In 2017 the United States reached a milestone: for the first time since 1957 the country was a net exporter of natural gas. Today ships laden with U.S.-produced liquified natural gas (LNG) travel the globe delivering their cargo everywhere from Japan to Jordan and Spain to South Korea. One place U.S. LNG is not exported to, however, is Puerto Rico.

Incredibly, that’s not despite the fact that Puerto Rico is part of the United States, but because of it. As a U.S. territory, Puerto Rico is subject to the Jones Act, a 1920 law which restricts the transport of cargo between two points in the United States to vessels that are U.S.-built, U.S.-crewed, U.S.-owned, and U.S. flagged. Out of the world’s 478 ships dedicated to transporting LNG, however, none meet these requirements. In other words, exporting LNG from the U.S. mainland to Puerto Rico at any sort of scale is literally impossible. It can’t be done.

And this situation is unlikely to change anytime soon. As a 2015 GAO report points out, LNG carriers built in South Korea are likely 2-3 times cheaper than those constructed in the United States (this may actually understate matters as the GAO’s calculation assigns a cost of $200-225 million for a South Korean-built LNG carrier. A Wall Street Journal article this week, however, places that cost at $175 million). The word “likely” is deliberate—no one knows what the precise cost difference would be since an LNG carrier has not been built in the United States since 1980. And with decades having passed since one was last built a skills gap has emerged. As the GAO points out, to construct such a vessel American shipyards might need to bring over “skilled Korean workers for the duration of the build time to ensure the work is done correctly.”

Faced with the enormous costs and obstacles to building a Jones Act-compliant LNG carrier, it is no surprise that domestic LNG producers instead opt to use much cheaper foreign-built ships to export their natural gas internationally. With plenty of demand for their product abroad, their inability to send LNG to Puerto Rico is likely little more than an inconvenience. For Puerto Rico, however, this is a much bigger problem.

A. Ernest Fitzgerald, Pentagon whistleblower, Nixon victim, and early libertarian ally, died January 31 at 92. In a remembrance to Fitzgerald delivered Wednesday on the Senate floor, Sen. Charles Grassley, R‑Iowa, called him “a tenacious watchdog … a hero for taxpayers and a warrior against waste.” As the Washington Post reported:

A. Ernest Fitzgerald, a Pentagon official tasked with analyzing project expenses, was summoned to Capitol Hill in 1968 to discuss a new fleet of Lockheed C‑5A transport planes before the Joint Economic Committee.

He had been instructed to play dumb about the cost.

He did not.

Under oath, he said the C‑5A was $2 billion over budget. In testifying, Mr. Fitzgerald later said, he was merely “committing truth.”

The revelation about the vast cost overruns made national headlines, stunning members of Congress as well as Mr. Fitzgerald’s superiors. Back at the Pentagon, he was met with a blunt question from his secretary: “Have you been fired yet?”

Mr. Fitzgerald lasted another two years in his position before President Richard M. Nixon ordered his dismissal.…

“This guy that was fired,” he told aide Charles W. Colson, “I’d marked it in the news summary. That’s how that happened. I said get rid of that son of a bitch.”

Fitzgerald fought to get his job back, and did. He remained an Air Force employee until 2006, though he said he was “completely excluded from the big weapons systems jobs. They keep me out of Boeing’s and Lockheed’s hair.”

Meanwhile, he also became an activist on government waste issues. Early on, he served as chairman of the libertarian-founded National Taxpayers Union and then as chairman of the National Taxpayers Legal Fund. He told Reason that “in most respects” he considered himself a libertarian. He developed the idea for the Project on Military Procurement, which evolved into the Project on Government Oversight.

This morning I responded to leading Modern Monetary Theory (MMT) proponent Stephanie Kelton’s Huffington Post op-ed, “How We Can Pay for a Green New Deal,” with a tweet observing that

My comparison of basic MMT arguments with plain-vanilla Keynesianism is hardly novel: many others have made it, less succinctly but more compellingly: I recommend, in particular, the writings of Thomas Palley — who is himself a self-described (but not at all naïve) Keynesian — on the topic. As for “especially naïve,” that has simply to do with the fact that, unlike the situation in 1936, when Keynes published his General Theory, it is anything but obvious today that there’s a vast supply of unemployed resources to be drawn upon.

Unsurprisingly my post met with backlash from several MMT fans, starting with Nathan Tankus, who replied that it appeared that I must not actually have read Professor Kelton’s piece, since its point was “precisely that our budgeting process needs to emphasize the conditions of the real economy and that the ability to extract dollar revenue tells us nothing about how close we are to full employment.” Professor Kelton herself thereupon chimed in, “Incredible, isn’t it?,” presumably in reference to my clueless interpretation of what she wrote.

Was I in fact so clueless? Well, let us have the truth from the horse’s mouth. Here are some relevant passages from Professor Kelton’s op-ed, reproduced ad seriatum. I apologize for the number — but then again I might serve my purpose by quoting the entire thing! The italicized words are ones I myself wish to emphasize:

Here’s the good news: Anything that is technically feasible is financially affordable. And it won’t be a drag on the economy…

We must change the way we approach the federal budget. We must give up our obsession with trying to “pay for” everything with new revenue or spending cuts.

The federal government can spend money on public priorities without raising revenue… . That’s the power of the public purse.

Now how could I possibly have reached the “incredible” conclusion that Professor Kelton was telling readers of the Huffington Post that the government could pay for the Green New Deal (GND) by expanding the money stock (“creating new money”), and that it could do so without causing inflation, or otherwise having the GND become “a drag on the economy,” thanks to the presence of ample unemployed resources? Go figure!

But let us be serious. It’s perfectly evident that Professor Kelton wants us to imagine that the present situation is analogous to that of the 1930s, when the unemployment rate peaked at 25 percent, and seldom fell below 15 percent. It’s also perfectly evident that she would have the government take advantage of that fact by expanding what Keynesians call “aggregate demand,” particularly by spending money on Green New Deal programs. And it’s perfectly evident that she thinks that the government should finance that extra spending by “creating new dollars.” Finally, it’s perfectly obvious that most of these beliefs are ones to which any garden-variety Keynesian might subscribe. Heck: they’re beliefs with which even an old-school Chicago economist might concur!

I said “most of them.” And this is where the naïvety of the Modern Monetary Theory comes into play. For its 2019, not 1933; and the (labor) unemployment rate now hovers around 4 percent, rather than above 20 percent. In other words, when both Keynes and those old-school Chicagoites were urging more government spending and money creation, they had plenty of good reason for supposing that those steps wouldn’t “be a drag on the economy” and that they wouldn’t fuel inflation. Professor Kelton, in contrast, has no similarly solid grounds for assuming that several trillion extra dollars of government spending today or in the near future, however financed, would neither raise prices nor divert resources from other valuable uses. It’s true that, although the unemployment rate is low, the labor force participation remains low as well; and reasonable people can disagree about whether we still have some way to go before achieving full employment. But it doesn’t follow that one can confidently assert that we are in fact still many trillions of dollars away from that goal.

Nor does Professor Kelton’s observation that “Anything that is technically feasible is financially affordable” — with its suggestion that we might fund any “feasible” project without running into resource constraints — hold water. That something is technologically feasible means, not that it’s “affordable,” but only that it might be done at some finite cost. Perhaps Professor Kelton does not recognize, or does not want her readers to recognize, the difference. But a difference exists nonetheless, and it’s a lu-lu. For all I know, we might populate the moon, equip every U.S. citizen with a Ferrari, or fill Lake Meade with champagne, technically speaking. But I’m quite certain we can’t afford to.

My criticisms of Professor Kelton’s op-ed are, I hasten to add, not criticisms of the Green New Deal per se. Perhaps the programs it entails are worth whatever sacrifices they might involve; and perhaps they, or some of them at least, will ultimately pay for themselves by enhancing productivity, as Professor Kelton also believes. Finally, I don’t doubt that many will find Professor Kelton’s arguments comforting. According to one of her many Twitter admirers, she is giving the public hope. Perhaps. But she’s doing so by promising them the moon.

[Cross-posted from Alt‑M.org]

Thanks to a newly released study, advocates of medical marijuana have even stronger arguments in favor of expanding marijuana legalization.

Using data from state registries, the authors find that a large majority of medical marijuana patients – 64.9 percent – report chronic pain as a qualifying condition. Additionally, “of the conditions for which patients are licensed to use medical cannabis, 85.5 percent have either substantial or conclusive evidence of efficacy.”

As politicians continue to argue over how best to address the current opioid epidemic, medical marijuana is quietly making a case for itself. Study after study has shown marijuana’s effectiveness as a substitute for opioids in patients struggling with pain management. Removing marijuana’s Schedule I classification and expanding patient access should be a priority.

Erin Partin co-authored this post.

Statistics Canada released the National Cannabis Survey results for the fourth quarter of 2018 yesterday. Despite comedic predictions that Canada will become “the stoner living in America’s attic” after it legalized cannabis for recreational use, the early results suggest nothing much has changed. The survey found: 

“About 4.6 million or 15% of Canadians aged 15 and older reported using cannabis in the last three months. That was a similar percentage to what was reported before legalization. In addition, nearly one in five Canadians think they will use cannabis in the next three months.”

Survey respondents stated that quality and safety were the primary factors influencing their decision as to where to purchase the cannabis, with price and accessibility secondary factors. Slightly over half the respondents stated they used cannabis for medical as opposed to recreational purposes. The overwhelming majority of documented medical users were daily users. A large majority of medical users preferred methods other than smoking as their means of consumption.

Recreational marijuana legalization took effect only recently, in October 2018, so this report represents an early snap shot. But based upon what we have seen so far, those who fear that Canada’s economy will collapse as it transformed into a nation of non-working stoners can “mellow out.”

The Department of Homeland Security (DHS) has been turning away asylum seekers, families, and other migrants without paperwork as they attempt to apply for entry at legal ports along the U.S‑Mexico border. Migrants are then forced to wait days, weeks, or months homeless in Mexico. The policy clearly violates U.S. asylum law, which has no limit on asylum applications, and according to the DHS Office of the Inspector General, the practice results in many choosing to enter illegally.

DHS Secretary Kirstjen Nielsen told Congress in December 2018 that the turnback policy—which she refers to as “metering” or “queuing”—was due to a lack of “capacity” at ports. She also denied that the agency had instituted any policies that would intentionally reduce processing migrants at ports. However, Jud Murdock, Customs and Border Protection’s acting assistant commissioner, told members of Congress in a closed meeting that same month that “the more we process, the more will come,” implying that the administration does not want to increase processing.

Murdock’s version is more plausible based on the data on port processing of “inadmissible aliens” along the southwest border—generally those without documents proving pre-approval to enter. Monthly arrivals of undocumented migrants at ports steadily rose under the Obama administration. The port arrivals more than tripled from a monthly average of 5,788 in fiscal year (FY) 2012 to a peak of 20,524 in October 2016 (Figure 1). However, since that peak, the numbers have fallen 51 percent to 10,029 in December 2018—the month when Nielsen told Congress that ports could handle no more.

While October 2016 was an outlier, several other months—both before and after it—also significantly exceeded December 2018. Every field office along the border has seen major reductions in processing numbers of inadmissible migrants. Since October 2016, Tucson, Arizona is down 37 percent; El Paso is down 41 percent; San Diego is down 49 percent; and Laredo—where the most migrants arrived in October 2016—is down 60 percent.

A steep reduction in overall arrivals of undocumented immigrants—both at and between ports—explains the initial drop-off in undocumented immigrants at ports in early 2017. But despite rising apprehensions between ports in 2018, the share at legal ports of entry has steadily declined. Under President Obama, the share of undocumented migrants processed in the southwest at legal ports doubled from average of 16 percent in FY 2012 to 31 percent in October 2016. The share then halved under President Trump from 31 percent in October 2016 to 16 percent in December 2018.

Indeed, even as DHS Sec. Nielsen repeatedly urged migrants to cross at legal ports of entry, her department had done nothing to increase processing at ports. One potential explanation is that the undocumented arrivals at ports changed in type since October 2016—in particular, more parents and children who might require more attention from personnel. In fact, December 2018 also saw 43 percent fewer families and unaccompanied children being permitted to enter at ports than in October 2016 (monthly data by type at ports of entry is unavailable before then). In October 2016, ports processed 8,330 parents and children compared to just 4,738 in December 2018.

Another explanation is that total arrivals—at and between ports of entry—were so significant nationwide (i.e. not just at the southwest border) that the system simply cannot handle the overall flow. But this was not the case. Both port arrivals and apprehensions between ports were lower than in FY 2016, down 9 percent overall (Figure 4). The overall nationwide numbers are simply insufficient to explain why southwest port “capacity” as Sec. Nielsen has described it has suddenly dropped.

Another potential issue is that CBP passes off undocumented migrants at ports to Immigration and Customs Enforcement (ICE), and ICE may not have enough detention beds to handle the arrivals. But ICE has increased its available bed space by nearly 5,000 beds (Figure 5). In other words, the capacity for ICE to receive undocumented immigrants has not diminished relative to the flow.

Development of the Metering Policy

Thanks to a lawsuit, we now know that turning back asylum seekers at ports of entry actually started in 2016 under the Obama administration. Customs and Border Protection (CBP) officers at ports of entry had already developed a policy in May 2016 of forcing asylum seekers to wait in Mexico. The Watch Commander at the San Ysidro port in San Diego told officers on May 29, 2016 “to ensure that groups that may be seeking asylum are directed to remain in the waiting area on the Mexican side.”

In July 2016, the policy in San Diego appears to have formalized with the Mexican government. Asylum seekers could only enter at either 8am or 4pm, and the CBP would only admit an undisclosed number per period. CBP’s memo of July 15, 2016 detailed the process:

In order to control the flow of asylees in their area, [Mexico] has instituted a numerical process by giving asylum applicants numbers with intake dates in the order of their arrival. The applicants are also given the locations of humanitarian shelters in Tijuana where they receive food and shelter until their intake date.

Mexican officials have since stated that their policies developed under U.S. pressure. Even still, the policy did not prevent further significant increases in port processing (Figure 1 above). In November 2016—just after the record-breaking month of October—CBP appears to have instituted the policy across all ports of entry for the first time. “If [Mexican immigration authorities] cannot or will not control the flow, your staff is to provide the alien with a piece of paper identifying a date and time for an appointment and return [them] to Mexico,” the Assistant Director Field Operations for the Laredo Field Office instructed his officers.

Whatever the case, the Trump administration restricted entries further in mid-2018. It was during this time that President Trump tweeted repeatedly about the caravan from Central America. In April 2018, Trump wrote that Mexico “must stop them at their Northern border” and “not allow them to pass through into our country, which has no effective border laws.” In June 2018, Trump tweeted, “When people come into our Country illegally, we must IMMEDIATELY escort them back out without going through years of legal maneuvering.” Throughout the year, the administration’s share of undocumented migrants processed at ports of entry fell almost continuously from 28 percent to 16 percent (Figure 2 above).

Reports Dispute Capacity Issues 

There is a strange tension between the purported “capacity” complaint from the superiors and the need to instruct line officers on the ground to turn asylum seekers away. If the ports literally could not process the flow—to the point where it would require breaking U.S. asylum law by turning away asylum seekers—why would the instruction have even been necessary? The Department of Homeland Security Office of Inspector General (OIG) reported in September 2018:

CBP reported that overcrowding at the ports of entry caused them to limit the flow of people that could enter. This may have led asylum-seekers at ports of entry to attempt illegal border crossings instead.… [and] the OIG team did not observe severe overcrowding at the ports of entry it visited.

Human Rights First researchers concluded in July 2018:

The processing rooms visible in the ports of entry visited by Human Rights First appeared to be largely empty. For example, the processing room at the Hidalgo-Reynosa Bridge has nearly 100 chairs and when Human Rights First researchers and other attorneys passed through, the vast majority of the chairs were empty.

Amnesty International found in October 2018:

At the San Ysidro Port-of-Entry (POE), which is the busiest land border in the Western Hemisphere and the site of frequent illegal pushbacks, senior CBP and ICE officials informed Amnesty International that CBP has only actually reached its detention capacity a couple of times per year [Interview with ICE’s Assistant Field Office Director at Otay Mesa Detention Center, 1 May 2018.] and during “a very short period” in 2017 [Interview with CBP Field Office Director in San Diego, 5 January 2018].

In December 2018, southwest Border Patrol sectors processed five times as many undocumented migrants as CBP processed at southwest ports. It is simply inconceivable that—even if the port capacity issues were real—the agencies could not work together to bring in more at ports by having CBP turn them over to Border Patrol for processing through its apparently more robust procedures.

Conclusion

Congress needs to demand answers on why the Trump administration is processing half as many asylum seekers and undocumented immigrants at ports of entry than the Obama administration did in October 2018. The administration’s normal responses simply don’t explain it. The processing is far below what it was two years ago, but given that CBP has been turning back migrants since at least May 2016, it needs to explain how it has not found solutions to this problem in the meantime. The agency cannot simply suspend U.S. immigration law for years on end.

The anecdotal evidence and the statistics point in a single direction: that the government is intentionally inflating “capacity” issues in order to justify turning away asylum seekers. The culmination of this political stance is the “Remain in Mexico” policy that the administration has started to implement in San Diego, under which nearly all asylum seekers will be sent back to Mexico even after waiting under the turnback policy. This administration’s goal is what White House adviser Stephen Miller reportedly said, “I would be happy if not a single refugee foot ever again touched American soil.” Its policies are moving America closer and closer to that goal.

The “Fight for $15” scored a victory Monday as New Jersey Governor Phil Murphy signed legislation for the state to hit a $15 per hour minimum wage target by 2024. Vermont is considering similar legislation, and I testified to their Senate Economic Committee about the proposal on Tuesday.

Earlier this week I wrote on the bad arguments used to justify such policies. But in my written evidence for Vermont I also discussed the consequences.

There’s been a long back-and-forth about the impacts of minimum wages on jobs and hours, which I shan’t repeat here. But I also tried to address advocates’ insistence that other “channels of adjustment” exist, meaning employment levels or hours might not fall.

This is true – every business affected will react differently, depending on their industry, business model, staffing practices or ability to pass increased costs onto consumers.

But the key point is this: unless we presume there is currently monopsony power wielded by companies, or firms are passing up profit-enhancing opportunities that would come from boosting pay, these other adjustments are not costless.

It’s tempting when advocating policy to engage in motivated reasoning, claiming there are no trade-offs from minimum wage hikes and imagining everyone will benefit. In the case of increasing the minimum wage to $15, this is wishful thinking.

1) Improved productivity

It’s sometimes said businesses can cope by taking steps to improve productivity to maintain their profitability. But improving worker productivity itself is costly.

Boosting productivity might require replacing inexperienced low-skilled employees with more experienced, higher productivity employees. This comes with search and turnover costs in the short-term and reduces opportunities for low-skilled workers in the longer-term. We know this can have a scarring effect on young workers, who lose entry-level job opportunities that provide basic skills and habits, including punctuality, and dealing with customers and colleagues. David Neumark and Olena Nizalova found that, even their late 20s, workers who had been exposed to high minimum wages when they were younger worked less and earned less. This effect was especially strong for blacks.

“Improving productivity” might instead entail putting pressure on workers to produce more, cutting their hours so they are more productive in hours they do work, or cutting back on side perks and benefits. These amount to a worsening of the work environment for employees, offsetting some of the gains from the wage increase.

Higher minimum wages might also deliver higher productivity by encouraging the automation of low-skilled jobs. In the past decade we have seen the proliferation of supermarket checkout machines, iPads to order food in restaurants or fast-food outlets, and the use of apps to replace human employees for checking in for flights, ordering tickets and other activities. Shake Shack in New York, preempting the minimum wage hike, trialed a largely staff-free restaurant. Some fast-food outlets are even exploring the possibility of burger-making machines.

Of course, some of these trends represent pure, cost-effective free-market innovation. But continually raising the minimum wage incentivizes labor-saving capital investments, acting like a subsidy to automation. Based on data from 1980–2015, economists Grace Lordan and David Neumark found “that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become nonemployed or employed in worse jobs.” The effects were particularly damaging for older workers previously in manufacturing jobs.

2) Firms taking the hit to profits

Some claim companies will just have to take a hit to profits. No doubt some firms will accept a worse bottom line in the short-term, and perhaps adjust their hiring plans on a forward-looking basis. Others might see a permanent fall in profitability if they are in more concentrated markets. But lower profit rates discourage firms from entering markets, or cause some existing firms to close, especially those with razor thin margins. If you do not believe this, it is difficult to claim you believe in capitalism.

3) Boosts to consumer spending

$15 minimum wage proponents sometimes claim that low-paid workers’ propensity to spend additional earnings means minimum wage hikes boost demand and raise the level of GDP, benefiting the broader economy. But this ignores contractionary impacts from lower profits reducing investment, higher prices reducing other spending or reduced employment opportunities cutting some people’s incomes. Standard economic theories suggest that, overall, increasing a price floor brings more distortions to the economy. An overwhelming majority of economists (69% to 4%) disagree with the idea that a $15 minimum wage would substantially boost aggregate economic output.

4) Reduced turnover

By raising the minimum wage rate, it is claimed, firms will benefit from reduced staff turnover, with happier and more productive employees. But if this were a net benefit to the firm, wouldn’t they be raising wage rates already? That some firms do, and observe benefits, does not mean you can generalize that effect to the whole economy. It is also unclear why it is assumed reduced turnover would be good for productivity at an economy-wide level. The higher wage for low-skilled workers might reduce the incentive, on the margin, to leave the company for better positions or to seek promotion or invest in human capital, especially if there is wage compression. This could reduce economy-wide measured productivity over time.

In short, not all firms will adjust to higher minimum wages by cutting back the number of jobs or hours of employment. But other reactions to minimum wage hikes are not costless. Absent monopsony power or employers misestimating the best wage to incentivize workers, there is no free lunch.