Trade Statistics Are a Source of Great Mischief

Following is my response to the Commerce Department’s request for public comments on the “Causes of Significant Trade Deficits.”

In a globalized economy, where the value embedded in most manufactured goods originates in multiple countries and two-thirds of trade flows are intermediate goods, bilateral trade accounting is meaningless.  In a world where statistical agencies attribute the entire $180 cost of producing an Apple iPhone to China, where it is merely assembled for a cost of about $6, what do trade statistics and trade balances mean?   By assigning 100 percent of the value of an import to the final country on the assembly line, trade statistics have lost most of their meaning.

The misguided belief that the trade account is a scoreboard measuring the success or failure of trade policy explains much of the public’s skepticism about trade and trade agreements, lends plausibility to claims that the United States is routinely outsmarted by shrewder foreign trade negotiators, and provides cover for the same, recycled mercantilist and protectionist arguments that have persisted without merit for centuries.

If the trade deficit reduces economic activity and destroys jobs, why are there positive relationships between these variables?  The overall trade deficit, by and large, is also a meaningless statistic.  It is neither a barometer of economic health nor a running tally of debt with which we are burdening future generations.

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Low Income Housing Tax Cronyism

The Low Income Housing Tax Credit (LIHTC) is a federal program that subsidizes the construction of housing for poor tenants. The $8 billion program suffers numerous failures, as discussed in this study. One problem is that the program’s subsidies may flow more to developers and financial institutions than to the needy population that is supposed to benefit.

National Public Radio investigated the LIHTC for a show aired yesterday. The joint investigation with PBS found that the program has “little federal oversight” and is producing “fewer units than it did 20 years ago, even though it’s costing taxpayers 66 percent more.” The investigation discovered that “little public accounting of the costs exists, even among government officials and regulators charged with monitoring the program.”

Here’s how the program works:

Every year, the IRS distributes a pool of tax credits to state and local housing agencies. Those agencies pass them on to developers. The developers then sell the credits to banks and investors for cash. Often, to find investors, developers will use middlemen called syndicators. The banks and investors get to take tax deductions, while the developers now have cash to build the apartments.

With lots of groups on the federal gravy train—state and local housing bureaucracies, developers, banks, syndicators, and investors—the LIHTC program has fortified itself politically. Developers apparently take a 15 percent cut on the total value of housing projects, while syndicators earned more than $300 million in fees last year.  

Some share of LIHTC subsidies disappear in corruption and fraud. NPR profiles a Miami-area criminal enterprise led by Biscayne Housing and Carlisle Development Group, which is “one of the country’s top affordable housing developers.” The companies stole $34 million from 14 LIHTC projects. Biscayne’s former head Michael Cox admits, “It was a construction kickback scheme … The scam was to submit grossly inflated construction numbers to the state in order to get more money than the project required and then have an agreement with the contractor to get it back during construction.”

Trump Fires Comey

Yesterday President Trump fired FBI Director James Comey.  Although the manner in which this was handled was ham-fisted, this is likely to be seen, at least in retrospect, as a wise move.

The warning signs about James Comey were there all along.  The Wall Street Journal summarized some of his spectacular misjudgments in a 2013 editorial titled, “The Political Mr. Comey.“  The overzealous pursuit of Frank Quattrone and Steven Hatfill.  The appointment of Patrick Fitzgerald who then ran amok in the Valerie Plame and Robert Novak case.   

I disagree with the Journal’s take on Comey’s fight with then-White House Counsel Alberto Gonzales over the reauthorization of Bush’s warrantless surveillance program—that goes on the plus side of Comey’s ledger.  But there are even more bad judgments that the Journal did not mention. For example, Comey went after Martha Stewart in a case of ruthless ambition.

When the high stakes “enemy combatant” controversy was pending before the Supreme Court, Comey pulled one of his stunts, holding a press conference to “inform” the public of the gravity of the case.  Attorney and author Scott Turow rightly called out Comey’s outrageous trial by news conference.

We can do much better than James Comey.  If Trump can repeat the careful process by which he selected Neil Gorsuch for the Supreme Court and secure a fairly swift confirmation vote, this matter will soon be forgotten.  If the selection process is mishandled, the political storm clouds will hang over the White House for quite some time.

My own review of the troubled history of the FBI can be found here and here.

Attention Students: Choose a Charter, Receive $5,700 Less Per Year

Traditional educators frequently claim that public charter schools are failing, even when evidence indicates that they perform no worse than traditional institutions on student test scores. This logic fails to recognize costs, which are paramount to educational success, primarily because wasted funds could otherwise be efficiently allocated towards further academic achievement. If students are receiving less public funding in charters, then choice schools are significantly outperforming residentially assigned institutions.

I just released a study with Patrick Wolf, Larry Maloney, and Jay May examining disparities in funding between students in charters and traditional public schools in 15 metropolitan areas in the 2013–14 school year. As shown in figure 1 from the report, students enrolled in a public charter school receive substantially less funding than those in traditional public schools in all but one location. In fact, we find that students in charter schools receive about $5,721 less in total annual funding than their peers in district schools.

Source: Wolf, Maloney, May, and DeAngelis (2017). “Charter School Funding: Inequity in the City.” School Choice Demonstration Project, Department of Education Reform, University of Arkansas.

Critics of this type of evaluation often argue that funding disparities are due to differences in types of students. After all, traditional public schools (TPS) may have a larger proportion of students requiring additional educational resources. While the TPS in our study do enroll more special needs children, we find that these differences do not fully explain the funding gap between traditional public schools and public charter schools.

Funding inequity across the two sectors has only gotten worse over time. Eleven years after the research team first revealed that public charter schools receive less funding than their traditional public schools peers, the funding disparity had grown by about 79% in eight cities.

Should these results surprise us? If you could force your customers to buy your product at a high price, would you need to reduce expenses? Perhaps more importantly, if your customers could not leave, how would you know which costs to cut? The traditional system of schooling makes it impossible to allocate resources efficiently, even if local public school leaders are highly competent and benevolent.

Nonetheless, these findings are important for decision-makers to consider, especially if they care about improving student outcomes through efficiently allocating educational funding. Just imagine what would happen to the education sector if families could choose which institution to send their funds to. Schools would be rewarded for quality and efficiency, freeing up the resources necessary to improve the lives of millions of children around the nation.

When Our Rights Become Crimes

In four little panels Steve Kelley punctures the government’s bizarre claims about its powers and our rights.

Although many false arrests are exposed in court, that’s cold comfort when you’re getting handcuffed and realize you’ll be locked up a while. Here’s a fairly recent example of such a false arrest caught on tape:

For related Cato work, go here and here.

H/T: Jacob Sullum at Hit & Run.

 

Endless War in Afghanistan and Colombia

Two front-page stories in the Washington Post today tell a depressing story:

President Trump’s most senior military and foreign policy advisers have proposed a major shift in strategy in Afghanistan that would effectively put the United States back on a war footing with the Taliban…more than 15 years after U.S. forces first arrived there.

Seventeen years and $10 billion after the U.S. government launched the counternarcotics and security package known as Plan Colombia, America’s closest drug-war ally is covered with more than 460,000 acres of coca. Colombian farmers have never grown so much, not even when Pablo Escobar ruled the drug trade. 

There are high school students about to register for the draft who have never known a United States not at war in Afghanistan and Iraq. And of course the policy of drug prohibition has now lasted more than a century, though the specific Colombian effort began only under President Clinton around 1998, getting underway in 2000.

I wrote an op-ed, “Let’s Quit the Drug War,” in the New York Times in 1988. Cato scholars and authors have been writing about the seemingly endless war(s) in the Middle East for years now. Maybe it’s time for policymakers to start considering whether endless war is a sign of policy failure.

And maybe one day, a generation from now, our textbooks will not tell our children, We have always been at war with Eastasia.

Will Warming and “Acidification” Create Chaos in Coastal Ecosystems?

One of the key concerns about climate change is ecosystem resilience. This is particularly true for those that are anchored over large locations with little ability to move. Ecological communities in the Chesapeake Bay come to mind.

According to the U.S. National Climate Assessment report published in 2014 (Melillo et al., 2014), there is “very high confidence that coastal ecosystems are particularly vulnerable to climate change because they have already been dramatically altered by human stresses, as documented in extensive and conclusive evidence” (Moser et al., 2014). Additionally, the report claims there is “very high confidence that climate change will result in further reduction or loss of the services that these ecosystems provide, as there is extensive and conclusive evidence related to this vulnerability” (Moser et al., 2014).

That Assessment has been criticized as being far too alarmist, too political, and very incomplete with regard to its summarization of important scientific literature. It didn’t help that when it was released, the National Oceanic and Atmospheric Administration (whose bailiwick includes coastal ecosystems), called the report “a key deliverable in President Obama’s Climate Action Plan” in the press release for its rollout.

It’s important to quantify claims like the ones made above, and one type of ecosystem that has received considerable attention in this regard is the seagrass biome. These dense underwater meadows are found in numerous coastal waters, including those of the United States. They are a foundational basis for an ecosystem as diverse and variegated as those associated with coral reefs, but they get little public attention because they aren’t nearly as showy. But they are important. Their presence helps to reduce coastal erosion, improve water quality and mediate ocean chemistry, as which adds economic value. Given the important functions that they perform within their coastal ecosystems, it should come as no surprise, therefore, that concerns have arisen over the current and future ability of seagrass ecosystems to withstand rising atmospheric CO2 concentrations – i.e. global warming and ocean acidification.