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Some Americans may be surprised to learn that agriculture in their country is in large part based on a five-year plan. Most commonly referred to as the farm bill, it is up for renewal this year and—just like in years past—is likely to produce a legislative morass in which the primary beneficiaries are lobbyists and the business interests they serve. The following excerpt from a recent article in The New Yorker helps to illustrate the madness:

When milk prices bottomed out in the summer of 2016, Robin and David Fitch didn’t know how they could continue. Their four-hundred-and-seventy-acre dairy farm, in West Winfield, New York—a four-hour drive north of Manhattan—supported about a hundred and seventy milk cows. Sixteen years earlier, when they had married and started farming together, a herd that size would have been more than enough to keep them afloat. But milk prices kept falling that summer, eventually hitting fourteen dollars per hundredweight, down from twenty-five in 2014. The Fitches’ income took a nearly fifty-per-cent hit, while the debt they incurred from fuel costs, rising interest rates, and other expenses grew. The day came when they had to tell their two children that they might be forced to sell the farm. “My fourteen-year-old was in tears,” Robin recalled. “For the farmer, it means losing everything they have worked for their entire life—their land, their home, everything. It’s gone.”

The Fitches were not alone in their struggles. The U.S. Department of Agriculture estimates that, between 2013 and 2016, net farm income fell by half, the largest three-year drop since the Great Depression. Some forty-two thousand farms folded during the downturn, and small and medium-sized operations, such as the Fitches’, proved particularly vulnerable. Now, with commodity prices still low and farm debt predicted to reach record highs, the nonprofit organization Farm Aid has warned that, if the market doesn’t recover soon, the country could see its highest rate of farm closures since the nineteen-eighties. Newsweek estimates that, at the peak of that crisis, two hundred and fifty farms closed every hour.

Many American farmers are looking to Donald Trump for relief. He was, after all, their preferred candidate for President, winning sixty-two per cent of the rural vote in 2016. “Farmers built this country, and I was hopeful that he was going to see that and step up to the plate for us,” Robin Fitch told me. The President will soon have the chance to do just that, as Congress readies the next version of the farm bill, the single most important piece of legislation for the nation’s food growers. First conceived during the Depression, the bill has since become a fixture of American policy-making, updated and renewed and haggled over every five years or so. The 2018 bill, which is due in the coming months and is expected to cost around nine hundred billion dollars over a decade, promises to be one of the most consequential ever. This year, even more than in the past, farmers such as the Fitches face an existential question: Will Washington come to their rescue, or will it let them disappear?

The farm bill’s unassuming name fails to capture its effect on American life. Besides providing crop subsidies, establishing pricing structures, and regulating farming practices, it allocates funds for disaster relief, school-lunch programs, and wildlife conservation. Some eighty per cent of the bill’s budget goes to the Supplemental Nutrition Assistance Program (snap), formerly known as food stamps. “At one point, I started to catalogue the number of programs that were covered in the farm bill, and I gave up after a hundred,” Marion Nestle, a professor of nutrition, food studies, and public health at New York University, told me recently. “And every single one of those programs has a lobbying force behind it or it wouldn’t be there. And that’s just the farm programs!”

As the Fitches’ experience suggests, past farm bills have tended to benefit large operations over small and medium-size ones, which still account for ninety-seven per cent of all working farms in the United States. According to the Environmental Working Group, a D.C.-based nonprofit, the top ten per cent of wealthiest farms received seventy-seven per cent of commodity subsidies between 1995 and 2016. Roughly the same is true of crop insurance, currently the largest component of the farm bill behind snap. That’s where the real money is, Nestle told me. “What the insurance programs do is provide an incentive to grow as much food as you possibly can, because you know that the price is going to be guaranteed,” she said. The certainty of payment, backed by U.S. taxpayers, encourages big farms to get bigger, take risks, and then claim the insurance payouts if the crops fail to yield.

Each one of these paragraphs helps highlight at least one flaw with the farm bill or perceptions of the agriculture sector.

Among them:

Low prices of milk or any other agricultural commodity are not a problem to be ameliorated by public policy. Food is essential for human survival and we would all be better served if its price was, like sunlight and air, zero. The benefits of cheaper food and reduced hunger easily outweigh any losses borne by the farm sector.

The financial state of the agricultural sector is less than dire. While it is true that net farm income has dipped in recent years, this was preceded by a notable increase and currently is not particularly low by recent historical standards:

Similarly, the observation that farm debt is projected to reach record highs is presented without needed context. Left unsaid is that the sector’s assets are projected to reach $3 trillion, resulting in solvency ratios that are near historical lows:

It isn’t the job of politicians in Washington to save farmers—or members of any other industry. The task of lawmakers is not to dispense favors to particular constituencies but rather to create a policy environment in which market participants thrive or fail based on their own merits. Instead of pressing their thumbs on the economic scales, members of Congress should get out of the way and let the market—that is to say the collective judgment of consumers—render its verdict on which businesses continue and which ones cease. Smaller, more inefficient farms that cannot compete with larger agricultural concerns should be allowed to go out of business. Indeed, the replacement of less efficient farms with more efficient ones has been the story of agriculture for decades, with the resulting productivity surge leading to cheaper food and freeing up labor to participate in other sectors of the economy

The farm bill is an unfocused mess. Legislation which covers everything from subsidies to food stamps to wildlife conservation and contains so many programs that even experts cannot keep track is, by any measure, an unwieldy mess. Such legislative stuffing is best explained as an exercise in log-rolling, in which politicians from agricultural states and districts obtain support for farm subsidies by incorporating unrelated measures such as food stamps that have broader legislative appeal. This is no way to conduct business.

Ultimately the lobbyists win. As the article accurately notes, the legislation’s big winners are not family farms but rather large agricultural concerns who don’t need the help. While the federal government should not be handing out largesse to smaller farms, neither should it be funding their larger competitors. Losers from the farm bill, meanwhile, are not merely small and medium-sized farms, but the taxpayers who are forced to pay for this agricultural extravagance.

The article goes on to note that while it is “difficult to say what a small farmer’s ideal version of the bill would look like” that “there is no doubt that it would require radical revamping.” Such language implies that legislation meant to direct government assistance to particular actors within a large sector of the economy can become something other than what it is: an overgrown monstrosity written by lobbyists and ridden with corporate welfare. The only true reform of such a bill is to end the thicket of subsidies and price supports, and to break the legislation into smaller parts where its non-agricultural aspects such as food stamps can be addressed separately.

This is not to say that the government is without options should it seek to assist the agricultural sector. Rather than dispensing taxpayer-funded goodies, however, the Trump administration—assisted by pro-trade forces in Congress—should press ahead with efforts to open foreign agricultural markets. One of the richest and most protected such markets is Japan, and access by U.S. farmers to the country would have been notably expanded had President Trump not opted to withdraw from the Trans-Pacific Partnership. Fortunately, there is every indication the United States would be welcomed back should it seek to rejoin.

Similarly, European agricultural markets are shot through with subsidies and barriers to imports. An existing trade negotiation between the U.S. and European Union, the Transatlantic Trade and Investment Partnership, could yield positive results for the agriculture sector should this dormant initiative be reinvigorated. Let us also hope that administration rhetoric expressing a willingness to withdraw from the North American Free Trade Agreement, which would be particularly harmful to the agricultural sector, is simply a misguided negotiating tactic and not the expression of heartfelt sentiment.

Rather than conjuring up new economic distortions or tinkering with existing ones, Washington should seek ways to tear down barriers which prevent market forces from working their magic. The best farm bill is none at all.

At Reason’s “Hit & Run” blog today, Damon Root discusses “a major split [that] seems to be developing between conservative justices Neil Gorsuch and Samuel Alito over the issue of property rights and the Fourth Amendment.” I write simply to add a point to Damon’s important post. But first, a very brief summary of the issue.

Bryd v. United States, argued on January 9, is an automobile search case. Setting aside the more peripheral issues, the core question nominally before the Court was whether police may conduct suspicionless searches of places and effects in which those in possession have a reasonable expectation of privacy.

But Justice Gorsuch took not an “expectation of privacy” approach to the question but a property rights approach. Under common law, he said, “possession is good title against everybody except for people with superior title.” Absent probable cause, a trespass action would be available against anyone searching the car. Thus, “by virtue of his possession,” Byrd would have a right to resist a carjacker or throw out an overstaying hitchhiker. “So why not the government?”

Taking the more recent expectation of privacy approach to reading the Fourth Amendment, Justice Alito complained that “the problem with going down this property route is that we go off in search of a type of case that almost never arose…at common law, where [a person in possession] brings an action for trespass to chattel against a law enforcement officer.” He added that the word “property” doesn’t appear in the Fourth Amendment: “It talks about ‘effects’.” He then asked Byrd’s lawyer whether his argument is “that any property interest whatsoever falls within the definition of effects if we are going to go back to an originalist interpretation of the Fourth Amendment?”

Set aside whether Alito is resisting an originalist interpretation, it’s hard to know just what his theory of the case is. Is precedent his main concern, including the more recent expectation of privacy precedents and the alleged paucity of property precedents, especially involving law enforcement officers? Is it that with “effects” there’s a lesser expectation of privacy?

By contrast—and here’s the point I want to add—Gorsuch appears to be going back to First Principles. By implication, he’s doing the kind of state-of-nature analysis, reflected largely in the common law, that underpins the Constitution’s theory of legitimacy. From the Preamble to the document’s first sentence to the Ninth, Tenth, and Fourteenth Amendments, the idea is that legitimate governments have only those powers that the people have given them—but only those that they first have to give them. In the state of nature, there’s no right to trespass on another’s person or property—real or chattel—without probable cause. So once we leave the state of nature, where would a law enforcement officer get such a right. We have here, in short, a justice who studied these issues at Oxford, and we are the better for it.

Public comments on the draft fourth “National Assessment” of present and future climate change impacts on the U.S. are due at 11:59 PM tonight and will be embargoed from public release until after then. As soon as it is made public, we’ll link to our comments. Until then, just think about the previous three Assessments.

Reviewing the first one in 2000, myself and Chip Knappenberger discovered that the science team just happened to choose the two most extreme models (for temperature and precipitation) out of the 14 they considered. And then we discovered that they were worse than bad: when applied to a really simple record of temperature, they performed worse than a table of random numbers. Really, it was the same situation as if you took a multiple choice test with four possible answers, and somehow managed to get less than 25% right. That’s the highly sought after “negative knowledge,” something you might think impossible!

The second one (2009) was so bad that we covered it with a 211-page palimpsest, a document that looked exactly like the federal original in both design and content. Except that it contained all the missing science as well as correcting as many half-truths and incomplete statements as we could find. Like we said, that took 211 pages of beautiful typeset and illustrated prose.

The National Oceanic and Atmospheric Administration was instrumental in producing the third (2014) Assessment, and in their press release at its debut, gushed that “it is a key deliverable in President Obama’s Climate Action Plan.” That has been recently undelivered.

So what did we say in our review of the upcoming fourth one? Well, you’ll have to wait until tomorrow. 

Last night’s State of the Union address by President Trump was curiously light on the topic of trade policy despite the fact that it was continually brought up during his campaign and throughout 2017. In fact, there were a total of 6 sentences in the entire speech devoted to trade. The White House did, however, release a factsheet to fill the gaps. Below are excerpts from this factsheet, entitled “President Donald J. Trump Is Promoting Free, Fair, and Reciprocal Trade,” as well as links to commentary from my colleagues and me on the various issues listed. Though the address was a more reserved take on trade than the president’s past speeches, that doesn’t mean trade policy is now a safe space. Let’s keep a close eye on actions the administration might take in the future.

In outlining ways the administration intends to stand up for American interests, the factsheet begins with a focus on China:

  • In August 2017, the Administration initiated an investigation into Chinese practices related to forced technology transfer, unfair licensing, and intellectual property (IP) policies and practices.
    • These practices by the Chinese are estimated to cost the United States billions of dollars each year.
    • Conducted by the USTR, this is the first Section 301 probe since 1997, fulfilling the President’s campaign pledge to use all tools available under U.S. law to combat unfair trade.

As my colleague Scott Lincicome argues, any aggressive, broad-based unilateral tariffs on China through the use of Section 301 would likely be ineffective and harmful to both U.S. exporters and importers. Instead, he suggests the administration pursue concerns with Chinese IPR practices through a WTO dispute (joined by members with similar concerns) as well as a “targeted unilateral response” for those actions that fall outside the scope of the WTO Agreements.

Next, the document turns to address recent safeguard actions:

  • In January 2018, the President announced his decision to provide safeguard relief to U.S. manufacturers injured by surging imports of washing machines and solar products.
    • The President’s decision was based on a series of recommendations made by the independent and bipartisan International Trade Commission (ITC).
    • This is the first time Section 201 of the Trade Act has been used to impose tariffs in 16 years.
    • These actions respond to unfair trade practices by China and other countries, including attempts to avoid legally imposed antidumping and countervailing duties.>

These kinds of actions are part of the built-in system of protectionism that works on autopilot irrespective of which party is in power. In both the washers and solar products cases, the ITC made recommendations, and President Trump roughly followed these recommendations. Therefore, while the actions are likely to hurt U.S. consumers (LG just announced it would be raising prices of its washing machines), they are not out of the ordinary (though prior to these actions, a case hasn’t been initiated since 2001).

The factsheet continues by praising the increase in antidumping and countervailing duty investigations in 2017:

  • During 2017, the Trump Administration conducted 82 major antidumping and countervailing duty investigations, a 58 percent increase over 2016.
    • This includes the first self-initiation of an antidumping investigation in 25 years.
    • Many of these investigations resulted in import duties to address dumping and subsidies, including one in response to Canada’s unfair trade in softwood lumber.
    • USTR and Commerce are working together to defend the right of the United States to continue treating China as a non-market economy in antidumping investigations until it makes the reforms it agreed to when it joined the WTO.

A few things to note here: first, some trade remedy 101—the use of these trade remedies is not really new, and is something U.S. companies have long utilized to shield themselves from competition from foreign companies. Boeing’s latest trade remedy initiation is a great example of the abuse of this law, which ended last week with the U.S. ITC unanimously agreeing that Boeing was not in fact injured by airplanes made by its Canadian competitor Bombardier, and thus no tariffs could be imposed. It is worth emphasizing here that regardless of the amount of saber rattling by the administration on this issue, the process by which these investigations take place is independent. The problem is not really an uptick in protectionism, but rather, U.S. trade remedy laws that don’t serve U.S. interests.

My colleagues have also written extensively on the issue of China’s nonmarket economy status with regard to the application of U.S. AD/CVD laws and have argued that China should not be treated differently than other countries.

The factsheet was surprisingly positive about the WTO, noting the successful use of the institution’s dispute settlement mechanism:

  • The Trump Administration has successfully litigated numerous WTO disputes, helping force countries to abandon unfair practices and preserving the U.S. right to enact fair laws.
    • In November 2017, the United States won a dispute on Indonesia’s unfair import licensing regime that was blocking the export of U.S. agricultural goods.
    • In October 2017, the WTO determined that the U.S. tuna labeling rules were consistent with WTO standards, helping the United States to inform consumers about safe fishing practices.
    • In September 2017, the WTO rejected the EU’s allegations that Boeing was receiving prohibited subsidies.

This is good news considering how critical USTR Lighthizer has been of the WTO, and signals that perhaps the U.S. has not abandoned the institution, but instead is actively using it. Later in the factsheet, reform of the WTO is referenced as follows: “The United States is committed to reforming the WTO to ensure that countries are held accountable for breaking the rules and that U.S. sovereignty is respected.”

This is consistent with previous statements from the administration, but again sends the message of working to improve the WTO, not destroying it. As for “holding countries accountable” it is likely that the prime target here is China. China was the recent subject of criticism with regard to its WTO membership in a recent report on China’s WTO compliance, which stated that “the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market oriented trade regime.” While it may be hyperbolic to suggest this means the U.S. regrets China’s membership entirely, it does point to concerns over the “terms” on which China entered. As my colleague Simon Lester noted, China’s membership to the WTO has been good for the United States, not least because it has prompted significant episodes of liberalization in China, even though there still is much work to be done on that front. Though it is true that China has developed significantly since it joined the WTO in 2001, working within the WTO to address an expansion of China’s obligations may be the best route forward, as opposed to any unilateral actions, particularly over China’s IP and technology transfer policies.

In a section entitled “Putting the American Worker First,” the administration highlights its priorities for undertaking renegotiations of existing trade agreements and the launch of new ones. It states:

  • The Trump Administration is renegotiating and modernizing the North American Free Trade Agreement (NAFTA) to ensure that it does not harm American workers and companies. This is the first renegotiation of a major free trade agreement in U.S. history.
    • The Administration is working with Korea to ensure that trade under the U.S.-Korea Free Trade Agreement (KORUS) is more equitable and reciprocal.
    • President Trump withdrew the United States from the Trans-Pacific Partnership (TPP), because the deal negotiated by the past Administration did not sufficiently prioritize the needs of the American workforce.
    • The United States is seeking to enter into new trade agreements with countries that commit to fair and reciprocal trade.

The 6th round of NAFTA talks concluded this week, and negotiations do seem to be progressing, albeit at a slower pace than the administration might like. It is true that NAFTA would benefit from modernization, in part because it was negotiated at a time when the internet was just taking off, and also because over the course of 20 years, we have learned a lot about things that may not work or could be improved. For instance, eliminating investor-state dispute settlement (Chapter 11) and binational panels that review the administration of domestic AD/CVD laws (Chapter 19) would be a step in the right direction. Not only would this address the controversy surrounding ISDS (which essentially subsidizes foreign investments) but also end a possibly unconstitutional system of adjudication (Chapter 19) that is unnecessary given that foreign companies have access to domestic U.S. courts to address these concerns.

The administration has put forward some controversial “poison pills” in the NAFTA negotiations, such as more stringent rules of origin and government procurement provisions, as well as non-binding state-to-state dispute settlement and a 5 year sunset clause that would automatically terminate the deal unless all parties agree to continue it, but this is really not the type of reform that would be helpful. For instance, state-to-state dispute settlement should be strengthened, not weakened, as NAFTA Chapter 20 has barely functioned in its 20-plus year history. Also, the government procurement market should be open to foreign competition, and the administration should be wary of how it abuses the term “reciprocity” in calls for dollar-for-dollar procurement access. There is also much that can still be done to eliminate unnecessary regulatory obstacles to trade by including a chapter on regulatory cooperation in the new NAFTA.

Aside from renegotiating old deals, the administration has also promised to launch new ones. However, very little progress has been made on this front in 2017, and it is unclear what countries we would be sitting down at the table with.

The Trans Pacific Partnership, which the president withdrew from early last year, is moving along without the U.S. and is a major lost opportunity to expand access to Asian markets and to contribute to the new rules of modern trade agreements. (Even though Trump just raised the possibility of rejoining the TPP, this sudden change of heart should be approached with caution.)

Overall, while the tone of both the president’s address and the content of the factsheet on trade appear subdued, we should remain vigilant about possible trade actions and continue to make the case for more trade liberalization. Sometimes what is more important is not what is said, but rather what goes unsaid. President Trump’s state of the union was striking for one major omission–an acknowledgment of the benefits of free exchange and U.S. leadership in the international economy. This is particularly notable due to fact that increasing skepticism towards international trade is coming from the Republican Party, which used to stand more vociferously for freedom over protectionism. The history of U.S. trade policy reveals that protectionism has consistently failed to promote U.S. interests, and it would be unfortunate if past mistakes are repeated. Let’s hope that the president’s more cautious tone towards trade indicates a softening stance.

Writing in the pages of USA Today last week, Senator Elizabeth Warren (D-Massachusetts) criticized President Trump for taking insufficient action to arrest the flow of jobs from U.S. factories to foreign countries such as Mexico. Labeling Trump the “King of Offshoring,” Sen. Warren called for U.S. negotiators participating in the renegotiation of the North American Free Trade Agreement to take “bold actions that will stop the offshoring of American jobs.”

That would be a mistake. In fact, outsourcing helps to boost productivity—the art of doing more with less—which is the sine qua non of improvements in living standards.

Although it is perhaps understandable when casual observers are seduced by the notion that the outsourcing of jobs to overseas locales is a sign of weakness, more should be expected of a sitting United States senator. In fact, both theory and experience teach us that foreign outsourcing helps promote economic vitality in a variety of ways.

Cheaper goods: By shifting production overseas companies can reduce the cost of production, which—assuming a competitive marketplace—will translate into lower prices for consumers. This is a particular boon to the working families Sen. Warren repeatedly invokes in her op-ed, who tend to spend a greater percentage of their income on imported non-durable items such as clothing.

Improved competitiveness: Beyond benefits to consumers, cost reductions also help improve the competitive position of U.S. companies and ensure they will survive and thrive versus rival firms.

New jobs: While the jobs lost via outsourcing understandably receive considerable attention, an all too often unseen aspect of this process is that the money saved both by firms and consumers frees up resources to be either spent or invested, supporting yet other types of jobs.

Better jobs: By finding ways to lower costs and sell the goods they produce more cheaply, companies can boost sales and firm growth. This, along with money saved through outsourcing that is reinvested in the firm, leads to more jobs in areas such as design, research, marketing, finance, and management which typically feature better compensation than those found on the factory floor.

Increased exports: Overseas job creation helps provide much-needed growth in relatively poorer countries such as Mexico. This, in turn, leads to increased demand for higher-end goods produced in the United States which range from Hollywood movies to financial products to Boeing aircraft. In addition, supply chain linkages resulting from outsourcing help drive exports. The largest truck factory of U.S.-headquartered firm Navistar, for example, is in Mexico, but the engines—which by themselves can account for up to 45 percent of the truck’s cost—are made in Alabama. Wrangler jeans, meanwhile, has shifted its production away from the United States but over 70 percent of the material in its Mexico-made products comes from American companies.

Representing Massachusetts, Sen. Warren should be well-versed in the benefits of foreign outsourcing. The state, after all, is the former home of a vibrant textile industry which has long since decamped in search of cheaper labor and other costs, first to the American South and then later on to places such as Central America, China, and Southeast Asia. While this no doubt resulted in some painful adjustments, Massachusetts has long since adapted and today features a vibrant economy with an unemployment rate well under 4 percent and numerous companies in such sectors as technology, medical devices, and financial services. Indeed, some of the state’s former textile mills have been converted into high-end condominiums which house some of the workers now employed in these industries. 

It should also be noted, however, that while public policy should not seek to halt outsourcing, neither should it be actively encouraged through unreasonable taxation or regulations which unnecessarily drive away companies from U.S. shores. Indeed, to the extent outsourcing requires a legislative solution it is through the adoption of market-friendly policies which both encourage investment in the United States and ensure a dynamic job market so that the losers from outsourcing can more easily find new sources of employment.

Even the most ideal policy environment, however, will not prevent all jobs from being outsourced. Nor should we want them to. Instead of swimming against this tide Sen. Warren and her fellow legislators should focus their energies on creating a policy environment in which commerce can thrive and create the jobs of tomorrow instead of a misguided effort to preserve those of yesterday.

In his State of the Union speech, President Trump failed to mention one important phenomenon that occurred under his watch last year. Except for one other year, 2017 saw the fewest illegal border crossings since World War II. While he has often bragged about this in other settings, it is possible that his advisors left it out of his speech because it clearly downplays any urgency to build a massive wall or send in reinforcements for Border Patrol. 

In any case, he was right not to brag about it: 98.8 percent of the decline in illegal entries from 1986 to 2017 occurred entirely before Trump’s inauguration. While his year in office has continued a preexisting downward trend, his campaign rhetoric appears to have caused a pre-inauguration surge in arrivals. His overall effect is essentially zero.

Illegal crossings are naturally difficult to count, but researchers use Border Patrol apprehensions as an indirect measure of the number of attempts to cross. All else equal, more crossers results in more apprehensions. While apprehensions could also rise due to increased agents rather than increased crossers, researchers control for this effect by looking at the number of apprehensions per agent.

Figure 1 shows the number of apprehension per Border Patrol agent from the 1920s through the end of Fiscal Year 2017 (September 2017). As it shows, illegal entries were a significant issue in the early 1950s and again from 1970 to 2000, but since 2001, and particularly since 2009, illegal immigration has slowed to trickle. In 1986, each Border Patrol agent apprehended nearly 530 people—44 people per month. By the end of 2017, that number had dropped to just 16, barely more than one arrest for each per month.

Figure 1: Annual Apprehensions Per Border Patrol Agent, FY 1925 to 2017

Sources: Agents: INS; TRAC; CBP; Apprehensions: CBP

Zooming in on just the last 17 years of monthly apprehension data shows that illegal immigration is currently slightly above the downward exponential trend line (the trend is the dotted red line in Figure 2). President Trump can only claim at most the trend continued during his time in office.

Figure 2: Monthly Southwest Apprehensions Per Border Patrol Agent From October 1999 to December 2017

Sources: Apprehensions FY 2000-16: Border Patrol; Apprehensions FY 2017-18: Border Patrol; Border Patrol Staffing: Border Patrol

Focusing on only the Obama and Trump months in office does reveal some interesting anomalies (Figure 3). Every year prior to FY 2016 going back to at least 2000, flows peaked in the spring and fell through the fall and winter. In the fall of 2015, however, as Trump rose to the top spot among Republican presidential contenders, the flow continued and peaked in December. In 2016, the flow had its usual spring surge, but then after the GOP officially nominated him, border crossers responded with an uncharacteristic winter rush.

Figure 3: Monthly Southwest Apprehensions Per Border Patrol Agent From January 2009 to December 2017

Sources: Apprehensions FY 2000-16: Border Patrol; Apprehensions FY 2017-18: Border Patrol; Border Patrol Staffing: Border Patrol

Clearly, the fear that the Trump administration would make changes incentivized a pre-inauguration increase in illegal immigration. Immigrants moved up their travel plans and left before he assumed office. This resulted in a post-inauguration decrease in illegal immigration. Back in August when I first proposed this theory with data only through June 2017, I hypothesized that if it were true, the apprehensions would return to trend by the end of the year. As Figure 3 shows, they have.

In other words, President Trump has had zero effect on net illegal immigration. His campaign rhetoric caused a pre-inauguration boom and post-inauguration bust, but his overall impact has not affected the trend at all. The decades-long downward movement in apprehensions has continued, but President Trump’s policies have had nothing to do with it.

Even if his current policies did matter, however, it would demonstrate that Border Patrol can effectively manage illegal immigration without an unnecessary, wasteful monstrosity spanning 2,000 miles of the U.S.-Mexico border. 

The en banc D.C. Circuit ruling was disappointing but not unexpected given the government-sympathetic lean of the court. The director of the CFPB reports to no one but himself, and, under the terms of Dodd-Frank, can be removed by the president only for cause. (Judge Griffith in concurrence understands that provision to include firing based on policy disagreement, but there’s no way that this view could command a majority of the court if that eventuality ever happened.) 

As Cato argued in our brief, this structure violates core principles of separation of powers and allows the agency to exist unfettered by any accountability to the people. These constitutional problems would be reason enough to fear the CFPB, but they’re not merely academic. The way Director Richard Cordray wielded his considerable authority demonstrates just how important these checks are, but the fact that he’s been by replaced Mick Mulvaney—whose actions thus far are more to my policy liking—doesn’t change the constitutional calculus. 

The Supreme Court should now take up PHH v. CFPB, as it has the structural challenge to the SEC’s administrative law judges in the Lucia case, and find that the Constitution cannot countenance this fifth branch of government (or is it sixth or seventh? I’ve lost count).

Remember America’s crumbling infrastructure that supposedly needs trillions of dollars for maintenance and rehabilitation? President Trump doesn’t. Instead, the seven sentences in his State of the Union speech that focused on infrastructure talked about building “gleaming new” projects rather than fixing existing systems. 

The only news is that he is upping the ante from $1.0 trillion to “at least $1.5 trillion.” More disturbingly, other than mentioning an “infrastructure deficit” – which could just as easily be interpreted to mean a shortage of new infrastructure as a deficit in maintenance – Trump said nothing about fixing existing infrastructure. Instead, he wants to “build gleaming new roads, bridges, highways, railways, and waterways.”

Why? We have plenty of railways. Though the railroads have trimmed the nation’s rail mileage by 45 percent since 1916, they move more freight than ever and seem to be quite capable of adding capacity where they need it without government help. High-speed trains, meanwhile, are pointless when we have planes that can go twice as fast and don’t require hundreds of billions of dollars of supporting infrastructure.

Nor do we need more interior waterways. The ones we have are government subsidized and paralleled by railroads that could easily replace them if subsidies ended tomorrow (as they should). Fixing the Jones Act to allow low-cost shipping to Alaska, Hawaii, and Puerto Rico is more important than adding new waterways in the contiguous 48 states.

Our state and interstate highways and bridges are actually in better shape than ever. City and county roads aren’t doing as well and many urban roads are heavily congested, but these are local problems, not federal ones. They are best handled by fixing the system of user fees that should pay for them, such as by Oregon’s experiment with mileage-based user fees (in which I am a participant). More federal funding would only allow the states to delay making those changes.

Finally, our transit systems – especially the most important ones in New York, Chicago, Washington, Boston, and the San Francisco Bay Area – are suffering from overspending on gleaming new transit lines and neglect of the existing ones. More new lines will only make that problem worse.

In short, President Trump has fallen for the politician’s fallacy of preferring ribbons over brooms – that is, building new infrastructure rather than maintaining the old. This is underscored by a leaked infrastructure plan that outlines seven different initiatives and programs, none of which is focused on repairing or rehabilitating America’s existing infrastructure.

This country may need some new infrastructure, but mainly it needs to better utilize and take care of the infrastructure it already has. Since politicians seem to be incapable of doing that, and since user-fee-funded infrastructure tends to be far better managed and maintained than politically funded infrastructure, Congress should focus on returning as much infrastructure as possible to funding systems that rely on user fees, not taxes.

Zoning regulations and occupational licensing aren’t the only regulations with regressive impacts. A new study circulated by National Bureau of Economic Research (NBER) suggests building energy codes hurt the poor, too. The NBER report focuses on California, but most states adopted statewide building energy codes decades ago. As a result, regressive impacts may be widespread.

Building energy codes regulate a home’s energy footprint, and they are often justified by concerns about energy-related environmental externalities. But well-intentioned objectives don’t insulate the public from trade-offs.

The NBER study looks at impacts on home characteristics, energy use, and housing prices. In all three categories, the impact of residential energy codes is negative for those in the lowest income quintiles.

For example, stricter energy codes were associated with a decline in home values for low-income households of 8-12 percent. Stricter codes reduced the number of bedrooms and square footage of homes in the lowest income households by 4-6 percent. On the other hand, home values increased and changes to square footage and number of bedrooms were minimal for wealthier households.

For some environmental advocates, the distributional consequences may still be justified if energy codes reduced energy use. But the authors state there is “debate about the extent to which building energy codes reduce energy use at all.” The study finds no signficiant reduction in energy use per square foot, although it does find energy reduction on a per-dwelling basis but only in the second lowest-income quintile. 

This suggests energy codes do not meet even their own stated objectives. Energy codes provide another example of how various political objectives – including protecting the environment – unavoidably require trade-offs. Often the costs of regulation are borne by the poor.    

In his State of the Union address last night, President Trump said that one of his “greatest priorities” is to reduce the price of prescription drugs. “In many other countries,” he said, “these drugs cost far less than what we pay in the United States.” Alluding thus to the “drug reimportation” issue, he added that he had directed his administration “to make fixing the injustice of high drug prices one of our top priorities. Prices will come down.” That won’t be easy.

Back in 2004, when Congress took up the idea of lifting the ban in place on importing lower-priced drugs from abroad, I wrote a long, complex Cato Policy Analysis on the issues at stake, urging, as the subtitle said, “The Free Market Solution.” Unfortunately, three years later, when the Senate finally acted, the bill was anything but a free market solution. In fact, it amounted to importing foreign price controls, as I explained in a piece in the Wall Street Journal. Fortunately, the bill died, but in the face of state efforts along the same lines in 2013, I wrote this time at Cato@Liberty, explaining why the “simple” solution of lifting the ban would not work. Drawing from that post, here’s why, in a nutshell. (See the Policy Analysis for the complex details.)

Given the Food and Drug Administration’s safety and efficacy standards, it takes 12 to 15 years and upwards of a billion dollars to bring a new drug to market, but only pennies a pill to manufacture it thereafter. Obviously, drug companies need strong patent protection or they’d never undertake that research and development.

But when they go to market a new drug, they find a relatively free market only in America. Everywhere else they face socialized medical systems and strict price controls, so they segment markets and price their drugs differentially, garnering such profits as they can from each market. Naturally, therefore, they have to guard against “parallel markets”—vendors in low-price markets reselling the drugs (at a profit) in high-price markets, especially when supply limitations and no-resale contracts are legally suspect. That’s where the reimportation ban comes in. If low-price drugs sold abroad flood the American market, displacing higher-priced domestic drugs, there go the profits—and there goes the R&D needed to discover new drugs.

Naturally, Americans resent having to subsidize the rest of the world, in effect, which is why letting them import cheap drugs from abroad plays so well politically. But we’re faced here with a Hobson’s Choice—which I’ve only sketched in this post. As I said, it’s a complex issue, involving treaty arrangements, patent law, and much more, rooted ultimately in the socialized medical systems we find abroad, toward which, alas, we ourselves are moving. In fact, the ultimate aim of many of the reimportation proponents is to have the federal government subsidize, if not do, the R&D needed to bring new drugs on line. Talk about bad medicine.

The market approach to this problem that I originally proposed would have to allow drug companies to protect themselves through contractual arrangements that limited supplies and policed parallel markets. That may not be the only solution to this problem, however. In fact, Cato adjunct scholar Dr. David Hyman and attorney Charles Silver have a book coming this spring from Cato entitled Overcharged: Why Americans Pay Too Much for Health Care in which they propose, if anything, an even more complex “prize regime” to reduce drug costs. It’s a clever proposal that addresses even the orphan drug problem, but because it would involve both changes to our patent system and a measure of public funding, the authors grant that it faces a steep uphill battle.

As a political matter, therefore, the more likely approach will be the one we’ve seen from time to time that simply lifts the ban and includes a few other touches. If so, members will need to think it through carefully. The current arrangements did not come about by accident. But it’s hardly a stretch to say that the administration and Congress could make things worse.

 

Residents of Berkeley, California are a little bit scared about potential radio-frequency exposure from cellphones. Despite the FCC’s conclusion that there’s “no scientific evidence” linking “wireless device use and cancer or other illnesses,” the city mandated that any party buying or leasing cellphones communicate a specific message to every customer about radio-frequency exposure. Getting bad vibes from that requirement, CTIA (the wireless industry’s trade group) sued Berkeley for violating the First Amendment by compelling that speech.

It’s a cornerstone of First Amendment law that the right to speak necessarily entails the right to remain silent. This principle ensures the freedom of conscience and prevents citizens from being conscripted to serve as unwilling bullhorns for government communications. Likewise, it is a bedrock principle of First Amendment law—recently affirmed by the Supreme Court—that content-based restrictions of speech must survive the strictest scrutiny to pass constitutional muster.

Unfortunately, these rules don’t apply with the same force to regulations of “commercial speech,” which the Supreme Court has ruled need not meet the same rigorous standards of review as other types of speech. In a 1985 case called Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, the Court went further and created an additional narrow exception. Zauderer allowed courts to apply less rigorous scrutiny when analyzing the constitutionality of disclosures of “purely factual and uncontroversial information” when mandated in an effort to combat misleading commercial speech. The Zauderer standard also requires that any disclosures not be “unduly burdensome” and be “reasonably related to the State’s interest in preventing deception of consumers.”  

In ruling against CTIA, the U.S. Court of Appeals for the Ninth Circuit further eroded that already lax standard of judicial review. Instead of requiring Berkeley to show a need to combat consumer deception – and how the mandated disclosure provision alleviates that need – the Ninth Circuit skipped right over Zauderer to find that compelling speech content posed no constitutional issues because mandated disclosures need only be reasonably related to “non-trivial” government purposes. This dangerous dilution would allow government entities to compel a nearly unending amount of speech on any number of controversial topics, even if the compelled script was itself misleading.  

CTIA is now petitioning the Supreme Court to review that flawed decision. The Cato Institute, joined by the Competitive Enterprise Institute and Cause of Action Institute, has filed an amicus brief supporting that petition.

This important area of law desperately needs clarification, particularly at a time when compelled-disclosure regimes have proliferated and some courts have distorted the already insufficient Zauderer standard beyond recognition. To remain faithful to the First Amendment and the Court’s jurisprudence on compelled speech and content-based speech regulations, courts should apply strict scrutiny – meaning the government needs a really good reason and can’t achieve its goal any other way – to review laws that force market participants to disparage their own products and participate in policy debates they wish to avoid.

The Supreme Court will decide whether to take up CTIA v. City of Berkeley later this winter or spring.

A new study by Canadian scholars says that the users of infrastructure should pay for it generally, not taxpayers. Cato’s Peter Van Doren lauded the study by distinguished fiscal experts Richard Bird and Enid Slack, and dropped it on my chair.

Here are some highlights:

As Adam Smith (1776) said long ago, local public works such as roads and bridges should be financed and managed by the appropriate local government and paid for by those who use them. … [A]lthough there are some reasons for higher level governments to provide some local infrastructure projects, Smith was broadly right. No matter how infrastructure is financed, there is no free lunch. In the end, the bill must be paid either by user charges or by taxing someone and, whenever feasible, user charges are better.

… People should pay directly for many services provided by the public sector, particularly such congestible services as roads or water and sewerage provided to easily identifiable users.

One reason is simply because services that users pay for do not need to be paid from distorting taxes that reduce economic welfare.

Another reason is because when user charges for services fully cover the marginal social cost of providing them people buy such services only up to the point at which the value they receive from the last unit they consume is just equal to the price they pay, so that resources are more efficiently allocated.

Moreover, providers who are financed by full cost pricing have incentives to adopt the most efficient and effective ways of providing the service and to supply it only up to the level and quality that people are willing to pay for.

In addition, when services are financed fully by user charges, political decision makers can more readily assess the performance of service managers – and citizens can do the same with respect to the performance of politicians.

While user pays should be the general approach, the scholars go on to discuss some of the practical and political hurdles.

All in all, the paper is a nice introduction to the economics of public infrastructure, and is directly applicable to the current infrastructure debate in the United States.

For more on infrastructure, see www.downsizinggovernment.org/infrastructure-investment.

  

During his State of the Union speech, President Trump will tout his plan for draconian restrictions on legal immigrants. Supporters, like House Judiciary Committee Chairman Bob Goodlatte (R-VA), justify the plan by claiming that America is “by far the most generous nation in the world for legal immigration.” Not only is “by far” clearly false, but when you consider its wealth, America is already among the least generous to immigrants around the world.

The United States ranks in the bottom third of wealthy countries in terms of net new immigration as a share of total population from 2015 to 2017 as well as total foreign-born residents as a share of total population, according to figures  from the United Nations. Trump’s plan would make America even more closed than it already is.

The United Nations data contains information on the foreign-born populations in all countries (or semi-independent provinces) around the world.* U.S. immigration is decidedly unimpressive compared to all countries. Although America does have the highest total number of foreign-born residents in the world, a fair comparison requires controlling for the size of its current population. After all, a million new people entering India with a population of 1.3 billion would have very different effects than a million new people entering Estonia with a population of 1.3 million.

With this in mind, it is clear that America is nowhere near “the most generous country in the world” on immigration. Of the 232 jurisdictions that the UN includes, America ranks just 64th overall. Focusing on the rate of new immigrants as a share of total population, the United States had only the 49th highest net immigration rate from 2015 to 2017 (inflows minus outflows of foreign residents divided by total population). This places the United States rank in the 72nd and 79th percentiles in the world, respectively.

This assessment is still misleading, however, because it compares the United States to countries that very few immigrants would want to immigrate to. The United States’ ranking among more prosperous countries is even less inspiring. Of the 50 countries or provinces which had, according to the United Nations, a gross domestic product (GDP) of at least $20,000 per capita in 2015, the United States has the 34th highest share of foreign-born residents as well as the 34th highest net immigration rate (Table 1). This places the United States rank in the 32nd percentile on both measures.

The 50 most prosperous countries have double both the average foreign-born share and average immigration rate of the United States. Those countries at or above the 50th percentile have an average foreign-born share three times the U.S. share and an immigration rate four times as high as the U.S. rate. The United States is far from generous: it is downright stingy to immigrants. Figure 1 provides the net immigration rate from 2015 to 2017 for the United States and the 33 countries that rank higher than it. 

Figure 1: Countries With Highest Net Per Capita Immigration From 2015 to 2017 and a Per Capita GDP Above $20,000 in 2015

 

Sources: United Nations (Foreign Populations); United Nations (Total Populations); United Nations (GDP Per Capita) 

This still considerably overstates America’s generosity because such a large share of America’s foreign-born population is here illegally: almost a quarter. This appears to be one of the highest shares in the world. Many of America’s immigrants are already defying America’s attitude toward them. In other words, U.S. law is not only hostile toward new immigrants. It is hostile toward its existing foreign-born residents.

By almost any reasonable standard, America is already one of the least generous countries in the world toward legal immigrants. If the United States does implement the White House’s immigration framework, it would be moving its nation’s immigration system in the opposite direction of the rest of the world. Other developed economies are opening their borders to more immigrants than ever, while the United States would have sent its immigration rate back to its lowest level since World War II.

America, however, doesn’t need to be “generous” toward immigrants at all. It is in the country’s self-interest not to prohibit foreigners from living and working in America. Allowing people to freely move and work where they want is not charity. It is an expansion of the free market and allows people to contribute to the economic prosperity of the country and expand the pie for everyone. The president’s plan would make America both less generous and less prosperous.

 

Table 1: Immigration and Immigrant Population Ranking for Countries with Greater Than $20,000 Per Capita Gross Domestic Product

  Increase in Foreign-Born* From 2015-17 As a Share of Total Population Total Foreign-Born* Residents as a Share of Total Population   Country Rate Country Share

1

Kuwait

6.5%

United Arab Emirates

90.8%

2

Turks and Caicos

5.3%

Kuwait

79.4%

3

Saudi Arabia

4.5%

Sint Maarten

72.9%

4

United Arab Emirates

3.5%

Turks and Caicos

71.4%

5

British Virgin Islands

2.7%

Qatar

69.4%

6

Sint Maarten

2.5%

British Virgin Islands

66.3%

7

Germany

2.4%

Liechtenstein

66.0%

8

Liechtenstein

2.4%

China, Macao SAR

58.8%

9

Austria

1.9%

Monaco

55.5%

10

Macao SAR

1.8%

Bahrain

52.7%

11

Sweden

1.5%

Andorra

52.6%

12

Singapore

1.4%

Singapore

47.4%

13

Brunei Darussalam

1.4%

Luxembourg

46.6%

14

Australia

1.4%

Cayman Islands

40.6%

15

Qatar

1.4%

Hong Kong SAR

39.8%

16

Bahrain

1.3%

Saudi Arabia

38.6%

17

Ireland

1.2%

Anguilla

38.2%

18

Switzerland

1.1%

Aruba

34.8%

 

Average

1.1%

Average

30.9%

19

Denmark

1.1%

Bermuda

30.6%

20

Cayman Islands

1.0%

Switzerland

30.1%

21

Norway

1.0%

Australia

29.6%

22

Iceland

0.8%

Brunei Darussalam

26.0%

23

Canada

0.8%

New Caledonia

24.5%

24

Anguilla

0.7%

Israel

24.3%

25

Malta

0.7%

Curaçao

24.3%

26

United Kingdom

0.7%

New Zealand

23.1%

27

Bahamas

0.6%

Canada

21.9%

28

New Caledonia

0.6%

Austria

19.1%

29

Luxembourg

0.6%

Sweden

17.9%

30

Hong Kong SAR

0.6%

Ireland

17.2%

31

New Zealand

0.6%

Cyprus

16.3%

32

Monaco

0.6%

Bahamas

16.0%

33

Finland

0.5%

San Marino

15.9%

34

United States

0.5%

United States

15.6%

35

Curaçao

0.5%

Norway

15.4%

36

Netherlands

0.4%

Germany

14.9%

37

Slovenia

0.3%

United Kingdom

13.5%

38

Aruba

0.2%

Spain

12.8%

39

San Marino

0.2%

Iceland

12.7%

40

Italy

0.2%

France

12.3%

41

Belgium

0.1%

Netherlands

12.1%

42

Spain

0.1%

Slovenia

11.8%

43

Japan

0.1%

Denmark

11.5%

44

Republic of Korea

0.0%

Belgium

11.2%

45

Greenland

0.0%

Greenland

10.7%

46

France

0.0%

Malta

10.6%

47

Cyprus

-0.3%

Italy

9.9%

48

Bermuda

-0.3%

Finland

6.3%

49

Israel

-0.6%

Republic of Korea

2.3%

50

Andorra

-1.3%

Japan

1.8%

Sources: United Nations (Foreign Populations); United Nations (Total Populations); United Nations (GDP Per Capita)

*Note: The UN defines “foreign-born” to include people who receive citizenship through their parents despite being born overseas. Typically, the United States does not consider such people “immigrants” as they are citizens at birth. This results in a higher share of foreign-born for the United States than other estimates.

The federal government imposes a mandate to blend corn ethanol and other biofuels into the nation’s gasoline. This “renewable fuel standard” or RFS raises prices at the gas pump. The “10% Ethanol” sticker you see when filling your tank signals that you are being economically exploited by the government in cahoots with corn farmers.

At Downsizing Government, Nicolas Loris discusses how the RFS raises fuel and food prices. The mandate also damages some energy businesses, as the Wall Street Journal is reporting:

Philadelphia Energy Solutions LLC affiliates accounting for more than one-quarter of the fuel-refining capacity on the East Coast filed for bankruptcy protection, blaming the steep cost of complying with a federal environmental regulation.

… The company cited the Clean Air Act’s renewable-fuel-standard program as the primary reason for its financial distress, saying it is a victim of “regulatory compliance costs that specifically penalize independent merchant refiners.” It also blamed adverse economics in the energy sector.

Independent refiners have long complained about the program, which was introduced during President George W. Bush’s administration to boost the amount of ethanol in the country’s gasoline supply. The Renewable Fuel Standard requires companies to either blend ethanol with the gasoline they produce or buy credits. Refiners that don’t purchase the credits have to pay penalties to the government.

The credits are awarded where ethanol and gasoline are blended, which for the most part means facilities owned by integrated oil companies like Chevron Corp. CVX -2.07% and Exxon Mobil Corp. XOM -1.11% and by large retail gas-station chains. The system disadvantages smaller refiners like Philadelphia Energy with few blending facilities.

If it wants to avoid fines, Philadelphia Energy has to purchase blending credits, exposing the company to an “unpredictable, escalating, and unintended compliance burden” that has cost it $832 million since operations began in September 2012, the company said in court papers. Philadelphia Energy said it paid $13 million to comply in 2012, with the figure rising to $231 million by 2016.

The first sentence says a “federal environmental regulation” is to blame. That is ironic because the ethanol mandate, the RFS, is anti-environmental in numerous ways.

Loris concludes that the RFS creates no net green benefit, imposes costs on motorists, harms businesses, and is a “bureaucratic nightmare.” In his State of the Union message tonight, President Trump will discuss his deregulatory successes. He should put RFS repeal on his agenda for 2018.

Bloomberg has a good piece on the US economy under President Trump. Headline takeaway: on almost all metrics, the economy has improved or remained largely unchanged since he took office.

From Q4 2016 to Q4 2017:

-       GDP grew by 2.5 percent, the fastest annual increase since Q4 2015, and higher than the post-recession average of 2.2 percent.

-       Real nonresidential investment increased by 6.3 percent, higher than the post-recession average of 4.8 percent and after falling in three of four quarters in 2016.

-       The unemployment rate fell from 4.7 to 4.1 percent, and is now its lowest since 2000.

-       The unemployment rate for black and African-American workers fell to 6.8 percent, the lowest rate in the 45 years of recorded statistics.

-       The 25-54 civilian labor force participation rate crept up from 81.4 percent to 81.9 percent.

-       Labor productivity grew by 1.5 percent, historically below the 2.1 percent post-war annual average, but above the post-crisis 1 percent average.

The only really disappointing indicators for the President have been:

-       A fall in real median weekly earnings (official statistics show a 1.1 percent increase to Q3 2017 but a large fall in Q4, such that there has now been a 1.1 percent decline overall)

-       A widening budget deficit to 3.4 percent of GDP.

(Note: Bloomberg also chalks up an increase in manufacturing jobs as a “win”, but which sectors jobs come in should not concern us in a free economy. Nor should the trade deficit, the outlook for which it reports is moving in the “wrong direction.”)

Expect the President to herald the economic performance in his State of the Union speech tonight then. And with good reason – there’s lots of positive economic news.

Critics will claim most of the above represent cyclical improvements unrelated to policy. But we know from history bad policy can seriously derail growth prospects (especially temporarily). Why else would so many economists have warned of the consequences of a Trump victory?

The Trump administration have avoided major mistakes. There’s good reason to think the President’s direct deregulatory efforts coupled with slowing new regulations to a halt has enhanced business certainty and the productive capacity of the economy. Fears of severe trade shocks have not (yet) materialized. And perhaps most importantly, the administration has recognized the key challenge moving forward: with the labor market nearing full employment, robust growth and higher wages will only come primarily from an enhanced sustainable growth rate driven by productivity improvements.

The tax reform package’s central features - the cut in the corporate tax rate to 21 percent and immediate expensing on equipment - were designed explicitly to enhance investment to achieve this. The cutting of marginal income tax rates for most should likewise both enhance labor supply while also encouraging human capital accumulation at the margin. While I have concerns about other elements of the package, infrastructure reform which speeds up or lower the cost of economic projects could have beneficial supply-side consequences too.

Sure, there are always economic and policy risks and long-term challenges, some of which are more serious than others. A NAFTA unwinding in 2018 could cause a negative supply-side shock. An immigration package which slashes legal migrant numbers could reduce GDP and blow a hole in the public finances. In the longer-term, it would probably reduce GDP per capita too, through dampening specialization and job matching. Faulty expectations about long-term growth and wealth effects from high net worth could lead to a negative adjustment if there are downward asset price movements. And the US’s public finances are still on an unsustainable path.

But all in all the President’s first year has a positive economic story. And whether you agree with their exact prescriptions, the administration’s focus on raising productivity is the right one.

This year’s Federal Open Market Committee (FOMC), which meets for the first time this week, faces many unknowns, including new faces at the Fed. In fact, by year’s end, the Fed’s rate-setting body will have, at most, only two continuity voters — that is, members who voted during all of 2017 and will vote throughout 2018.

Only twice before in its history has the FOMC had so few continuity voters across two consecutive years: in 1987 and in 2007. On the first occasion, the Fed had to deal with a major stock market crash, while on the second it was confronted by the decline in the subprime market that heralded the 2008 Financial Crisis. These are only two data points to be sure, but the point is that a relatively inexperienced FOMC may find itself having to cope with situations that would pose a challenge even to the Fed’s most seasoned veterans.

Continuity FOMC Voters

This week’s FOMC meeting will be Janet Yellen’s last vote. Yellen will step down from the Federal Reserve Board on February 3, when her term as Chair expires, though she could have remained a Governor until 2024. Jerome “Jay” Powell, Yellen’s colleague on the Board, will succeed her, having been confirmed by the full Senate last Tuesday.

Powell is one of those two continuity votes on the FOMC this year, having voted at all of last year’s FOMC meetings. He’s expected to lead the Fed by hewing closely to Yellen’s example. As I previously noted, he will likely continue the normalization plan developed under Yellen — with its gradual path for rates increases and monthly reductions of the balance sheet. However, should deviations from the plan become necessary, Powell’s limited background in monetary economics and track record for relying on his staff and his FOMC colleagues suggest that he would work to maintain policy consensus.

Governor Lael Brainard, who has served on the Board since 2014, will join Powell as the only other continuity voter. She has previously been skeptical of removing monetary accommodation and raising interest rates, yet has never dissented in an FOMC vote. Despite her dovish reputation, she is very likely to support Powell’s leadership and policy decisions. Fed Governors have supported the Chair on FOMC decisions without exception for more than a decade. The last Governor’s dissent — when Mark W. Olson wanted an easier policy — was in 2005. Conversely, regional bank presidents have dissented 70 times since then.

New Faces at the Board of Governors

The most recently appointed Governor, Randal Quarles, voted only twice last year. Quarles came to the Fed with a background in private equity (he and Powell were both partners at the same private equity firm, The Carlyle Group). As Vice Chair of Supervision, it is widely believed that Quarles will focus more on his regulatory portfolio than staking out new ground in monetary policy. Recent comments indicate he’ll be determining how much of a burden current regulations impose, using a cost-benefit approach that Powell supports. But he has gone further than Powell in proposing regulatory relief for any large financial institution that does not impose systemic risk.

The Board of Governors is a 7-member body. So, with Yellen stepping down and Stanley Fischer having left the post of Vice Chair in October, four vacancies have yet to be filled. Yet so far the president has put forward but one nominee: Marvin Goodfriend.

Though he didn’t escape criticism at last week’s Senate Banking confirmation hearing, Goodfriend’s longstanding academic record of thinking about experimental monetary policy, as well has his considerable experience as a policy advisor at the Richmond Fed, would make him a valuable asset to the Board, and to the FOMC.

For example, Goodfriend was writing about how to overcome the zero lower bound in 2000, when the federal funds rate was 6.5%. And more than a decade ago he was writing on the utility of using interest on reserves as a tool for implementing monetary policy. My colleague George Selgin has questioned the Fed’s IOER-based “floor” system, suggesting that it harbors an inherent deflationary bias, among other shortcomings. Yet, it is desirable to have a permanent FOMC voter who has spent more than a decade thinking about the unconventional operating framework that the Fed is currently using.

And the other vacancies? While no names have circulated as potential Governors, several potential Vice Chair nominees have been mentioned. Those include Mohamed El-Erian, former CEO at PIMCO and economist at the IMF who currently serves at the chief economic adviser at Allianz; Larry Lindsey, a former Fed Governor and current CEO of the Lindsey Group, an economic consultancy; and Richard Clarida, the Global Strategic Advisor and a Managing Director at PIMCO and the C. Lowell Harriss Professor of Economics at Columbia University.

The most recent name reported is John Williams, President of the San Francisco Fed; incidentally, the same position Janet Yellen held before she moved to Washington to be Vice Chair under Ben Bernanke.

While Williams is eminently qualified for the role, his selection would be a curious one for the administration, if they intend to shake up the Fed, as it would dampen their overall impact on staffing officials in the Federal Reserve System. Williams is a 2018 FOMC voter. He is eligible to serve as SF Fed President through June 2027 — giving him a vote on the FOMC four years out of the next ten, since the SF Fed President sits on the FOMC every third year. Promoting him to Vice Chair would turn him into an annual FOMC voter (in addition to elevating him to the Board, of course), but the administration would have no direct say in who replaces him at the San Francisco Fed. Regional bank presidents are selected by that regional bank’s Class B and Class C Directors, not by executive nomination and are not subject to Senate confirmation.

Rotating Regional FOMC Voters

Each year, five Federal Reserve regional bank presidents vote on the FOMC: four rotate annually while the President of the New York Fed is a permanent voter. San Francisco has a seat on the FOMC in 2018, so Williams votes this year — with or without the Vice Chair promotion.

Unlike some of the regional bank presidents rolling off the FOMC, Williams is open to accelerating the path of rates hikes. He will be joined by Loretta Mester — who, as the President of the Federal Reserve Bank of Cleveland, votes every other year, rather than every third. Mester has been one of the most aggressive voices for a steeper path of rates hikes, having dissented twice in 2016, when she felt the Fed ought to be raising rates faster.

Mester and Williams are stark contrasts to two of last year’s voters. Recall that in December, Charles Evans, President of the Chicago Fed, joined Neel Kashkari in dissent, preferring to hold rates steady. Kashkari, President of the Minneapolis Fed, had already dissented during the other two rates hikes of 2017, preferring to maintain monetary accommodation in light of low inflation numbers.

But the major question marks are with the two most recently appointed regional bank presidents. They are both FOMC voters this year and between them there have been only five speeches.

Rafael Bostic took over leadership at the Atlanta Fed in June of last year. He’s been a public policy professor at the University of Southern California, an Assistant Secretary at the Department of Housing and Urban Affairs, and an economist at the Federal Reserve Board. In his only speech of the year thus far, he broadly underscored the normalization framework in place, though he sees different risks to the economy than his colleagues Williams and Mester. Where they see potential upside risk that may hasten rates hikes, Bostic believes that monetary policy is already “approaching a more neutral stance” and he is open to fewer than three hikes, as he believes the Fed will achieve its 2% inflation target by year’s end.

Thomas Barkin, starting just this month as President of the Richmond Fed, is even more of an unknown quantity. He is not totally new to the Federal Reserve System, having sat on the Atlanta Fed’s Board of Directors for six years, serving as Chairman for two. He was a senior partner and the chief risk officer at the consulting firm McKinsey & Company, which makes him a sensible choice for running the Richmond Fed as CEO. But these experiences shed no light on his views on monetary policy. His first speech will be read with great interest.

Vice Chair of the FOMC

A final source of FOMC uncertainty is the anticipated change in the leadership of the New York Fed. President William Dudley announced he will be stepping down this summer, rather than next January when his term ends. Dudley, who as NY Fed President is the Vice Chair of the FOMC, is currently the longest tenured FOMC voter. The search for Dudley’s replacement is already underway in earnest, and will be selected without direct input from the administration. But, whoever takes over for Dudley this summer will immediately and permanently vote on the FOMC throughout his or her tenure as NY Fed President.

Changes have already happened and more are coming to the Fed in 2018. As Powell takes the helm and Yellen’s normalization plan continues, uncertainties remain. With much still unknown about the 2018 Federal Open Market Committee, let us hope we learn more about the voters’ views long before we learn about how they respond to a crisis.

[Cross-posted from Alt-M.org]

Immigration and Customs Enforcement (ICE) has access to billions of license plate images that allow for the agency to engage in near real-time tracking of its targets. This surveillance capability should instill a sense of unease in us all, even if we aren’t in ICE’s crosshairs. 

Vigilant Solutions, the private company that reportedly collects the data ICE will query, owns a database with more than 2 billion license plate photos that produces 100 million hits a month. These photos come from toll roads, parking lots, vehicle possession agencies, as well as local law enforcement. According to ICE’s privacy impact assessment for the license plate tracking program, Vigilant Solutions’ data includes images from 24 of the US’ top 30 most populous metropolitan areas. ICE does not contribute license plate images to the database.

ICE policy does provide some privacy protections, but they fall far short of what the agency should impose on itself. ICE may only query the database for license plate numbers in order to find information about vehicles that are part of “investigatory or enforcement activities.” Given that ICE has been increasing the number of noncriminal undocumented immigrants it arrests, it’s safe to assume that ICE’s use of the license plate database will extend beyond investigations into undocumented immigrants who are wanted for violent crimes. 

ICE’s privacy impact assessment states that investigators with ICE’s Enforcement and Removal Operations, the agency responsible for deportations, will be able to access five years worth of license plate location data.

Those who believe that ICE should be dedicating significant resources to deporting non-violent undocumented immigrants may applaud the use of license plate location data. What they should consider is that they could be the targets of identical surveillance in the future. The federal government has conducted surveillance on a wide range of targets, and surveillance tools won’t change just because the target will.

The Constitution provides little protection when it comes to long-term warrantless tracking. In 2012, the Supreme Court unanimously held that the warrantless 28-day GPS tracking of a car violated the Fourth Amendment. However, the opinion of the Court, written by Justice Scalia and joined by his colleagues Chief Justice Roberts and Justices Kennedy, Thomas, and Sotomayor, is grounded in the physical intrusion of the GPS locator on the car rather than the GPS tracking violating the driver’s expectation of privacy.

Although Justice Sotomayor joined Justice Scalia’s majority opinion, she wrote her own solo concurrence highlighting the dangers of long-term monitoring that does not require tracking devices to be attached to property. She wrote, “physical intrusion is now unnecessary to many forms of surveillance.” Later in the concurrence, she described the information that location tracking can reveal: “I would ask whether people reasonably expect that their movements will be recorded and aggregated in a manner that enables the Government to ascertain, more or less at will, their political and religious beliefs, sexual habits, and so on.”

License plate readers are not the only tools that could be used to uncover intimate details of someone’s life. Police in Compton, Philadelphia, and Baltimore have used persistent aerial surveillance technology that enables analysts to use “Google Earth with TiVo” capabilities to track targets. Law enforcement agencies at the state, local, and federal level have been using so-called “Stingrays,” tracking devices that mimic cellphone towers. When merged with body cameras and CCTV cameras facial recognition technology will make it easier for officials to monitor people’s public movements. 

Until Congress or the Supreme Court imposes restrictions on ICE scouring through years of license plate location data without a warrant civil libertarians will have to wait for the Trump administration to adopt policies that restrict this kind of surveillance. The Trump administration’s rhetoric and policy announcements so far make hell freezing over seem more likely.

Those who agree with the Trump administration’s immigration policies are perhaps willing to overlook the significant civil liberties concerns associated with ICE being able to access five years worth of location information without a warrant. They shouldn’t. This technology won’t be put back in the box it came from after President Trump leaves the White House. It’s anyone’s guess who the next target of government surveillance will be. 

The other day, the Wall Street Journal looked at the Trump administration’s efforts to reduce the costs of building infrastructure:

The administration is hoping to roll back regulations in place for decades to reduce the period between project approval and construction, limiting environmental reviews and litigation in favor of getting big things built.

The effort is likely to face resistance from environmental groups and their Democratic allies in Congress. But the president’s advisers believe they can alter the permitting process in ways that change how the government builds roads, bridges, rails and pipelines for years to come. “ … I think one of the most important things this administration can do is take permit delivery times from what is now an average of 4.7 years down to two years,” said Alexander Herrgott, the lead infrastructure aide on the White House’s Council on Environmental Quality…”

… Previous presidents have tried to streamline the federal permitting process as a way to jumpstart rebuilding of the nation’s critical infrastructure. That includes President Barack Obama, who signed the FAST Act in 2015, a bipartisan transportation funding package that created a federal permitting improvement council aimed at speeding up the environmental review process.

Mr. Trump and his aides have cited studies suggesting that environmental review can often take a decade, and calling for that period to be reduced to two years. A Government Accountability Office study of the environmental review process in 2014 cited third-party estimates that reviews average 4.6 years.

We will hear more about Trump’s infrastructure approach in his State of the Union message tomorrow night. So far it appears the approach combines:

  1.  government spending increases, as I noted,
  2.  deregulation, as the WSJ noted,
  3.  privatization, as with Trump proposals for air traffic control and federal electricity assets, and
  4.  corporate tax cuts to boost private-sector infrastructure investment.

Approaches 2, 3, and 4 are very positive. Approach 1 is not.

More on permitting here. More on infrastructure policies here. More on privatization here.

Picking up on Simon Lester’s reaction on Friday to President Trump’s near 180-degree rhetorical pivot on the Trans-Pacific Partnership, I agree with the implication that one would be ill advised to set his watch to the man’s words. However, there are plenty of good reasons for Trump to change his mind and seek to rejoin the TPP, so maybe—just maybe—the president is beginning to see the bigger picture.

Before the 2016 election, I wrote a piece in Forbes explaining why any president would want the tools of the TPP at his or her disposal and predicted that the next president (despite both major party candidates disavowing it) would ultimately support it:

The TPP is a blueprint for securing U.S. geoeconomic and geopolitical interests now and into the future by updating the rules and institutions of international trade that facilitated 70 years of global economic expansion, poverty reduction, and relative peace. As an agreement that includes countries on four continents, the TPP is well-suited to fill the void created by the breakdown of the multilateral negotiating “round” approach to global trade liberalization. The TPP is open the new members and the fact that it has achieved critical mass (40% of global GDP represented) means that the cost of remaining outside the deal will rise with every new accession, so most eligible countries will choose to join.

As investment has begun to shift from TPP outsiders to TPP members in anticipation of implementation, non-members have been implementing various domestic reforms to improve their prospects for eventually joining. And with China’s most important trade partners joining TPP, Beijing with have no better alternatives than to embrace the TPP, as well—and accept the new rules that will rein in some of the abusive trade practices of which China is so frequently accused.

After Trump won the election, I remained unconvinced that he’d pull out. I wrote in Foreign Affairs:

The TPP offers the last best chance to achieve a fresh round of comprehensive global trade liberalization under U.S. leadership. It reasserts the primacy of the rule of law in trade and expands its coverage to aspects of global commerce that didn’t even exist when the current rules were last updated, 22 years ago. As an agreement that includes countries on four continents and is open to new members that qualify, the TPP could evolve into a vehicle for achieving a much more broad-based round of multilateral trade liberalization.

Economies accounting for nearly 40 percent of global output and one-third of trade are among the TPP’s charter members, so the deal has achieved critical mass. That heft allows the TPP’s terms to be offered to prospective new members on a take-it-or-leave-it basis. If regional investment shifts from TPP nonmembers to TPP members, the incentive to join the agreement would only grow. Many countries, including Indonesia, South Korea, Taiwan, and Thailand, have already expressed interest in joining and have begun to undertake the domestic reforms necessary to qualify for the TPP.

With each new accession to the deal, the cost of remaining on the outside would only increase. That applies to China, too, which could watch some of its most important trade partners join TPP and, at some point, concede to having no better alternatives than to embrace the TPP, as well-and to accept the new rules that would rein in some of the abusive practices for which it is so frequently criticized.

Well, the costs of remaining outside the agreement have begun and will continue to mount and be borne by the United States unless we move quickly to change course. By bailing out of TPP, which will set sail without us as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) in March, U.S. exporters will be at a disadvantage when it comes to foreign market access, U.S. consumers will be deprived of lower-priced goods, and the U.S. economy will be a less attractive destination for investment. 

But just as important, being outside the TPP deprives U.S. negotiators of meaningful leverage to address, curtail, and reverse China’s objectionable practices in the realm of forced technology transfer, intellectual property theft, discrimination, and state intervention—especially those practices that might not be adequately restrained by WTO rules. Standing shoulder-to-shoulder, resolutely, with other trade partners who face similar problems in China is probably the best—maybe the only—way to get Beijing to change course short of a deleterious trade war.

Although it’s far from clear whether Trump has really changed his mind about the TPP, I think he’s probably learned over the past year that his decision to withdraw came at a pretty steep cost. He may have a case of buyer’s (returner’s) remorse. Let’s hope so. Let’s encourage him to make amends. But Trump’s off-the-cuff conditionality for reentering the deal assumes a degree of negotiating leverage the United States probably doesn’t have anymore. As humbling as this may be, joining the TPP as a non-charter member is likely to mean the United States would have to give more and get less than what Obama’s USTR was able to do.

(Link to Cato Trade’s Comprehensive Assessment of the TPP.)

 

The White House released another immigration framework Thursday. Like its past efforts, this plan calls on Congress to enact draconian restrictions on legal immigrants. Members of Congress will have to flesh out the details, but in the most likely scenario, the new plan would cut the number of legal immigrants by up to 44 percent or half a million immigrants annually—the largest policy-driven legal immigration cut since the 1920s. Compared to current law, it would exclude nearly 22 million people from the opportunity to immigrate legally to the United States over the next five decades.

The White House Plan: Full Changes

The language in the framework is vague enough that members of Congress have some flexibility in its implementation. The most vocal supporters of the new plan in Congress are Senators Tom Cotton (R-AR), David Perdue (R-GA), James Lankford (R-OK), Thom Tillis (R-NC), and Charles Grassley (R-IA). This group has previously introduced the SECURE Act (S. 2192), legislation that would make many similar changes to legal immigration as those called for by the White House. This analysis will take the SECURE Act as the initial blueprint for a bill implementing the White House ideas.

The president’s new plan adds two major elements that distinguish it from the senators’ current bill. First, it would immediately end the diversity visa lottery and, before eliminating its 55,000 visas completely, reallocate them toward reducing the current family- and employer-sponsored backlogs. Second, it would end—like the SECURE Act—most family-sponsored visa categories, but the White House would apply the changes only “prospectively, not retroactively, by processing the backlog.” This means that the number of legal immigrants would drop more gradually than under the senators’ current bill.

Table 1 provides the fully implemented changes. The White House plan—enacted as an amended and narrowed version of the SECURE Act—would reduce the number of legal immigrants by more than 490,000 people annually, or 44 percent. The final column shows the estimated timing for the entire category to have fully phased out. (See below for a full explanation of these estimates.)

Table 1: Legal Immigrants Under Current Law & White House Framework

Sources: Authors’ calculations based on White House; S. 2192; Department of Homeland Security (FY 2018 based on FY 2016 figures, accounting for the FY 2018 cut to refugees)*Plan provides for a temporary increase

The White House plan would end the categories for parents and siblings of U.S. citizens as well as those for adult children of citizens and legal permanent residents. Based on the SECURE Act, the “minor child” category would be limited to those under the age of 18, rather than 21. The White House framework calls on Congress to end “loopholes exploited by smugglers”—language that the GOP has used to refer to a bill to restrict asylum, elements of which are included in the SECURE Act.

While spouses and minor children of residents are theoretically preserved, the SECURE Act reduces their allotment by the number of parolees—foreigners granted temporary admission for humanitarian or public interest reasons—who stay in the United States for more than a year. Because the number of parolees appears to be greater than the allotment, this category would likely never issue any green cards in practice.

The effects of the White House immigration framework are similar only to two notorious pieces of legislation: the Emergency Quota Act of 1921 and the Immigration Act of 1924, which reduced the number of legal immigrants by 495,672 and 412,582, respectively. Congress saw these bills as preventing the degradation of America’s racial stock—by Italians and Eastern Europeans, specifically Jews.

The White House Plan: Phase-Out Period

The State Department records 3.7 million applicants waiting abroad in the categories that the SECURE Act would eliminate, and Department of Homeland Security figures indicate that between 6 and 9 percent of family-sponsored immigrants, depending on the category, adjust to permanent residency inside the United States. This would imply another quarter of a million applicants waiting inside the United States (presumably in temporary statuses).

Adding half of the 55,000 green cards from the diversity visa lottery to the combined quota for the eliminated family-sponsored categories would allow 165,566 green cards to be issued annually to those in the backlog. Simple division would lead to a full implementation date of the White House plan 24 years from today.

But this is not the most likely method of implementation. Under current law, each category has a separate annual quota, and within the categories, each nationality has a quota of no more than 7 percent of the total number in that category. For example, the sibling category quota is 65,000, and Mexicans can use no more than 4,550. This means that if the senators leave all other aspects of current law the same, the categories will expire at radically different times for each nationality. For several reasons, the senators are more likely to adopt this staged implementation.

First, it delays or prevents the entry of the greatest number of legal immigrants, which is the bill’s goal. Second, the framework states that the changes would apply “prospectively, not retroactively,” implying that the legislation would allow the current system to continue without any changes. Finally, the SECURE Act already allows the categories to continue unchanged for a single year, so the simplest amendment would be to replace “for one year” with something like “until all current beneficiaries receive visas.” Similarly, the easiest and most restrictive way to implement the diversity visa reallocation would be to distribute them equally among the four eliminated categories.

White House advisor Stephen Miller in his press call explaining the framework indicated that both the employer-sponsored and family-sponsored diversity reallocation was temporary and could be accessed only by green card applicants in line as of 2018. Only employer-sponsored applicants from India would be taking advantage of this increase by 2029 or 2039. While some family-sponsored Mexican applicants would be technically still eligible more than 100 years from now, this analysis assumes 2069 as the date of final implementation (i.e., the date when all applicants who have yet to immigrate are likely to be dead).

As Table 1 shows, 61 percent of the cuts would occur immediately and 71 percent within a decade. From 2019 through 2028, nearly twice as many immigrants—3.6 million—would be banned as would potentially receive residency through the Dreamer legalization—at most 1.8 million—under the White House plan. By the end of the second decade, the number of banned immigrants would rise to 7.6 million. By final implementation, the White House plan would exclude almost 22 million legal immigrants.

Table 2: Legal Immigrants Admitted Under Current Law & White House Framework Phase-Out

Sources: See Table 1

Figure 1 provides the phase-out schedule for the four eliminated family-sponsored preference categories that have a backlog. The implementation occurs in large jumps as the backlog for nationalities that are not at their per-country limits disappears all at once. The more gradual drops happen as the backlogs for individual nationalities are eliminated. 

Figure 1: Number of Family-Sponsored Preference Immigrants under White House Framework By Year

Sources: Authors’ calculations based on White House; S. 2192; Department of Homeland Security (DHS)

As Figure 1 shows, even in 2069, some legal immigrants are still scheduled to receive green cards. These immigrants are entirely from Mexico and the Philippines. Therefore, assuming 2069 as the final implementation date implies that up to 706,665 family-sponsored Mexican and Filipino applicants would die or make alternative plans before they received their green cards under this plan as well as under current law.

This does not mean most people in the current family-sponsored categories typically wait this long to immigrate. Instead, it reflects the impact exerted by the per-country limit in some of the categories, particularly affecting Mexicans and Filipinos in particular. Modifying the per-country limit and increasing quotas in the categories would shorten the family wait times under current law or in the backlog reduction plan.

Conclusion

Restricting legal immigration will unnecessarily deny opportunity to many people and have far-reaching negative consequences for economic growth in the United States. Labor force growth is one of the most important growth factors. Cutting the number of new legal immigrants by about 50% would initially reduce the rate of economic growth in the United States by an estimated 12.5% from its projected level, according to Joel Prakken, senior managing director and co-founder of Macroeconomic Advisers. This penalty would increase in later years as America becomes even more dependent upon immigrants for the country’s labor force growth due to our aging population.

The National Academy of Sciences has estimated that the average immigrant contributes, in net present value terms, at least $92,000 more in taxes than they receive in benefits over their lifetime, so banning them would harm government finances. Diversity and family-sponsored immigrants—who the White House framework would ban—are better educated than the average immigrant (and Americans), so the effects of the White House ban could be even more negative.

The United States needs legal immigrants to maintain a strong rate of current economic growth and stay competitive internationally. America already has an immigration level as a share of its population near the bottom of OECD countries. Real “merit-based” immigration reform would focus on increasing the number of immigrants at both ends of the skill spectrum to fill difficult manual labor jobs as well as contribute to technology, science, and finance. The White House proposal is the opposite of the reforms that would lead America toward prosperity.

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