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One reason why the Venezuelan regime has been so effective in slowly—but surely—installing a full-fledged dictatorship is because of the internal divisions of the opposition. Unfortunately, those divisions are once again coming to the fore, even now that Nicolás Maduro’s fraudulent constituent assembly has revealed the regime’s ultimate goal beyond reasonable doubt.   

The opposition boycotted the legislative elections of 2005 in protest of the lack of independence of the Electoral National Council (CNE), which granted the government total control of the National Assembly for five years. It only decided to participate again in elections once it perceived it could beat Chavismo in the polls. However, as the popularity of the government began to wane—once the economy started to deteriorate—the regime became more ruthless in its approach: disqualifying candidates, jailing opponents, blackmailing voters, rigging the electoral registry, calling off scheduled elections, and engaging in massive voter fraud. Even when Chavismo accepted some electoral defeats, such as some gubernatorial elections or the legislative election of 2015, the government swiftly moved to strip those offices held by the opposition of meaningful power or resources.

In 2013, Maduro was elected president in a highly questionable election that undoubtedly involved CNE sanctioned voter fraud—enough to tip the election for Maduro. However, the opposition continued to insist on pursuing an electoral path forward. After winning an absolute majority in the legislative election of 2015, the opposition saw how the government-controlled Supreme Court systematically stripped powers from the National Assembly effectively rendering it useless. Even then, the opposition insisted in getting rid of Chavismo through democratic means. Last year, the opposition triggered the mechanism calling for a recall referendum on Maduro. Polls indicated that the vote would have gone in the opposition’s way with a comfortable margin. Unsurprisingly, the CNE arbitrarily suspended the process, leaving the opposition with no alternative other than civil resistance.

Sunday’s fraudulent vote to elect the members of Maduro’s constituent assembly exemplifies the glaring corruption in the CNE. According to its authorities, 8.1 million people voted in the election. Yet, Reuters reported that at 5:30 pm—just a couple of hours before the polls closed—only 3.7 million people had voted. Moreover, the software company that set up the country’s voting system denounced yesterday that the government had rigged the vote by “at least” one million votes. No wonder that the head of the CNE, Tibisay Lucena, is one of the 13 senior officials of the Venezuelan regime recently sanctioned by the U.S. government.

Yesterday, Henry Ramos Allup, former president of the National Assembly and leader of the Democratic Action Party, made a perplexing statement: his party will stand for scheduled gubernatorial elections in December. Other figures of the Democratic Unity Roundtable, the umbrella opposition group, are also considering participating. Diosdado Cabello, perhaps the second most powerful government figure, appropriately mocked Ramos Allup for agreeing to participate in elections under a CNE that the opposition accuses of perpetuating massive fraud.

This division is a problem for the opposition. While some leaders insist in the immediate departure of the regime through civil resistance, others are willing to compromise in exchange for bogus regional elections. It is no wonder that, despite backing from the majority of Venezuelans, the opposition parties do not command their enthusiastic support.

Albert Einstein once said that the definition of insanity is “doing the same thing over and over again and expecting different results.” This definition certainly fits certain elements of the opposition.

Courts in modern times are generally protective of the First Amendment, specifically our freedoms of speech and press. On the whole, they vigorously oppose any attempt by government to minimize those essential liberties; they recognize that a free press is critical to any society that values expression and intellectual diversity. The Supreme Court’s 1983 ruling in Minneapolis Star v. Minnesota Commissioner of Revenue (1983), striking down certain taxes on ink and paper, shows that attempts to regulate the media as a group, even when broadly applied, are considered unacceptable if they crowd out certain viewpoints.

The University of California San Diego (UCSD), a public university, attempted to do something similar when it defunded certain student organizations in a thinly veiled attempt to censor one organization’s opinions. The Koala, a satirical newspaper funded by student activity fees, published an article mocking “safe places” that sparked controversy on campus and debate in the school’s student government. In response, the student government enacted a “Media Act” that defunded all student-printed media organizations, in order to prevent the The Koala from publishing further articles that contradicted the student government’s political sensibilities.

The Koala sued in an attempt to restore its funding, but the federal district court remarkably ruled against them. Cato has joined the Foundation for Individual Rights in Education on an amicus brief supporting its claim.

There is a longstanding, constitutionally based tradition of public universities’ serving as conduits for freedom of expression, a tradition that UCSD has unceremoniously abandoned. By providing funding to certain groups and not others, the university is effectively restricting certain members of the public from a public forum, in blatant violation of the First Amendment.

The lower court misread well-established jurisprudence regarding the scope of such forums, and failed to consider the evidence of viewpoint discrimination prevalent in the school’s Media Act. Not only does this rule have a discriminatory effect, but also it constitutes unconstitutional retaliation in direct response to the controversy surrounding The Koala’s article.

In addition, the Supreme Court has established that student activity fee programs are required to respect viewpoint-neutrality, in order to ensure that political bias does not stifle speech. UCSD has violated all of these core constitutional principles in pursuit of political correctness and the comfort of ideological homogeneity.

In The Koala v. Khosla, the U.S. Court of Appeals for the Ninth Circuit should reverse the lower court’s decision and stop UCSD’s efforts to seek vengeance against student groups for satirical articles.

With President Trump’s backing, Senators Tom Cotton (R-AR) and David Perdue (R-GA) introduced the RAISE Act, which would reduce legal immigration by 50 percent over 10 years. See here, here, here, and here for our earlier commentary about why this goal makes little sense and the justifications for it are spurious. But how it would achieve this goal is also revealing.

  • The senators no longer consider parents of U.S. citizens “immediate family” (p. 7). Such is these senators’ view of family relations in 2017.
  • Through an opaque formula—see here for an explanation—it eliminates virtually all hope for legal immigrants to sponsor their spouses and minor children for visas. Immigrants, I suppose, don’t deserve “immediate family.”
  • They end all of the current green card categories and void all applications from all legal immigrants (p. 16) despite them having waited in line in many cases for decades. This is so cruel that it’s almost impossible to imagine putting the idea on paper.
  • Their new point-based “merit” system has no more visas for employment-based immigrants than current law and counts the family of the workers against the quota, meaning that half will not even be “merit-based” (p. 17).
  • Its “merit” track would assign points in the following scheme. You need 20 points:
    • simply being age 26 is worth nearly twice as much (10) as being an entrepreneur who invests $1.4 million in their U.S. business (6).
    • Being fluent in English is worth as much as being an entrepreneur who invests $1.8 million in their U.S. business (12).
    • A 30-year-old fluent in English with any bachelor’s degree (28 points) is better off than a 36-year-old foreign STEM master’s degree holder with 10 years of work history with limited English (17).
    • It downgrades qualified applicants with spouses who are less qualified. Such that:
      • a 46-year-old Nobel laureate with a doctorate in a non-STEM field who is proficient in English and invests $1.4 million in a new business start-up but has a 46-year-old wife with a high school degree and no English gets fewer points (35.9) than a couple of bachelor degree holders who get jobs for $70,000 in Mississippi and who can speak English (36).

This strange ill-conceived proposal should go nowhere for many other reasons, but this bill’s cruelty toward legal immigrants who tried to come to the country the right way and its nonsensical “merit” system are good enough.

Occupational licensing started with the idea that jobs with serious consequences – doctors being the prototypical example – require some sort of government certification and oversight. But that rather innocuous motivation has ballooned into a harmful and unsustainable state of affairs.

From laws requiring licenses to braid hair to ones requiring licenses for floral design and casket manufacturing, occupational licensure has put barriers in the way of people who wish to do non-dangerous jobs and has done little to protect consumers. Instead, it’s frequently used as a way for politically well-connected people and state licensing boards to freeze out their competition, a textbook example of regulatory capture. The end result makes it harder for people to find fruitful employment, particularly low-income workers who often don’t have the time or money to get licenses.

Fortunately, the Supreme Court has offered some hope for those who don’t want needless barriers thrown their way when they want to make a living. In 2014, the Court held in North Carolina State Board of Dental Examiners v. Federal Trade Commission that a licensing board that had banned non-dentists from offering teeth-whitening services had violated federal antitrust laws – and that all licensing boards do the same when they engage in anticompetitive practices. (This was incidentally the first and only case in which Cato filed a brief supporting the federal government.) The Court further clarified that licensing boards have antitrust immunity if they’re subject to “active supervision” by the state in question.

States can get around this requirement by simply rubber-stamping everything done by the licensing boards, undermining the intended procompetitive effects of the decision in the process. In addition, there are valid concerns that the decision undermined state sovereignty in light of the fact that under Parker v. Brown, 317 U. S. 341 (1943), the Sherman Antitrust Act doesn’t apply to state government agencies.

Sen. Mike Lee (R-UT), who chairs the judiciary committee’s antitrust subcommittee, has been thinking about these issues and last week unveiled an innovative proposal. Joined by Sen. Ted Cruz (R-TX) and Sen. Ben Sasse (R-NE), Lee introduced legislation that would give states incentives to reform their licensing laws by giving them paths to immunity from liability. S.1649, or the “Restoring Board Immunity Act,” establishes a limited exemption for state licensing boards under antitrust law, but conditions that exemption on a state’s implementing one of two reforms. Option one is for a state to establish day-to-day supervision of licensing authorities through a new occupational-licensing oversight board, which would periodically review occupational regulations. Option two is for a state to create a cause of action that would allow for judicial review of occupational-licensing laws under a standard of intermediate scrutiny – requiring the state to prove that a licensing law meets that standard should it be challenged in a court of law, and award attorney fees in successful challenges.

The bill is not perfect. The “Office of Supervision” created to supervise the licensing authorities that are mentioned in Section 5 of the bill may be subject to similar public-choice and regulatory-capture problems as the current licensing boards, for example. It nonetheless represents a massive improvement over current occupational-licensing regimes. It provides an incentive for states to reform their laws and helps clarify the NC Dental case to ensure that states can’t simply rubber-stamp whatever licensing boards do.

This sort of out-of-the-box thinking is what we need from both Congress and state legislatures to ensure that all Americans can earn an honest living without needless interference from those claiming to protect them.

The Fed is embarked on a program of rate hikes, namely increases in the interest rates it pays on reserve balances and on reverse repos. Its justification is what it perceives to be a strong labor market and an expected rise in inflation. The two criteria are interconnected because in the economic model it employs, a strong labor market (as indicated by employment growth and a falling unemployment rate) will eventually result in a rise in the inflation rate. Thus far, the Fed has proved to be wrong.

The Fed in effect is targeting inflation at 2 percent, as measured by the personal-consumption expenditures (PCE). But actual inflation remains stubbornly below 2 percent. It was up 1.4 percent, year over year, in June. The core rate is running at 1.5 percent. Two percent is not in sight.

Fed officials appear committed to further rate hikes, though with less conviction. Why pursue a policy when the facts do not support it?

I believe there are two possible explanations. First, officials are willing to follow the predictions of a model even when it clearly has ceased to explain the economic facts (if it ever did). Second, there other unstated reasons for raising short-term interest rates. The first explanation is likely true for some Fed officials, especially so for Chair Yellen.

The second explanation likely drives policy for other officials. There is fear that unconventional monetary policy (a prolonged period of low interest rates) has generated asset bubbles. Those officials realize the Fed is in danger of repeating policy errors that led to the dotcom bubble and bust, and the housing boom and bust. It would be impolitic to say so, however. Code language is used, such as the need to return to “normal” monetary policy.

What prognosis is there for future rate hikes? The model points to higher interest rates, and reality to no further rate hikes. I opt for the latter, at least for the rest of this year.

Senior Trump administration aide Stephen Miller gave a press briefing yesterday defending the RAISE Act - a bill introduced by Sens. Cotton (R-AR) and Perdue (R-GA) that would slash the number of legal immigrants without increasing skilled or merit-based immigration.  The purpose of the RAISE Act is to restrict low-skilled immigration in order to raise the wages of American workers.      

When asked by a reporter for evidence that restricting low-skilled immigration would raise wages, Miller cited research by Harvard economist George Borjas on the Mariel Boatlift.  The Mariel Boatlift produced an unexpected surge of 125,000 Cubans (henceforth Marielitos) to Miami in 1980.  Because at least 60 percent of the Marielitos were high school dropouts, Borjas tested whether they lowered the wages of American dropouts. Since Borjas published his Mariel paper, there have been many rebuttals, criticisms, and additional research on it that should substantially diminish confidence in his findings.  Below I will briefly summarize these results.

The first such criticism is by economists Michael Clemens and Jennifer Hunt.  They conclude that the entirety of the wage decline observed by Borjas can be explained in how the wage survey in Miami increased the proportion of black workers surveyed, far in excess of their proportion of the population, when the Boatlift occurred (the CPS change was unrelated to the Boatlift).  Black American workers with less than a high school degree have lower wages than similarly skilled non-black Americans for myriad reasons that have nothing to do with immigration.  By including more of them in the survey at the same time the Marielitos were arriving made it look like there was a drastic wage decline when the observed effect was entirely due to shifting the demographics of the surveyed population.  That survey shift entirely explains the negative wage effect observed by Borjas.  Borjas’ response to Clemens and Hunt is weak.

The second criticism of Borjas’ Mariel Boatlift research is by economists Giovanni Peri and Vasil Yasenov.  They note that wages in Miami must be compared to wages in similar cities at the same time to measure how wages changed.  By selecting a set of comparison cities using the Synthetic Control Method, a different method than Borjas used, they found no statistically significant deviation in Miami’s wages compared to similar cities that did not absorb the Marielitos.  Furthermore, Borjas relied on smaller surveys with few relevant observations for Miami and other cities.  Peri and Yasenov used the larger to get even more data on wages.  Including the additional data also showed that the Marielitos did not lower wages.

Cole Blondin and I wrote the third response, which is not a rebuttal to Borjas’ work but shows other implications.  We assumed that Borjas’ methods and data were beyond reproach so we copied them.  We found that Americans in Miami with only a high school degree saw a significant increase in wages that coincided with Mariel.  Because Miamians with only a high school degree outnumbered dropouts, the wage losses reported by Borjas were more than offset by wage gains made by Miamians with only a high school education in most of our estimates.  We also found that wages for dropout Hispanic workers in Miami actually increased right after the Boatlift, relatively, compared to Hispanic workers in other cities as the Marielitos arrived.  Since Hispanic workers are the most substitutable with the Marielitos, this result is wholly inconsistent with Borjas’ explanation.  

The fourth response by David Roodman points out substantial methodological critiques of Borjas’ paper that should raise serious concerns such as the fact that his analysis excludes women entirely and that the wage drop observed by Borjas took years to develop when it should have happened more rapidly.  There is no good methodological reason for excluding the wages of working women from the analysis. 

The other big problem with Miller’s response was that he responded to a question about how the RAISE Act would boost wages by citing research that argues an increase in immigration lowers wages under the exceptional circumstances of the Mariel Boatlift.  The actual research that examines wage effects from immigration restriction finds that wage growth for American workers slows after Congress passes restrictions for that purpose.

Economists Michael Clemens, Ethan Lewis, and Hannah Postel recently wrote a groundbreaking paper that took advantage of Congress’ 1964 cancellation of the Bracero program to see how a cut in legal migration affect American wages.  The Bracero program allowed hundreds of thousands of Mexican workers to work legally on American farms from 1942 to 1964.  Congress canceled Bracero due to lobbying from labor unions and others that argued such a cancellation would raise wages.  Clemens, Lewis, and Postel found that farm worker wages rose more slowly because farmers mechanized production and planted crops that required less labor.  Not only did the supposed wage gains from cutting legal migration not occur, the rate of wage increase actually slowed.

The details and justifications for the RAISE Act and Congress’ 1964 cancellation of Bracero are eerily similar.  The Bracero program allowed in half a million workers a year before it was eliminated – which is roughly the number of green cards that RAISE would cut.  Bracero workers have a relatively similar skills level, compared to Americans, of the workers who currently enter of the family-based green cards that the RAISE Act intends to cut.  Braceros were also concentrated in some states just like new immigrants are.

George Borjas’ research on the Mariel Boatlift is not the empirical slam-dunk that Stephen Miller thinks it is.  At a minimum, the work I summarize above should raise doubts and diminish his confidence in the RAISE Act. Supporters of the RAISE Act need to deal with the totality of the economics research on the effect of cutting legal immigration.  The fact that they are ignoring most of it and cherry-picking findings should raise alarm bells that are louder than a debate over the history of the Statue of Liberty.

One might expect that a report with a title referring to “more findings about school vouchers and test scores” would include the latest studies. However, Mark Dynarski, a Senior Fellow at the Brookings Institution, and Austin Nichols, a Principal Associate of Social and Economic Policy at Abt Associates, recently argued that the new voucher evidence is negative, even though the two most recent studies in Louisiana and Indiana show null to positive effects on student achievement.

How did these researchers come to their counterintuitive conclusion?

It appears that the researchers did not include the two most recent evaluations of voucher programs in Figure 1 below, which is taken from their report. That would not be much of a problem if the title and body of the report did not indicate otherwise.

Figure 1: Findings from Four Current Studies of Vouchers and Eight Previous Studies

 

If the researchers simply used previous results, the article (and its title) should not indicate that the latest estimates from Indiana and Louisiana are used. Further, the forest plots should not indicate that multiple years of results are used.

So what does the experimental voucher research actually say?

The Actual Test Score Results – and Their Implications

Even the latest experimental results, which show that voucher students in Louisiana and Indiana caught up with or did better than their public school peers on test scores, are less optimistic than prior voucher studies. However, there is not a clear theory for why voucher programs ought to be less-effective now than they used to be, all else equal.

I suspect that the regulatory environment may have something to do with the recent lackluster experimental results. For example, private schools participating in the Louisiana Scholarship Program (LSP) must administer the state standardized test, prohibit parental copay for families using vouchers, report finances to the government, and surrender their admissions process over to the state. As the recent study by me and my colleagues at the University of Arkansas finds, only a third of the private schools chose to participate in the LSP, and those schools were less likely to be the higher quality institutions.

As shown in Figure 2 below, the recent meta-analysis of 19 experimental voucher studies, by researchers at the University of Arkansas, finds that student test score impacts improve over time (also shown by the most recent results in Louisiana and Indiana). Indeed, students using a voucher to attend a private school have around half a standard deviation higher academic achievement in reading than their traditional public school peers by the fourth year. That is quite significant; a study by Stanford economist Eric Hanushek indicates that the effect is equivalent to around a 6.5 percent increase in lifetime earnings—more than $75,000.

Figure 2: Experimental Impacts of Vouchers on Student Test Scores by Year

 

While the positive test score trend is encouraging, I am skeptical about the implications. The trend could indicate that children are settling into their new schools and that private schools are improving in academic quality over time. However, the trend could also simply be a reflection of the new incentive structure for private schools in voucher programs. Since test scores are the state’s preferred accountability measure, private schools in voucher programs must shift their focus towards standardized testing.

The latter explanation could be problematic. As Jay Greene from the University of Arkansas has pointed out, there are nine school choice studies showing a disconnect between test scores and long term outcomes that we actually care about—such as graduation rates, criminal activity, and income. The shift towards focusing more on standardized testing could very well harm the ability of private schools to shape the character skills necessary for success.

If we really want to help all children achieve the best education possible, we must be humble about our ability to measure progress and determine what is best for people who have unique needs. Rather than using a single crude measure to determine who ought to have access to more educational options and a better life, we should have faith in the abilities of parents to select schools based on the numerous institutional factors that play a part in children’s educational experiences.

Senators Tom Cotton (R-AK) and David Perdue (R-GA) are promoting their legislation titled “the RAISE Act” at the White House today. It would reduce immigration by 50 percent over 10 years by eliminating several categories of legal immigration. The legislation would reduce the per capita rate of immigration to the lowest amount since just after the Great Depression. Immigration would fall to a rate three times less than the historical average and 11 times less than the historical high.

Yet the senators claim that the RAISE Act would “restor[e] legal immigration levels to their historical norms.” This statement is so misleading that it borders on outright deception. The “level” is just the absolute number of immigrants each year. But this treats the number of immigrants in 1900 the same as the number of immigrants in 2017, despite the fact that the U.S. population quadrupled during that time. You have to control for the size of the country. It’s like saying a million immigrants to China is the same as a million immigrants to Estonia—despite the fact that China is 1,000 times more populous.

The figure below provides the true picture of the amount of immigration to the United States: the number of new legal permanent residents divided by the number of people in the United States (the per capita immigration rate). From 1820 to 2017, the immigration rate averaged 0.45 percent of the population annually. In 2017, that rate was 0.32 percent. In other words: 28 percent below the average historical rate. If the United States were to adopt the “historical norm,” it would need to raise immigration quotas by about the amount that RAISE lowers them: 411,000. By contrast, under the senators’ proposal, immigration would fall to 0.14 percent—more than three times less than the “historical norm.”

The figure below graphs the annual legal immigration rate from 1820—the first year that the U.S. recorded immigrant arrivals—to 2017. It assumes that the RAISE Act will actually be implemented in 2018 and uses the Census population projections to forecast the impact of the legislation through 2030. As it shows, the rate of immigration would dramatically drop in the first year and continue to fall until it reached a level not seen since just after World War II and far below the tradition of immigration prior to the progressive movement in the 1920s.

U.S. Per Capita Immigration Rates and Projected Rates Under the RAISE Act, 1820-2030

Sources: 1820–2017: Department of Homeland Security; 2018–2030: Tom Cotton and Census Bureau (Census population figures reduced by immigrants denied under RAISE Act minus the number who would’ve emigrated from the U.S. after initial entry in any case, using Borjas; the rate of decline in immigration for 2028–2030 based on Cotton’s projections for 2018–2027)

Below is a table of the immigration rates for every year from 1820 to 2030. If the RAISE Act becomes law, 2030 would have the lowest rate of immigration since 1954, and of the 30 years out of 211 with lower rates, 18 of them occurred during the Great Depression or World Wars, and seven were in the 1820s before steam power transformed the Atlantic crossing. Are these periods what the senators consider normal?

Immigration Rates Ranked Lowest to Highest

Rank Immigration Rate Year

1

0.02%

1943

2

0.02%

1933

3

0.02%

1944

4

0.02%

1942

5

0.02%

1934

6

0.03%

1945

7

0.03%

1935

8

0.03%

1936

9

0.03%

1932

10

0.04%

1941

11

0.04%

1937

12

0.05%

1938

13

0.05%

1940

14

0.06%

1823

15

0.06%

1939

16

0.07%

1822

17

0.07%

1824

18

0.08%

1946

19

0.08%

1931

20

0.09%

1820

21

0.09%

1825

22

0.09%

1821

23

0.09%

1826

24

0.10%

1947

25

0.11%

1953

26

0.11%

1918

27

0.12%

1948

28

0.13%

1949

29

0.13%

1954

30

0.13%

1951

31

0.14%

1919

32

0.14%

2030

33

0.14%

1955

34

0.14%

1958

35

0.15%

2029

36

0.15%

1959

37

0.15%

1960

38

0.15%

1961

39

0.15%

2028

40

0.15%

1962

41

0.15%

1964

42

0.15%

1965

43

0.15%

2027

44

0.16%

1827

45

0.16%

2026

46

0.16%

1963

47

0.16%

2025

48

0.16%

1950

49

0.16%

1966

50

0.17%

2024

51

0.17%

1952

52

0.17%

1831

53

0.17%

2023

54

0.18%

1979

55

0.18%

2022

56

0.18%

1969

57

0.18%

1971

58

0.18%

1975

59

0.18%

1829

60

0.18%

2021

61

0.18%

1830

62

0.18%

1970

63

0.18%

1967

64

0.18%

1972

65

0.18%

1974

66

0.18%

2020

67

0.19%

1973

68

0.19%

2019

69

0.19%

1957

70

0.19%

1956

71

0.19%

2018

72

0.20%

1930

73

0.21%

1977

74

0.22%

1828

75

0.23%

1968

76

0.23%

1976

77

0.23%

1929

78

0.23%

1984

79

0.23%

1982

80

0.23%

1980

81

0.24%

1983

82

0.24%

1999

83

0.24%

1985

84

0.24%

1838

85

0.24%

1998

86

0.24%

2003

87

0.25%

1987

88

0.25%

1986

89

0.25%

1925

90

0.25%

1928

91

0.26%

1981

92

0.26%

1926

93

0.26%

1988

94

0.26%

1978

95

0.27%

1995

96

0.28%

1843

97

0.28%

1862

98

0.28%

1922

99

0.28%

1927

100

0.28%

1861

101

0.29%

1917

102

0.29%

1878

103

0.29%

1916

104

0.30%

1997

105

0.30%

2000

106

0.30%

1877

107

0.30%

1835

108

0.31%

1994

109

0.31%

1898

110

0.32%

2013

111

0.32%

1897

112

0.32%

2017

113

0.32%

2014

114

0.32%

2016

115

0.32%

1915

116

0.33%

2015

117

0.33%

2004

118

0.33%

2012

119

0.34%

2010

120

0.34%

2011

121

0.35%

1996

122

0.35%

1993

123

0.35%

2007

124

0.36%

1879

125

0.36%

1868

126

0.37%

2008

127

0.37%

1876

128

0.37%

2002

129

0.37%

2009

130

0.37%

1895

131

0.38%

2001

132

0.38%

1992

133

0.38%

2005

134

0.40%

1859

135

0.40%

1844

136

0.40%

1920

137

0.41%

1839

138

0.41%

1858

139

0.41%

1833

140

0.42%

1899

141

0.42%

1894

142

0.43%

2006

143

0.44%

1832

144

0.44%

1989

145

0.45%

1834

146

0.45%

1841

147

0.47%

1923

148

0.48%

1896

149

0.49%

1860

150

0.49%

1840

151

0.49%

1836

152

0.50%

1837

153

0.51%

1875

154

0.52%

1863

155

0.55%

1864

156

0.57%

1845

157

0.57%

1842

158

0.58%

1886

159

0.59%

1900

160

0.62%

1990

161

0.62%

1924

162

0.63%

1901

163

0.66%

1893

164

0.69%

1865

165

0.70%

1885

166

0.71%

1874

167

0.72%

1889

168

0.72%

1890

169

0.72%

1991

170

0.73%

1856

171

0.74%

1921

172

0.74%

1846

173

0.76%

1855

174

0.79%

1871

175

0.82%

1902

176

0.83%

1887

177

0.83%

1909

178

0.84%

1867

179

0.87%

1866

180

0.87%

1891

181

0.88%

1912

182

0.88%

1908

183

0.88%

1892

184

0.89%

1857

185

0.90%

1869

186

0.91%

1888

187

0.91%

1880

188

0.94%

1911

189

0.94%

1884

190

0.97%

1872

191

0.97%

1870

192

0.99%

1904

193

1.03%

1848

194

1.06%

1903

195

1.07%

1873

196

1.10%

1847

197

1.12%

1883

198

1.13%

1910

199

1.22%

1905

200

1.23%

1914

201

1.23%

1913

202

1.29%

1906

203

1.30%

1881

204

1.31%

1849

205

1.43%

1853

206

1.48%

1907

207

1.49%

1852

208

1.50%

1882

209

1.58%

1851

210

1.59%

1850

211

1.61%

1854

Average

0.43%

 

 

 

“Designed by Apple in California; Assembled in China” are the words engraved on the back of Apple’s ubiquitous iPods, iPads, and iPhones.  Might that soon change? 

Foxconn, the Taiwan-headquartered company that does Apple’s assembling in China, announced last week that it will invest up to $10 billion in production facilities in Wisconsin. That sounds like something to cheer. After all, investment is essential to economic growth and foreign direct investment tends to nourish the domestic commercial eco-system by bringing in companies with new ideas and better ways of doing things.

But Foxconn is in the business of contract manufacturing—producing, but mostly assembling, electronics products branded and owned by other companies. It’s not a high value-added operation requiring high-skilled workers. It’s the kind of supply chain operation better suited to economies with an abundance of low-skilled workers willing to work for much lower wages than Wisconsin’s work force expects to earn. Then again, economic considerations aren’t the only determinants of investment decisions.

Back in 2011 at a dinner in Silicon Valley, President Barack Obama asked Apple’s founder and CEO Steve Jobs why all of the production and assembly of the company’s products couldn’t be done in the United States. Jobs was a bit dismissive, responding that those kinds of jobs weren’t coming back. 

But the message wasn’t lost on other business executives, including GE’s Jeff Immelt, who was quick to announce repatriation of some operations that had recently been outsourced to China. The president was in a political jam and his reelection efforts might benefit if he were to show that U.S. companies were reshoring and bringing those manufacturing jobs back stateside.

Foxconn’s investment in Wisconsin is the commitment Obama was seeking from Steve Jobs, who knew that assembling iPhones in the United States would be, if not cost prohibitive, irrational from a commercial perspective. But sometimes investment location decisions are driven more by political considerations than economics. Fear of political retribution and ingratiation to key policymakers are just as relevant as the regulatory environment, taxes, infrastructure, and skills of the workforce when deciding upon where to locate production. The rapid and virtually uninterrupted growth of Washington, DC over the past decade, while the rest of the country stagnated and limped along, attests to those unfortunate facts. The dividends from political investment are often greater, and more reliable, than growing a business the old-fashioned way.

With plans to build a facility in the United States that it estimates will employ thousands of workers, Foxconn has succeeded in winning Trump’s affections. That the plant will be built smack dab in the middle of the House Speaker’s district makes the deal all the more laudable from a politically strategic perspective. But, most importantly, Foxconn’s investment in the United States is savvy because it will provide some insulation for Apple products – and many other U.S. and western branded electronics – from the worst effects of an increasingly likely U.S.-China trade war.

The heat is being turned up on a low-grade, high-tech trade war that has been simmering and sometimes churning over the past decade, with the U.S. Trade Representative’s Office announcing it will initiate an investigation into China’s forced technology transfer policies, which could lead to the imposition of trade restrictions. 

Compelling China to change course with respect to these kinds of market access barriers is long overdue, but U.S. missteps (such as imposing restrictions unilaterally through channels not sanctioned by the World Trade Organization) could initiate a much larger and more deleterious sequence of protectionist measures. The prospect of that happening is what Foxconn is hedging against with its investment inside the U.S. tariff wall.

Depending on how things turn out, you may soon find engraved on the back of your smart phones the words: “Designed by Xiaomi in Shenzhen; Assembled in Wisconsin.”

Republican Senators Tom Cotton (AR) and David Perdue (GA) are unveiling a bill today at the White House that would slash the number of legal immigrants by about 50 percent over the next decade.  This bill will be very similar to the RAISE Act that both Senators introduced in February, which I criticized here.  Their new bill, if it is similar to RAISE, would cut legal immigration by about 50 percent by reducing family reunification, eliminating the diversity visa, and statutorily limiting refugees without increasing skilled-worker immigration.  So much for the talking point that immigration hawks are “only against illegal immigration.”

Cotton-Perdue Does NOT Create a Skills-Based Immigration System

Supporters are saying that this bill would create a “skills-based immigration” policy but nothing could be further from the truth.  Cotton-Perdue does not increase skilled immigration at all – it only cuts non-employment categories like families and the diversity visa while creating a points-based system for employment-based green cards that does not increase the numerical cap.  The new Cotton-Perdue bill would do nothing to boost skilled immigration and it will only increase the proportion of employment-based green cards by cutting other green cards.  Saying otherwise is grossly deceptive marketing.

President Trump stated that he wanted to create a merit or skills-based immigration system like in Canada or Australia, but the Cotton-Perdue bill would not come close to achieving that goal.  The immigration systems in Canada and Australia do emphasize skilled immigrants over family members but their immigration systems allow in far more immigrants, as a percentage of the population in both countries, than the United States.  It is important to control for the population of the destination country when comparing the relative openness of different immigration systems. 

New immigrants to Canada who arrived in 2013 were equal to 0.74 percent of that country’s population.  New immigrants to Australia in 2013 were equal to a whopping 1.1 percent of their population.  By contrast, immigrants to the United States in the same year equaled just 0.31 percent of our population.  The only OECD countries that allow in fewer immigrants relative to their populations than the United States are Portugal, Korea, Mexico, and Japan.  Seventeen other OECD countries allow in more immigrants than the United States as a percentage of their populations.

In 2013, the number of skilled-worker immigrants to Canada was equal to 0.18 percent of that country’s population.  If the Cotton-Perdue bill intended to copy Canada’s skills-based immigration system, then it would increase the number of annual employment-based green cards from the current level of about 75,000 to about 592,000 annually – a 7.9-fold increase in the number (Figure 1).  If the Cotton-Perdue bill wanted to copy Australia’s skills-based immigration system then it would have to increase employment-based immigration to about 852,000 annually – an 11.4-fold increase.

Figure 1

Annual U.S. Employment-Based Immigrants under Different Immigration Regimes, 2013

 

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada, Department of Homeland Security, Author’s Calculations.

Because Canada and Australia allow in more skilled immigrants, the number of family-based immigrants admitted as a proportion of their respective populations is also higher relative to the United States.  In 2013, family-based immigrants to Australia and Canada were equal to 0.26 percent and 0.23 percent of their respective populations.  Family-based immigrants to the United States in 2013 were equal to just 0.21 percent of our population in that year.  An important caveat is that Canada and Australia do not allow in as many distant relatives as the United States.  If Canada and Australia are the models for a skills-based immigration system, as President Trump stated, then the result would be more family-based immigrants in addition to more skilled-immigrants.

Canada and Australia also have large-scale regional immigration systems that allow Provinces and States, respectively, to allow in foreign workers in addition to their federal systems.  Senator Johnson (R-WI) introduced a bill this year to create just such a state-sponsored migration system in the United States that is modeled on the Canadian program and would accrue tremendous benefits to Americans.  Senator McCain (R-AZ) recently became a co-sponsor.  Any bill that would seek to create a skills-based immigration system based on the Australian or Canadian models would include a state-sponsored migration system like the type proposed by Senator Johnson.

Cotton-Perdue Will Not Raise Wages

The RAISE Act was named after its intent to raise the wages of native-born American workers by reducing the supply of lower-skilled immigrants.  However, that has not been the effect of immigration restriction in American history.  Congress restricted immigration to raise American wages at least three times in American history –  1882, 1924, and 1964.  It failed each time. 

Congress’ 1964 cancellation of the Bracero program is most instructive.  Bracero was a guest worker visa that allowed Mexican workers to migrate to American farms. Congress canceled it after intensive lobbying by labor unions and bad publicity due to flaws in the program.  Economists Michael Clemens, Ethan Lewis, and Hannah Postel took advantage of this natural experiment that was “designed to raise domestic wages and employment by reducing the total size of the workforce” to see how American farm wages adjusted.  Their superb paper found that canceling Bracero had little measurable effect on wages.    

Figure 2

Farm Worker Wages before and after Bracero, by State

Source: “Immigration Restrictions as Active Labor Market Policy: Evidence from the Mexican Bracero Exclusion” by Michael A. Clemens, Ethan G. Lewis, Hannah M. Postel.

Figure 2 from their paper compares the quarterly average real farm wages by states where Braceros made up more than 20 percent of seasonal agricultural labor (black line), states where Braceros were fewer than 20 percent of the workforce (gray line), and states where there were no Braceros at all or only negligible numbers (dashed line).  Clemens et al. write that “[t]he figure shows that pre- and post-exclusion trends in real farm wages are similar in high exposure states and low-exposure states.  It also shows that wages in both of those groups rose more slowly after bracero exclusion than wages in states with no exposure to exclusion.”  The farmers did not adapt to the decline in legal migrants by raising wages.  Instead, they mechanized and planted less labor-intensive crops. 

The similarities between Bracero’s cancellation and the Cotton-Perdue bill are enough to make this new research a compelling reason to reject the bill out of hand.  The first similarity is that the Bracero program allowed in half a million workers a year before it was eliminated – which is about the same number of green cards that the Cotton-Perdue bill would cut.  Second, Bracero workers are somewhat similar to the workers who would enter on the family-based green cards that Cotton-Perdue intends to cut.  Third, Braceros were also concentrated in some states just like new immigrants are.  The historical and economic experience with cutting legal immigration in the past should deter would-be supporters of this bill.            

Furthermore, immigration bears little blame for low wages.  The National Academy of Sciences’ (NAS) literature survey on the economic effects of immigration concluded that:

When measured over a period of 10 years or more, the impact of immigration on the wages of native-born workers overall is very small.  To the extent that negative impacts occur, they are most likely to be found for prior immigrants or native-born workers who have not completed high school—who are often the closest substitutes for immigrant workers with low skills.

Furthermore, the small long-run relative wage impacts on native-born American workers by education are close to zero according to the most authoritative studies by economists George Borjas and Gianmarco Ottaviano and Giovanni Peri, both of which take up much of the NAS report.  They disagree when it comes to immigration’s impact on the wages of dropouts, even though the effect is small and positive for all native-born workers lumped together in both studies (Figure 3).  The 2015 American Community Survey reports that only 9.4 percent of native-born Americans over the age of 25 are dropouts – the category of native-born workers who are most likely to be negatively affected.  Thus, over 90 percent of American workers are in education-skill categories where immigrants increase relative wages according to George Borjas’ relatively negative findings.

Figure 3

Relative Impact of Immigration on Native Wages by Education

 

Sources: Borjas, p. 120; Ottaviano & Peri, Table 6.

Note: Borjas looks at 1990–2010. Ottaviano and Peri look at 1990–2006.

Assuming that the Bracero research by Michael Clemens, Ethan Lewis, and Hannah Postel does not apply to Cotton-Perdue, which is extremely unlikely, the main potential beneficiaries are other immigrants.  Both Borjas and Ottaviano & Peri find that the wages of immigrant workers do drop because of competition with new immigrants even though native wages do not (Figure 4). That is because new immigrants have skills and educations most similar to previous immigrants, so they compete against each other more than with natives who have different skill and education levels.  Reducing immigrant wage competition with immigrants is not a popular goal for the population most affected.  Figure 25 of this Bulletin shows that immigrants are much more likely to support liberalized immigration in spite of wage competition.

Figure 4

Relative Impact of Immigration on Immigrant Wages by Education

 

Sources: Borjas, p. 120; Ottaviano & Peri, Table 6.

Note: Borjas looks at 1990–2010. Ottaviano and Peri look at 1990–2006.

Cotton-Perdue Is a Bad Political Bargaining Chip

More seasoned political observers around Washington DC suspect that the Cotton-Perdue bill is intended to be a bargaining chip that they can drop in exchange for other reforms like mandated E-Verify or another large-scale increase in immigration enforcement.  This is similar to when proponents of the 1996 Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) originally included cuts to legal immigration but had to settle for only boosting enforcement when many Republicans supported preserving the legal immigration system

Cotton-Perdue is not a good political bargaining chip for at least two reasons.  First, virtually zero Democrats would support a cut to green cards and at least half of Republicans would join them.  Cotton-Perdue will die on its own due to lack of support – like the RAISE Act did a few months ago – or be stripped out of any immigration bill in which it was included.  The bill has no chance so it cannot be credibly used as a bargaining chip to gain concessions elsewhere despite what President Trump says today.  Second, the public is more supportive of immigration than it was in the mid-1990s when Congress last seriously considered cuts in the legal system.  In 1995, 65 percent of Americans wanted less immigration while only 38 percent do today.  Cotton-Perdue would not be popular on Capitol Hill or with the American electorate so it is not a credible bargaining chip.

Conclusion

The Cotton-Perdue bill would not create a skills-based immigration system as President Trump has said he wants, it will not increase American wages, and it is not a credible bargaining chip in any future negotiations in Congress.  Interestingly, the current U.S. immigration system is gradually selecting a higher proportion of skilled immigrants over time without Congressional reform.  The Cotton-Perdue bill deserves to be criticized but it is not a serious threat that should gain concessions from Congressmen or Senators in both parties who either support immigration reform or the current level of admissions.

This week, the worst-kept secret in international sports became official: Paris will host the 2024 Olympic Summer Games and Los Angeles will host in 2028. There were plenty of happy faces in Paris and L.A. over the announcement—and there should be some in Boston too.

Just four years ago, Boston was a frontrunner in the sweepstakes for the 2024 Games. A group of city businessmen put together a multi-billion-dollar plan for the Games, including proposed construction of a large, temporary stadium for the main events and a beach volleyball venue that would be erected on Boston Common. The group then set to work getting political leaders and the public onboard.

In an article forthcoming in the fall issue of Regulation, Andrew Zimbalist, a Smith College economist and internationally renowned expert on the finances of mega-events like the Olympics, tells what happened next:

At first, Bostonians were excited by the Olympic prospect, inspired by claims that the event would yield long-lasting benefits in economic stimulus, international prestige, and tourism. But then they began to learn from people like Zimbalist that hosting the Olympics usually isn’t the net positive that proponents claim.

He writes of recent American Olympic history:

Lake Placid 1980 experienced cost overruns of 321% and ultimately required a bailout. The State of New York contributed $63 million (17% of total costs) and the federal government spent $179 million (50% of total costs). … Atlanta 1996 had cost overruns of 147%. … Approximately one-third of all spending—$823 million—came from taxpayers. … The federal government planned to spend $342 million on the 2002 Salt Lake City Winter Olympics. The Salt Lake City municipal government planned to spend $75 million and the Utah state government committed an additional $150 million. The final public bill was considerably higher.

Outside the United States, the Olympic experience has been even worse; barrels of red ink and/or horrifying events marked the Mexico City Games of 1968, the Munich Games of 1972, the Montreal Games of 1976, the Athens Games of 2004, the Sochi Games of 2014, and the Rio Games of 2016. And afterward, Zimbalist writes, the costs continue:

Beijing 2008’s “Bird’s Nest” stadium has been converted into a museum for tourists to visit at $12 a pop, but there is little interest. Meanwhile, the facility costs millions of dollars annually to operate and maintain. Rio’s Olympic Park has many venues that were slated for post-game use, but there was either no money to convert them or there were no private developers willing to take on the responsibility of remodeling and management. As in Athens (2004), most of Rio’s venues are now falling into disuse. London’s $700 million Olympic Stadium has been converted (at a $400 million additional public expense) into a new stadium for the West Ham soccer club, but West Ham had a perfectly good stadium beforehand.

As for claims that the Olympics bring tourism benefits, he argues this probably isn’t true on net. Major cities like Boston already attract plenty of tourists, but they’ll be inclined to stay away during the Olympics because of the chaos of the Games. And the Lyle Lanley notion that the Games would “put Boston on the map”? Well, Boston is already a pretty big dot on the map.

Put simply, host cities and nations rarely benefit from the Games. Instead, the beneficiaries are the International Olympic Committee (IOC) and the developers and other businessmen who profit from the construction and operation of the venues. For most everyone else, the Olympics are a sucker’s bet.

Once Bostonians learned this, public opinion turned sharply against the city’s hosting the Games. In late July of 2014, the city withdrew its application for the Games.

So why the smiles in Los Angeles? Because L.A. has figured out the politics and economics of the Olympics and refuses to make the costly mistakes that other host cities make. And this isn’t the first time the City of Angels has been so shrewd.

As Zimbalist chronicles, when L.A. hosted the 1984 Games, it roughly broke even—and perhaps even made a small profit. The city achieved this in part through aggressive use of corporate sponsorships. But the main reason for the success was L.A.’s heavy use of existing venues: the Coliseum, which hosted the 1936 Games, was also the main site of the 1984 Games; and the campuses of USC and UCLA were used to house athletes and staff instead of lodging them in a newly constructed “Olympic Village.”

L.A. was able to take this miserly approach because it was the only bidder for the 1984 Games. It thus drove a hard bargain with the IOC, instead of trying to “wow” the committee with exorbitant public works for the Games, as Athens (2004), Beijing (2008), Sochi (2014), and Rio (2016) did to their later regret.

Los Angeles’s 2028 proposal revisits this strategy, with plans to re-use the Coliseum, Staples Center, Pauley Pavilion, and other venues, use USC and UCLA again for the Olympic Village, and use a new football stadium in the LA suburb of Inglewood that is being built for the NFL’s Rams and Chargers franchises. Like in 1984, L.A. was able to strike this hard bargain with the IOC because—after the experiences of Rio et al.—only Paris and L.A. were serious candidates for 2024 and 2028 Games.

Still, L.A., California, and U.S. taxpayers should be on guard. The L.A. bid does envision the construction of some “temporary facilities,” and those can be expensive. Temporary stadiums (albeit far larger venues than what L.A. envisions) that were planned for Chicago’s unsuccessful 2016 Olympic bid and Boston’s withdrawn 2024 bid were estimated (optimistically) to cost $392 million and $175.5 million, respectively, for construction alone.

Generally speaking, hosting the Olympic Games has been a bad deal for taxpayers. Hopefully, Los Angeles is once again avoiding being the IOC’s sucker and will have both a terrific and financially responsible 2028 Games.

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