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This morning, USA Today published an article by Brad Heath that examined data showing Baltimore (City) Police Department (BPD) activity slowed at the same time Baltimore homicides infamously spiked since 2015. The piece is worth reading in full and the data deserves a more detailed response, but at the outset it’s important to note what the data do not say.

Several comments by current and former members of the BPD quoted in the piece say that front line officers are unwilling to do their jobs because of the public backlash to Freddie Gray’s death. Recall that, following a chase, several Baltimore police officers shackled Freddie Gray but left him unsecured in the back of a police van—strongly resembling what is colloquially known as  a “rough ride,” an unofficial retaliation for making police officers chase someone, also known as a “run tax”—and Gray consequently died of a broken neck suffered in that van. The subsequent though unsuccessful criminal prosecutions of the BPD officers involved for what looked like an illegal extrajudicial punishment that led to a man’s death, apparently, discourages front line officers from being proactive to keep the community safe. And, one way to look at the USA Today data is to say that, as a consequence of this slow down, murder rates have jumped precipitously.

It is a damning indictment indeed if BPD officers feel they need the freedom to needlessly kill Baltimore residents to do their jobs effectively. The data certainly shows a work slow-down by Baltimore officers and that slow-down may, in fact, be one factor that partially contributes to the rise in homicides. But that front-line officers feel this way about the people they are sworn to protect reflects a mindset that is anathema to positive police-community relations and thus endangers the community that has no reason to trust its police force.

Rather than being the cause of Baltimore’s murder spike, the BPD work slow-down is more likely just one symptom of an unhealthy departmental culture. As a result, that department has repeatedly proven itself unworthy of the public trust and the community suffers greatly because of it. 

Watch this space for more on this topic.

Even as public opinion shifts in favor of marijuana legalization, with sixty percent of Americans supporting broad legalization and ninety percent supporting medical use, Attorney General Jeff Sessions and the Department of Justice (DOJ) continue to stonewall efforts to expand availability of cannabis and cannabis-derived treatments for medical research.

In testimony to a Senate Appropriations subcommittee in April, Sessions argued that although recent studies have shown that access to medical marijuana reduces opioid overdose deaths, the evidence to support expanding access is still insufficient.

This is simply untrue. While DOJ and DEA policy have limited the ability of U.S. researchers to access and experiment with medical grade marijuana, substantial peer-reviewed scientific research supports the benefits of medical marijuana.

Medical marijuana has been shown to improve the quality of life and health outcomes of patients with cancer, multiple sclerosis, Parkinson’s disease, chronic pain, PTSD, and many other ailments. Israel and many European Union countries lead the way in medical and pharmaceutical research. The market for medical marijuana is projected to be worth 55 billion dollars by 2025, and biopharmaceutical firms are entering multi-million dollar partnerships with universities to advance the research and development of new cannabis-based medications.

Yet despite the economic and humanitarian gains from expanding research into of medical marijuana, the DOJ refuses to expand marijuana production for scientific use. In August 2016 the DEA issued a policy statement providing a legal registration process for marijuana suppliers. None of the 25 applications submitted thus far has been accepted or rejected. Instead of allowing the regulated production of marijuana for research purposes, as allowed under the law, the DEA is keeping applicants in bureaucratic limbo.

When questioned about the administrative inaction, Sessions argued that language in the policy violated the 1961 United Nations Single Convention on Narcotic Drugs.  Yet the treaty contains broad exemptions regarding medical research and use, and, given the proliferation of marijuana research abroad, legal pathways exist that do not violate the treaty.

Even as the DEA refuses to take action, other federal agencies are quietly accepting medical marijuana. The FDA recently approved a drug containing CBD (cannabidiol) derived from marijuana. In a statement, FDA Commissioner Scott Gottlieb said, “We’ll continue to support rigorous scientific research on the potential medical uses of marijuana-derived products and work with product developers who are interested in bringing patients safe and effective, high quality products.”

Restricting scientific research and development within the United States will only hurt American scientists, companies, and patients. While Jeff Sessions may continue to argue fiercely against medical marijuana, the tide is turning.

Research assistant Erin Partin contributed to this blogpost.

In a recent Philadelphia Inquirer opinion piece White House economic advisor Peter Navarro hailed the christening of a new transport ship in the nearby Philly Shipyard as evidence of the “United States commercial shipbuilding industry’s rebirth.” As is typical of Navarro’s pronouncements, the reality is almost the exact opposite. In fact, a closer examination of the ship’s construction reveals it to be symptomatic not of a rebirth, but of the industry’s long downward slide.

Named after the late Senator Daniel K. Inouye of Hawaii, Navarro describes the 850-foot Aloha-class vessel as “massive” and notes that it is “the largest container ship ever built in the United States.” This, however, is somewhat akin to the tallest Liliputian. Although perhaps remarkble in a domestic context, by international standards the ship is a relative pipsqueak. Triple-E class ships produced by Daewoo Shipbuilding & Marine Engineering for Maersk Line, for example, are over 1,300 feet in length. While the Inouye’s cargo capacity is listed at 3,600 TEUs (twenty-foot equivalent units, roughly equivalent to a standardized shipping container), the Triple-E class can handle 18,000.

The only thing truly massive about the Inouye is its cost. The price tag for this vessel and another Aloha-class ship also under construction at the Philly Shipyard is $418 million, or $209 million each. The Triple-E vessels, purchased by Maersk Line, meanwhile, each cost $190 million. The South Korean-built ships, in other words, offer five times the cargo capacity for nearly $20 million dollars less.

But the story gets worse.

The Wall Street Journal reports that after the Philly Shipyard completes work on “two small ships”—a reference to the Inouye and its sister vessel—it has no more orders lined up. The shipyard is already laying off 20 percent of its workforce and the dearth of future work has prompted speculation of a possible shutdown. Sadly, the Philly Shipyard’s travails are hardly atypical of the U.S. shipbuilding industry, and even Navarro admits that the sector has seen its workforce decline from 180,000 in 1980 to 94,000 today.

And yet we are to believe that the Inouye’s construction heralds the pangs of an alleged rebirth? 

At least credit the White House advisor for assigning proper blame for this sad state of affairs (which he misguidedly presents as credit). The Inouye, Navarro says, is in large part the result of a protectionist law called the Jones Act. He’s not wrong. Formally known as the Merchant Marine Act of 1920, the law mandates that ships transporting merchandise between two domestic ports be U.S.-built, U.S.-owned, U.S.-flagged, and U.S.-crewed.

The result is that instead of purchasing cheaper foreign-built ships, Americans are faced with enormous prices for relatively small ships. The cost of transportation, in turn, is higher than what it would otherwise be while the number of Jones Act-compliant vessels has gone down, along with jobs for mariners and shipbuilders. Those ships that remain, meanwhile, are far older than the foreign counterparts—no surprise given the cost deterrent to buying new ships. While the Inouye is brand new, the average Jones Act cargo ship is 34 years old. The international average is 25.2.

Consistent with other protectionist misadventures, the Jones Act’s list of victims includes those it was meant to help.

Rather than recommitting to the Jones Act and other failed forms of maritime protectionism as Navarro is so eager to do, the United States should instead be aggressively seeking this law’s repeal. An increasingly untenable status quo demands nothing less. Learn more about Cato’s Project on Jones Act Reform.

President Trump and his trade advisers are the most vocal in putting forward misguided views on the trade deficit, but, unfortunately, their position is a bipartisan one. Here’s something Congressman Brad Sherman of California said recently:

But Rep. Brad Sherman (D-CA), ranking member of the House Foreign Affairs Asia and the Pacific subcommittee, told Inside U.S. Trade he would be “surprised if any [bilateral] deal is finalized in the next 12 months.” Sherman met with Gerrish late last week, he said.

“Look, we spent 50 years telling the world that the only moral and correct thing to do was to have the United States run an enormous trade deficit with the entire world,” he said. “Of course, they decided to agree. Getting them to change their minds is not something that we are doing all that effectively and it’s certainly not something that is easy.”

Asked if he was confident a bilateral deal would be initiated in the near future, Sherman said “no, definitely not.”

Gerrish, he said, “was getting my input, but my input is certainly if you are dealing with a managed economy there has to be stated goals for how large the trade deficit will be or whether it will be balanced trade,” he said. “And it’s good to have people focused on the trade deficit; whether they are going about it the right way is perhaps another story. But ignoring it is a short-term strategy.”

Asked which countries might be top contenders for a bilateral, Sherman said none, adding that the criteria USTR was using to determine candidates was based on countries that trade fairly.

The U.S. will “strike deals” only with countries “that will provide for balanced and fair trade, of which there are none that I’m aware of right now,” he said.

The notion that a trade deal should lead to “balanced trade” seems like it comes from a Cuba-Venezuela trade arrangement, in which oil is traded for doctors. In the free market world of trade agreements, by contrast, the parties agree not to a barter of goods and services, but rather to remove tariffs and other protectionist barriers. The resulting bilateral trade balance is something to be determined by the market. The new trade flows are probably worth studying for various academic reasons, but are not a measure of success or failure of the deal.

By contrast, Congressman Sherman seems to think that the negotiation is over the trade deficit itself: “there has to be stated goals for how large the trade deficit will be.” But that’s not how U.S. trade negotiations do work or should work. What we negotiate about is the level of tariffs and other barriers. (Ideally, both sides would agree to have no tariffs, although in practice it is often just a lowering of tariffs.)

There can be complications from trading with the “managed economies” that he refers to, but those can be dealt with in trade agreements through specific rules. For example, they can establish rules on how state-owned enterprises should behave. There were rules of this sort in the Trans Pacific Partnership, and it would be a good idea for someone to propose similar rules in an agreement with China. 

International rules to limit managed trade and constrain protectionism are a good idea. A (bipartisan) focus on bilateral trade deficits, by contrast, won’t address these fundamental issues, and is a big mistake.

Congressman Sherman’s comments did not surprise me, because I had a brief exchange with him on this very issue in a House Committee hearing last year on the impact of a US-UK trade agreement (starts at 1:12:28). He asked the following question and was looking for a short answer: “Would a deal with Britain that simply eliminated all tariffs be good or bad for reducing America’s trade deficit? … it’s possible that it can’t be estimated.” I knew I wouldn’t be able to have a real discussion with him in this setting on the value of trade deficits as a metric, but in answering I wanted to get the point out there that looking at trade deficits is a mistake, so I said: “I can’t estimate it but I also don’t think trade deficits are bad for the economy.” He responded by saying, “We lose 10,000 jobs for every billion dollars of trade deficits …”, but then quickly moved on.

We have spent a lot of time over the years rebutting the misunderstandings about trade deficits: See, e.g., here, here, here, and here. But clearly, there is still work to do. 

I’ve previously blogged about Allah v. Milling, a case in which a pretrial detainee was kept in extreme solitary confinement for nearly seven months, for no legitimate reason, and subsequently brought a civil-rights lawsuit against the prison officials responsible. Although every single judge in Mr. Allah’s case agreed that these defendants violated his constitutional rights, a split panel of the Second Circuit said they could not be held liable, all because there wasn’t any prior case addressing the “particular practice” used by this prison. Cato filed an amicus brief in support of Mr. Allah’s cert pertition, which explicitly asks the Supreme Court to reconsider qualified immunity—a judge-made doctrine, at odds with the text and history of Section 1983, which regularly allows public officials to escape accountability for this kind of unlawful misconduct.

I also blogged about how, on June 11th, the Supreme Court called for a response to the cert petition, indicating that the Court has at least some interest in the case. The call for a response also triggered 30 days for additional amicus briefs, and over the last month, Cato has been coordinating the drafting and filing of two such briefs—one on behalf of a group of leading qualified immunity scholars (detailing the many recent academic criticisms of the doctrine), and the other on behalf of an incredibly broad range of fifteen public interest and advocacy groups concerned with civil rights and police accountability. 

The interest-group brief is especially noteworthy because it is, to my knowledge, the single most ideologically and professionally diverse amicus brief ever filed in the Supreme Court. The signatories include, for example, the ACLU, the Institute for Justice, the Second Amendment Foundation, Americans for Prosperity (the Koch brothers’ primary advocacy group), the American Association for Justice (formerly the Association of Trial Lawyers of America), the Law Enforcement Action Partnership (composed of current and former law-enforcement professionals), the Alliance Defending Freedom (a religious-liberties advocacy group), and the National Association of Criminal Defense Lawyers. The brief’s “Statement of Interest” section, after identifying and describing all of the individual signatories, concludes as follows:

The above-named amici reflect the growing cross-ideological consensus that this Court’s qualified immunity doctrine under 42 U.S.C. § 1983 misunderstands that statute and its common-law backdrop, denies justice to victims of egregious constitutional violations, and fails to provide accountability for official wrongdoing. This unworkable doctrine has diminished the public’s trust in government institutions, and it is time for this Court to revisit qualified immunity. Amici respectfully request that the Court grant certiorari and restore Section 1983’s key role in ensuring that no one remains above the law.

The primary theme of this brief is that our nation is in the midst of a major accountability crisis. The widespread availability of cell phones has led to large-scale recording, sharing, and viewing of instances of egregious police misconduct, yet more often than not that misconduct goes unpunished. Unsurprisingly, public trust in law enforcement has fallen to record lows. Qualified immunity exacerbates this crisis, because it regularly denies justice to victims whose constitutional rights are violated, and thus reinforces the sad truth that law enforcement officers are rarely held accountable, either criminally or civilly.

Moreover, qualified immunity not only hurts the direct victims of misconduct, but law enforcement professionals as well. Policing is dangerous, difficult work, and officers—most of whom do try to uphold their constitutional obligations—increasingly report that they cannot effectively carry out their responsibilities without the trust of their communities. Surveys of police officers thus show strong support for increased transparency and accountability, especially by holding wrongdoing officers more accountable. Yet continued adherence to qualified immunity ensures that this worthy goal will never be reached.

The Supreme Court is in recess now, and the defendants’ response brief won’t be due until September 10th, so we’re going to have to wait until early October to find out if the Supreme Court will take the case. But the Court, the legal community, and the public at large should now be aware that criminal defense lawyers, trial lawyers, public-interest lawyers of every ideological stripe, criminal-justice reform groups, free-market & limited-government advocates, and law enforcement professionals themselves all agree on at least one thing—qualified immunity is a blight on our legal system, and the time has come to cast off this pernicious, counter-productive doctrine.

In a 2012 dissent from a District of Columbia Appellate Court opinion, Supreme Court nominee Brett Kavanaugh acknowledged that “dealing with global warming is urgent and important” but that any sweeping regulatory program would require an act of Congress:

But as in so many cases, the question here is: Who Decides? The short answer is that Congress (with the President) sets the policy through statutes, agencies implement that policy within statutory limits, and courts in justiciable cases ensure that agencies stay within the statutory limits set by Congress.

Here he sounds much like the late justice Antonin Scalia, speaking for the majority in the 2014 case Utility Air Regulatory Group v. EPA:

When an agency claims to discover in a long-extant statute an unheralded power to regulate “a significant portion of the American economy” we [the Court] typically greet its announcement with a measure of skepticism.  We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast “economic and political significance.”

Scalia held this opinion so strongly that, in his last public judicial act, he wrote the order (passed 5-4) to stay the Obama Administration’s sweeping “Clean Power Plan.” Such actions occur when it appears the court is likely to vote in a similar fashion in a related case.

This all devolves to the 2007 landmark ruling, 5-4, in Massachusetts v. EPA, that the EPA indeed was empowered by the 1990 Clean Air Act Amendments to regulate emissions of carbon dioxide if the agency found that they endangered human health and welfare (which they subsequently did, in 2009). Justice Kennedy, Kavanaugh’s predecessor, voted with the majority.

Will Kavanaugh have a chance to reverse that vote? That depends on what the new Acting Administrator of the EPA plans to do about carbon dioxide emissions. If the agency simply stops any regulation of carbon dioxide, there will surely be some type of petition to compel the agency to continue regulation because of the 2009 endangerment finding. Alternatively, those already opposed to it might petition based upon the notion that the science has changed markedly since 2009, with increasing evidence that the computer models that were the sole basis for the finding have demonstrably overestimated warming in the current era. It’s also possible that Congress could compel EPA to reconsider its finding, and that a watered-down version might find itself at the center of a court-adjudicated policy fight.

Whatever happens, though, it is clear that Brett Kavanaugh clearly prefers Congressional statutes to agency fiat. Assuming that he is confirmed, he will surely exert his presence and preferences on the Court, including that global warming is “urgent and important,” but it is the job of Congress to define the regulatory statutes.

Alexandria Ocasio-Cortez, the recent winner of a Democratic primary for Congress in New York, argued that free-trade agreements (FTAs) have caused the number of refugees and asylum seekers to the United States to grow.  This is a somewhat common claim among some critics of trade or FTAs in particular. 

To test this claim, we gathered a list of all the FTAs that the United States has signed and how many asylum seekers and refugees they sent to the United States since the year 2000.  We combined all asylum seekers, affirmative and defensive, that were counted by the United Nation Human Rights Commission.  Some asylum seekers from these countries are double or triple counted due to the oddities of the asylum system.  We then added refugee admissions from the Department of Homeland Security. 

Next, we ran several regressions to see the relationship between having an FTA with the United States and the number of asylum seekers, refugees, or those two categories of humanitarian visas combined who arrive in the United States from those countries.  The first regression was a difference-in-differences with two-way fixed effects.  The second was a difference-in-differences regression with linear time trends.  The third was a triple difference-in-differences with two-way fixed effects that also included asylum seekers, refugees, and humanitarian immigrants from Latin America specifically.  To ensure proper statistical inference, we computed robust standard errors clustered at the country level to correct for country-level autocorrelation in these variables.

Our results are that there is no statistically significant change in the number of asylum seekers or refugees that countries send to the United States after they sign an FTA in any of the above regressions.  We find very low within R-squares for these models that suggest that the presence of FTAs has very little predictive power for within-country variability for the number of asylum seekers and refugees.  In other words, FTAs don’t explain the flow of asylum seekers and refugees, and other variables that we did not include in our model do.       

Figure 1 shows the number of asylum seekers from countries that have signed an FTA since 2000 in the five years before and after the agreement going into effect.  Each line represents a different country.  There is no relationship between signing an FTA and the number of asylum seekers.

Figure 1

Asylum Seekers within Five Years of Signing an FTA per Country

Source: United Nation Human Rights Commission

The refugee system is the other half of the humanitarian immigration system and it shows no change in the number of asylum seekers before and after the signing of FTAs (Figure 2).  It’s worth noting that nations that send refugees to the United States send very few refugees and almost all of those sent in Figure 2 are Colombian.

Figure 2

Refugees within Five Years of Signing an FTA per Country


Source: Department of Homeland Security.

There are many potential explanations for changes in the number of asylum seekers and refugees coming to the United States.  They range from changing conditions in other countries to alterations in American law or policy and everything in between—but let us set aside the notion that FTAs somehow force people to flee their home countries. 

The Trump administration has announced it is suspending so-called “risk adjustment” payments to insurers who participate in ObamaCare’s Exchanges, and cutting spending on so-called “navigators,” who help (few) people enroll in ObamaCare plans. 

The Washington Post’s Catherine Rampell and other ObamaCare supporters are calling these steps sabotage. In fact, what these steps will do is make the costs of ObamaCare’s supposedly popular preexisting-conditions provisions more transparent.

Risk-Adjustment (Bailout) Payments to Insurers

ObamaCare’s so-called “risk adjustment” program exists to funnel money to insurers who enroll lots of sick people who cost more in claims than they pay in premiums. Without it, insurers probably wouldn’t participate in ObamaCare. We may therefore confidently describe the risk-adjustment program as a bailout designed to rescue insurers from the costs of ObamaCare’s preexisting-conditions provisions. 

The risk-adjustment program does a better job of protecting insurance companies than sick patients. Those preexisting-conditions provisions literally punish insurers for offering coverage that the sick find attractive. They therefore create powerful financial incentives for insurers to make their offerings unattractive to the sick.

The risk-adjustment program is supposed to counteract those incentives. Anecdotal evidence and empirical research both show it’s not working. The risk-adjustment program is failing to counteract the perverse incentives that ObamaCare itself creates. ObamaCare coverage is therefore getting worse for many sick patients. Don’t worry, the insurance companies come out okay. Insurers can mitigate whatever losses the bailouts don’t cover with even more restrictive benefit designs to keep the sick away. Sick patients fare less well.

Reducing or eliminating spending on the risk-adjustment program would reveal more of the harms of the preexisting-conditions provisions. More of the cost would fall on insurers, who would respond by offering even more restrictive coverage, or exiting the market. More such transparency might finally push Congress to repeal those provisions and put health care for the sick on a more stable footing. 

In February, a federal district court in New Mexico ordered the Centers for Medicare & Medicaid Services to cease using its methodology for making risk-adjustment payments until the agency adequately explains that methodology. On July 7, the agency announced it will not make any risk-adjustment payments until the issue is resolved.

The insurers will eventually get their bailouts. But the delay will cost them money and add uncertainty to the process. Those effects in turn may lead insurers to take even greater steps to protect themselves from the costs of the preexisting-conditions provisions—thereby making those costs more transparent.

Cutting Navigator Spending

ObamaCare authorizes CMS to make grants to “navigators”—i.e., groups who are supposed to help people enroll in ObamaCare plans. They are a waste of taxpayer money, and likewise hide the costs of ObamaCare’s preexisting-conditions provisions.

According to CMS, navigators received $63 million for plan year 2017 and $36 million for plan year 2018. In both years, they signed up less than 1 percent of ObamaCare enrollees. “During grant year 2016-2017,” CMS reports, “seventeen of those Navigators enrolled fewer than 100 people at an average cost of $5,000 per enrollee.” That’s more than the cost of the health insurance, in many cases. The Wall Street Journal reports, “One grantee took in $200,000 to enroll a grand total of one person. The top 10 most expensive navigators collected $2.77 million to sign up 314 people.” The Las Vegas Review-Journal editorializes, accurately, “the navigator scheme is a make-work government jobs program rife with corruption and highly susceptible to scam artists. It’s a slush fund for progressive constituent groups.”

The navigator program also hides the cost of ObamaCare’s preexisting-conditions provisions. Since the sick will reliably enroll in ObamaCare even without navigators, those whom navigators end up enrolling are going to be disproportionately healthy. Thus navigators are also helping to hide the costs of those provisions by spreading the costs across more (healthy) people. Cutting spending on navigators will likewise reveal more of the costs of those provisions.

The Trump administration announced it is cutting spending on navigators to $10 million for plan year 2019. It should eliminate the program entirely. The less the federal government spends on navigators, the more transparent ObamaCare’s costs will be.

* * * 

When ObamaCare supporters complain about such steps, they are describing transparency as sabotage. Think about what that means.

The anxiety leading up to this week’s NATO summit is unusually intense, thanks in large part to President Trump’s fractious relationship with European allies. Trump’s political values are often in tension with that of his transatlantic counterparts, and the White House is inching ever closer to an all-out trade war with Europe and Canada, but the real drama of the NATO summit will center on Trump’s brash accusations of allied free-riding. He recently sent letters to many European capitals berating them for not meeting their pledge to spend at least 2 percent of GDP on defense.

In a post at the International Institute for Strategic Studies, Lucie Béraud-Sudreau and Nick Childs try to push back on the notion that providing for European defense is all that costly for the United States. While it is true that the $602.8 billion the United States spent on its military in 2017 “was the equivalent of 70.1% of aggregate spending by all NATO member states,” this exaggerates the true cost, they argue.

Direct U.S. spending on European defense, by their estimate, is only about $30.7 billion in 2017 and $36 billion in 2018, or between 5.1% and 5.5% of the total U.S. defense budget.

How do they calculate this number? They tally up the cost of three things: (1) direct funding for NATO, including common procurements; (2) the costs of the U.S. military presence in Europe; and (3) U.S. foreign military assistance.

Now, $30-$40 billion every year is nothing to sniff at. That is an enormous chunk of change for an America that is $21 trillion in debt to be spending on the defense of a region that is remarkably rich, powerful, and safe.

The problem, however, is that this understates the true cost of America’s NATO commitments. It is misleading to count the U.S. contribution to NATO solely as a sum of direct annual costs. The tally should also account for the indirect cost of maintaining a military big enough to fulfill our security commitments in Europe. It must account for some share of the permanent force structure that would shift to the reserves, or disappear entirely, if the United States wasn’t pledged to treating an attack on Paris, France or Podgorica, Montenegro as synonymous with attacks on Paris, Texas, or Portland, Maine. This more inclusive count is very difficult if not impossible to calculate with precision, but it is more honest.

Moreover, if the debate about NATO burden sharing boils down to bickering over budget accounting, it would seem like proponents of the status quo are playing hide the ball. The object of U.S. foreign policy is to discourage other countries from spending more on defense. It is disingenuous to pretend otherwise. Free riding is not a bug of U.S. grand strategy, it is a feature of it — a point made perhaps too candidly by the Manhattan Institute’s Claire Berlinski: “How is it, then,” she asks, “that suddenly, we’re consumed with rage that Europe is ‘taking advantage’ of us? How have we forgotten that this is the point of the system? We designed it this way…”

She’s right. As Hal Brands, one of the leading scholarly proponents of America’s post-war grand strategy, explains in his book American Grand Strategy in the Age of Trump, the United States provides “protection that allows other countries to underbuild their militaries.” Or, as Christopher Layne writes in his book The Peace of Illusions, Washington “used NATO…to foreclose the possibility that the West European states would re-nationalize their security policies.”

If America is going to have a debate about security guarantees, it must be an informed one. It should not rest on downplaying the true costs of such policies, nor should it pretend that free riding is some kind of mistake. It seems rather futile to defend the strategy by arguing against its very logic.

The author thanks Christopher A. Preble and Caroline Dorminey for input on this post. 

The “fighting season” for public schools, not surprisingly, is roughly September through May, with summer vacations in June through August keeping the clash-rate down. So June doesn’t have as many new values and identity-based battles as most other months—15 were added to the Map—and we won’t be posting dispatches for August and September, unless something surprising happens. Of course, you can follow the Battle Map Twitter feed@PubSchoolFights–for new and updated conflicts whenever news breaks, and you can also search #WWFSchool, or post battles you find using that hashtag. And while the Facebook page will also slow down a bit, we’ll post interesting tussles we find there, too.  

Despite the waning action, June produced a few battles exemplifying the problems of forcing diverse people to fund a single system of government schools.

There is no bigger stage in the country—including in education—than New York City, with its 8.6 million residents and more than 1.2 million school-aged children. It is also very diverse ethnically and racially, and Mayor Bill de Blasio’s proposal to change how students are admitted to the city’s eight top high schools, from using test scores alone to admitting anyone finishing in the top 7 percent of their middle school class, sparked a battle not just about admissions, but race. While many African Americans and Hispanics, whose children have disproportionately low representation in the highly competitive schools, saw the proposal as at least a first step toward equity, many Asian Americans, whose children have disproportionately high representation, vigorously objected.

“The mayor is pitting minority against minority and that’s really messed up,” said Kenneth Chiu, president of the New York City Asian-American Democratic Club. “New York City has taken our money for several years and no one has provided help for us.”

When government controls access to schools for which everyone must pay, especially competitive admissions schools, it often creates a zero-sum game: if my child gets in, yours doesn’t. It’s a war waiting to happen, and when race is involved—indeed, when admission based on race is explicitly at issue—it stokes racial conflict, in this case primarily pitting different minority groups against each other.

In June we also saw high-profile throwdowns over what is taught in schools, especially history and sex education, subjects inextricably linked to race, moral values, politics, and other highly personal identities and values. In Michigan new social studies standards were being debated that, at least in draft form, removed some material on gay rights, Roe v. Wade, and took “democratic” out “core democratic values.” Of course, accusations of bias were lobbed back and forth.

State Sen. Patrick Colbeck (R-7th Dist.), who worked for many of the changes, said, “When I saw the bias inherent in those standards, I wanted to make changes.” Meanwhile, State Rep. Darrin Camilleri (D-23rd Dist.) called the proposed revisions a “thinly veiled attempt to push an ultra-conservative agenda.”

In Fairfax County, Virginia—the nation’s 11th largest district—an on-going war over its Family Life Education program produced a new battlefront, as proposed standards reportedly removed “clergy” from a list of trustworthy adults. Religion, then, was directly involved in the battle, even though the public schools are supposed to be religiously neutral. Of course they can’t be, which the perpetual sex education debate in Fairfax County and countless other districts has made crystal clear. Religious values are unavoidably entangled with matters of sex.

Speaking of impossible religious neutrality, check out the op-ed Corey DeAngelis and I wrote a couple of weeks ago presenting the case that, constitutionally, true religious neutrality requires school choice, then read this blog post—and the law review article to which it links—to get a much deeper treatment of the matter. If nothing else, it will help you pass the time, and contemplate a sustainable path to peace, as September inevitably approaches.

President Trump and others who are mistakenly troubled by trade deficits with specific countries should at least get the facts straight.  To fret about trade deficits in goods alone (ignoring services) is hopelessly old-fashioned in a world where the most exciting business and investment opportunities are typically in the service industries.   U.S. businesses are famously outstanding in software and communications services, health and education services, food and lodging services, legal, financial, accounting and marketing services, and so on.  Hollywood, Wall Street, Madison Avenue, Las Vegas and D.C.’s K-Street lawyers have always been known for their services, not “making stuff.”

The table shows a rapidly growing U.S. trade surplus in services with many important economies and regions.  The U.S. services surplus tripled from 2003 to 2017 with Canada and was 7-times larger for the EU, 12-times larger for South Korea, 25-times larger for China.   Rising trade surpluses in services have become large enough to more than offset the trade deficit in goods with some major trading partners – notably Canada.   For all countries combined, of course, the surplus in services is not yet large enough to offset the familiar cyclical uptick in the trade deficit in goods (most imported goods are industrial components and materials).  But it does not take much imagination or statistical expertise to envision an interesting trend in that direction.


Recently David Beckworth and Martin Sandbu, among others, have drawn attention to an interesting paper by James Bullard and Riccardo DiCecio unveiled in Norway earlier this year. In it, Bullard and DiCecio investigate a model economy possessing both a large private credit market and “Non-state contingent nominal contracting (NSCNC).” They conclude that, in such an economy, NGDP targeting is the “optimal monetary policy for the masses.”

Here is David Beckworth’s intuitive explanation for that finding:

The basic idea is that in a world of fixed-price nominal debt contracts (i.e. the real world), a NGDP level target provides better risk sharing among creditors and debtors against economic shocks than does a price stability target.

This is because a NGDP level target makes inflation countercyclical. During recessions, inflation rises and causes creditors to bear some of the unexpected pain by lowering the real debt payments they receive from debtors. During booms, inflation falls and allows creditors to share in some of the unexpected gain by increasing the real debt payments they receive from debtors. Debtors, in other words, bear less risk during recessions but also share unexpected gains during expansions.

NGDP level targeting, in other words, causes a fixed-price nominal debt world to look and feel a lot like an equity-world. In a similar spirit, some observers have called for a risk-sharing mortgages as a way to avoid another Great Recession. The point of this paper is that the same benefit that such risk-sharing mortgages would bring can be had by having a central bank target the growth path of NGDP.

Although Bullard and DiCecio’s specific argument is novel, the idea that fluctuations in the general price level can actually contribute to optimal risk sharing in a world of fixed nominal debts is itself by no means knew. Bullard and DiCecio themselves refer to previous work making the same basic argument by Evan Koenig and Kevin Sheedy , while in my previous article here I traced the idea all the way back to Samuel Bailey’s (1837) classic monograph, Money and its Vicissitudes in Value.

I myself first cottoned-on to the view that what’s now called NGDP targeting is more conducive to what economists nowadays call achieving optimal risk sharing in a world with many fixed nominal debt contracts (but which used to be called avoiding “debtor-creditor injustice”) while working on my PhD dissertation in the early 1980s. Back then I still didn’t know about Bailey, though I did discover a few other works — all written some years before — supporting my perspective.

My conclusions eventually found their way into my dissertation, and thence into my first (1988) book, The Theory of Free Banking. I later expanded and refined them in Less than Zero (1997, especially pp. 41-5; new edition forthcoming!). Because my earlier discussion is especially informal and intuitive, I thought that persons interested in more recent works addressing the same issue, like those of Koenig, Sheedy, and Bullard and DiCecio, might find it of interest, if not helpful to their understanding of these much more sophisticated works. So here it is, with no changes save (1) the addition of a new note; (2) the removal of two original notes that contained references only; and (3) the insertion of ellipses in place of a phrase that would seem meaningless here, where it has been stripped of its context.


To address the problem of debtor-creditor injustice, one must first understand how different kinds of price changes actually affect the well-being of parties on either side of a debt contract. One also has to have a definition of injustice. For the latter we may adopt the following: parties to a long-term debt contract may be said to be victims of injustice caused by price-level changes if, when the debt matures, either (a) the debtors on average find their real burden of repayment greater than what they anticipated at the time of the original contract and creditors find the real value of the sums repaid to them greater on average than what they anticipated; or (b) the creditors find the real value of the sums repaid to them smaller on average than what they anticipated and debtors find their real burden of repayment smaller than what they anticipated at the time of the original contract. When injustice occurs the parties to the debt contract, if they had had perfect foresight, would have contracted at a nominal rate of interest different from the one actually chosen.

It is not always appreciated that not all movements in the general level of prices involve injustice to debtors or creditors. Unanticipated general price movements associated with changes in per-capita output…do not affect the fortunes of debtors and creditors in the same, unambiguous way as do unanticipated price movements associated with monetary disequilibrium.* Where price movements are due to changes in per-capita output, it is not possible to conclude that unanticipated price reductions favor creditors at the expense of debtors. Nor can it be demonstrated that unanticipated price increases favor debtors at the expense of creditors. The standard argument that unanticipated price changes are a cause of injustice is only applicable to price changes caused by unwarranted changes in money supply or by unaccommodated changes in money demand.

This is so because in one of the cases being considered aggregate per-capita output is changing, whereas in the other it is stationary. In both cases a fall in prices increases the value of the monetary unit and increases the overall burden of indebtedness, whereas a rise in prices reduces the overall burden, other things being equal. In the case where per-capita output is stationary (the monetary disequilibrium case), the analysis need go no further, and it is possible to conclude that falling prices injure debtors and help creditors and vice versa. Were parties to long-term debt contracts able to perfectly anticipate price-movements, they would, in anticipation of higher prices, contract at higher nominal rates of interest; in anticipation of lower prices they would contract at lower nominal rates of interest. In the first case the ordinary real rate of interest is increased by an inflation premium; in the latter, it is reduced by a deflation discount. These adjustments of interest rates to anticipated depreciation or appreciation of the monetary unit are named the “Fisher” effect, after Irving Fisher who discussed them in an article written just before the turn of the century.

When per-capita output is changing, one must take into account, in addition to the Fisher effect, any intertemporal-substitution effect associated with changes in anticipated availability of future real income. Here (assuming no monetary disequilibrium) reduced prices are a consequence of increased real income, and increased prices are a consequence of reduced real income. Taking the former case, although the real value of long-term debts increases, debtors do not necessarily face a greater real burden of repayment since (on average) their real income has also risen. In nominal terms they are also not affected because, as distinct from the case of falling prices due to a shortage of money, their nominal income is unchanged. Thus debtors need not suffer any overall hardship: the damage done by the unanticipated fall in prices may be compensated by the advantage provided by the unanticipated growth of real income. If the parties to the debt contract had in this situation actually negotiated with the help of perfect foresight, their anticipation of reduced prices would have caused the nominal rate of interest to be reduced by a deflation discount — the Fisher effect. But their anticipation of increased real income would also reduce their valuations of future income relative to present income, raising the real component of the nominal rate of interest — the intertemporal-substitution effect. Since the Fisher effect and the intertemporal substitution effect work in opposite directions it is not clear that the perfect-foresight loan agreement would have differed from the one reached in the absence of perfect foresight — at least, the direction in which it would have differed is not obvious. So there is no reason to conclude that a monetary policy that permits prices to fall in response to increased production would prejudice the interests of debtors.

Similarly, to allow prices to rise in response to reduced per-capita output would not result in any necessary injustice to creditors, even if the price increases were not anticipated. Here the Fisher effect in a perfect-foresight agreement would be positive, and the intertemporal substitution effect would be negative, so it cannot be said a priori that the perfect-foresight nominal rate of interest would differ from the rate agreed upon in the absence of perfect foresight.


*By “monetary disequilibrium” I mean unanticipated changes in nominal spending (MV or, equivalently, Py). Earlier in my book I explain that a monetary policy “that maintains monetary equilibrium [is one] that prevents price changes due to changes in the demand for money relative to income without preventing price changes due to changes in productive efficiency.” I would have chosen my terms more carefully had I known better.

[Cross-posted from]

Just as no single person can be judge, jury, and executioner, no single bureaucratic agency head may create rules and enforce them, and do so without meaningful oversight from Congress or the president. In a case before the U.S. Court of Appeals to the Fifth Circuit, Cato has filed a brief arguing that the director of the Consumer Finance Protection Bureau has been granted both rule-making and rule-enforcing powers far beyond what is constitutionally permissible—and the vague and arbitrary way in which he’s been using them violates the due-process protections of the Fifth Amendment.

Because the structure of the Constitution is so important in preserving the checks and balances between branches of government, courts have looked harshly on schemes that “delegate” those powers away from where constitutional text places them. The president, for instance, may appoint someone to execute his powers over a certain area of law, such as the attorney general as head of the justice department. This doesn’t violate the “nondelegation” doctrine because the president maintains control; he can direct a general policy of prosecution or non-prosecution and he can fire the AG. So long as the president has the power to remove an officer, the power delegated remains ultimately in presidential hands.

The CFPB structure is unique; it creates a single director as head of the organization, but insulates him from presidential removal except “for cause.” The president therefore has no control over this segment of law enforcement. The agency isn’t accountable to Congress either, even though Congress typically has the “power of the purse” and can deny funds to an executive department if it believes executive powers are being abused. Not so with the CFPB, which has independent access to Federal Reserve funds, without needing to seek approval from Congress or the Federal Reserve.

In addition to being financially independent from Congress and insulated from the President, the CFPB retains a tyrannical mix of legislative freedom and executive discretion. The Dodd-Frank Act grants the agency power to punish “unfair”, “deceptive,” and “abusive” practices, but also grants the CFPB’s director the power to define those terms. To date, the director has declined to clearly define those terms, choosing to define them on a “case by case” basis. But he has begun prosecuting people anyway, which is a glaring violation of due process.

We at Cato, as at all think tanks, are engaged daily in the battle of ideas—and it never ends. As an illustration, consider a basic issue that from the outset has animated our work at the Center for Constitutional Studies, the constitutional role of the courts. We’ve encouraged judges to be neither “activists,” in the mold often of the Warren and Burger Supreme Courts, nor “restrained” and deferential to the political branches, as many conservatives had urged in response, but “engaged” in limiting governments to their authorized powers while securing rights consistent with the Constitution’s guarantees. And we, along with others who’ve shared that understanding, have seen a marked shift on that issue, especially among many conservatives. In fact, it is often liberals today who charge conservatives on the Supreme Court with “judicial activism” when they hand down decisions like they often did in the term just ended.

That’s why I was disappointed when I saw that the Wall Street Journal’s Dan Henninger, whose Thursday column is usually outstanding, was last week urging President Trump to replace retiring Justice Kennedy with someone who would end “judicial overreach”—as if that were the problem today. So I sent a letter to the Journal, which they’ve run today under the heading, “Correcting the Record on Judicial Activism.” Because the Journal is behind a paywall, let me reprint it here:

Daniel Henninger’s otherwise excellent Thursday column came up short this week (“Trump Blows Away a Penumbra,” July 5). His hope that President Trump’s new Supreme Court pick will end “judicial overreach” is understandable, but the far larger problem, as always, is legislative and executive overreach, for which the court is the constitutional remedy.

To be sure, the Warren and Burger Courts often did overreach. But since those days, the debate among conservatives and libertarians has slowly shifted from judicial “restraint” to “engagement,” aimed at checking lawless political activism (see my 1991 Wall Street Journal op-ed “Rethinking Judicial Restraint”).

To see why, look simply at Griswold v. Connecticut, the 1965 decision Mr. Henninger cites as the source of judicial overreaching. True, the court’s resort to “penumbras” and “privacy” to explain why Connecticut’s statute prohibiting the sale and use of contraceptives was unconstitutional strained credulity. A classic case of right result, wrong reasons, the court should have noted first that the state enacted that law under its basic police power—its power, mainly, to protect the rights of its citizens. The court should then have asked simply: Whose rights is this law protecting? Connecticut would have come up empty-handed. This was a pure “morals” statute, promoted by some, against the liberty of others.

Notice, there’s no need here to speak of “privacy” or to discover rights. The burden is on the state to justify its act, failing which there’s a right, by implication, to sell and use contraceptives. Nor does the holding in Roe v. Wade follow, because there the police power may very well be protecting the rights of unborn children. That is a decision properly left to states.

But beyond the constitutional infirmities with Mr. Henninger’s argument is a practical problem. What Senate moderate would vote for a nominee who believes that states have the kind of unbridled power that was at issue in Griswold—or in many decisions since, especially economic liberty cases where courts today are increasingly checking unconstitutional power? Proper judging means principled engagement, not judicial deference.

In no particular order, here is a list of a few problems that comprehensive immigration reform should address (a few of which are mentioned in the immigration chapter of the Cato Handbook for Policymakers):

1. A far too restrictive system overall.
2. Static immigration quotas.
3. Quotas on nationalities—the law micromanages immigrant demographics.
4. Immigrants wait in line for decades.
5. Immigrant workers are counted against multiple quotas.
6. There’s a limit for immigrants with “extraordinary ability”.
7. Workers without college degrees only get 5,000 green cards.
8. The president can end the refugee program unilaterally.
9. No immigration category for entrepreneurs.
10. No way to create new immigration categories without congressional action.
11. Immigrants generally cannot apply for permanent residency on their own.
12. Spouses and minor children of new immigrants count against the quotas.
13. There’s a quota on new spouses and minor children of current permanent residents.
14. Children of temporary workers grow up here, wait in line with their parents for permanent residency, and get kicked out of line on their 21st birthday.
15. Immigrants can live here for decades without receiving permanent residency.
16. Illegal immigrants cannot leave and reapply to return legally.
17. Spouses and children of temporary workers are banned from working.
18. The law requires immigrants to pretend that they don’t want to immigrate.
19. Forcing employers to advertise positions that are already filled.
20. Temporary workers cannot easily change jobs.
21. No temporary visas at all for year-round workers without college degrees.
22. Noncitizens can access federal welfare programs after five years.
23. The president can ban any immigrants that he doesn’t like.
24. No opportunity to appeal visa denials.
25. The burden of proof is on immigrants and their sponsors, not the government.
26. America has closed borders with a few holes.

1. A far too restrictive system overall. Since 1820, the United States admitted on average 30 percent more legal immigrants per capita (0.45 percent of the population per year) than it did in 2017 (0.35 percent of the population), so the current rate is low historically. More importantly, the U.S. net immigration rate—legal and illegal—ranks in the bottom third of the 50 countries with the highest per-capita GDP in the world, and the U.S. share of foreign-born residents is also in the bottom third. This is at a time when population growth is at its lowest levels since the Great Depression, and the U.S. birthrate is the lowest on record. Congress should make it far easier to immigrate legally.

2. Static immigration quotas. Since 1990, Congress has not updated the quotas for the legal immigration system. During that time, the population of the United States has increased 30 percent and the economy has doubled. Quotas—to the extent that they exist at all—should be linked to economic growth (in the case of employment-based immigrants) or population growth (in the case of family-sponsored immigrants), so they don’t immediately become antiquated.

3. Quotas on nationalities—the law micromanages immigrant demographics. Congress treats immigrants differently based on where they were born (literally their place of birth—they can’t even escape this system by getting citizenship in another country). No “country” (i.e. nationals or former nationals of that country) can receive more than 7 percent of the total green cards in a category. These per-country limits are why Indian immigrants sponsored by their employers may have to wait decades for a green card, while other immigrants sponsored by their employers don’t have to wait at all. Congress should repeal the per-country limits and ban discrimination based on nationality.

4. Immigrants wait in line for decades. The symptom of the low quotas and differential treatment for individual nationalities is that nationals from certain countries must wait a long time to immigrate. Siblings and adult children of U.S. citizens from Mexico and the Philippines who are receiving their green cards right now waited two decades. Those who are applying for their green cards now will die before they reach the front of the line because so many applicants have piled up in the backlog since 1998. Immigrant workers from India have had decade-long waits, but those applying right now will wait more than a century. Such wait times are not reasonable. Congress should raise the quotas, but at the same time, it should also limit wait times to no more than 5 years.

5. Immigrant workers are counted against multiple quotas. 88 percent of immigrants sponsored by their employers for permanent residence already live in the United States. Most of them entered as temporary workers on H-1B temporary visas. When they entered, many were counted against the H-1B quota of 85,000 temporary visas. Now that they are in the country, they count again against the employer-sponsored green card limits. If the goal of quotas is to limit increases in the population or rapid changes in labor force competition, it makes no sense to double count immigrants, once when they enter and once when they apply for permanent residence. Immigrants should be counted a single time at their initial entry and not again.

6. There’s a limit for immigrants with “extraordinary ability”. The EB-1 green card category is for immigrants who have “extraordinary ability in the sciences, arts, education, business, or athletics which has been demonstrated by sustained national or international acclaim” as well as internationally renowned academics and multinational executives. These are the Nobel laureates, scientists, NBA players, and business leaders whose accomplishments contribute to the U.S. economy and society in profound ways. Yet this category inexplicably has a quota of 40,000 (including spouses and children). There is even a waiting list for such immigrants of over 58,000 immigrants. Congress should exempt these workers from the green card limits.

7. Workers without college degrees only get 5,000 green cards. In the Immigration Act of 1990, Congress limited the number of green cards provided to those without a college degree to no more than 10,000. In 1997, Congress passed a law that temporarily cut this meager amount in half. In 2016, the Pew Research Center estimated that there were about 11.3 million unauthorized immigrants in the United States. The vast majority of these have no college degree or U.S. citizen family members who could sponsor them for green cards, meaning that employer sponsorship would theoretically be their only option. But the number of green cards that the law provides is literally a rounding error in Pew’s estimate of the illegal population. To prevent future illegal immigration and provide a legal way for U.S. businesses to hire these workers, Congress should make more green cards available for lesser-educated workers.

8. The president can end the refugee program unilaterally. In and of itself, the fact that the president can permit more refugees is no problem. That is important when a crisis breaks out somewhere in the world. But the idea that the president can unilaterally shut down the entire refugee program, as President Trump has almost done, is absurd. Congress should establish a floor for refugee admissions, and it should permit private refugee sponsorship by individuals, as Canada already does. The easiest way to implement private sponsorship would be to expand family sponsorship categories to extended family members and exempt immediate family of citizens and legal permanent residents who are refugees from the green card limits or, alternatively, create a new category for sponsored refugee immigrants. This category would enable U.S. citizens to have a role in the number of refugees and allow them to target refugees for aid with whom they have a personal connection.

9. No immigration category for entrepreneurs. As the rest of the world tries to roll out the red carpet for entrepreneurs, the United States still has no permanent residence category specifically for immigrants who start or want to start businesses. While the United States does have a couple of temporary visa categories that allow some entrepreneurs to set up shop here (E-1 or O-1), they have no way to become permanent residents. Immigrants need a sponsor—either an employer or family member with citizenship to petition on their behalf. During their time in temporary status, entrepreneurs have to continuously apply for renewals and hope each successive administration still believes their economic contributions are valuable enough to receive renewals. As I’ve written before, this uncertainty discourages immigrant entrepreneurs from using these options to start businesses. Congress should create a broad entrepreneurship category for immigrants to receive permanent residence.  

10. No way to create new immigration categories without congressional action. Congress will never perfectly predict the future needs of the United States at any point in time. Even the best reforms will leave holes that will only become apparent years later. One solution would be to allow the administration far more discretion to design and create new categories. A better idea would be to create a state-sponsored visa program where state governments could set criteria for immigrants that they believe their states need (which could factor in applications from business, family members, or humanitarian groups). Canada’s Provincial Nominee Program would be one model for this approach. This idea would decentralize the making of programs and rules among the states, so that updates wouldn’t need to wait for a national crisis to catch the attention of the federal government.

11. Immigrants generally cannot apply for permanent residency on their own. U.S. immigration law has no mechanism for immigrants without sponsorship by an employer or family members. Unlike Canada, the United States has no “points” pathway to permanent residence that would allow immigrants to apply based on characteristics (years in the United States, English language ability, etc.) without needing to wait for someone to do so for them. This deficiency results in immigrants being totally unable to control their own destinies, and particularly for immigrant workers, it requires them to rely on their employers, which have no incentives to apply on their behalf if the immigrant already has temporary status that can be extended. It also results in workers working for years in temporary statuses with no way to apply directly for green cards. In addition to the employer-sponsored pathways, Congress should create points-based tracks for higher- and lower-educated immigrants.

12. Spouses and minor children of new immigrants count against the quotas. When immigrants sponsored by family members or employers receive their green cards (permanent residence), their spouses and minor children are also eligible for green cards. Rather than only counting the primary applicant—the worker or the family member—against the immigration quotas, the government counts the spouses and children as well. If the purpose of quotas is to establish the desired level of workers or siblings, it makes little sense to reduce that level based on whether the worker or sibling is married or has children. This arbitrarily reduces the immigration quotas by up to 70 percent in certain categories. The fluctuation in the actual levels of workers or family members throws needless uncertainty into the immigration process for legal immigrants and their sponsors. Congress should exempt spouses and minor children of immigrants from the quotas.

13. There’s a quota on new spouses and minor children of current permanent residents. Although spouses and minor children of new immigrants are counted against the quotas, they at least can generally receive permanent residence more or less simultaneously. They wait longer, but they wait together. By contrast, foreign spouses who marry an immigrant who already has permanent residence in the United States must wait more than a year before they can apply to immigrate (and then they have to wait again while that application is processed). Immigration law should never treat the nuclear family in this way. There should be no quota on spouses and minor children of current residents, just as there is no quota on spouses and minor children of U.S. citizens.

14. Children of temporary workers grow up here, wait in line with their parents for permanent residency, and get kicked out of line on their 21st birthday. The law stipulates that to receive status as a child of a new immigrant (as explained in #12), they must be under the age of 21. Because of the long wait times, this means that immigrants can enter the country as the minor children of temporary worker, an employer can sponsor their parent, and then they can wait in line with their parents for 5 or 10 years, but as soon as they turn 21, they “age out,” meaning that their application for permanent residence essentially disappears. They drop out of the green card queue entirely. They either must self-deport or seek out another temporary status, such as a student visa. They essentially become legal immigrant Dreamers, as they are in an equivalent position to those illegal immigrants who entered as children and are now in DACA. This could be remedied by using the age of the immigrant at the time they initially enter the line, rather than when they reach the front of it, for the purpose of the final green card application.

15. Immigrants can live here for decades without receiving permanent residency. #14 highlights a broader issue. America has a variety of temporary statuses that foreigners can use to live in the United States temporarily. They can enter as children of temporary workers (H-4), then transition to student status (F-1), then become temporary workers themselves (H-1B), and then receive an indefinitely renewable status as an entrepreneur (E-1). They could live in this country for decades without ever being able to apply for permanent residence (see #9, #11, #14). Of course, this is an even more significant problem for illegal immigrants. A person who has lived in the United States a decade or more should be guaranteed permanent residence. At that point, America is their home. The law should recognize that fact.

16. Illegal immigrants cannot leave and reapply to return legally. One component of all good governance is self-compliance. The government should not need to rely on force to keep everyone in line. People who make mistakes need ways to correct those mistakes on their own without the intervention of law enforcement. Until 1996, this is the way immigration law worked. If someone made a mistake or entered illegally, they could leave the country and apply for whatever visa they could. But the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 created the “3-and-10-year bars”—which make it illegal to return for 3 years after living in the country illegally for 180 days or 10 years after living illegally for a year. This incentivizes immigrants to remain in the United States in illegal status. It is counterproductive and results in a larger illegal population. Congress should repeal the bars entirely.

17. Spouses and children of temporary workers are banned from working. This ban—partially lifted by the Obama administration in 2014 for certain spouses of H-1Bs who had been in the country for more than six years and soon to be reimposed by President Trump—is pointless. Why would the country want immigrants to be here and not have them contribute? It makes no sense. Anyone staying in the United States for more than a year should be permitted to work legally.

18. The law requires immigrants to pretend that they don’t want to immigrate. To qualify for most temporary visas, immigrants must show that they have “a residence in a foreign country which he has no intention of abandoning.” This requirement imposes all sorts of pointless headaches on different types of immigrants. If foreigners want to come to the United States to get married or engaged, they cannot use a tourist visa or the Visa Waiver Program, even though these are the easiest methods to use to travel to the United States. If they do visit, and their partner proposes to them, the government can accuse them of immigration fraud. This also means that employers cannot petition for green cards for foreign students or seasonal workers (H-1Bs for high skilled workers get an exception). This effectively prohibits legal immigration for them. It is one thing to require temporary visitors to prove that they will return if they will be required by law to do so, but it is pointless to require them to do so when they can legally stay in the country as a permanent resident. The law should simply require immigrants to prove that they will comply with their terms of admission.

19. Forcing employers to advertise positions that are already filled. As #5 points out, 88 percent of immigrants sponsored by their employers for permanent residence already live in the United States generally as temporary workers. Yet the law requires all employers to receive a “labor certification” that proves that there are no workers as qualified as the immigrant for whom they are petitioning. In and of itself, this protectionism would be unhealthy, but it is even worse that employers are required to do this theater for current employees. This wastes everyone’s time because almost no one will be as qualified as the person already doing the job.

For this reason, it is very rare for labor certifications to be denied. This means that the law requires employers to post what are essentially fake advertisements for ghost positions, but they receive real applicants who they have to interview and otherwise fool into believing this is a real position only to then reject them. In other words, the system wastes the time of not only employers and government adjudicators—it directly harms the very people it is supposed to help. Just requiring employers to pay a fee or a tariff would make more sense as a protectionist measure.

20. Temporary workers cannot easily change jobs. Because their status is entirely tied to their employment, temporary workers cannot simply walk away from a job. This places them at a substantial disadvantage when negotiating for wages and benefits. One of the main impediments to quickly transitioning from one job to another is the protectionist labor market regulations that employers must go through in order to hire a temporary worker. Once a worker is already in the United States, these regulations should not apply because an immigrant moving from one U.S. business to another does not increase the total competition for jobs.

In fact, allowing temporary workers to easily change or quit jobs helps protect U.S. workers by removing the non-market reason for employers to favor foreign workers—namely that the workers cannot easily leave the employer. Temporary workers should have an extended grace period to find a new jobs if they quit their initial employer, and their subsequent employer should be permitted to immediately hire them.

21. No temporary visas at all for year-round workers without college degrees. Because of #7, #11, and #18, the only way for lesser-educated workers to work legally in the United States is with a temporary work visa. Existing law has two options for that—the H-2A for agricultural workers and H-2B for non-agricultural workers—but both the H-2A and H-2B visa regulations prohibit year-round employment. The jobs must be seasonal, meaning that if the job is a permanent, these visas won’t work. A temporary visa for permanent positions already exists for high-skilled positions (the H-1B), but there is no counterpart for lesser-skilled workers. The effect is that industries like dairy, meat processing, and construction all operate at a disadvantage compared to industries that can access these seasonal worker programs.

22. Noncitizens can access federal welfare programs after five years. Even though the fiscal effect of immigration is quite positive overall, and even though poor immigrants use  less welfare programs on average at lower rates than other poor Americans, there are still good reasons to limit the welfare state to U.S. citizens. This limitation would go a long way to assuage one of the only legitimate concerns about immigration. It would also prevent immigrants from being denied a green card based on the fear of them becoming a “public charge” and encourage them to naturalize, a process that could aid political assimilation. Most importantly, welfare acts as a disincentive to work, and for this reason, there is some suggestive evidence that when Congress in 1996 restricted welfare for immigrants during their first five years in the country, it had no significant negative effect on their overall income or health insurance rates. More entered the labor force, which resulted in higher incomes and more employer-provided health insurance.

23. The president can ban any immigrants that he doesn’t like. In 1952, Congress passed a statute that authorizes the president to suspend “the entry of all aliens or any class of aliens” if he finds them to be “detrimental.” This power is untethered by any constraints, and as the travel ban case proves, the Supreme Court is willing to allow the president to ban immigrants based on the thinnest of pretexts. Sweeping power of this kind is incompatible with the rule of law and cedes lawmaking power to the president in a way that would shock our founders. Congress should require courts to use strict scrutiny when evaluating these types of actions by the president.

24. No opportunity to appeal visa denials. Immigrants and their sponsors can appeal immigration decisions by U.S. Citizenship and Immigration Services to the Administrative Appeals Office, and if their rights are violated by immigration agencies in the United States, they can challenge the decisions in court. But visa denials by consular officers for foreign applicants seeking to travel or immigrate to the United States cannot be appealed, and thanks to the court-invented doctrine of consular non reviewability, courts almost always turn down immigrants and their U.S. citizen sponsors who challenge consular officers’ determinations—even when they are flagrantly contrary to law or violate fundamental rights of citizens. Given that a single visa denial can doom an immigrant’s chance of ever coming to the United States, such determinations should be subject to both types of review—administrative and judicial. Congress can remedy this situation by creating a Visa Appeals Board like the Administrative Appeals Office and authorizing judicial review.

25. The burden of proof is on immigrants and their sponsors, not the government. In a free society, people are innocent until proven guilty. In the immigration system, immigrants are guilty until proven innocent. The government should have to prove its reasons for keeping someone out rather than forcing immigrants and their sponsors to prove that they will not pose a problem. This is especially relevant for employers attempting to hire foreign temporary workers from abroad. In those cases, the employer must prove to the Department of Labor that the foreign worker will not adversely affect the wages and working conditions of Americans. A better system would require the Department of Labor to prove that the foreign worker will adversely affect their wages and working conditions. This was how the labor regulations worked for the Bracero guest worker program in the 1950s and 60s. Congress should return to this earlier system and require the government to prove why it wants to keep immigrants out.

26. America has closed borders with a few holes. Similar to #25, an overarching problem with America’s immigration system is that it assumes that everyone is ineligible to immigrate unless the government grants them permission to do so. A better system would presume all are eligible to immigrate unless the government has a good reason to prevent them from doing so. This system would be far simpler and focus government’s enforcement apparatus solely on those who either are threats to the property, lives, or health of Americans or who cannot support themselves without substantial government assistance. America is so far from this system right now that it is basically immigration prohibition. Like alcohol prohibition—which had exceptions for home brews, communion wine, medicinal patent liquor, rubbing alcohol, and industrial alcohol—America’s immigration prohibition has exceptions, but the basic story is this: America is closed to almost everyone who wishes to come.

Brett Kavanaugh is a strong pick for the Supreme Court.

In his 12 years on the D.C. Circuit, Judge Kavanaugh has demonstrated a devotion to legal text and constitutional principle. I admire his dedication to the Constitution’s structural protections for liberty, his steadfast defense of the rights of speech and religious conscience, and most notably his willingness to question the excesses of the regulatory state. He has repeatedly affirmed that judges serve not as the champions of faction, but as the readers of laws and adjudicators of disputes.

While there will no doubt be cases where the future Justice Kavanaugh and Cato do not see eye-to-eye, I hope that he will not flinch in those super-hard cases where Chief Justice Roberts may be inclined to bend over backwards to uphold a law or split the baby by rewriting it. I wish him a speedy confirmation; there is literally nothing in his record that justifies the smears and demagoguery he’s about to face.

Private services account for 69% of GDP, and 128.2 million jobs in June. In the Bureau of Economic Analysis industry accounts, private service industries “consist of utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and business services; educational services, health care, and social assistance; arts, entertainment, recreational, accommodation, and food services; and other services (except public administration).”

Goods-producing industries, by contrast, “consist of agriculture, forestry, fishing, and hunting; mining; construction; and manufacturing.” All of these goods-producing industries combined accounted for only 20.7 million jobs this June. That was fewer goods-producing jobs than in July 2000 (24.7 million) or August 1979 (25 million) or even May 1969 (22.9 million).  In other words, all long-term U.S. job growth has been in service occupations, not in manufacturing, mining, construction, and agriculture.

The United States is predominantly a service economy.  Many world-famous U.S. enterprises provide services all over the world – including entertainment, transportation, legal services, chain restaurants, advertising, accounting, medical tourism and college degrees.  In fact, rising U.S. service exports accounted for a third of total exports from January through May, and the U.S. surplus in services shrunk the total deficit by 31%.

Yet when President Trump and his trade war generals talk excitedly about bilateral trade deficits, they invariably talk only about goods - never services.  Commerce Secretary Wilbur Ross, for example, published “Free Trade Is a Two-Way Street” in The Wall Street Journal, writing only about “trade in goods” – as though a third of U.S. exports, most U.S. jobs and 69% of U.S. GDP is not worth mentioning.

A reporter for (a financial website) inadvertently provided an excuse for widespread journalistic neglect of U.S. service exports by writing, “Please note that the Census provides trade data by country for goods only, not services.” That might have been a helpful warning if it was true. But Census does provide trade data for goods and services for most important countries, and for groups of countries such as the EU and OPEC.

Country trade data for goods and services are so commonly neglected, that I am going to post the data in several posts about various regions of the world, starting with Asia.

“Last year, we lost $500 billion on trade with China,” Trump said at a March 23 news conference. That was fake news. The correct number was $335.7 billion once we count the $40.2 billion U.S. surplus in services. And there’s no excuse for not counting services. But everyone also forgets that Hong Kong is part of China and has no tariffs against the rest of China or the U.S. or anyone else (neither does Singapore). It’s like a Chinese Free Trade Zone. Since Hong Kong ran a $35 billion trade deficit with the U.S. in 2017, that leaves the combined China/Hong Kong net trade deficit with the U.S. at $300.6 billion – $200 billion less than the President claimed.

President Trump might nonetheless claim “we lost” $300 billion in trade with China last year, except getting $300 billion in desirable industrial and consumer goods from China was a U.S. gain, not a loss. Why else would we have bought the goods?

The benefit from trade comes from imports. Exports are the cost.

Foreigners don’t sell us goods because they’re collecting dollars as a hobby. U.S. dollars can ultimately be spent only on U.S. goods, services and assets, and they are frequently used to buy U.S. services and assets rather than goods.

If people in counties like Japan, India or China find better and safer investment opportunities in U.S. tech stocks and small caps than in their own local markets, then they have an incentive to sell us something to get the dollars to invest here. I long ago dubbed that “The Investment Opportunity Theory of Trade.” Foreigners bidding-up the value of U.S. equity or property is not American “borrowing.” And contrary to Mr. Trump it’s a win-win deal – not a loss.

This news report from the Washington Post is a striking example of the absurd costs of complex tariff systems:

Brand-new Ford Transit Connect vans, made in Spain, are dropped off at U.S. ports several times a month. First, they pass through customs — and then workers hired by the automaker start to rip the vehicles apart. The rear seats are plucked out. The seat belts in back go, too. Sometimes, the rear side windows are covered with painted plates. Any holes left in the floor are patched over. 

Why? Because there’s a 25 percent tariff on imported pickup trucks and work vans, but only a 2.5 percent tariff on passenger vans. So even with all the extra effort of building a passenger-quality van, and then dismantling it, it’s still cheaper to do that than to pay a substantial tax on the import. 

The story is also a reminder of how bad policies can linger for decades. In the early 1960s Europeans increased their purchases of American chicken. European governments responded by imposing tariffs on chicken imported from the United States. In retaliation, President Lyndon B. Johnson imposed a 25 percent tariff – known as the “chicken tax” – on potato starch, dextrin, brandy, and light trucks. Tariffs on the other products were eventually lifted, but the high tax on light trucks remains. Thus the counterproductive construction and destruction. And by the way, this is no secret; the Wall Street Journal wrote about Ford’s practice in 2009.

The Post goes on to report:

Tariff engineering has a long history. 

In the 1880s, the Supreme Court ruled it was acceptable for a sugar importer to intentionally darken refined sugar with molasses to lower the grade and secure a lower duty. Three decades later, the court took up the case of a company accused of trying to evade a 60 percent duty on strung pearls by instead shipping loose pearls with holes pre-drilled for stringing. Those faced only a 10 percent duty….

For example, some athletic shoes, such as Converse All-Stars, come with just enough fuzzy cloth on the rubber soles to qualify them as lower-duty slippers. In the early 1980s, the United States imposed a tariff on motorcycles with engines larger than 700 cubic centimeters in a bid to protect U.S.-based Harley-Davidson, so Japanese companies turned to making 699-cubic-centimeter motorcycles instead. 


Sugar import quotas also create opportunities for gaming the system, which the government tries to block. In 1985, the Wall Street Journal and then the New York Times reported that the Reagan administration had slapped emergency quotas on “edible preparations” such as jams, candies, and glazes—and even imported frozen pizzas from Israel—lest American companies import such products for the purpose of extracting the sugar from them. Apparently it might have been cheaper to import pizzas, squeeze the tiny amount of sugar out of them, and throw away the rest of the pizza than to buy sugar at U.S. producers’ protected prices.

A U.S. tariff is a tax on the American people. That’s easy to see. American consumers and businesses are forced to pay higher prices for the goods they want to buy. What is not so obvious is all the deadweight loss such obstacles to trade create. Businesses and consumers may have to shift their purchases to a less-preferred domestic alternative. And as the reports above indicate, companies sometimes go to great lengths to get around the obstacles created by tariffs, quotas, and other barriers to trade. Just think of all that wasted labor and material involved in getting a Ford passenger van from a Spanish factor to an eager American consumer. This is pure waste, waste that literally makes America poorer. In the case of the chicken tax, the waste is related to a 1963 executive order that’s never been rescinded. The sugar quotas benefit a highly concentrated, politically effective industry and impose costs on far more businesses.

Tariffs impose costs on Americans. We should be reducing and eliminating them, not expanding them.

On Tuesday, Donald Trump took to Twitter to draw attention to an important story about a large scale National Security Agency surveillance program—though largely for the wrong reasons.  

Wow! The NSA has deleted 685 million phone calls and text messages. Privacy violations? They blame technical irregularities. Such a disgrace. The Witch Hunt continues!

— Donald J. Trump (@realDonaldTrump) July 3, 2018

There are two significant errors here and one important truth.  The first error is that NSA is in the process of deleting “Call Detail Records”—or metadataabout phone calls and text messages, not the calls and messages themselves.  The second error is that the records being purged were acquired pursuant to a counterterrorism authority: They have nothing to do with Special Counsel Robert Mueller’s investigation into Russian interference in the 2016 presidential election (or “The Witch Hunt,” as Trump is fond of characterizing it). The important truth is that the dramatic purge of hundreds of millions of records is indeed an attempt to remedy “technical irregularities” that led to privacy violations: the acquisition by NSA of large numbers of private telecommunications records it was not legally entitled to receive.  The New York Times reported on this in late June, and David Kris, former head of the Justice Department’s National Security Division, wrote a helpful explanatory post for Lawfare.

I can offer a bit of additional perspective because I participated in a call held by intelligence officials with privacy advocates on Monday, July 2nd to discuss the CDR deletion.  As those officials described it, the issue arose as a result of problems in the systems of the telecommunications providers from whom these records were sought. This introduced errors into some of those records, which were not immediately detected because the problem only manifested itself under specific circumstances—the officials were, understandably, unable to go into any technical detail here.  But when those records were subsequently fed back into the system as part of regular requests for additional records, those initial errors were compounded, leading to NSA obtaining records it was not authorized to receive.  Since the erroneous records are difficult to identify, NSA opted to purge the entire database, though now that the technical issues have been resolved, they will be able to repopulate it by re-requesting records for which there’s still an applicable Foreign Intelligence Surveillance Court order in place.

That’s what we got on the call, but it’s probably necessary to have a bit of background to understand what it really means in practice.  Until 2015, as we learned from disclosures by former NSA contractor Edward Snowden, NSA was collecting nearly all domestic calling records in bulk.  When analysts had a phone number they believed was linked to a foreign terror group, they queried this number against that massive database, pulling up not only the phone numbers in direct contact with that initial number, but the numbers in contact with those numbers, and then the numbers in communication with those second-degree contacts. In short, they built up a kind of social network graph extending out to three degrees of separation, or three “hops”, from an initial suspicious number.  The USA Freedom Act of 2015 put an end to the practice of indiscriminate bulk collection, instead allowing NSA to obtain two “hops” worth of contacts from an initial suspicious number by making requests, approved by the Foreign Intelligence Surveillance Court, directly to telecommunications providers, rather than maintaining an enormous database itself.  

So imagine what happens if (and here I’m necessarily speculating a bit about the nature of the errors) some technical glitch causes records to include wrong numbers—numbers the target of that FISC order wasn’t really in communication with.  At that step, NSA has gotten records it is legally entitled to, though they contain some inaccuracies.  But when those wrong numbers are fed back to the telecoms the NSA ends up improperly receiving the call records of people who were not really in direct contact with the initial target—records NSA lacks legal authority to collect.

The first thing to note about this situation is that it’s still less violative of privacy than the initial NSA bulk program, under which the agency received everyone’s call records. The second is that it’s a good illustration of how small errors can easily be magnified by feedback loops when doing telecommunications analysis, and of how those errors can go undetected for years at a time thanks to the sheer volume of data involved.  Needless to say, had NSA been authorized to seek an additional third “hop,” those additional iterations would have magnified the improper collection by another order of magnitude. The secrecy around the process means that the providers from whom records are sought may have limited ability to detect errors when they occur—but also that they have few real incentives to scrupulously limit production: They face no legal liability for coughing up too much information about their customers. And while these errors may not have anything to do with Donald Trump’s “Witch Hunt,” it seems entirely possible they may have led to innocent people being inappropriately subjected to further scrutiny: Since NSA itself can’t easily identify which records it obtained in error, we will probably never know.

As far as we can tell at present, this was a genuine mistake that NSA has now taken steps to correct.  But the fact that it persisted unnoticed for as long as it did, and the way the iterative nature of the program worked to magnify small initial errors, should make us skeptical of the wisdom of relying on intelligence tools that require this kind of large scale data collection.

One of the benefits of school choice is that it allows students with varying needs and backgrounds to choose which schooling model helps them achieve the best educational outcomes. An extensive literature on charter schools, one of the most visible alternatives to traditional public schools, has found that charters with certain characteristics and policies tend to have positive results. Most of this literature focuses on non-profit schools, but a recent study finds that the advantages of charters extend to for-profit schools. 

In their recent paper, University of Michigan economists Susan Dynarksi, Daniel Hubbard, Brian Jacob, and Silvia Robles estimate the educational impact of one of the largest for-profit charter school networks in the country, National Heritage Academy (NHA), which enrolls over 50,000 students in 9 states. Using randomized lottery admissions at NHA schools in Michigan, they find that attending a NHA charter school for one year is associated with an increase in math achievement and positive—though not statistically significant—impacts on other outcomes.

Also of note, the authors find that non-poor, non-urban students benefited the most from one year at NHA. Most of the prior literature has found the opposite, that low-income, urban students receive a larger share of the benefits.  And similar to results for non-profit charters, the authors find that certain key characteristics—such as a “No excuses” culture, providing extra time for core subjects, and frequent diagnostic assessments—are what seem to drive the positive results.

The study is the first evidence on the impact of for-profit charter schools, and it indicates that for-profits can provide similar advantages as non-profits. As non-profit and for-profit charters expand, these benefits will continue to offer different types of students the best opportunities for academic success.