July 30, 2020 11:55AM

Trump, Zoning, and Discrimination

There is perhaps no more archetypical example of the American suburban lifestyle than Levittown. The New York community was developed starting in 1947 as a new opportunity for Americans to own their own homes. The original 2,000 unit planned community sold out almost immediately and became nearly synonymous with the dream of single‐​family homes, white picket fences, and the growing American middle‐​class.

It also included in its lease documents a provision that property in the community could not “be used or occupied by any person other than members of the Caucasian race.”

Such racist practices were actively supported and encouraged by state, local, and federal governments. For example, the Home Owners’ Loan Corporation, a federal agency that provided low‐​interest mortgages to first time homebuyers, insisted that any property it covered must include a clause in the deed forbidding resale to non‐​whites.

Even after such explicit forms of discrimination were outlawed, many communities continued to fight efforts by low‐​income people and people of color to move to their neighborhoods, although their arguments have shifted to terms that do not explicitly mention race. One of the most important and effective tools for maintaining “the character of the community” has been zoning.

Zoning restrictions, including limiting construction to only single‐​family homes, as well as parking requirements, minimum lot sizes, yard/​setback requirements, lot coverage requirements, floor area ratios, and other landscaping requirements, deliberately prevented affordable housing from being built in those communities.

In this video for Cato’s Project on Poverty and Inequality in California, Ricardo Flores, Executive Director of the Local Initiative Support Corporation in San Diego explains how exclusionary zoning has long been used as a tool for discrimination:

Exclusionary zoning has all sorts of consequences that lock people out of the middle class. Educational opportunities, for instance, are too often distributed by zip code, especially in the absence of meaningful parental choice. Exclusionary zoning too often “ghettoizes” the poor and people of color, forcing them into neighborhoods with few jobs, high crime rates, and bad schools. And, by driving up housing prices, it contributes to the soaring epidemic of homelessness in many areas of the country.

Now, President Trump has thrown his support behind those who want to keep affordable housing out of the suburbs. This week he announced an executive order making changes to the Affirmatively Furthering Fair Housing rule (AFFH), an Obama‐​era requirement that localities take steps to combat housing discrimination in their communities. In isolation, it could be argued that the AFFH was unwieldy, unnecessarily intrusive, and in need of reform, but the administration’s actions appear to be part of a larger campaign by Trump and his supporters to block zoning reform that would make affordable housing more widely available in affluent communities. As Trump himself tweeted about his actions, “I am happy to inform all of the people living their Suburban Lifestyle Dream that you will no longer be bothered or financially hurt by having low income housing built in your neighborhood.”

This follows in the wake of several tweets and other statements in which the president and his backers have accused those backing zoning reform of wanting to “destroy the beautiful suburbs,” saying they would, “eliminate single‐​family zoning, bringing who knows into your suburbs, so your communities will be unsafe and your housing values will go down.”

But efforts to eliminate exclusionary zoning are not about destroying the suburbs; it is about letting more Americans share in that “Suburban Lifestyle Dream.”

Project on Poverty and Inequality in California

Even before the economic disruptions caused by COVID-19, far too many Californians were living in poverty. Now, that dire situation can only be expected to grow worse. The Cato Project on Poverty and Inequality in California was launched in 2019 to study the root causes of poverty in California and recommend practical solutions designed to help all Californians prosper and rise as far as their individual talents and abilities will take them. The project draws on decades of Cato’s expertise across a variety of issues, as well as close collaboration with Californians on the front lines of fighting poverty, whether business leaders, elected officials, or local activists.

Find Solutions

Clearly, the president has realized that his support among suburban voters, particularly suburban women, has dropped precipitously. But this effort to play to racial and class prejudices calls back to a much darker era of American politics that many Americans would prefer to leave behind. No doubt we can now look forward to Republicans and conservatives defending government regulations that deliberately stifle free markets and prevent landowners from making their own choices about what to build on their property.

But make no mistake, Trump’s support for exclusionary zoning is not only a blatant appeal to our worst prejudices, it is bad public policy.

July 30, 2020 11:37AM

The U.S. Presidential Election Will Take Place on November 3, Whether The President Likes It Or Not

This morning President Donald Trump tweeted this:

To state what should be obvious, especially to someone who has taken an oath to preserve, protect, and defend the Constitution of the United States:

  • Under Section 1 of the Twentieth Amendment to the U.S. Constitution, the President’s term ends at noon on January 20, 2021. The President cannot himself extend this term, nor may Congress by legislation extend it. “Emergency” doesn’t matter.
  • Under the Constitution, Congress can set the date of the election by law. It has chosen to set it on the Tuesday following the first Monday in November. Changing this to, say, the equivalent date in December would require legislation to which both Houses of Congress, including the Democratic House, would have to agree.
  • Unless Congress chooses to prescribe through legislation the details of questions like mail‐​in balloting, states are broadly free to set their own procedures. Any national mandate of this sort would require legislation to which both Houses of Congress, including the Democratic House, would have to agree.

Neither the Constitution nor federal law confers on the President any power to suspend these provisions, and in fact the Constitution imposes on the President a duty to “take care that the laws be faithfully executed.”

Short of the enactment of a constitutional amendment between now and then, the term of office for which Trump was elected will expire on January 20, and unless he has won an election occurring between now and then, he will cease to be President. Short of legislation with bipartisan support, the date of the election will remain November 3rd, and states will be in charge of setting election procedures on topics on which Congress has not spoken. 

The United States held a national campaign and election during the deadly 1918–19 flu pandemic, a more lethal one than we face currently. 

And we will be having an election on November 3, 2020 to decide whether President Donald Trump is to have a second term, whether he likes it or not. 

July 30, 2020 10:42AM

Dollarization for Lebanon

"The Lights Go Out in Lebanon as Financial Collapse Accelerates," declared a recent headline in The Washington Post. The headline refers specifically to worsening power outages but more generally to Lebanon's ongoing "economic implosion." This breakdown is due in large part to chaos in Lebanon's monetary and banking systems. Since October 2019 the Lebanese pound (also called the lira) has lost more than 80 percent of its value on the black market, with USD1 most recently trading around LBP8100. There is a black market because, although the Bank du Liban (the Lebanese central bank) continues to declare an official exchange rate of LBP1507.5 per USD, that rate is now available only to importers of a few favored goods.[1]

The peg became unsustainable, as pegged exchange rates invariably do, when the central bank created more money than was consistent with preserving parity between the purchasing power of its currency and that of the US dollar at the pegged rate. Instead of tightening when necessary to stop an outflow of dollar reserves, the Bank du Liban after 2016 began desperately to borrow from Lebanon's commercial banks (at high interest rates) the dollars it needed to maintain the semblance of a peg. The commercial banks attracted dollars by passing those high rates on to depositors who presumably hoped to cash out before a devaluation came. The scheme, called "financial engineering" by Riad Salameh, long-time head of the Bank du Liban, devolved into Ponzi finance, racking up an estimated $40 billion in losses.

There are legal exchange houses in Beirut at which the dollar could recently be purchased for LBP3850, but residents may buy only small amounts there, creating a dollar shortage at that rate. Around 75 percent of bank deposits are in US dollars, but commercial banks since October have refused to redeem their dollar deposits in dollars (with remarkable legal impunity), allowing only conversion to LBP at the 3850 rate.

In June, Lebanon's annualized inflation rate topped 50%. Imported goods' prices have risen at a much faster rate with the depreciation of the pound.

The monetary chaos is not unrelated to Lebanon's sovereign debt fiasco. Its ratio of sovereign debt to GDP is the world's third highest (after Japan and Greece), above 150 percent and climbing with the annual budget deficit running 11.4 percent of GDP in 2019. In March 2020, the government defaulted on its external dollar debt. Behind this fiscal crisis is the tangled history of a state built on clientelism (legislative seats are apportioned among the major religious communities) and fueled by widespread corruption.

Is there a way back to a sane monetary system? Full dollarization offers a reform that has proven practical and effective in Ecuador and elsewhere.

Read the rest of this post »
July 29, 2020 6:16PM

The Government’s Plan to Turn Kodak Into a Pharmaceutical Company Sure Seems Underdeveloped

The Wall Street Journal reports that Eastman Kodak Co. has received initial clearance for a $765 million loan from the U.S. International Development Finance Corporation (DFC), issued under the Defense Production Act with no congressional input or oversight (or transparency), to produce “starter materials” and “active pharmaceutical ingredients” (APIs) for generic medicines, including the President’s favorite drug hydroxychloroquine. According to the WSJ story, the government financing – if formally committed after due diligence – would allow the (famously-mismanaged) camera‐​turned‐​digital‐​turned‐cryptocurrency company to “change gears” once again and become a “pharmaceutical company,” with this brand new division eventually (supposedly) making up 30% to 40% of Kodak’s entire business.

For the U.S. government, the goal of the loan is to “reduce reliance on other countries for drugs,” especially in case of a pandemic. Although multiple sources identified China as the primary concern (isn’t it always?), White House senior adviser Peter Navarro was more honest about the loan’s actual intent – supply chain “repatriation”:

This is not about China or India or any one country…. It’s about America losing its pharmaceutical supply chains to the sweat shops, pollution havens, and tax havens around the world that cheat America out of its pharmaceutical independence.

President Trump similarly hailed the deal as a “breakthrough in bringing pharmaceutical manufacturing back to the United States.”

Given these statements and the emergency action at issue, you’d think that American pharmaceutical manufacturers are in dire straits or that the United States is now suffering major shortages of critical pharmaceuticals. Fortunately, a review of the available data tells a different story.

First, although solid public stats on global API production are not available, the data we have do not indicate that government funding is urgently needed:

[A]ccording to the Food and Drug Administration, of the roughly 2,000 global manufacturing facilities that produce active pharmaceutical ingredients (APIs), 13 percent are in China; 28 percent are in the USA, 26 percent in the EU, and 18 percent in India. For the APIs of World Health Organization “essential medicines” on the U.S. market, 21 percent of manufacturing facilities are located in the United States, 15 percent in China; and the rest in the EU, India, and Canada.

The FDA adds that the United States was home to 510 API facilities in 2019, 221 of which supply the aforementioned “essential medicines.”

Second, U.S. government data – on output, R&D and capital expenditures (see tables 1–3 below) – show that American pharmaceutical manufacturers are far from the basket case that Navarro describes:

A recent report from the World Trade Organization further notes that, while the United States is indeed a major importer of pharmaceutical products, it’s also one of the world’s largest exporters, having shipped almost $41 billion in medicines (35% of total U.S. medical goods exports) last year. So it’s safe to say that, contra Navarro and Trump, this is hardly an industry in serious distress.

Third, the pharmaceutical supply chain has held up pretty well (so far). Imports of pharmaceuticals that the U.S. International Trade Commission recently deemed critical to fighting COVID-19 have not collapsed in 2020 – in fact, only 16 of 63 products have seen an average monthly decline of more than 20% (by quantity) as compared to the product’s monthly average in 2019. A majority (35) have increased this year – some quite substantially. These are top‐​line estimates in an extremely volatile market so caution is warranted, but they’re still noteworthy, given that the entire world – including major pharmaceutical suppliers in China, Europe, India and elsewhere – was suffering through a generational pandemic for most or all of the months at issue.

Imports, of course, are only one part of the supply chain story (inventories, stockpiles, domestic production and other factors are also relevant). Most importantly, there have been few (if any) signs of major national drug shortages. The last FDA notice on a potential shortage was in late March for the trendy (at the time) hydroxychloroquine – a shortage that never actually materialized. There’s also been no major spike in drugs that the FDA lists as “currently in shortage”: as I noted a few months ago, there were 109 drugs on the list in mid‐​December of last year; 103 in late February 2020; and then 108 in mid‐​April. This week, after months of unanticipated chaos, that number stood at 117 – a little higher, yes, but not a crisis.

All of this raises a host of questions that deserve to be answered before a dollar of taxpayer money is actually sent to Rochester:

  • Even assuming for the sake of argument that sagging domestic API production qualifies as a national emergency, why did Kodak, which has no API or other pharmaceutical experience (though it does make chemicals), receive this government loan, instead of it going to one or more of the hundreds of API facilities already operating in the United States?
  • Which APIs will Kodak’s new venture produce? The DFC press release touting the loan notes that “Kodak Pharmaceuticals will produce critical pharmaceutical components that have been identified as essential but have lapsed into chronic national shortage, as defined by the [FDA].” However, a search of the FDA’s website shows no such term, and FDA’s last “supply chain update” reported no drug, biologic or ingredient shortages at that time. Indeed, the DFC’s statement about Kodak producing an “identified” list of “critical” APIs seemingly contradicts a subsequent one that “[Kodak] plans to coordinate closely with the Administration and pharmaceutical manufacturers to identify and prioritize components that are most critical to the American people and U.S. national security.” So which is it?
  • Why is federal government involvement needed here at all? If a famous, billion‐​dollar corporation has a viable business plan, and if these “critical” APIs have indeed been in “chronic short supply” for American pharmaceutical manufacturers (who, as shown above, have plenty of money to spend), it stands to reason that financial assistance would be available from a private source on reasonable terms (DFC’s express loan condition), and that neither government coordination nor government capital would therefore be necessary. In other words, where’s the market failure?
  • Finally, what’s the urgency here? Kodak’s API production will probably take years to get off the ground, and the data above raise questions about whether it’s even needed. In fact, the FDA has stated (repeatedly) that it needs more information before it could make any definitive conclusions about the global API situation, drug supply chain “resiliency,” and U.S. national security. Private pharmaceutical companies, moreover, are already adapting to a new reality that accounts for lessons learned from COVID-19 (and for worsening U.S.-China trade frictions). Thus, the supply chain issue that Kodak and the Trump administration claim to have identified yesterday might not even exist by the time Kodak Pharmaceutical is operational. The original CARES Act has commissioned a new study of the pharmaceutical supply chain to identify potential vulnerabilities. Maybe government action might (might) be necessary at that time, but until then, the Trump administration seems to be throwing darts blindfolded. Why?

Unfortunately, there’s seemingly no way to know the answers to these questions at this time (though DFC says it eventually “will make detailed project‐​level information publicly available, consistent with applicable law”). This didn’t stop Kodak’s stock from exploding upward this week (some of it a little early?), but hopefully someone in Congress is a bit more skeptical.

July 29, 2020 1:44PM

Why Not More Private School Closures? Increasing Evidence Suggests They’re Offering In‐​Person Education Many Families Want

Last week I contemplated why we weren’t seeing more permanent private school closures due to COVID-19. Since I wrote that we have seen no more COVID‐​connected closures—the last one was announced on July 14—and the count on our tracker remains at 107 schools. Reports from around the country are increasingly pointing to one possible reason for the relative dearth of closures: As more school districts declare that they will open with online‐​only or just partially in‐​person delivery, private schools are gaining families who want face‐​to‐​face schooling.

Permanent Private School COVID Closures by Date

Here’s a quick reminder of the four possible reasons I came up with last week for unexpectedly low closure numbers. Read the original post for longer explanations of each one:

  1. Too Early: Maybe schools haven’t made final decisions yet and many more closures are coming
  2. Gaining Students: Maybe revenue hits from donations lost to closed church services, and families suffering economic hardships and having to withdraw, have been offset by new families looking for in‐​person, and maybe smaller, schooling
  3. Off the Radar: Our tracker may be missing closures, especially of smaller, more independent schools
  4. Paycheck Protection Program: This federal program may have helped to stave off insolvency for many schools

It is possibility number 2 for which we are seeing increasing support. As I linked to last week, we have seen reports from Nevada, California, and Minnesota of parents turning to private schools in search of in‐​person education. Since then we have seen reports from New York, Texas, and the Washington, DC area. This is all anecdotal – we don’t have nationally representative data – but it is consistent with the relatively low closure numbers we have been seeing.

Not that COVID-19 hasn’t inflicted damage on private schooling. We have only been able to find long‐​term tracking on annual private‐​school closures for Catholic schools, but it suggests that this is going to be a tough year, at least for that subset of private schools. The US Conference of Catholic Bishops is predicting that up to 150 Catholic schools could close this year, which would be the highest total since 2012. Our tracker shows 90 Catholic schools closing at least in part due to experienced or anticipated COVID-19 financial problems. Assuming many of those schools would have remained in business absent COVID-19, the virus does appear to be taking a toll on private schools.

COVID-19 is hurting private schools. But perhaps due to new families moving to them, it increasingly appears that the toll will be less punishing than I originally feared.

July 29, 2020 1:23PM

House Democrats Drop DHS Funding From Omnibus Appropriations Bill

Late yesterday afternoon, the House Rules Committee published the rule for debate on the omnibus spending bill (HR 7617) to be considered this week. Significantly, and almost certainly in direct response to events in Portland and elsewhere, the rule strikes Division E (the DHS funding section) from the bill. My Cato colleague (and fellow House staff veteran) Jeff Vanderslice noted that it was the Manager’s amendment offered by outgoing House Appropriations Committee Chairwoman Nita Lowey (D-NY) that was the vehicle for the change.

In my own review of the 340 amendments to the bill, I noticed that Amendment #106 to Division B (Commerce, Justice, Science and Related Agencies), offered by Representatives Ted Lieu (D-CA), Emanuel Cleaver (D-MO), Alexandria Ocasio‐​Cortez (D-NY), Rashida Tlaib (D-MI), and Debra Haaland (D-NM) would ban the use of funds for the Department of Justice’s Operations Legend and Relentless Pursuit–two alleged crime‐​fighting initiatives that some believe are simply political stunts and potential cover for anti‐​protester operations.

It’s unlikely House Democrats will elect to not pass any DHS appropriations bill this year, even though such a move is long overdue–as events in Portland and elsewhere have underscored. But putting further DHS money on ice can at least create leverage for potential major legislative changes…assuming the House Democratic leadership is actually serious about stopping constitutional rights violations by DHS personnel.

July 29, 2020 1:21PM

How Many Americans Get Subsidies?

This year is an extraordinary one for government subsidies. More than 150 million people received $1,200 stimulus checks. More than 25 million people have been receiving the $600 a week boost in unemployment benefits. Almost five million businesses and nonprofits have received aid through the PPP program. All this and other recession‐​related spending is imposing trillions of dollars of debt—and ultimately taxes—on younger working Americans.

Even during normal times, many Americans are hooked on federal payments of one type or another. The chart below shows the number of recipients of some major subsidy and benefit programs. As a point of reference, there are about 129 million households in the nation.

The data comes from Table 21–3 in the federal budget here. Some of the items are contractual obligations (such as employee pensions and payments to veterans), but most of the items are subsidies that can be, and should be, cut or repealed to fix our massive federal debt problem.

Aside from these programs, there are 2,000 or more other federal subsidy programs for state and local governments, businesses, nonprofits, and individuals. (These are described in a 3,709-page pdf available here). Over the decades, both the size and scope of federal subsidies has expanded, attaching ever more individuals and organizations to the government’s teats. Each program undermines the private economy, generates a bureaucracy, and spawns a web of regulations that micromanage society and reduce freedom.

There is concern about declining free speech in America, and government handouts add to the problem. Individuals and organizations that get hooked on subsidies essentially become tools of the state. They lose their independence and may shy away from criticizing the government and its many failures.

When the economy recovers from the current crisis, policymakers should turn their attention to cutting subsidies and freeing the nation from top‐​down cash and controls from Washington.

x

The figure for Medicare is for HI benefits.

Cato intern Camila Goris assisted with this post.