“Unfettered” Free Trade? If Only…

“Trump has heaped scorn upon those Republicans who have worshiped at the alter of unfettered free trade.”  - Joe Scarborough, May 22, 2016

“I wouldn’t say that you know this free trade obsession is something that can’t get looked at in regard to making things more fair.” – Incoming White House Chief of Staff Reince Priebus, November 14, 2016

One of the most pervasive themes of the last year is the notion that America’s populist uprising, and the success of President-elect Donald Trump, has in large part been a direct response to the United States’ – and in particular the Republican Party’s – libertarian obsession with “unfettered” free trade.  MSNBC’s “Morning Joe” Scarborough, quoted above, has been a big cheerleader of this argument, which has been treated on his show and elsewhere in the media as obvious truth.  And now we see one of the few official members of the future Trump administration, Reince Priebus, repeating the notion, signaling to the country that America’s great free trade moment might be ending.  Clearly, the idea is prevalent and persuasive. 

But it is also dead wrong.

First, although the United States maintains a relatively low average import tariff of around 3 percent, it also applies high tariffs on a wide array of “politically-sensitive” (read: highly lobbied) products: 131.8% on peanuts; 35% on tuna; 20% on various dairy products; 25% on light trucks; 16% on wool sweaters, just to name a few.  (Agriculture is particularly bad in this regard.)  We also maintain a long list of restrictive quotas on products like sugar, cheese, canned tuna, brooms, cotton, and baby formula.  And although the U.S. has 14 free trade agreements (FTAs) with 20 different countries and is a longstanding member of the World Trade Organization (WTO), many of these same “sensitive” products have been exempted from the agreements’ trade liberalization commitments.  Free trade for thee, but not for me.

Second, while America’s tariffs and other “formal” trade barriers have indeed been declining for decades, they are only a small part of the overall story.  U.S. non-tariff barriers – export subsidies, discriminatory regulations, “buy local” rules, “fair trade” duties, etc. – have exploded in recent years.  In fact, according to a recent analysis by Credit Suisse, when you add up all forms of trade barriers imposed between 1990 and 2013, the biggest protectionist in the world isn’t China or Mexico but none other than… the United States:

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How President Trump Can Fix Veterans’ Benefits Once And For All

Another Veterans Day brought another round of lamentations about the Department of Veterans Affairs and promises to fix it.

President-elect Donald Trump promised to do so throughout the campaign. Paul Rieckhoff, founder and CEO of Iraq and Afghanistan Veterans of America, is skeptical. Veterans are “used to big promises and disappointing results,” he says. “Fixing the VA might be one of the biggest challenges for President Trump. Every president says they’re going to do it, yet we’ve still got a VA with backlogs and massive problems.”

If Trump tries to fix the VA the same way other presidents have, he will fail. But there is a way he can succeed.

Trump’s predecessors failed because they tried to work within a model of top-down, centralized economic planning. The Veterans Health Administration is America’s only purely government-run health system. Its closest analogue is probably the United Kingdom’s National Health Service. The VHA even produces the same results as the NHS: chronic shortages and long waits for care alongside idle and wasted resources, instances of horrific care, and often good care, you know, if you can get it.

Presidents can and have fixed such problems temporarily by moving resources from here to there, or investing in some new system. It never lasts, though. The VHA is a socialist enterprise. Unlike a market system, it has no price mechanism or competitive pressures that automatically fix such problems when they re-emerge. And not only do they always re-emerge, Congress usually takes forever to get off its duff. If Trump retains the VA’s basic structure, he will join a long line of presidents who have failed our nation’s veterans.

How to Privatize the VA 

Trump can distinguish himself from other presidents by working with Congress to create a system of veterans benefits that fixes problems automatically. Here’s how.

First, the federal government should increase military pay sufficient to enable workers to purchase–from private insurers at actuarially fair rates–a package of life, disability, and health benefits equivalent to what the VA provides. Benefits would kick in as soon as they leave active duty and cover veterans’ service-related disabilities or illnesses for life.

Second, having privatized the insurance component of veterans benefits, the federal government should then privatize the delivery component. It should incorporate the VHA as a private company and issue shares to active-duty personnel and veterans based on length of service or other criteria.

You read that right. Military personnel and veterans would literally own the VHA, including its many hospitals and other facilities. Privatizing the VA would both increase the pay of active-duty personnel, and create a massive wealth transfer to active-duty personnel and veterans. Veterans would be able to receive medical care from health systems owned and operated by veterans, for veterans.

Third, the federal government should give current veterans vouchers to purchase insurance and medical care from the insurers and health systems of their choice, including the new veteran-owned and -operated systems.

Privatization Means Better Benefits for Veterans 

Privatization would improve the quality of veterans’ benefits immeasurably.

The federal government promises veterans’ benefits to military personnel once they leave active duty. Only it’s not an explicit promise. And Congress doesn’t fund it. As a result, Congress can–and does–renege on that commitment.

Is Hydroponic Farming Organic? Why Should Government Care?

Each time the government defines the characteristics of an acceptable product, some competition in the market is lost. The New York Times published an article on Wednesday that illustrates this perfectly.

The 1990 Organic Foods Production Act instructs the Department of Agriculture to set up a process for certifying food as organic. As part of that certification, organic farmers develop organic plans that “contain provisions designed to foster soil fertility, primarily through the management of the organic content of the soil through proper tillage, crop rotation and manuring.”

Should plants grown hydroponically be allowed under an organic plan? Hydroponic farming does not use soil, but instead uses nutrient-rich water. The futuristic technique is intended to be environmentally friendly and healthful—the same intention as organic farming. Yet in 2010 the National Organic Standards Board recommended to the secretary of agriculture that hydroponically grown plants be ruled ineligible for organic designation. The secretary of agriculture never acted on the recommendation.

David Chapman, an organic farmer in Vermont who has been a leader of the opposition to certifying produce from the hydroponic systems, said he would be driven out of business if the Department of Agriculture declared hydroponically grown tomatoes could be certified as organic. “Most people have no idea that the organic tomatoes and peppers they’re buying are hydroponically grown,” Chapman said. “I think most consumers believe those things are grown in the soil, and that farmers like me are taking care of the soil as they grow them.”

Colin Archipley, a hydroponic farmer in San Diego, is frustrated that there is even a debate over whether his produce is organic. “The reason this has become such a big deal is that systems like ours are becoming more popular because they’re more efficient, which means farmers are more sustainable and profitable,” he said. “That’s put competition on farmers, specifically in Vermont, and so what this really is about is market protection.”

The founders of our country understood that government should not arbitrate the struggles among competing religions and certify one rather than the others as state-sanctioned. Such insight applies not just to divine matters, but to profane ones like whether hydroponically grown food is or isn’t organic. Let consumers decide in the marketplace whether they think hydroponics is a good thing, rather than government decide through regulation.

We Know Trump Supporters Would Back Immigrant Legalization If He Did

In an interview this weekend, Donald Trump officially dumped plans to deport all unauthorized immigrants, stating that he would focus only on criminals. Trump didn’t specify how he would handle non-criminals, but he shouldn’t hold back on advocating full legalization for fear of losing his backers. His earlier attempts at softening show he can maintain their support; in fact, Trump’s supporters appear more interested in border security than deportation anyway.

During the early part of his campaign, Trump secured a huge amount of support among primary voters who opposed legalization. He then spent the remainder of his campaign trying to convince other Republicans that mass deportation was the way to go.

But it never worked. In fact, Pew Research Center polls show that more Republicans supported legalization after his campaign than before it—rising from 56 percent to 59 percent from March 2015 to March 2016. By the time of the election, 60 percent of self-described Trump voters told Pew that they favored legalization. Trump simply failed to win the argument.

In late August, it seemed like Trump realized that his case was falling on deaf ears, so he toyed with a pivot. During an interview on Fox, he polled a very large audience of supporters. When he asked if they favored mass deportation, the room remained mostly quiet. When he asked about a plan to let non-criminal unauthorized immigrants “stay in some form,” the crowd cheered. He promised that “we’ll work with them,” saying it was “tough to throw them out.”

The Return of Glass-Steagall

With both major party platforms calling for a return to some version of Glass-Steagall, it was a given that, whoever won the Presidential election, the issue would return to the public debate. However, we still need to do considerable work ending bailouts, and a return to Glass-Steagall would most likely divert us from that goal.

In order to help clarify this debate, the Cato Institute is proud to today offer a new paper on the topic, The Repeal of the Glass-Steagall Act: Myth and Reality by Oonagh McDonald, CBE. Dr. McDonald is an international financial regulatory expert, having held senior positions in several U.K. financial regulatory agencies. She was also a member of the British Parliament from 1976–87. Her most recent book details the failure of Lehman Brothers.

The new paper lays out a legislative history of Glass-Steagall, pointing out that of the provisions relating to the separation of commercial and investment banking (sections 16, 20, 21, and 32) only two of those four (sections 20 and 32) were repealed in 1999 by the Gramm-Leach-Bliley Act. Two remain current law today. Dr. McDonald further demonstrates how the two repealed provisions had already been largely eliminated by court and regulatory decisions long before 1999.

Dr. McDonald also reviews the economic literature, concluding that Glass-Steagall was not even the appropriate response to the banking problems of the 1920s and 1930s in the first place. What’s more, had Glass-Steagall remained fully in force after 1999, the financial crisis of 2008 would have largely looked the same. As I’ve written elsewhere, Glass-Steagall has essentially become a symbolic lens—a “Rorschach Test” that reflects one’s views on the power of big banks. However, if we truly wish to end bailouts, we need to get the history, law and economics right. Dr. McDonald’s paper makes an important contribution in that direction.

Political Violence and Domestic Surveillance: Has The Fuse Been Lit?

Ben Schreckinger at POLITICO has a story out today that every American concerned about the current political climate in our country should read. With the lede of “Trump Protesters Plan to Build ‘Tea Party’ of the Left,” Schreckinger quotes several progressive activists, including former Occupy Wall Street veteran Micah White. It’s worth quoting White in full, because his comments will absolutely draw the attention of officials at the FBI and DHS:

American activists are finally starting to understand that protest is broken. The people cannot attain sovereignty over their governments by collective protest in the streets. There are only two ways to achieve sovereignty in this world: Win elections or win wars. Now that street protest is not an option, we will see the Trump resistance split into these two fronts. Some will pursue the strategy of using social movements to [win] elections while others go down the dark path of ’70s guerrilla insurrection. I advocate winning elections.

Without question, the Founders would agree with much of what White says. American colonists spent over a decade trying to get Crown authorities to understand that every new tax or regulation imposed on them without their consent was creating resentments and opposition to British rule that, if not resolved peacefully, would lead to armed conflict.

Some in Parliament understood the dangers and sympathized with Americans—but not enough. It’s worth remembering that the Continental Congress was formed almost a full year before the Declaration of Independence was issued. The warning signs were there, but George III doubled-down on repression rather than negotiate with the colonists. The rest, as they say, is history. The question raised by White’s comments and the rest of Schreckinger’s piece is whether that history is about to repeat itself, this time with the federal government in the lead role of political oppressor.

New President. New SEC. Less Regulation?

The Securities and Exchange Commission (SEC) is poised to have the majority of its seats filled by Trump nominees.  Earlier this week SEC chair Mary Jo White announced she would be stepping down at the end of President Obama’s term. This is not in itself surprising.  The chair serves at the will of the president and it’s customary for the current chair to step aside and let an incoming president install a chair of his or her choosing.  What is remarkable however is the number of vacancies that leaves president-elect Trump to fill. 

The five member commission has had two empty seats for over a year and a half now, following Republican Dan Gallagher’s resignation in May 2015 and the expiration of Democrat Luis Aguilar’s term the same month. Although President Obama nominated two candidates to fill those seats, Republican Hester Peirce and Democrat Lisa Fairfax, their confirmations have been stalled in congress.  (Like many similar commissions, the SEC must be politically balanced with no more than three seats filled by members of the same party.)  White’s resignation will therefore leave only two commissioners in office, Republican Michael Piwowar and Democrat Kara Stein. Until a new chair can be confirmed, it is likely that president-elect Trump will name Piwowar acting chair.  In the meantime, however, with only two commissioners, it is unlikely that the SEC will pursue any kind of ambitious agenda.

Looking forward to what the SEC might look like with its new members in place, it would be reasonable to hope for a less aggressive and more market-friendly agency than we have had under White’s direction.  Trump has sounded a decidedly deregulatory tone both in the course of the campaign, vowing to dismantle Dodd-Frank, and in the days since the election.  His pick of Paul Atkins, a former SEC commissioner known for his strong free-market bent, to head up part of his transition team also signals a commitment to paring back the voluminous regulations that have plagued the financial sector in recent years.