If you’re struggling to understand why Congress would contemplate reauthorizing a program that 1) has never stopped a terrorist attack on the United States, 2) violates the fundamental Constitutional rights of Americans, and 3) squanders taxpayer money by the truck load, you’re not alone. I submitted a statement for the record to Senate Judiciary on all this madness which you can find here.

A bipartisan group of House members introduced the Farm Worker Modernization Act. The legislation will expand eligibility for the H‑2A program to year-round industries, but it also contains several welcomed reforms that will bring down the costs of using the H‑2A program, as I’ve detailed in my general review here. One set of reforms that will benefit current H‑2A users in particular will change the government-established H‑2A wage called the Adverse Effect Wage Rate (AEWR) that employers must pay to all H‑2A workers and U.S. workers in “corresponding employment.”

The Department of Labor (DOL) calculates the AEWR using the Farm Labor Survey, a quarterly survey of farms conducted by the Department of Agriculture. It has several problems, including that the AEWR, unlike most immigration programs, relies on statewide estimates rather than local estimates and creates a single wage floor without regard to skill level. Ultimately, farmers are most frustrated by escalating labor expenses forced on them by the AEWR and high volatility in the AEWR estimates.

Figure 1 shows how much faster the AEWR has increased relative to price inflation. 2019 saw a particularly sharp increase, and based on a half year of surveys, 2020 is predicted to have an even larger increase. Overall, the AEWR is increasing at more than twice the rate of inflation.

To address this problem, the Farm Worker Modernization Act (p. 58) freezes the AEWR for 2020 and bans increases in the AEWR greater than 3.25 percent in a single year (or decreases greater than 1.5 percent), limiting volatility and reducing labor expenses of H‑2A employers trying to follow immigration law. For context, 2019 saw a 6.2 percent increase over the AEWR in 2018, and 2020 is expected—based on a half year of data—to see 7–8 percent increase.

To see how important this would be to farmers, consider that from 1991 to 2019, the AEWR has increased by more than 3.25 percent for an average of 27 states annually, and it has decreased by more than 1.5 percent in for average of just 2 states annually. Figure 2 shows the number of states meeting these criteria by year. In 2019, 37 states had increases greater than 3.25 percent, while none had decreases larger than 1.5 percent.

The legislation would prevent the type of wild changes in the AEWR that frustrate farmers’ ability to plan. The AEWR’s wage estimates for farms are 20 percent more volatile than, for example, the Quarterly Census of Employment and Wages, based on the annual change in a state’s AEWR relative to the state’s average change for all years. Moreover, under current law, AEWR changes—no matter how big—become effective immediately, even in the middle of an H‑2A contract—while the Farm Workforce Modernization Act would apply increases only to a new contract.

Figure 3 illustrates how much the AEWR can fluctuate up or down. The average difference between the highest and lowest change was 11 percent from 1990 to 2019. In 2019, it was 23 percent. The legislation would limit such increases to no more than 3.25 percent. 

Beyond the benefits for farmers wanting to be able to plan, the legislation would also reduce labor expenses. Figure 4 imagines how the AEWR would have developed differently from 1990 to 2020, if the Farm Workforce Modernization Act’s rules were enacted in 1990. In 2019, the national average for all states would have been 11 percent lower. This would have saved H‑2A farmers in 2019 about $324 million in labor expenses for H‑2A workers alone. It would probably save them multiples of that amount for U.S. workers who must receive the same wage. In 2020, the AEWR would have likely been 15 percent lower, meaning even greater savings next year.

The Farm Workforce Modernization Act also disaggregates wage estimates based on the specific farmworker occupation. Currently, the AEWR relies on the combined field and livestock worker estimates, which inflates the wages for most H‑2A workers by lumping in higher skilled equipment operators. This change would raise the AEWR for more skilled positions and lower it for the general farm laborers. Overall, this would produce possibly more reliable estimates, but in combination with the capped increases, this would likely not make a significant change in labor expenses.

The Farm Workforce Modernization Act improves the wage structure for H‑2A farmers by reducing wage volatility and reducing labor expenses. Obviously, the legislation fails to stop all increases in the AEWR, but it is a manifest improvement over the status quo.

Last week I attended and spoke at a conference hosted by the Financial Times and JTI on economic regulation in Prague.

During my panel on the regulation of AI and other innovative new technologies, I made five substantive points about the economics and public policy implications of new technologies:

1. As far as possible, policymakers should allow permissionless innovation rather than be overly precautionary, only intervening when there was a clear need to do so for some specific application in a given product market.
2. Where regulatory oversight occurs and new products compete with existing goods, policymakers shouldn’t automatically try to shoehorn innovations into current regulatory strictures to maintain a “level playing field.” New products often come with new safety features, for example, changing the balance of risks or mitigating previously perceived market failures. As such, innovation can compete with the regulator as well as incumbent products.
3. Discussion of highly speculative extreme worst-case scenarios and ethical imperfections of new technologies sometimes seemingly ignore that the current world is not perfect, and human beings themselves exhibit biases. It’s a mistake to try to make perfect what is ever-evolving and already very good, especially if doing so deters other new innovations through fines or heavy compliance costs.
4. In some fields where regulation is perceived to be needed, the rules should aim merely to solve the perceived problem proportionately and provide certainty for business. As Alexander Kryvosheyev from JTI explained, for businesses, regulatory clarity can be as important as the regulation itself. It may be that in some areas industry protocols and sharing of best practice can be facilitated, obviating the need for direct government regulation, but we should be ever mindful of the risk of cronyism and capture if this type of forum is provided through government.
5. Regulatory policy is a terrible tool for dealing with distributional concerns re: the winners and losers of technological change.

All in all, I found the messages well received and the conference somewhat heartening.

Speaker after speaker in what was a central and eastern Europe heavy event bemoaned the tendency for Europe to be overly prescriptive with regulation and a mere talking shop for genuine pro-growth reform. Many indicated how the US was their beacon for a better environment for innovation in respect of new technologies.

What was clear though was an apparent appetite for change. Central and eastern European countries have already experienced significant economic upheaval over the past three decades. That means perhaps they are more willing to embrace a radicalism on moving in a market-friendly direction. Certainly, Czech Prime Minister Andrej Babiš talked a good game about the need for pro-market liberalization both domestically and within the EU, at one stage saying explicitly, “the biggest problem for regulation is in Brussels, not Prague,” and lamenting that “the European Union has no vision.”

With much Brexit Remain-sympathizing commentary both here and in the UK seeking to retrospectively paint the EU as a bastion of economic liberty, it was cheering to re-hear the sort of pro-liberty eurosceptic critiques of yesteryear and a determination to make Europe more open to wealth-enhancing innovation.

Austin city planners are writing a transportation plan based on the assumptions that, by 2039, the share of people who drive alone to work will drop from 75 percent to 50 percent while the share who take transit to work will increase from 3 to 16 percent. This is like planning for dinner by assuming that food will magically appear on the table the same way it does at Hogwarts.

Because of these assumptions, planners propose to reduce parking spaces and the number of lanes open to cars on major travel routes because they won’t be needed anymore. Meanwhile, they want to spent billions expanding transit services to accommodate all of the new transit riders.

Yet the reality is that the share of people driving alone to work is growing while the share taking transit is shrinking. Since 2000, Austin has been one of the fastest-growing urban areas in America, experiencing an 85 percent growth in population. Yet actual transit ridership has fallen 22 percent, which means that per capita transit ridership has fallen by 58 percent.

To see whether Austin’s assumptions are realistic, I compared commute data in the 2000 census with data from the Census Bureau’s 2018 American Community Survey for 262 cities and 208 urban areas. During that time, the most any central city (as opposed to a suburb) has been to reduce the share of people driving alone to work is 12 percentage points, not the 25 presumed by Austin. The most any central city has been able to increase transit was less than 5 percentage points, not the 13 presumed by Austin.

City planners could estimate how people will actually travel and provide the infrastructure to allow them to do so as efficiently and safely as possible. Or they could do what Austin is doing, which is to imagine how they wish people would travel and provide the infrastructure that would be needed if that happens. This leads to a misallocation of taxes, increased congestion, and increased costs to travelers.

Austin is far from the only city engaged in fantasy transportation planning. In fact, it is likely that at least half the major cities in America are doing the same. For more information about Austin’s plan and the census data for 262 cities and 208 urban areas, see my detailed analysis.

Senator Bernie Sanders has called levels of U.S. wealth inequality “outrageous,” “grotesque” and “immoral.” Democratic presidential candidate Elizabeth Warren is pushing for a wealth tax to curb what she describes as “runaway wealth concentration.” Yet despite their rhetoric, it’s not clear, deep down, whether either really cares about wealth inequality per se or believes that reducing it should be an overriding public policy goal.

To see why, consider this. Every year, Credit Suisse calculates a wealth “Gini coefficient” for major countries, indicating their level of wealth inequality in a single number from 0 to 100. Higher numbers indicate higher inequality. In 2018, the U.S. really did have a comparatively high figure at 85, as Warren and Sanders lament. But how this number compares to other countries is instructive.

Many poorer economies, such as Ethiopia (61), Myanmar (58), and Pakistan (65), have lower wealth inequality than America. Meanwhile, a diverse range of countries have similarly high wealth inequality, including Russia (88) and Kazakhstan (95), through to Sweden (87) and Denmark (84). Unsurprisingly, neither Warren nor Sanders argue for the U.S. to adopt Ethiopia or Pakistan’s economic model in pursuit of more equality. But Bernie Sanders has said in the past that Denmark and Sweden are exemplars par excellence of his vision of “democratic socialism,” seemingly not caring that their wealth distributions are “outrageous,” “grotesque,” or “immoral,” according to his own self-defined standards.

The truth, acknowledged by the candidates’ own talking points and omissions, is that wealth inequality statistics in isolation tell us nothing particularly interesting about an economy’s health. Without analyzing in detail the underlying causes of a wealth distribution, statistics like the Gini coefficient, or the top 10 or 1 percent wealth shares, give us no indication of whether “good” or “bad” trends have driven the distribution of net assets across society. Sanders and Warren might use such summary wealth statistics as if they are proxies for “fairness” or how “rigged” the economy is. But few sane people would argue Sweden is less fair than Myanmar, or that the U.S. economy is more rigged than Argentina (79) or Qatar (62). These figures, as with top wealth shares, are a poor guide to policy.

All this shows that when it comes down to it, the candidates don’t prioritize wealth egalitarianism as a social goal when it conflicts with their other aims. This is somewhat of a relief. Japan immediately after World War II was a very equal place, as was China before its relative economic liberalization from around 1980. But the cost of achieving that wealth egalitarianism in both cases was intolerably high: mass destruction through war and grinding communist poverty. As former treasury secretary and Democrat Larry Summers recently said with beautiful understatement, “I do not think a focus on wealth inequality as a basis for being concerned about a more just society is terribly well-designed.”

In our new paper today, “Exploring Wealth Inequality,” Chris Edwards and I examine some potential causes of wealth inequality in the U.S. In a global free market, the distribution of wealth can widen as entrepreneurs make groundbreaking innovations to become hugely rich through selling their products or services to better-off consumers all around the world (a positive sum cause). On the other hand, cronyism, rent-seeking, and certain bad government regulations can be a destructive cause of wealth inequality – enriching some at the expense of others and reducing overall wealth. There’s lots of evidence too that social insurance programs come with a big trade-off: though they may reduce after tax-and-spend income inequality, they widen wealth inequality by deterring the means and incentive to save among the middle-classes and the ability for them to inherit their wealth.

Sanders and Warren talk as if it’s pure cronyism or greed that has led to high measures of U.S. wealth inequality. In crude terms, they imply that the U.S. economy is more like Russia than Denmark. And, of course, there is some rent-seeking, which policy change could help stamp out. But evidence that this is the overwhelming cause is weak; dynamic entrepreneurial activity and redistributive programs are clearly significant drivers of wider wealth inequality too. Yet neither candidate argues for shrinking the welfare state to reduce measured private wealth gaps. In fact, both want to massively expand it. That revealed preference heavily suggests wealth inequality isn’t a primary concern for either, but rather a secondary one.

To paraphrase Orwell: in highlighting wealth inequality statistics, Sanders and Warren talk as if all wealth inequality is created equal. But when it comes to their policy choices, some wealth inequality causes are clearly more equal than others.

A growing number of political leaders consider wealth inequality to be a major economic and social problem. They complain that wealth is being shifted to the top at everyone else’s expense.

Is wealth inequality the crisis that some people believe it is?

A new Cato study examines six aspects of wealth inequality and discusses the evidence for the various claims being made. Here are some findings:

1. Wealth inequality has risen in recent years but by less than is often suggested. Faulty data from economists Piketty, Saez, and Zucman are behind many exaggerated inequality claims. Furthermore, wealth estimates overstate inequality because they do not include the effects of social programs.

2. Wealth inequality tells us nothing about poverty or prosperity. Inequality may reflect innovation in a growing economy that is raising overall living standards, or it may reflect cronyism that causes economic damage.

3. Most of today’s wealthy are business people who built their fortunes by adding to economic growth, and some have created innovations that benefit all of us. The share of the wealthy who inherited their fortunes has declined sharply in recent decades.

4. Cronyism is one cause of wealth inequality which may have increased as governments have expanded subsidies and regulations. Some countries with high levels of wealth inequality also have high levels of cronyism or corruption.

5. The growing size of the U.S. welfare state has crowded out or displaced middle-class wealth-building, and thus likely increased wealth inequality. Some countries with large welfare states, such as Sweden, have high levels of wealth inequality. Numerous presidential candidates want to expand social programs, but that would likely increase wealth inequality.

6. Wealth inequality has not undermined U.S. democracy despite frequent claims to the contrary. Research shows that wealthy people do not have homogeneous views on policy and do not have an outsized ability to get their goals enacted in Washington.

Wealth inequality by itself is not a useful metric, but the underlying causes should be considered. U.S. wealth inequality has risen modestly, but mainly because of innovation and growth that is raising all boats. Policymakers should aim to reduce inequality by ending cronyist programs and removing barriers to wealth-building by moderate-income households.

The new study by Chris Edwards and Ryan Bourne is here.

Other Cato commentaries on wealth inequality are here, here, here, here, here, and here.

Politico reports the following on a new EU-China trade agreement:

Beijing and Brussels have struck a deal to protect regional food names such as Gorgonzola, Champagne, Nanjing salted duck and Lapsang Souchong tea.

The agreement protects a list of 100 European regional food specialties in China and 100 Chinese delicacies in the EU.

…

The deal is set to anger U.S. agriculture producers who say the EU is boxing them out of their main growing markets, as its system of geographical indications builds an increasingly strong foothold worldwide.

Indeed, the agreement means that a cheese, for example, can only be labeled and sold as “Roquefort” in China if it was made in the French commune of Roquefort-sur-Soulzon. American blue cheese producers will have to find a different — lesser-known — name for their product.

…

People following the accord said that the EU’s goal is to expand the list to another 175 geographical indications, four years after entry into force of this agreement.

Let me note a couple things here. First, I have a great deal of skepticism about geographical indications. To me, they mostly seem like a way to protect your products from competition. When the EU promotes these principles in trade deals, it spreads this protectionist idea to other countries. My former colleague Bill Watson wrote about these issues here.

Second, the U.S. government should actively push back against these EU policies. In general, the United States has done so, although I have not heard anything about this issue in relation to the U.S.-China talks of the past couple years. It should be a focus of U.S. trade talks, and if the Trump administration is ignoring it, they are making a big mistake.

Finally, I will also point out that the EU was able to achieve this result without threatening China with tariffs. Perhaps there is a lesson there.