January 2021

January 20, 2021 3:26PM

10 House Members: Response To Capitol Attack Must Not Curtail Civil Liberties

Ten progressive members of the U.S. House of Representatives have declared that national security powers should not be expanded, nor civil liberties curtailed, in response to the attack on the U.S. Capitol. Their letter marks a welcome stand on principle in a debate sure to unfold in coming months.

“While we are all concerned about the security of the Capitol and armed attempts to interrupt our legislative business, we wish to state our strong opposition to the expansion of the domestic national security and surveillance powers of the United States government, as has often been our country’s reaction to horrific acts of violence,” write Reps. Rashida Tlaib (Mich.), Earl Blumenauer (Ore.), Jamaal Bowman, Mondaire Jones, and Alexandria Ocasio‐​Cortez (N.Y.), Pramila Jayapal (Wash.), Ro Khanna and Barbara Lee (Calif.), Ilhan Omar (Minn.), and Ayanna Pressley (Mass.), all Democrats. “We firmly believe that the national security and surveillance powers of the U.S. government are already too broad, undefined, and unaccountable.” And “we pledge to oppose any attempts to expand” these powers “at the expense of the rights of our people.”

The full letter is here and a press summary here.

No one should try to downplay the seriousness of the attack, in which rioters bent on violence managed to get near members of Congress and staffers as well as Vice President Mike Pence. Five persons died at the scene. While most of the rioters behaved in a disorganized manner, recent charge documents portray alleged coordination among a smaller number of participants who dressed in paramilitary gear, moved purposefully as a group, and used two‐​way communications.

But as Conor Friedersdorf recently wrote in The Atlantic, “existing laws appear sufficient to charge, convict, and sentence the men and women who breached the Capitol building. Let’s see how they work before judging them too weak.”

Echoing a point also made by Cato’s Chris Edwards, the 10 progressive members also note that the security failures that day at the Capitol cannot reasonably be blamed on any shortage of funding at the disposal of federal law enforcement.

Putting new powers in the hands of the government is always most popular just after a violent outrage. But “we have been here before and we have seen where that road leads.”

The ten signers include some of the leftmost members of Congress, and not surprisingly when their letter turns to history and analysis it leans that way too. Civil libertarians from other political traditions might select different examples and emphasis.

But those are details, and this makes a fine start. Let’s hope it is followed by similar efforts by other liberty‐​minded lawmakers, including those on the Republican side.

January 20, 2021 2:59PM

Inauguration Day Feels Like Groundhog Day for Buy American

Exactly four years ago today, responding to the protectionist pledges in President Trump's inaugural speech, I warned of the false promise of Buy American regulations. Because of this memo from incoming White House Chief of Staff Ron Klain to incoming White House staff, I republish parts of that warning below. The memo notes that, by February 1, President Biden will take action to "fulfill his promises to strengthen Buy American provisions so the future of America is made in America," which is another way of saying U.S. taxpayers will be charged double for half the infrastructure they're forced to buy, and that American producers will not have a stake in the future of the rest of the world.

Although I'm relieved that Trump was vanquished and now appears to be in our rear-view mirror, I am deeply concerned that the protectionism he prioritized in his bogus quest to make America great again will remain a fixture of U.S. trade and domestic economic policy for many years to come. After all, Trump stole the Democratic Party playbook on trade, promoting tariffs and trade agreements that are heavy on enforcement provisions and light on incentives to actually trade, and the political imperative now may be for Democrats to double down to show that they, too, can deliver for the protectionist demandeurs both parties court.

Excepting a few brave Democratic voices, there is precious little evidence in the Biden administration and among congressional leadership of an appetite to confront and contest what has become an entrenched, bipartisan, protectionist, nationalist, defeatist set of trade policies. In my 20 years of analyzing trade at Cato, never have the scales been tipped this far in favor of protectionist, economic retrenchment. These political impulses are not only economically ruinous, but incompatible with the Biden administration's ubiquitous rhetoric about internationalism, U.S. "leadership," and reengagement with allies.

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January 20, 2021 2:58PM

Global Supply Chains and Economic “Resilience”: (More) Evidence from the Pandemic

The last few months have provided several counterexamples to the trendy claim that “re‐​nationalizing” global supply chains for essential goods would have bolstered the United States’ economic “resilience” during the pandemic (and thus is a necessity in the future). As I explain in a forthcoming paper on trade, manufacturing, and national security, these claims never made much sense: “greater trade and investment openness might make an economy more vulnerable to external supply or demand shocks, but it also helps reduce a nation’s vulnerability to (and improve its recovery from) domestic shocks.” New economic research confirms this intuition (and those anecdotes) with respect to COVID-19:

In a mid‐​2020 analysis of the pandemic’s earliest days, economists Barthélémy Bonadio, Zhen Huo, Andrei A. Levchenko and Nitya Pandalai‐​Nayar–

show that the average real GDP downturn due to the Covid‐​19 shock is expected to be — 29:6%, with one quarter of the total due to transmission through global supply chains. However, “renationalization” of global supply chains does not in general make countries more resilient to pandemic‐​induced contractions in labor supply. The average GDP drop would have been — 30:2% in a world without trade in inputs and final goods. This is because eliminating reliance on foreign inputs increases reliance on the domestic inputs, which are also disrupted due to nationwide lockdowns. In fact, trade can insulate a country imposing a stringent lockdown from the pandemic‐​shock, as its foreign inputs are less disrupted than its domestic ones.

Their initial conclusions were subsequently confirmed in a new paper from World Bank economists Alvaro Espitia, Aaditya Mattoo, Nadia Rocha, Michele Ruta, Deborah Winkler, who summarized their findings in a recent VoxEU article:

Econometric results for the first six months of the health crisis confirm a nuanced view of the role of [global value chains] during a pandemic. GVCs have certainly acted as a transmitter of shocks. Exports of firms relying on upstream suppliers from countries in lockdown suffered more. So did exports of firms supplying inputs to countries severely hit by Covid‐​19. But exports of domestic producers participating in GVCs fared better during the pandemic, as diversification through trade turned out to be an asset. These findings suggest that thinking of better ways to improve GVC resilience in the face of a pandemic or other shocks is crucial. Nationalisation of production is not a solution – it would result in lower exposure to foreign shocks at the cost of higher exposure to domestic shocks.

The authors’ conclusions are summarized in the following chart, which shows that exporters who utilized imported inputs fared worse when their supplier markets were hit by COVID-19 (“upstream supply shock”) but fared better when their own home market was hit.

With respect to the latter scenario, they calculate that that the harm of a domestic shock for sectors with low value‐​chain participation has been 20 percentage points worse, on average, than for sectors with high participation. These findings are particularly important for the United States, which continues to struggle with a domestic COVID-19 shock (especially as compared to other key economies).

Finally, a November 2020 analysis from OECD economists Christine Arriola, Przemyslaw Kowalski, Frank van Tongeren finds that the economic costs of “localizing” global supply chains would significantly exceed any benefits from doing so and still wouldn’t insulate countries from external shocks:

[A] localised regime (where economies are less interconnected) has significantly lower levels of economic activity and lower incomes. A shift to the localised regime is estimated to decrease global real GDP by more than 5% relative to the post‐​Covid‐​19 baseline. Reductions in economic activity are significant across all regions and countries, and in some cases reach double digits. Increased localisation would thus add further GDP losses to the economic slowdown caused by the pandemic. Further, even with the support and protection offered to domestic producers under a localised regime, not all stages of production can be undertaken in the home country, and trade in intermediate inputs and raw materials continues to play an important role in domestic production. In that context, less international diversification of sourcing and sales means that most domestic markets are required to shoulder more of the adjustments to absorb shocks. This translates into larger price swings and large changes of production, ultimately leading to greater variability of incomes. In this sense, the more localised regime delivers neither greater efficiency nor greater security of supply.

Recent analysis on the global value chain of face masks during the Covid‐​19 outbreak offers a concrete illustration. It shows that producing face masks requires a multitude of inputs along the value chain, from non‐​woven fabric made with polypropylene to specialised machinery for ultra‐​sonic welding. While the production itself does not require high‐​tech inputs, localising the production of just this one good would require high capital investments which would need to be supported during periods when demand shrinks, and localised production is not competitive. With current technologies it would therefore be excessively costly for every country to develop production capacity that matches crisis‐​induced surges in demand, and which encompasses the whole value chain from raw materials through distribution for a whole catalogue of essential goods to match any potential crisis, foreseen and otherwise.

More localisation also means more reliance on fewer sources of (and often more expensive) inputs. In this regime, when a disruption occurs somewhere in the supply chain, it is harder and more costly to find ready substitutes, giving rise to greater risk of insecurity in supply. This is also the case for sectors that are often seen as strategic, such as food, basic pharmaceuticals, motor vehicles, and electronics.

All of these studies, along with the aforementioned anecdotes, show that the United States’ openness to trade and investment is compatible with — and often bolsters — our ability to withstand economic shocks, even a once‐​in‐​a‐​generation global pandemic. Policymakers would be wise to remember that lesson before trying to rewire global supply chains in the name of “resilience.”

January 20, 2021 12:08PM

The Future of California Proposition 13

If anyone thought that the defeat of Proposition 15 last November meant that debate over the future of California’s landmark property tax limitation Proposition 13 was over, they are almost certain to be mistaken.

1978’s Proposition 13, which was in many ways the harbinger of a nationwide property tax revolt, limits property taxes to no more than 1% of purchase price, with increases capped at 2% annually. Last year’s Proposition 15 (the proliferation of numerically identified California ballot measures can be confusing) would have superseded parts of Prop. 13. The changes would allow most commercial property to be taxed at market value, as opposed to purchase price, , while retaining the previous rules for residential property, a process known as “split roll.” In practice, this would have resulted in much higher taxes on affected properties, because most commercial property tax assessments would increase. The measure was defeated narrowly but decisively, 52 to 48 percent.

Still, in California, ballot measures have a way of coming back from the dead. In November, in fact, voters were asked to take a second bite at the rent control apple, having rejected a ballot measure in 2018. (They rejected it again this time). Voters also replayed a vote on changes to property tax assessments of inherited homes, and a guarantee that most new revenue would go to a fire safety fund. The measure, which had been rejected in 2018, passed this time by a 51% too 49% margin.

The core concept of Proposition 13 – a limit on property taxes — remains popular. Polling from UC Berkeley shows that voters across the board are hesitant to tinker with Prop. 13, with 53% saying they would vote for Prop. 13 if it were on the ballot today. But that top‐​line number understates the breadth of support for Prop. 13. Pluralities of voters in each of the state’s regions, with each partisan affiliation, and even non‐​homeowners who do not directly benefit from Prop. 13 continue to favor it.

Prop13

Prob13b


The Berkeley polling also shows that 78 percent of California voters think taxes are pushing businesses and individuals to leave the state, and 81% describe taxes as high. These are an astonishing figures, and show why recent stories about tech firms and entrepreneurs moving to Texas have gained so much traction. Notably, the Berkeley polling pre‐​dated this most recent round of “California Exodus” stories: Californians’ sense that the business climate is unwelcoming stems from a deeper sense about the state’s government, not the news cycle.

Still, there remain reasons to question the continued utility of Proposition 13. For example, by limiting revenue that localities can receive from new construction, Proposition 13 may be contributing to California’s housing shortage. Most disconcertingly for commercial property, the system allows lower taxes for longstanding property owners than for relative newcomers, creating an uneven playing field for commercial landowners and the businesses who rent from them. Moreover, California’s property tax rules have led the state to lean more heavily on sales and income taxes than property taxes. We’ve written about this elsewhere, and our colleagues have noted the current reliance especially on income taxation leads to significant volatility and hinders long‐​term planning.

And local officials will undoubtedly make the case that COVID has wreaked havoc on state and local budgets, making new sources of revenue necessary. We should not, therefore, expect the defeat of Proposition 15 to be the last word on the subject.

However, before launching another bid to undercut Proposition 13, supporters of the split roll have some important questions to answer.

For example, is new revenue really needed? As we previously noted, Proposition 13 has not resulted in a decrease in local government spending. Before the coronavirus crisis hit, California had a projected budget surplus roughly the same size as what the split roll changes were projected to bring in. Although that surplus has now been dissipated, we do not yet know the length or depth of the pandemic’s economic fallout. And, if the economy remains slow, is that time to be considering new taxes on struggling businesses?

In addition, California has only recently begun implementing significant new changes to its education finance system through the Local Control Funding Formula. This reform further disconnected school districts’ revenues from local property taxes. In some districts, especially high‐​poverty districts with lower property tax revenues, that is probably a good thing. But split roll, especially if the money were directed to education, as Prop. 15 would have done, would cut against the recent reforms in California’s school funding.

January 20, 2021 10:09AM

President Trump Reduced Legal Immigration. He Did Not Reduce Illegal Immigration

President Trump entered the White House with the goal of reducing legal immigration by 63 percent. Trump was wildly successful in reducing legal immigration. By November 2020, the Trump administration reduced the number of green cards issued to people abroad by at least 418,453 and the number of non‐​immigrant visas by at least 11,178,668 during his first term through November 2020. President Trump also entered the White House with the goal of eliminating illegal immigration but Trump oversaw a virtual collapse in interior immigration enforcement and the stabilization of the illegal immigrant population. Thus, Trump succeeded in reduce legal immigration and failed to eliminate illegal immigration.

Figure 1 shows the monthly number of green cards issued to immigrants outside of the United States. In most years, about half of all green cards are issued to immigrants who already reside in the United States on another visa. Thus, the number of green cards issued to immigrants abroad is a better metric of the annual inflow of lawful permanent residents than the total number issues. Trump cut the average number of monthly green cards issued by 18.2 percent relative to Obama’s second term, but that average monthly decline hides the virtual end of legal immigration from April 2020 onward.

In response to the recession and the COVID-19 outbreak, President Trump virtually ended the issuance of green cards to people abroad. In the last 6 months of the 2020 fiscal year (April‐​September, 2020) the U.S. government only issued about 29,000 green cards. In the same period in 2016, the U.S. government issued approximately 309,000 green cards. Compared to the last half of FY2016, the number of green cards issued in the last half of FY2020 fell by 90.5 percent (please see note at the end of this blog post for how I estimated these figures).

Before the COVID-19 pandemic during the period from January 2017‐​February 2020, the average number of green cards issued per month was only down about 0.5 percent under Trump compared to from January 2013‐​February 2016 under the Obama administration with cumulative numbers down just over 3.2 percent. Beginning in mid‐​to‐​late March, the Trump administration virtually halted the issuance of green cards to people abroad. Without the COVID-19 immigration restrictions unilaterally imposed by the President, the issuance of green cards to foreigners abroad would have barely declined relative to the second term of the Obama administration.

Figure 2 shows the monthly number of non‐​immigrant visas (NIVs) issued abroad. NIVs include tourist visas, work visas, student visas, and others that do not allow the migrant to naturalize. Trump cut the monthly average number of NIVs by about 27 percent relative to Obama’s second term, but that decline obscures the virtual end of NIVs from April 2020 onward.

As with immigrant visas, President Trump virtually ended NIV issuance in response to the recession and the COVID-19 outbreak. In the last 6 months of the 2020 fiscal year (April‐​September, 2020) the U.S. government only issued 397,596 NIVs. In the same period in 2016, the U.S. government issued more than 5.6 million NIVs. Compared to the last half of FY2016, the number NIVs issued in the last half of FY2020 fell by almost 93 percent (please see note at the end of this blog post for how I estimated these figures).

Before the COVID-19 pandemic during the period from January 2017‐​February 2020, the average number of monthly NIVs issued was down about 12 percent under Trump compared to the January 2013‐​February 2016 period under the Obama administration and the cumulative numbers were down by just over 14 percent. Beginning in mid‐​to‐​late March, the Trump administration virtually halted the issuance of NIVs to people abroad. The COVID‐​19‐​related restrictions were the most severe and impactful part of Trump’s immigration policy.

Looking at the decline in the number of visas issued abroad under Trump through November 2020 compared to the second term of the Obama administration, Trump reduced the number of green cards issued by approximately 418,453 green cards and the number of NIVs issued by about 11,178,668. That’s a roughly 18 percent decline in the number of green cards issued abroad and approximately a 28 percent decline in the number of NIVs issued during Trump’s only term relative to Obama’s second term.

Although Trump succeeded in cutting legal immigration more than he initially planned, he oversaw the collapse of interior immigration enforcement. In 2020, the removal of illegal immigrants from the interior of the United States was the lowest as an absolute number and as a share of the illegal immigration population since ICE was created in 2003 (Figure 3). Trump failed to increase removals because local jurisdictions refused to cooperate with his administration, continuing a trend begun during the Obama administration in response to their deportation efforts. As a result, the population of illegal immigrants remained about the same as when he took office (Figure 6).

Note

Figures 1 and 2 are based on Department of State monthly visa issuance statistics. However, the numbers are estimates prior to March 2017 for immigrant visas and NIVs using the seasonal variations in the known years plus random variation added to make it look natural. I then checked the monthly results against he known annual totals and they are within 1 percent, so good enough or a visualization. This blog post is an expansion on work by my colleague David Bier where I add more monthly data.

January 20, 2021 10:04AM

Supplemental Border Wall Funding Violates the Appropriations Clause

In February 2019, after Congress approved some but not all the funding the Trump administration wanted for a wall on the Mexican border, the president declared a national emergency.

The next day, he issued a memorandum directing the Defense Department to support the Department of Homeland Security “in securing the southern border and taking other necessary actions to stop the flow of deadly drugs.” DHS then submitted a request for DoD’s assistance under a federal law (10 U.S.C. § 284) that allows the Pentagon to assist other agencies with the construction of fences, roads and lighting to block drug‐​smuggling corridors. The acting secretary of defense ultimately approved $2.5 billion for six projects across Arizona, California, and New Mexico.

This was an obvious end run around a Congress that specifically prohibited DoD from using its funding in that manner. In Section 8005 of the Department of Defense Appropriations Act of 2019, Congress authorized the secretary of defense to transfer certain funds between appropriations accounts upon “determination… that such action is necessary in the national interest.” But Section 8005 contains a proviso stating that such transfer authority may not be used in any case “where the item for which funds are requested has been denied by the Congress.”

The Sierra Club, a coalition of border‐​area community organizations, and the states of California and New Mexico sued, alleging that the border‐​wall reallocation violated statutory authority and thus also the Constitution’s Appropriations Clause, Article I, Section 9, which says that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” A district court and then the U.S. Court of Appeals for the Ninth Circuit found that the acting secretary had indeed exceeded the scope of his powers.

Now before the Supreme Court, and building on our previous participation in the case, Cato filed a brief in support of the challengers. We urge the Court to reject the government’s self‐​serving argument that the acting secretary’s funding allocation can’t even be reviewed, which would close the judiciary’s doors to a broad class of lawsuits against executive lawmaking.

The Supreme Court will hear what at that point will be called Biden v. Sierra Club on February 22 — if the new administration doesn’t confess error and moot the case.

January 20, 2021 8:00AM

Libertarian Economics in Inaugural Addresses

Inaugural addresses have historically been used by incoming or returning Presidents to outline the broad principles by which they intend to govern. With the exception of the federal budget and taxes, the limited reach of early U.S. federal governments meant that, up until the progressive era of the late 19th century, these speeches contained little mention of economic policies. That, of course, has all changed since FDR and the 1930s. Donald Trump’s 2017 speech had a particularly dark tone for free-marketeers, claiming policy should “protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs.” Given the pandemic and his stated policy ambitions, one suspects Joe Biden may outline a whole range of new ways he wants the federal government to intervene in the market economy in his speech today too.

Lest libertarians find these aspects of recent inaugurals depressing, here’s a selection of the greatest libertarian rhetorical hits on economics from past inaugurations. Nobody is pretending the mouths they came from were themselves libertarians, nor did many of them live up to their libertarian words in office. But these speech extracts at least reflect well some of the principles and approaches to economics and the role of the state which we should aspire to.

Principles

Men and women of the world move toward free markets through the door to prosperity. The people of the world agitate for free expression and free thought through the door to the moral and intellectual satisfactions that only liberty allows. We know what works: Freedom works. We know what's right: Freedom is right. We know how to secure a more just and prosperous life for man on Earth: through free markets, free speech, free elections, and the exercise of free will unhampered by the state. For the first time in this century, for the first time in perhaps all history, man does not have to invent a system by which to live. We don't have to talk late into the night about which form of government is better.” George H. Bush, 1989

Still one thing more, fellow-citizens -- a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities….peace, commerce, and honest friendship with all nations, entangling alliances with none.” Thomas Jefferson, 1801

Freedom can never yield its fullness of blessings so long as the law or its administration places the smallest obstacle in the pathway of any virtuous citizen.” James Garfield, 1881

“The economic ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months, but they will go away. They will go away because we, as Americans, have the capacity now, as we have had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom. In this present crisis, government is not the solution to our problem; government is the problem. From time to time, we have been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. But if no one among us is capable of governing himself, then who among us has the capacity to govern someone else?” Ronald Reagan, 1981

On openness and progress

But our growth has not been limited to territory, population and aggregate wealth, marvelous as it has been in each of those directions. The masses of our people are better fed, clothed, and housed than their fathers were. The facilities for popular education have been vastly enlarged and more generally diffused.” Benjamin Harrison, 1889.

Under the benign influence of our republic institutions, and the maintenance of peace with all nations whilst so many of them were engaged in bloody and wasteful wars, the fruits of a just policy were enjoyed in an unrivaled growth of our faculties and resources. Proofs of this were seen in the improvement of agriculture, in the successful enterprises of commerce, in the progress of manufacturers and useful arts, in the increase of the public revenue and the use made of it in reducing the public debt, and in the valuable works and establishments everywhere multiplying over the face of our land.” James Madison, 1809

“We…shall secure homes for our children and our children's children, as well as for those exiles from foreign shores who may seek in this country to improve their condition and to enjoy the blessings of civil and religious liberty. Such emigrants have done much to promote the growth and prosperity of our country. They have proved faithful both in peace and in war. After becoming citizens they are entitled, under the Constitution and laws, to be placed on perfect equality with native-born citizens, and in this character they should ever be kindly recognized.” James Buchanan, 1857

Wealth is not inimical to welfare; it ought to be its friendliest agency. There never can be equality of rewards or possessions so long as the human plan contains varied talents and differing degrees of industry and thrift, but ours ought to be a country free from the great blotches of distressed poverty.” Warren Harding, 1921

“When George Washington first took the oath I have just sworn to uphold, news traveled slowly across the land by horseback and across the ocean by boat. Now, the sights and sounds of this ceremony are broadcast instantaneously to billions around the world. Communications and commerce are global; investment is mobile; technology is almost magical; and ambition for a better life is now universal. We earn our livelihood in peaceful competition with people all across the earth.” Bill Clinton, 1993

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