July 31, 2020 11:18AM

“Delay the Election???”

As if America 2020 didn’t already have enough of a banana‐​republic feel to it, lately President Trump has seemed unusually focused on adding to the lingering pall of dysfunctional authoritarianism. First there was his attempt in Portland to use federal law enforcement as a sort of ad hoc internal security force. Now there’s yesterday’s suggestion—on Twitter, naturally—that maybe we should “Delay the Election until people can properly, securely, and safely vote???” I recall a lot of paranoid chatter on the Right a few years back about President Obama building a “civilian national security force” and refusing to leave office; over the last two weeks, Trump’s flirted with both ideas more than Obama did over two terms. 

There he goes again

Because the phrasing’s cute enough for plausible deniability, it’s not clear from Trump’s tweet if he’s suggesting he could postpone the November elections himself via executive edict. What is clear, as Walter Olson noted yesterday, is that the president has no such power. Under the Constitution, Congress sets the date for presidential elections; unless Congress changes the law, that election will be held this November 3rd, “whether the president likes it or not.”

During similarly paranoid times 16 years ago, in the run‐​up to the first post‐​9/​11 presidential vote, the Congressional Research Service examined the question of “Executive Branch Power to Postpone Elections,” concluding there was none. Even the broadest possible use—or abuse—of presidential emergency powers “would not appear to have the legal effect of delaying an election, nor would it vest the Executive Branch with the authority to reschedule the election.” And since, per the 20th Amendment, Trump’s term ends at noon on the 20th of January, even if he somehow managed to cancel the election entirely, at that point, under the Presidential Succession Act, Speaker Nancy Pelosi would take the helm. It’s possible Trump hasn’t really thought this through.

In any event, if Trump’s tweet was a veiled threat to postpone the election, it joins a long list of crackpot authoritarian fancies he’s let fly since his inauguration. In just the last two years, this president has (an incomplete list):

Of course, Trump never followed through on any of those threats. Likewise, it’s a pretty sure bet “Delay[ing] the Election???” will never make the transition from idiotic tweet to nefarious plan. (I might, however, put even money on a presidential self‐​pardon attempt before January 20.)

The fact that the 45th president lacks the competence, self‐​discipline, and functional attention span to bring his worst autocratic impulses to fruition is, I suppose, something of a blessing. That doesn’t mean Trump’s authoritarian bluster is harmless. When half of the political class feels driven by partisan loyalty to defend or downplay the president’s open contempt for constitutional limits, it’s likely to make genuine assaults on those limits by future presidents that much easier to execute.

We’ll no doubt hear from the president’s allies that it’s just a tweet, he didn’t mean what you thought he meant, and/​or he was just being “sarcastic.” Trump doesn’t think he misspoke: look at what’s now his “pinned tweet,” with pride of place atop his feed. The guy’s an attention vampire, and all press is good press.

It’s tiresome, if not exhausting. Joe Biden has come in for a fair amount of criticism over his “invisible campaign,” but being unseen and rarely heard may turn out to be a welcome contrast and a campaign strategy with the broadest possible appeal.

July 30, 2020 4:35PM

The WTO and Beef Labelling

Yesterday, the Senate Finance Committee held a hearing on World Trade Organization (WTO) reform. There were a number of big picture points discussed, such as the role of WTO dispute settlement and the failure to negotiate new WTO agreements in recent years, but there’s a narrower point that I want to discuss here. Some people seem to think there was a WTO dispute settlement ruling that says one of the following two things: (1) U.S. beef can’t be labelled with its country of origin when it is for sale in stores, or (2) that the U.S. government can’t require beef to be labelled with its country of origin. Sometimes it can be hard to sort out which point they are making, but it doesn’t matter because neither one of those things is true. (This issue comes up every few months on Twitter, and I figure if I explain it thoroughly here, I can just point people to this blog post in the future.)

The issue arose yesterday when Senator Thune stated the following (1:21:16 and then 1:24:39 of the linked video):

In many parts of my home state of South Dakota, and probably some in your home state of Iowa Mr. Chairman, WTO is a bad word.

That’s because South Dakota ranchers feel like the WTO isn’t with them. And I would say, who can blame them, when the WTO has ruled against them in major disputes impacting their livelihoods like the country of origin labelling case.

Still to this day, it makes no sense to most South Dakotans why the t‐​shirt they wear can say made in country Y but in most instances the beef that they eat cannot.

It is very hard to explain why some products that come into the United States are labelled accordingly, but for something that we consume, that we eat, we can’t seem to get a ruling that recognizes that people in this country would like to know where in the world their beef is coming from.

I can see why that would be hard to explain, but it’s not what happened in the WTO disputes brought by Canada and Mexico over country of origin labelling. Let me explain what actually happened.

After failed attempts by the U.S. industry to get anti‐​dumping and countervailing duties imposed on live cattle imports from Canada and Mexico, the industry was able to convince Congress to pass a country of origin labelling statute that was written in such a way that it could serve the purpose of discriminating against those imports. Under the statute, retailers (e.g. grocery stores) would have to include information on the product label about where the cattle was born, raised, and slaughtered (the statute also applied to pork products, but I’m going to focus on beef here). In order to fulfill this requirement, the stores needed the relevant information on origin from the upstream producers, which was costly for the producers to gather when part of their production relied on imports (if they only used U.S. cattle, the record‐​keeping was much easier). The statute itself was worded vaguely enough that it was not completely clear how it would apply, but when the regulations were developed and implemented, it was clear that there would be an extra cost involved where imports made up part of the production. Sometimes that cost was so high that it made financial sense to shift to using only domestic products.

In response to this, Canada and Mexico brought a complaint at the WTO, basically arguing that the measure discriminated against their products through the extra costs it imposed on the use of their (imported) products. On the basis of the evidence presented, when the panel hearing the case looked at the part of the U.S. statute/​regulation dealing with muscle cuts of beef, it found that discrimination existed. On appeal, the WTO’s Appellate Body agreed.

The U.S. then amended the regulation, but not enough to change the impact. The new regulation was also found to be in violation by the panel and then also by the Appellate Body, for the same reasons.

At that point, Canada and Mexico obtained authorization, through a WTO arbitration, to retaliate with trade sanctions. In response, Congress repealed the statute. (The United States could have just accepted the retaliation as a way to rebalance the obligations under the WTO agreements while leaving the statute in place, but it decided that repeal was the better option.)

Now let me mention a couple key takeaways. First, the WTO panel/​Appellate Body rulings do not say that labelling requirements always violate the rules. They simply looked at this particular requirement, carefully considered its design, and found that it violates the rules because of the way it discriminates against imports. There were plenty of ways to structure such a labelling requirement so that it didn’t discriminate against imports. In fact, the first panel looking at the issues here found that the labelling requirement that applies to ground beef (as opposed to muscle cuts of beef) does not violate the rules.

Second, depending on where you shop, you are probably well aware that labelling on beef products is common. A store like Whole Foods indicates the origin of its products, and often does so in more useful ways than the statute here required. “Product of the United States” was one of the categories under the statute, but that is pretty broad and I’m not sure how valuable it is. Whole Foods sometimes tells you the specific farm the beef comes from, which seems much more useful if you really want to know something about how the product has been made.

Summing up, the explanation to Senator Thune and any others is, companies are always free to put origin labels on beef if they want to. That was not at issue at all in the WTO dispute. And the WTO does not prohibit governments from requiring such labels (although it’s not at all clear to me how many people want such labels to be required if it means they have to pay more for the beef, which they will!). What the WTO does prohibit is using domestic regulations as a disguised way of protecting your domestic industry from foreign competition.

July 30, 2020 12:44PM

Mission Accomplished?

“When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth.” — White House senior adviser Peter Navarro and Commerce Secretary Wilbur Ross, 2016

Hmm:

net exports and GDP

(For further insights on the trade deficit and GDP, see my Cato colleague Dan Ikenson’s work here and here.)

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 Banque 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 Banque 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 Banque 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.