January 7, 2020 12:35PM

Are Tech Companies Too Big?

Politicians and pundits are claiming that technology companies such as Amazon, Google, and Microsoft are damaging monopolies. Some politicians, such as Elizabeth Warren, want to actively break up big tech firms. Ryan Bourne explains the folly of these sentiments in a recent study. A decent understanding of the dynamism in U.S. economic history reveals why aggressive antitrust policy makes no sense.

When a big tech company is earning high profits, it attracts competitors like sharks smelling blood in the water, which is a good thing. Meanwhile, what do tech firms earning high profits use them for? To push innovation forward by funding huge amounts of research.

The Wall Street Journal outlines current efforts to fund quantum computing. That technology would be a revolutionary leap, but it is a tough nut to crack. We need a bunch of tech companies with deep pockets pursuing a diversity of approaches to make the needed breakthroughs. And that is what we are seeing with Amazon, Google, Microsoft, IBM, Intel, and others in a vigorous competitive race.

At the same time, the Journal reports that venture capitalists are placing bets on quantum computing startups. So the big firms are feeling the competitive heat from each other while they all risk being undercut from below. Microsoft spent two years building a quantum computer that ended up falling short, and now it has restructured its project. Unlike governments, businesses pull the plug on things that are not working and try again.

The Journal says, “The field attracted a total of at least $450 million in private investments in 2017 and 2018,” which is impressive given that skeptics say that profit‐​seeking companies don’t do basic long‐​term research. Microsoft has been funding quantum computing research for many years, which a stream of solid profits has made possible. Some of the firms the Journal profiles are focused on making short‐​term breakthroughs, but other firms see quantum computing as a longer‐​term goal.

Profits, competition, diversity of strategies, big companies and startups, uncertainty, and experimentation. That is what markets are all about. Politicians, pundits, and antitrust lawyers claim to know the proper size of companies, how large profits ought to be, and how industries should be structured. They don’t. We need markets to figure it all out.

q

January 7, 2020 11:55AM

No Unusual Migration Trend for Mexicans to Justify Deporting Them to Guatemala

The Trump administration has announced that it will begin deporting Mexican asylum seekers to Guatemala, where they will face homelessness in a country with one of the highest murder rates in the world. Last year, Guatemala signed onto a deal with the United States to accept deportees from other countries, and the administration had sold it as a way to resettle refugees “closer to home.”

But this announcement demonstrates that this justification was simply a farce, as most Mexicans crossing the border live closer to the United States than Guatemala.The administration is apparently justifying the move by citing a major increase in Mexican arrivals. The New York Times states:

about 17,000 Mexicans were caught crossing between ports of entry in October, a 34 percent increase since July , according to Customs and Border Protection (CBP). The Homeland Security Department has been searching for ways to stem the uptick for the past month.

But this excuse is also inaccurate. Border Patrol apprehensions of Mexicans crossing illegally have been roughly stable over the course of the year. They dipped down in July — as a result of the hotter weather — but in December, the most recent month available, Mexican numbers were lower than earlier in the year. Figure 1 shows the Mexican apprehensions by month since April 2019, when CBP started publishing monthly totals by country online.

Nor are Mexican arrivals particularly unusual on an annual basis. Here is the last decade of Mexican apprehensions by year. As it shows, Mexican apprehensions declined dramatically since 2010 from nearly 400,000 to 166,000 in 2019, and while 2019 was up from 2018, it came nowhere close to reversing these gains and was nothing like what the border has seen in terms of changes from Central America in 2019 (9 percent increase compared to a 172 percent increase).

The administration has absolutely no business deporting Mexicans to Guatemala using the extraordinary and already inhumane policies that it has implemented for Central Americans. The administration needs to channel these immigrants into legal avenues for entry, not forcibly remove them to a country that they do not know and do not want to go to.

Update 1/9/2020: This blog was updated to reflect apprehensions through December 2019.

January 6, 2020 3:35PM

New Legislation Highlights Lack of Jones Act Competition

Just before Christmas, Rep. Ed Case (D‑HI), citing the Jones Act’s contributions to Hawaii’s high cost of living, introduced three bills taking aim at the protectionist law. The first such bill, the Noncontiguous Shipping Relief Act, would exempt all non‐​contiguous U.S. locations from the Jones Act — essentially Alaska, Guam, Hawaii, and Puerto Rico — while the second bill, the Noncontiguous Shipping Reasonable Rate Act, would limit shipping rates to the noncontiguous states and territories to no more than ten percent above international shipping rates for comparable routes.

Perhaps most interesting, however, is the third piece of legislation. Known as the Noncontiguous Shipping Competition Act, the bill would grant Jones Act exemptions to any state or territory not served by at least three Jones Act ocean carriers, each of which must have at least 20 percent of the market. The bill, in other words, would grant exemptions from the law to those states and territories that suffer from monopolies or duopolies in the Jones Act trades.

Which is to say, all of them.

Ocean transport between the U.S. mainland and noncontiguous states and territories offers very little to choose from. Only two carriers, Matson and TOTE Maritime, provide ship service to and from Alaska while the Hawaii trade is the province of Matson and Pasha Hawaii (Matson admits as much in its most recent annual report, noting that it only faces “one major U.S. flag Jones Act competitor” in both markets). In Puerto Rico, meanwhile, a 2018 report sponsored by the pro‐​Jones Act American Maritime Partnership showed that 85 percent of the container capacity in its Jones Act trade is controlled by just two carriers, TOTE Maritime and Crowley.

Duopoly after duopoly after duopoly.

Compounding matters is that, due to the Jones Act’s U.S.-build requirement, the few carriers serving these areas must pay incredible sums for the ships they use. Matson, for example, paid approximately $918 million for its four most recent vessel acquisitions, while two ships on order from Pasha are said to have a combined price tag of over $400 million. In a foreign shipyard, these vessels would likely cost anywhere from one‐​quarter to one‐​fifth as much. That’s hundreds of millions of dollars in extra costs to be borne by shippers, and ultimately consumers.

Stifled competition and increased ship costs inevitably mean higher prices for transporting cargo to and from the U.S. mainland. That’s no small matter for the noncontiguous states and territories that overwhelmingly rely on shipping to acquire needed goods. And it’s not just more expensive transport. In some cases, the Jones Act fleet’s limited capabilities make the purchase of goods from the mainland outright impossible.

At this time, Rep. Case’s effort to relieve Hawaii and other noncontiguous parts of the United States from the Jones Act’s burden faces the longest of odds. Indeed, when he introduced three Jones Act reform bills in 2003 during a previous stint in Congress they did not receive so much as a committee hearing. It’s not clear that the political ground has sufficiently shifted in the intervening years to make passage a realistic outcome.

But encouragement can still be found in Rep. Case’s willingness to speak out about the issue in what is typically a pro‐​Jones Act echo chamber. While reforms to the Jones Act may not be imminent, perhaps the new legislation can help spark an overdue conversation about the costs stemming from this failed relic

January 5, 2020 7:26PM

Does Trump Have An Ethnic Iranian Interrogation and Detention Program In The Works?

The reported detention and interrogation of Iranian Americans in Washington state over the weekend raises an obvious question: was this an isolated incident, or is the Trump administration now rolling out an interrogation and possible detention program targeting persons of Iranian heritage? A FOIA response from the Justice Department I received in May 2019 may offer a telling clue. First, a little background.

In April 2019, not long after President Trump designated the Iranian Revolutionary Guard Corps (IRGC) a terrorist organization, I decided it would be a good idea to find out if the administration was engaged in any other war planning with Iran that would have a domestic nexus. Specifically, I wanted to know if the administration had plans on the shelf to detain persons of Arab or Iranian heritage in the event of yet another war with a country in the region.

Accordingly, I submitted Freedom of Information Act (FOIA) requests to the Department of Justice (multiple components, including the FBI), United States Northern Command (NORTHCOM), the Department of Homeland Security (DHS), the Internal Revenue Service (IRS), the United States Postal Service (USPS), and the Census Bureau. I picked these agencies or departments because each has, in past wars, played key roles in either the surveillance of ethnic populations deemed a threat or actually incarcerating persons of a particular ancestry who happened to be from a country at which we were at war.

As the FOIA responses rolled in over the next few months, I got the typical “Your request is too broad” or similar dodges from DHS, the Postal Service, and the IRS. NORTHCOM didn’t even bother to respond, and neither did the FBI. But the Department of Justice, via its Office of Information Policy, did respond.

With regard to the second part of my FOIA request for any records regarding “implementation of detention programs for persons of Arab or Persian/​Iranian heritage in the event of the declaration of a national emergency, declaration of war, or authorization for the use of military force against certain entities,’ DoJ said this:

With regard to part 2 of your request, I can neither confirm nor deny the existence of such records. The existence or non‐​existence of such records would be protected pursuant to Exemption 7(E) of the FOIA, 5 U.S.C. § 552(b)(7)(E), which concerns records or information compiled for law enforcement purposes, the release of which would disclose techniques or procedures for law enforcement investigations or prosecutions.

That infamous “neither confirm nor deny” language is what’s known in the FOIA world as a “Glomar” response — a more than 40 year old judicially created carveout from FOIA that makes it possible for an agency or department to dodge a FOIA request on a particular topic, absent a review by a judge. It was not until 2010 that the CIA admitted the original Glomar case had been used to hide its partially successful efforts to raise a sunken Soviet sub from the Pacific Ocean via billionaire Howard Hughes’ deep sea mining vessel Glomar Explorer.

More recently, CIA attempts to “Glomar” the ACLU over the existence of the agency’s “Drone War” in Iraq and Afghanistan failed. And just last year, the Reporter’s Committee for Freedom of the Press won its Glomar FOIA case against the FBI, which had argued that it properly invoked Glomar to avoid confirming or denying whether its agents sometimes impersonate journalists. In each of these national security or law enforcement cases, the “Glomar” invocation in question was used to cover a real activity undertaken by the agency or department in question.

So does DoJ have a plan on the shelf to detain persons of Iranian heritage in the event of a conflict with Iran? If so, is that plan part of a larger “whole of government” effort also involving, among other elements, DHS’s Customs and Border Protection? CBP denied it in a late Sunday afternoon tweet. However, the specific accounts of Iranian Americans allegedly detained by CBP personnel at the Peace Arch Border Crossing as relayed to CAIR, as well as the history of such detentions and interrogations in this country, make the scenario frighteningly plausible. It’s one reason I have two active detention‐​related FOIA lawsuits — one against NORTHCOM, the other against the Postal Service—grinding away in the D.C. Circuit, with more likely on the way.

January 3, 2020 12:16PM

With Airstrikes in Iraq, Trump Draws America Further into Middle East Conflict

The U.S. airstrike that killed the Iranian Maj. Gen. Qassim Soleimani is a dangerous and reckless act that is almost certain to trigger an escalation of violence in the Middle East, including the possibility of retaliatory Iranian actions against U.S. forces in the region.

There is also likely to be backlash from Baghdad. The bombing killed Soleimani as well as Abu Mahdi al‐​Muhandis, an important Shia paramilitary leader in Iraq’s Popular Mobilization Units with close ties to Iran. (Note: Iran’s increased influence in Iraq is a direct consequence of the U.S. invasion in 2003 and the subsequent decisions of the Bush administration.) U.S. forces are in Iraq with the permission of the Iraqi government, which has grown increasingly infuriated by repeated U.S. airstrikes on Iraqi territory that lacked the approval of the sovereign government there. Iraqi Prime Minister Adil Abdul‐​Mahdi has already condemned the attack as a violation of the terms of the agreement authorizing U.S. forces in Iraq. This could make U.S. troops and personnel, as well as innocent civilians caught in the cross‐​fire, even more vulnerable in the potential fallout.

Trump came into office with an Iran that was effectively denuclearized, plus a newly opened U.S.-Iran diplomatic channel to continue to improve relations following the JCPOA. Thanks to the president’s warrantless withdrawal from that deal and the administration’s incoherent maximum pressure “strategy,” that diplomatic channel is no more, and Iran has resumed its nuclear activities and ratcheted up its violence in the region.

This dangerous game of tit‐​for‐​tat escalation was entirely predictable, and indeed predicted. The approach was senseless from the beginning and it has had the exact opposite of its intended effect.

While we can expect Iran to pursue retaliatory actions of some kind, the leadership in Tehran knows they are outmatched by the United States, so they are likely to employ tactics they expect will be below the threshold of what would prompt a major U.S. military response inside Iranian territory. Still, this could trigger a sharp uptick in violence across the Middle East, to the detriment of regional stability, U.S. interests, and global peace and security.

Although President Trump boldly stated in his last State of the Union address that “great nations do not fight endless wars,” with this act he has likely further drawn the United States into the morass of Middle East conflict. The United States has been attacking the Middle East every year for 29 years. As president, Trump has broadened ongoing bombing campaigns across multiple countries and, in his first two years, increased the U.S. troop presence in the region by more than 30 percent. He has ordered an additional nearly 15,000 deployed since summer 2019.

For decades, this approach has failed. Its continuation is fueled by unthinking policy inertia, an erroneous belief that U.S. partners in the region are vital for U.S. interests, and an irrational fear of Iran. As I put it last May, “most of the political establishment in Washington perceive[s] the threat from Iran to be serious when in fact it hardly exists at all.”

Americans must begin to appreciate how peculiar it is for a country like ours to be so maniacally obsessed with, and terrified by, a country like Iran. The United States is a global military juggernaut whose core national‐​security concerns are rendered rather trivial due to its outsize capabilities and its uniquely protective geography, reinforced even further by a reliable nuclear deterrent. Iran is a third‐​rate military power in a tough neighborhood half a world away. It poses no direct threat to us. Iran’s main regional rivals possess conventional and nuclear capabilities that can deter Iran quite sufficiently. Washington’s phobia of the supposed threat of an Iranian attempt to close the Strait of Hormuz, through which about 30 percent of the world’s crude oil flows, is mostly overheated babble. A sincere attempt would be damaging to Iran’s own economic self‐​interest, not to mention its security, as retaliation would surely be swift. Additionally, Iran’s much ballyhooed support for non‐​state actors, mostly Hezbollah, Hamas, and the Houthis in Yemen, does not present a real threat to America. Those groups have local concerns. Hezbollah and Hamas are almost exclusively focused on Israel, and the Houthis in Yemen are a nationalist movement. These are not transnational terrorist groups spending time trying to hatch 9/11 style plots against America.

How is it that the United States of America can get whipped up into such a hysteria over such a weak, distant, and hemmed in Iran? Much of Washington seems unable to properly assess risk. Threat perceptions on Iran are fueled by an outdated enemy image where Iran plays the role of the villain, but presents no objective direct threat to this country.

At this point, neither side appears willing to back out of this destructive round of escalation. That bodes ill for all parties. If the White House isn’t prepared to find a way to reduce tensions and develop a strategy that will reliably avoid war and serve U.S. interests, Congress must (but probably won’t) step up to assert its prerogatives over the executive branch’s war powers.

January 3, 2020 12:12PM

H‑2A Guest Worker Minimum Wages Up in 2020, 57% above New State Minimums

Two dozen states are raising their minimum wages in 2020. While the federal government’s minimum for all workers remains the same, the feds have hiked one minimum wage in 2020: the Adverse Effect Wage Rate (AEWR) paid to H‑2A foreign seasonal farm workers. Despite the state changes, this rate will still far exceed the federal or state minimum wage in every state in 2020 by an average difference of 57 percent.

The AEWR is the Department of Labor (DOL)-mandated wage for H‑2A seasonal farm workers. Farmers who hire even a single H‑2A worker must also pay the AEWR to every American worker as well if it is higher than what they would otherwise receive. Except for Alaska, each state has its own AEWR, which run from $11.71 to $15.83 per hour in 2020 (based on 15 regions). State minimum wages start at the federal minimum of $7.25 hourly and go to $13.50 in the state of Washington.

In every state, the AEWR far outstrips every state minimum. The average difference between each state’s AEWR and its minimum wage is 57 percent in 2020. In Iowa, Indiana, Kansas, New Hampshire, North Dakota, Utah, and Wisconsin, the AEWR is fully double the state minimum wage. In 2020, DOL is raising the straight average by 5.5 percent from $12.96 to $13.68 hourly. Every state will see the AEWR increase with Ohio seeing the largest increase of 9.5 percent.

The 2020 rate increases continue a 2‑decade AEWR march higher. Since 2000, the AEWR has increased from a nominal wage of $7.21 (straight average) to $12.96. This 80 percent growth in the AEWR has doubled the pace of general price inflation as calculated by the Personal Consumption Expenditures (PCE) Index.

The AEWR is unfair discrimination against farmers who are trying to follow the rules and hire foreign workers legally. It is supposed to reflect the actual hourly wage that farmers are already paying workers. But in practice, this is not the case.

The DOL uses the Department of Agriculture’s Farm Labor Survey of U.S. farmers to calculate the AEWR. To determine the wage, DOL annually divides the total monetary compensation to all farm workers in a region in the prior year by total hours worked. Of course, this wage overlooks differences between localities, detailed job types, skills, and experience, leading to a misleading average.

More importantly, by treating all monetary compensation as “wages,” the AEWR scoops in overtime, hazard pay, bonuses, performance incentives, and all other additional payments. This means that the AEWR artificially inflates the base hourly wage in the following before including these types of extra compensation.

In addition, by pricing out workers with below‐​average wages — typically less experienced workers who received less bonus pay — the mandate further inflates wages in each successive year. The AEWR is obviously designed to suppress hiring of foreign farm workers — which is why labor unions and left advocacy organizations argue that the AEWR should increase even more. This is ironic given the common claims that the minimum wages don’t suppress hiring.

This analysis actually understates the difference between the AEWR and the state minimums because farmers who hire H‑2A workers must also provide their workers many other benefits that — unlike most state minimum wages — they cannot deduct even partially from the workers’ wages. DOL requires, for example, that farmers provide housing at no cost to the worker, cover their transportation to and from their home country (or state, for U.S. workers), and daily transit to and from work.

At the end of the day, there is no evidence that hiring foreign workers harms U.S. workers and substantial evidence that unemployed U.S. workers refuse to take H‑2A jobs even though they all have a shot at them first.

The AEWR is a political wage that the administration or Congress should terminate. I have previously written about the Farm Workforce Modernization Act, a bill that now has passed the House that would help rein in the AEWR. If we want to end illegal immigration, we should start by making it easier to hire needed workers legally.

January 3, 2020 9:40AM

Trump’s Dangerous Escalation with Iran

President Trump’s decision to order the killing of Iranian General Qassim Suleimani threatens to draw the United States even more deeply into a region that has already claimed too much American blood and treasure.

The international reaction was swift. Futures on global stock markets fell, and oil prices spiked, in anticipation of a wider conflict. In Iraq, where popular sentiment had once been building against Iranian influence in the country, that anger is now sure to be directed at the American presence, and thus constitutes a grave danger to Americans serving there and throughout the region. Writing before the Suleimani strike, Paul Pillar noted that American actions “have converted what had been a story of popular protests with an anti‐​Iran tinge into a story of strongly anti‑U.S. protests.” Now, as Jack Goldsmith observed (via the WSJ), “Iraqi Prime Minister Adel Abdul‐​Mahdi condemned the targeted killing as a violation of the terms underpinning the U.S. troop presence in the country.” So, the Iraqi government’s next move might be as important as Tehran’s.

But perhaps the most important reaction was among members of Congress who were incensed that the Trump administration would take actions that could result in a war with Iran without congressional authorization. Rep. Ro Khanna (D‑CA) took to Twitter last night to chastise those in the House and Senate who had voted for the National Defense Authorization Act that did not include language that would have blocked such an attack. Notably, that amendment had passed overwhelmingly in the House NDAA, and with bipartisan support. All eyes should be on Rep. Matt Gaetz (R‑FL), who cosponsored the amendment, and the other Republicans who voted for it, to see if they remain committed to the principle that Congress, not the President, has the authority to take the country to war.

Meanwhile, President Trump, who has hinted at his desire to end endless wars (even as he has presided over a dramatic expansion of nearly all of the conflicts that he inherited), now seems poised to add an enormous new one into the mix. Because, let’s be clear, while the United States and Iran have been locked in a cycle of confrontation for four decades, neither side has been prepared to engage in full‐​scale and direct conflict with the other. And yet that is a step that may very well follow from these actions — if cooler heads don’t quickly prevail. As ruinous as the war with Iraq has been — for the United States, for Iraqis, and for the people throughout the region — war with Iran would be far, far worse.

The title of our book, Fuel to the Fire, is tragically apt. President Trump inherited a broken foreign policy, and he has made it worse. John Glaser, Trevor Thrall, and I also point out the dangers associated with investing so much power in the hands of a man utterly unfit for the office of the presidency. America’s Founders anticipated this, too. But the system that they created has now been so thoroughly upended, that it will take concerted action across multiple fronts to stop this train that is hurtling down the tracks. And I worry that it might already be too late.