Cato @ Liberty The Cato Institute seeks to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government. en Texas Beer Should Be Sold as Freely as Tennessee Whiskey <p><a href="" hreflang="und">Ilya Shapiro</a> and <a href="" hreflang="und">James Knight</a></p> <p>The Constitution guarantees the right to engage in commerce within the United States free from interstate trade wars through what’s known as the “dormant” Commerce Clause, which stops protectionist state regulations. Last year, the Supreme Court’s groundbreaking opinion in <em>Tennessee Wine &amp;&nbsp;Spirits Retailers Association v. Thomas</em> reaffirmed this principle, holding Tennessee’s durational residency requirements for retail liquor licenses unconstitutional. (Cato filed <a href="">a&nbsp;brief</a> in that case and published <a href="">an article</a> on the ruling in the <em>Cato Supreme Court Review</em>.)</p> <p>As the Court discussed, the residency requirements effectively prevented any publicly traded corporation from selling liquor at retail in Tennessee. These requirements created precisely the discriminatory effect on interstate commerce that the dormant Commerce Clause prohibits. Despite the clear ruling in <em>Tennessee Wine</em>, however, the U.S. Court of Appeals for the Fifth Circuit recently declined to invalidate a&nbsp;Texas law with the same effect.</p> <p>Texas bans publicly traded companies from obtaining the “package store” permits (or “P permits”) required for retail liquor sales. At the same time, the ban has a&nbsp;grandfather clause exempting companies that had a&nbsp;P permit before the law went into effect. As a&nbsp;result, the only public corporations with a&nbsp;P permit are Texas companies who had met the old, unconstitutional residency requirement. Even without the grandfather clause, however, the public corporation ban has served its intended protectionist purpose: 98% of retail liquor stores in Texas are owned by Texans.</p> <p>Walmart filed a&nbsp;lawsuit challenging the Texas law. The Fifth Circuit upheld the law, finding that it had no discriminatory effect on out‐​of‐​state businesses. In reaching this decision, the court ignored the grandfather clause and analyzed the remainder of the law under a&nbsp;highly formalistic test that is in clear tension with <em>Tennessee Wine</em>.</p> <p>Walmart has now asked the Supreme Court to review the case, which petition Cato has supported with an <a href="">amicus brief</a>. We argue that the dormant Commerce Clause unquestionably guarantees the right to engage in the interstate alcohol trade free from discriminatory state regulations. The Texas law contradicts this central constitutional principle. The ban on public corporations owning retail liquor stores does exactly what it’s supposed to do: shield Texas companies from out‐​of‐​state competition. Moreover, by granting an exemption to in‐​state companies that is unavailable to out‐​of‐​state companies, the grandfather clause blatantly favors in‐​state businesses.</p> <p>Between its refusal to engage with the implications of the grandfather clause, its highly formalistic analysis of the discriminatory effects of the law, and its disregard for <em>Tennessee Wine</em>, the Fifth Circuit’s approach treats the constitutional guarantee of free interstate commerce as dead letter. Even a&nbsp;moderately talented legislator could craft a&nbsp;protectionist law that appeared sufficiently neutral to pass constitutional muster in the Fifth Circuit.</p> <p>The Supreme Court should thus hear <em>Wal‐​Mart Stores v. Texas Alcoholic Beverage Commission</em>, reaffirm the strong dormant Commerce Clause principles of <em>Tennessee Wine</em>, and open up the liquor trade in Texas.</p> Mon, 13 Jul 2020 21:15:17 -0400 Ilya Shapiro, James Knight Determining America’s “Dependence” on China for Essential Medical Goods <p><a href="" hreflang="und">Scott Lincicome</a></p> <p>The unfortunate onset of COVID-19 has caused many politicians and pundits to proclaim that the United States is distressingly <a href="" rel="noreferrer noopener" target="_blank">dependent</a> on China for essential medical goods, and to ask whether this “dependence” demands new government programs—in particular, protectionism, subsidies and “Buy American” procurement mandates—to fix the alleged problem.<span> </span>A little‐​noticed <a href="">report</a> from United States International Trade Commission (ITC)<span> begins to provide the answer to that question, </span><span>though probably not the answer those same politicians and pundits were expecting.</span></p> <p><span>The June 2020 ITC report on</span> <span>“tariff and trade information for known products related to the response to COVID-19” substantially expands and updates an April report on the same issues. <span> </span>It now covers 203 medical products at the highest level of detail provided in U.S. customs data (the 10‐​digit level of the Harmonized Tariff System of the United States (“HTSUS”)) in six broad categories: (1) COVID-19 test kits/​testing instruments; (2) Disinfectants and sterilization products; (3) Medical imaging, diagnostic, oxygen therapy, pulse oximeters, and other equipment; (4) Medicines (pharmaceuticals); (5) Non‐​PPE medical consumables and hospital supplies; (6) Personal protective equipment (PPE); and (7) Other.<span> </span></span></p> <p><span>The ITC report is useful in several respects.<span> </span>For one thing, it documents the many tariffs that the United States now imposes on these essential imports, thus <a href="">needlessly</a> reducing supply and increasing prices at the worst possible time.<span> </span></span></p> <p><span>The ITC report also provides the top 5 foreign sources of these “COVID-19” goods in the United States, and in so doing eviscerates the all‐​too‐​common claim that the U.S. market is utterly dependent on China for essential medical goods.<span> </span>In fact, after crunching the numbers for 2019 (full dataset available <a href="">here</a>), we see that:</span></p> <ul><li><span>For a majority (103 of 203) of the COVID-19 products in the ITC report, China was an insignificant supplier, representing between 0% and 10% of all imports of such goods in 2019.</span></li> <li><span>For only 32 the 203 items analyzed, did China supply more than half of all imports. (See Table below.) <span> </span>That number keeps dropping as China’s import share increases, with China truly dominating (having, say, more than an 80% import share) only nine import categories – mostly low‐​cost PPE like rubber gloves and hospital gowns.<span> </span>As the table shows, moreover, only six (bold italics) of these China‐​majority products are pharmaceuticals or pharmaceutical inputs – what our elected officials seem most worried about:</span></li> </ul><p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-embed-display-settings="" data-entity-type="media" data-entity-uuid="4ee2491a-92ec-4087-b5a8-171aa092a142" data-langcode="en" class="embedded-entity"><a href=""> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="f9da3fb2-ed4b-4cea-854c-cd4bf862236a" data-type="interactive" data-title="Lincicome Table 1: China Imports"></div> </div> </a></div> </p><ul><li><span>Speaking of pharmaceutical goods (found mainly in HTSUS Chapters 29 and 30), the ITC report further shows that China is simply one of many suppliers of these goods, and certainly not a dominant one for almost all of the products at issue.<span> </span>In fact, China was not even a top 5 import source for 34 of 63 pharmaceutical goods on the ITC’s list, and it was only the top foreign supplier for nine of those products (only a few of which could, as noted above, be considered to have a dominant China import share in 2019).<span> </span>At the same time, India</span>—<span>another frequent target of D.C. supply chain anxiety</span>—<span>was a majority foreign supplier of only <strong>one</strong> of these pharmaceutical products (with 72.7% of all imported “Anticonvulsants” under HTSUS 3004.49.0020 in 2019), and had greater than 25% import share for only five others.<span> </span></span></li> <li><span>Overall, the ITC data for imports of pharmaceuticals and all other COVID-19 goods show a wide variety of foreign sources, mostly from allies like Canada, Mexico, Japan, Brazil and the EU — with relatively few items truly dominated by a single country. <span> </span>(Only 21 of 203 products overall had a supplier country with over 80% import share in 2019; only 91 of the products even had a supplier country with a bare majority.)</span></li> </ul><p><span>The ITC report thus reveals that, far from suffering some sort of major “dependence” crisis that demands an immediate, wide‐​ranging overhaul of the U.S. manufacturing sector and U.S. trade and procurement policies, the United States generally imports essential medical goods from a diverse (and ever‐​changing) group of foreign suppliers, and that</span>—<span>at most</span>—<span>there are only a handful of these products (from China or elsewhere) which are so dominated by a single country that they might require the federal government’s attention.</span></p> <p><span>The key word here, of course, is “might” because even products with highly concentrated import shares don’t necessarily demand new government action. As I explained recently in </span><a href=""><em><span>National Review</span></em></a><span>, import shares alone (which is all the ITC examined) can’t tell us how “dependent” the United States actually is on the foreign source country at issue:</span></p> <blockquote><p><span>[I]solated import‐​share figures tell us very little about actual “vulnerabilities,” because they omit domestic production and local inventories. According to a new study from the </span><a href=""><span>St. Louis Federal Reserve</span></a><span>, China supplied almost 30 percent of all imported “essential medical equipment” (hand sanitizer, masks, personal protective equipment, ventilators, etc.) in 2018 but accounted for only 9 percent of total domestic consumption because <em>American</em> producers supplied the vast majority (more than 70 percent) of these products….</span></p> <p><span>At the same time, we have massive stockpiles of other critical drugs to prepare for crisis‐​related spikes in demand.</span></p> </blockquote> <p><span>Import share figures might also hide other global producers that have substantial capacity but simply didn’t sell to the United States during the period at issue (<em>e.g.</em>, due to long‐​term contracts or geographic considerations), and they don’t tell us about the availability of similar or alternative products (e.g., a different type of antibiotic) in the marketplace or about key inputs or intermediaries in the manufacturing process.<span> </span>Furthermore, all of these figures will need to be updated to account for massive recent changes in the U.S. and global markets for these goods, as manufacturers around the world expanded capacity or adapted their operations to meet the COVID-19 challenge.<span> </span></span></p> <p><span>Finally, even a complete dataset of U.S. and global medical goods production and trade won’t answer more fundamental questions about trade, manufacturing, supply chain “resiliency,” national security, and the proper role of the federal government in addressing these issues – the topic of a new Cato Institute paper on which I’m now working.</span></p> <p><span>Nevertheless, the ITC report is a good starting point for these discussions, as it shows the relatively few COVID-19 products for which more detailed information</span>—<span>on domestic and global production, supply chains, U.S. inventories and stockpiles, etc.</span>—<span>may be needed to advise on optimal U.S. “supply chain” policies going forward.<span> </span>Right now, those additional data are limited to non‐​existent, but they should be improved by a forthcoming report from the National Academies of Sciences, Engineering and Medicine that was commissioned by the </span><a href=""><span>CARES Act</span></a><span>.<span> </span></span></p> <p><span>In the meantime, the ITC’s new report should quell policymakers’ immediate concerns that urgent and major government action is needed to fix America’s medical goods “dependency” problem. Judging from recent Trump administration </span><a href=""><span>actions</span></a><span> and </span>proposals <span>from the </span><a href=""><span>Biden campaign</span></a><span> and </span><a href=""><span>Congress</span></a><span>, however, nobody seems to have read it.</span></p> Mon, 13 Jul 2020 16:32:46 -0400 Scott Lincicome Do Immigrants Make the United States More Left‐​Wing? <p><a href="" hreflang="und">Alex Nowrasteh</a> and <a href="" hreflang="und">Andrew C. Forrester</a></p> <p>Economists Paolo Giuliano and Marco Tabellini wrote new <a href="">working paper</a> titled “The Seeds of Ideology: Historical Immigration and Political Preferences in the United States.” Helen Andrews at the <a href=""><em>American Conservative</em></a> summarizes the paper <a href="">here</a> with a blog titled: “How Early Immigration Shifted Our Politics Permanently To The Left.” The paper’s authors use a <a href="">shift-share</a> instrument to see how European immigrants in the early 20<sup>th</sup> century affected public support for the Democratic Party and redistribution on the county level during the 2006-2018 period. They found that more European immigrants in the past led to more support for the Democratic Party and for redistribution on the country level today.</p> <p>This new <a href="">working paper</a> complements Tabellini’s <a href="">earlier paper in the <em>Review of Economic Studies</em></a><em> </em>where he found that European immigrant populations on the city level, especially if they were from Eastern and Southern Europe, resulted in lower municipal tax rates, less tax revenue, and less government supply of services during the 1910 to 1930 period. According to this earlier paper, a one-standard deviation increase in the immigrant population (about five percentage points) reduced per capita government spending by 5 percent and property tax rates by 7.5 percent on the city level. This is especially important back then because most government services were supplied locally.</p> <p>Looking at the papers together presents the full picture. Giuliano and Tabellini <a href="">wrote</a>:</p> <blockquote><p>While there is no statistically significant relationship between the 1910-1930 fraction of immigrants and the Democratic vote share until 1924 (included), the coefficient abruptly spikes in 1928, when it becomes strongly positive and highly statistically significant.</p> </blockquote> <p>We posit that 1928 was the first national election when immigrant-heavy counties swung to support Democrats because it was the first national election after the National Origins Quota Act permanently cut legal immigration from Europe (the Emergency Quota Act of 1921 limited immigration, but many thought it was a temporary post-war emergency measure). Closing the border removed the <a href="">politically-effective counter-argument</a> that more welfare would attract immigrants who will take advantage of new government programs. Closing the border thus freed both natives and immigrants to vote for more welfare without the fear that immigrants would come from Europe to consume the new benefits. A relatively open immigration system reduced support for redistribution and big government, but the removal of that political check resulted in increased public support for those programs.</p> <p>Tabellini’s two papers are not contradictory, but the second seems like a very serious challenge to the research we’ve conducted on how immigrants don’t increase the size of government (not Tabellini’s goal, by the way). However, the two papers are perfectly consistent with the theory that Powell and Nowrasteh lay out in their forthcoming book: Government doesn’t grow as fast when the borders are open and government grows more when the borders are closed.</p> <p>Many <a href="">prominent</a> <a href="">economists</a> who support more redistribution believe that such programs are only political possible after the borders are closed. They have a lot of history on their side. The role of government in American domestic life surged only after Congress enacted the restrictive immigration laws of the 1920s. To be sure, the Great Depression and other ideological shifts in public opinion were necessary for big changes in American policy during the New Deal, but they were politically possible because closed immigration removed the politically-effective immigrant welfare-queen argument.</p> <p>Prior to the closure of the border in the 1920s, <a href=";btkr=1">American progressives</a> and other <a href=";btkr=1">supporters of a large welfare state</a> were near-uniformly supported restricting immigration because they saw it as a political impediment to their goals (and for other less-savory reasons like eugenics). Even Karl Marx, Friedrich Engels, and their American communist followers warned that immigrant-induced diversity reduced worker solidarity and that that would slow Marxist efforts to stoke a socialist revolution in the United States or achieve middle-ground policies like the creation of a large welfare state and mass unionization.<a href="#_ftn1" name="_ftnref1" id="_ftnref1"><span><span>[1]</span></span></a> <a href="">Across the developed world</a> today, <a href="">support for welfare</a>, <a href="">redistribution</a>, and <a href="">government provision of public goods</a> is inversely correlated with the share of the population that is foreign-born and diverse. The early Marxists worry was well-founded.</p> <p>There is a big difference between Tabellini’s papers that bears pointing out. Tabellini’s <a href="">first paper</a> looks at the effect of immigration on actual spending and taxation policies on the city level. His <a href="">second paper</a> looks at how immigrant populations in the past influenced public opinion decades later. That is an important difference. The decline in local government provision of services and rise of state and federal spending since the New Deal means that we can’t replicate Tabellini’s first paper today and get meaningful results. Looking at public opinion is worthwhile and interesting, but it’s a different measurement.</p> <p>Below, we briefly look at the relationship between real federal outlays per capita and the immigrant share of the population at the national and state level. Although useful, looking at the national-level relationship can only tell us so much. In the next section, we look at the relationship between changes in real state-level outlays per capita and the immigrant share of the population to see if there is a relationship between growth in immigration and growth in government spending.<strong> </strong></p> <p><strong>Real Federals Outlays Per Capita and Immigration</strong></p> <p>Figure 1 tracks real federal outlays as a percent of GDP and the immigrant share of the population. There is no statistically significant relationship between the variables, but the coefficient is negative. There simply isn’t a positive relationship between government outlays and immigration from 1928-2017. If one includes 1900-2017, the relationship becomes strongly and significantly negative whereby a 1 percent increase in the immigrant share of the population is correlated with a 1.3 percent decline in government spending as a share of GDP.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="c677a7ff-2b42-4e4d-95f6-f870b2e5f92c" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="20ab7822-d222-42d7-84c6-75fa6f05d0a0" data-type="interactive" data-title="Figure 1: Immigrant Share of the Population and Real Federal Government Outlays as a Share of GDP, 1928-2017"></div> </div> </div> </p> <p>More importantly, what happened to federal outlays during the Golden Age of Immigration Restrictions? From 1921-1968, U.S. immigration law radically reduced annual inflows such that the percentage of the population that was foreign-born fell from 13 percent in 1920 to 4.8 percent in 1968 (Figure 2). The book end dates are the year of the enactment of the Emergency Quota Act of 1921 and the year the Immigration Act of 1965 went into effect. When immigration was most restricted, federal outlays as a percent of GDP increased from 6.9 percent to 18.9 percent, an increase of almost 174 percent. Congress created the New Deal and Great Society programs after the reduction in legal immigration caused the share of the foreign-born population to decline. In other words, the argument that immigrants would come in to take welfare benefits was not politically salient when the borders were closed. From 1968 to 2017, when immigration was slightly liberalized, federal outlays as a share of GDP rose from 18.9 percent to 20.4 percent, an increase of a mere 7.9 percent.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="79681f5e-fb5b-4f25-bc9d-7f670a6f81a1" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="f28afa6a-1166-4950-9032-022ea2b272fc" data-type="interactive" data-title="Figure 2: Immigrant Share of the Population and Real Federal Government Outlays as a Share of GDP, 1921-1968"></div> </div> </div> </p> <p><strong>Real State Outlays Per Capita and Immigration</strong></p> <p>As mentioned above, it wouldn’t be useful to extend Tabellini’s <a href="">earlier work</a> on immigrants and city-level spending in the early 20<sup>th</sup> century to today because the state and federal governments supply goods that used to be supplied by cities. In the previous section, we looked at the correlation between federal spending as a percent of GDP and immigrant shares of the population. The national-level analysis is only suggestive because there is no United States with a different immigration policy that we can use for comparison. Thus, we turn to the relationship between changes in state-level spending and the immigrant population shares over time.</p> <p>We look at state-level decadal panel data for state budgets and immigrant population shares over the period 1960-2010. Data on state government expenditures come from the <a href="">Government Finance Database</a> (GFD), which compiles government financial data collected by the U.S. Census Bureau and harmonizes the data for state, county, and local governments.<a href="#_ftn2" name="_ftnref2" id="_ftnref2"><span><span>[2]</span></span></a> GFD data include detailed public financial data on revenues and expenditures broken down by type and function. Specifically, we focus on four variables of interest:</p> <ol><li>General revenues: State revenues from all sources, including federal grants and any other intergovernmental revenue sources.</li> <li>General revenue from own sources: Revenues from state taxes, fees, returns on state-run insurance schemes, and revenues from state-owned/regulated enterprises like utilities and liquor stores.</li> <li>Total expenditures: All state expenditures such as wages, capital outlays, construction expenditures, and intergovernmental transfers.</li> <li>Direct expenditures: All state expenditures such as wages, capital outlays, and construction expenditures.</li> </ol><p>Using intercensal data, we convert the expenditures into per capita terms and adjust for inflation using the personal consumption expenditures (PCE) price index.<a href="#_ftn3" name="_ftnref3" id="_ftnref3"><span><span>[3]</span></span></a> Data on the foreign-born share by state are taken from the 1960-2000 decennial Censuses and the 2008-2012 American Community Survey from IPUMS.<a href="#_ftn4" name="_ftnref4" id="_ftnref4"><span><span>[4]</span></span></a> These data include the total population and foreign-born stock for each decade for each state for 1960-2012.<a href="#_ftn5" name="_ftnref5" id="_ftnref5"><span><span>[5]</span></span></a></p> <p>Our objective is to test the correlation between changes in states’ foreign-born population and the growth in state government spending. Leveraging the panel structure of our data, we estimate fixed effects regressions that regress the log difference in per capita expenditures on the foreign-born share. In each model we control for state and region-by-year fixed effects. This implies that the correlation between spending and the foreign-born share is estimated from changes in the foreign-born shares within a state over time relative to other states in the same region and year.</p> <p>Tabellini and others note that immigrant settlement patterns may reflect other local factors that are uncaptured by fixed effects. For instance, immigrants may settle in states that provide larger safety nets and that might appear to show that they grow the size of government while, in fact, they might just settle where it is already biggest. Similar to the approach used by Tabellini, we use a shift-share instrumental variable (IV) to partially address the endogeneity concerns.<a href="#_ftn6" name="_ftnref6" id="_ftnref6"><span><span>[6]</span></span></a> In particular, we construct an instrument that apportions national immigrant inflows into the United States to states according to the shares that settled in each state in 1960 using this <a href="">method</a>.</p> <p><em>Government Spending and Immigration, 1970-2010</em></p> <p>Figure 3 shows the correlation between changes in real state-level per capita <em>total</em> expenditures and changes in the state-level foreign-born population share. Figure 4 shows the correlation between changes in real state-level per capita <em>direct</em> expenditures and changes in state-level foreign-born population share. Both figures show a negative correlation between expenditure growth and growth in the foreign-born share of the population.</p> <p>To test whether these negative relationships are statistically significant, we run a series of fixed effects IV regressions. In each regression we instrument a state’s foreign-born share using a shift-share instrument and find negative correlations between state government spending growth and the foreign-born share (Table 1). The first column of Table 1 shows the first stage of our IV regressions. As a measure of our instrument’s strength we report a first stage F-statistic of 29.8, which is a strong instrument.<a href="#_ftn7" name="_ftnref7" id="_ftnref7"><span><span>[7]</span></span></a> Columns 2 through 5 show correlations between state revenue growth, spending growth, and foreign-born shares.</p> <p>The dependent variable in Columns 3 through 5 (Table 1) is the log difference of each per capita measure. The coefficient for each specification relates a percentage point increase in a state’s foreign-born share to a percentage change in the level of per capita revenues or expenditures. Our simple regressions show no significant correlation between both growth in general revenue and revenue from the state’s own sources, controlling for fixed effects. Only the estimate for total expenditure growth is significant at the 5 percent level. Column 4 shows a significant, negative correlation between a state’s foreign-born share and total government expenditure growth of about 1.3 percent. The estimate for direct expenditures in Column 5 is negative and only marginally significant.</p> <p>Taken together, our regression results suggest that a larger share of immigrants at the state level is correlated with slower growth in state per-capita government expenditures. While these regressions attempt to control for endogeneity and other unobserved factors, the results are more suggestive than causal. Establishing a causal link between immigration and government spending or revenues would require additional empirical work outside of a blog post.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="3df2b043-cfa4-43df-9257-3bdc882cbfb2" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="de8ce39d-d22c-4aee-bade-9433d9e4f581" data-type="interactive" data-title="Table 1"></div> </div> </div> </p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="e8e260ef-757b-4b2b-b222-ae81546ebbdc" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="27272588-9e7b-491c-9fad-ff3dc1bd9db3" data-type="interactive" data-title="Figure 3: Growth in Total Per Capita Expenditures and Immigration"></div> </div> </div> </p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="4a342777-86df-4ba1-90fb-fabfe8696102" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="43e17bfd-135c-4f96-8a76-13561a420586" data-type="interactive" data-title="Figure 4: Growth in Direct Per Capita Expenditures and Immigration"></div> </div> </div> </p> <p><strong>Conclusion</strong></p> <p>How immigrants affect the size and growth of government is a complex issue with many moving parts. Immigrants have tended to vote for the Democratic Party or its predecessor since the 1790s. When the Democratic Party was the laissez-faire party, immigrants voted for it. When it became the interventionist party, immigrants continued to vote for it. They did so because the Democratic Party has been more pro-immigration than its competitors during most of American history.</p> <p>With some exceptions, <a href="">people tend to choose a political party first and then change their opinions to match that party</a>’s platform. Public opinion certainly has a huge influence on public policy as our system is designed to turn voter preference into policies, but the empirical work above indicates that more immigration is not related to growth in the size of state governments. The reactions of native-born voters to immigrants complicate the story significantly as immigrants don’t merely shift the median voter by being present but also by influencing the opinions of natives on myriad policy issues. Much of the work on this topic shows no relationship or a negative relationship between the two.</p> <div> <hr /><div id="ftn1"> <p><a href="#_ftnref1" name="_ftn1" id="_ftn1"><span><span><span>[1]</span></span></span></a> Marx, K. and Engels, F. (2010). <em>Collected Works, Volume 43, Letters 1868-70.</em> London: Lawrence and Wishart, 474-6; Marx, K. and Engels, F. (1971). <em>Marx and Engels on the Irish Question</em>. Moscow, 354.</p> </div> <div id="ftn2"> <p><a href="#_ftnref2" name="_ftn2" id="_ftn2"><span><span><span>[2]</span></span></span></a> Pierson K., Hand M., and Thompson F. (2015). <a href="" target="_blank">The Government Finance Database: A Common Resource for Quantitative Research in Public Financial Analysis.</a> PLoS ONE doi: 10.1371/journal.pone.0130119</p> </div> <div id="ftn3"> <p><a href="#_ftnref3" name="_ftn3" id="_ftn3"><span><span><span>[3]</span></span></span></a> The first year of available for most states in the GFD is 1972. For simplicity, we backshift the 1972 data to represent 1970. Since the District of Columbia reports data directly for 1970, we use the provided 1970 data.</p> </div> <div id="ftn4"> <p><a href="#_ftnref4" name="_ftn4" id="_ftn4"><span><span><span>[4]</span></span></span></a> Steven Ruggles, Sarah Flood, Ronald Goeken, Josiah Grover, Erin Meyer, Jose Pacas and Matthew Sobek. IPUMS USA: Version 10.0 [dataset]. Minneapolis, MN: IPUMS, 2020. <a href=""></a></p> </div> <div id="ftn5"> <p><a href="#_ftnref5" name="_ftn5" id="_ftn5"><span><span><span>[5]</span></span></span></a> We pool the 2008-2012 ACS 5-year estimates for the year 2010.</p> </div> <div id="ftn6"> <p><a href="#_ftnref6" name="_ftn6" id="_ftn6"><span><span><span>[6]</span></span></span></a> See Card (2001) or Tabellini (2020) among others.</p> </div> <div id="ftn7"> <p><a href="#_ftnref7" name="_ftn7" id="_ftn7"><span><span><span>[7]</span></span></span></a> This F-statistic is the Kleibergen-Paap F-statistic, which adjusts for clustering. A value higher than 16.4 implies a relatively strong instrument according to the <a href="">Stock and Yogo (2005)</a> critical values.</p> </div> </div> <p></p> Mon, 13 Jul 2020 12:42:53 -0400 Alex Nowrasteh, Andrew C. Forrester Fed’s Intervention in Corporate Credit: A Risky Venture <p><a href="" hreflang="und">James A. Dorn</a></p> <p>Under the Coronavirus Aid, Relief, and Economic Security <a href="" rel="nofollow external noopener noreferrer" target="_blank">(CARES) Act</a>, Congress appropriated $454 billion to the Treasury's Exchange Stabilization Fund (ESF) to backstop emergency lending facilities known as "special purpose vehicles" (SPVs).<a href="#_ftn1" name="_ftnref1" id="_ftnref1">[1]</a> With the Treasury backstop, the Fed has the potential to lend a maximum of $4.5 trillion to fund the SPVs, which hold the assets off the Fed's balance sheet—including emergency lending to corporations, small and medium-sized businesses, municipalities, and states (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Torres</a>). In April, the Fed announced plans to lend nine SPVs up to $2.3 trillion to boost the economy (see <a href=";page=3&amp;pos=13" rel="nofollow external noopener noreferrer" target="_blank">Timiraos</a> and <a href="" rel="nofollow external noopener noreferrer" target="_blank">Fed's Press Release</a>). However, the Fed has only provided about 6 percent of that amount (see <a href=",The%20Fed%20said%20it%20could%20supply%20the%20economy%20with%20%242.3,t%20come%20close%20so%20far&amp;text=The%20Fed%20in%20March%20unveiled,6.2%25%20of%20the%20total%20firepower." rel="nofollow external noopener noreferrer" target="_blank">Cox</a>). All of the SPVs have now been activated (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Condon</a>). </p> <p>Although the Fed's new lending powers were intended to counter the U.S. economic collapse following the government-ordered lockdown to combat the pandemic, they risk giving the Fed a permanent footprint in private credit markets. In this article, I focus on the consequences of the Fed's entry into the <em>corporate credit market</em>, with the establishment of the Primary and Secondary Market Corporate Credit Facilities (CCFs).<a href="#_ftn2" name="_ftnref2" id="_ftnref2">[2]</a> </p> <p>The Primary Market CCF, which opened on June 29, is designed to buy newly issued bonds, while the Secondary Market CCF began buying ETFs specializing in corporate debt on May 12 and began purchasing individual corporate bonds (including both investment-grade and high-yield bonds) after June 15. The later are "fallen angels"—that is, bonds of firms that were investment grade prior to March 23, but are now rated as junk bonds. The Primary Market CCF is backed by $50 billion from the Treasury's ESF, while the Secondary Market CCF is backed by $25 billion. As of June 24, the Secondary Market CCF's asset purchases only amounted to $8.7 billion (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Condon</a>). The following section examines the objectives and operation of the Secondary Market CCF; the Primary Market CCP has yet to buy any bonds.<a href="#_ftn3" name="_ftnref3" id="_ftnref3">[3]</a> </p> <h4>Objectives and Operation of the Secondary Market Corporate Credit Facility (SMCCF)<br /> </h4> <p>Instead of Congress directly providing credit to the corporate sector via fiscal policy, the decision was made to let the Fed do the heavy lifting via the CARES Act and <a href="" rel="nofollow external noopener noreferrer" target="_blank">Section 13(3)</a> of the Federal Reserve Act. The <a href="" rel="nofollow external noopener noreferrer" target="_blank">"Investment Management Agreement"</a> for the SMCCF set out the objectives for the facility while the <a href="" rel="nofollow external noopener noreferrer" target="_blank">"Credit Agreement"</a> established the procedures for operating the program. </p> <h4><em>Objectives of the SMCCF</em><br /> </h4> <p>According to the Investment Management Agreement, the objectives of the SMCCF, including its relation to the Primary Market CCF, are as follows: </p> <blockquote><p>The [Corporate Credit] Facility is designed to achieve three objectives: (1) to provide broad support for secondary credit markets to facilitate orderly and timely risk transfer; (2) to support primary issuance for solvent borrowers at borrowing rates that are well aligned with the secondary market reflecting more normalized levels; and (3) to reduce the incidence and severity of <em>market dysfunction</em>, fire sales, and indiscriminate liquidation [p. 41, emphasis added]. </p> </blockquote> <h4><em>Investment and Credit Agreements</em><br /> </h4> <p>The procedures for establishing the SMCCF, as described in the investment and credit agreements, are the following: </p> <ol> <li>The Secretary of the Treasury first approves the SPV.</li> <li>The Fed's Board of Governors (not the Federal Open Market Committee) then establishes the Secondary Market CCF.</li> <li>The New York Fed sets up a limited liability company in Delaware—the "Corporate Credit Facilities LLC."</li> <li>The LLC's obligations to the New York Fed ("as lender") are spelled out in the Credit Agreement: Loans are to be "secured by all the assets" of the LLC; the asset manager, BlackRock Financial Markets Advisory, "shall not exercise such authority with any purpose or design of favoring or discriminating against any sector of the economy or region of the country"; and the New York Fed imposes investment guidelines to ensure the objectives of the SPV are implemented by the investment manager.</li> <li>The CCFs are to be terminated by September 30, 2020, unless otherwise instructed by the Board of Governors and the Treasury.</li> </ol> <p>This is a detailed process with numerous legal documents and compliance requirements intended to prevent BlackRock from unfairly benefiting from its management role. The following paragraph from the Investment Management Agreement, Section 8.4, "Effective Internal Controls," is illustrative of the complex relationship between the New York Fed and BlackRock: </p> <blockquote><p>The Manager shall provide to the FRBNY the System and Organization Control 1 ("SOC 1")-Type II reports of the Manager and its Affiliates with respect to their respective operations and controls relevant to the performance of services under this Agreement, which reports have been prepared by an accredited independent auditor in accordance with the American Institute of Certified Public Accountants' Statement on Standards for Attestation Engagements (SSAE No. 18) and International Standards of Attestation Engagements No. 3402, or successor standard report ("SOC 1 Reports"). The Manager shall provide SOC 1 Reports to the FRBNY at least annually. If the Manager's SOC 1 Report covers a period other than a calendar year, the Manager shall also provide the FRBNY a letter signed by a responsible officer of the Manager attesting for the period of time from the end of the period covered by the SOC 1 Report through the calendar year in which that end date occurs (the "bridge period") that (i) there have been no material changes to the tested controls during the bridge period; (ii) the control objectives remain in place; and (iii) the description of the services and related internal controls in the SOC 1 Report continues to be substantially accurate [p. 10, sec. 8.4.2]. </p> </blockquote> <p>In addition to strict compliance requirements, the Investment Management Agreement establishes a "Fee Schedule and Payment Procedure" (Exhibit D) that prohibits BlackRock (or any future manager) from receiving management fees when buying for its accounts under the program.<a href="#_ftn4" name="_ftnref4" id="_ftnref4">[4]</a> Nevertheless, BlackRock has already benefited by the strong uptick in the corporate ETF and bond markets stemming from the <em>announcement effects</em> of the CCF program. When the Fed first announced the SPV for corporate credit, the bond market saw a surge in demand for corporate debt: bond prices rose while yields fell. In response, the search for yield led to greater demand for junk bonds as well as stocks, pushing those asset prices up. Companies that were already highly levered became more so (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Wirz</a>). </p> <h4><em>How the SMCCF Decides How Many Bonds or ETFs to Buy Each Day</em><br /> </h4> <p>The New York Fed provides a detailed description of how the SMCCF decides how many bonds or ETFs to buy on a daily basis. The language is precise and presented in the New York Fed's "Frequently Asked Questions" (<a href="" rel="nofollow external noopener noreferrer" target="_blank">FAQs</a>) bulletin: </p> <blockquote><p>The pace of purchases is based on a percentage of average daily volumes in the respective markets. The percentage to be purchased each day is based upon an array of measures of corporate bond market functioning, the rate of change of such measures, and other indicators. Measures of corporate bond market functioning include, but are not limited to, transaction cost estimates, bid-ask spreads, credit curve shape, spread levels and volatility, trading volumes, and dealer inventories. With respect to ETF purchases, ETF-specific measures such as premium or discount to net asset value ("NAV") and creation/redemption volumes are considered. With respect to bond purchases, the results of SMCCF and PMCCF operations, demand in the PMCCF, PMCCF share of new issuance, and pricing and amounts of new issuance are considered. </p> <p>If the measures used to size daily purchases indicate sustained improvement in market functioning, to levels at or near those prevailing prior to the COVID-19 dislocation, SMCCF purchases are expected to slow notably and, in some cases, could pause entirely. If those measures subsequently indicate deterioration in market functioning, however, SMCCF purchases would be expected to increase. </p> </blockquote> <p>It is important to note the emphasis on "market functioning." One of the Fed's main arguments for intervening in the corporate credit market is the presumption that markets malfunction in the face of great uncertainty, like that caused by the pandemic. Yet it is normal for credit spreads and volatility to increase in the face of rising uncertainty (see Hetzel, p. 3).<a href="#_ftn5" name="_ftnref5" id="_ftnref5">[5]</a> Market participants have an incentive to collect information quickly and to factor it into their investment decisions. When faced with a pandemic and government lockdown of the economy, investors will reassess credit risks, which will show up in widening yield spreads. When central banks pursue policies that underprice risk, they distort relative yields, weaken the corrective forces of free markets, and misallocate scarce capital. Credit allocation is politicized and the "moral hazard" of mispricing risk is revealed—that is, when risk is underpriced by central banks, the demand for risky assets, such as "fallen angels," increases. Highly indebted corporations take on more debt and risk insolvency. </p> <h4>Fed's Justification for Entering the Corporate Credit Market<br /> </h4> <p>When the Fed announced its decision to create the Corporate Credit Facilities LLC on March 23, it justified that historic decision by arguing that central bank action was necessary to revive sagging corporate credit markets in the wake of the COVID-19 pandemic and the government's lockdown of the economy. Private lenders faced great uncertainty in early March and were dumping their bond holdings, including investment-grade corporate bonds and ETFs. [see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Wirz</a>] As Fed Chairman <a href="" rel="nofollow external noopener noreferrer" target="_blank">Jerome Powell</a> noted, "Investors fled from any kind of risk and . . . market[s] stopped functioning." </p> <p>This "market failure" narrative was also aired by Fed Vice Chairman <a href="" rel="nofollow external noopener noreferrer" target="_blank">Randal Quarles</a> in a recent speech at the Exchequer Club in Washington: </p> <blockquote><p>The first phase of the impact of the COVID event on the financial system was the market turmoil we experienced in March. This was the result of severe uncertainty triggering major re-pricing and volatility in global financial markets, disrupting the flow of credit to the economy. We saw many examples of a "dash for cash," with firms drawing down their lines of credit with banks, and the indiscriminate sale of assets by investors in order to obtain liquidity. </p> </blockquote> <p>Likewise, Daleep Singh, executive vice president and head of the Markets Group at the New York Fed, argued that the role of the Fed during a crisis is "to make sure the financial system is functioning"—and to ensure that credit is provided to "<em>particular parts of the economy</em> that aren't really getting a near-term benefit from Treasury market stabilizing" (in Hetzel, p. 14, emphasis added). </p> <p>When Chairman Powell and his Board of Governors announced the new program aimed at restarting corporate debt markets via direct and indirect purchases of bonds and syndicated loans, their hope was to stabilize debt markets, aid large corporations, and stimulate employment and output. In particular, they wanted to create a strong demand for corporate bonds—even before any loans were made to the Corporate Credit Facilities (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Smialek</a>).<a href="#_ftn6" name="_ftnref6" id="_ftnref6">[6]</a> With that aim in mind, Quarles remarked: </p> <blockquote><p>The authorities worked together to address the problem through a combination of monetary, fiscal, and regulatory measures. These interventions [which included the SPVs set up by the Fed and Treasury] led to rapid improvements in financial markets. Credit spreads have narrowed for both investment-grade and high-yield bonds, markets are functioning in an orderly manner, and credit provision to the economy has held up. </p> </blockquote> <p>Powell would agree. On May 29, at an <a href="" rel="nofollow external noopener noreferrer" target="_blank">online forum at Princeton</a>, he stated: "Even before we actually began lending, [markets] start[ed] to work again. There's a confidence factor." Private investors rushed back into the market, and even highly indebted firms like Boeing and Ford were able to secure funds (Boeing borrowed $22 billion in April and Ford $8 billion). Yields on investment-grade bonds fell and investors increased their demand for higher-yielding junk bonds (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Wirz</a>).<a href="#_ftn7" name="_ftnref7" id="_ftnref7">[7]</a> </p> <p>The Fed has been careful not to target individual firms in its corporate lending: It has bought ETFs tracking a broad portfolio of bonds and created its own index to guide its purchases of bonds on the secondary market.<a href="#_ftn8" name="_ftnref8" id="_ftnref8">[8]</a> Nevertheless, its intrusion in the corporate credit market affects the allocation of credit and supports bond prices and lowers yields below the true credit and default risks. More importantly, by promising to use its firepower to support both large investment-grade corporate debt and distressed firms, the Fed has created the expectation that it can price risk better than private markets and is needed to ensure that the corporate credit market functions smoothly. Yet, as Robert Hetzel, who spent more than 40 years as an economist at the Richmond Fed, notes: there was no market failure—spreads reflected investors' expectations regarding the pandemic and how fast businesses would recover. In times of uncertainty, credit and default risks increase and should be reflected in yields (see Hetzel, p. 12). </p> <p>Hetzel (p. 19) argues that the Fed's justification for intervening in corporate credit markets rests on a false presumption—namely, that "financial markets ceased to function in mid-March, but were revived by the announcement of 13 (3) programs." His narrative is that "markets continued to function" and that "the Fed played a key role in that continued functioning. However, its role was the traditional one of supplying ample reserves, not allocating credit." That is why he calls the Fed's intervention in credit markets "strikingly revolutionary" (p. 14). </p> <h4>Reasons for Keeping the Fed Out of the Corporate Credit Market<br /> </h4> <p>The close link between the Treasury and Wall Street—and the authority the Treasury secretary has in implementing the corporate credit program—endanger Fed independence. For that reason alone, having the Fed intervene in the corporate credit market is a bad idea. Other reasons for keeping the Fed out of the corporate credit market are: </p> <ol> <li>The Fed is ill-equipped to engage in corporate lending. The New York Fed has long engaged in open market operations, but now must oversee a complex SPV to buy corporate bonds, ETFs, and syndicated loans. Doing so requires more resources and staff time—at a high opportunity cost. Hiring BlackRock as a manager and coordinating with the Treasury adds more layers of bureaucracy. It also opens the Fed to politicization as monetary and fiscal policy merge. Consequently, the market allocation system for corporate credit is tainted.</li> <li>The Fed should be a "Monetary Authority" not a "National Investment Authority." The Fed has tried to avoid picking winners and losers in making decisions about how to allocate credit. However, when it extends credit to "fallen angels," buys ETFs that hold bonds of Apple and other profitable companies, and selects weights for its Broad Market Index, it is difficult to be fully neutral. The Fed's discretionary powers are increased and its monetary authority diminished by a loss of independence.<a href="#_ftn9" name="_ftnref9" id="_ftnref9">[9]</a> The Fed should focus on its monetary responsibility to provide temporary liquidity to banks that are solvent and let Congress engage in spending decisions to support the private sector, which was shut down by the government to fight the pandemic.</li> <li>Private competitive markets, not the Fed or Treasury, should be setting the terms and price of corporate credit to avoid politicization of investment decisions and misallocation of credit. When the Fed effectively subsidizes highly levered companies, by allowing them "to borrow at interest rates that are not reflective of their true risks" (<a href="" rel="nofollow external noopener noreferrer" target="_blank">Kocherlakota</a>), it is a movement toward market socialism and a danger to market liberalism.</li> <li>When companies can borrow at rates that don't fully reflect the risks involved, the moral hazard problem can become serious—leading to even more risky investments and "zombie" corporations kept alive by "cheap" credit. This process saps funds from more profitable enterprises, slows economic growth, and reduces economic freedom.</li> <li>Capital markets by their very nature discriminate to steer capital and credit to its most productive uses. Although BlackRock is prohibited from discriminating "against any sector of the economy or region of the country," that constraint could destroy, rather than create, societal wealth.</li> <li>The Fed's role should be to provide a stable currency and keep nominal GDP on a stable path, not to engage in credit and fiscal policy, or to peg rates at near zero to support asset prices and create a pseudo-wealth effect. Placing a wall between fiscal and monetary policy is essential for the Fed's independence and credibility.<a href="#_ftn10" name="_ftnref10" id="_ftnref10">[10]</a></li> </ol> <p>Congress could have placed the Treasury in charge of the SPVs for emergency lending and left the Fed free to focus on monetary policy and not intervene in credit markets or conduct fiscal policy. Although the Fed has moved slowly in using its firepower to purchase corporate debt—as well as in establishing its Main Street Lending Program and Municipal Liquidity Facility—there will be increasing political pressure to expand its footprint in those credit markets. Indeed, once started on the path of employing the central bank to extend credit to businesses, states, and municipalities, it will be difficult to reverse course. Market participants now expect the Fed to support an array of asset prices and any deviation from that policy is bound to have dire consequences. Normalization will therefore be more difficult. Hetzel is correct in arguing that, "If the Fed is going to forswear intervention in credit markets …, it will have to abandon its historic aversion to commitment and rules." (p. 23). </p> <h4>The Fed's Credibility and Independence Depend on Adopting a Monetary Rule that Limits the Scope of Monetary Policy<br /> </h4> <p>Since the global financial crisis and the pandemic, the Fed's emergency lending powers have grown by leaps and bounds. Its balance sheet has gone from about $900 billion before the financial crisis to more than $7 trillion today. Its emergency lending authority has expanded dramatically as well, with a score of new SPVs and the power to leverage the Treasury's $454 billion appropriation from Congress to as much as $4.5 trillion. </p> <p>Now is the time for the Fed and Congress to think about the future of monetary policy and the steps needed to normalize Fed policy so that, when the pandemic ends, plans will be in place to ensure monetary stability and robust <em>private</em> credit markets. </p> <p>First and foremost, Congress and the Fed need to consider moving toward a rules-based monetary system, such as one that ensures a steady growth path for nominal GDP. Forward guidance <em>based on a sound monetary rule</em> would be superior to "dot plots" and date-driven policy. </p> <p>Congress and the Fed must recognize the limits of monetary policy. The Fed can determine the path of nominal income, but it can't permanently increase wealth or real economic growth. Monetary policy should be divorced from credit policy and fiscal policy, which means depoliticizing the Fed. Private markets, not the Fed, should allocate credit. Lending directly to the Treasury—which is what happens when the Fed lends to an SPV—is "a dangerous and inappropriate action for any central bank," according to <a href="" rel="nofollow external noopener noreferrer" target="_blank">Bill Nelson</a>, chief economist at the Bank Policy Institute.<a href="#_ftn11" name="_ftnref11" id="_ftnref11">[11]</a> </p> <p>In 2001, <a href="" rel="nofollow external noopener noreferrer" target="_blank">J. Alfred Broaddus and Marvin Goodfriend</a>, officials at the Federal Reserve Bank of Richmond, wrote: </p> <blockquote><p>We assert two closely related principles. First, the Fed's asset acquisitions should respect the integrity of the fiscal policymaking process by minimizing the Fed's involvement in allocating credit across sectors of the economy. Second<strong>,</strong> assets should be chosen to minimize the risk that political entanglements might undermine the Fed's independence and the effectiveness of monetary policy. </p> </blockquote> <p>That is still wise advice in thinking about the use of Section 13(3) lending. </p> <p>The Fed also needs to rethink the floor operating system, get rid of interest on excess reserves, and return to a corridor system—so that the stance of monetary policy is once again linked to the size of the Fed's balance sheet (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Selgin</a>, <a href="" rel="nofollow external noopener noreferrer" target="_blank">Plosser</a>, Hetzel). Interest rates must be able to move freely and respond to market forces, not be rigged by government actions, either by the Fed or Treasury.<a href="#_ftn12" name="_ftnref12" id="_ftnref12">[12]</a> </p> <p>This does not mean the Fed should do nothing, only that it should limit its actions to what is consistent with sound monetary policy and not try to engineer private credit markets or push up asset prices. </p> <h4>Conclusion<br /> </h4> <p>The Fed's intervention in the corporate credit market is a risky venture. With the pandemic, the Fed has drifted into the fiscal space and is engaging in credit policy rather than pure monetary policy. Allocating credit to corporations—as well as to small and medium-sized businesses and municipalities—has taken the Fed far afield from its traditional role as lender of last resort to illiquid banks. Exiting from the current emergency programs may not be easy from a political standpoint. The longer they last, the more the Fed will be entangled with the Treasury and lose much of its independence. </p> <p>Independence will be more secure—and monetary policy more predictable—the more limited the Fed's powers are and the more guidance that is provided by a rules-based regime than by pure discretion in a fiat money world. </p> </p> <p>********** </p> </p> <p><a href="#_ftnref1" name="_ftn1" id="_ftn1">[1]</a> The ESF was created to provide an "orderly" system of exchange rates, not to take equity positions in SPVs (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Congressional Research Service</a>). </p> <p><a href="#_ftnref2" name="_ftn2" id="_ftn2">[2]</a> This article is based on my remarks at the Western Economic Association International's virtual conference, June 29, 2020, and builds on earlier work (see <a href="" rel="nofollow noopener noreferrer">Dorn</a> and <a href="" rel="nofollow noopener noreferrer">Dorn</a>). </p> <p><a href="#_ftnref3" name="_ftn3" id="_ftn3">[3]</a> For a detailed description of the Primary and Secondary Market Corporate Credit Facilities, see <a href="" rel="nofollow external noopener noreferrer" target="_blank">"FAQs: Primary Market Corporate Credit Facility and Secondary Market Corporate Credit Facility."</a> Unlike the Secondary Market facility, the Primary Market CCF requires that firms opt into the program. But few firms are expected to do so because the requirements are steep: corporations wanting the facility to purchase newly issued debt must be unable to secure "adequate credit" elsewhere; their debt must be investment grade or have a relatively high junk bond rating if downgraded after March 22, and the firm must be solvent (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Smialek</a>). </p> <p><a href="#_ftnref4" name="_ftn4" id="_ftn4">[4]</a> "The Manager [BlackRock] shall not charge the Company [SMCCF] for, and the Company will have no obligation to pay, fees to the Manager relating to the Company's holdings of ETFs" (Investment Management Agreement, p. 54, Exhibit D). See also <a href="" rel="nofollow external noopener noreferrer" target="_blank">"Terms of Assignment for BlackRock."</a> </p> <p><a href="#_ftnref5" name="_ftn5" id="_ftn5">[5]</a> References to Hetzel in this article come from the draft of his paper dated June 25, 2020, which was circulated for a panel at the Western Economic Association International's virtual conference on June 29. The paper, "Covid-19 and the Fed's Credit Policy," is forthcoming as a Mercatus Center Working Paper. </p> <p><a href="#_ftnref6" name="_ftn6" id="_ftn6">[6]</a> "The <a href="" rel="nofollow external noopener noreferrer" target="_blank">Secondary Market Corporate Credit Facility</a> (SMCCF) was established to support credit to large employers by providing liquidity for outstanding corporate bonds." </p> <p><a href="#_ftnref7" name="_ftn7" id="_ftn7">[7]</a> It is difficult to determine the exact impact of the Fed's announcement of the Primary and Secondary Market Corporate Credit Facilities, because the Fed also announced large-scale purchases of Treasuries. For other compounding factors, see Hetzel: "There is . . . no way to isolate the announcement effect of the Fed's credit programs from the Fed's monetary policy actions and from the fiscal policies in the CARES Act" (p. 12). </p> <p><a href="#_ftnref8" name="_ftn8" id="_ftn8">[8]</a> The New York Fed reported on June 15 that its rate of purchases of outstanding corporate bonds, using its Broad Market Index, will depend on selected indicators of market functioning. In particular, the Secondary Market CCF would increase purchases "if those measures . . . indicate a deterioration in market functioning" (see <a href=";page=2&amp;pos=2" rel="nofollow external noopener noreferrer" target="_blank">Timiraos</a>). The index is made up of nearly 800 eligible firms, with the highest weights given to Toyota Motor Credit, Volkswagen Group America, Daimler Finance, AT&amp;T, and Apple (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Smialek</a>, <a href="" rel="nofollow external noopener noreferrer" target="_blank">Cox</a>, and <a href="" rel="nofollow external noopener noreferrer" target="_blank">Chappatta</a>). </p> <p><a href="#_ftnref9" name="_ftn9" id="_ftn9">[9]</a> <a href="" rel="nofollow external noopener noreferrer" target="_blank">Lev Menand</a> distinguishes between a monetary authority and an investment authority: "Whereas a monetary authority strives to manage the money supply in a neutral way that encourages sustainable economic growth and price stability, an investment authority is necessarily non-neutral. Its investments affect relative prices and make some projects more attractive and cheaper to finance and other projects more expensive and difficult to finance" (p. 25). </p> <p><a href="#_ftnref10" name="_ftn10" id="_ftn10">[10]</a> <a href="" rel="nofollow external noopener noreferrer" target="_blank">Broaddus and Goodfriend</a> point out that the Federal Reserve's exemption from the appropriations process means it "should avoid, to the fullest extent possible, taking actions that can properly be regarded as within the province of fiscal policy and the fiscal authorities." They favor a Treasuries-only policy because it "leaves all the fiscal decisions to Congress and the Treasury and hence does not infringe on their fiscal policy prerogatives." In contrast, "when the Fed extends credit to private or other public entities, . . . it is allocating credit to particular borrowers, and therefore taking a fiscal action and invading the territory of the fiscal authorities." The authors recognize that, "in principle, the Fed could consider purchasing and maintaining a 'neutral' portfolio of non-Treasury financial assets mirroring the aggregate outstanding stock of financial assets in some way." However, they believe that "defining and maintaining such neutrality in practice . . . would be exceedingly difficult if not impossible, especially in the short run." </p> <p><a href="#_ftnref11" name="_ftn11" id="_ftn11">[11]</a> When the assets and liabilities of the Fed are consolidated with those of the CCF LLC, "the loan from the FRBNY to CCF LLC is eliminated" (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">"Factors Affecting Federal Reserve Balances of Depository Institutions"</a>). </p> <p><a href="#_ftnref12" name="_ftn12" id="_ftn12">[12]</a> Moving to yield curve control would be a move in the wrong direction (see <a href="" rel="nofollow external noopener noreferrer" target="_blank">Dorn</a>). Pegging the price of government debt is not a panacea for real economic growth; it only allows for the growth of government and the demise of freedom. </p> <p>[<a href="">Cross-posted from</a>] </p> <p></p> Mon, 13 Jul 2020 11:52:40 -0400 James A. Dorn ICE’s Online Class Policy For Foreign Students: Lots of Questions, Few Explanations <p><a href="" hreflang="und">David J. Bier</a></p> <p>Last week, Immigration and Customs Enforcement (ICE) <a href="">announced</a>&nbsp;a&nbsp;new policy that creates a&nbsp;catch‐​22 for U.S. universities and international students. ICE will <a href="">terminate</a> the status of any foreign student in the United States enrolled at a&nbsp;U.S. university without any in‐​person classes or, conversely, force foreign students abroad to attend classes in‐​person if any are offered or terminate the validity of their student status at their U.S. universities.</p> <p>U.S. universities <a href="">have condemned</a> the policy as endangering their students and the schools’ financial wellbeing. Harvard University and Massachusetts Institute of Technology (MIT) <a href="">filed</a> a&nbsp;lawsuit to stop implementation of the policy, which a&nbsp;judge <a href="">will rule</a> on July 15. ICE has still not provided much explanation of the policy or given any specific justifications for it, making it difficult to understand.</p> <p><strong>What was the pre‐​pandemic policy for online study?</strong></p> <p>The law <a href="">requires</a> all international students on F-1 student visas to be enrolled in a “full course of study” at a&nbsp;U.S. school. The regulations <a href="">require</a> “at least twelve semester or quarter hours of instruction per academic term” for undergraduate foreign students. ICE’s pre‐​pandemic rule for online learning—which dates to <a href="">December 2002</a> and has never been rescinded—allows students to fulfill this requirement through at most one (3 credit) online course that “does not require the student’s physical attendance for classes” (<a href="">8&nbsp;C.F.R. 214.2(f)(6)(i)(G)</a>). In other words, online classes may not make up more than 1/4 of the total required courses.</p> <p><strong>What pandemic policy did ICE initially adopt for online study?</strong></p> <p>On March 13, 2020, ICE announced via <a href="">a&nbsp;guidance document</a> that “Given the extraordinary nature of the COVID-19 emergency,” it “will allow F-1 and/​or M-1 students to temporarily count online classes towards a&nbsp;full course of study in excess of the limits stated in <a href="">8&nbsp;CFR 214.2(f)(6)(i)(G)</a>”. It stated, “This temporary provision is only in effect for the duration of the emergency”. However, the document contained the warning:</p> <blockquote><p><em>NOTE: Due to the fluid nature of this difficult situation, this guidance may be subject to change. SEVP will continue to monitor the COVID-19 situation and will adjust its guidance as needed.</em></p> </blockquote> <p>On June 4, ICE <a href="">wrote</a> in a&nbsp;FAQ document for schools that ICE “is actively working to issue guidance” for the Fall 2020 semester, despite the existence of the earlier guidance that was not limited to the Spring 2020 semester.</p> <p><strong>What is ICE’s new policy for online study?</strong></p> <p>On July 6, ICE released <a href="">a&nbsp;document</a> stating that it plans to make formal regulations amending the pre‐​pandemic regulation. It stated that the new regulations will state:</p> <ol> <li>“Students attending schools operating entirely online may <strong><em>not</em></strong> take a&nbsp;full online course load and remain in the United States,” but that “Students attending schools adopting a&nbsp;hybrid model—that is, a&nbsp;mixture of online and in person classes—will be allowed to take more than one class or three credit hours online.” The guidance threatens, “Active students currently in the United States enrolled in [online‐​only]&nbsp;programs must depart the country … or potentially face immigration consequences including, but not limited to, the initiation of removal proceedings.”</li> <li>Schools will need to certify that “the program is not entirely online, that the student is not taking an entirely online course load for the fall 2020 semester, and that the student is taking the minimum number of online classes required to make normal progress in their degree program.” This requirement requires the universities to issue new I-20 Forms for about a&nbsp;million&nbsp;students within three weeks of July 6—in many cases without the students having signed up for classes yet.</li> <li>International students with F-1 status who left the United States in March will have to travel back if the college chooses to allow <em>any</em> in‐​person classes. The document states, “Only students enrolled at a&nbsp;school that is <em>only</em> offering online coursework can engage in remote learning from their home country.” In other words, if colleges react to this guidance by adopting a “hybrid model” mixing in‐​person and online classes, they will simultaneously force students abroad to travel here. Yet due to COVID-19 travel restrictions—both by the United States and their home nations—it may be impossible for these students to return. If they need to apply for a&nbsp;new visa, it will definitely be impossible because the State Department <a href="">has stopped</a> processing nearly all student visas. Under a&nbsp;<a href="">separate regulation</a>, losing status means that even they eventually can return, they would not be eligible for work authorization.</li> </ol> <p>The guidance also states that it is not itself a “rule”—that is, a&nbsp;final formal determination of ICE’s actions—even while it purports to require schools to submit education plans by July 15. DHS Acting Deputy Assistant Secretary Ken Cuccinelli <a href="">told</a> CNN that it would finalize it “later this month.”</p> <p><strong>How many courses must be in‐​person? </strong></p> <p>ICE has not issued any actual detailed regulations, but its notice only prohibits “entirely online” students. DHS Acting Deputy Assistant Secretary Ken Cuccinelli <a href="">told</a> CNN that “the direction that has been charted here, that remains to be completely finalized… provides the opportunity to do anything short of 100 percent online classes.” This implies that any attendance in‐​person for any amount of time (1&nbsp;minute of 1&nbsp;day in 1&nbsp;class) would qualify as a “not online” class. It’s unclear how ICE <a href="">will treat</a> a&nbsp;policy such as that of Georgetown where students can choose to take <em>any</em> class online.</p> <p><strong>How many international students will the new policy affect? </strong></p> <p>According to ICE, it <a href="">had records</a> relating to nearly 1.6 million international students and exchange visitors. The Institute for International Education <a href="">estimates</a> that there were about 1.1 million undergraduate, graduate, and postgraduate students in the United States for the 2018–19 school year. All of them will have to plan on attending at least some classes this Fall.</p> <p><strong>How are universities affected?</strong></p> <p>All schools must decide by July 15 whether they will hold in‐​person classes, despite the fact that final detailed ICE regulations explaining what constitutes “online” or “in‐​person” are still not available. It’s unknown how many universities were planning entirely online schedules. Even if they were not, all U.S. universities may have to make accommodations for international students who had planned on not attending in‐​person in the Fall. <a href="">Many prominent colleges</a> had stated that they were planning on “most” or nearly all classes being online. Georgetown University said that every in‐​person class would allow students to attend virtually (<a href="">adding</a> “absent any regulatory restrictions which may apply to a&nbsp;limited number of international students”).</p> <p>If students drop out of school—either because they are forced to leave or conversely because they are forced to come to the United States—that will impose an extreme cost on universities where foreign students almost always pay full tuition. Losing talented foreign students to other universities abroad will also undermine the long‐​term reputation of U.S. universities, leading fewer foreign students to seek to study here (a <a href="">trend that existed</a> even before the pandemic under Trump).</p> <p><strong>How are students affected? </strong></p> <p>All students will have to leave the country <a href="">within 60&nbsp;days</a> of their college’s notification that they will not be taking in‐​person classes in the Fall. Setting aside the health risks, it will require hastily obtaining international flights. In many cases, students with off‐​campus housing will have to break their leases, imposing additional economic hardships. If they are currently employed, they will have to quit their jobs. If students are abroad, and their schools reverse their decisions to go online only or mostly, students will be forced to travel to the United States, which is often impossible due to U.S. travel restrictions, or forfeit their student status.</p> <p><strong>Can international students transfer to colleges with in‐​person instruction? </strong></p> <p>A few international students may be able to transfer, and ICE <a href="">asserts</a> that they can pursue that option, but as Harvard and MIT note in <a href="">their lawsuit</a>, “just weeks from the start of the fall semester, these students are largely unable to transfer to universities providing on‐​campus instruction.”</p> <p><strong>Can international students enroll in online classes abroad?</strong></p> <p>Many foreign students have elected to take online only classes from their home countries, but ICE has not indicated that it will provide any leniency for students where this option may not be viable. The <a href="">largest number of international students</a> come from China where the internet is <a href="">heavily censored</a>, and many course materials or courses may not be available. <a href="">Many countries</a> lack <a href="">reliable internet</a> access. Even where reliable Internet is available, time differences will often make online courses extremely difficult to take in practice. At 3:30&nbsp;pm in Massachusetts, it is after 1:00 am&nbsp;in New Delhi, India. Of course, if the students are forced to leave, it will become much more challenging for colleges to bring them back at a&nbsp;later date, especially if they transfer. If students are already abroad, the policy requires them to return home to retain their student status if the school offers any in‐​person instruction, even if the college offers online instruction as well.</p> <p><strong>Why did ICE take this action?</strong></p> <p>ICE provides little explanation for its sudden reversal on online learning in its document. It only cites a “need to resume the carefully balanced protections implemented by federal regulations.” ICE doesn’t cite any examples of what it means by “protections.” (For whom? From what?) It also claims that the March 13 decision to waive the regulatory requirements was made “during the height of the Coronavirus Disease (COVID-19) crisis” (which is <a href="">definitely not true</a>). Despite these statements, DHS Acting Deputy Assistant Secretary Cuccinelli <a href="">told</a> CNN that the decision would “encourage schools to reopen.” Encouraging school to reopen has been a&nbsp;theme with the administration in <a href="">recent weeks</a>. This appears to be part of that larger effort.</p> <p><strong>Why do Harvard and MIT think the policy is illegal?</strong></p> <p>Harvard and MIT filed a&nbsp;lawsuit that asserts that the government violated the Administrative Procedure Act (APA) in amending its policy. The APA <a href="">prohibits</a> any policies that are, among other things, “arbitrary, capricious, an abuse of discretion … or otherwise not in accordance with law.” The colleges assert that under relevant court interpretations of the statute, the agency has acted arbitrarily and capriciously because it failed to:</p> <ol> <li>“<a href="">consider an important aspect of the problem</a>” (e.g. health, economic, and legal effects on students and universities and their reliance on the earlier guidance);</li> <li>“<a href="">cogently explain why it has exercised its discretion in a&nbsp;given manner</a>” (i.e. “it does not provide any reasoning”); and</li> <li>Issue a&nbsp;formal rule after notice and opportunity for public comment, as required for all actions “to implement, interpret, or prescribe law or policy”.</li> </ol> <p>ICE asserts that it will issue a&nbsp;formal rule that could rectify these defects in the current guidance, according to DHS Acting Deputy Assistant Secretary Cuccinelli <a href="">told</a> CNN, within a&nbsp;month. But that means that the rule, as well as its notice and public comment, will come after the colleges will have already had to implement it. A&nbsp;judge <a href="">stated</a> that he will rule on the legality of the guidance by July 15.</p> <p><strong>Why is ICE in charge of student policy?</strong></p> <p>ICE is the immigration enforcement agency that is usually tasked with making arrests or issuing fines when people break the legal immigration rules set by other agencies, mainly U.S. Citizenship and Immigration Services (USCIS), so it’s strange that ICE is setting legal immigration policy for students.</p> <p>The Immigration and Naturalization Service (INS) both made and enforced legal immigration regulations as part of the Department of Justice until 2003. In December 2002, INS finalized <a href="">the rule</a> that limited online classes. The <a href="">Homeland Security Act of 2002</a>, which created the Department Homeland Security (DHS), separated the functions into the USCIS and <a href="">ICE</a>. Section 442 of the law tasked ICE with the responsibility to “collect information relating to nonimmigrant foreign students.” Because INS had implemented this information collection authority jointly with its regulations of student visas just months earlier, DHS granted ICE authority over the entire student visa program, not just the information collection component.</p> Mon, 13 Jul 2020 08:50:47 -0400 David J. Bier This Is Your Constitution on Drugs <p><a href="" hreflang="und">Ilya Shapiro</a></p> <p>Have you ever thought about how much the modern War on Drugs has affected our constitutional order? I&nbsp;don’t mean for policy purposes, but in terms of the scope of federal power and violation of a&nbsp;whole host of rights. So much of modern jurisprudence—and not just with respect to criminal procedure—is tied to drug‐​interdiction and prosecution policies that began in the 1970s. As I&nbsp;write in the <a href="">latest </a><em><a href="">National Affairs</a>,</em></p> <blockquote><p>Beyond the modern drug war’s legally dubious initiation, the strained legal interpretations and yawning exceptions officials have made to sustain the effort continue to warp our constitutional system. In prosecuting and expanding the war on drugs, the federal government has racked up colossal amounts of debt, fostered state protectionism, adopted countless new federal crimes, and invaded foreign countries without congressional authorization. Meanwhile, government actors at all levels have undermined Americans’ freedoms of expression and religious exercise, deprived citizens of their rights to vote and bear arms, authorized warrantless searches and seizures of property without due process, and thrown tens of thousands of people — disproportionately racial minorities — into overcrowded prisons for sentences that are out of step with the crimes they’ve committed. These actions have changed our understanding of such foundational principles as limited government, federalism, and the separation of powers, all while casting doubt on America’s commitment to the rule of law.</p> </blockquote> <p>Read <a href="">the whole thing</a>.</p> Sun, 12 Jul 2020 21:27:45 -0400 Ilya Shapiro Where Have All the Coins Gone? <p><a href="" hreflang="und">William J. Luther</a></p> <p>“If you put the federal government in charge of the Sahara Desert,” the economist <a href="" rel="nofollow external noopener noreferrer" target="_blank">Milton Friedman once quipped</a>, “in five years there’d be a shortage of sand.” The U.S. Mint, to its credit, had a much longer run.</p> <p>The Federal Reserve, which purchases coins from the Mint and distributes them to depository institutions, <a href=";utm_medium=banner&amp;utm_campaign=fedcash&amp;utm_content=3-coin-inventories" rel="nofollow external noopener noreferrer" target="_blank">announced</a> it would begin rationing coins “based on historical order volume by coin denomination” last month as its coin inventory had been “reduced to below normal levels.” The Fed also called on the Mint to increase the supply. Until the shortage is resolved, however, <a href="" rel="nofollow external noopener noreferrer" target="_blank">retailers unable to acquire enough coins</a> from banks are left requesting customers pay with a card or use exact change.</p> <p>No doubt many find the idea of a coin shortage perplexing. Coins are not consumed; they get passed along from one person to another. In the US, the average coin circulates for <a href="" rel="nofollow external noopener noreferrer" target="_blank">around 30 years</a>. How, then, can there suddenly be a shortage of coins? Where have they all gone?</p> <p>Each year, some coins are lost, discarded, or worn beyond use. They get thrown in a well with a wish; or, dropped down a drain by mistake. To offset the outflow, and keep up with secular growth in demand, the Mint must produce new coins. It issued nearly <a href=";+50StateQuartersyears=&amp;+WestwardJourneyNickelSeries%E2%84%A2years=&amp;+PresidentialOneDollaryears=&amp;+DistrictofColumbiaandUSTerritoriesQuartersyears=&amp;+AmericatheBeautifulQuarters%C2%AEyears=&amp;+CirculatingCoinsyears=1022" rel="nofollow external noopener noreferrer" target="_blank">12 billion circulating coins in 2019</a>.</p> <p><strong>Figure 1. Cumulative Mintages, Billions</strong></p> <figure role="group" class="filter-caption"><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="868159bf-a33c-4050-9127-4df0052d193c" data-langcode="en" class="embedded-entity"> <img srcset="/sites/ 1x, /sites/ 1.5x" width="700" height="381" src="/sites/" alt="Cumulative Mintages, Billions" typeof="Image" class="component-image" /></div> <br /><figcaption><div class="figure-caption text-sans-alternate">Source: This graph is based on data collected by the author from multiple data tables on Coin​News​.net and USMint​.gov. </div> </figcaption></figure><p>So far, the Mint has not matched its 2019 pace. The global pandemic slowed production at the Denver and Philadelphia branches in March and April. By the beginning of May, the cumulative mintage—that is, the total number of circulating coins produced for the year—was just 4.02 billion, compared with 5.07 billion over the same period in 2019. Both facilities have been operating at full capacity since June 15, though, so that the gap has since fallen to less than 0.06 billion.</p> <p>But the temporary shortfall in production is only a small part of the problem. A much bigger issue has been the limited extent to which coins have been circulating.</p> <p>Coins have a much higher weight‐​to‐​value ratio than cash, which makes them relatively cumbersome to use. Cash goes into wallets, ready to make the next transaction. Coins go into piggy banks, to be deposited or exchanged for cash only occasionally.</p> <p>Usually, the vast stockpile of coins held by the public is of little consequence because it represents a roughly steady share of the total coin supply. Sure, paper currency circulates more quickly. But peoples’ depositing or exchanging coins when their piggy banks get full also results in a relatively steady flow of coins back into the banking system.</p> <p>Alas, not much has been as usual in the last few months. The global pandemic and corresponding shutdowns have led to a huge slowdown in economic activity. Consequently, the usual flow of coins from our piggy banks into the banking system has dried up. Of course, the flow from the banking system to our piggy banks also dried up, as retailers did not need to request coins from their banks to make change for non‐​existent customers.</p> <p>But as the economy reopened, stores quickly exhausted their existing coin inventories, and then turned to their banks for more. The flow of coins out of the banking system picked up, as coins started piling up in our piggy banks once more. But the flow of coins back into the banking system, from our piggy banks, had not yet restarted. Lacking the usual coin deposits from the public, the banks, in turn, requested coins from the Fed, which requested them from the Mint. With the Mint unable to fill the gap with new coins—and, indeed, falling short of its usual production levels—-a shortage resulted.</p> <p>It is tempting to give the Mint a pass. Few among us expected a pandemic. And, all things considered, it is probably unreasonable to expect the Mint, with its own staff shortages to contend with, to have hit 2019 production levels, let alone accommodate a huge albeit temporary surge in coin demand.</p> <p>But policy decisions have made the shortage much worse than necessary. For starters, consider the decision to produce such low‐​valued coins. The penny became the lowest denomination U.S. coin in 1857, when the half cent coin was discontinued. Some states and local governments issued smaller denomination mill coins, worth one tenth of a penny. But they were uncommon, and primarily used to pay taxes.</p> <p>In 1857, a penny purchased what roughly 30 cents will buy today. And the rare mill coin, when it was to be found, was worth nearly three times what a penny is worth today. We did not need such a low‐​valued coin then. We definitely do not need it now.</p> <p>Pennies have an extremely high weight‐​to‐​value ratio. They tend to pile up longer than other coins. One might occasionally spend six quarters for a coke. Few will take the trouble to count out one hundred fifty pennies.</p> <p>Pennies are rarely spent. They are accepted as change and—if not left by the till—deposited or exchanged for cash. But even that is not so easy. Many banks limit coin deposits to their customers. The Chase branch in my neighborhood does not accept coins at all; to deposit coins, I have to go to another branch with a coin‐​counting machine. It is inconvenient.</p> <p>Coinstar is a bit better. But who wants to lug all of those coins to the store? “Next time,” I tell myself. And eventually I do cash them in.</p> <p>Rounding to the nearest nickel or dime seems much more sensible, though. Sometimes I would pay a bit more; sometimes a bit less. But I would not have to fuss with all those pennies. And neither would banks or retailers.</p> <p>Given its limited usefulness, the penny is too costly in normal times. The <a href="" rel="nofollow external noopener noreferrer" target="_blank">Mint lost 0.99 cents</a> on each penny it sold in 2019. And, yet, it produced more pennies than any other coin in circulation. Nearly 60 percent of all circulating coins minted in 2019 were pennies. In total, the Mint lost $69.7 million dollars making pennies.</p> <p>With reduced capacity, producing pennies makes even less sense. To the extent possible, the Mint should divert resources from producing pennies to more‐​useful quarters and dimes. It does not appear to have done so. In March, April, and May, the Mint produced nearly 1.4 billion pennies—roughly 54 percent of all circulating coins minted.</p> <p>Eliminating wasteful penny production would be an improvement over the status quo. But penny production is merely a symptom of a much deeper problem: the lack of competition in coinage.</p> <p>The Mint is a government monopoly. But that was not always the case. In his work on the history of coinage, Edgar Holmes Adams describes the <a href="" rel="nofollow external noopener noreferrer" target="_blank">establishment of Moffat &amp; Company</a>, a private mint in San Francisco, during the California Gold Rush. And at least <a href="" rel="nofollow external noopener noreferrer" target="_blank">fourteen other private mints</a> operated in California between 1849 and 1855, with many more striking coins east of the Appalachian Mountains.</p> <p>How effective were these private mints? In 1850, the Treasury hired Moffat to mint official American government‐​stamped coins. Then, when the government finally opened the San Francisco mint in 1854, it operated with equipment previously employed by Moffat. Private mints, in other words, were more than capable of minting coins. And they would have continued minting coins had an <a href="" rel="nofollow external noopener noreferrer" target="_blank">Act of Congress on June 8, 1864</a> not made it illegal.</p> <p>Private mints have been especially useful during coin shortages. <a href="" rel="nofollow external noopener noreferrer" target="_blank">George Selgin recounts</a> the British coin shortage more than two hundred years ago:</p> <blockquote><p>Fed up with the government’s inaction, British firms started minting their own coins. Within a decade a score of private mints struck more coins than the Royal Mint had issued in half a century—and better ones: heavier, more beautiful, and a lot harder to fake. Yet they were also less expensive, since private coiners sold their products at cost plus a modest markup, like other competitive firms, instead of charging the coins’ face value, as governments like to do.</p> </blockquote> <p>As in San Francisco, roughly forty years later, private mints led the way while government mints lagged behind.</p> <p>If they operated today, private mints would not produce any old coin, of course. Instead they would only produce what banks (presumably their main clients) and banks’ customers wanted. It is hard to imagine they would produce the penny. They probably would not produce a dollar coin, more than a billion of which currently sit <a href="" rel="nofollow external noopener noreferrer" target="_blank">unwanted in government vaults</a>; and, if they did, they would likely make it <a href="" rel="nofollow external noopener noreferrer" target="_blank">more distinguishable from a quarter</a>. They might not produce the nickel — <a href="" rel="nofollow external noopener noreferrer" target="_blank">which also loses money</a> —either.</p> <p>So what? The case for producing these costly, cumbersome‐​to‐​use coins is weak. They get minted today because <a href="" rel="nofollow external noopener noreferrer" target="_blank">clever lobbyists</a> are good at harnessing nostalgia and <a href="" rel="nofollow noopener noreferrer">advancing junk arguments about rounding</a>. A private coin industry would not be able to waste taxpayer funds for the sake of subsidizing metal miners or pleasing their representatives in Congress. Instead, private mints would produce the kind of coins people actually want to use. And, if history is any guide, they would do so more efficiently than the Mint.</p> <p>The costs of a coin shortage are probably lower today than in the past. We are fortunate to have many alternative payment options. Nonetheless, we should acknowledge the weaknesses of our current system and make improvements if possible. At a minimum, that means scrapping the penny. More fundamental reforms, like permitting competition in coinage, would be better still.<br /><br /> [<a href="">Cross‐​posted from Alt​-​M​.org</a>]</p> Fri, 10 Jul 2020 12:30:35 -0400 William J. Luther Ignoring the Recent (and Ignominious) History of “Buy American” <p><a href="" hreflang="und">Scott Lincicome</a></p> <p>Democratic Presidential nominee — and current 2020 front‐​runner — Joe Biden yesterday released a “<a href="">Made In All of America</a>” plan heavy on “Buy American” mandates, pursuant to which&nbsp;$400 billion in new federal energy and infrastructure projects must use only “American products, materials, and services.” Biden’s plan, it should be noted, is hardly novel:&nbsp;Buy American laws have been around for almost a&nbsp;century, and similar types of procurement restrictions are now quite&nbsp;<em>en vogue</em>&nbsp;among politicians and wonks on both the left and the right.&nbsp;As Cato scholars have argued for <a href="">decades</a>, however, Buy American requirements are bad <a href="">law</a>, bad <a href="">economics</a>, bad <a href="">trade policy</a>, and bad <a href="">politics</a> (well, for <a href="">most Americans</a> at least).</p> <p>Yet one needn’t pore over reams of wonkery to understand the problems that Buy American restrictions cause for U.S. companies, workers, taxpayers, and public works projects.&nbsp;Instead, a&nbsp;quick review of what happened the last time these rules were injected into a&nbsp;massive U.S. infrastructure law — way back in 2009 when <em>Biden himself</em> was in the White House <em>and</em> <a href="">managing</a> the law’s implementation — may suffice.</p> <p>From the <a href=""><em>Wall Street Journal</em></a> in September 2009:</p> <blockquote><p>On paper, Tom Pokorsky would seem to be a&nbsp;clear beneficiary of the government’s $787 billion economic‐​stimulus package.</p> <p>Mr. Pokorsky runs Aquarius Technologies Inc., a&nbsp;company in Port Washington, Wis., that makes equipment to treat sewage. The stimulus plan earmarks some $6 billion for municipal wastewater projects that are right in his company’s sweet spot.</p> <p>But the bill’s Buy American provisions — meant to give U.S. companies a&nbsp;leg up on foreign competition — are causing Aquarius and other U.S. companies a&nbsp;lot of grief with both suppliers and clients in Canada.</p> <p>Now that grief has boiled over into a&nbsp;major diplomatic row with the largest U.S. trading partner. Canadian communities angered by perceived American chauvinism have started a&nbsp;Buy Canadian campaign to exclude U.S. bidders from municipal contracts.</p> <p>“If that sticks, well, there goes 25% of my business,” said Mr. Pokorsky. “To me, Ontario may as well be Indiana.”</p> <p>Halton Hills, a&nbsp;town of 50,000 people about 25&nbsp;miles west of Toronto, is one of about a&nbsp;dozen Canadian communities forging ahead with plans to amend their procurement policies to freeze out American companies. “We won’t be taking any products from any country that is discriminating against us,” said Mayor Rick Bonnette.</p> <p>Officials in Washington and Ottawa are scrambling to avoid an all‐​out trade war. Even so, Buy American guidelines are complicating life for American companies, muddling municipal bidding procedures and blunting the overall effect of the stimulus.</p> <p>To date, the Environmental Protection Agency has disbursed just $77 million of the $5.9 billion it has for municipal wastewater projects, in part because of Buy American provisions. Overall, the government has either spent or committed about $210 billion in stimulus finds, leaving $370 billion still to be doled out. (The rest of the stimulus is made up of tax cuts.)</p> </blockquote> <p>The <em>WSJ</em> story also shows that the Buy American rules’ problems weren’t just limited to bureaucratic delays or foreign retaliation — they <em>also</em> raised costs for U.S. companies and&nbsp;consumers (in this case, U.S. taxpayers) and were often just plain incompatible with the realities of multinational investment and 21st century&nbsp;global supply chains:</p> <blockquote><p>Aquarius gets a&nbsp;lot of its parts from abroad, particularly from Canada. Such integration became even tighter after the North American Free Trade Agreement in 1994 joined the U.S., Canada and Mexico in a&nbsp;free flow of goods and services.</p> <p>Trojan Technologies Inc. of Ontario, North America’s dominant maker of ultraviolet disinfection equipment for treating sewage, is a&nbsp;key supplier to Aquarius and other companies.</p> <p>Because of the Buy American provisions, Trojan has had to shift production to a&nbsp;plant in Valencia, Calif., a&nbsp;move that has resulted in delays and additional costs being passed on to customers, said Trojan executive Christian Williamson.</p> <p>Trojan is a&nbsp;subsidiary of Danaher Corp., a&nbsp;U.S. conglomerate based in Washington.</p> <p>While some companies have the flexibility to shift production to the U.S., others don’t. General Electric Co. assembles complex wastewater‐​treatment systems in Canada with parts from Europe.…</p> <p>Bob Weese, a&nbsp;spokesman for GE Canada, said the group’s wastewater‐​treatment business was having a&nbsp;tough time bidding for contracts with U.S. municipal governments because of the procurement rules.</p> <p>“The supply chains are so integrated, it is crazy to try to impose a&nbsp;Buy American provision,” he said. “Some components cross the border four or five times” before they are completed.</p> <p>Buy American rules are gumming up the plans of Frederick County, Md., to get $6 million of stimulus money for a $100 million wastewater‐​treatment plant. Long after the project bids and contracts had been signed, the county found itself on the wrong side of the Buy American provisions because their system uses certain membranes made by a&nbsp;GE subsidiary in Canada.</p> </blockquote> <blockquote><p>Kevin Demosky, a&nbsp;county utility official, is applying to the EPA for a&nbsp;waiver to use the GE parts. “<strong>The [Buy American] rules affect a&nbsp;small part of the project but are like a&nbsp;virus infecting the whole thing,” he said. “It’s like they want us to go back in time</strong>.”</p> </blockquote> <p>The Biden plan, it should be noted, actually wants to “<a href="">crack down</a>” on Buy American waivers, ensuring even <em>less</em> flexibility for American companies, even <em>higher</em>&nbsp;costs for American taxpayers,&nbsp;and even <em>more </em>problems for American infrastructure projects — projects that, let’s face it, aren’t exactly <a href="">models</a>&nbsp;of <a href="">efficiency</a> already.</p> <p>At least, as the <em>Financial Times</em> <a href="">noted</a>&nbsp;in June 2009,&nbsp;<em>one group</em> of Americans clearly benefited from the Stimulus Bill’s&nbsp;Buy American rules:</p> <blockquote><p>Confusion reins. For fear of missing out on contracts, many companies are demanding that all their suppliers are Buy American‐​compliant regardless of any exemptions.<br><br> “Those companies that can comply are of course thrilled and are trumpeting that in their marketing. Those that cannot are in agony and are losing business and cutting workers,” says David Ralston, a&nbsp;government procurement lawyer at Foley &amp;&nbsp;Lardner. “<strong>The many companies that find themselves in the gray areas are calling their lawyers.</strong>”</p> </blockquote> <p>Stimulus, indeed!</p> <p>Libertarians and other free marketers are frequently accused of impractical “fundamentalism” when we express opposition to things like Buy American rules and other types of protectionism and industrial policy.&nbsp;The short history lesson above&nbsp;(which you’d <em>think</em> the Biden Team knows, given the Vice President’s&nbsp;involvement) hopefully shows that, while&nbsp;Biden’s Buy American plan might be good politics, it’s not the <em>free marketers</em> untethered from reality.</p> Fri, 10 Jul 2020 12:11:30 -0400 Scott Lincicome Will Isotonitazene Replace Fentanyl on the Black Market? <p><a href="" hreflang="und">Jeffrey A. Singer</a></p> <p><span><span><span>Waging a&nbsp;war on drugs is like playing a&nbsp;game of <a href="">Whac‐​A‐​Mole.</a></span></span></span></p> <p><span><span><span>In 2005 Congress addressed the “meth crisis” by passing the <a href="">Combat Methamphetamine Epidemic Act</a> that, among other things, made the popular decongestant <em>Sudafed, </em>used by homegrown labs to make meth, a&nbsp;behind‐​the‐​counter drug and restricted its sale to patients. It didn’t take long for Mexican drug cartels to fill the void created by the crackdown on domestic meth labs, and to find <a href="">other and better</a> ways to manufacture meth. Now the Centers for Disease Control and Prevention report methamphetamine‐​related deaths at <a href="">record high levels</a>.</span></span></span></p> <p><span><span><span>Reacting to the fact that the synthetic opioid fentanyl and its analogs— largely made and smuggled into the U.S. by labs in <a href="">China</a>—is responsible for up to 75 percent of <a href="">opioid‐​related deaths</a>, the Trump administration persuaded China to impose a&nbsp;<a href="">ban</a> on the production of fentanyl and its analogs in April 2019. By the fall of 2019 a&nbsp;new synthetic opioid, <a href="">isotonitazene</a>, made its debut in U.S. and Canadian black markets. The drug, which is not a&nbsp;derivative of fentanyl but equally as potent, is legal to export from China and is not banned in North America or Europe. </span></span></span></p> <p><span><span><span>In March of this year <em>Vice</em> gave a&nbsp;<a href="">detailed report</a> on how this synthetic opioid has been found&nbsp;in counterfeit Dilaudid tablets sold on the streets in Nova Scotia, mixed with heroin sold in the U.S., and is&nbsp;sold in underground markets in Europe.</span></span></span></p> <p><span><span><span><a href="">Research</a> by the University of Pittsburgh shows that overdose deaths from licit and illicit drugs have been increasing exponentially since at least the late 1970s and show no signs of slowing. The drug that predominates&nbsp;as the cause of death has changed over the years, but the trend continues. In the beginning of this century prescription opioids that were diverted to the street were predominant. As prescriptions of opioids dropped, non‐​medical users migrated to heroin. Soon thereafter fentanyl and its analogs emerged on the scene, and now make up the bulk of opioid‐​related overdose deaths. </span></span></span></p> <p><span><span><span>As efforts are underway to crack down on illicit fentanyl, don’t be surprised if isotonitazene is the next big thing.</span></span></span></p> Fri, 10 Jul 2020 12:02:46 -0400 Jeffrey A. Singer In Drama‐​Filled Supreme Court Term, Cato Still Manages a Solid Winning Record <p><a href="" hreflang="und">Ilya Shapiro</a></p> <p>This is the year it really became the Roberts Court. Chief Justice John Roberts presided over Donald Trump’s impeachment trial, navigated the Court through unusual pandemic‐​driven telephonic oral arguments—complete with toilet flushes and forgotten unmute buttons—and was in the majority more than anyone else, including all but one of the thirteen 5–4 decisions.</p> <p>Perhaps most notably, Roberts shocked court‐​watchers by joining the liberal‐​leaning justices on three key cases decided at the end of June, involving LGBT rights, DACA, and abortion. That, plus Justice Neil Gorsuch’s <em>writing</em> the opinion in the Title VII sexual orientation/​gender‐​identity case, <em>Bostock v. Clayton County</em>, set off a&nbsp;circular firing squad on the right as so‐​called common‐​good constitutionalists went after originalists and textualists.</p> <p>Still, when you look at the numbers, the term was anything but a&nbsp;judicial left‐​turn. Of those 13 5–4 decisions, nine had Roberts joining the more conservative justices and only three had a&nbsp;conservative joining the liberals (Roberts on DACA and abortion, Gorsuch on Oklahoma as Indian Country). Last term, there were eight 5–4 cases where a&nbsp;conservative justice joined the liberals and only seven where conservatives stuck together. That’s why progressives breathed sighs of relief but aren’t treating Roberts as the second coming of Anthony Kennedy, let alone David Souter.</p> <p>But what about libertarians? To be honest, most case outcomes were overshadowed by the Court’s decision <em>not </em>to take up any of the slew of very good cases presenting claims regarding the Second Amendment and qualified immunity, respectively. Both areas are crying out for the justices’ clarification and legal development, the former after a&nbsp;decade of neglect that has allowed the lower courts to engage in massive resistance and the latter presenting a&nbsp;cross‐​ideological alliance of policy reformers.</p> <p>The Second Amendment cert denials were a&nbsp;surprising disappointment because the Court had, earlier in the term, declared moot <em>N.Y. State Rifle &amp;&nbsp;Pistol Association v. City of New York</em>, which the justices had agreed to hear soon after Justice Brett Kavanaugh replaced Justice Anthony Kennedy — and with a&nbsp;concurrence by Kavanaugh that noted the Court “should address that issue soon.” The qualified immunity denials also came as a&nbsp;shock, coming in the middle of nationwide protests against police abuse. Notably, Justice Clarence Thomas dissented from cert denials on both issues.</p> <p>As to the actual rulings, libertarian groups didn’t tend to participate in the high‐​profile cases on abortion, employment discrimination, or Trump tax returns, so there wasn’t too much to get particularly happy or sad about. The biggest victory was in <em>Espinoza v. Montana Department of Revenue</em>, which removed the last legal roadblock to school choice programs nationwide. The biggest loser, oddly enough, may have been <em>Department of Homeland Security v. Regents of the University of California</em>, the DACA case, because that essentially created a&nbsp;ratchet for executive power — though of course there the policy upside to the preservation of this otherwise unlawful program is huge.</p> <p>Cato filed in 11 cases altogether, coming out of the term with a&nbsp;6–4-1 record (counting the mooted Second Amendment case as a&nbsp;wash). That’s not as good as the previous term’s 12–4 clip, but still beats our biggest rival, the U.S. government, which by my count went 12–11. (It’s an apples‐​and‐​oranges comparison, I&nbsp;know, because the government typically appears as a&nbsp;party, not simply amicus, and always participates in oral argument.) Cato won 8&nbsp;votes from Justices Gorsuch and Kavanaugh, 7&nbsp;votes from Justice Alito, 6&nbsp;votes from Chief Justice Roberts and Justice Thomas, 4&nbsp;votes from Justice Sotomayor, 3&nbsp;votes from Justices Breyer and Kagan, and 2&nbsp;votes from Justice Ginsburg.</p> <p>Here’s the full breakdown, in the order the opinions arrived:</p> <p><strong>Winning side (6)</strong><span>: <em>Georgia v. Pub​lic​.Resource​.Org Inc.</em>; <em>Liu v. SEC</em>; <em>Seila Law v. CFPB</em>; <em>Espinoza v. Montana Dep’t of Revenue</em>; <em>Barr v. AAPC</em>; <em>Little Sisters of the Poor v. Pennsylvania</em>.</span></p> <p><strong>Losing side (4)</strong><span>: <em>United States v. Sineneng‐​Smith</em>; <em>FOMBPR v. Aurelius Investment, LLC</em>; <em>DHS v. Regents of the University of California</em>; <em>USAID v. AOSI</em>. </span></p> <p><strong>Moot (1)</strong>: <em>N.Y. State Rifle &amp;&nbsp;Pistol Ass’n Inc. v. City of New York</em></p> <p>Next term already has some exciting cases, though remember that none of them will be decided before the election. The Court will consider: whether Delaware can limit judges affiliated with a&nbsp;political party on the state’s three highest courts to no more than a “bare majority,” reserving all other seats to the “other major political party” (<em>Carney v. Adams</em>); if Philadelphia can ban Catholic Social Services from its foster/​adoption program because they won’t place kids with gay couples (<em>Fulton v. Philadelphia</em>); whether Obamacare’s individual mandate is still constitutional—and if not, what of the statute can survive (<em>California v. Texas</em>); whether copyright protections extend to software (<em>Google v. Oracle</em>); and whether the House Judiciary Comm. can get the Mueller investigation’s grand jury materials (<em>DOJ v. House Judiciary Committee</em>).</p> <p>I’ll have more to say in future commentary, but if you’d like to learn about all these cases and trends from the perspective of Cato‐​friendly scholars and lawyers, make a&nbsp;note to watch our 19th Annual Constitution Day Symposium, which will be held September 17 (Constitution Day). That’s also when we’ll be releasing the latest volume of the <a href="">Cato Supreme Court Review</a>. And this year it also coincides with the release of my new book, <em>Supreme Disorder: Judicial Nominations and the Politics of America’s Highest Court</em>, which is <a href="">now available for pre‐​order</a>.</p> <p>And with that, we can bid adieu to the Supreme Court until October — except that this summer, the justices, like the rest of us, aren’t going anywhere.</p> Fri, 10 Jul 2020 09:52:06 -0400 Ilya Shapiro Lessons from the Death of Kelly Thomas <p><a href="" hreflang="und">Michael D. Tanner</a></p> <p>Nine years ago today, Kelly Thomas, a mentally ill man living on the streets of Fullerton, California died from injuries resulting from a beating by local police five days earlier. The scandal of Thomas’ death highlighted problems with the way police interact with people experiencing homelessness, but despite hopes for systemic reforms and some positive changes, California continues to rely on law enforcement as a solution to the state’s large and growing homelessness problem.</p> <p>On July 5, 2011, police responded to a call from a local bar, whose manager reported car break‐​ins or vandalism across the street. (Subsequently, an investigation <a href="">suggested</a> that this initial report was untrue; the bar manager was instead concerned that Thomas was loitering in the bar’s parking lot.) Police accosted Thomas and at some point the interaction turned violent. Police initially reported that Thomas was uncooperative and violent, and that several police officers were injured in the confrontation. However, witnesses, bolstered by videos, showed that the police were actually the aggressors, repeatedly tasering Thomas and beating him with batons and other weapons, even after he was restrained, and police retracted their initial claims of injuries.</p> <p>After the beating, police officers were allowed to watch video of the incident before writing their reports, and internal information was restricted or withheld, leading to <a href="">allegations</a> of a cover‐​up. Moreover, evidence that one of the officers involved had previously been reprimanded for misconduct was kept from the public. Another officer was simultaneously collecting disability pay from the Los Angeles Police Department, which had determined him <a href="">medically unfit</a> for service. Three of the officers were charged with involuntary manslaughter, second‐​degree murder, and excessive use of force. After two of the officers were acquitted, charges against the third were dropped.</p> <p> </p><div data-embed-button="promo_block" data-entity-embed-display="view_mode:block_content.full" data-entity-embed-display-settings="" data-entity-type="block_content" data-entity-uuid="bd17fc53-f932-4200-b0de-33295b71457c" data-langcode="en" class="embedded-entity"><a href=""> <div class="promo-block clearfix spacer--standout block--standout bg--standout block p-standard"> <h4 class="block__title heading">Related Content</h4> <div class="block--inner"> <h3 class="mb-md-4 heading"> <a href="">Read more from Cato on Qualified Immunity</a> </h3> <aside class="aside--medium aside--right promo-block__image aside pb-lg-0 pt-lg-2"><a href=""><img width="444" height="406" alt="Media Name: police_body_cam.png" class="lozad component-image" loading="lazy" data-srcset="/sites/ 1x, /sites/ 1.5x, /sites/ 2x" data-src="/sites/" typeof="Image" /></a> </aside><ul><li>“<a href="">What Is Qualified Immunity?</a>” by Jay Schweikert</li> <li>“<a href="">Supreme Court Considering Challenges to Qualified Immunity</a>,” podcast with Jay Schweikert</li> <li>“<a href="">An Unqualified Injustice,</a>” by Clark Neily</li> <li>Read <a href="">Cato’s legal brief in <em>Corbitt v. Vickers</em></a>, by Clark Neily and Jay Schweikert</li> </ul><p><a href="">Read more Cato scholarship on qualified immunity and criminal justice.</a></p> </div> </div> </a></div> <p>The Fullerton police’s killing of Mr. Thomas sparked a movement for reform in the Fullerton city government: three city council members <a href="">lost</a> recall elections, and the police chief went <a href="">on leave</a> and eventually resigned. Fullerton also shifted toward using non‐​police professionals to deal with homelessness and mental illness. Today, the Fullerton Police Department maintains a team of <a href="">four officers</a> working with <a href="">nonprofit</a> and medical partners to address the type of situations that resulted in Thomas’ death. At a time when many California communities are debating “defunding the police,” Fullerton offers an example of one way this might work in practice.</p> <p>However, most California cities still rely on law‐​enforcement to deal with their homeless populations. For example, many cities have laws against sitting, laying down, own sleeping in public places. A <a href="">survey</a> of people experiencing homelessness in San Francisco found that 45 percent of people living on the street were approached by police on a monthly basis. 85 percent reported having been cited by the police, often for quality of life laws like those listed above.. Many of these laws exist as little more than a pretense for clearing people experiencing homelessness out of areas in response to complaints, much like in Mr. Thomas’ case.</p> <p>Defenders of anti‐​homeless laws often suggest that people experiencing homelessness can access services more easily when in the criminal justice system, but this is not the case in reality. Setting aside the moral issue of incarcerating people ostensibly “for their own good,” incarceration clearly does not help people rise out of poverty: 81 percent of respondents to the San Francisco <a href="">survey</a> reported not having been offered any services upon release.</p> <p>No doubt California has a crisis of homelessness. More than half of all the unhoused homeless in the United States reside in California. Many of the people experiencing homelessness are suffering from substance abuse and/​or mental illness, but many others have been driven to the streets by their state’s lack of affordable housing.</p> <p>Rather than criminalizing homelessness, and resorting to the type of police use of force that can quickly escalate and, all too often, falls heaviest on people of color, California should remove regulatory barriers that make it difficult to provide services to the homeless. And, the state needs to deregulate the housing market in order to build more — and more affordable — housing.</p> <p> </p><div data-embed-button="brightcove_video" data-entity-embed-display="view_mode:brightcove_video.content_embed" data-entity-type="brightcove_video" data-entity-uuid="3cc66105-bd58-48e8-a9fa-5d9d7a38f560" data-langcode="en" class="embedded-entity"><div class="brightcove-player sizing-responsive"> <div> </div> </div> </div> Fri, 10 Jul 2020 08:28:17 -0400 Michael D. Tanner FDA Should Help Defeat Another Viral Epidemic—HIV—By Reclassifying PrEP And PEP Over The Counter <p><a href="" hreflang="und">Jeffrey A. Singer</a></p> <p><span><span><span>Last October, California expanded the scope of practice of pharmacists to allow them to <a href="">prescribe</a> HIV pre‐​exposure prophylaxis (PrEP) and post‐​exposure prophylaxis (PEP) to people at risk. <a href="">Similar</a> legislation is currently being considered by the New York state legislature.</span></span></span></p> <p><span><span><span>I have argued <a href="">here</a> that the Food and Drug Administration should reclassify PrEP and PEP as over the counter. While allowing pharmacists to prescribe PrEP and PEP is a&nbsp;step in the right direction, it would greatly improve&nbsp;access to the drugs for people at risk&nbsp;if they were available OTC. They can then be sold in retail and convenience stores in addition to drug stores. They might even be made available in vending machines, <a href="">as is the case</a> with emergency contraceptives, providing greater privacy along with convenience.</span></span></span></p> <p><span><span><span><a href="">Research</a> published this month by a&nbsp;team at the University of California San Francisco strengthens the argument for the FDA to move quickly on this. A&nbsp;randomized controlled trial of nearly 75,000 people in East Africa, an area of the world <a href="">most affected by HIV</a>, found PrEP resulted in a&nbsp;74 percent reduction in new cases of HIV. The study <a href="">found</a> a&nbsp;40 percent reduction in incidence among men and a&nbsp;76 percent reduction among women. This latter discovery is particularly important, because clinical researchers have been uncertain as to the effectiveness of PrEP in women. </span></span></span></p> <p><span><span><span><em>Medpage Today </em>reported Catherine Koss, MD of the University of California San Francisco as saying:</span></span></span></p> <blockquote><p><span><span><span>“This shows in generalized epidemic settings, offering universal access to PrEP can reduce HIV incidence,” Koss said. “Moving forward, comprehensive HIV testing with linkage to treatment and prevention, including PrEP … [is a] promising approach to accelerated reductions in new infections.”</span></span></span></p> </blockquote> <p><span><span><span>In response to the COVID-19 pandemic the FDA, in early March, relaxed many of its outdated and onerous regulations in order to fast‐​track the approval process for <a href="">new tests</a> and <a href="">new drugs</a> to combat the virus.</span></span></span></p> <p><span><span><span>While the COVID-19 virus is on everyone’s mind, the HIV epidemic has been around for more than 40&nbsp;years, with more than 36,000 people infected each year and <a href="">1.2 million Americans living with HIV</a>.</span></span></span></p> <p><span><span><span>The FDA should demonstrate the same commitment to the fight against HIV that it claims to have against COVID-19 by reclassifying PrEP and PEP OTC. ASAP.</span></span></span></p> Thu, 09 Jul 2020 15:27:58 -0400 Jeffrey A. Singer Should Governments Erect Statues? <p><a href="" hreflang="und">Jeffrey Miron</a> and <span class="text-semibold">Erin Partin</span></p> <p>In response to the police killing of George Floyd, and to a&nbsp;resurgence of the Black Lives Matter movement, protesters across the country have recently removed or vandalized statues celebrating <a href="">Confederate soldiers</a>, <a href="">founding fathers</a>, and <a href="">explorers</a>. Some cities and states have <a href="">preemptively removed</a> or covered such statues to reduce the likelihood of conflict.</p> <p>Those advocating for statue removal argue that honoring problematic historical figures is offensive to significant fractions of the citizenry, especially Blacks and other minorities. And many of the Confederate monuments being attacked were erected during the <a href="">Jim Crow</a> era, at <a href="">moments</a> of civil rights unrest.</p> <p>Those opposing statue removal argue that these statues preserve history and should therefore remain. Opponents also raise questions about where to draw the line regarding which statues should come down, or not.</p> <p>To resolve this debate, we should recognize that the statues in question were constructed by governments, at taxpayer expense, and typically reside on government land.</p> <p>No good argument exists, however, for why governments should be in the “statue” or “history” business. Government interventions in the economy and society can sometimes make sense as responses to monopoly, or externalities (e.g., pollution), or insufficient provision of public goods (e.g., national defense). Even in such cases, governments often overreach, but at least advocates of intervention can suggest that private mechanisms, on their own, might not produce a&nbsp;good outcome.</p> <p>None of the standard “market failures”, however, explains why governments need to build statues or any other kind of monument. Governments do so as a&nbsp;method of thought control, to nudge their citizens toward a&nbsp;particular view of the state. This is NOT a&nbsp;legitimate function of government.</p> <p>Books, movies, television, universities, private museums, and other private institutions, moreover, are more than adequate mechanisms to preserve and teach history.</p> <p>So while vandalism aimed at statues is ill advised, the lawful removal of government statues and monuments is good policy because governments should never have erected them in the first place. These <a href="">expensive</a> public works projects have no legitimate public benefit but do have a&nbsp;major negative: offending or even oppressing the citizenry, minorities in particular.</p> Thu, 09 Jul 2020 10:21:23 -0400 Jeffrey Miron, Erin Partin Complexity in State Government <p><a href="" hreflang="und">Chris Edwards</a></p> <p>One of the factors undermining efficiency and performance in American government is the rising complexity of laws, regulations, programs, and bureaucratic procedures. Complexity raises costs, reduces transparency, and undermines sound management.</p> <p>The problem is partly caused by the flood of money pouring from the federal government to state governments and from state governments to local governments. These flows come with extensive reporting requirements and with countless rules that micromanage how money is to be used and not used.</p> <p>Other sources of complexity include court‐​ordered requirements, collective bargaining agreements, and activism by every incoming federal, state, and local politician wanting to add new programs as well as carve‐​outs and additions to existing ones. Governors don’t just want to increase spending on public schools in general, they want signature achievements they can brag about, such as raising teacher pay X&nbsp;percent, reducing class sizes Y&nbsp;percent, or creating programs with buzzy and aspirational titles to signal their issue leadership.</p> <p>The administration of Utah Governor Gary Herbert discusses the complexity problem in its <a href="">proposed budget</a> for 2021. Utah is a&nbsp;conservative state that spends only <a href="">a&nbsp;fraction</a> of what liberal states do on a&nbsp;per capita basis, so the problems identified in these Utah excerpts are presumably worse in states such as New York.</p> <blockquote><p>The number of bills, resolutions, funds, line items, programs, and performance measures continue to grow over time.</p> <p>… While no single measure can precisely capture the increase in complexity, some data provides a&nbsp;point of reference. The Legislature passed 574 bills and resolutions during the 2019 General Session, which represents a&nbsp;47% increase over the 391 bills and resolutions passed in the 2000 General Session.</p> <p>Not only is the overall number of bills increasing, but the complexity of appropriation bills is also continuing to grow. Each appropriation identifies a&nbsp;funding source and funding use, typically referred to as a&nbsp;line item. Additionally, separate allocations for specific programs may be identified within a&nbsp;line item. In FY 2020, 1,472 active programs are identified in the state’s accounting chart of accounts. This is 205 (or 16%) more active programs than in FY 2011.</p> <p>This trend of increasing complexity is particularly concerning in the area of public education. In FY 2010, the public education budget split funding into 44 different programs outside of the Weighted Pupil Unit (WPU)-based Basic School Program. This increased to 62 different non‐​WPU programs in FY 2020, including 31 under the Related‐​to‐​Basic line item and another 26 under line items for the State Board of Education’s Initiatives, Science Outreach, and Fine Art Outreach.</p> <p>Another recent trend is the creation of new funds or accounts to fence off funding for specific programs. In FY 2020, $688 million (or nearly 9%) of all Education Fund and General Fund appropriations passed through another fund or account before being allocated for their actual use.</p> <p>… Excessive budget line items and programs also separates budget buffers. Agencies are permitted to move funding between programs within the same line item, but excluding a&nbsp;few statutory exceptions, may not move funding between line items. As a&nbsp;result, agencies may over budget for an individual line item because no other mechanism can reallocate funds to address emerging priorities or unexpected costs.</p> <p>… There were over 800 performance measures in 2019 General Session appropriations bills.</p> <p>… In the recent Performance Audit of Public Education Reporting Requirements, the Office of the Legislative Auditor General was unable to identify exactly how many different reports local education agencies (LEAs) are expected to submit each year. Based on reporting calendars from various entities, the auditors estimated the number of reports to exceed 300. The auditors said, “The difficulty lies in the large number of individual reporting requirements found in federal law, state statute, administrative rule, and department policy, let alone additional requests for data from various entities.”</p> <p>This audit finding illustrates the needless overhead and complexity that occurs when people in positions of authority try to gain insight by breaking systems down into smaller and smaller measurable parts, often yielding more complexity and cost without improving performance.</p> <p>… In summary, increasing complexity will make government more difficult to understand and lead to squandered opportunities. By contrast, replacing complexity with simplicity will help citizens better understand the services they are purchasing with taxpayer dollars and ensure that every tax dollar invested creates more value.</p> </blockquote> Wed, 08 Jul 2020 15:17:39 -0400 Chris Edwards Worthwhile Canadian Initiative: Lessons from Canada on Cabotage Policy <p><a href="" hreflang="und">Colin Grabow</a></p> <p>Earlier this month a&nbsp;Panamanian‐​flagged tanker, the <em><a href="">Cabo de Hornos</a></em>, left Burnaby, British Columbia&nbsp;bound for St. John, New Brunswick where it will <a href="">deliver its cargo</a> of crude oil to a&nbsp;local refinery. Remarkably, this seemingly ho‐​hum event would be illegal if performed in the United States. In the Land of the Free, domestic waterborne transport is subject to the <a href="">Jones Act</a>, which bars not only foreign‐​registered ships from providing such services but even those built in other countries.</p> <p>In contrast, Canada has sensibly opted for a&nbsp;less draconian approach to its cabotage policy. Under the country’s Coasting Trade Act, Canadian‐​flagged vessels are <a href="">given preference</a> for domestic transport. However, if no such vessel&nbsp;is&nbsp;available, foreign ships can be used under license (provided they meet safety and environmental&nbsp;requirements). It was the granting of such a&nbsp;license that enabled the transport of oil between two Canadian ports using a&nbsp;Panamanian‐​flagged ship, and for a&nbsp;Canadian refinery to meet its oil needs from a&nbsp;Canadian producer.</p> <p>The United States, however, has no such licensing system, and Jones Act waivers can only be issued by the executive branch on national security grounds. If shippers want to send cargo by water from one part of the United States to another, and no Jones Act‐​compliant vessel is available, they are essentially out of luck. Either they must find an alternative method of domestic transportation or obtain the product from a&nbsp;foreign source where Jones Act restrictions do not apply. That means greater congestion for surface transport and lost sales to foreign competitors.</p> <p>In other words, Americans are forced to bear the costs of Jones Act protectionism even in those instances where no Jones Act service is being offered and thus nothing is being protected. Protectionism is folly, but protectionism for domestic industries or services that do not even exist is simply madness.</p> <p>The establishment of a&nbsp;means for Americans to use non‐​Jones Act ships in those instances when none are available is a&nbsp;commonsense reform measure that would produce economic relief at no cost to the U.S. maritime industry.</p> <p>To learn more about both Canada’s cabotage policy and possible reform measures to the Jones Act, pick up a&nbsp;copy of the new Cato book <em><a href="">The Case against the Jones Act<span>.</span></a></em></p> Wed, 08 Jul 2020 14:33:22 -0400 Colin Grabow Cato and the ACLU Join Forces to Protect Philadelphia’s Supervised Injection Site <p><a href="" hreflang="und">Trevor Burrus</a></p> <p>The first major federal drug law, the Harrison Narcotics Act, went into effect in 1915. As the federal drug war moves into its second century, we are still faced with an unprecedented opioid crisis that is <a href="">getting worse</a> during the current pandemic. Yet while other countries such as <a href="">Portugal</a> and <a href="">Switzerland</a> are approaching the problem with new, more humane ideas, the federal government is stuck in the prohibitionist mindset of the past, which not only doesn’t work but makes the problem worse.&nbsp;</p> <p><a href="" target="_blank">Safehouse</a> is a&nbsp;nonprofit public‐​health organization that seeks to mitigate the harms of the opioid crisis in many ways. First and foremost, Safehouse wants to provide a&nbsp;supervised injection site (SIS) for compulsive opioid users. SISs do not provide any drugs to users but offer a&nbsp;place where the drugs can be tested and medical professionals are available in the event of an overdose. In addition, Safehouse will offer counseling and recovery treatment.</p> <p>SIS model has been used with great success elsewhere, especially in Vancouver’s Downtown Eastside, which was an epicenter of overdoses before <a href="" target="_blank">Insite</a> opened in 2003. Despite those successes, the federal government is trying to block Safehouse by invoking a&nbsp;1980s crack‐​house law that makes it a&nbsp;crime to provide a&nbsp;place to take illicit drugs, even without compensation. Safehouse <a href="">won the first round</a> when a&nbsp;federal district court ruled that the Department of Justice couldn’t stretch the crack‐​house statute to cover Safehouse’s lifesaving SIS.</p> <p>Now on appeal to the Third Circuit, Cato, joined by&nbsp;the ACLU and the ACLU of Pennsylvania, has&nbsp;filed&nbsp;a&nbsp;<a href="">brief supporting Safehouse</a>. We argue that the Constitution’s federal structure was designed to allow for states to experiment with different policies, especially when it comes to protecting the health and welfare of citizens. No one knows how to solve the opioid crisis, and it is bad form, at the very least, for the federal government to try to block SISs with a&nbsp;30‐​year‐​old law that was passed during the height of the War on Drugs. The idea that prohibition and arrests is the best way to solve the opioid crisis should be left in the past.</p> <p>Moreover, the federal government is <a href="">largely responsible for the current overdose crisis</a>. Over the past decade, the synthetic opioid fentanyl has become the biggest source of overdoses, with over 31,000 dying in 2018. Fentanyl is 50 to 100 times stronger than heroin, and the lethal dose is 2&nbsp;or 3&nbsp;milligrams, which is equivalent to about 4&nbsp;grains of salt. Compulsive heroin users are increasingly finding fentanyl in their heroin, often unknowingly. They shoot up the same amount as usual, and they die.</p> <p>Why is such a&nbsp;deadly drug polluting the drug supply? Because of the “iron law of prohibition.” When college kids sneak alcohol into a&nbsp;football game, they don’t sneak beer, they prefer the more compact and potent stuff. Similarly, during alcohol Prohibition, beer and wine essentially disappeared and were replaced by hard spirits. For the same reasons, drug traffickers prefer high‐​potency opioids like fentanyl even when the users are not demanding it.</p> <p>Finally, we argue that the DOJ’s attempt to apply the crack‐​house law to Safehouse’s SIS is an unconstitutional extension of the Commerce and Necessary and Proper Clauses. Under the government’s argument, parents that let their son shoot up in the bathroom so they can monitor him would be violating the same statute. Yet the Commerce and Necessary and Proper Clauses do not let Congress regulate intrastate, noneconomic activity such as this. While Congress has broad power under current precedents, it doesn’t have the power to control everything that happens around illicit drugs.</p> <p>The Third Circuit should stop the federal government’s cruel and counterproductive attempt to block an institution that will undoubtedly save lives.</p> Wed, 08 Jul 2020 14:32:42 -0400 Trevor Burrus In Church School Hiring, A Solid Win For Religious Liberty <p><a href="" hreflang="und">Walter Olson</a></p> <p>The First Amendment’s free exercise clause guarantees churches the autonomy needed to pursue their religious mission. That requires solid protections of substance and not merely form, a&nbsp;7–2 majority of the Supreme Court confirmed in today’s twin cases on church school employment and employment discrimination (<a href="">Our Lady of Guadalupe School v. Morrissey‐​Berru, combined with St. James School v. Biel</a>). Writing for seven Justices, Justice Samuel Alito found that a&nbsp;church is entitled to decide for itself how to fill classroom jobs that instruct children in religious tenets and lead children in prayer. Justices Clarence Thomas and Neil Gorsuch would have gone&nbsp;further and required courts to defer to a&nbsp;religious organization’s sincere, good faith determination that a&nbsp;job exercises the functions captured by the imperfect term “ministerial.”</p> <p>While not unanimous as had been&nbsp;<a href="">the 2012 Hosanna‐​Tabor case</a>, which it helps clarify, today’s 7–2 result confirms that the Supreme Court takes seriously the protections of the Free Exercise clause, even when they come into conflict with the powerful force&nbsp;that is employment discrimination law. That should help quell fears (which I&nbsp;<a href="">discussed recently</a>) that the Court is stepping back from a&nbsp;robust commitment to religious liberty.</p> Wed, 08 Jul 2020 13:13:00 -0400 Walter Olson Collective Bargaining in State and Local Government <p><a href="" hreflang="und">Chris Edwards</a></p> <p><span>Congress is debating bills to address police misconduct as well as to provide further aid to state and local governments struggling with budget deficits. But the states can address both issues themselves with one reform: repealing collective bargaining for public workers.</span></p> <p><span>State and local workforces are heavily unionized with 39 percent of workers covered by collective bargaining compared to just 7 percent in the private sector. Large majorities of public school teachers and police in big‐​city departments are covered by collective bargaining.</span></p> <p><span>Public sector union shares vary widely across the states based on state collective bargaining rules. Many states, such as New York, mandate collective bargaining for most workers. At the other end of the spectrum, North Carolina and Virginia completely ban collective bargaining in government, which is the best policy approach.</span></p> <p><span>I discuss government unions further in my new <em><a href="">Examiner<span> </span></a></em><a href=""><span>op‐​ed</span></a> and in studies <a href="">here</a> and <a href="">here</a>.</span></p> <p><span>This <a href="">study</a> by the Economic Policy Institute presents data on union membership, some of which I’ve posted below. The first chart reveals the revolution in public‐​sector unionism during the 1960s and 70s. The second chart reflects the large differences in union policies between the states.</span><br /> </p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="8917b5e9-c694-4243-8750-92116793270f" data-langcode="en" class="embedded-entity"> <img srcset="/sites/ 1x, /sites/ 1.5x" width="700" height="703" src="/sites/" alt="figure 1" typeof="Image" class="component-image" /></div> <div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="a40f50f9-ddb7-4c5c-8962-e0bf4f567cdb" data-langcode="en" class="embedded-entity"> <img srcset="/sites/ 1x, /sites/ 1.5x" width="700" height="1797" src="/sites/" alt="c" typeof="Image" class="component-image" /></div> Wed, 08 Jul 2020 13:11:13 -0400 Chris Edwards Taxpayer Funding for Stadiums: A New Documentary <p><a href="" hreflang="und">David Boaz</a></p> <p>“Throw a&nbsp;Billion Dollars from the Helicopter.” That’s the title of a&nbsp;new documentary on taxpayer funding of professional sports stadiums, and also the advice of a&nbsp;University of Chicago economist on a&nbsp;better way to help local economies.</p> <p>We’ve written a&nbsp;lot about the economics of stadiums here, so it’s great to see the topic getting more attention. <a href="">The documentary is available on Vimeo</a> and—<a href=";dchild=1&amp;keywords=throw+a+billion+dollars+from+the+helicopter&amp;qid=1594217056&amp;s=instant-video&amp;sprefix=throw+a+billio%2Cinstant-video%2C126&amp;sr=1-1">starting today</a>—<a href=";dchild=1&amp;keywords=throw+a+billion+dollars+from+the+helicopter&amp;qid=1594217056&amp;s=instant-video&amp;sprefix=throw+a+billio%2Cinstant-video%2C126&amp;sr=1-1">on Amazon Prime</a>.</p> <p>In 1989 an investment group headed by George W. Bush acquired the Texas Rangers. They promptly asked the city of Arlington, Texas, to build them a&nbsp;new stadium. In January 1991 voters approved raising sales taxes to pay 71 percent of the cost of the stadium. The “public” agency overseeing the project also seized surrounding land by eminent domain to allow the team owners more room for development. All told, <a href="">the taxpayers chipped in about $200 million</a> for the wealthy team owners, and the new stadium opened in 1994. Bush and his partners made big money when they sold the team in 1998.</p> <p>But sports teams always want to keep up with the Joneses. Within 20&nbsp;years or so the new owners wanted a&nbsp;newer, fancier stadium complete with a&nbsp;retractable roof. So they teamed up again with the mayor and city council and arranged for — this time — a $500 million bond deal. Civic leaders were all on board. A&nbsp;scrappy group of Tea Party‐​type residents calling themselves Citizens for a&nbsp;Better Arlington tried to stop the deal, but they were outspent 50–1 and often thrown out of public events and bullied by the mayor. In the end about 60 percent of the voters once again approved being taxed to help megawealthy investors build a&nbsp;stadium along with bars, restaurants, a&nbsp;hotel and other associated money‐​making enterprises. The proponents spent about $2 million on their campaign. Even in oil‐​rich Texas, you couldn’t find an investment with a&nbsp;better payoff.</p> <p>The documentary has footage of the mayor and the council meetings and interviews with Arlington residents on both sides of the dispute. It also interviews leading sports economists such as Roger Noll of Stanford, Rod Fort of the University of Michigan, and Allan Sanderson of the University of Chicago—the one who said that if you want to generate economic development in a&nbsp;city you’d do better to just take the money, convert it into $20 bills, get a&nbsp;helicopter, and then throw “a billion dollars from the helicopter” down on the city. About 35&nbsp;minutes in is a&nbsp;useful chart showing how much more expensive stadiums have gotten over the years (adjusted for inflation).</p> <p>Special treat for Cato at Liberty readers: Near the end of the documentary a&nbsp;young man campaigning for the corporate welfare describes himself as really mostly a&nbsp;libertarian.</p> <p>More on the economics of taxpayer‐​funded stadiums <a href="">here</a> and <a href="">here</a>.</p> Wed, 08 Jul 2020 10:22:19 -0400 David Boaz Courts Shouldn’t Punish Plausible Claims of Civil Rights Abuses <p><a href="" hreflang="und">Ilya Shapiro</a></p> <p>William Frey and his lawyers have been assessed $55,340 for filing civil rights claims on his behalf against municipal government defendants. While the ability for citizens to vindicate their constitutional rights is typically viewed with the utmost importance, the district court hearing Frey’s allegations found them to be so frivolous as to require sanctions.</p> <p>Evaluate Frey’s allegations to see if you would reach the same conclusion: As Frey passed through the screening checkpoint at Jackson Municipal Airport (Wyoming), he triggered a&nbsp;body‐​scanning machine that alerted to his groin area. After a&nbsp;security employee assured Frey the alert was a&nbsp;false positive caused by his belt, he was ordered to submit to a&nbsp;pat‐​down search of his groin area.</p> <p>Frey requested that he merely reenter the body scanner without his belt to clear the false positive. His suggestion was ignored, and he was told that if he did not submit to the pat‐​down he would not be allowed to board his flight—or even leave the airport.</p> <p>A municipal police officer was summoned after Frey again refused to consent to the invasive search. The officer arrested Frey after refusing Frey’s repeated request to either reenter the scanner or leave the airport. Frey was then subjected to an invasive pat‐​down by the officer, who found no unlawful items.</p> <p>Frey was detained in jail for three hours, during which he was interrogated and denied repeated requests to speak to an attorney. His wife, seated in the lobby of the jail, was even told that her husband’s prolonged detainment was due to his request for a&nbsp;lawyer, which she eventually found for him.</p> <p>Frey contends that his constitutional rights were violated during the arrest and subsequent detention. But the federal district court not only rejected Frey’s claims, but also found them to be so frivolous as to order him to pay the defendants’ court fees and sanctioned his lawyers for bringing the lawsuit.</p> <p>Now before the U.S. Court of Appeals for the Tenth Circuit, Cato has joined the Institute for Justice, Competitive Enterprise Institute, and Rutherford Institute on an <a href="">amicus brief</a> arguing against the fee and sanctions award. This penalty—typically reserved only for claims deemed “fanciful,” “fantastic,” and “delusional”—would have a&nbsp;chilling effect on future civil rights litigation, particularly against municipal defendants that are the target of most such suits. Regardless of the ultimate merits of his claims, which we believe to be strong, they aren’t meritless, frivolous, or otherwise illegitimate.</p> <p>If the Tenth Circuit affirms the lower court’s order, it would send an unsettling signal to citizens hoping to seek relief against government infringements of their civil liberties. Potential plaintiffs would likely forgo legitimate claims of constitutional abuses for fear of bearing a&nbsp;substantial financial risk. The court should make clear that sanctions should be reserved for plaintiffs and counsel bringing baseless claims.</p> Wed, 08 Jul 2020 09:06:05 -0400 Ilya Shapiro Was Engagement with China a ‘Mistake’ that Demands a Radical Policy Rethink Today? <p><a href="" hreflang="und">Scott Lincicome</a></p> <p>It is increasingly common for politicians and pundits in Washington to look upon China’s numerous recent offenses and point fingers not at Beijing but inward at a&nbsp;specific U.S. policy from 20&nbsp;years ago: granting China “permanent normal trade relations” (PNTR) and the country’s subsequent entry into the World Trade Organization (WTO). This event, so the story goes, was an epic American blunder that not only fueled China’s rise and the now‐​famous “China Shock”—the period from 1999 to 2011&nbsp;in which increasing Chinese imports supposedly destroyed approximately millions of jobs – but also today justifies a&nbsp;total rethink of U.S. foreign and economic policy. For example, Senator Josh Hawley (R-MO) recently <a href="">used</a> this now‐​familiar refrain on the Senate floor to justify his bill withdrawing the United States from the World Trade Organization entirely:</p> <blockquote><p>Since Beijing won Most Favored Nation status and joined the World Trade Organization in 2001, we have lost over three million jobs to China. During the past two decades, as we fought war after war in the Middle East, the Chinese government systematically built its military on the backs of our middle class.</p> <p>We were promised things would be different. We were told that giving China access to our markets and allowing them power in the WTO would reform their behavior, make them more liberal. We were told it would be good for America and for the world.</p> <p>Well, the only nation it was good for was China. And we cannot afford inaction any longer.</p> </blockquote> <p>As I&nbsp;explain in a&nbsp;<a href="">new Cato Institute paper out today</a>, however, the trendy caricature of a&nbsp;naïve U.S. government fueling the destruction of the American worker in the futile hope of Chinese democratization suffers from several flaws that collectively prove fatal for the anti‐​engagement, anti‐​PNTR thesis:</p> <ul> <li>First, numerous studies completed since the original China Shock research reveal its harms, while likely real, to have been overstated and its benefits ignored, and the surrounding issues of import competition and U.S. manufacturing to be far more uncertain and complex than the caricature painted by PNTR/​China critics.</li> <li>Second, the factual record demonstrates that Washington policymakers did <strong>not</strong> first open the US market to China via PNTR; rubber‐​stamp China’s WTO accession; prioritize Chinese democratization over other, more pragmatic and commercial objectives; or have any realistic alternatives to granting PNTR, given the facts at the time the votes were cast.</li> <li>Third, it is a&nbsp;myth that the U.S. government – before, during and after PNTR – simply opened the floodgates to Chinese imports while refusing to protect or otherwise “help” American workers that faced “unfair” foreign competition. In fact, the federal government implemented dozens of measures to restrict Chinese imports, otherwise protect or subsidize U.S. manufacturers, and assist American workers affected by import competition. The <em>real</em> problem was just that these interventions didn’t work very well.</li> <li>Finally, the current obsession with China’s WTO entry also ignores (1) the myriad U.S. policy failures that actually <em>did</em> enable China’s rise or hamstring US companies and workers; (2) the unambiguous benefits of trade and globalization more broadly; (3) the costs, inefficacy and cronyism of past U.S. attempts to block imports, including those from China during the China Shock period; and (4) the majority of American towns that were hit by the China Shock but have long since adjusted and thrived.</li> </ul> <p>Together, these points dismantle now‐​popular assertions from American politicians and pundits that engagement with China in the 1990s and 2000s was an obvious mistake and that denying China admission to the WTO was realistic a&nbsp;policy choice that would have improved U.S. economic and geopolitical standing today.</p> <p>China’s rise could present this generation’s most pressing geopolitical issue, and the Chinese Communist Party’s human rights abuses, territorial expansionism, global health transgressions, and economic reversals certainly deserve criticism and responses from the U.S. government. Proposed solutions to these and related issues, however, should stand on their own merit – not by pretending that they are an essential correction of the “mistakes” of PNTR, China’s WTO accession, and economic engagement more broadly.</p> <p>Doing so would inevitably inhibit better US‐​China policy – and at a&nbsp;time when it’s most needed.</p> Wed, 08 Jul 2020 08:00:03 -0400 Scott Lincicome A Twitter Alternative, If They Can Keep It <p><a href="" hreflang="und">Will Duffield</a></p> <p>After an influx of new users, Parler, a social media platform offered as liberally governed alternative to Twitter, implemented a few basic rules. These rules prompted frustration and gloating from the platform’s respective fans and skeptics, but Parler is simply advancing along a seemingly inevitable content moderation curve. Parler’s attempt to create a more liberal social media platform is commendable, but the natural demands of moderation at scale will make this commitment difficult to keep.</p> <p>Parler was initially advertised as moderated in line with First Amendment precedent and Federal Communications Commission broadcast guidelines, which differ considerably from each other. However, the platform’s <a href="">terms</a> of service reserve the right to “remove any content and terminate your access to the Services at any time and for any reason or no reason,” and include a provision requiring users to cover Parler’s legal fees in suits over user speech. While the latter section is unlikely to hold up in court, the entirely standard reservation of the right to exclude was seen as a betrayal of Parler’s promise of an unobstructed platform for free speech.</p> <p>Parler’s decision to ban trolls who had begun impersonating MAGA celebrities and implement a few rules which, while quite limited, went beyond what might be expected of a First Amendment standard, contributed to the perception of hypocrisy.</p> <p> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="36983bf4-e98a-4817-aa38-46439893fcc6" data-langcode="en" class="embedded-entity"> <img srcset="/sites/ 1x, /sites/ 1.5x" width="700" height="1023" src="/sites/" alt="Rules posted by Parler's John Matze" typeof="Image" class="component-image" /></div> <p>Although these rules may prohibit what the First Amendment would protect, they are largely in keeping with Parler’s more implicit founding promise; not to be a place for all speech, but to offer a home for conservatives put off by Twitter’s ostensibly overbearing moderation. Parler’s experience illustrates the impossibility and undesirability of preventing alleged bias by <a href=";r=4#:~:text=%2F25%2F2019)-,Stop%20the%20Censorship%20Act,unlawful%20rather%20than%20merely%20objectionable.">governing</a> differing social media platforms under a one‐​size fits all First Amendment standard. For those who imagined that Parler would strictly apply the First Amendment, or that such a platform would be practicable or manageable, the developments were disappointing. However, for those who simply want an alternative to Twitter that governs with conservative values in mind, Parler’s growing pains present a difficult but viable path forward. Parler’s incentives to moderate will only increase as it grows, and scale will make transparent, context‐​aware moderation all the more difficult.</p> <p>Platforms usually develop new policies in response to crises or unforeseen, unwanted platform uses. One of the first <a href="">recorded</a> user bans, within a text based multiplayer game called LambdaMOO, came in response to the unanticipated use of a voodoo doll item to narrate obscene actions by other players. After the livestreamed Christchurch shooting, Facebook placed new restrictions of Facebook live use. These changes can be substantial, Reddit once committed to refrain from removing “<a href="">distasteful</a>” subreddits but changed its stance in response to user communities dedicated to violence against women and upskirt photos.</p> <p>Because Parler is a small, young platform, the sorts of outrageous, low probability events that have driven rule changes and moderation elsewhere just haven’t happened there yet. This week saw the first of these rule‐​building incidents. Trolls hoping to test the boundaries of Parler’s commitment to free speech and get a rise out of its users began, often vulgarly, impersonating prominent Trump supporters and conservative publications. Whether recent <a href="">banning</a> of Chapo Trap House subreddit contributed to the number of bored leftists trolling Parler is an interesting, but probably unanswerable question. Drawing a line between parody and misleading impersonation is a problem that has long bedeviled content moderators. Twitter has developed <a href="">policies</a> governing impersonation, as well as rules for parody and fan accounts. Twitter may have drawn its lines imperfectly, but it drew them in light of a decade of experience with <a href="">novel</a> forms of impersonation.</p> <p>Parler responded by banning the impersonating accounts, including some inoffensive parodies. Devin Nunes’ Cow, a long running Twitter parody account and the subject of a <a href="">lawsuit</a> by Rep. Nunes (R-CA) against Twitter, followed the Congressman to Parler and was subsequently <a href="">banned</a>. The fact that Parler has responded in such a blunt fashion is unsurprising. As a small platform, they have limited moderation resources to address impersonation claims, and the vitality of their network somewhat relies upon the presence of prominent Trump supporters like Rep. Nunes. While the platform has <a href="">called</a> for volunteer moderators, likening the work to service on a jury, this may introduce biases of its own.</p> <p>Banning these sorts of impersonators is unlikely to upset Parler’s core userbase of Twitter‐​skeptical conservatives. A <a href="">seeming</a> blanket ban of Antifa supporters from the platform, announced by founder John Matze, might be similarly understood as an antiharassment measure. However, if the platform’s governance is beholden to the tastes of a specific community or the whims of its founders it may have difficulty attracting a wider audience and maintaining some sort of First Amendment standard. These are not unique problems: Pinterest has long labored to shed the perception that it’s just for women, while content delivery network Cloudflare <a href="">struggled</a> with ramifications of its founder’s unilateral ability to remove hateful content such as the white supremacist site Stormfront. Parler may simply aspire to be a social media platform for conservatives. Niche platforms like JDate, a Jewish dating site, and Ravelry, a social network for knitters, have undoubtedly been successful. If Parler pursues this path, it will provide a safe space for Trump supporters, but won’t have the level of cultural impact enjoyed by Twitter. It may also simply be <a href="">boring</a> if it becomes an ingroup echo chamber without opportunities for engagement, conversation, or conflict with ideological others.</p> <p>Parler is working to move beyond some of its small platform problems. Matze’s profile now includes the line “<span>Official Parler statements come from @Parler,” And the platform issued its first set of </span><a href=""><span>community guidelines</span></a><span>. The guidelines illustrate the unavoidable tensions between Parler’s desire to utilize a First Amendment standard, and create a social media platform that is both governable and enjoyable. In many cases, the guidelines make reference to specific Supreme Court precedent, clearly trying to mirror the strictures of the First Amendment, however, they also include a blanket prohibition on spam, which, while a bedrock norm of the internet, has no support in First Amendment caselaw. In practice, reliance on areas of law that have essentially been allowed to lie fallow, often to the frustration of conservatives, produces vague guidance such as: “</span><span>Do not use language/​visuals that are offensive and offer no literary, artistic, political, or scientific value.” In time, Parler will need offer more specific rules for its platform, rules applicable at scale while still reflective of its values. As a model for social media, a First Amendment standard with additions driven by contingency may work well. But in time, it may look more like the rules of other platforms than intended and will ultimately </span><span>reflect the fact that the First Amendment is made practicable by the varied private rules layered on top of it. </span></p> <p>As Parler grows, it will face the large platform problem of enforcing its rules at scale. This is a big platform problem. Parler may be able to derive a standard of obscenity that works for its current userbase, but new users and communities will discover new ways to contest it. Millions of users will find more ways to use and misuse a platform than hundreds of thousands of users, and network growth usually outstrips increases in moderation capacity. Moderators will have to make more moderation decisions in less time, and often with less context. If Parler hosts multiple communities of interest, it will need to understand their distinct cultures and idiosyncrasies of language and mediate between their different norms.</p> <p>While a larger Parler may hope to maintain a liberal or constitutional approach to moderation, this will become difficult when, at any moment, thousands of people are using the platform to sell stolen antiquities, violate copyright, and discuss violence in languages its moderators don’t understand. Add the pressure of the press and politicians demanding that the platform do <em>something</em> or face nebulous regulation, and liberalism becomes harder to maintain. In the face of these novel problems of scale, platforms with different purposes and structures all seem to suffer from opaque decision making and overreliance on external expertise. Even if they wish to govern differently, they don’t have time to explain every moderation decision or the in‐​house expertise to understand every new unanticipated misuse. Individual users also matter less when platforms have millions or billions of them. While this frees platforms from reliance on particular superusers, it erodes the feedback loops that help to rein in overbroad moderation.</p> <p>Parler’s early commitment to free speech, and the charges of hypocrisy which attended its initial rulemaking, may help it to resist later demands for increased moderation. However, platforms have long gone back on earlier assurances of liberal governance: over the past decade, Reddit went from maintaining a commitment to refrain from removing subreddits, to removing <a href="">hundreds</a> of subreddits in a single day. While Parler hopes to resist the novel demands of moderation at scale, other platforms have been unable to do so. Though they may yet succeed, it is likely that these constraints are structural, and will only be surmounted by a <a href="">commitment to decentralization</a> in the architecture and code of the platform itself. Human commitments, even commitments made with the best of intentions, are simply too vulnerable to the unanticipated pressures of governance at scale.</p> Tue, 07 Jul 2020 16:26:01 -0400 Will Duffield The Politics of Renegotiating NAFTA <p><a href="" hreflang="und">Simon Lester</a></p> <p>Mexican president Andrés Manuel López Obrador will be <a href="">coming to DC</a> tomorrow as part of a&nbsp;White House event related to the renegotiation of NAFTA into the USMCA (U.S.-Mexico-Canada Agreement). The USMCA entered into force on July 1, and as my colleagues <a href="">have</a> <a href="">indicated</a>, there’s actually not all that much to celebrate. What we have tomorrow, then, is an event based on political theater more than on policy. The celebratory press conference was as much of a&nbsp;goal as the new agreement itself. We should be happy that Trump did not try to&nbsp;withdraw from NAFTA, but we should be uncomfortable with the way the NAFTA renegotiation took place, and also with some of the <a href="">USMCA results</a>.</p> <p>In terms of that political theater, President Trump is excited to claim a&nbsp;political victory, but whose political victory is it? Is it Trump’s or does it belong to the House Democrats who pushed for <a href="">last minute changes</a>&nbsp;to the agreement? As <a href="">this article</a>&nbsp;from <em>Inside U.S. Trade</em> notes, the Democrats who were involved think they deserve the credit:</p> <blockquote><p>Former Vice President Joe Biden should focus on trade policy during the presidential campaign trail and tout the U.S.-Mexico-Canada Agreement as a&nbsp;win for his party, not the Trump administration, a&nbsp;lawmaker key to the renegotiation of NAFTA told <em>Inside U.S. Trade</em> this week.</p> <p>President Trump is touting the deal as the fulfillment of his 2016 campaign promise to shake up U.S. trade policy and get rid of NAFTA. In a&nbsp;June 20 Tulsa rally, Trump said his administration was “enacting fair trade deals that finally, after all these years, put America first.” He later told a&nbsp;crowd in Wisconsin that his administration “got rid of the worst trade deal ever made in the history of mankind,” referring to NAFTA. “Under this administration, you know that American workers like you are a&nbsp;national treasure,” he said, touting USMCA.</p> <p>But Rep. Jimmy Gomez (D-CA), who was appointed by House Speaker Nancy Pelosi (D-CA) last year to lead labor talks in USMCA negotiations with the Trump administration, said Biden could score points in the campaign by focusing on trade.</p> <p>“To the Biden campaign directly I&nbsp;said ‘Do not run away from trade; lean in to trade,’” Gomez said in a&nbsp;July 1&nbsp;interview. “Leaning into trade is not only a&nbsp;way to build the economy but also, how do you protect workers’ rights? How do you protect the environment? How do you advance other goals instead of just looking at how much you grow the GDP of the country?”</p> </blockquote> <p>The political messaging here is going to be really interesting. Over the course of the next several months, we may or may not see much in terms of changes as we transition from NAFTA to the USMCA (though businesses can expect a&nbsp;lot of new paperwork). Perhaps automakers will increase <a href="">the wages of auto workers in Mexico</a>, which at some point will lead to higher car prices for consumers, although it’s hard to say exactly when given the current economic climate. And perhaps we will see some trade enforcement actions, for example against <a href="">Mexican restrictions on biotech products</a>, but those will take a&nbsp;while to play out. What we may see more quickly in terms of disputes is litigation related to the denial of labor rights in Mexican factories. There was an innovation in USMCA, pushed by the House Democrats and never before seen in a&nbsp;trade agreement, that targets the labor practices of specific factories directly, rather than the traditional approach of challenging a&nbsp;foreign government for not enforcing its laws or complying with international agreements. If these cases come, it will be interesting to see how Biden and Trump try to take credit. It’s easy to see how a&nbsp;Democratic politician like Biden can talk up labor rights. Does Trump even know how to do that, and would he bother trying? We’ll find out.</p> <p>All of this emphasizes the point made earlier by my colleagues: the USMCA is not really about free trade. We already had mostly free trade under the NAFTA. Some updates to deal with digital trade issues were certainly needed, and Canada opened up its market to a&nbsp;few more dairy and other agriculture products, but many of the other changes were about either the Trump administration or the House Democrats pushing other priorities. From the perspective of trade liberalization, both sides should be trying to avoid the blame for USMCA. But politicians often think more about politics than policy, and both sides will likely be pushing a&nbsp;narrative that this was a&nbsp;win for them.</p> <p>My guess is that the details will be so hard to follow for most voters that it will all be a&nbsp;wash in terms of U.S. politics. The average person will have a&nbsp;lot of trouble sorting through the different claims. Trump will assert that the USMCA is a&nbsp;victory for him, without offering any details. Biden may respond that the Democrats made major changes, so it’s really a&nbsp;victory for them. Any voters who are truly undecided at this point are unlikely to be swayed by any of this. But political theater is part of politics, so the show will go on tomorrow at the White House regardless, and it will be a&nbsp;few months before we find out what the changes from NAFTA to the USMCA actually mean in practice.</p> Tue, 07 Jul 2020 15:46:36 -0400 Simon Lester Trump’s Migration Ban Could Affect Up To 545,500 If Consulates Reopen—Fewer Than 18,000 Otherwise <p><a href="" hreflang="und">David J. Bier</a></p> <p>President Trump <a href="">announced</a> last month that he would ban nearly all immigrants and temporary workers for the remainder of 2020. There are still many unknowns about how this order will be implemented and how applicants will respond to it, but the White House <a href="">estimated</a> that the ban would block about 525,000 work authorized immigrants from working in the United States. It did not reveal its methodology for estimating this figure, but if consulates were open, and world migration returned to normal, it would likely ban more than that—about 545,000—but with <a href="">consulates closed</a>, other travel restrictions in place, and demand for visas generally low, it would probably affect fewer than 18,000, nearly all H-2B temporary workers.</p> <p><strong>Who does the proclamation ban?</strong></p> <p>President Trump’s <a href="">proclamation</a> bars the following categories of new visa applicants:</p> <ul><li>H-1B temporary high skilled workers;</li> <li>H-2B temporary nonagricultural workers;</li> <li>H-4 spouses and minor children of H‐​1Bs and H‐​2Bs;</li> <li>L-1 high skilled intracompany transfers;</li> <li>L-2 spouses and minor children of L‐​1s;</li> <li>J-1 exchange visitors in various programs;</li> <li>J-2 spouses and minor children of L‐​1s; and</li> <li>All immigrants (i.e. those seeking legal permanent residence).</li> </ul><p>For temporary workers, their families, and all immigrants (i.e. those seeking permanent residence), it provides the following exemptions:</p> <ul><li>Those who have valid visas in the <a href="">relevant classification</a> at the time of the proclamation;</li> <li>Those who are inside the United States at the time of the proclamation; and</li> <li>Those who have documents other than a visa allowing them to travel to the United States.</li> </ul><p>For temporary workers and their families, it provides the following exemptions:</p> <ul><li>J‐​1s who are government visitors, international visitors, professors, research scholars, short‐​term scholars, specialists, and students of all types;</li> <li>Anyone entering to do labor or services essential to the food supply; and</li> <li>Anyone in the “national interest” determined by Department of Homeland Security or State including: <ul><li>Critical to the defense, law enforcement, diplomacy, or U.S. national security;</li> <li>Involved with medical care for to currently hospitalized COVID-19 patients;</li> <li>Involved with COVID-19 medical research;</li> <li>Are necessary to facilitate the economic recovery of the United States; and</li> <li>Children who would age out of eligibility if they were banned.</li> </ul></li> </ul><p>For immigrants (i.e. those seeking legal permanent residence), it provides the following exemptions:</p> <ul><li>Spouses and minor children of U.S. citizens;</li> <li>EB-5 investors;</li> <li>Physicians, nurses, or other healthcare professionals;</li> <li>Medical researchers or other researchers intended to combat the spread of COVID-19; and</li> <li>Workers essential to combating, recovering from, or otherwise alleviating the effects of the COVID-19 outbreak;</li> <li>Anyone who would further U.S. law enforcement;</li> <li>Any member of the U.S. Armed Forces (and their spouses and children);</li> <li>Any interpreters or employees of U.S. Armed Forces (and their spouses and children); and</li> <li>Anyone in the “national interest” determined by the Department of Homeland Security or State including children who would age out of eligibility if they were subject to it.</li> </ul><p>There are important unknowns about these exemptions.</p> <ol><li>Will immediate family of someone who is exempt also be exempted? In at <a href="">least some cases</a>, this appears not be happening.</li> <li>Will immediate family of someone who receives a national interest waiver also be deemed in the national interest? That’s how it has worked for <a href="">other travel bans</a>.</li> <li>Will the age out exemption only apply to child applicants whose parents already have visas or will the State Department process parents whose children may age out? This post assumes that they will not apply this provision to parents.</li> <li>Can someone who is inside the United States at the time of the order leave and obtain a visa abroad to reenter? This is unclear.</li> <li>Can someone who has a valid visa in the relevant category at the time of the proclamation obtain a new visa? Reading the proclamation, the answers to this question would appear to be yes, but the State Department <a href="">has still refused visas</a> and told applicants not to apply even in those cases.</li> <li>Will the food supply chain exemption apply to H‐​2Bs only (as was clearly envisioned by the administration) or will other categories be able to use it?</li> <li>Does an “official travel document other than a visa” permitting travel to the United States include a passport from a Visa Waiver Program country which allows citizens of those countries to fly to the United States without a visa? It should, but it doesn’t appear that embassies are interpreting it that way.</li> </ol><p>Given the long list of unanswered questions, it appears that individual consulates or consular officers will be deciding how to deal with these issues.</p> <p><strong>How many applicants will the order affect?</strong></p> <p>Table 1 shows the number of visa issuances that occurred in the affected categories from about June 24 to December 31, 2019, the number of estimated issuances who would have been exempt from the order, and the estimated number banned. If consulates had immediately reopened, other travel restrictions were lifted, and migration returned to 2019 levels, there would have been about 381,000 nonimmigrants banned as a result of the order and 164,000 immigrants—for a total of 545,500.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="c0df2175-fd9b-4af5-a845-403640ba331d" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="be92f4c5-0944-4fd0-a8f7-1d07804f2252" data-type="interactive" data-title="Table 1:Visa Issuances to Immigrants and Nonimmigrant Workers Subject to Proclamation Restricting Entry"></div> </div> </div> </p><p>These numbers generally reflect the number of affected visa approvals in 2019, except for H-2B. The H-2B cap was higher by 30,000 in FY 2019 than in FY 2020, making it impossible that H-2B visa issuances could reach the FY 2019 levels. It is likely that the cap will also be lower in FY 2021. The 2019 H-2B issuances were reduced to account for the difference.</p> <p>For H‐​1Bs, the number of exemptions reflects the number of medical professionals <a href="">entering under H-1B visas</a> based on the share of the year remaining in 2020. H-2B exemptions <a href="">were based</a> on the approximate share of workers in meat or seafood packing and processing or industries associated with transportation (about 10 percent). J-1 exemptions excluded <a href="">all categories of J-1 visas</a> not included in the order. L exemptions were based on the percentage decline in L-1 visas actually issued in May 2020 before the order was in effect compared to May 2019. Any L-1 visa issued in May would have had to justify emergency visa processing, and so they would presumably be able to justify a national interest waiver under the new regime as well. All H‐​4s, L‐​2s, and J‐​2s reflect the ratio of primaries to family in those categories.</p> <p>Table 2 shows the estimated number of visa issuances that will occur in the affected categories in 2020, the number of estimated exemptions from the order, and the estimated number banned. The estimated number of visa issuances that will occur is based on percentage decline in visa issuances from May 2019 to May 2020 in each category. Projected exemptions are assumed to equal the number of projected issuances in each category except for H-2B. This makes sense because anyone who could justify emergency visa processing in May 2020 will be able to justify an exemption from the ban. The primary exemption is for medical personnel, which were already <a href="">explicitly permitted</a> to pursue emergency visa processing.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="bea83b90-a3ea-4126-ba02-221944f61583" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="169bb2f5-e2ac-46f5-99a6-247a23fcc363" data-type="interactive" data-title="Table 2: 2020 Visa Issuances to Immigrants and Nonimmigrant Workers Subject to Proclamation Restricting Entry"></div> </div> </div> </p><p>H-2B workers are a unique case in that the H-2A for temporary agricultural workers and H-2B temporary nonagricultural workers were <a href="">specifically exempt</a> from the suspension of visa processing. This means that H-2B workers are effectively the only category that was immediately limited by the presidential proclamation on June 24 (its effective date). Altogether, the order will likely stop about 17,500 H‐​2Bs, and almost no one else. Ultimately, without lifting the ban on routine visa services or the country‐​based entry bans, the ban will have little practical effect. But the State Department <a href="">refuses to give</a> any timeline or criteria for reopening, so it’s impossible to know how this order will play out in practice.</p> Tue, 07 Jul 2020 15:02:18 -0400 David J. Bier U.S. Leaders (Still) Learning the Wrong Lessons from China’s Rise <p><a href="" hreflang="und">Daniel J. Ikenson</a></p> <p>While collecting materials to offer a retort to arguments favoring robust U.S. industrial policy, I came across an <a href="">article</a> I wrote on the subject published in <em>China-U.S. Focus</em> on March 15, 2011. I am struck by how much of that piece is still relevant to today’s debate. The article also notes that perceptions developed during the Great Recession (particularly among U.S. policymakers) were the catalyst for the steady decline in the U.S.-China relationship during the Obama administration, which accelerated with rise of Xi Jinping and the election of Donald Trump (a chronology covered in more detail in <a href="">this analysis</a>).</p> <p>While I still plan to write a fresh rebuttal to the more recent arguments for industrial policy, for the time being, the original is republished in full below.</p> <p><strong>U.S. Leaders Learning the Wrong Lessons from China’s Rise</strong></p> <p><strong>by Daniel Ikenson</strong></p> <p>If imitation is the sincerest form of flattery, then the U.S.-China relationship should be brimming with good will. By that standard, 2010 was a celebration of mutual admiration and respect. As Chinese leaders were trying to cultivate an American mainstay — home‐​grown innovation, U.S. policymakers were singing the praises of industrial policy. In this case, only one country can benefit from emulating the other’s policies — and it’s not the United States.</p> <p>The Chinese are right to turn their attention to innovation. It is essential to their next stage of development. But innovation cannot be mandated from the top down. Innovation requires — among other important conditions — a culture that values dissent. Thus far, dissent has not featured prominently in China’s economic model. Unless and until that changes, China will struggle to ascend the global value chain.</p> <p>But at least China’s leaders know what their economy needs, which is more than can be said of ascendant U.S. opinion leaders and policymakers. They seem determined to march the U.S. economy into the suffocating embrace of industrial policy. If it works for the Chinese, then it can work for us, seems to be the mantra of New York Times columnist Thomas Friedman, who wrote:</p> <p>One party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century.</p> <p>This is a poor analogy. Just because industrial policy may have facilitated catch‐​up growth in an impoverished country committed to reversing the damage of a two‐​century slumber does not mean it is the right course for a country in the technological vanguard that owes its success to ingenuity, innovation, and entrepreneurship. Chinese leaders can learn from America’s successes and failures, but the only proven model for an economy at the technological fore is one steeped in innovation and entrepreneurship.</p> <p>However, with over $100 billion in direct subsidies and tax credits already devoted to green technology, President Obama disagrees. He is convinced that America’s economic future depends on the ability of U.S. firms to compete and succeed in the solar panel, wind harnessing, and lithium ion battery markets. Concerning those industries, the president said: “Countries like China are moving even faster… I’m not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine of the future.”</p> <p>With all due respect, how does the president know that those will be the most important economic engines of the future? By placing bets on particular industries, the administration is overriding a selective, evolutionary process that has undergirded the world’s most successful innovation machine, while reducing the chances of worthy ideas, firms, and industries leading the next commercial wave. Did President Obama’s predecessors anticipate the arrival of Steve Jobs, Bill Gates, or Mark Zuckerberg and the revolutionary products and services they delivered? Did Washington bureaucrats foresee the advent of specific life‐​extending medicines and devices, like digestible, pill‐​sized cameras? Had those proposing industrial policy in response to a rising Japan in the 1980s and early 1990s prevailed, much of the technology and medical advances taken for granted today would have never come to fruition.</p> <p>Why the sudden turn to industrial policy last year?</p> <p>That China emerged from the Great Recession virtually unscathed and on the same 30‐​year‐​long, high‐​growth trajectory, while the United States continues to confront slow growth, high unemployment, and a large public debt (much of it owned by the Chinese), has fueled fear, self‐​loathing and self‐​doubt among U.S. opinion leaders, which has altered their perceptions of the bilateral relationship. Media opinions about how China has thrived at U.S. expense for too long have proliferated. And woven into stories about China’s rise have been unmistakable appeals to U.S. nationalism.</p> <p>In Chinese reluctance to oblige U.S. policy wishes, readers have been told that China selfishly follows a “China‐​First” policy. In the increasing willingness of Chinese officials to criticize U.S. policies, readers have learned of a new “triumphalism” in China. As a result, once‐​respected demarcations between geopolitical and economic aspects of the bilateral relationship have been blurred, with economic frictions now more likely to be cast in the context of our geopolitical differences. Columnist Robert Samuelson — a one‐​time proponent of the view that globalization means interdependence — now believes that “China’s worldview threatens America’s geopolitical and economic interests.”</p> <p>Simultaneously, the U.S. business community in China — long‐​time advocates of bilateral engagement and an important counter‐​balance to U.S. import‐​competing industries that constantly clamor for protectionism and other actions against China — began to sound the alarm about increasingly discriminatory and protectionist policies in China. They were right to complain and to enlist the support of U.S. officials to compel the Chinese government to reverse those policies.</p> <p>But the firestorm over China’s technology transfer and indigenous innovation policies, in conjunction with the infamous Google hacking incident, painted a picture of an increasingly adversarial China, which opinion leaders and the president were quick to embrace. After all, if the United States is going to “win the future,” as the president exhorts, then somebody has to lose. When the imperative of winning the future is cast as “our generation’s Sputnik moment,” the president encourages the view that China is an adversary. And if we are to draw parallels between the U.S.-China economic relationship and the U.S.-Soviet Cold War rivalry, then industrial policy is to be considered a matter of national security.</p> <p>This adversarial, zero‐​sum characterization of the bilateral relationship is wrong. Regrettably, it may feed increasing acrimony in the relationship, which in turn could fortify the political case for more industrial policy. The United States is on a slippery slope. Hopefully a new batch of policymakers can reverse course before the U.S. economy and the bilateral relationship suffer further damage.</p> <p></p> Tue, 07 Jul 2020 14:13:32 -0400 Daniel J. Ikenson