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The beauty of the United States where policy is concerned is that state variations allow for lots of decent analysis. Nowhere is this more clear than on the minimum wage, where a fascinating new empirical paper by Terra McKinnish from the University of Colorado Boulder adds further light as to whether Econ 101 holds in regards to raising statutory pay rates.

Remember, there are (to simplify) two main theoretical stories of the labor market. In an ordinary competitive model, imposing a minimum wage above the equilibrium wage rate leads to an increase in the quantity of labor supplied (more people want to work at the higher wage) and a reduction in the quantity demanded (employers want fewer worker hours at the higher price). The difference between the two is the increase in “unemployment” – i.e. the difference between the worker hours people are willing to work and the demand for worker hours at that wage rate. Raising the minimum wage in a competitive labor market is said to have “disemployment effects.”

In the past decade though, some academics have posited a different theory of the labor market, implying that all or many employers have “monopsony power” - monopoly power but in the purchase of labor. Profit maximization would lead firms to pay less than the value of the marginal product of labor and employ less labor-hours than would be the case in a competitive market. The implication is that when there is a strong element of monopsony in the labor market, the imposition of a higher minimum wage can lead to both an increase in pay per hour and an increase in hours of employment. Workers would gain unequivocally from the minimum wage, while previously exploitative employers would lose.

Let’s put aside for a second that in reality the labor market is complex, dynamic, and there could be elements of both. Empirically, the question is which provides a better explanation of the real labor market we see.

Here’s where McKinnish’s new study comes in. She seeks to exploit the variation in minimum wage rates between states and the compressing effect of the 2009 federal minimum wage increase to analyze whether a relative increase in a minimum wage within a state led to more commuting into that state to work for under 30s or more commuting out of the state to work.

Suppose I’m residing and working in a state whose minimum wage is unchanged and a neighboring state increases its minimum wage relative to the one I am in. A result of more commuting from my state to the neighboring state would be consistent with the monopsony story that a higher minimum wage could support more employment or at least the idea that the disemployment effects of higher minimum wages were small. On the other hand, if the higher minimum wage in the neighboring state resulted in more commuting out of the state then this would signify the disemployment effects of Econ101, and thus the competitive labor market story.

McKinnish employs difference-in-differences techniques to try to find the answer, using commuting records of people earning both low and modest hourly rates to control for other factors which could influence commuting, such as the health of the economy.

Upon doing all this, three key findings arise from her work:

  1. Prior to the 2009 federal minimum wage increase, there is no evidence that low-wage workers commuted at higher rates (relative to moderate-wage workers) to neighboring states with a higher minimum wage.
  2. After the federal minimum wage increase, low-wage workers modestly increased out-of-state commuting out of states most affected by the federal minimum wage increase.
  3. Moderate-wage workers reduced the rate at which they commuted out of states most affected by the federal increase following the rise in the rate (consistent with the idea that increasing minimum wages leads to employers replacing low productivity workers with higher productivity ones).

The implications of this finding are 3-fold. First, it directly refutes the narrative presented by some in the media that people commute towards states with higher minimum wages. Second, it suggests that the real labor market looks much more like the competitive model than the monopsony one. Third, it suggests that studies which seek to examine the effects of minimum wage increases using data based on the residential location of the worker will tend to understate the disemployment effects of the wage rise.

In all, this study is further evidence to support the Econ 101 view of minimum wages. See here and here for more.

According to former Reagan adviser Martin Feldstein, “Higher projected budget deficits could raise long-term interest rates, potentially triggering… a serious economic downturn.”

Has that ever happened?

From 1977 to 1981 10-year bond yields nearly doubled, rising from about 7.4% to 13.9%, but budget deficits were relatively small, around 2.5% of GDP.  Budget deficits were doubled from 1984 to 1993 (about 5% of GDP), yet bond yields were nearly cut in half, falling from 12.4% to 5.9%. Bond yields were no lower from 1997 to 2000 when the budget moved into surplus. But yields fell dramatically in 2008-2012, a period of record budget deficits.

One possible objection is that larger budget deficits were caused by recessions, which is why bond yields did not rise with larger deficits or fall with surpluses.  The graph addresses this concern by using CBO estimates [.xls] of cyclically-adjusted budgets (“with automatic stabilizers,” in CBO vocabulary). 

Still, there is clearly no correlation between bond yields and any measure of yearly budget deficits and surpluses. And that is also true in other times and places – Japan’s chronic large deficits and debt being an obvious example.

Another possible objection centers on Feldstein’s use of the phrase “projected budget deficits,” as though the CBO’s notoriously inaccurate long-run projections could somehow have an entirely different effect from actual deficits. I criticized the analysis and evidence behind that conjecture in a Treasury Department presentation which was condensed and simplified in a Cato Institute paper. I found the underlying analysis illogical and contradictory and the evidence worthless.

There is no need to make up stories about alleged effects of deficits on bond yields in order to make a strong case for minimizing frivolous government borrowing (e.g., to pay for transfer payments or government employee compensation).

Chronic deficits add to accumulated debt, and that debt will have to be serviced with future taxes even if it is rolled-over indefinitely. That is reason enough for Congress to keep growth of federal spending below the growth of the private economy – a task which requires frugality in spending but also a tax and regulatory climate which minimizes impediments to investment, entrepreneurship, education and work.

The “first 100 days” was a dictatorial metaphor from the start. It entered the presidential lexicon in 1933, when journalists likened FDR’s legislative onslaught to Napoleon Bonaparte’s 1815 breakout from Elba and subsequent three-month rampage, ending at Waterloo.  

Thankfully, President Trump’s first 100 days haven’t been nearly so dramatic. It’s as if Napoleon, instead of marching to Paris and then to war, just sat around his Tuscan villa, hand in his waistcoat, ranting about his enemies.

Of the umpteen items in Trump’s “100-day action plan,” unveiled last fall in Gettysburg, Pennsylvania, he’s barely moved on most, reversed himself on others, and been stymied by Congress and the courts on the few where he’s made a serious push. The candidate who proclaimed “I alone can fix it” is learning that, on the home front at least, our political system remains resistant to one-man rule. 

It’s reassuring to learn that our system of separated powers still has some life left in it, at least when it comes to domestic affairs. The danger is that, with his agenda stalled on the home front, Trump may overcompensate abroad. Perversely, it’s in the exercise of military force—the area where presidents can do the most damage—that checks and balances are weakest.

No administration has accomplished more in the first 90 days” the president insisted recently—a claim that ranks with prior Trumpian whoppers like “largest audience ever to witness an inauguration” and “biggest electoral college win since Ronald Reagan.” Trump was closer to the mark a few days later, when he called the 100-Days metric a “ridiculous standard.”

However, the blustery press release the White House put out Tuesday, “100 Days of Historic Accomplishments,” embraces the skewed premise that presidential success should be measured by sheer volume. “President Trump has accomplished more in his first 100 days than any other president since Franklin Roosevelt,” it blares, because he’s “signed 30 executive orders” and “A SLEW OF LEGISLATION”! 

But of course Trump’s 100-day record can’t measure up to FDR’s 15 major bills passed in the panicked atmosphere of the Great Depression. Nor has he pulled off anything as mammoth as Obama’s $787 billion stimulus package, signed less than a month after his inauguration, during the worst financial crisis since the Depression. But so what? In the modern era, most presidents can’t manage a legislative blitzkrieg absent a national emergency. As political scientist David R. Jones notes, 

President George W. Bush’s first term produced an impressive six landmark acts, but four were prompted largely by a single dramatic event, the terrorist attacks of 9/11: the Authorization for Use of Military Force against the terrorists, the USA Patriot Act, the Authorization for Use of Military Force Against Iraq Resolution of 2002 and the Homeland Security Act of 2002, which established the federal department.

Are we supposed to be disappointed that Trump hasn’t (yet) enjoyed the proverbial “good crisis” you never want to waste? 

All presidents resent looking weak and ineffectual, Trump perhaps more than most. But it’s hard not to, given the vast gulf between media-stoked public expectations for the job and what presidents can realistically achieve. It’s enough to give a guy a complex

In his first three months, Trump has learned that the presidency can be an incredibly frustrating job. Government doesn’t run like a business or a reality show—you can’t just say “you’re fired” to Congress or the Courts. 

“Oh, if I could only be President and Congress too for just 10 minutes!” a young FDR once heard his cousin Teddy exclaim. There’s at least one area where a president can. It’s in the exercise of military power where the president approaches the strongman status Trump seems to crave. That’s something he’s learning as well. 

So far, Trump has put additional boots on the ground in Syria, loosened rules of engagement designed to minimize civilian deaths, and dropped more bombs in Yemen than Obama did in any year of his presidency. And when Trump gave the order to launch 59 Tomahawk missiles at a Syrian airfield on April 6, he discovered that it made him look presidential—made him president, in fact. As Fareed Zakaria gushed the day after the Syrian strike: “Donald Trump became the president of the United States [last night].” (So maybe he has an extra 77 days—until mid-July—before his real 100 days are up.)

Zakaria was hardly alone in cheering Trump’s illegal airstrikes in Syria. The chorus of media accolades the Syria attack earned Trump had to be immensely gratifying to our ratings-obsessed president. But there’s a reason Madison warned against ceding unilateral war-making powers to the president: “the trust and the temptation would be too great for any one man.”

In his first 100 days, Trump has discovered that he is “one of the only men on Earth who enjoys the privilege of looking over a menu of place names and being able to give an executable order to blow them to smithereens.” What’s more, American “opinion leaders” will score it as a big “win” when he does. In the months and years to come, we may, indeed, grow sick of winning. 

The most remarkable thing about Rep. Tom MacArthur’s (R-NJ) amendment to the House leadership’s American Health Care Act is how little the conservative House Freedom Caucus got in exchange for supporting an ObamaCare-lite bill they had previously opposed.

The MacArthur amendment would allow states to apply for waivers that would:

  1. Exempt their individual and small-group insurance markets from ObamaCare’s “essential health benefits” coverage mandates as early as 2018;
  2. Allow insurers in those markets to consider the health status of previously uninsured applicants (if the state sets up some more direct form of subsidy for people with pre-existing conditions, either within or outside the commercial market) as early as 2019; and/or
  3. Allow states to loosen ObamaCare’s “community rating” price controls as they apply to age early as 2020.

These waivers may never happen. They certainly won’t happen in time to save consumers from the AHCA’s rising premiums, or to save Republicans from the inevitable backlash against the AHCA. But even if they did happen, they would increase the penalties ObamaCare imposes on insurers who offer quality coverage for the sick, and thereby accelerate ObamaCare’s race to the bottom.

The opt-out concept is not irredeemable. But the MacArthur amendment would require dramatic changes to make it even a modest step toward ObamaCare repeal.

The Secretary Can Block MacArthur Waivers

Supporters claim the amendment prevents the federal government from blocking or forcing states to alter waiver applications because it requires the Secretary of Health and Human Services to approve any and all waivers that provide the necessary information. But this is not quite true.

The amendment requires waiver applications must “demonstrate[]that the State has in place a program that carries out the purpose described” in the parts of AHCA that create subsidy programs for people with preexisting conditions. The Secretary could deny waiver applications on the basis that a state’s program does not adequately carry out the purpose of those parts of the AHCA, and refuse to approve the waiver until the state makes whatever changes the Secretary requires. The Secretary could also reject waivers on the basis that the information provided in the application is otherwise not truthful or accurate.

Donald Trump’s HHS Secretary Tom Price might not. But Secretary Bernie Sanders would.

MacArthur Waivers: Too Little, Too Late

Though the amendment allows states to waive the EHB mandates as early as January 1, 2018, the earliest states could do so would be 2019.

So even in states that are eager to provide premium relief, consumers would still feel the pinch of ObamaCare’s rising premiums, plus the 15-20 percent premium surcharge the AHCA would impose, in 2018—a year with mid-term elections, no less.

MacArthur Waivers Accelerate the AHCA’s Acceleration of ObamaCare’s Race to the Bottom

ObamaCare penalizes insurers who offer high-quality coverage to the sick, causing a race to the bottom in quality. You’ve seen the headlines. A “stampede to narrow networks.” Insurers fleeing the market. Complete collapse of the Exchanges in many counties. The ObamaCare provisions causing that race to the bottom are the same provisions that leave older women (age 55-64) facing the largest premium increases under the law: its community-rating price controls.

The AHCA would accelerate that race to the bottom. It would free consumers to buy less coverage (i.e., with lower actuarial values) than ObamaCare allows. But because it would preserve community rating, the adverse selection against comprehensive health plans would be even more severe. Coverage for the sick would get worse even faster than under ObamaCare, as insurers do even more to make their plans unappealing to the sick, or leave the market entirely.

As noted above, MacArthur waivers would allow willing states to loosen ObamaCare’s “age rating” bands even further, and to let insurers take health status into account for previously uninsured applicants. But these provisions would not be enough to prevent a race to the bottom. In fact, while it’s a good thing that MacArthur waivers would allow healthy people even more freedom to purchase less-comprehensive coverage, the fact that it would preserve community rating for sick enrollees who switch plans means it would create even more adverse selection than the AHCA would. So the race to the bottom would be even more swift and severe.

A Better Way to Let States Opt-Out

If the Republican Congress wants to provide real relief to consumers and take a step toward keeping its pledge to repeal ObamaCare, here are the features of a state opt-out provision that would accomplish both goals.

First, allow states to opt out of all of Title I of ObamaCare. This would stabilize insurance markets immediately, and cause premiums to fall dramatically for the vast majority of consumers in the individual market. If Republicans want to weather a tough mid-term election, they are going to need millions of voters happy because their premiums fell.

Second, don’t require states to get approval from the federal government. Let states opt out of ObamaCare simply by notifying the Secretary of Health and Human Services. Giving the Secretary any authority to approve a state’s plans also gives her the authority to deny those plans.

Third, let residents of all 50 states purchase insurance licensed by ObamaCare opt-out states. This would tie the opt-out idea to President Donald Trump’s campaign promise to let consumers and employers purchase insurance across state lines. As such, it would give states an added incentive to opt out of ObamaCare (states that did so could collect premium-tax revenue from out-of-state purchasers) and allow residents of all states to opt out of ObamaCare at their discretion.

MacArthur Amendment Exempts Congress from MacArthur Waivers

Then again, maybe the whole opt-out idea is doomed. The MacArthur amendment exempts Congress, which gets coverage through the District of Columbia’s small-business Exchange, from any waiver that the District might pursue. Authors of the amendment apparently included the language because otherwise the bill would run afoul of Senate rules and cause the entire AHCA to require 60 votes in the Senate rather than just 51. Since this problem would apply to any waiver or opt-out idea, maybe Congress should just stick to keeping their promise to repeal ObamaCare outright.

Conclusion

What I wrote about the AHCA two months ago still applies:

The House leadership bill isn’t even a repeal bill. Not by a long shot. It would repeal far less of ObamaCare than the bill Republicans sent to President Obama one year ago. The ObamaCare regulations it retains are already causing insurance markets to collapse. It would allow that collapse to continue, and even accelerate the collapse. Republicans would then own whatever damage ObamaCare causes, such as when the law leaves seriously ill patients with no coverage at all…The fallout could dog Republicans all the way into 2018 and 2020, when it could lead to a Democratic wave election like the one we saw in 2008. Only then, Democrats won’t have ObamaCare on their mind but single-payer…

The [AHCA] merely applies a new coat of paint to a building that Republicans themselves have already condemned. Since the most important asset health reformers have is unified Republican opposition to ObamaCare, at least in theory, it would set the cause of affordable health care back a decade or more if Republicans end up coalescing around this bill and putting a Republican imprimatur on ObamaCare’s core features. If this is the choice, it would be better if Congress simply did nothing.

Congressional Republicans and President Trump took office with a mandate to repeal and replace ObamaCare. Yet even as 76 percent of Republican voters and 80 percent of Trump voters want Congress to repeal and replace ObamaCare, both the moderate and the conservative wings of the House GOP now appear ready to snub their base by supporting a bill that does neither. Good luck turning out those voters in 2018. 

Last week, invoking a seldom-used provision of a 1962 law, President Trump launched an investigation to determine whether steel imports present a threat to U.S. national security. An affirmative finding by the Commerce Department would permit the president to impose trade restrictions in response to the threat. But the real threat to U.S. national security is not an abundant supply of cheap imported steel. The real threat is a hyper-litigious steel industry intent on isolating the U.S. economy at enormous cost to downstream U.S. industries, exporters, and consumers. 

With the Trump administration full of steel executives and their lawyers one needn’t ponder too long to get the gist: U.S. trade policy is in the hands of an industry that accounts for 0.3 percent of U.S. GDP, has never had much interest in cultivating foreign demand for its products, has limited stakes in the global trading system, and is monothematic in its demand for aggressive trade law enforcement.

The wall of tariff’s protecting U.S. steel interests is already much higher than the walls erected to insulate virtually any other industry from foreign competition. Currently, there are 151 antidumping and countervailing duty (anti-subsidy) measures in force against most types of steel from most major exporters. And that severely impairs the competitiveness of America’s far more numerous, far more economically significant downstream, steel-using companies.

Under U.S. trade remedy laws, the authorities are prohibited by statute (on account of steel industry lobbying) from even considering the impact of prospective antidumping and countervailing duties on the operations of downstream companies. Absurd self-flagellation, right? The absurdity is magnified when you grasp that the duties paid by U.S. importers (i.e., the steel users), which are big enough deterrents to doing business with foreign suppliers in the first place, aren’t even the biggest concern. Under the seriously corrupted, capriciously-administered U.S. trade remedy laws, the importers don’t even know what their final duty liability is going to be until about one year (on average) after the product is imported.  The amount of duty paid upon entry of the product is an estimate of the duties that ultimately will be owed when Commerce gets around to “calculating” the actual incidence of dumping or subsidization next year.  Imagine getting a supplemental bill today for the groceries you purchased last April.  Would you even buy those groceries in the first place, without knowing the final price tag? Of course not. And that’s the intention of the retrospective nature of the U.S. trade remedy laws.

Although portrayed as U.S. companies against Chinese or other foreign predators, the laws are more aptly described as weapons used by U.S. upstream industries to cut off their U.S. customers from alternative suppliers.  I’m not making this stuff up.  

Over the past 20 years, the Cato trade center has produced a very large body of accessible analyses on the subject of antidumping. Since it’s looking likely that the subject will be a prominent feature of trade policy over the next 3 years, 9 months, below are links to our extensive work on the subject. 

Antidumping administration at the Commerce Department: 

Antidumping policy toward China:  

The adverse, but intentionally ignored impacts of AD measures on downstream industries and exporters:

How to drain the antidumping swamp:

The absence of any legitimate economic rationale for antidumping:

Sundry commentary about the AD regime:

Former Energy Department Undersecretary Steven Koonin caused quite a stir yesterday in an interview with Mary Kissel of The Wall Street Journal when he stated Federal scientists purposefully misled the public about climate change. He recounted that the 2014 National Assessment of Climate Change Impacts in the United States emphasized a dramatic increase in Atlantic hurricane power beginning in 1980. However, this conveniently chosen segment of the historical record does not tell the entire story—the narrative that hurricanes are right now getting more frequent and intense due to climate change just does not stand up to scrutiny.

The offending figure is on Page 42 of the document (reproduced here). It is in Chapter 2 of the report, which is called “Our Changing Climate.”

These are graphs of something called the Power Dissipation Index (PDI) for Atlantic and Eastern North Pacific hurricanes. Note that the data begins in 1970 and ends in 2009. The text explains the beginning date by saying “there is considerable uncertainty in the record prior to the satellite era (early 1970s).”

This is true, but phenomenally disingenuous. Another hurricane scientist, conspicuously absent from the author list, is Chris Landsea of the National Hurricane Center, who developed the Center’s historical hurricane archive, known as HURDAT2. According to Landsea, the problem in the early record (which should be obvious) is that some storms will be missed, not the other way around! In his words, in a 2013 article in Monthly Weather Review, “Some storms were missed, and many intensities are too low in the pre-aircraft reconnaissance era (before 1944 in the western half of the basin) and in the pre-satellite era (before 1972 for the entire basin).

Therefore, prior to 1972, any history is likely to underestimate the PDI rather than overestimate it.

One of us (Maue) calculated the PDI using the HURDAT2 data back to 1920, shown below:

We have included the trend line from the National Assessment. It’s also noteworthy to see what happened after 2009. The accompanying text says “Adapted from Kossin et al. 2007,” meaning they added two more years. Why didn’t they add through 2013, the year before publication of the Assessment? One potential reason is a close look at the chart (which goes through 2016) would have destroyed the narrative.

When the National Oceanic and Atmospheric Administration released the Assessment on May 6, 2014, it said, “The report, a key deliverable of President Obama’s Climate Action Plan, is the most comprehensive and authoritative report ever generated about climate changes that are happening now in the United States…[emphasis added].”

The President’s Action Plan eventually resulted in the Clean Power Plan, arguably the most expensive environmental regulation ever promulgated. The flamboyant, cherry-picked misrepresentation of the hurricane data record was indeed a “deliverable.”

A more “comprehensive” and “authoritative” report would have noted that periodic changes in the north-south gradient of temperature in the Atlantic Ocean (known as the Atlantic Multidecadal Oscillation or AMO) are related to hurricane activity. The trendline in the Assessment begins in a “negative” AMO period, which is associated with suppressed hurricane activity, and ends during a very positive phase which is associated with enhanced hurricanes. A more accurate representation should have begun in 1950, which would have represented a complete AMO cycle. Of course, there wouldn’t be any trend, as expected. Instead, the Assessment cherry picked data to tell a story, and the concocted cheap excuse as to why it did it is risible.

Let’s just quote NOAA’s Geophysical Fluid Dynamics Laboratory updated overview of current research as of April 13, 2017: “It is premature to conclude that human activities – and particularly greenhouse gas emissions that cause global warming – have already had a detectable impact on Atlantic hurricane or global tropical cyclone activity.” Now, that is an entirely different story than we have been told.

EPA Secretary Scott Pruitt has argued that the Paris Agreement on Climate Change is a bad deal for the U.S. because it doesn’t bind China and India. But that implies it could be fixed by imposing the same ruinous terms on developing countries—which would in fact just spread the damage. The real reason for pulling of the Paris Accord is that it is a futile gesture based on empty and dishonest premises.

The first thing to note is that the same computer models that say global warming is a problem also say that Paris will not fix it. If one were to graph the standard warming projections over the next century with and without Paris, the two lines overlap almost exactly. Whatever greenhouse gas (GHG) concentration we would have reached in the year 2100 without Paris, we will reach it shortly thereafter with. For all its costs, the Paris treaty will have almost no effect on global warming, and by depleting global income it will make it harder for countries to adapt and innovate in response to whatever changes occur. Thus not only does Paris not solve the problem, it arguably makes it worse.

This, by the way, was equally true of the earlier Kyoto Protocol: all cost and no benefit. Under current technology and economic realities we have only two options: do nothing and adapt to whatever changes the climate will undergo over the next century, or take a lot of costly and futile actions today and adapt to whatever changes the climate will undergo over the next century. There has never been a third option involving costly actions today that stop the climate from changing.

Paris binds countries to meet their self-imposed Nationally Determined Contributions, or NDCs. The Obama Administration submitted an NDC that committed the U.S. to a twenty six percent reduction in GHG emissions below 2005 levels by 2025 through specific regulatory measures, all of which were enacted by Executive Order rather than by passing laws in Congress. It amounts to an attempt by one Administration to bind all future Administrations despite lacking legislative warrant. If the U.S. NDC was supposed to be legally binding then it should have gone through Congress. And now that some of those measures have been repealed by the current Administration, it is dishonest to keep the existing NDC as part of the Paris Agreement.

Paris embeds an inconsistency between calling for the use of the “best available science” while also prejudging what that science is allowed to say. The Accord’s preamble calls climate change an “urgent threat” even though mainstream climate science and economics does not imply this, instead placing global warming rather low on the list of problems confronting the world. The Agreement enshrines the ill-defined and arbitrary target of holding “the” global average temperature to 2oC above pre-industrial levels while completely ignoring the critical question of how it should be measured. Nor does it say how much of the warming is natural and should not be counted against the 2oC limit. This omission alone makes the overall target absurd, since it could bind the world to taking actions to prevent the sun from shining brighter.

The Paris Agreement also veers into absurdity by its political and ideological language, requiring countries to address extraneous themes like gender equity, biodiversity, poverty eradication, migrants, disabled persons, a “just transition of the workforce,” “creation of decent work,” and so on. Having larded the treaty with social justice slogans, its authors cannot be surprised if they become points of contention. It is not surprising that conservative governments will dislike these items, and if the authors respond that they can simply be ignored, then they should not have been in the treaty to begin with.

Finally, a proponent might acknowledge all these problems yet still defend Paris as a “good first step” in the expectation that later steps will yield big benefits.  But this is flawed reasoning. In any well-structured policy transition the first step yields the highest benefits at the lowest cost—the so-called low hanging fruit. Subsequent steps cost more and yield less, until the point is reached where costs exceed benefits and the process stops. Paris, like Kyoto, cost too much to implement while yielding unmeasurably small benefits. Subsequent steps will only be worse. It is a bad first step on a road to nowhere.

Pulling out of the Paris treaty would send a signal that the U.S. will not bind itself to bad deals based on hype and empty slogans. If this is the best global climate diplomacy could come up with then it is time to pursue other options.

The Trump administration has released proposals to guide the Republican push for major tax reform. The proposals are mainly supply side in nature, meaning cuts to marginal tax rates and other changes designed to increase economic growth. Major tax reforms are needed desperately, so kudos to Trump for taking charge and thinking boldly, particularly on business tax reforms. There are, however, a few misguided parts in his new plan.

Here are thoughts on the proposed business tax reforms:

  • Cutting the corporate tax rate from 35 percent to 15 percent would have a huge positive effect on the U.S. economy over time. It would encourage more capital investment and hiring, and it would reduce the incentive for corporations to avoid and evade taxes. Such a rate cut would cause the income tax base to expand automatically and substantially over time.
  • Cutting the tax rate on “pass-through” businesses to 15 percent, however, is a mistake. Policymakers should aim to equalize the overall rates on income earned by each type of business. So if the corporate rate is 15 percent, corporate income would face a combined tax rate of 15 percent plus the individual dividend rate of, say, 15 percent under tax reform, for a total of about 28 percent (0.15+0.85*0.15). Thus, the top rate on pass-through income should be cut to the same 28 percent.
  • Switching from a worldwide to a territorial system for corporations would encourage multinationals to move their headquarters to the United States. It would reverse the trend toward reincorporating abroad.
  • Ditching the misguided “border adjustment” provision the House proposed is a good move. Paul Ryan and Kevin Brady need to drop it so that tax reform can move ahead.

Here are thoughts on the proposed individual reforms:

  • Reducing the number of tax brackets from 7 to 3 (10, 25, and 35 percent) is a good reform. Cutting marginal rates reduces distortions, increases incentives to engage in productive activities, and reduces avoidance and evasion.
  • Repealing the special 3.8% investment tax is a good reform.
  • Eliminating itemized deductions—such as the state/local tax deduction—is a good reform. But we should also eliminate, or at least cap, the mortgage interest deduction.
  • Expanding child care benefits is a mistake. It would add complexity and distortion to what should be a private area of activity in the economy.
  • Ending the alternative minimum tax and the estate tax are both long overdue reforms.

What about the effects of tax reform on the deficit? Policymakers should put that concern aside for the corporate rate cut portion of Trump’s plan because the automatic expansion of the corporate tax base would mean that the government would lose little if any revenue over the long term. Exhibit A: Canada and Exhibit B: Britain.

However, policymakers should be concerned about the deficit effects of individual tax changes. Optimally, the budget impact of reduced individual tax rates should be offset by eliminating deductions and credits, spending cuts, and dynamic growth effects.

All in all, the Trump proposals push tax reform in a good direction. Trump, his advisors, and House leaders seem to understand the urgency of passing major tax reforms. But we need Republican senators to step up to the plate and think boldly as well. Republicans have an opportunity this year to pass reforms that would generate large and lasting benefits in terms income and opportunity for every American family.

For foreign policy wonks, Trump’s first hundred days have been a bit like a roller coaster ride. In just over three months, the new administration has veered from one crisis to another, from Syria to North Korea, China to Canada. Sudden Trumpian reversals on various foreign policy issues have been sharp enough to produce whiplash. Meanwhile, a dizzying barrage of strange foreign policy choices and statements makes it difficult to guess what’s coming next.

Nevertheless, amid all the confusion, there are a couple of big takeaways from these first 100 days that may help us better understand where Trump’s foreign policy approach is headed:

1. There really is no such thing as the Trump Doctrine

Trump’s reversals on issues like NATO have been hailed by some as bringing him closer to a “normal” presidency. Indeed, it is not always obvious from a President’s campaign what his broad foreign policy approach will end up being, or the obstacles and inertia that he will face in trying to alter American foreign policy. Yet even by these standards, Trump’s approach to the world remains unclear. A recent attempt by White House Chief of Staff Reince Preibus to outline what he sees as the Trump Doctrine merely adds to this confusion:

Trump is “reshaping our position in the world,” Priebus said, and “really establishing, I think, a Trump Doctrine in setting some certain lines of where we’re not going to allow people like [Syrian President Bashar al-Assad] to go, but at the same time making it clear that we’re not interested in long-term, you know, ground wars in the Middle East, but obviously focusing in on ISIS and what we’re doing in the Middle East to protect us here in the United States, working with China on ongoing issues with North Korea that are very real and are serious issues that takes cooperation within the region to handle appropriately.”

Another official “added that Trump’s status as ‘an incredible negotiator’ is also central to the doctrine.” As these statements suggest, Trump’s foreign policy so far has been highly reactive – responding to crises – but with no indication of an overarching strategy. 

2. Trump is escalating the War on Terror

Though the most visible indicator of this escalation was the use of a MOAB (Massive Ordnance Air Blast bomb), affectionately known as the ‘Mother of all Bombs,’ in Afghanistan, the new administration has chosen to escalate conflicts in a number of countries. More troops are being sent to the greater Middle East, in particular to join the fight against ISIS in Syria and Iraq, and U.S. Special Operations Forces are now engaging in ground actions against Al Qaeda in Yemen.

The administration has also loosened the rules of engagement in Yemen, Afghanistan, Somalia and elsewhere, and has increased the number of bombing raids and drone strikes. According to at least one watchdog group, Trump’s choice to give his generals a free hand in these conflicts has resulted in a massive increase in civilian casualties in these areas.

3. Brinksmanship may be back  

The new president appears to have a gift for raising tensions around the world. Though his administration did certify that Iran is complying with the Obama-era nuclear deal, they also announced a 90-day review of the deal. Various officials are using increasingly tough rhetoric towards Iran. The administration has also indicated that it intends to step up support for the GCC campaign in Yemen against the Houthis, a group often described as an Iranian proxy.

Trump is also taking an increasingly hard line towards North Korea, with Vice President Mike Pence warning the DPRK that “all options are on the table” in the case of further missile or nuclear tests. Tensions around the peninsula are high, with joint U.S.-South Korean drills, and a North Korean live fire exercise taking place this week. Whether the new administration’s statements are accurate indicators of their position, or merely heated rhetoric, such statements can easily raise the potential for conflict.

4. Advisors really matter

Political science research has shown that even experienced advisors cannot substitute for an inexperienced president. Unfortunately, Trump is anything but experienced on foreign policy. And while some of his appointments have been reassuringly experienced (such as James Mattis, now Secretary of Defense), others are either inexperienced (such as Jared Kushner) or have disturbing worldviews (i.e., Steve Bannon).

Infighting between advisors inside the administration has been notable during these first hundred days, and Trump’s policies seem to vary depending on which individuals he is listening to on any given day. If you are interested in the internal dynamics of the Trump administration, you can check out my recent article at War on the Rocks, which explores the civil war in the White House. The Cliffs Notes version? Advisors really matter, and it’s still unclear which faction – if any – will triumph in the struggle for influence between Trump’s teams of rivals.

5. Competence is key

Some of Trump’s foreign policy decisions appear to be trending closer to a traditionally hawkish Republican line, while some of the problems that he faces – such as Turkish-Kurdish tensions in Northern Syria, or the intractable conflict in Afghanistan – have been around for far longer than this administration. Yet it is worth noting that the new administration’s response to various crises has often been less than competent. Some of this is the result of inexperience and a lack of appointed officials in key positions at the Departments of State and Defense, but others are self-inflicted wounds. The administration’s immigration bans and TPP withdrawal are cases in point.

Other foreign policy incidents have been frankly bizarre. Trump’s first National Security Advisor, Mike Flynn, was forced to resign after only 25 days for misleading the administration on his lobbying and ties to Turkey and Russia. In an oval office meeting, Trump refused to shake Angela Merkel’s hand, later claiming that he didn’t hear the request. He phoned Turkish premier Recep Tayyip Erdogun to congratulate him on a questionable referendum victory that consolidated his dictatorial power. Moreover, the administration misplaced an aircraft carrier, announcing that the USS Carl Vinson was heading for the Korean Peninsula as a show of force, when in fact, it was near Australia, moving in the other direction.

Taken alone, these incidents are concerning. But when considered in the broader context of Trump’s tendency to bluster and saber-rattle, his support for escalating the war on terror, and his inability to articulate any coherent strategy for U.S. foreign policy, they raise even bigger questions. If Trump’s first hundred days are truly representative of his foreign policy approach, it’s going to be a bumpy four years.

Senator Ted Cruz (R-TX) recently introduced the Ensuring Lawful Collection of Hidden Assets to Provide Order Act, also known as the “El Chapo Act,” to fund President Trump’s proposed border wall.  The media reports that Cruz’s bill is similar to one introduced by Representative Jim Sensenbrenner (R-WI) in February.  Cruz’s bill would apportion some money seized from drug lords like El Chapo to the construction of a border wall. 

There are several problems with this idea.

First, cash seizures cannot pay for the border wall.  The inspector general at the Department of Justice found that the DEA, ATF, and FBI only seized assets and cash worth $5.36 billion from 2007 through 2016.  A raid in Mexico in 2007 yielded $205 million in seized cash.  The agencies spent those funds, gave them to local or state law enforcement, or returned some of them to victims.  As my colleague David Bier and I wrote, building and maintaining a border wall over the next decade will cost about $44 to $99 billion.  If 100 percent of the seized funds from 2007 to 2016 went toward border wall construction, then 126 to 310 miles of it would have been built by now along the roughly 2000 mile long border.  That amounts to an average of 14 to 35 miles a year. 

Even if the federal government seized all $14 billion from El Chapo (it won’t), that would at most cover a third of the decade-long cost of the border wall and likely no more than a seventh.         

Second, just because money seized from Mexican drug dealers is funneled to paying for the wall doesn’t mean that Mexico would be paying for the wall.  That money was going to be seized anyway by the federal government and mainly spent by U.S. law enforcement agencies.  By redirecting the flow toward the construction of a border wall, this bill will make those U.S. law enforcement agencies pay for it in foregone revenue.  A redirection of revenue that was already coming in cannot be a new stream of revenue to pay for a border wall.  At best, it is an accounting trick to make it look like Mexico is paying for the wall.  I am not endorsing the government’s seizure of drug money, the War on Drugs, or even the current budgets of other U.S. law enforcement agencies – I am merely pointing out that other U.S. agencies will be foregoing these funds.  I doubt that Congress or the Trump administration will let their revenues shrink, so taxpayers will likely plug any spending gap caused by the redirection of funds toward a border wall.

Third, much of the disagreement over the cost of the border wall concerns the cost of eminent domain.  Most of the land that the government will need to seize through eminent domain to build the border wall is in Texas where most of the land along the border is privately owned – which is one reason why 61 percent of Texas adults oppose the border wall.   

Fourth, the stock of illegal immigrants is at its lowest point in a decade and annual cross-border apprehensions are at or near a 17-year low.  Even if a border wall was a cheap and effective way to stop illegal immigration, the sustained collapse in cross-border apprehensions makes it a silly expenditure.  It’s like a perfectly healthy person putting their formerly broken-but-now-healed arm in a cast 9 years after the injury healed.

In essence, Cruz’s bill would redirect seized drug money in order to fund further seizures of private property along the border and to pay for an expensive wall that is unnecessary.

A post at The American Interest, vaguely attributed to “Walter Russell Mead and staff” criticizes the Iran nuclear deal as “worse than we knew.” That judgement is based on a Politico article discussing the seven individuals that the Obama administration agreed to release from U.S. custody, and another fourteen fugitives for whom they agreed to drop charges, as part of a “one-time gesture” to sweeten the deal for the Iranians.

Politico reports on some of the charges these individuals were accused of: three of them “allegedly sought to lease Boeing aircraft for an Iranian airline that authorities say had supported Hezbollah”; another tried to “buy thousands of U.S.-made assault rifles and illegally import them into Iran”; another “was charged with smuggling U.S. military antennas to Hong Kong and Singapore for use in Iran,” and so on.

The American Interest claims these are “far more serious threats to national security than was previously disclosed.”  But what the Politico article reveals is more detail about the allegations made of men already revealed to be smugglers. And to describe them as “serious threats to national security” is an exaggeration. It’s not clear, for example, what exactly is threatening about an Iranian airline with some vague association with Hezbollah leasing a Boeing aircraft, or whether Iran importing more assault rifles meaningfully aids its military capability. Moreover, the fourteen people that saw their indictments dropped weren’t in U.S. custody and thus weren’t about to have their smuggling efforts stopped, though indictment limited their ability to travel. Letting them slide did not obviously increase their threat.

More importantly, neither Politico nor The American Interest directly confronts the Obama administration’s evident judgement that the nuclear freeze it got from Iran was worth letting some shady people off the hook. Does the risk from the releases hold a candle to the problem of nuclear proliferation? How about the danger posed by U.S. hawks ever-eager to use Iran’s nuclear program as a justification for launching another war in the Middle East? Surely, those menacing scenarios are worse than one the released smugglers posed.

The post continues:

[T]he Iran nuclear deal was a gift to Iranian hardliners who, in return for delaying their nuclear ambitions, were rewarded with carte blanche for all of their other activities by an Obama administration that was willing to turn a blind eye in order to preserve the deal.

As Secretary of State Tillerson has noted, while Iran has remained compliant on the nuclear portion, their other activities constitute “alarming ongoing provocations.” The Trump administration, by understanding the threat posed to U.S. interests by Iran’s non-nuclear activities, including these global smuggling operations that support Iran’s deadly agenda, seems likely to change the calculus on U.S. policy towards Iran.

As to the deal being a gift to Iranian hardliners, the Iranian hardliners themselves seem to disagree. In fact, it was hardliners in Iran that objected most to the nuclear deal, arguing that it conceded too much. And it’s hardliners that today seem to benefit politically from Trump’s threats to undo the deal. With regard to “Iran’s deadly agenda,” the truth is that the Iranian regime has always been reprehensible, but too many in the U.S. foreign policy community habitually inflate the threat Iran actually poses in the region, where its posture is largely defensive and its military capabilities are modest compared to most of its neighbors.

Tillerson’s comments, and The American Interest’s take on them, are a typical example of opponents of the Iran deal grounding their opposition on the non-nuclear aspects of Iran’s behavior. But the deal was narrowly conceived to address Iran’s nuclear program. It was a strict non-proliferation agreement. Addressing all problematic aspects of Iran’s behavior would have meant no deal was possible. The right measure of the deal is not whether it made Iran saintly, but whether it improves U.S. security. 

The Congressional Budget Office has released a report on compensation of federal government workers. It finds that compensation is 17 percent higher, on average, for federal civilian workers than for private sector workers, after adjusting for factors such as education levels.

The CBO found that federal wages were a little elevated, but that federal benefits were substantially higher than benefits in the private sector. Generally, less-skilled and medium-skilled workers do better on both wages and benefits in the government, but the highest-skilled workers do better on wages in the private sector.

Wages are 3 percent higher in the government than the private sector, on average, but the CBO finds substantial variation depending on education level:

  • Federal workers with no more than a high school education earned 34 percent more, on average, than similar workers in the private sector.
  • Federal workers whose highest level of education was a bachelor’s degree earned 5 percent more, on average, in the federal government than in the private sector.
  • Federal workers with a professional degree or doctorate earned 24 percent less, on average, than their private-sector counterparts.

Benefits are 47 percent higher in the government, on average, but there is variation as follows:

  • Average benefits were 93 percent higher for federal employees with no more than a high school education than for their private-sector counterparts.
  • Average benefits were 52 percent higher for federal employees whose highest level of education was a bachelor’s degree than for similar private-sector employees.
  • Among employees with a doctorate or professional degree, by contrast, average benefits were about the same in the two sectors.

The Trump administration and Congress should try to bring federal pay and workplace conditions in line with the rest of the nation. Reforms should include cutting the overly generous federal benefits package and reducing the hurdles to firing poorly performing federal workers.

For further analysis on federal wages, benefits, and firing, see here.

The noted political theorist Benjamin Barber died yesterday. He was 77.

Ben wrote many books among the best known of which might be Jihad vs. McWorld: Terrorism’s Challenge to Democracy, published first in 1996, when it became a bestseller. It had a renewed life after September 11th. His latest and last book, Cool Cities: Urban Sovereignty and the Fix for Global Warming, appeared one week ago.  He was a critic of libertarianism specifically and (classical) liberalism more generally, perhaps most starkly in his 2008 book Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole and earlier in his major academic work, Strong Democracy: Participatory Politics for a New Age (1984). I have nothing to say now about his critique save that libertarians should attend to it.  He was a learned friend of democracy who thought the adjective in “liberal democracy” tended to undermine the noun.

Ben Barber interacted with Cato several times over the years. He debated Tyler Cowen at Cato in 2003. My colleague Brink Lindsey reviewed Consumed. Tom G. Palmer found Ben’s economic views open to question. Other colleagues at various times noted Barber’s books and opinions.

I knew Ben well some years ago, and my remarks here draw on those memories. I remember a man who was both a liberal and democrat. In my experience his liberalism served his commitment to democratic discussion: he welcomed both Nozickians and neo-Marxists to his seminars. He gave them and the rest of us an argument but never pushed dissent to the margins. He encouraged his graduate students to go their own way,  and I did, all the way to the Cato Institute which might have been annoying for another man but not for Ben. He joked about my change of mind but never expressed the slightest disapproval. I was not the only one. Over the years his students included people who became participatory democrats, feminists, the hard-to-pigeonhole, as well as libertarians and libertarian leaners. Of course, if you encourage people to go their own way, you will end up with a menagerie of former students rather than disciplined disciples. But Barber did more than tolerate differences. He encouraged his students to engage thinkers well outside conventional opinion like the libertarian-conservative philosopher Michael Oakeshott among others.

Libertarians benefitted from Ben’s criticisms while others will miss the democratic spirit of his writings. Those who knew him will miss most of all a man who evinced the liberal virtues of openness and engagement, virtues now needed more than ever.

A new Washington Post/ABC News poll finds that Americans say they support Affordable Care Act regulations that require health insurance companies in all states to cover a particular set of services (62%) and prohibit insurers in all states from charging higher prices to people with pre-existing conditions (70%).

However, the poll did not find out what Americans would be willing to give up to obtain these regulatory benefits.

Fortunately, a recent Cato Institute/YouGov health care survey investigated how Americans make trade-offs when it comes to their health care. In short, support for once popular regulations plummets as soon as voters consider their costs.

At first, and similar to the Washington Post/ABC poll, the Cato survey found by a margin of 63% to 33% Americans support prohibiting insurance companies from charging higher premiums because of pre-existing conditions—also known as “community rating.” But support flips, and majorities come to oppose community rating…

  • if it limited access to medical tests and treatments: 66% oppose, 27% support
  • If it limited access to top rated medical facilities and treatment centers: 62% oppose, 31% support
  • If one had to wait several months before seeing a specialists for necessary care: 65% oppose, 25% support
  • if premiums increased: 55% oppose, 39% favor
  • if taxes increased: 53% oppose, 40% favor

The Cato Institute survey found the same pattern for a nationwide standard requiring insurers offer coverage to people with pre-existing conditions (guaranteed issue). Americans support it if it’s free, but oppose it if it costs them higher premiums but particularly if it harms the quality of health care.

While it is well known that premiums are rising, and nearly a third of health insurers have abandoned the exchanges—many do not know how ACA regulations are harming the quality of health care in the U.S.

Academic research shows that these regulations are harming the availability of health services and access to top hospitals, surgeons, and doctors—particularly for the most vulnerable Americans. Why? Economists find that in order to comply with costly rules like community rating and guaranteed issue, health insurers are driven to limit access to medical treatments, “star” hospitals and specialists to discourage expensive customers from applying for coverage. This is a prime example of unintended consequences—regulations intended to help people turn out to also harm people.

All government policies come with a price. These costs can come in the form of higher taxes, higher priced goods and services, fewer jobs, slower economic growth, sluggish innovation, rationing, long lines, etc. Some costs voters are willing to bear, but others they are not.

But far too often, policy is made without voters fully understanding the costs of policies their elected officials and unelected regulators implement. A truly representative and accountable democracy depends on government officials being honest and clear with voters about what sacrifices voters will need to make in order to obtain a policy benefit.

Furthermore, it’s important for policymakers to understand if voters are willing to shoulder the costs to get a particular government benefit. Thus, it is incumbent upon polling organizations to investigate what trade-offs Americans are willing to make—and that which they are not.

In sum, before declaring overwhelming public support for a public policy, one should always check public willingness to bear its costs.

U.S. - Canada trade relations are in the news, and not in a good way.  There are two particular products at issue: lumber and dairy. Here’s what Commerce Secretary Wilbur Ross had to say yesterday: 

It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us. This is not our idea of a properly functioning Free Trade Agreement. 

As background, there are two separate issues. First, on dairy, there are allegations that a Canadian government program, in combination with certain private sector practices, has led to reductions in U.S. dairy exports to Canada.  There may be something to this claim, and I can imagine the U.S. might file a complaint at the World Trade Organization.  Trump’s tweets may make it sound like there will be some kind of harsh tariff retaliation outside the context of the WTO, but I’m skeptical.  We haven’t yet seen any blatant trade law violations of this sort from the Trump administration (and hopefully we won’t), and I think it’s more likely they will go the WTO. 

Then there’s lumber.  This is a long-standing U.S. - Canada trade dispute (my colleague Dan Ikenson gives the background here), and it is picking up again, as the Department of Commerce made a preliminary determination of countervailable subsidies on imports of softwood lumber from Canada.  This is from the fact sheet they issued: 

Commerce calculated preliminary subsidy rates for five mandatory respondents: for Canfor Corporation, 20.26 percent; for J.D. Irving, Limited, 3.02 percent; for Resolute FP Canada, Ltd., 12.82 percent; for Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50 percent; and, for West Fraser Mills, Ltd., 24.12 percent. Commerce established a preliminary subsidy rate of 19.88 percent for all other producers/exporters in Canada.

Before anybody panics, let me reiterate that this is nothing new.  Note that there was a preliminary determination on subsidized Canadian lumber back in August 2001, where DOC calculated a single country-wide subsidy rate of 19.31%.  While there are a lot of potentially system-destroying trade actions from the Trump administration to worry about, this one is just the usual, routine kind of trade remedy action.  Not that I support this sort of thing, of course, but it’s part of the system. Also note that it is just a preliminary determination, subject to a final review by the Commerce Department, as well as a final injury determination by the International Trade Commission. And the parties may be able to work out an agreement, as they have in the post. 

Unfortunately, some people in the media don’t understand all this.  Here’s Breitbart:

President Donald Trump announced that he wanted a 20 percent tax on softwood lumber coming from Canada, telling conservative media he thought the country was treating Canada “very unfairly.”

“We’re going to be putting a 20% tax on softwood lumber coming in — tariff on softwood coming into the United States from Canada,” Trump announced during a meeting with conservative journalists. He also signaled he wanted action on Canadian dairy products as well.

“We’re going to start doing lumber in our country, it’s going to mean that farmers are going to start selling milk in our country,” Trump said.

The president’s decision is the latest sign that he will keep his promises on trade deal negotiations. 

To be clear, this has nothing to do with the President keeping any promises.  This is the trade remedy system being used by U.S. industry in the same way they always use it.   And here’s CNN:

The Trump administration is hitting Canada with stiff tariffs of up to 24% on lumber shipped into the United States.

These are the first tariffs imposed by President Trump, who during his election campaign threatened to use them on imports from both China and Mexico.

The decision on Monday evening is bound to lead to a standoff and could stoke fears of a trade war between the U.S. and Canada, two of the world’s largest trade powers.

Commerce Secretary Wilbur Ross said the tariffs, or taxes, announced Monday evening were being imposed after trade talks on dairy products fell through.

Well, technically, these are Trump’s first tariffs, but again, they are not some blatant violation of trade agreements, like a 40% across the board tariff on imports would be.  Rather, they are imposed pursuant to domestic law, and authorized by international trade rules in certain circumstances.  What will happen is that Canada will challenge the decision to impose duties, through complaints at the WTO and under NAFTA, and there will be a ruling on whether the Commerce Department acted consistently with trade rules in imposing the duties.  This is trade litigation, not a trade war.  (The sentence about these tariffs being imposed “after trade talks on dairy products fell through” is very misleading.  The lumber tariffs are simply part of the lumber CVD process, and are not linked to dairy issues).   Summing up: There may be reasons to panic about Trump’s trade policies at some point, as a number of very radical protectionist measures are under consideration.  However, what happened yesterday with lumber tariffs is just the usual trade remedy nonsense.

In case you missed it, 60 Minutes aired a great interview with Judge Alex Kozinski last evening.

I have been at work editing a collection of Judge Kozinski’s best opinions. It’s going to be a great book.

To watch the epic debate that I hosted between Judge Kozinski and Judge Wilkinson on the American criminal justice system, go here.

Many of the problems with litigation under our federal system, as I’ve noted before, arise when state courts can reach out to project their power onto litigants and disputes outside their borders. Public choice economics suggests that when courts are answerable to the political and legal classes of a single state only–say, California or Montana–they might not be ideally responsive to the interests and due process rights of out-of-state parties who have been compelled by force to show up and defend a lawsuit. Even if state judges and juries manage to avoid the temptation of “home cooking”–dishing out tastier outcomes to down-home litigants and lawyers than to outsiders–the remains the wider problem of forum-shopping, in which–even if no forum intends to act other than impartially–lawyers can bring an action in whichever of multiple available forums is most gainful for their side and unwelcome for their opponent.

A great deal, therefore, hangs on when state courts can compel absent parties to show up and defend a lawsuit. When may a state assert jurisdiction over a distant party even though it lacks one of the relatively uncontroversial grounds for doing so, such as that the events being sued over happened within its borders? 

And here there has been good news to report in recent years. Our system relies largely on the federal judiciary to police overreaching by state courts in their jurisdictional claims, and after decades of irresolution, the U.S. Supreme Court has lately been getting much more serious and confident about drawing the right sorts of lines. Importantly, it has done so with support from both liberal and conservative wings of the Court. In the most significant recent case, Daimler AG v. Bauman (2014), Justice Ruth Bader Ginsburg wrote for a unanimous Court, with only Justice Sotomayor writing a separate concurrence. (The case dealt with an international as distinct from interstate claim of jurisdiction, but made precedent for both). 

But some states have pushed back against Daimler, which may be why the Court granted review of two cases on which it will hear oral argument tomorrow, April 25. In Bristol-Myers Squibb Co. v. Superior Court, California courts took jurisdiction over hundreds of cases from other states alleging side effects from the drug Plavix, even though the other cases had no particular connection with California other than that their lawyers wanted to convoy them in along with the actual California cases. In BNSF Railway Co. v. Tyrrell, Montana opened its doors to litigation against a railroad based elsewhere over injuries that did not occur within Montana. 

It seems unlikely that the Court will declare a change of heart and back off its 2014 near-unanimity. Helpfully, the Trump Justice Department has filed an amicus brief arguing that the California Supreme Court overstepped the line when (over a dissent from three of its members) it found jurisdiction over the out-of-state drug cases. Still, lawyers will be looking at the possibility that some distinctive sub-pattern in one or both of tomorrow’s cases (such as federal law’s recognition of the railroad industry as having a distinctively national workforce) might justify carving out an exception to its rule.

The stronger outcome would be for a united Court to say unambiguously, about its Daimler holding: we said it, and we meant it. 

With this blog post, I’m taking a quick break from trying to figure out President Trump’s trade policies. (Is this going to be the most protectionist presidency ever? Or will it end up looking not too different from a typical presidency? The conflicting signals are making my head spin!) Instead, I want to talk about an issue that Dean Baker keeps raising: Whether U.S. trade policymakers are hypocritical because they have liberalized a lot of trade in manufactured products such as steel, but not very much trade in professional services such as medical care. (See here, here, here, here, here, here, and here for examples of his references to this. I think there are more–he talks about this a lot!–but those links are a start). Here is his latest:

We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

I agree with Dean that we should have more free trade in medical services, but the question is, why has this not happened? Is it because, as he says, “trade negotiators may feel this protectionism is justified”? As with many things, the answer is complex and has a number of components, but the short answer is that trade negotiators are not saying that protectionism is justified here. To understand the actual hurdles to liberalization in this area, you need to know how trade liberalization happens as part of a trade negotiation. If trade negotiations were run by pure free traders, they would be quick and easy. Both sides would just show up and explain that they were liberalizing all of their goods and services trade. That would be the end of it. In reality, though, there is a mercantilist logic to trade agreements. One side demands that the other open up its market in particular sectors, and the other side demands similar market opening in sectors of interest to it. In response to these demands, each side may resist opening up its own market to some extent, but it will nevertheless make what are referred to as market opening “concessions” in its domestic market in order to get the other side to open its market. It’s not pretty, and it’s not ideal, but this approach has had a good amount of success in liberalizing trade over the past few decades.

The importance of this process to Dean’s point is that U.S. trade negotiators generally don’t go into a trade negotiation offering up market opening. Rather, they respond to demands from the other side.

With this in mind, turning to the medical sector, the question is, are foreign governments demanding that the U.S. government liberalize its process for allowing foreign doctors to work here, and are U.S. trade negotiators resisting? 

I have never heard that this is happening, but if Dean has evidence otherwise, I would love to hear it. And I can imagine a reason why it is not happening. Would foreign governments really want to press for something that would lead to their doctors leaving their country? For this reason, I suspect most of them are not pushing this as an area of liberalization (and more generally, the large role of many governments in the health care sector probably makes them reluctant to put these services on the negotiating table). Overall, then, I’m skeptical that his story of U.S. trade negotiators resisting liberalization in medical services is accurate.

My challenge to Dean, then, if he really wants to see the U.S. medical services market liberalized (he may just be using this as an excuse to criticize trade liberalizaton in other sectors), is to sort through the various domestic reasons–at the federal and state level – why the U.S. market is still somewhat closed in this area. Then, he would have to figure out the key actors involved who would need to be convinced to change the existing system, and talk to them directly. It would be a lot of work, and much of it will be at the state level. But it’s a task worth doing (and I’m happy to help him on it!). The solution would likely involve some form of mutual recognition agreements between governments allowing doctors to practice across borders. 

By contrast, his criticism of trade negotiators misunderstands the hurdles to liberalization here, and is not likely to help solve the problem.

Recent budget talks between the White House and Congress shows that President Trump puts a high value on funding the construction of a border wall. Crucial to this debate is how much a border wall will cost to construct and maintain. Center for Immigration Studies (CIS) published a brief report purporting to show that building a wall along the southern border would pay for itself if it keeps out only 160,000 to 200,000 border crossers over the next decade. That means the border wall would only have to deter about 9 to 12 percent of all illegal border crossers who would have successfully made it into the United States during that period. The report uses a variety of assumptions that unrealistically lower the cost of the wall as well as inflate the fiscal cost of border crossers.

We used more recent and precise data to update CIS’s analysis without altering its methodology. Simply using newer numbers—with no changes to the report’s unrealistic underlying assumptions—proves that the border wall cannot pay for itself. Despite fanciful promises to the contrary, a border wall is too expensive and will deter too few illegal immigrants to pay for itself—even under assumptions that are extremely generous to those who support a wall.

Updating CIS’ Analysis

The first update was to factor in a more recent estimate of the cost of a border wall. The CIS study chose to rely on a statement made by Senator Majority Leader Mitch McConnell (R-KY) rather than any actual cost estimate. We used an official estimate from the Department of Homeland Security (DHS) issued after the majority leader’s comment. This placed the cost of building a 1,250-mile border wall at $21.6 billion, or $17,280,000 per mile, that includes all costs such as the condemnation of private property through eminent domain. We also include the yearly maintenance costs. 

The second is that we adjust CIS’ fiscal cost estimate by controlling for the age of the border crossers. The National Academy of Sciences (NAS) fiscal cost estimates show that the immigrant age of arrival is vital for estimating their fiscal impact. CIS used a 2010 education of Mexican illegal immigrants as a proxy for the education level of all future border crossers. We used the March CPS to adjust for this by assuming that the education of future illegal immigrants will be more similar to those arriving in 2015 than 2010. We further divided up the illegal border crossers by age and education to get a more accurate view of their potential fiscal impact. 

Using a more recent estimate of the border wall cost as well as the age of entry and education levels for unlawful border crossers shows that the border wall would have to deter the entry of about 1 million illegal immigrants over the next ten years to break even—an estimated 5 to 6.3 times as many as CIS estimated. Furthermore, this means that the border wall would have to permanently deter 59 percent of the predicted border crossers over the next ten years to break even. This does not include the cost of any additional enforcement measures such as hiring more border agents, border returns, or border deportations. 

Calculating the Fiscal Cost

First, we used the 2016 March CPS to look at the ages and education of new immigrants from Mexico and Central America who comprise virtually all unlawful immigrants who enter as border crossers (Table 1).

Table 1

New Central American & Mexican Immigrants by Age & Education in 2015

 

0-24

25-64

65+

Less than HS 18.93% 25.73% 1.94% HS Grad 10.19% 18.45% 0.49% SC 2.91% 9.22% 0.97% College 0.97% 5.83% 0.00% College+ 0.00% 4.37% 0.00%

Source: 2016 March CPS.

Second, we took the average fiscal net present value (NPV) for each education-age cell from the NAS’ Table 8-12 (Table 2). We chose Table 8-12 because that was the table chosen by the author of the CIS report. 

Table 2

Fiscal Net Present Value of Immigrants by Age of Arrival & Education in 2015

 

0-24

25-64

65+

Less than HS -24,000 -225,500 -265,625 HS Grad 77,625 -105,125 -174,625 SC 156,625 12,375 -161,000 College 210,125 213,750 -179,875 College+ 199,375 547,125 -122,375

Source: National Academy of Sciences, averages from Table 8-12.

Third, we used CIS’ downward adjustment numbers to diminish the fiscal NPV to account for them being illegal immigrants (Table 3). This is the most objectionable part of the CIS study. Their downward adjustment figure is based on numbers from a notoriously flawed report, assumes a non-discounted household fiscal value is comparable to the NAS’ individual level fiscal net present value estimate, adjusts benefits and tax revenues down equally even though illegal immigrants receive virtually zero welfare benefits, and are unadjusted by age. We kept this highly flawed step to show that we did not have to change CIS’ methods to get drastically different results. A better downward adjustment figure would decrease government expenditures on illegal immigrants more than their tax payments. 

Table 3

Adjustment Downward

 

0-24

25-64

65+

Less than HS 0.676 0.676 0.676 HS Grad 0.799 0.799 0.799 SC 0.893 0.893 0.893 College 0.221 0.221 0.221 College+ 0.221 0.221 0.221

Source: Center for Immigration Studies.

Fourth, we multiplied each cell by its corresponding cell in the above charts to get the fiscal NPV of illegal immigrants by age, education, and the percentage of immigrants by age/education cell (Table 4). This table is not useful outside of this cost projection as it is merely a means to add together the average NPV of a new border crosser. 

Table 4

Fiscal Net Present Value of Immigrants by Age of Arrival & Education in 2015

  0-24 25-64 65+ Less than HS -3,072 -39,219 -3,487 HS Grad 6,323 -15,494 -677 SC 4,074 1,019 -1,396 College 451 2,752 0 College+ 0 5,283 0

Source: Authors’ Calculations.

Adjusting for age and education, the average NPV fiscal cost of a new illegal immigrant border crosser is -$43,444, which is 42 percent less than CIS’ estimate of -$74,722.

Calculating the Cost of the Border Wall 

Calculating the cost of the border wall over the next ten years is the second portion of this model. We use the newer DHS cost estimate, assume all construction costs occur in the first year, and that the length of the new border fence will cover the remaining 1,637 miles of the border where there currently isn’t a pedestrian fence. We also included annual maintenance costs not counted in the CIS estimate for the entire length of the wall (Table 5). Our more realistic ten-year cost estimate for the border wall is $43.8 billion – 2.9 to 3.7 times as high as CIS’ estimate. 

Table 5

Cost of Border Wall

Year Construction Costs (Per Mile) New Fence (Miles) Border (Miles) Current Fence (Miles) Construction Costs (Total) Maintenance Costs (Per Mile) Maintenance Costs (Total) Total Cost 1 $17,280,000 1,637 1,954 317 $28.3 billion $864,353 $274,000,000 $28.6 billion 2 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 3 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 4 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 5 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 6 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 7 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 8 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 9 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion 10 $17,280,000 1,637 1,954 317 $0 $864,353 $1.69 billion $1.69 billion

Source: DHS, Reuters, Authors’ Calculations.

Results

Comparing the adjusted fiscal NPV of -$43,444 to the adjusted wall cost of $43.8 billion reveals that the wall would have to deter just over 1 million illegal immigrants who would have otherwise entered the United States. That means the border wall, by itself, would have to deter about 59 percent of all border crossers who would have otherwise successfully entered. This result only comes from using more updates and specific numbers than CIS did and not by changing their underlying methods. 

Three Additional Simulations

We ran three additional simulations to see how CIS’ estimate holds up under slightly different assumptions. Our first simulation uses a different fiscal cost estimate. Our second relies on a different assumption about the flow of illegal immigrant border crossers. Our third relies on a different border wall cost of construction estimate.

Our first simulation kept every table above as the same except we replaced Table 2 with the better fiscal cost estimate from Table 6. The new Table 6 contains the fiscal NPV of immigrants for the federal government only and excludes the incremental costs of public goods. This is the best table because the federal government will actually be paying for the wall and because spending on pure public goods does not increase due to more immigrants because they are non-rivalrous and non-excludable. Table 6, combined with the other tables above, produced an average fiscal NPV of -$33,932 for each illegal border crosser. Plugging that higher fiscal NPV into our model shows that the border wall would have to deter 1.3 million unlawful immigrant border crossers, or 73 percent of all those who would come without the wall, to break even—a number 6.2 to 7.8 times as high as CIS’ estimates.

Table 6

Federal Only NPV Per Immigrant, Public Goods Excluded

 

0-24

25-64

65+

Less than HS 13,000 -215,000 -229,000 HS Grad 108,000 -109,000 -152,000 SC 189,000 2,000 -149,000 College 264,000 220,000 -159,000 College+ 271,000 567,000 -104,000

Source: National Academy of Sciences, averages from Table 8-15.

The second simulation we ran uses CIS’ tables but assumes that the 50 percent reduction in illegal immigrant entries during February and March of 2017, relative to the same months in 2016, continues for the next decade. This means that there would be an estimated 850,000 successful border crossers over the next decade rather than the higher pre-Trump estimate of 1.7 million. However, the costs of the wall do not budge. In this situation, the border wall would have to deter 118.5 percent of the number of estimated border crossers over the next decade to break even—a mathematically impossible feat. 

The third simulation we ran uses the Massachusetts Institute of Technology (MIT) cost estimate for the border wall, which is similar to a cost estimate produced by Senate Democrats on the House Homeland Security and Government Affairs Committee. The only difference is that we took MIT’s per mile estimate and added 36.3 percent for the cost of land acquisition. This brings the 10-year border wall construction and maintenance costs up to $98.6 billion. Under this scenario, the border wall would have to deter 2.3 million to 2.9 million border crossers over the next decade to break even—an estimate 134 percent to 171 percent of all the border crossers that the government predict to come over the next ten years. That is mathematically impossible.

A Better Cost Estimate Should Include These Variables

A better fiscal cost analysis of the border wall will include the more detailed demographic and age profile of anticipated illegal immigrant border crossers as well as several other factors listed below.

  1. The wall will not prevent nearly as many apprehensions as assumed. CIS’ report does not provide any evidence that the wall will stop illegal immigrant border crossers. There is virtually no evidence that the current border barriers—particularly those outside of urban areas—have any impact on the net flow of illegal entries. The main effect of border barriers is to channel illegal border crossers into more remote areas. The Congressional Research Service concluded, “The primary fence, by itself, did not have a discernible impact on the influx of unauthorized aliens coming across the border in San Diego.”
  2. Marginal apprehensions are costly. CIS also assumes that catching people has zero fiscal cost. A proper fiscal accounting compares all of the taxpayer costs and benefits of apprehension with all of the costs and benefits of the illegal border crosser living and working in the United States. Ideally, such an estimate would also compare the costs and benefits of allowing the worker into the United States legally with a guest worker visa or some sort of other employment authorization document. According to the Department of Homeland Security, each removal of an unauthorized immigrant costs taxpayers almost $9,000. Almost half of the immigrants included in this estimate were apprehended in the interior as opposed to the border. Assuming that border removals are half as costly as those in the interior, apprehending 1.7 million illegal border crossers and deporting them will cost $7.65 billion dollars. 
  3. Walls don’t apprehend border crossers. Government employees do, and they are expensive. CIS also assumes that enforcement of the wall will require no additional personnel, despite the fact that the executive order requiring its creation mandates the hiring of 5,000 additional border agents. “If you build a wall, you would still have to back that wall up with patrolling by human beings,” Homeland Security Secretary John Kelly recently told Congress. The annual average cost of a federal employee including benefits is $123,160. This makes the ten-year cost of 5,000 new employees roughly $6.2 billion on top of the cost of apprehensions.
  4. Not all border crossers retire in the United States. CIS assumes that border crossers retire in the United States at the same rate as other immigrants. This point is important because a large proportion of the fiscal costs are incurred after the worker retires and becomes eligible for Social Security and Medicare. However, border crossers are much more likely to return to their home countries than retire in the United States. Harvard economist George Borjas found that 42 percent of Mexican immigrants, who make the largest share of the illegal immigrant population, emigrated in the 1990s while the worldwide average was just 18 percent. Mexican illegal immigrants are most likely to be illegal border crossers. Some research indicates that the illegal immigrant emigration rate could even be 50 percent. Thus, fiscal costs later in life need to be adjusted downward for age and rates of immigration for illegal border crossers.
  5. Border crossers are younger than the average immigrant. The age of the border crossers changes the estimates of the net fiscal impact. CIS and Cato rely on older and imperfect estimates from the Current Population Survey. The latest Border Patrol estimate of the age of apprehended border crossers is from 2010 and the huge surge of Unaccompanied Alien Children has since decreased their average age. The NAS report acknowledges that the younger age profile of illegal immigrants reduces their net fiscal cost: 

“These estimates suggest that unauthorized immigrants as a group may have a more positive fiscal impact than authorized immigrants, but only because of their age structure. The average undocumented immigrant is of younger working age than the average documented immigrant (there are very few undocumented immigrants of retirement age); thus, the net fiscal impact of the former is more positive at the federal level and overall. Also, as detailed in Chapter 3, undocumented individuals, young unauthorized immigrants who qualify for the Deferred Action for Childhood Arrivals program, temporary visa holders, and recent legal permanent residents are ineligible to receive benefits from some programs; and unauthorized immigrants do not qualify for the earned income tax credit. Nonetheless, since, at any given age, unauthorized immigrants tend to earn less than their authorized counterparts, controlling for age, they are less of a benefit to public finances than authorized immigrants (p. 280).”

  1. Unauthorized immigrants expand economic growth, which increases tax revenues. Any fiscal cost estimate needs to consider the lost tax revenue from reduced economic growth. 

Conclusion

Those who support Trump’s border wall should be able to make the case without relying on unrealistically cheap construction costs and outrageous estimates of the number of illegal immigrants that it will deter. Assuming future border crossers have similar ages and educations as more recent crossers make it virtually impossible for the border wall to pay for itself. Adjusting for higher border wall construction costs estimated by MIT means the wall, by itself, would have to deter more people who are estimated to even enter over the next decade without a wall. Whatever the purported benefits of such a wall, its construction will cost a great deal more than it will save even under very generous assumptions. 

Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:

Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co-opt congressional Republicans to expand it a lot.

I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.

It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.

ObamaCare requires participating insurers to offer more comprehensive coverage to low-income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so-called cost-sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.

By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost-sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.

That was the state of play when President Trump took office. His administration now has three choices.

  1. It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community-rating price controls that are causing health insurance markets to collapse.
  2. It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
  3. It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost-sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.

According to Reuters, the Trump administration has chosen option #3:

President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…

Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low-income Americans pay for health insurance, if Democrats accept funding for the wall.

Reuters actually got that last part wrong. Cost-sharing subsidies do not help low-income Americans pay for health insurance. Even without the subsidies, participating insurers would have to keep offering low-income enrollees the same comprehensive coverage they did before. The amount that low-income consumers pay for Exchange coverage would not go down with these subsidies, and would not go up without them. They are a pure bailout for insurance companies.

Think about what this would mean. Republicans are unanimous that President Obama violated the U.S. Constitution by spending billions of dollars without a Congressional appropriation. If Republicans respond by just appropriating that funding themselves, they will be rewarding illegal behavior. If Republicans fund ObamaCare’s cost-sharing subsidies, they will encourage future presidents to spend money illegally, because they will be telling future presidents that they can get away with it.

If Hillary Clinton were president, Republicans would still be defending the Constitution, and would still be fighting this bailout.

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