December 3, 2019 11:57AM

Latest Exams Say Something Definitive: There’s Little That’s Definitive

I dread the release of national standardized test scores because there is always big pressure to pull something out of them and declare, as quickly as possible, that they show your favorite reform works. In my younger days I’m sure I succumbed. But as time has gone on, I’ve concluded that any given year’s big release is just one year of new data from which nothing can be definitively determined about why scores have moved as they have. There are simply too many variables at play, from family wealth, to spending, to school choice, to what any given test asks, to conclude very much. So I hope you’ll bear with me while I throw all that out the window. The latest scores from the Program for International Student Assessment (PISA) do reveal something conclusive: It’s dangerous to look at one country and declare “We all must do what they do!”

Finland, I’m looking—or no longer looking—at you.

After the Finns ranked among traditionally top, typically East Asian, countries in the 2001 PISA—a test of 15-year-olds containing reading, mathematics, and science portions—and replicated that a few more times, a veritable cottage industry arose declaring that the United States, and everyone else, should copy Finland. Google “Finnish miracle education” and your search results will overflow. Because Finland did so well, education analysts confidently proclaimed the need for fewer standardized tests, light-touch national standards, more teacher autonomy, and small classes, just like the Finns had.

But something has happened. The Finns have suffered the biggest score drops of any nation in mathematics and science. They dropped 37 points (on a 0 to 1,000 scale) in math (shown below) between 2003 and 2018, and 41 points in science between 2006 and 2018. In reading the news wasn’t quite as bad, with Finland only tying for the third biggest drop over time: 26 points between 2000 and 2018. In contrast, the United States saw a 13 point increase in science, a 1 point uptick in reading, and a 5 point decrease in math.

Trends in PISA math scores

To be fair, Finland still places high among countries—depending on how you count various parts of China, tied for 4th in reading, 13th in math, 5th in science—and it is easier to have big drops when you start at greater heights. But these declines should nonetheless cast doubt on the wisdom of identifying one country that seems to do well and declaring “we should do what it does.” Of course, we should have had such doubt all along, because, again, numerous variables affect test scores, including that many people and cultures do not think test scores really mean that much. And they may be right to think that.

So thank you PISA for one thing this year: Revealing the dangers of deciding a single country has clearly figured out the right way to educate, and declaring we all need to be like it. Life is far more complicated than that.

December 3, 2019 11:09AM

NATO Summit 2019: The Remnants of a “Zombie Alliance”

When French President Emmanuel Macron said that NATO was experiencing “brain death,” he spoke an important inconvenient truth. Unfortunately, it appears that the ongoing NATO summit intends to focus on traditional burden-sharing issues. In the days before the summit, European members released a plan to great fanfare that would increase their share of the Alliance’s direct costs and reduce America’s share. But NATO’s problems go far, far beyond burden sharing. Greater European financial support is akin to taking an aspirin to deal with a terminal illness.

Despite the usual talk about enduring transatlantic solidarity, there are deepening divisions about key issues. Sources of friction include the eroding democratic credentials of several Alliance members and disagreements about policy toward both Russia and the Middle East. Turkey’s growing authoritarianism and Ankara’s open flirtation with Moscow are only the most visible indications of ugly fissures.

The most serious threat to the Alliance, though, is the erosion of the commitment to collective defense on the part of European populations. A September 2019 European Council on Foreign Relations survey revealed that an overwhelming majority of respondents in all European Union (EU) countries favored neutrality in any conflict between the United States and either Russia or China. Such neutralist sentiment strikes at the heart of NATO’s Article 5 commitment that an attack on one member is considered an attack on all.

NATO was an alliance created to provide an American security shield for a weak, demoralized democratic Europe that faced an existential security threat from a totalitarian superpower. That security environment bears no resemblance to the one today’s prosperous, capable Europe faces.

Macron is right about NATO’s brain death. NATO is now a zombie alliance. He also is right about the policy solution—the creation of an independent European military capability through the EU as a successor. Instead of spouting increasingly irrelevant clichés about transatlantic solidarity, the NATO summit attendees should begin the important transition to a post-NATO world.

December 3, 2019 9:07AM

Warren Mosler and the Great American Banking Myth

Yesterday morning, a Modern Monetary Theorist tweeted part of a 2017 interview he did with Warren Mosler, one of that school's leading proponents and benefactors. As the clip was titled "Against Free Banking: The Liability Side Isn't The Place For Market Discipline," yours truly couldn't resist a look-see.

Having heard just about every conceivable argument against free banking, I frankly did not expect to gain much; but I got even less than I expected. The promised argument "against free banking" consisted of little more than the tired old assertion that, without comprehensive deposit insurance, banks, no matter how sound, are bound to fall victim to runs:

What happens is, you know, somebody starts a rumor in social media that they saw the bank president's wife taking money out of the bank, so all of a sudden there's a panic, everybody tries to take their money out, and the bank fails… And the market in all its wisdom has decided that bank needs to fail. It's always for some reason that's highly suspect… Even the banks that failed in '08 and were liquidated, on a look back, they were not insolvent. It was just liquidity issues…

Apart from the quaint bit about the banker's wife, and misinformed particulars concerning bank failures in 2008, there's nothing special about Mosler's statement, except for its source. Many believe as he does. But most don't pretend to be experts on money and banking, or to have given any serious thought to the topic. What little they know they might have learned by watching It's a Wonderful Life or Mary Poppins (or, in the case of the more studious, both).

In contrast Mr. Mosler, a hedge-fund founder and engineer by trade, does claim to be an expert on money and banking. What's more he commands a large following. So one might expect him to display a little more knowledge of his subject than one might gather from a couple old movies. Alas, he doesn't. And so, instead of enhancing others' understanding of runs, he throws the weight of his authority, such as it is, behind what amounts to little more than a hackneyed folk tale.

That folk tale — call it "The Great American Banking Myth" — has played an outsize role in shaping bank regulations, first in the U.S. itself, and eventually worldwide. And not for the better. On the contrary: we have the tale to thank for much of the rot afflicting so many of the world's banking systems today. Consequently it cries out for a thoroughgoing debunking. Though a single essay can hardly suffice, I hope this one can stand as an abstract.

Read the rest of this post »
December 2, 2019 5:07PM

Ohio: A Law Against Media Concentration Backfires

This is just absurd: to comply with federal regulations barring owners of daily newspapers from also owning local broadcast stations, the owner of the venerable Dayton Daily News in Ohio may knock it down to three-times-a-week publication so that it won't count as a daily anymore. Keith J. Kelly of the New York Post spotted the story, Cox Media Group outlined the plan in a press release a few weeks ago, and Joshua Benton at Nieman Lab has more:

To increase the quality of local journalism in Ohio, the Federal Communications Commission is requiring three newspapers to stop printing daily....

Did you get that? To strengthen the local news ecosystem in Dayton, the government is making its biggest newspaper publish less.

The rules date back to 1975 when the Federal Communications Commission (FCC) adopted regulations barring cross-ownership of local broadcast and newspaper properties while grandfathering in existing arrangements. It was never a good rule, but progressive social critics then as now traced countless social ills to media concentration and for-profit ownership of the press (what's new these days is that populist conservatives crusade against the corporate media too).

Don't blame today's FCC. Two years ago the agency voted to scrap the decades-old newspaper/broadcast cross-ownership rules, recognizing that the local news market had gone through convulsive changes in the meantime, with new media sources cutting deeply into ad revenues and the economics of newspaper publishing taking one deep hit after another. (Local broadcasting economics has suffered too, even if not as badly.) But opponents sued, and in September a Third Circuit panel struck down the deregulatory effort, a move that immediately called into question the terms of a pending deal transferring partial control of the large Cox Media Group, which got its start long ago with the venerable Dayton paper.

Others, such as Jonathan Rauch, have pointed out that antitrust laws may need easing anyway if newspapers are to organize successful ways to finance journalism in the online economy. And as we've warned before, there are special dangers in unleashing antitrust law on the media sector, where it can leave government with a corrupting influence over whether opposition papers are profitable and who gets to own them. But does anyone really think Dayton residents are better off if their local newspaper stops publishing every day?  

December 2, 2019 3:22PM

Simon Johnson Claims the Warren Health Plan Is a Gift to U.S. Businesses

An advisor to the Warren campaign, Simon Johnson of MIT, has written an impressively fact-free Wall Street Journal article claiming Senator Warren's "remedy for health care costs" would be a wonderful gift to American businesses.

"Americans currently spend nearly 18% of gross domestic product on health care. . . and a great deal of this burden falls directly on companies." He claims "this dead weight gets heavier each year" and "companies cannot by themselves easily constrain health-insurance premiums." The impression is that businesses shoulder a large and rising share of total spending on health care. And unlike all other employee compensation (such as salaries and retirement benefits) this is said to be just a "deadweight cost" that "get heavier each year" yet remains "unpredictable."

According to the Centers for Medicare and Medicaid Services (CMS), however, "the private business share of overall health care spending remained fairly steady since 2010." That steady 20% share is neither "a great deal of" the total nor did it "get heavier each year." What has gotten heavier each year is the burden of Medicare and Medicaid which, unlike private companies, obviously cannot "constrain health care premiums" –­ including those collected in the form of taxes.

Federal, state and local governments accounted for 48% of spending in 2017, says CMS, compared with 34% for private insurance. If someone is spending too much, the private sector seems the least likely culprit. And Johnson doesn't even pretend that health spending will be any smaller "over the next 10 years."

Johnson does claim out-of-pocket health spending "would drop nearly to zero," ostensibly because Warren's plan would allegedly have no premiums, copays or deductibles (until the money ran out). But out of pocket health care spending can't possibly drop to zero because it includes over-the-counter medicines and supplements, and many other goods and services not normally covered by Medicare (except private Advantage plans) such as hearing aids and eyeglasses, dental care, massages, etc.

Johnson claims "costs would drop immediately" because, for example, Warren's plan hopes to pay 70 percent below current Medicare prices for brand-name prescription drugs (without killing too many people). But Medicare's current prescription drug plan (Part D) is run by competing private insurance companies, and they already drive tough bargains.

"The health-care burden hurts American business," says Johnson, due to "the onerous contribution most companies are required to make through employer-sponsored insurance." Would the Warren plan end that "onerous contribution"? Of course not. They're counting on it to pay 43% of the cost of the plan. 

Washington Post fact-checker Glenn Kessler explains: "Instead of employers continuing to give that money to insurance companies, Warren proposes that businesses direct 98 percent to the federal government [$8.8 trillion] and keep 2 percent for themselves. . . "

Would the Warren plan prohibit the next government from requiring employers to pay a vastly more "onerous contribution" in the future? Of course not. The Warren plan would also raise taxes on corporations and their investors by some $6.3 trillion, according to Kessler, so any ephemeral promise of reducing companies' insurance premiums by 2% for a year or two is hardly great news for American business.

December 2, 2019 1:50PM

Walking on Trade Adjusted Eggshells

Since its inception in 1962, Trade Adjustment Assistance (TAA) has been portrayed as a way to help workers affected by trade adjust to a changing economy, but its political objective may be more important than any policy purpose: The program was viewed by many politicians and scholars as a political tool to mute free trade opposition from those with enough political sway to block or slow trade liberalizing efforts. Only by pacifying their objections to trade liberalization would free trade be able to flourish. Unfortunately, if the goal of Trade Adjustment Assistance was to buy support for trade, it has failed to achieve that objective.

It is this context, that makes a new paper (and its companion op-ed) by Sung Eun Kim and Krzysztof Pelc surprising. They find that Trade Adjustment Assistance and demands for protectionism act as substitutes, where increases in Trade Adjustment Assistance can lead to a reduction in the desire for market-distorting tariffs – specifically, antidumping tariffs. As they put it: "compensation for trade-affected workers can in fact preempt protectionism."

Finding ways to reduce the demand for protectionism would be great. However, I want to take a moment to push back a little on their suggestions and add a few words of caution.

First, their methodology for identifying protectionism takes into account only antidumping tariffs. But while antidumping is a particularly abusive example, it is not the universe of protectionism, as the Trump administration has clearly shown. Even if it is true that TAA has reduced the use of anti-dumping tariffs, there may be other forms of protectionism (such as safeguards or countervailing duties) being used, and that needs to be considered when examining whether TAA has preempted protectionism.

In addition, although Trade Adjustment Assistance has been used to buy the support, or at least soften the objections, of organized labor during contentious trade talks such as NAFTA, the usefulness of TAA in furthering the free trade cause has diminished over time while inflicting long-term damage to the free trade cause.

Instead of acting as a mechanism to further expand trade, the program has instead ensnared liberalization by incorrectly signaling that trade is a particularly onerous cause of job loss that justifies opposition to trade agreements and other forms of protectionism in the absence of Trade Adjustment Assistance. This is especially troubling when workers displaced by trade liberalization make up only a fraction of total job churn attributable to total labor market dislocations each year. A frequently referenced Ball State University study, for example, finds that about 88% of U.S. job displacement is attributable to productivity gains.

Even if increasing Trade Adjustment Assistance funding or coverage could effectively reduce protectionist demands by interest groups, as previously suggested, it is far from clear that politicians can be won over in a similar manner. A paper by Stephanie Rickard of the London School of Economics and Political Science noted that 70% of the legislators that voted against freer trade also supported increasing spending on Trade Adjustment Assistance, while legislators that favored liberalization were evenly split on the program. In other words, at the political level, protection and TAA are often not substitutes, but rather just two policies trade critics pursue simultaneously.

The program itself can also be an administrative nightmare that can dull the teeth of effective liberalization and slow its momentum. We saw just how counterproductive TAA can be in 2011 when the Obama administration was trying to push trade deals through Congress under the precondition that Trade Adjustment Assistance also be reauthorized and extended. In a sense, TAA inclusion made those instances of trade liberalization more messy, more expensive, and, after accounting for all of the costs of managed trade, less effective than it otherwise could have been.

This shouldn’t be too surprising. As Cato’s Jim Dorn pointed out nearly 40 years ago, the bribery argument is very flawed:

[It] fail[s] to recognize that as long as special interest groups can gain by using the power of government to enact laws designed to further their goals at the expense of the public, these groups will have no incentive to accept the free trade principle.

If TAA is to be used at all, it would be best if it were utilized only as a tool to ensure passage of landmark expansions of trade, instead of being used as a matter of course or even in tandem with protectionist policies. If the main goal of TAA is to win support for trade liberalization, that implies TAA is the cost, not the benefit, of trade liberalization. It would then behoove any policymaker to make certain that they don’t end up with both increased TAA funding and higher tariffs.

Unfortunately, this doomsday scenario is looking more plausible by the day. On top of market-distorting tariffs and payments to placate the many losers of tariffs, the Trump administration’s Department of Labor recently released a Notice of Proposed Rulemaking to expand the TAA program. Combining TAA with the Trump administration’s protectionism (both unilateral and in the context of revised trade deals that reverse prior liberalization) is the worst of both worlds.

Instead of perpetuating the myth that trade is at fault for America’s economic ills, it would be better if Congress worked to eliminate the TAA program altogether. A program that instead provided adjustment assistance to displaced workers regardless of circumstance seems a more palatable compromise, as it would not demonize trade in the process.

December 2, 2019 1:30PM

The Second Amendment Returns to SCOTUS

Based on today’s argument in New York Rifle & Pistol Association, the unconstitutionality of New York City’s obscure transportation restriction on licensed handguns seems to be a foregone conclusion, with the only real question being how the Supreme Court will respond to the City’s strategic attempt to moot the case by repealing the law before a ruling could be handed down.

On that question, the justices appear divided along predictable ideological lines, with Justices Ginsburg and Sotomayor taking a hard line in their questioning that the case is moot, and Justices Alito and Gorsuch pushing back with equal force for the proposition that the controversy remains live and the city should not be rewarded for its blatant efforts to frustrate Supreme Court review of its now abandoned policy.

The mootness issue is particularly significant in this case because it involves such a clear attempt by a government litigant to obtain favorable rulings in the lower courts (which have been generally—but not uniformly—supportive of gun regulations in Second Amendment challenges) while denying the Supreme Court the opportunity to reverse those rulings and order the lower courts to stop rubber-stamping gun regulations and apply a more searching level of judicial scrutiny.

Notably, the sort of bad-faith case mooting on display in New York Rifle & Pistol is not remotely limited to Second Amendment cases and has been successfully deployed in a number of areas, including particularly civil forfeiture cases, where the government has been quite effective at thwarting Supreme Court review of highly dubious practices.

Another point that cuts against New York City's strategic efforts to moot the New York Rifle & Pistol case is how far mootness and standing doctrine often drifts from its constitutional rationale, which is to avoid putting judges in the position of offering what amount to "advisory opinions" in situations where there is really no genuine dispute between the parties and nothing for the judiciary to remedy.

Nevertheless, courts have have held that even something as materially insignificant as a nominal damages claim for, say, $10 may be sufficient to keep an otherwise defunct case alive. And indeed, much of this morning's argument focused on the question about whether the plaintiffs did, or should have, or might one day be able to assert a potentially case-saving low-dollar damages claim.

Well. If the question for Article III case-or-controversy purposes is really, "Hey buddy, can you spot me a Hamilton?" then Neil Gorsuch's answer—and perhaps that of four more justices as well—appears to be, "For this case? Delighted to."