Policing High-Crime Areas: A Matter of Trust

Last week, NPR.org published a story entitled “D.C.’s Aggressive Confiscation of Illegal Guns Leaves Residents Feeling Targeted.” The report explains how the D.C. Metropolitan Police Department (MPD) is particularly adept among major cities at getting illegal guns off the streets, but a recent uptick in gun violence has ramped up efforts of their Gun Recovery Unit (GRU). The aggressive tactics of the GRU—using what locals call “jump-out cars” to stop and search individuals for weapons—contribute to the longstanding animosity between some community residents and the police.

While it is true that, per capita, D.C. leads other cities in gun confiscation, the high number of recovered weapons only tells part of the story. That is, what MPD did and the numbers of stops they made to recover that many weapons are part of a larger problem of harassment and distrust in the community. The MPD is quick to point to D.C.’s 44 percent increase in homicides since last year as the justification for their policy, but it’s uncertain as to whether “jump-out” tactics will help at all.

Judge Thapar Can Handle the Truth about the Fourth Amendment and Due Process

Before President Trump nominated now-Justice Brett Kavanaugh to fill Justice Anthony Kennedy’s Supreme Court seat, I wrote a piece about Judge Amul Thapar, a top contender for the seat who may yet find his way onto the Court. Thapar is on the Cincinnati-based U.S. Court of Appeals for the Sixth Circuit and is a judge who has displayed a deep understanding of our founding principles. He’s also a clear writer with a fondness for movie references. Two of his recent opinions illustrate his commitment to individual liberty and due process through a nuanced, contextualized view of the Constitution.

Morgan v. Fairfield County concerned a “knock and talk,” where county policy involved forming a police perimeter around a suspect’s house while one officer attempts to talk to the residents. One of the perimeter officers behind the house saw marijuana plants on a balcony, pursuant to which the police eventually secured a search warrant. The majority found that the county’s “knock and talk” policy directed the officers to conduct a warrantless search – that forming the perimeter involved invading the “curtilage” of someone’s house – and so the county could be held liable for a Fourth Amendment violation (though the officers had qualified immunity because they were just following standard policy).

Judge Thapar dissented in relevant part, arguing that while the officers did have qualified immunity if all they were doing was preserving officer safety or preventing the destruction of evidence, the county’s policy itself did not direct the officers to conduct a search. Accordingly, there was no constitutional violation unless the police actively searched while they formed their perimeter. Looking at the history of the Fourth Amendment, Thapar defined a search as a “purposeful investigative act.” He argues that the Supreme Court muddies Fourth Amendment protections by describing them as relating to a reasonable expectation of privacy, rather than to the reasonableness of a search. That gives too much wiggle room to police and courts alike, as judges struggle to define subjective expectations of privacy. Thapar maintains that the question should instead be whether officers engaged in a purposeful investigative act – and indeed would have remanded the case for a determination of that issue. This would simplify the analysis and allow courts to apply the original meaning of the Fourth Amendment to the facts before them. 

Trump’s Proposal for Drug Reimportation Lite

The Wall Street Journal takes the Trump administration to task this morning, and rightly so, over a proposed rule from Health and Human Services to impose price controls on what Medicare Part B pays for certain drugs. The rule would set the prices HHS pays at 126% of what other developed countries pay, down from 180% today.

Why do Americans pay so much more for drugs than foreigners? That’s the question that’s driving this proposal. The simple answer is that compared to foreign countries with their price controls under single-payer health systems, the U.S. still has a relatively free drug market. But the issues underlying that answer are anything but simple. In recent years they’ve swirled around proposals to end U.S. restrictions on “reimporting” cheaper drugs from Canada and Europe, which would amount to reimporting foreign price controls, critics rightly argue, and hence to reducing incentives to invest in years of expensive research and development. I’ve addressed those issues in detail in a 2004 Cato Policy Analysis and in the Wall Street Journal here and here. This new proposal is more of the same, in different garb.

In a nutshell, the miracle drugs that have so revolutionized modern medicine don’t come cheaply. On average it takes a billion dollars and 15 years of research and development to meet FDA safety and efficacy requirements, which most new drugs fail. But once a drug succeeds, the second pill costs pennies to produce, which is why patents are so crucial, failing which no one would invest in such risky ventures. When companies look at the world, however, they see socialized systems imposing price controls—except in America. So they charge market prices here (half the world market) and take what they can get abroad. What that means, of course, is that Americans pay the lion’s share of R&D costs while foreigners get drugs “on the cheap,” and therein lies the political problem here and the call for reimporting “cheaper” drugs from abroad.

It’s more complicated still, however. Given different levels of demand abroad, companies segment markets and price differentially. But that means they have to guard against not only reimportation but “parallel markets”—local vendors in low-price markets reselling to high-price markets at a discount—or all the drugs will end up in low-price markets, only to be resold to high-price markets, undercutting companies’ profit-making venues. They can try to preserve their market segmentation with no-resale contracts and supply limits. But those contracts are illegal in Europe from a mistaken belief that they’re anti-free trade, which is why there’s a thriving parallel market there. And since proposals in Congress to lift the ban on reimportation here have included bans on no-resale contracts and supply limits abroad, companies have understandably fought them.

This new HHS proposal is not as far-reaching as the earlier reimportation proposals, but the implications for future drug R&D investment are the same. As the Journal writes, “any investor who wants to bankroll the cure for Alzheimer’s is already staring at a very small chance of success—and the Trump HHS proposal adds another potential limit on return,” likely driving investment “into less difficult drug categories” or into other ventures altogether. Government funded drug R&D might not then be far behind. That would further politicize the development of drugs, much like European formulary limits do by rendering unavailable many of the modern miracle drugs we Americans enjoy.

Topics:

A New Cold War with China?

Picking up on Vice President Mike Pence’s speech at the Hudson Institute several weeks ago, Hudson’s Seth Cropsey detailed a plan in the Wall Street Journal on “How to Win a Cold War with Beijing.” At the center of Cropsey’s op-ed is a dramatic increase in the U.S. presence in Asia that would require, among other things, accelerating the current naval buildup, increasing naval patrols, and bolstering naval and Marine forces in Australia. In effect, Cropsey wants to apply the strategy that helped end the former Cold War to America’s growing conflict with China. Quoting Ronald Reagan, Cropsey explains “The objective in this strategic competition [is] ‘We win, they lose.’”

Cropsey’s approach, however, is based on several flawed assumptions, including about the inevitability of conflict between the United States and China. He also places undue faith in the United States’ capacity to face down its rising rival by building more warships and deploying them close to China’s shores.

Implicit in Cropsey’s call for a large naval arms race with China is the assumption that China will back down in the face of it. Convinced of the futility of such competition, Cropsey appears to believe, the Chinese will simply accede to our demands, including on Taiwan. But I have seen no evidence to support such an assumption. The more likely result of an arms race is…a further arms race, as my colleague John Glaser explained earlier this year. Cropsey also ignores the fact that the world is moving into an era of defense-dominance, which puts America’s exquisite, but enormously costly, naval platforms at increased risk from small, smart, and cheap weapons.

The current Sino-U.S. competition is unlike any we’ve seen – at least in a very long time. The Cold War was, in large part, a zero-sum fight between two diametrically opposed ideologies. However, whereas Soviet Communism and Western Capitalism couldn’t coexist, China’s and America’s current systems can. Or at least might.

If you doubt that, consider that Americans have helped to lift hundreds of millions of Chinese out of desperate poverty over the last quarter century through trade, greatly enriching China in the process. That wasn’t the intention, per se; as Adam Smith famously explained, trade is driven by mutual “self-love.” “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” he wrote, “but from their regard to their own interest.” 

Response to Current Affairs

Recently I’ve received some criticism on my position on paid leave as outlined in Parental Leave: Is There a Case for Government Action? In my report, I provide evidence that the private market is providing a growing amount of paid leave over time and I suggest that providing paid leave through a government mandate or social insurance program is likely to include a variety of trade-offs and/or may not meet some of advocate’s purported objectives.

Although Nathan J. Robinson’s criticism of my report is steeped in vitriol, it still provides an opportunity to clarify my position. If I had to boil his critique down to one or two major criticisms, it would be that, in his view 1) I did not include a representative discussion of the benefits of creating a government paid leave program (and some of these benefits are mentioned in papers I cite for costs) and 2) I do not take the same position as certain academics I cite.

To the first point: Although not obvious from the paper, when I speak about paid leave publicly, I almost always first state that paid parental leave holds benefits for companies and parents and I am in favor of businesses voluntarily providing paid leave.

Moreover, voluntarily provided paid parental leave arguably holds greater benefits for parents than government supported or mandated leave, because employers incorporate the costs and benefits of leave-taking into their business model and therefore have reduced incentives to discriminate against likely leave-takers, including childbearing-age women. 

Why focus this paper on government supported leave’s trade-offs? First and foremost, because research groups and news outlets have spilled untold amounts of ink describing possible and likely benefits of government supported paid leave elsewhere. Those benefits are mostly well-known in policy circles and easily understood.

The main contribution of this paper is to challenge the prevailing view that government benefits could be realized without costs or trade-offs to workers (and indeed, workers’ lives may not be “markedly improved” after all, once associated trade-offs are taken into account). Indeed, the paper is intended to bring some balance to the existing debate by outlining trade-offs that are rarely seriously considered.

The paper is not a comprehensive review of the paid leave literature. However, it does carefully and accurately relay findings from the paid leave literature on potential costs and trade-offs of government intervention.

The second criticism–that I do not share all the same views on paid leave as academics I cite–does not make sense. Think tank scholars and academics cite other scholars all the time whom they disagree with on many points. 

As always, I enjoy hearing thoughtful criticisms of my work but the Current Affairs’ critique is off the mark. Moreover, by selecting two Cato studies and drawing conclusions about the whole of Cato research, Robinson commits one of the logical errors he spends so much time deriding: cherry-picking.

Recent Hurricane Activity in Perspective

Harvey. Irma. Maria. Michael.  Four strong (category 3 or higher) hurricanes in 14 months. Something is happening, right?

When category 4 hurricane Harvey banged into Rockport, Texas, and then decided to hang around for five days visiting the fine folks of Houston and vicinity, it broke the 11.8 year “hurricane drought”, by far the longest period in the record without a major (category 3 or higher) landfall.[1],[2] Because of its unfortunate stall, Harvey also broke the record for a single-storm rainfall in the U.S., with 60.58 inches at Nederland, Texas.

What about a human influence from dreaded carbon dioxide? The National Oceanic and Atmospheric Administrations (NOAA) Geophysical Fluid Dynamics Laboratory (GFDL) dryly stated on September 20:

In the Atlantic, it is premature to conclude that human activities–and particularly greenhouse gas emissions that cause global warming–have already had a detectable impact on hurricane activity.

“Where Do We Have Tariffs?” the President Asked. On Clothing and Footwear, For a Start

“Where do we have tariffs?” President Trump asked yesterday. One obvious answer is on imported clothing and footwear, where tariffs are both substantial and hit low-income consumers hard.

The United States raised $33.1 billion in tariff revenue in 2017, but $14 billion of that came from tariffs on apparel and footwear alone. These items account for 4.6 percent of the value of U.S. imports, but 42 percent of duties paid. That means while the average effective tariff rate for U.S. imports overall is just over 1.4 percent, rates for apparel and footwear are 13.7 percent and 11.3 percent, respectively.[i]

My colleague Daniel Ikenson has previously examined the evolution of clothing and textile protectionism. He concludes that such high tariffs do not protect domestic apparel manufacturing. Data from the U.S. Trade Representative shows that 91 percent of manufactured apparel goods and 96.5 percent of footwear are imported.

Why then are such highly regressive tariffs imposed? The answer appears to be the lobbying efforts of the capital-intensive U.S. textile industry. Textiles are the major input for labor-intensive apparel production, which largely occurs overseas. To quote Ikenson directly:

The U.S. textile industry insists on preserving those tariffs as leverage to compel foreign apparel producers to purchase their inputs. Preferential access [to U.S. markets] is conditioned on use of U.S. textiles. The high rates of duty apply, generally, to all “normal trade relations” partners. But those duties are much lower or excused entirely for trade agreement partners, provided that the finished garment comprises of textiles made in countries that are signatories to the agreement.

U.S. consumers pay the price of this protectionism, and poorer consumers especially. In 2016, the average household in the bottom income quintile spent $860 on apparel and footwear, or 3.4 percent of overall spending—the highest proportion of any income quintile. The average single-parent household put 4.5 percent of total expenditure toward these goods. The poor spend a disproportionate amount on clothing and footwear, and family structures most likely to be recipients of means-tested welfare programs (single-parent households) spend most of all.

But this protectionism is not just regressive because of relative spending patterns. Edward Gresser’s work has shown how, often, luxury clothes and shoes face lower tariff rates than inexpensive products.

Consider Table 3 from my report below (an updated version of Gresser’s work.) Where duties are applicable, a pure cashmere sweater import incurs a 4 percent tariff, a wool sweater a 16 percent tariff, and an acrylic sweater a whopping 32 percent. Men’s silk shirts see a 0.9 percent tariff, cotton shirts a 19.7 percent tariff, and cheaper polyester shirts a 32 percent tariff. Leather dress shoes have an 8.5 percent tariff, whereas cheap sneakers would see a 43 percent tariff. Windbreakers, leggings, tank tops, and other clothes made cheaply from synthetic fabrics face a 32 percent tariff if sourced from countries that the United States does not have a free-trade agreement with. Assuming poorer households tend to buy cheaper products, these differential tariffs have perniciously regressive effects.

Regressive tariffs

The true overall cost of all this to poorer families is difficult to calculate. To get an accurate estimate would require detailed information on the effect on domestic substitute goods’ prices, knowledge of products bought by poor families and their propensity to import in the absence of protectionism.

Nevertheless, we can develop cautious lower-bound estimates. The average household in the poorest income quintile spends $655 on apparel and $206 on footwear per year. Assuming the import propensities for the population as a whole apply to poorer people implies $595 of apparel spending and $199 of footwear spending is on imported goods. Taking average effective tariff rates for apparel and footwear for this spending (13.7 and 11.3 percent) implies a combined direct tariff cost of $92 per year for the average household in the poorest income quintile, or $204 per year for the average single-parent household.

These figures likely underestimate the true burden, because they only represent the direct cost from current spending on imported goods. They assume tariffs do not raise domestically produced goods prices, though in reality the anti-competitive effect of the tariffs would be expected to raise prices here too. It also assumes the same effective tariff rates for apparel and footwear apply for the poorest households as for the whole population, but we have seen that products that the poor are more likely to buy tend to face higher tariff rates. Consumer welfare losses from tariffs, of course, are higher than the implied costs here, since tariffs make consumers less willing to buy imported products that they would otherwise prefer.

In short, next time the President asks where tariffs are applied, someone shout “apparel and footwear.” They are both large and regressive.


[i] U.S. International Trade Commission, “Interactive Tariff and Trade DataWeb,” at http://dataweb.usitc.gov. Data for imports for consumption, and effective rates calculated using “customs value” and “calculated duties” for 2017.

Topics: