; 3. The fed funds rate has been low because inflation has been low. 

Anyone predicting a sizable increase in long-term interest rates must also be predicting a sizable increase in inflation. Because inflation is largely a global phenomenon, however, it would be extremely challenging to persuasively predict higher inflation (and therefore higher bond yields) while much of the world economy is struggling to expand, the dollar has been rising and commodity prices falling.

December 11, 2018 2:45PM

Democrats Only Chance to Help Dreamers under Trump Is Now — So Why Aren’t They Doing Anything?

President Trump told Democratic leaders Tuesday that he would be “proud” to shut the government down if Congress refuses him $5 billion for a border wall. A shutdown is virtually the only situation where Trump could back himself into such a corner that he would accept the wall-for-Dreamers trade that Democrats offered, but he rejected, earlier this year. Yet Democrats aren’t even bringing immigrants up. This is a tragedy for the immigrants who are counting on them.

After Democrats listened to Trump rant about “terrorists” coming across the border—who a Trump wall would supposedly keep out—all they could say is that they wanted more security and that they didn’t want to shut the government down. That’s not good enough. Democrats need a pro-immigrant exchange for wall funding—a deal where both sides can walk away with a win. If they don’t, Trump could win this fight, leaving immigrants with nothing to show for the wall.

Democrats have entirely dropped their demand from earlier this year that any wall funding be tied to the Dream Act—which would provide status to unauthorized immigrants brought to the country as children. Indeed, House Minority Leader Nancy Pelosi told the media that those are “two different subjects,” and she wouldn’t reup the offer. Democrats have even already given Trump a way to claim victory by agreeing to $1.6 billion border “fence” funding for this year.

So as it stands right now, Democrats are going into a shutdown fight over immigration where the worst case scenario for Trump is $1.6 billion in fences, and the best case scenario for Democrats is nothing. That’s a terrible negotiating stance. They should at least say, “We’re happy to give you more money if you give us one of our immigration priorities.” That gives Trump a landing spot where he can get his $5 billion, but Democrats and immigrants get something in return.

Perhaps the political calculation is that Trump will harm himself long term with a lengthy shutdown, but when Republicans shut down the government in 2013—while they took a short-term hit in the polls—it made no difference to their 2014 outcomes. Indeed, the GOP kept the House and took over the Senate that year. Trump remembers this, and even thinks that the shutdown could have worked for Republicans, so he may just hold for what he wants.

Democrats may think they won the House this year by ignoring immigration. But Trump won’t allow them to do that, so as a strategic manner, they should put up a pro-immigrant counteroffer, and leave it out there just in case Trump will take their life preserver during his shutdown. It's still a very long shot, but without the offer, the shutdown brings them no upside and plenty of downside.

December 11, 2018 2:42PM

Farm Bill: 800 Pages from an 800‐​Pound Lobby

Congress and the White House are Republican. The latter proposed modest reforms to food stamps and farm subsidies in its budget. The House passed modest reforms to food stamps. Liberal and conservative analysts favor reforms to farm subsidies, which are actually subsidies to wealthy landowners.

Yet Congress is set to pass an $867 billion farm/food stamp bill with virtually no smaller-government reforms, and the president will probably sign it. The 800-page bill is backed by an 800-pound lobbying gorilla with two muscular arms—the farm lobby and the anti-poverty lobby.

Where does an 800-pound gorilla sit? Wherever it wants to, including on American taxpayers.

I said the bill is “appalling.” Heritage says it is a “nightmare.” NTU says it will “expand welfare to the wealthy.” R Street and AFP say it is “a huge jumble of subsidies.”

Politico says the farm bill is a “win for Democrats,” noting:  

Leaders of the House and Senate Agriculture committees rejected sweeping changes to the Supplemental Nutrition Assistance Program [i.e. food stamps] that House Republicans and President Donald Trump had sought, clearing a path for bipartisan support in both chambers. The final bill also sidesteps a Senate attempt to tighten limits on subsidies for wealthier farmers.

The bill, which has an estimated price tag of $867 billion over a decade, could have a floor vote in the House as soon as Wednesday. Quick passage in the House would allow the Senate to vote on the bill later this week.

… The deal is a win for Democrats, who unanimously opposed the House plan to impose stricter work requirements on millions of participants in SNAP, formerly known as food stamps. SNAP helps nearly 40 million low-income Americans buy groceries and accounts for more than 75 percent of the farm bill's total price tag.

… Trump has repeatedly said he wanted the farm bill to include stricter SNAP work rules, but lawmakers told reporters the president is expected to sign the final deal even though it lacks those provisions.

… The final compromise doesn't cut SNAP benefits or change eligibility criteria in any significant way.

… A controversial proposal from Sen. Chuck Grassley (R-Iowa) to curb how many farm managers can qualify for commodity subsidies also didn't make the cut.

… Commodity subsidies, which can cost around $5 billion to $8 billion a year and are sent out when farmers' average revenue or crop prices fall below certain levels, are expected to increase under the bill.

Dairy producers will get added protection, as well, because lawmakers decided to make it less expensive for them to enroll in support programs. House Agriculture ranking member Collin Peterson (D-Minn.), who is expected to take over the panel next year, has said the changes will make it nearly impossible for smaller dairy operations to lose money.

Federal crop insurance, which subsidizes about 60 percent of farmers' premiums and shields producers from weather-related disasters or profit losses during any one year, will continue. The program is not means-tested.

December 11, 2018 10:50AM

Poll: 74% of Americans Support Federal Paid Leave Program When Costs Not Mentioned — 60% Oppose if They Got Smaller Pay Raises in the Future

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The Cato 2018 Paid Leave Survey, a new national poll of 1,700 U.S. adults, finds that nearly three-fourths (74%) of Americans support a new federal government program to provide 12 weeks of paid leave to new parents or to people to deal with their own or a family member’s serious illness. A quarter (25%) oppose establishing a federal paid leave program. However, support slips and consensus fractures when costs are considered.

Read about the full survey results here.

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The survey found 54% of Americans would be willing to pay $200 a year in higher taxes, a low-end estimate, in exchange for a 12-week federal paid leave program. If the program were to cost them $450 in taxes a year—the mid-range estimate—52% of Americans would oppose it, while 56% would oppose if it cost them the high range estimate of $1,200 in taxes. (Low, mid, and high range cost estimates are based off of potential costs of the Family and Medical Insurance Leave Act (FAMILY Act). See here for further explanation of cost estimates).

What Trade-Offs Would Americans Make for Federal Paid Leave?

The survey also investigated Americans’ willingness to deal with other potential or likely trade-offs that research finds could result from establishing a federal paid leave program. Americans would oppose establishing a federal paid leave program if it had the following effects:

  • If it required the government to cut funding for other programs such as Social Security, Medicare, and education: 76% oppose and 21% favor
  • If it reduced employer-provided benefits such as health care benefits and vacation days: 68% oppose and 29% favor
  • If people who don’t use the program still had to pay higher taxes to fund it: 62% oppose and 36% favor
  • If people would receive smaller pay raises in the future: 60% oppose and 38% support
  • If it caused the national deficit to rise: 57% oppose and 40% favor

Research from OECD countries suggests federal paid leave programs may slow the pace of women’s career advancement. Thus, the survey investigated if Americans feel this would be an acceptable trade-off for establishing a federal program. The survey finds 69% would oppose and 29% would favor a federal paid leave program if women became less likely to get promoted and become managers as a result.

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Partisan Consensus on Paid Leave Breaks Down When Costs Considered

At first, majorities of Democrats (88%), Republicans (60%), and independents (71%) all support establishing a new government program to provide 12 weeks of paid family or parental leave. However, consensus breaks down once the costs and trade-offs of the program are considered. 

Democrats turn against a federal paid leave program for the following reasons: if it meant they’d receive smaller pay raises in the future with 49% in favor and 49% opposed; if the program caused fewer women to get promoted and become managers (63% opposed); if it meant employers would reduce benefits workers receive like health care benefits and vacation days (63% opposed); or if government spending on Social Security, Medicare, or other programs had to be cut (74% opposed). However, Democrats say they’d be willing to pay higher taxes, as high as $1,200 per year to establish the program, with 60% in favor. In contrast, Republicans turn against federal paid leave if it costs them $200 a year or more, with 63% opposed. Independents are split on raising their taxes $200 a year but turn against the program if it cost them $450 or more a year, with 56% opposed.

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Americans Are Cautious of 6-Month Federal Paid Leave Program

Americans are more cautious of establishing a 6-month federal paid leave program. Even before considering costs, 48% of Americans support and 50% oppose creating a 6-month federal paid leave program. Support drops to about a third if a 6-month program cost the average employee $525 a year (66% oppose, 32% in favor), or $750 a year (68% oppose, 31% in favor), or $2,100 a year (69% opposed, 28% in favor) in higher taxes.

New Parents: Childcare Costs and Flexible Work Arrangements More Important than Paid Leave 

Nearly two-thirds (63%) of new mothers say that more affordable daycare (24%), more flexible work schedules (22%), and the ability to work remotely (17%) are more important than more paid parental leave (12%) to help them balance work and family. New mothers also report that the ability to work part-time hours (10%) and have extended afterhours childcare (10%) would best help them balance work and family obligations. The survey included an oversample of mothers of children under the age of 3 to enhance precision of these results. Parents of children under 18 also prioritize more flexible work schedules (26%), ability to work remotely (23%), and more affordable childcare (20%) ahead of more paid parental leave (10%). 

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Americans Support Parental Leave Savings Accounts

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More than three-fourths (78%) of Americans support cultivating a culture of saving for parental and family leave through establishing a new tax-advantaged saving account for family and medical leave. Twenty percent (20%) oppose this proposal. Establishing family and medical leave savings accounts enjoys rare bipartisan support with majorities of Democrats (82%), Republicans (80%), and independents (69%) in support of offering tax advantages to people who set aside money for this purpose.

Estimating Costs of a Federal Paid Leave Program

The survey also measured how many Americans might use a federal paid leave program and how many weeks they might use, if it were available to them. The survey found that 24.8% of current workers said they wanted or needed to take leave in the past 1 year, after the birth or adoption of a child, to care for an ill family member, or to deal with their own serious medical condition. If Americans were offered 66% of their current pay, but not more than $1000 per week, they say they would have taken the following:

  • Those taking parental leave would have taken an average of 9 (median) or 13 (mean) weeks
  • Those taking leave to care for a family member would have taken an average of 9 (median) or 12 (mean) weeks
  • Those taking leave to deal with their own serious medical condition would have taken an average of 9 (median) or 14 (mean) weeks of leave

These data show that while people overwhelmingly support the general idea of more paid leave, they aren’t willing to accept most of the costs necessary with establishing a new federal government program for this purpose. You can learn more about how women and men think differently about federal paid leave and its costs along with other findings from the survey here.

Read about the full survey results and analysis here.

For public opinion analysis sign up here to receive Cato's upcoming digest of Public Opinion Insights and public opinion studies.

Methodology

The Cato Institute 2018 Paid Leave survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online during October 1-4, 2018 from a national sample of 1,700 Americans 18 years of age and older. Restrictions are put in place to ensure that only the people selected and contacted by YouGov are allowed to participate. The margin of error for the survey is +/- 2.4 percentage points at the 95% level of confidence. 

December 10, 2018 5:02PM

Being Green by Ending Subsidies

Government subsidies cause much avoidable damage. Politicians say they just want to “help” people. But giving people hand-outs invariably changes their behavior and often induces them to make harmful decisions. The negative side effects of subsidies ripple outwards in every direction leading to calls for more help, more regulations, and more government. The politicians never accept any blame, and their impulse is to layer more subsidy Band-Aids on top.

In environmental policy, I’ve written about how subsidies, including federal flood insurance and infrastructure spending, have induced people to live in dangerous flood zones along rivers and seacoasts. Since 1970, the number of Americans living in Special Flood Hazard Areas has increased from 10 million to more than 16 million. Government policies drew them in.

Stanford’s Jeffrey Ball writes in the Wall Street Journal that a parallel set of insurance and infrastructure subsidies has induced Californians to live in dangerous fire zones, greatly exacerbating the damage caused by recent wildfires:

The historically deadly wildfires that have roared through California this fall, and a string of similarly destructive ones over the past two years, are boosting calls to do more to slow climate change. But another underlying problem has contributed to the fires’ tragic damage: For decades, California, supposedly the greenest of states, has artificially lowered the cost of encroaching on nature by living in the woods.

Permissive building codes, low insurance rates and soaring taxpayer spending on firefighting and other services have provided an economic framework that has encouraged people to flee the state’s increasingly expensive cities for their leafy fringes. 

… For years, Cal Fire, the state wildfire-fighting agency, has been spending increasing sums to put out wildfires, as has the U.S. Forest Service. Already by 2006, according to an audit, most of the money the forest service was spending to put out large fires was “directly linked to protecting private property” in the wildland-urban interface. Meanwhile, at public cost, government has been encouraging more development by pushing infrastructure—roads, utilities, rescue services—ever farther into the forest.

… Once a house is built in California’s [wildland-urban interface areas], the state’s unusually low insurance rates have the effect of shifting much of the real cost. The average California homeowner pays about $1,000 a year in homeowner’s insurance—about half the level in Florida or Texas, two other states with markedly rising incidences of natural disasters believed linked to climate change.

That is a result of state policy, not an accident. California has an elected state insurance commissioner, one of 11 in the country who are elected, who caps the rates private insurance companies may charge.

… Other government payments further tilt the economics. Taxpayer-funded state grants commonly pay for brush-removal and other fire-prevention efforts in high-risk areas. When fires happen, taxpayers foot the bill to put them out. In 2011, the state began charging a fee to WUI homeowners to fund firefighting and prevention, causing an outcry; in 2017, it was rescinded as part of a larger piece of environmental legislation.

For more on government failure, see here.