February 6, 2019 5:15PM

A Bad Fact‐​Check On Economic Growth

Fact-checking blogs are currently facing a backlash. Criticisms are sometimes unfair, but the worst “factcheckers” clearly stray into assessing subjective statements or else rule that people are being misleading based on tiny oral deviations. As such, they confuse debate, rather than clarifying it.

Usually, the Washington Post’s fact-checker is much better and truly assesses verifiable claims. That’s what makes this statement from last night’s State of the Union fact-check blog noticeable.

As part of its assessment of Trump’s claims on growth, the WaPo team wrote:

GDP growth has averaged 2.8 percent per quarter so far in Trump’s presidency, not much higher than Obama’s average of 2.1 percent for his two terms in office.

Though both numbers look similar, no economist would claim that 2.8 percent annual GDP growth is “not much higher” than 2.1 percent. It’s a third higher!

And the point about economic growth is that it compounds over time. If we had growth of 2.1 percent over a 10-year period, real GDP would be 23 percent higher by the end of the decade. If we enjoyed 2.8 percent growth over a 10-year period, it would be 32 percent higher.

With a 2.1 percent growth rate, GDP would double after 33 years; with 2.8 percent growth it would double in just 25 years.

You get the point.

There’s of course a big question as to whether the higher growth the economy has experienced under President Trump is sustainable. That is, whether it represents an increase in the underlying potential growth rate of the economy or is a cyclical phenomenon driven by changes in fiscal policy.

But the improvement has been marked and should not be downplayed.

February 6, 2019 1:08PM

Foreign Policy at the State of the Union

On foreign policy, the State of the Union was classic Donald Trump.

There were the usual expansive promises which could actually move American foreign policy in a better direction. The president promised to withdraw troops from Syria, open negotiations with the Taliban in Afghanistan, and praised the growth in spending by NATO allies. He even criticized America’s excessive military intervention in the Middle East.

And as always, his speech had an underlying theme: blame my predecessor, not me. As he describes, his photo opportunity summits with North Korea are a good step towards diplomacy. But we can’t forget that it was his aggressive approach to the problem that brought us so close to conflict in the first place. It’s likewise difficult to take his criticism of America’s wars seriously given his administration’s choice to increase troop levels in the Middle East by over 33%.

As with every Trump foreign policy speech, there were also some worrying trends. He specified no timeline for troop withdrawals from Syria or Afghanistan, leaving open the possibility that advisors can stall or prevent the decision from ever being implemented. He praised America’s withdrawal from arms control agreements, but offered no alternative, suggesting instead that the United States will just “outspend” all its competitors.

The president also talked tough on both Venezuela and Iran, continuing his hard-line approach to those crises. The risks are real – in both cases, the administration has refused to rule out military intervention, and has repeatedly raised the stakes with draconian sanctions, and open saber-rattling. It remains a mystery why Donald Trump, whose instincts appear to be generally correct on Afghanistan and Syria, is so willing to entertain military intervention in Iran or Venezuela.

In short, the State of the Union offered no real surprises in foreign policy. If the administration does follow through on withdrawing troops from Syria, and ultimately from Afghanistan, it will constitute a major – and positive – shift in U.S. foreign policy. But you shouldn’t hold your breath. The odds are good that Trump may again backpedal on these promises, while maintaining his more bellicose line towards other conflicts.

February 5, 2019 4:29PM

A Rising Tide Is Lifting All Boats

President Trump delivers his State of the Union address tonight and will surely claim credit for the strong economy. He has taken actions that have both helped and hurt growth, and it is difficult to disentangle the net effects.

That said, it is impressive how today’s rising tide of economic growth is lifting boats across the American economy. The poverty rate is falling, wages are rising, labor market participation is rising, and employers are creating large numbers of jobs, as shown below.

Consider poverty and growth. In recent decades, poverty has fallen when the economy has expanded, as shown here. Also note that poverty plunged in two decades of strong growth prior to the federal government creating a big welfare state in the 1960s, as John Early shows in Figure 6. Strong economic growth improves lives.

Now consider the two ways that Washington policymakers try to help people and the economy. Under the misguided direct way, the government gives subsidies to particular groups and imposes regulations to “fix” particular markets—whether it is Democratic welfare programs or Republican trade restrictions. The direct way creates negative side effects and undermines the more powerful indirect way.  

Under the better indirect way, the government removes obstacles and allows entrepreneurs to produce better products at lower prices. That is the broad-based growth way. Trump’s corporate tax cut, for example, reduced tax obstacles to investment and hiring. Repealing regulations to cut costs for consumers is another good approach.

Let’s hope that Trump sticks to indirect-style proposals tonight so that America’s entrepreneurs can keep the private-sector growth machine humming.

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January 22, 2015 6:24PM

#CatoSOTU: A Libertarian Take on the State of the Union Address

On Tuesday night, President Obama delivered his sixth annual State of the Union address. Cato scholars took to Twitter to live-tweet not only the President's address, but also the Republican and Tea Party responses—delivered by Sen. Joni Ernst and Rep. Curt Clawson respectively—focusing, as always, on what the policies being discussed would mean for the future of liberty. 

Many on Twitter joined the discussion, which was billed as a chance to ask experts what to expect from the policy world in 2015; the hashtag #CatoSOTU has been used over 4,400 times since Tuesday, a number which will likely continue to grow as Cato scholars and members of the public continue the online conversation.

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Over the years, the State of the Union has become an annual spectacle much larger than the founding fathers would ever have expected, and Cato scholars were quick to put it in context:

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Topics spanned the gamut—from cybersecurity and Guantanamo Bay to the President's community college proposal and what he has termed "middle class economics"—but Cato responses remained strong throughout.  

Cato's policy analysts were quick to call out factual inaccuracies:

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And hypocrises:  

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 They highlighted omissions: 

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And, even, doled out praise where it was due: 

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The conversation certainly wasn't one-sided however. Cato scholars were just as critical of the response speeches as they were of the President's address:

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Many Cato scholars also took the opportunity to make policy suggestions to the President and the legislature:

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At the end of the night though, Cato Institute Executive Vice President David Boaz probably summed it up best: 

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Looking for even more reactions? Watch our annual State of the Union response video...

January 21, 2015 2:48PM

The State of the Union: Please, Just Do No Harm

At the National Interest, I critique the president's State of the Union speech:

Instead, we got a sweeping vision of a federal government that takes care of us from childhood to retirement, a verbal counterpart to the Obama campaign’s internet ad about “Julia,” the cartoon character who has no family, friends, church or community and depends on government help throughout her life. The president chronicled a government that provides us with student loans, healthcare, oil and the Internet.

The spirit of American independence, of free people pursuing their dreams in a free economy, was entirely absent. Indeed, the word “freedom” appeared only once in the speech.

I wasn't so impressed with the "middle-class economics" he laid out:

The president wants more and better jobs. And yet he wants to raise taxes on the savings and investment that produce economic growth and better jobs. And he proposes a higher minimum wage, which would cost some low-skilled workers their jobs. Those proposals are not well thought out....

The president spoke a lot about the future. He mentioned Social Security, Medicare and Medicaid. And he twice boasted of shrinking deficits. But he never addressed the elephant in the room: The deficit is about to head back up, reaching $1 trillion in a few years. The national debt is $18 trillion and still growing. Worse, those entitlements programs have an unfunded liability of around $90 trillion. What’s his plan to avert an unprecedented financial crisis a few years after he leaves office? He didn’t say, because he has no plan.

Things got a little better when he turned to foreign policy:

When he turned from economics, the president offered a bit more to libertarian-minded voters. He said that we don’t want to be “dragged into costly conflicts that strain our military and set back our standing” or “dragged into another ground war in the Middle East.” He said that “when the first response to a challenge is to send in our military, then we risk getting drawn into unnecessary conflicts, and neglect the broader strategy we need for a safer, more prosperous world.” Music to noninterventionist and realist ears.

But the reality is somewhat different. He has officially ended the wars in Afghanistan and Iraq, but American troops remain in both countries, which are hardly experiencing postwar tranquility. He has bombed seven countries, three more than President Bush. We are getting more deeply entangled in a new war in Iraq and Syria, without congressional authorization. Obama asked Congress to “pass a resolution to authorize the use of force against ISIL. We need that authority.” Really? He hasn’t shown any need for it these past six months. Nor did he ask for authorization to wage war in Libya. The senator who said in his 2008 campaign, “The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation,” has become a president who acts as if he does.

I also found an opportunity to praise his promises on Cuba, criminal justice reform, and the dignity of every citizen. But I concluded:

Early in the speech the president said, “We need to set our sights higher than just making sure government doesn’t screw things up, the government doesn’t halt the progress we’re making. We need to do more than just do no harm.” Please, just do no harm. Americans will make plenty of progress if government doesn’t interfere. 

January 20, 2015 5:06PM

Mr. President, Tell Health​Care​.gov Enrollees about King v. Burwell and the Risks to Their Coverage

Tonight, President Obama will deliver his annual State of the Union address to Congress. He will no doubt boast that his administration has enrolled 6.8 million individuals in ObamaCare plans in the 37 states with federal Exchanges -- i.e., through HealthCare.gov -- and a couple million more in the few states that established their own Exchanges. The State of the Union would also be a good time for the president to be honest with those HealthCare.gov enrollees, especially the roughly 6 million of them who are purchasing coverage with the help of federal subsidies, about the risks to which he has exposed them.

The Patient Protection and Affordable Care Act, which the president himself signed, expressly provides that those subsidies are authorized only "through an Exchange established by the State." Since majority of American people have never supported ObamaCare, about three quarters of the states now have refused or otherwise failed to establish Exchanges.

If the president were following the law, he would not be issuing subsidies to any HealthCare.gov enrollees. Indeed, if the president had followed the law -- if he had all along admitted he has no authority to subsidize HealthCare.gov enrollees -- then enough of the country would have seen the full cost of ObamaCare coverage that Congress would have reopened and likely repealed the statute by now. It would have happened even before anyone lost their coverage in the "if you like your health plan you can keep it" debacle of late 2013.

Instead, President Obama insisted on violating the express language of his own health care law. The result is that he put millions of Americans in jeopardy of losing their health insurance -- again.

On March 4, the Supreme Court will hear a case called King v. Burwell, one of four challenges to those illegal subsidies, and the illegal taxes that those subsidies trigger. The Court will likely issue a ruling by June. The fact that the Supreme Court agreed to consider King at all means that at least four justices believe the Fourth Circuit's ruling for the government in King merits review.

If the justices agree with two other lowercourts, they will hold that the president is breaking the law and will put an immediate end to those illegal subsidies. Such a ruling would free the plaintiffs and more than 57 million individuals and employers from being illegally subjected to the aforementioned taxes -- ObamaCare's individual and employer mandates.

The people with whom the president most needs to be honest are the millions of Americans who enrolled in HealthCare.gov. If the Court finds those subsidies are illegal, then enrollees receiving subsidies would see their health insurance bills quadruple (on average). They would be hit with a new tax bill of up to $5,000. Their plans could disappear, and they may not be able to find a replacement. An estimated one million of these folks left jobs with secure coverage because the president promised them secure, affordable coverage through HealthCare.gov. Only he never had that power, and by pretending he did, Obama has now made coverage less secure for millions.

Instead of warning Americans of these risks of HealthCare.gov coverage, the president and his administration have been lying to HealthCare.gov enrollees. As they lost before lower courts and even as the Supreme Court agreed to hear King just days before open enrollment in HealthCare.gov began, the White House and administration officials have repeated the mantra that "nothing has changed." Watch HHS Secretary Sylvia Burwell say "nothing has changed" four times in 90 seconds (go to 3:40).

It is not true that nothing has changed, and the administration knows it isn't true. The administration knows the risks inherent in HealthCare.gov coverage have increased, because the administration changed the agreements between HealthCare.gov and participating insurers to insert a clause allowing insurers to back out if the subsidies disappear:

CMS acknowledges that QHPI has developed its products for the FFE based on the assumption that APTCs and CSRs will be available to qualifying Enrollees. In the event that this assumption ceases to be valid during the term of this Agreement, CMS acknowledges that Issuer could have cause to terminate this Agreement subject to applicable state and federal law.

The administration made the change, reports Inside Health Policy, because insurers demanded it and because administration officials themselves "believe the clause is critical." 

What does this mean? It means the president knows that millions of HealthCare.gov enrollees are facing serious financial risks, or worse. Yet his administration is actively concealing those risks from enrollees by telling enrollees "nothing has changed." At the same time the president is protecting insurers from the risks they face by participating in HealthCare.gov, he is not even informing consumers about the risks HealthCare.gov coverage poses for them.

The president needs to put an end to the deception, tonight. He needs to warn HealthCare.gov enrollees about the risks inherent in their coverage, so they have time to prepare. If he tells them tonight, some of those who need insurance the most might be able to find jobs with secure coverage (or other access to coverage) by the time the Court rules. He needs to tell HealthCare.gov enrollees what his contingency plans are if the Supreme Court rules that he was breaking the law and playing games with their coverage.

He can blame it all on his political opponents. He can claim to be the only honest man in Washington, for all I care. But he needs to level with HealthCare.gov enrollees tonight about the risks they are facing. To keep pretending "nothing has changed" would be a reckless lie.