Cato Recent Op Eds

Syndicate content
The Cato Institute seeks to broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace. Toward that goal, the Institute strives to achieve greater involvement of the intelligent, concerned lay public in questions of policy and the proper role of government.
Updated: 6 hours 20 min ago

The Deceptive Lure of Carlsonomics

8 hours 28 min ago

Michael D. Tanner

In the Broadway musical Chess, KGB agent Alexander Molokov rejects the West’s choice of consumerism and individual choice over communal solidarity: “It’s the weak who believe tawdry untruths about freedom. Trinkets in airports, sufficient to lead them astray.” One can hear echoes of Molokov’s critique in Tucker Carlson’s recent series of monologues on Fox News.

One might be less concerned about Tucker’s cranky nostalgia for Archie Bunker’s America if he weren’t part of a growing strain of American conservatism that is suspicious of — if not hostile to — free-market capitalism.

Most prominent, of course, is President Trump, whose attitude to the free market has long been indifferent at best. Simply consider his opposition to free trade; his calls to regulate businesses he doesn’t like, such as Amazon and Facebook; his support for subsidies in favored industries such as farming and manufacturing.

But increasingly Trump is joined by a chorus of populist conservatives who sound a lot more like Elizabeth Warren or Alexandria Ocasio-Cortez than Ronald Reagan or William F. Buckley Jr. Ann Coulter, for instance, has entertained AOC’s call for a 70 percent tax rate, suggested a wealth tax, and criticized corporate tax cuts.

Coulter and Tucker, of course, are provocateurs. But it’s harder to excuse serious conservatives such as Oren Cass, Henry Olson, Michael Brendan Dougherty, J. D. Vance, and Ross Douthat, among others. All these thinkers have written favorably of government policies to regulate the economy. Douthat, for instance, calls on conservatives to embrace government action to secure what he calls a “family wage” for Americans. In a similar vein, Oren Cass suggests that the U.S. embrace German-style labor regulation and welfare payments to low-wage workers. And several conservative scholars have recently called for the government to establish universal family leave.

I’m going to leave to others the debate about virtue and whether markets have contributed to the breakdown of morality, as Tucker warns. I will note, however, that those good old days weren’t all that moral if measured by how we treated women, minorities, and others. Nor should we assume that the coerced conformity actually represented some higher form of virtue.

But Tucker and his fellow populists also get the economics wrong. It is doubtful that Carlson or the others really want to return to the standards of living of, say, the 1950s. After all, it’s not just the elites who are better off today. Yes, the rich have gotten richer, but in many ways it’s the poor and the working class that have gained the most from the economic growth of the last half-century.

And it’s not just a question of the poor being able to buy cheap things, as Tucker says. By the end of the 1950s, the U.S. poverty rate stood at 22 percent, far higher than at any point during the depths of the Great Recession. Life expectancies for both men and women back then were ten years shorter than they are today. Culture and entertainment were far less accessible to the average American. Alcoholism was rampant. And, yes, things cost more. “Our old LaSalle” may have run great, but a car cost some 45 percent of an average worker’s annual income.

Rather, the populists seem to believe that government intervention, regulation, and restrictions on individual choice would result in the same prosperity we have today, but without the disruption and “creative destruction,” in Schumpeter’s famous phrase.

But growth and disruption are inseparable. Improvements in living standards come about through the experimentation that the market economy allows. Entrepreneurs pour their efforts into satisfying their customers and are rewarded if successful. This virtuous circle cannot occur when the government is picking winners and losers.

Equally important, the populists misread the politics as well. Yes, the elites often manipulate public policy for their own benefit. But their actions are seldom pro-market. When the government picks winners and losers, who do you think is likely to lose? Markets don’t care if you are rich or poor, black or white, male or female. Politicians and bureaucrats do.

Throughout history, free markets have been the great levelers. Early on, commerce was attacked for allowing mere tradesmen to rise above the entitled aristocracy.

In my new book, The Inclusive Economy, I show dozens of examples of how elites try to preempt free markets in ways that hurt the disadvantaged: zoning laws that lock low-income workers out of better neighborhoods; school systems that are designed more for the benefit of teachers and administrators than for parents and children; occupational-licensing, occupational-zoning, and minimum-wage laws that prevent the poor from getting a toehold on the economic ladder. Not one of these measures is about “worshiping the market.” Even protectionism, often cheered by populists, usually benefits favored industries at the expense of those without as much influence.

By turning against markets, Tucker, Trump, and their fellow populists are turning against the single best tool for improving the lives of poor and working-class Americans.

Michael Tanner is a senior fellow at the Cato Institute and the author of Going for Broke: Deficits, Debt, and the Entitlement Crisis.

The Trade Deficit with China Hit a New Record, and That's OK

Tue, 01/15/2019 - 14:51

Daniel J. Ikenson

In President Trump’s reckoning, international trade is a zero-sum game with distinct winners and losers. Exports are Team America’s points. Imports are the foreign team’s points. The trade account is the scoreboard, and the deficit on that scoreboard proves that the home team is losing at trade. Accordingly, the president considers blocking imports and promoting exports to be integral to effective trade policymaking.

In 2018, Trump put that theory to the test. For a variety of reasons, including a desire to reduce the trade deficit, Trump imposed tariffs on $250 billion of imports from China.

According to the latest official Chinese data, the result was a record-high bilateral U.S. trade deficit of $323 billion. Oops. What happened?

The trade deficit is not a function of trade policy, which is okay because neither is the U.S. trade deficit a problem to fix. It’s just a benign statistic.

First, despite the existence of broadly applied tariffs, the value of U.S. imports from China still increased by 11.3 percent in 2018. Although one would expect tariffs to raise U.S. prices and induce consumers, businesses, and the public sector to purchase less from China, a confluence of factors were at work mitigating the impact.

For example, the strong U.S. economy, which was occasioned by meaningful wage growth in 2018, probably offset some of the price effects of the tariffs. With rising incomes, we can afford higher prices.

Meanwhile, for many U.S. producers whose supply chains run through China, the short-term costs of finding new sources in other countries or repatriating production to the United States were probably too high in most cases to cause a large shift in 2018 consumption patterns. In other words, enduring the tariffs may cost less than the investments needed to avert them.

Another factor to consider is that a slowing economy in China, marked by declining domestic prices and a weakening Chinese currency, may be pushing Chinese export (pre-tariff) prices down, blunting further the dissuasive effects of Trump’s tariffs. Of course, the sluggish Chinese economy also helps explain another major contributor to the rising trade deficit: stagnant U.S. exports.

While U.S. imports from China rose 11.3 percent, U.S. exports to China, which were subject to comparable, retaliatory Chinese tariffs, registered a mere 0.7 percent increase. When economies grow, demand for domestic and imported goods and services tends to rise. When economies contract, or when growth slows, demand for both tends to subside. Beyond the slowing Chinese economy, there are a variety of other explanations for stagnant U.S. export growth.

Among the major U.S. commercial targets of China’s retaliatory tariffs are industries in the agriculture and energy sectors. Products such as soya, rice, wheat, oil, and natural gas are commodities. They are widely available from sources other than the United States. Accordingly, the costs of rejiggering supply chains that may be deterring U.S. companies from shifting away from Chinese suppliers are a much less important consideration to Chinese companies, including state-owned enterprises, who can substitute away from U.S. producers relatively painlessly.

Moreover, an enduring principle in economics known as the Lerner Symmetry Theorem holds that a tax on imports is a tax on exports. By inflating the costs of imports to reduce domestic demand, tariffs also increase the costs of U.S. exports by reducing the capacity of foreigners to afford them. If foreigners are going to purchase U.S. goods and services, they need to be able to sell their own goods and services to Americans.

It just so happens that tariffs have a negative effect on overall trade, imports and exports, but no predictable effect on the trade deficit. The trade deficit is not a function of trade policy, which is okay because neither is the U.S. trade deficit a problem to fix. It’s just a benign statistic.

Americans are able to purchase more goods and services from foreigners than we sell to them because foreigners buy more assets from Americans than we buy from foreigners. There is a positive inflow of dollars on the capital account. Foreigners don’t only buy goods and services from Americans. They buy U.S. assets (equities, property, factories, service centers, shopping malls, machines, other physical assets, corporate debt, and government debt) from Americans. Likewise, Americans don’t only buy goods and services from foreigners - we buy assets from foreigners as well.

If anything, the trade deficit, which is a luxury made possible by foreigners investing more in the United States than Americans investing abroad, signals that foreigners have faith in the U.S. economy as a safe and potentially lucrative destination for their savings. That is an enormous economic advantage that the United States enjoys and one that is threatened by Trump’s failure to appreciate it.

Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

For an Increasing Number, Soaking the Rich Is Just the Right Thing to Do

Tue, 01/15/2019 - 12:53

Ryan Bourne

One motivating factor in my moving to the US was to avoid the consequences of a class-war fuelled, economically damaging, Jeremy Corbyn tax agenda. Well, politics is surprising sometimes. The state of debate in the US this week has left me wondering whether, on that front, I’d have been better sticking around.

Alexandria Ocasio-Cortez, the freshly elected Democrat congresswoman from New York, kicked off the political week by proposing a new income tax rate as high as “60pc to 70pc”. Few of us have any prospect of surpassing the $10m (£7.8m) threshold she proposes for when it would kick in. But the response to such a punitive rate, in this supposed land of radical free enterprise, was muted indifference.

Several top economic commentators, including New York Times columnist Paul Krugman, emphasised that such high tax rates were common in the Fifties, when the US grew robustly. He reminded us too that a group of top economists, including Nobel Prize winner Peter Diamond, actively recommend 70pc-plus marginal tax rates on high earners.

Conservative responses, meanwhile, were defensive. Their main retort centred on how high rates wouldn’t effectively raise revenue. Few objected in principle to the government taking so much from anyone’s additional income. Even fewer worried about how reducing the payoff to entrepreneurship could adversely affect growth prospects. The respectful tone of disagreement made the vitriolic debate we saw here over the 50p tax rate all seem rather alien.

In truth, the argument from Krugman that reintroducing 70pc tax rates in America is not radical entails a major bait-and-switch. Yes, the US did have very high tax rates on top earners in the Fifties and early Sixties… in theory. As Phil Magness at the American Institute for Economic Research has shown, in 1963 official marginal rates exceeded 50pc for those earning $130,000 in today’s money, rising to 92pc on top earners. But the effective rates actually paid were substantially lower. A complex system of deductions, loopholes and workarounds (such as use of employment-related benefits) lowered people’s actual liabilities.

Yet the result from economists such as Diamond that 70pc-plus marginal rates today are optimal presumes that governments can fully negate such avoidance. Without this assumption, the “optimal” rate is much lower, and far lower than the Fifties. These models are also based on a whole host of questionable economic and philosophical assumptions, including the idea that governments shouldn’t care about the welfare of the rich and that the rich will not really respond in their work and savings decisions. Breach one, or both, of these assumptions and the supposed “optimal” tax rate falls substantially further.

The key insight of this literature is actually that, absent eliminating the ability to “tax plan”, progressives could only justify modestly increasing top tax rates to raise revenue. There simply isn’t as much space to jack up rates while squeezing the rich as some imagine. Once you combine state and local taxes, high-earning individuals in states like New York and California already face marginal tax rates of up to 60pc. Go much further, and the rich will find all sorts of means to avoid paying. The real practical policy lesson is that if Left-leaning Americans want a bigger state with more generous social programs, they must suck up 
 broader-based taxes, such as the VAT we see in Europe.

But the American Left’s willingness to ignore this and instead repeat contradictory arguments favouring higher top tax rates suggests motivated reasoning. For an increasing number, soaking the rich is just the right thing to do, economics be damned. Such class war seeps into the mainstream Democrat platform through new young radicals such as Ocasio-Cortez. Republicans, of course, are traditionally a check on such world views. If they are elected to do anything, so it is said, it’s to cut taxes. And some of that tradition came to play this week. But there are signs that for an increasingly populist, Trumpified Republican party, resisting high marginal tax rates on top earners is no longer a front-line priority.

For all the talk of the 2017 Republican tax cuts being a “giveaway to the rich”, the top marginal tax rate for income only fell from 39.6pc to 37pc. True, there were new large allowances for owners of non-corporate businesses. But Republican politicians have been slowly losing interest in cutting top rates on those who obtain income from their labour.

As the Tax Foundation’s Kyle Pomerleau has shown, this change can be seen through legislative proposals. In 2014, Republican lawmaker Dave Camp proposed a top federal income tax marginal rate of just 25pc. By the time the then Republican speaker of the House of Representatives, Paul Ryan, outlined his proposals in 2016 it had jumped to 33pc. And when the tax bill was eventually passed it settled at 37pc.

This marks a clear direction of travel. Some on the more populist Right go further, openly embracing the idea of jacking up rates too, and sticking it to the supposed wealthy elites who disdain president Trump.

Hardcore conservative commentator Ann Coulter, author of In Trump We Trust, tweeted last week, “Ocasio-Cortez wants a 70pc-80pc income tax on the rich. I agree! Start with the Koch Bros - and also make it WEALTH tax.” Former top Trump adviser Steve Bannon has never gone that far. But he did propose raising the top federal tax rate to 44pc for those with incomes above $5m back in 2017.

Whether it’s due to the legacy of the crash, the inequality narrative, or the desire to bash opponents financially, US politics is becoming increasingly conducive to punitive top tax rates. On both sides.

Ryan Bourne holds the R Evan Scharf chair for the public understanding of economics at the Cato Institute.

A Failure to Adjust

Tue, 01/15/2019 - 11:22

Scott Lincicome

A debate has erupted, particularly on the right, in response to a recent Tucker Carlson monologue on how “Washington elite” policy choices, in particular international trade liberalization, have systematically (and perhaps nefariously) harmed members of America’s working class, dooming them to lives of drugs, isolation and despair. If this view were assigned to Carlson and his supporters alone, a few tweets in response would suffice. It has not, however, remained on Fox News, instead being promulgated and praised, though refined, by more thoughtful commentators and analysts. Among those is the University of Virginia’s Brad Wilcox and the Niskanen Center’s Sam Hammond in a new essay in The Atlantic called “What Tucker Carlson Gets Right.”

I tend to agree with this essay’s larger points, having myself written about the serious, and relatively new, problems that Americans face when forced to adjust to severe disruptions, whether they come from trade, technology, culture or anything else—problems caused or exacerbated by bad government policies in desperate need of reform. On the specific issue of trade policy, however, I fear Wilcox and Hammond go far off course when they target the “elite policy choice” of liberalized U.S. trade with China for particular scorn. While Chinese import competition worked out great for America’s wealthy, they argue, it was a disaster for the working class:

The work of the MIT economist David Autor and his colleagues, in particular, indicates that dramatic and sudden increases in global trade with China starting around 2000 affected both men’s earnings and their marriageability. In their words, “Trade shocks to manufacturing industries have particularly negative impacts on the labor market prospects of men and degrade their marriage-market value along multiple dimensions: diminishing their relative earnings—particularly at the lower segment of the distribution—reducing their physical availability in trade-impacted labor markets, and increasing their participation in risky and damaging behaviors.” They add that “adverse shocks to the supply of ‘marriageable’ men reduce the prevalence of marriage … but raise the fraction of children born to young and unwed mothers and living in poor single-parent households.”

These intertwined problems, then, were not the fault of a spontaneous decline in personal virtue. They were the fault of Washington elites who pursued a naive path of normalized trade with China that, in a matter of years, gutted millions of moderately educated workers of their decent-paying jobs, and without support in the way of adjustment assistance or wage insurance. Our elites had too much faith in a laissez-faire ideology that sees labor markets as automatically self-correcting but, in fact, exacted a terrible toll on scores of working-class families across the United States. (emphasis mine)

The “policy choice” here, which I subsequently confirmed with Hammond to be sure, relates to the 2000 U.S. law to grant China “permanent normal trade relations” (PNTR) upon its subsequent entry into the World Trade Organization in 2001—the starting point for the now-famed Autor (and colleagues Dorn and Hanson, widely known collectively by the rockstar acronym ADH) “China Shock.” With this view, Wilcox and Hammond today find ample company on the right, including in the Trump administration, as it has become increasingly fashionable to cast PNTR as a “mistake” responsible for the China Shock and the WTO as responsible for (and not equipped to handle) China’s rise.

However, this argument (i.e., that PNTR was an erroneous “elite policy choice” that disproportionately benefited the elites, directly drove the China Shock, and, combined with elites’ other “laissez-faire” policies, permanently scarred America’s working class) suffers from several flaws—flaws that, when combined, prove fatal for the “PNTR thesis.”

First and most obviously, the thesis ignores the documented benefits of increased U.S. trade with China over the last two decadesbenefits that often accrue to the U.S. working class and manufacturing sector.

  • For example, even if one were to treat the China Shock literature as gospel, various studies have found that trade with China in the 2000s still provided ample benefits for American consumers—a group that of course includes those directly harmed by the China Shock. A 2018 paper, for example, found that Chinese import competition between 2000-07 had substantial “pro-competitive effects” on U.S. firms and generated over $202 billion in consumer benefits via lower prices—equal to $101,250 per manufacturing job lost, as calculated by the China Shock papers. A 2017 study found similarly impressive consumer gains. Another paper found that the consumer benefits of trade, which are already heavily tiltedtoward America’s poor and middle class, were even more so for Chinese imports, because these U.S. consumers are more likely than their richer counterparts to shop at places like Target and Walmart. One can argue that these consumer benefits are cold comfort to someone who lost a job to Chinese import competition, but they are nevertheless real, widespreadand important.
  • Chinese imports have also been found to generate substantial benefits for American companies, including manufacturers (and their workers). One series of papers found that Chinese import competition encouraged, quite logically, many American manufacturing firms to invest and innovate more—another “pro-competitive” effect. Another paper found net welfare benefits (i.e., an economy’s overall prosperity and living standards) from the China Shock for U.S. manufacturing (and non-manufacturing) across regions. Just last week, the San Francisco Fed found that, about 56 cents of every dollar that Americans spent on “Made in China” imports last year actually went to American firms and workers—the highest share of any country. That same study also found that one-third of all Chinese imports were intermediate goods (e.g., manufacturing inputs like auto parts) used by American companies to produce globally competitive goods and services. With respect to these types of global value chains, the WTO estimates that China is the top user/exporter of Made-In-America manufacturing inputs and the second largest source of inputs for American manufacturers, behind only Canada. Then, of course, there are the benefits that American farmers and workers derive from exporting to China, the United States’ third largest export destination.
  • There is also evidence that many U.S. manufacturers adapted in the face of trade competition (and automation) and ended up hiring more Americans, just in different areas. As the FT’s Gillian Tett just recapped, “between 1977 and 2012…employees in ‘non-manufacturing plants’ that were owned by “manufacturing firms” rose from 13m to 23m, primarily due to an explosion in service sector jobs such as design and IT. As a result, by 2012 the US’s “manufacturing” companies employed slightly more workers than in 1977. Moreover, that was not because of business churn: 75 per cent of the ‘manufacturing’ job losses in this period occurred at companies which remained in business, and it was the incumbents which opened most of the non-manufacturing plants. In plain English, this means that as Chinese competition hit, America’s ‘manufacturing’ groups quietly re-engineered themselves…. [T]hey increasingly hire service-sector workers, as their output soars.” She then cites other research showing that in many parts of America (though not all) “vanishing manufacturing jobs have been replaced by new service work.”
  • Finally, other economists have raised questions, directly or indirectly, about whether the China Shock literature is telling a complete story when it comes to Chinese imports, U.S. manufacturing jobs and related issues. A 2018 paper, for example, found that, after accounting for manufacturing supply chains and those aforementioned intermediate inputs, the overall effect of the China Shock on American jobs and wages was quite positive. Another paper from last year used a dynamic “general equilibrium” model to find far fewer manufacturing job losses caused by the trade shock (only 15 percent of the observed decline between 2000 and 2007), and net welfare gains across regions (even in manufacturing). Another found that, while the China Shock produced losses for certain groups, it generated overall gains in social welfare. Another found offsetting job gains in U.S. manufacturing exports and services, while yet another found one-third fewer manufacturing job losses and much different regional effects when using value-added, instead of gross, trade flows (and that job losses basically ended in 2008). Other experts have raised methodological questions about the China Shock findings (including on marriage). And finally others demand broader perspective about the China Shock claims: For example, DeLong notes the concurrent and offsetting growth of other “working class” jobs (Krugman too), while Irwin (citing a 2014 Robert Lawrence paper) adds that “imports from China may have resulted in involuntary displacement of 97,000 manufacturing workers per year (on average, adjusted to account for voluntary separations), but that is less than one-fifth of total involuntary job loss in manufacturing and less than 5 percent of all involuntary job losses over the same period.” (Autor himself calls the 2 million figure an “upper bound” that includes around 1 million non-manufacturing jobs, while his new marriage paperacknowledges that the “analysis does not imply that surging import competition from China over the last two decades has been the sole or primary driver of these [marriage and childbirth] trends” but only a “plausible contributor.”)

Indeed, a look at the relatively steady decline in manufacturing jobs as a share of the U.S. workforce shows only a modest change before and after PNTR passed and China entered the WTO:

The moral of this literature review is not that Chinese import competition produces only rainbows and butterflies in the United States or that there are no problems in the U.S. labor market or certain communities, but simply that there’s another, rather large side to the China Shock coin. That side shows the substantial net benefits from trade (certainly not only or “overwhelmingly” for “elites”) and reveals the China Shock issue to be more uncertain and complex than the one-sided, myopic caricature painted by many PNTR/China trade critics and more similar to the standard trade story: discrete, but more concentrated, pains versus larger, but more diffuse (and harder to see), benefits. That’s a story worth telling, as are the significant issues arising from American workers’ failure to adjust to trade and other disruptions, but it’s not nearly the widespread “American carnage” you hear so often from those pushing the PNTR thesis.

Second, the PNTR thesis ignores the reality of China’s entry into the WTO and its export competitiveness. For starters, PNTR did not actually open the United States to Chinese imports: since 1980 the United States government had granted China “normal trade relations” (NTR) status on an annual basis, with Congress routinely defeating legislation to deny China this treatment—even right after the Tiananmen Square protests and the election of a president (Clinton) who ran against NTR. As a result, Chinese imports to the United States increased more than six-fold in the decade preceding PNTR, and the rational expectation of most U.S. importers was more of the same. Chinese imports increased even more after PNTR, likely assisted by the certainty of “permanent” trade relations, but it’s a myth to say that some isolated, “elite” policy choice in the late 1990s first exposed the U.S. market (and U.S. workers) to Chinese import competition.

More importantly, however, is the ample evidence showing that the PNTR “elite policy choice” was not the only, or even main, driver of the China Shock that occurred in United States in the late 1990s and 2000s. A 2017 paper, for example, found that approximately two-thirds of the impact of China’s WTO entry on U.S. manufactured goods prices (and thus on U.S. manufacturers and their workers) came not from PNTR but from China’s own tariff reductions resulting from WTO entry. (Chinese import tariffs went from 15 percent in 2000 to 9 percent in 2006.) The China Shock papers themselves emphasizethat China’s internal reforms—on privatization, trading rights, and (again) import liberalization, often in response to new WTO commitments—were major contributors to China’s export competitiveness in the late ‘90s and 2000s. (A view subsequently confirmed elsewhere.) In other words, PNTR probably accelerated Chinese exports to the United States (though some experts question the magnitude of this driver), but China’s own reforms—far beyond the control of those Washington “elites” now said to be at “fault” —also fueled the “China Shock.”

Furthermore, it’s a stretch to claim, as many do, that China’s WTO accession was really all that “shocking”—at least for anyone paying the least bit of attention to U.S. trade policy in the 1990s (which, you’d assume, would include U.S. manufacturers and unions). China first applied to join the WTO (under its predecessor the GATT) in 1985, then reapplied in 1995 when the WTO took over, and finally acceded to the body in 2001. China’s accession over this time involved dozens of bilateral and multilateral (“working party”) meetings, negotiating texts, disclosures and—as noted above—internal reforms. China’s final accession package—a “Working Party Report” and “Protocol of Accession” plus liberalization schedules for goods and services—contained hundreds of pages of commitments (by far the most of any acceding member up to that point and still today considered to be some of the deepest ever), including many “WTO-plus” commitments that the United States and other members dictated (via bilateral accession agreements) and have since used, for example, to challenge Chinese laws through dispute settlement or to restrict Chinese imports (more on these below). Notably, the United States was the final holdout among large industrialized nations to approve China’s WTO accession via bilateral negotiations, with U.S. negotiators demanding evermore concessions from the Chinese government over a contentious 13-year period. Meanwhile, U.S. trade representatives for multiple presidents from each major party frequently consulted with Congress and the ­­private sector, including labor unions, at every step of the process (as required by U.S. law). Thus, from a simple legal and historical perspective, there was nothing “shocking” about the China Shock.

It’s an even bigger stretch to assert that, based on the facts at the time, Washington policymakers really had much of a “choice” when it came to permanently normalizing trade relations with China in the late 1990s (a move that every other WTO member had done years earlier). In this regard, I recommend Phil Levy’s 2018 piece in Foreign Affairs on the only actual alternatives to PNTR. Each of them—letting China in the WTO but continuing the annual NTR process or even raising tariffs on Chinese goods, or keeping China from the WTO entirely—was clearly inferior, in terms of economics and geopolitics, to granting PNTR. Indeed, denying more than 1 billion people (many of whom were in abject poverty) in an modernizing economy access to an open multilateral trade organization—one that already included communist Cuba and for decades and tolerated Eastern Bloc command-and-control economies and dozens of “socialist” countries with pervasive state-owned industries—was simply not realistic, especially given what policymakers knew (or possibly could have known) at the time about China’s economic reforms. This last point bears emphasis: As noted above, the reforms that China undertook during its WTO accession, often in direct response to WTO requirements (and member demands), were so substantial as to drive—along with additional reforms made shortly after accession—China’s incredible export competitiveness. To assert that U.S. policymakers in the 1990s were somehow “naïve,” that they should have somehow known that these reforms would cease or reverse a decade later under different leadership (twice removed), and thus deny China entry into the WTO or deny PNTR (becoming the only WTO Member to do so), is applying an impossible standard that only Miss Cleo could meet.

Third, the PNTR thesis ignores the missed opportunities since China’s WTO accession, especially the unused checks on Chinese trade abuses that were among China’s (allegedly weak) WTO commitments. As noted above, China did undertake substantial trade and economic liberalization before and shortly after entering the WTO, but problems have undoubtedly arisen since then. As my Cato colleagues James Bacchus, Simon Lester, and Huan Zhu just wrote, however, most of those problems can be addressed through WTO dispute settlement, whose rulings China tends to follow (arguably moreso, it should be noted, than the United States). If these new cases have not been pursued (which they often haven’t, especially in the Trump administration), then that is an “elite policy choice” worth condemning—not the original decision to admit China to the WTO in the first place. Indeed, it is either mistaken or misleading to claim that China’s WTO accession terms were weak and that the WTO has utterly failed to discipline China’s unfair trade practices when the sole means of imposing such discipline—dispute settlement—and the “WTO-plus” rules China agreed to (including on intellectual property) have never been fully utilized. This is declaring defeat before ever firing a shot.

Other “elite policy choices” since the passage of PNTR also deserve scrutiny, such as U.S. withdrawal from the Trans-Pacific Partnership, which was in large part designed to contain China’s geopolitical ambitions; tax and tradepolicies that inhibit American companies’ global competitiveness; a general failure to reform state and federal adjustment assistance and worker retraining programs in the face of immense trade/technological/cultural disruption; or the imposition of tax, occupational licensing, zoning, and other policies that actively discourage labor dynamism. These policies are indeed worthy of criticism and debate, but they have nothing to do with the original choice—if you can even call it that—to pass PNTR, allow China to join the WTO, or otherwise “normalize” trade with China.

Fourth, the PNTR thesis ignores the many non-“laissez faire” mechanisms in place for decadesmechanisms that simply didn’t work. A core tenet of the PNTR thesis is that American elites simply opened the floodgates to Chinese imports with only a timid threat of WTO disputes to protect American workers from “unfair” Chinese imports. This ignores, however, the mountain of government interventions that have been utilized—at the federal level alone—to restrict Chinese imports, otherwise protect or subsidize American manufacturers, or assist American workers.

On trade, the United States still maintains significant tariffs and tariff-rate quotas on imports of “sensitive” products like trucks, apparel, footwear and food. According to the group Global Trade Alert, moreover, the United States has also long been one of the most frequent users of “harmful” non-tariff government trade interventions—ones that far outnumber its “liberalizing” measures over the same period. This includes hundreds of special duties (“trade remedies” like anti-dumping and anti-subsidy measures) on all sorts of Chinese imports, most often using a special “non-market economy” anti-dumping methodology that practically ensures sky-high duty rates (often more than 100 percent) on those goods—coincidentally, one of those “WTO-plus” accession commitments special to China and a few other economies. These duties are specifically intended to offset “unfair” trade and subsidies that injure US manufacturers and workers, and—as the numbers indicate—American companies and labor unions have been quite successful in petitioning for them. Dozens of other Chinese imports are barred from the U.S. market as a result of “Section 337” actions that target intellectual property rights violations. Chinese investment, meanwhile, can be (and has been) restricted by the Committee on Foreign Investment in the United States (CFIUS), and US technology exports to China are often blocked on national security grounds.

And let’s not forget about the auto bailouts, the steel industry bailouts, the alternative energy subsidies, the manufacturing tax credits, the ExIm Bank loans, procurement preferences like Buy American and Davis-Bacon, the Jones Act and the PVSA, and the billions of other taxpayer dollars that the United States has doled out to “blue collar” industries and workers over the last few decades at the federal level alone.

The United States government has also repeatedly tried to subsidize and retrain workers, as I noted a few years ago in National Review:

Most notably, the Trade Adjustment Assistance (TAA) program, intended to subsidize U.S. workers affected by import competition, is a notorious failure: Not only are TAA’s costs too high and its eligibility criteria too loose, but multiple studies commissioned by the Labor Department have found that TAA participants are worse off, as measured by future wages and benefits, than similarly situated jobless individuals outside the program. (TAA also breeds the misconception that trade is somehow different from, and worse than, other forms of beneficial economic disruption, such as automation.)

Other federal job-training programs are similarly inefficacious. A 2011 Government Accountability Office study, for example, found that the federal government had 47 different, often overlapping job-training programs spanning nine federal agencies at a cost of $18 billion per year. Only five had been subject to any sort of impact analysis since 2004; thus, “little is known about the effectiveness of [the] employment and training programs” identified. A 2014 reform of this system, the Workforce Innovation and Opportunity Act, eliminated 15 programs (while maintaining the rest, despite their long history of subpar results) but failed to impose any sort of rigorous multi-site evaluation and accountability system. Without these simple reforms, or other, more radical ones, there is no way to ensure that the “reformed” federal job programs won’t continue their long record of failing American workers and taxpayers.

(For an update on TAA’s problems, see this recent Wall Street Journal piece.) As I argued in National Review at the time, these and other government programs raise serious concerns when it comes to helping American workers adjust to trade and other shocks, and they need to be reformed. But that doesn’t change the simple fact that they do exist and have for decades. And it’s their (and the aforementioned others’) existence alone, which unequivocally refutes the claim that US policymakers simply passed PNTR and walked away from the American working class due to some sort of rigid adherence to laissez faireideology.

The real problem was that these interventions just didn’t work very well. A classic example is the US steel industry, whose companies and workers since the 1970s have arguably received more government assistance than any industry in the country. This includes hundreds of trade remedy measures and other import restrictions; tens of billions of dollars in state, local and federal subsidies and bailouts; exemptions from environmental regulations; special “Buy American” rules; federal pension benefit guarantees; and even its own caucus in Congress. The result: dramatic historical declines in employment and capitalization, numerous bankruptcies, and, course, continued demands for even more government protection.

In short, there’s scant evidence that Washington elites actually abandoned the Rust Belt or the American working class; their non-market interventions may have failed, but they were interventions nonetheless.

Fifth, the PNTR thesis ignores the broad and unambiguous benefits of trade and globalization more broadly. If the problems associated with the China Shock are unique to that country and time period, the PNTR and broader China Shock debate, at least on the trade side, is mostly academic: Most economists believe the China Shock has been over for years and, if its effects are unlikely to ever happen again for whatever reason, then the historical analysis, while interesting, is not very instructive regarding future trade policy changes. As one recent paper on the issue concluded, “[t]he literature on the local labour market effects of Chinese import competition has been cited extensively as an argument for limiting trade with China despite the fact that the results do not support this conclusion…. even if policy were narrowly focused on direct import competition effects ignoring price and indirect effects, there is no case for limiting trade with China [because] US local labour market adjustment to the China Shock has largely concluded.” There also will never be an “India shock” or “Vietnam shock,” so no use resetting American trade policy in preparation for that moment.

On the other hand, if the PNTR thesis is, as some intend, a guide for future U.S. decision-making on trade and globalization more broadly (Carlson, for what it’s worth, certainly seems to be aiming wider), then we also need go beyond China and acknowledge—

  • The wide body of research showing significant economic benefits—including for the working class—from import liberalization and multilateral trade (the WTO) generally, and the overwhelming supportfrom economists from the left, right and center (even the China shock authors);
  • The unseen benefits of import competition on American economic dynamism;
  • How trade contributes to the eradication of global poverty;
  • The basic morality of freer trade and the obvious problems with government putting the desires of producers above those of consumers;
  • The fact that much of “globalization” is not driven by elite policy choices (trade liberalization) at all, but by seismic changes in communications and technology (like shipping containers);
  • The longstanding geopolitical benefits of trade (calming problems that ushered in the GATT/WTO to begin with);
  • The truly unique (hopefully) moment that was the post-WWII world, with large portions either recovering from war or descending into communism, for American manufacturing and workers;
  • The fact that, historically, technology (not the trade balance) has been responsible for most of the low/middle-skill manufacturing job-losses and would eventually have accounted for the others too (see, e.g., this Ball State report on the relative automation risks to future U.S. employment across the country; or where all those American coal mining, automotive or steelmaking jobs really went); and
  • That trade economists have for decades acknowledged that adjustment to trade shocks “may be neither quick nor easy.”

None of this is to say that free trade is costless, or that some economists didn’t underestimate regional labor market frictions in response to largescale trade disruptions, but—unless the China Shock is truly sui generis (and in that case see above) —the aforementioned points are essential to any discussion of trade liberalization, elite policy choices, and the American working class.

Conveniently, they often seem to be missing.

Sixth, the PNTR thesis ignores the problems with the only trade policy alternative—protectionism. Calling “normalized trade” a “choice” necessarily implies an alternative. In the case of trade policy (as opposed to labor and other policies noted above), that alternative is protectionism (i.e., government restrictions on imports of goods and services) in some form or another. There is no magical third trade option, and the second one is a costly failure. For example, IMF economists recently found, based on an examination of annual data that spans 151 countries 51 years (1963-2014), that “tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity,” as well as more unemployment and higher inequality. In the case of American protectionism, moreover, there is little doubt that it imposes immense economic harms on US consumers, workers and companies—harms that far outweigh any possible benefit to protected workers; or that it doesn’t actually protect American firms and workers over the longer term; or that it breeds elite corruption, cronyism and political dysfunction. Two instances warrant special mention in this regard:

  • Using special rules tied to China’s WTO accession, President Obama in 2009 accepted a U.S. Steelworker petition and ultimately imposed 35 percent “special safeguard” tariffs on Chinese tires. The result was, even under the best assumptions, a few unionized jobs saved at an annual cost to U.S. consumers of over $900,000 per job, plus a substantial increase in other, non-China imports. Today, the industry’s prospects are no better. (For more on the futility of this bilateral “safeguard” mechanism, see Phil Levy here.)
  • A 2017 review of all US anti-dumping investigations against Chinese imports between 1998 and 2006 revealed that the duties reduced Chinese imports and increased prices of subject merchandise in the U.S. market. However, these effects “dissipate approximately 2 years after the anti-dumping decision,” and imports from other countries simply increased to replace the declining Chinese imports. Such results “cast doubt on the effectiveness of anti-dumping actions against China as mechanisms for protecting US producers” (and, I’d add, their workers). (See also this great Dan Ikenson review of the specific and ridiculous case of anti-dumping measures on Wooden Bedroom Furniture from China.)

In short, if one looks to restrict trade in order to Drain the Swamp and solve the problems facing America’s working class, the cure is worse than the supposed disease.

Finally, if I may get on my high horse for a moment, it’s essential to acknowledge somewhere in this tome that “normalizing” trade with China (i.e. removing U.S. restrictions on Americans’ consumption of Chinese imports) was not merely an economic and geopolitical decision but also a moral one that, whether intended or not, removed stark inequities in the previous, un-normalized (protectionist) system—inequities that typicallyoriginated in a Washington back room full of those dastardly “elites,” invisibly propped up certain industries and workers at most Americans’ (especially poor ones) expense, and generated the aforementioned macoeconomic harms and political dysfunction. Those industries and workers had no moral claim to that government protection, nor were their living standards somehow more important than those of their fellow Americans, whether residing next door or a thousand miles away. American footwear workers, for example, quietly benefited from a long-ago government decision (dating back to Smoot-Hawley) to protect their jobs through hidden restrictions on the voluntary commercial decisions of other, unknowing Americans—restrictions that forced these citizens, especially the poor ones, to subsidize U.S. footwear jobs by paying more for shoes. Maybe, after government removed that protection, it owed the affected workers more in terms of adjustment welfare or job training. But they weren’t owed the protection itself, and the mere act of removing it was not some immoral act (as it often now claimed). It was right thing to do, and we shouldn’t pretend otherwise.

Finally, the PNTR thesis ignores that many places were hit hard by import competition yet did adjust, in part due to trade and foreign investment. A final flaw in the PNTR thesis is that the longer-term effects of the import competition vary dramatically from place to place, even in states or regions that faced similarly intense competition from Chinese imports. Many places, big and small, that were once known for low-skill manufacturing and were hit hard by import competition have since then adapted and thrived. This includes towns like Greenville-Spartanburg, S.C.; Pittsburgh; Hickory, N.C.; Warsaw, Ind.; and others—towns full of companies that succeeded by adapting to the market, importing industrial inputs, courting foreign investment and/or selling their goods abroad. (Anyone doubting these successes need only take a drive down I-85 from Charlotte to Montgomery to see it firsthand.)

The stark differences between these thriving American towns and those still reeling from a trade shock that likely ended a decade ago strongly indicates that the problem the shock revealed wasn’t import competition but—as the China Shock authors themselves assert—a failure to adjust. The question we should therefore be asking is not “why did elites normalize trade with China in the 1990s?” but rather “what did many American towns, companies and workers do right in the face of intense import competition, and how can local, state and federal policies encourage that important, impressive improvement?”

Based on the above, one can divine a simpler, far-more-benign explanation for the last 20-plus years of U.S. policy: Washington elites saw little choice but to liberalize trade with China because the available alternatives were non-existent or worse, especially given the information at the time that this “choice” was being made. Liberalization, moreover, produced real benefits (including for American workers and the poor), while also removing gross historical inequities in the previous, more protectionist system (though I doubt many elites really cared about that). The resulting disruption and adjustment was hard for some regions and workers (certainly not for all)—harder than many elites expected—and certainly post-liberalization policy mistakes were made (though often in the direction of less liberalization, not more). With the benefit of two decades of hindsight, moreover, maybe certain specific “WTO-plus” rules would have been drafted differently during China’s accession. All fine and probably true.

But asserting, as many now do (certainly not just Wilcox and Hammond), that the very real labor and cultural issues going on in America today are the “fault” of “Washington elites” who blithely pursued a “naive path of normalized trade with China” while dogmatically resisting “support” (through trade, labor or any other policies) for the working class is belied by the facts, as is casting trade liberalization more broadly as an “elite choice” (which presumes a better alternative) that intentionally and “overwhelmingly” benefited the rich at the working man’s expense. (These arguments also, one should add, raise broader questions about the future of the American right and its views on culture, limited government and markets, but that’s beyond my pay-grade.)

Labor market and cultural disruptions—including those that result from import competition—are real. They are important. But pretending that there was a better trade policy choice than liberalization is just manifestly misguided. It assumes far too much, ignores far too much, and demands far too much. It focuses on the wrong “policy choice” and could, therefore, quite easily lead to the wrong policy change. Indeed, this, in my view, is the greatest problem with the PNTR thesis: Even when coming from those who profess to be vigorously pro-trade, casting the China Shock as a trade problem and not an adjustment problem, and claiming an ignorant or heartless “elite” absence of government interventions, has the potential to forgive the real and important failures of our policymakers, CEOs and union heads over the last two decades, while empowering those with far-less-legitimate or altruistic objectives, and thus make generating a political consensus for real policy solutions even harder.

One need only turn on cable news to see it happening right now.

Scott Lincicome is an international trade attorney, adjunct scholar at the Cato Institute, and senior lecturing fellow at Duke Law School. The views expressed are his own and do not necessarily reflect those of his employers.

Eager for a House Price Fall? It's Time for a Lesson in Economics

Tue, 01/15/2019 - 09:28

Ryan Bourne

The British public, a host of commentators on Twitter, and even some economists seem to think so.

A recent YouGov poll asked Britons whether a 30 per cent fall in property values after Brexit would be a “bad thing”. Just 32 per cent of Leavers and 46 per cent of Remainers agreed that it would be an economic negative.

The majority view here is embodied by former member of the Monetary Policy Committee, Andrew Sentance.

When Nationwide’s December house price data signalled that price growth had been the slowest in six years, he tweeted “contrary to public perception, this is good news. Slower house price increases help improve affordability ratios, allowing more first-time buyers to get on the housing ladder.”

What matters is not whether prices are rising or falling, but whether the cause of that change makes us better or worse off.

He is not alone. Referring to the recent YouGov survey, one Brexit expert agreed that “if one claims to want a better future for our youngsters, one might actually want prices to fall”.

This is an increasingly popular sentiment from those worried about home ownership rates and intergenerational inequity.

And yet, as standalone statements, these views are incredibly misguided.

That’s not to say that falling prices are necessarily bad - but nor are they automatically beneficial.

Back in your first economics class, you are taught that prices are determined by the interaction of supply and demand. So to understand whether falling house prices are positive or negative, we need to know the reason for the change.

Given the problem of housing affordability, it would obviously be great news if building rates had significantly increased owing to the release of more land for development. This would boost the supply of new homes, driving down prices. That would improve affordability, and be highly likely increase home ownership rates.

But that’s not what the Bank of England had in mind when modelling what might happen following Brexit. The work about house prices falling by 35 per cent was not a forecast, but a supposed “worst-case scenario” if the whole financial system in the UK gummed up in the event of a no-deal Brexit.

You do not have to believe that such a scenario is likely or even possible to acknowledge that the hypothetical collapse of financial confidence is unlikely to have positive results.

In fact, a doomsday financial sector shock would shrink real incomes. Far from being more accessible, house prices would be falling precisely because large numbers of people found them even less affordable than before, leading to a drop in demand.

Worse, the low prices caused by restricted demand would provide little incentive for developers to bring future new supply on board, meaning that the number of houses being built would also decline.

The lesson here is one regularly expressed by one of the world’s best economics bloggers, Scott Sumner. He coined the term “never reason from a price change”.

What matters is not whether prices are rising or falling, but whether the cause of that change makes us better or worse off. If an economist is faced with no information beyond evidence of a falling price, they cannot say if this is good or bad news. The honest answer is “it depends.”

This may seem obvious, and yet reasoning from a price change is a widespread phenomenon, even among economists.

How often, when stories about oil prices tumbling surface, do we read how lower petrol prices will be like a tax cut for consumers?

Often articles neglect to tell us whether the lower price is being driven by the expansion of production in the Middle East (good news), or by falling worldwide demand for oil precipitating the next financial crisis (bad news).

We see the same thing at a macroeconomic level. “Deflationary” pressure - the phenomenon of falling prices - has very different implications depending on whether this is due to huge advances in productivity delivering cheaper goods and services, or a collapse in economy-wide demand as a precursor to recession.

Every week, price changes are used as debating points in a host of public discussions, even from top economists who should know better. That’s a recipe not just for distorting the argument, but for disastrous policymaking.

With all the political uncertainty ahead for Britain, we need cool-headed economic analysis now more than ever.

It’s time to send the commentariat back for a refresher course in economics 101.

Ryan Bourne occupies the R Evan Scharf Chair in the Public Understanding of Economics at the Cato Institute in Washington DC.

Russia Sure Behaves Strangely for a Country Bent on Conquest

Tue, 01/15/2019 - 08:13

Ted Galen Carpenter

It is commonplace for Americans to portray Russia as a dangerous country with nearly unlimited territorial ambitions. But the facts simply do not support such an alarmist view. Instead, Russia’s behavior is more consistent with that of a beleaguered regional power trying to fend off hostile intrusions from an American-led NATO.

The self-serving myth of a malignantly aggressive Russia, however, continues to grow—with potentially dangerous consequences for European and global peace.

Assertions that Moscow’s behavior pose a serious, even an existential, threat to Europe and the entire democratic West surfaced even before Donald Trump became president. They flared up in 2008 when fighting erupted between Russia and neighboring Georgia—even though the latter country had initiated the aggression. Senator John McCain asserted that “it’s very clear that Russian ambitions are to restore the old Russian Empire.”

Its conduct has been abrasive and aggressive, but there’s no evidence that Moscow harbors expansionist ambitions.

Such allegations became more pervasive when Moscow annexed Ukraine’s Crimea Peninsula in 2014 following the Western-assisted Maidan revolution that overthrew Ukraine’s elected, pro-Russian government. Ultra-hawkish writer and media talking head Ralph Peters asserted that Putin had a detailed plan for reclaiming the Russian empire. “Make no mistake,” Peters warned, “Putin truly believes he’s entitled to reclaim Ukraine and a great deal more. In his view, independent capitals from Warsaw (yes, Warsaw) to Bishkek [the Kyrgyz Republic’s capital] are integral and natural parts of the Russian imperium. He regards them as property stolen from its rightful owner: Moscow.” Hillary Clinton’s rhetoric was even more apocalyptic: Putin’s actions, she contended, were “what Germany did back in the ‘30s.”

Such hyperbole has continued and even increased over the past five years on both sides of the Atlantic. In a March 2017 interview, Dalia Grybauskaitė, president of Lithuania, stated bluntly: “Russia is a threat not only to Lithuania but to the whole region and to all of Europe.” Poland’s foreign minister, Witold Waszczykowski, was equally alarmist, insisting that Russia’s behavior posed an “existential threat” even greater than ISIS.

Russia’s conduct has been abrasive and aggressive at times, but there is no evidence that Moscow harbors expansionist ambitions remotely comparable to those of Nazi Germany and the Soviet Union. Indeed, the Kremlin’s actions suggest a much more limited, perhaps even defensive, agenda. As professors Andrei Shleifer and Daniel Treisman observed in Foreign Affairs, “To many in the West, Russia’s 2008 invasion of Georgia seemed to prove the Kremlin’s land hunger.” But such a conclusion reflects poor logic: “Kremlin leaders bent on expansion would surely have ordered troops all the way to Tbilisi to depose [Georgia President Mikheil] Saakashvili. At the least, Russian forces would have taken control of the oil and gas pipelines that cross Georgia. Instead, the Russians left those pipelines alone and quickly withdrew to the mountains.”

Shleifer and Treisman raise a very important point. If Putin is a rogue leader with massive expansionist objectives, why would he relinquish territory that Russian forces had occupied? Indeed, with very little additional effort, Russia could have captured Tbilisi and the rest of Georgia. Yet it did not attempt to do so. Hitler never willingly gave up any of his conquests, and until the collapse of the Eastern European satellite empire in 1989-1991, the USSR disgorged only one occupied area: the portion of Austria it controlled at the end of World War II. Even that modest retreat took place only after laborious negotiations for a treaty guaranteeing Austria’s strict neutrality. If Putin truly harbors malignantly expansionist ambitions comparable to those of Hitler and Stalin, declining to conquer and absorb all of Georgia when that achievement was easily within reach showed curious restraint. His decision merely to perpetuate and consolidate Moscow’s treatment of Georgia’s two secessionist regions, Abkhazia and South Ossetia, as Russian protectorates suggests much more limited ambitions.

Another aspect of Russia’s behavior is decidedly inconsistent with a rogue expansionist power: its military spending is modest and declining, not robust and surging. True, Putin has sought to rebuild and modernize Russia’s military, and he has achieved some success in doing so. Russia’s navy once again deploys modern vessels, and its air force is now flying modern, even cutting-edge aircraft. Putin’s regime has also focused on developing and deploying long-range, precision-guided weapons, and is pursuing military research and development efforts with respect to hypersonic aircraft and missiles.

Even those developments must be put into perspective, however. The restoration and modernization follows a decade of military decline and decay during the 1990s under Boris Yeltsin. Moscow’s military budget is still a very modest $66.3 billion. Not only does the gargantuan U.S. budget of $716 billion dwarf that amount, it is far less than China’s $174.5 billion and only slightly more than the budgets of countries such as France and India. Moreover, in contrast to the sizable annual increases in U.S. spending levels, Russia’s military spending is declining, not rising. The 2017 budget was $69.2 billion, some $2.9 billion greater than the current budget. That is an odd trend for a government that supposedly harbors vast offensive ambitions.

The only undiminished source of Russian clout is Moscow’s large nuclear arsenal. But as various scholars have shown, while nuclear weapons may be the ultimate deterrent, they are not very useful for power projection or war fighting, except in the highly improbable event that a country’s political leadership is eager to risk national and personal suicide. And there is no evidence whatsoever that Putin and his oligarch backers are suicidal. Quite the contrary, they seem wedded to accumulating ever greater wealth and perks.

Too many Americans act as though we are still confronting the Soviet Union at the height of its power and ambitions. It will be the ultimate tragic irony if, having avoided war with a messianic, totalitarian global adversary, we now stumble into war because of an out-of-date image of, and policy toward, a conventional, regional power. Yet unless U.S. leaders change both their mindsets and their policies toward Russia, that outcome is a real danger.

Ted Galen Carpenter, a senior fellow in security studies at the Cato Institute and a contributing editor at The American Conservative, is the author of 12 books and more than 750 articles on international affairs. His latest book is Gullible Superpower: U.S. Support for Bogus Foreign Democratic Movements (2019).

Patreon Is Not Waging War on Free Speech

Mon, 01/14/2019 - 10:50

Matthew Feeney

University of Toronto psychology professor Jordan Peterson and political commentator Dave Rubin recently announced that they would follow the example of neuroscientist and atheist author Sam Harris and close their Patreon accounts. The announcement came shortly after the fundraising platform removed Carl Benjamin — who goes by the moniker Sargon of Akkad - for hate speech.

The news is the latest battle in the online ‘censorship’ war, with those alleging bias among online giants such as Google, Twitter and Facebook taking steps to try to reform platforms or establish platforms of their own. But those who value free speech and markets should defend Patreon’s right to boot off Benjamin, and welcome Peterson and Rubin’s call for a Patreon competitor. They should also be sceptical of accusations of censorship and bad analogies.

Patreon banned Benjamin last month, explaining that the decision hinged on his comments in a February interview with another YouTube creator. In that interview, Benjamin used derogatory language to describe some white supremacists in an apparent cockeyed attempt to portray them as the people they hate. Benjamin’s comments breached Patreon’s community guidelines, despite the fact that Benjamin did not make the comments on his channel.

Patreon is and should remain free to disassociate itself from whomever it wants. Like all companies that have guidelines and content-moderation policies, Patreon is open to accusations of hypocrisy and inconsistently applying its speech standards. Anyone looking for a company that has been entirely consistent with its own content guidelines will be persistently disappointed.

Patreon’s decision to sever a relationship with someone who uses foul language is not unreasonable on its face. If an advocate of Islamic terrorism wanted to use Patreon to fund origami YouTube videos that have nothing to do with terrorism, it would be reasonable for Patreon and YouTube to remove the content and close the terrorist’s accounts.

Rubin, Peterson and Harris believe that Patreon is too discriminatory and should be more tolerant of certain kinds of speech. On a recent appearance on Tucker Carlson’s Fox News show, Rubin described the situation facing internet users as a choice between a ‘free internet that respects dissenting opinion’ or a ‘controlled internet’ that is ‘basically controlled by the social-justice mob’.

Rubin and Peterson have announced that they are building a fundraising site in the spirit of a ‘free internet’. Presumably, it will be tolerant of users whose writing and commentary includes homophobic and racist language along the lines that Benjamin used. This is the market in action and should be welcomed. Those who want to fundraise on a site with community guidelines more permissive than Patreon’s will have a place to go. Once Rubin and Peterson’s Patreon competitor is up and running, it will be interesting to see how many Patreon users jump ship and climb aboard the new site.

But while many will applaud this new venture, they should be careful about how they describe it. What Rubin, Peterson and their allies are doing is not a defence of free speech. Nor is Patreon’s closing of Benjamin’s account an attack on free speech. Benjamin is still free to speak and was never entitled to a Patreon account.

It would also be a mistake to imagine that platforms like Patreon are acting in a unique way. Peterson recently tweeted: ‘From a YouTube viewer: imagine if banks started cancelling the accounts of people who have committed no offence but did not abide by their corporate mission statement? We’d have political banks.’ This comment overlooks the fact that some banks already disassociate with some groups of people, such as porn stars and gun manufacturers. Although not a bank, PayPal has a long track record of prohibiting certain transactions.

Classical liberals and other supporters of free association and free speech should indeed be concerned when the government undertakes initiatives such as the Department of Justice’s Operation Choke Point, which investigated banks doing business with firearms dealers (among others). But there is a world of difference between a government cracking down on peaceful citizens’ legal behaviour and a private company choosing to sever a business relationship.

Rubin is right when he says that the current debate over speech online will shape the kind of internet we will have in the future. But it’s a mistake to portray the ongoing debate about content moderation as one in which supporters of a ‘closed’ and a ‘free’ internet fight it out for supremacy. You’re not less free if a private company won’t host your speech, and an internet where those companies discriminate is not ‘closed’. Those who want a maximally tolerant venue for speech on the internet are welcome to build one. We should welcome the fact that Rubin and Peterson are doing just that.

Matthew Feeney is director of the Cato Institute’s Project on Emerging Technologies, where he works on issues concerning the intersection of new technologies and civil liberties.

Americans Used to Support a Border Wall. What Changed Their Minds?

Mon, 01/14/2019 - 09:12

Emily Ekins

If there is only one thing people know about Donald Trump, they know he wants to build a border wall. And if there’s only one thing people know about Democratic lawmakers, it’s that they rarely turn down multibillion-dollar infrastructure projects.

Averaging national public opinion polls conducted in 2018 reveals that 6 in 10 Americans oppose building a border wall. But just a few years ago, at least that many supported a wall.

Yet since December 22, the federal government has been partially shut down after President Trump and Democratic congressional leaders were unable to compromise on $5.7 billion in funding for a wall along the U.S.-Mexico border.

Democratic House Speaker Nancy Pelosi (D-CA) has called the border wall “immoral, ineffective, and expensive,” and Senate Minority Leader Chuck Schumer (D-NY) said it was “wasteful” and “doesn’t solve the problem.” Democratic leadership may feel confident holding their ground against Trump during the shutdown in part because public opinion is on their side.

Averaging national public opinion polls conducted in 2018 reveals that 6 in 10 Americans oppose building a border wall. For instance, a CBS News poll conducted in October 2018 found that 60 percent oppose “building a wall along the US-Mexico border to try and stop illegal immigration,” while 37 percent favor building a wall.

Americans Used to Support a Border Wall

But just a few years ago a majority of Americans supported building a border wall or fence. In 2013, an ABC News/Washington Post survey found that nearly two-thirds (65 percent) of Americans supported building a 700-mile fence along the border with Mexico and adding 20,000 border patrol agents.

The same survey found a slim majority (52 percent) still favored building a wall even when told it would cost $46 billion—much higher than Trump’s current request. Similarly in 2011, a majority (57 percent) supported building a security fence, even without additional patrol personal, a Quinnipiac poll found.

Not only that, but in early 2006 a Time/SRBI poll found that a slim majority (52 percent) of Democrats also favored “building a security fence along the 2,000-mile US-Mexican border.” Sixty-one percent (61 percent) of Republicans also agreed. Between 2005 and 2015, polls show that nearly half of Democrats continued to support building a border barrier of some kind.

However, things changed in 2015 when Donald Trump announced his bid for the presidency. Since then opposition rose upwards among the general public. Analyzing more than 150 polls conducted between 2007 and 2018 from the Roper Center iPoll Databank reveals that an average of 43 percent of Americans opposed building a border wall between 2007-2014. Opposition increased to 48 percent in 2015, 58 percent in 2016, and 61 percent in 2017, and then back to 59 percent in 2018.

Democratic support shifted more swiftly starting in the fall of 2015 onward. Now only about 12 percent of Democrats support a border wall or fence. As the charts above demonstrate, Trump’s entry into politics (and making immigration issues salient) played a major role in turning the public against the border wall.

Why Did Americans Change Their Minds About the Wall?

Here I offer four reasons that may explain why Americans turned against building a border wall.

1) Harsh Rhetoric Makes People More Sympathetic to Immigrants

First, Americans may become more sympathetic of immigration when public figures who want to reduce it, like Trump, Steve Bannon, or Pat Buchanan, are on the offensive. Rhetoric from all sides becomes emotional, the media weighs in, people make statements that give the impression they do not like immigrants, and voters get upset.

Available survey data reveals two such instances, first in the mid-1990s and next in the mid-2000s. Both were periods when the nation debated immigration reform, with skeptics leading the charge.

In the mid-1990s, immigration became a hotly contested issue with California’s Prop 187, which sought to restrict unauthorized immigrants’ access to social services, and the Illegal Immigration Reform and Immigration Responsibility Act President Clinton signed in 1996. Debate during this time centered on expanding border security, cutting legal immigration, and preventing unauthorized immigrant children from accessing public schools.

Emotions ran hot. For instance, in a televised interview in 1991 Buchanan argued “there is nothing wrong with us sitting down and arguing that issue that we are a European country” and in 1995 he described illegal immigration as a “foreign invasion.”

Gallup surveys conducted in 1993 and 1995 found about two-thirds of Americans opposed a border wall or fence at that time. However, by the mid-2000s, support for a border wall bounced back. A Time survey conducted in early 2006 found 56 percent supported building a 2,000-mile security fence.

Polls reveal another period where the nation intensely debated immigration and support for a border wall plummeted. Starting in the spring of 2006, majorities once again came to oppose a wall. For instance, a Gallup survey found 56 percent opposed a border barrier by May 2006, just a few months after the Time survey. This was precisely the time Congress debated immigration reform, particularly in relation to H.R. 4337, which sought to build a 700-mile border fence and classify unauthorized foreign citizens and those who provide them assistance as felons.

To give a taste of the rhetoric of the time, Buchanan lamented in his book “State of Emergency: The Third World Invasion and Conquest of America,” that white people would become the minority by 2050 and that by then “America will be a Third World country.”

One could see how many people were offended. Unauthorized foreign citizens and their supporters organized mass protests across the country, “A day without an immigrant,” to demonstrate what the economy would be like without their contributions.

But once the debate subsided, support for the border wall bounced back and majorities supported it again. That is, until Trump entered the presidential race and made the border wall a centerpiece of his policy agenda.

Like in the mid-1990s and 2000s, the public today has turned against building a border wall. The more immigration restrictionists push for building a border wall, the more impassioned the rhetoric, and the more salient it becomes in the news, the more people get offended, and voters turn against it.

2) People Feel Differently About a ‘Wall’ than a ‘Fence’

Second, some people make a distinction between building a border “wall” and a border “fence.” Indeed, analyzing 150-plus polls conducted over the past 13 years available in the iPoll Databank archive shows that 49 percent supported a border “fence” while 38 percent supported a border “wall”—an 11-point difference. However, Trump has emphasized building a wall rather than a fence, whereas lawmakers in the past largely discussed erecting fences.

Why do people make the distinction between a fence and a wall? People may simply think a wall means no one can cross it and thus it would completely halt all immigration across the Southern border.

Furthermore, people may perceive nefarious motives from people who wish to build a border “wall” rather than a “fence.” You might not care much if your neighbor built a fence between your house and theirs. But what would you think if your neighbor erected a large, tall, thick concrete wall between your house and theirs? You might think they don’t like you or want to interact with you. You probably wouldn’t be inviting them over for dinner any time soon either.

Walls give the impression of exclusion and that they cannot be crossed, even legally. Fences, on the other hand, often have gates and give the impression that they can be crossed using the proper channels.

Many supporters of building a border wall may think that a wall can also be crossed if done legally. However, in the minds of the median voter, a wall may sound permanent and impermeable. For some voters this is a feature, but for others it’s a bug.

This conception of what a wall means is demonstrated through a very poorly written survey question from pollsters Greenberg Quinlan and Rosner Research, when they asked voters if they favored or opposed: “Building a fence along the Mexican border to keep Mexicans from entering the country.” No serious Republican lawmakers are calling for a wall to prevent all Mexicans from immigrating to the United States. The fact that these pollsters misinterpreted the intentions of the wall show that many Americans believe the wall is motivated by animus toward Hispanic migrants and their descendants.

3) The Border Wall Has Become a Symbol

This leads to the third likely reason for the recent shift against building a border wall: In the minds of many Americans—although not all—the wall has become symbolic of attitudes toward immigrants and racial minorities. As political scientists may put it, the wall has become “racialized.”

Particularly Democrats have come to believe that support for a border wall indicates animus toward immigrants and people of color more generally. House Speaker Nancy Pelosi’s contention that the border wall is “immoral,” not just cost-ineffective, demonstrates that for many the wall is about values, not number-crunching.

This clearly wasn’t the case several years ago when majorities of Americans, as well as Democrats, supported erecting a border wall or fence. How did framing of the border wall shift from being about security to being about race?

When Trump announced his bid for the presidency, he declared Mexico is “sending people that have lots of problems…They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.”

Many people interpreted Trump’s remarks to mean that he thinks a majority of immigrants from Mexico are criminals while the minority, or only “some,” are law-abiding. This led many to conclude that Trump’s motivation for building a border wall was driven by animus toward a majority of Mexican and Latino immigrants.

Trump further fueled this impression when he claimed that the “Mexican heritage” of the judge presiding over Trump University lawsuits was incapable of impartiality because of his Mexican heritage. Even if Trump didn’t mean to give this impression, it’s understandable how millions concluded that a dislike of Mexican immigrants—here legally or otherwise—motivated Trump’s promise of a border wall.

Surveys show that many Americans reacted negatively to Trump’s comments. An NBC/WSJ poll conducted soon after Trump’s presidential campaign announcement found 37 percent thought his comments were “insulting” and “racist.” Even in 2018, a Quinnipiac poll found that 41 percent believe the “main motive behind President Trump’s immigration policies” is “racist beliefs.”

To be clear, many Americans who support the border wall do not view it as exclusionary or symbolic of animus toward immigrants. However, many people did come to view it this way, and that has significantly contributed to the public turning swiftly against it.

Further evidence that the wall has become a symbol is the fact that Hispanics have consistently opposed building a wall or fence along the border with Mexico for at least the past decade, even though most are U.S. citizens born in the United States or are legal residents. In 2008 only 11 percent supported “building a fence along 670 miles of border between the United States and Mexico,” an AP/Ipsos poll found.

This shows that Latino attitudes about the border wall are not about Trump, because this survey was conducted seven years before Trump ran for president. Latino attitudes have persisted, with only 13 percent in support of a wall in 2018, according to a Washington Post/ABC survey. The fact that most Hispanics are U.S.-born citizens yet still oppose the border wall indicates they view it as a symbolic gesture saying they and people like them aren’t wanted.

4) Democrats Will Oppose What Trump Supports

Trump is a polarizing figure, particularly for Democrats. Survey experiments conducted by Reuter/Ipsos found that simply telling Democrats Trump supports a policy turns them against it—even universal health care. For instance, 68 percent of Democrats ordinarily would agree that when it comes to health care “government should take care of everybody and the government should pay for it.” But among another sample of Democrats who were told Trump made that statement, only 47 percent supported government guaranteed health care—a 21-point drop.

Republicans given the same treatment moved only by 6 points. A third (33 percent) of Republicans supported government-guaranteed health care when they were not told that Trump once supported it. But among those who were told Trump made that statement, 39 percent supported it.

Thus, even on an issue as central to the Democratic policy agenda as government-guaranteed universal health subsidies, Trump can turn Democrats against it. So certainly he can turn them against a border wall too.

But one of the reasons Democrats and the media turned against Trump so intensely was because of the language he chose to use to talk about immigrants. Partisanship alone can’t explain why more than just Democrats, but the median voter also turned against a border wall. In a world where Trump had not gone on the offensive to curb both legal and illegal immigration and had not used inconsiderate language in the process, it’s likely that fewer people would oppose him with such zeal.

Democrats Will Resist Compromise

Democrats talk a lot about the benefits of compromise. In fact 75 percent of Democrats in a 2016 VOTER Survey said they’d rather lawmakers “compromise to get things done” rather than stick to principles. Yet Democratic leadership hasn’t shown signs of budging on building a wall, at least for now.

It’s not particularly credible for Democrats to say they oppose the wall because it’s not “cost-effective.” If they opposed it for that reason, why did many support a border barrier just a few years ago? It’s equally cost-ineffective today as it was then.

But Pelosi calling the wall “immoral” is a more credible explanation for why Democrats oppose the wall now but not before. It’s also indicative that she doesn’t view the wall like other public policy disagreements. As Democratic constituents have come to see the border wall as a symbol of animus toward immigrants, they can’t allow leadership to compromise without violating deeply held values.

What All This Might Mean

There are useful lessons here about how Americans changed their minds on the border wall. Facts and numbers about the cost-ineffectiveness of building a 2,000-mile wall across diverse geological terrain were available before 2015 and did not change many minds. Telling people that it costs money the country doesn’t have didn’t work. Explaining that unauthorized immigration will still continue despite a tremendous amount of money spent also hasn’t been particularly persuasive.

Instead, many people changed their minds about a border wall when they came to view it as a symbol of exclusion and animus toward immigrants and racial minorities and thus immoral. While many advocates of the border wall insist the wall is a humanitarian cause and is necessary for border security, they are talking past those who view it as a racialized symbol.

Perhaps there’s something to be learned here. Sometimes persuasion requires more than simply facts and reason. But persuasion needs the flavor of righteousness for people to care enough to change their minds and for it to stick.

Emily Ekins is a research fellow at the Cato Institute. Her research focuses primarily on American politics, public opinion, political psychology, and social movements, with an emphasis in survey and quantitative methods.

Is Turkey Capable of Defeating ISIS in Syria?

Sun, 01/13/2019 - 09:07

Doug Bandow

The Islamic State exploded in the Middle East, gaining control of large sections of Iraq and Syria. No nation was safe from its ambition to create an Islamic caliphate. But Turkey initially accommodated Daesh, even profiting from illicit oil sales. Eventually, the insurgents turned terrorist inside Turkey, forcing the Erdogan government to respond. However, Turkish forces still targeted Kurdish militias as the true threat.

With President Donald Trump apparently planning an American withdrawal from Syria, the administration suggested that Turkey take over the task of finishing off ISIS. Ankara’s response? Maybe if the United States does most of the work.

Reported the Wall Street Journal: “Turkey is asking the U.S. to provide substantial military support, including airstrikes, transport and logistics, to allow Turkish forces to assume the main responsibility for fighting Islamic State militants in Syria.” These demands, added the paper, “are so extensive that, if fully met, the American military might be deepening its involvement in Syria.”

Given these requests, one would assume Turkey to be a military midget, a featherweight drafted to take on a heavyweight champion. However, until recently, when NATO began to accept the real equivalents of the Duchy of Grand Fenwick—Montenegro, Albania, Croatia, Slovenia and soon Macedonia—new members were expected to contribute to the alliance’s defense. Turkey was hailed as an indispensable ally, locking down NATO’s southeastern front against the Soviet Union/Russia and guarding against Middle Eastern instability.

The first responders in the case of a threat like ISIS should be those nations most affected.

Ankara spends about $8 billion annually on its military. The International Institute for Strategic Studies observed that “The armed forces are capable and aim to provide a highly mobile force able to fight across the spectrum of conflict.” Turkey has about 355,000 active duty military personnel and another 379,000 reservists. The military has experience fighting insurgents, having conducted a lengthy, brutal, dirty war against the Kurdistan Workers’ Party, or PKK, which recently flared again.

Now Turkey’s armed forces are prepared to wipe out the Syrian Kurdish forces, the People’s Protection Units, or YPG. But when it comes to ISIS, well, says Ankara, would Washington please be so kind as to transform and upgrade its military?

The Journal noted that “Three U.S. military officials cited a widespread view that the Turks couldn’t replicate the role that the American military played in Syria against the Islamic State.” But who believes that they should do so? Daesh is a shadow of its former self, against which the United States launched its campaign. Acting like the global superpower is not necessary for Ankara to defeat the Islamic State.

Anyway, Turkey does not want to see a revived ISIS. While Ankara is more concerned about Kurdish forces, Daesh launched terrorist attacks against Turks. If the group again expands and consolidates its gains, Turkey is likely to end up on the ISIS target list. President Recep Tayyip Erdogan’s December offer to take over the anti-Daesh fight might have been a cynical ploy to win U.S. aid. Or it might have reflected a genuine desire to help stabilize the Middle East by killing off a dangerous revolutionary group. No matter. Daesh poses a threat.

Without American aid, Turkey might not initially be as good at seeking and finding the remnants of the once expansive caliphate. However, the Turks would learn by doing. And they would not be fighting one of mankind’s most formidable fighting forces. The Islamic State benefited from the poor quality of its opponents, especially the Iraqi military. Moreover, warned Tom Rogan, a Washington Examiner columnist, were Washington to provide the requested aid the Turks would “almost certainly manipulate those platforms to target the U.S.-allied Kurdish YPG militias well as ISIS.” The Kurds remain Ankara’s principal focus.

The most basic point, though, may be the fact that there is no need for the United States to choreograph the end of the conflict. Washington need not nail down a commitment from Turkey or anyone else to act. Rather, the United States need only make clear that Washington will not act. That would put a premium on other governments reaching a modus vivendi leading to the elimination of Daesh.

The Islamic State is the enemy of every country, every movement, and even every terrorist group, such as Al Qaeda. Countries that had left the problem to others, namely America, would have to recalibrate. They are capable of responding, as did Ankara to the perceived Kurdish threat.

Damascus’ de facto victory in the civil war has freed up its military, backed by Iran and Russia, to eradicate the Islamic State, retaking areas coveted by the Assad government. Egypt already has been affected by ISIS, most dramatically the slaughter of Egyptian workers in Libya and attacks in the Sinai, carried out by the Islamic State or groups claiming loyalty to it.

The Gulf countries too, could contribute. They have been making overtures to Syria’s Assad. The United Arab Emirates, for instance, recently reopened its embassy in Damascus. The UAE and Saudi Arabia also originally contributed to the anti-Daesh campaign, before shifting to Yemen after the United States took command of the anti-ISIS campaign. They would be welcomed back as well. Others with an incentive to prevent ISIS’s revival are Jordan and Israel.

President Erdogan’s pledge to eradicate ISIS followed by expansive demands for aid looks like yet another attempt to play Washington. Even “allies” consistently believe they should do nothing freely when America can be manipulated into doing or funding it. The Europeans, Saudis and South Koreans all have perfected this technique. Now Ankara is giving it a try.

The Trump administration should follow through on the president’s rhetoric about making allies pay. The first responders in the case of a threat like ISIS should be those nations most affected. Together they could and should eliminate what remains of the physical caliphate without expecting Washington to do the job for them.

Doug Bandow is a Senior Fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author of Foreign Follies: America’s New Global Empire.

The Shutdown’s Real Lesson: Government Has Taken Hostage Too Much of the Economy

Thu, 01/10/2019 - 10:36

Chris Edwards

We are in the third week of the federal government’s partial shutdown. The shutdown is affecting the lives of many federal workers and may soon start disrupting the broader economy. Because the government exerts control over major industries, when the politicians butt heads, it damages activities such as aviation, tourism and recreation.

The problem with the shutdown is not that President Trump is holding the government “hostage,” as House Majority Leader Steny Hoyer said, but that the government has taken hostage of too much of the U.S. economy.

Consider security screening at the nation’s 450 commercial airports. The government took over that function in 2001 when it created the Transportation Security Administration. Over the years, the TSA has generally done a poor job, caused congestion and wasted a lot of money.

Political battles would not impact important activities if they were separated from the federal government.

And now, because the TSA is the only screening organization we have, the shutdown may affect the entire nation’s air travel. A spokesman for the TSA screener’s union said Tuesday: “Some of [my members] have already quit and many are considering quitting the federal workforce because of this shutdown … The loss of officers, while we’re already shorthanded, will create a massive security risk for American travelers since we don’t have enough trainees in the pipeline.”

He’s probably exaggerating the risk, but political battles would not impact such important activities if they were separated from the federal government. Many advanced nations, including Britain and France, have privatized their screening or moved it to the control of local airports. If we followed suit, there would not be just one “pipeline” for trainees because airports could contract services from numerous companies.

It is a similar situation with our government-run air-traffic-control system. The spokesman for the federal controller’s union said the negative “ripple effect” of the federal shutdown may last months or years, while the head of the Airline Pilots Association said “the disruptions being caused by the shutdown are threatening the safe operations” of the nation’s airspace.

During the 2013 budget sequester battle, controllers were furloughed and thousands of flights were delayed before the politicians cobbled together a budget deal.

All of this is unnecessary. Dozens of nations have separated their ATC from their government budgets. Canada privatized its ATC system in 1996 as a self-funded nonprofit corporation. That structure has created financial stability, improved management, and generated innovation. The U.S. controller’s union has been so frustrated with federal budget instability and the slow pace of innovation under the current structure that it has backed Canadian-style ATC reforms.

Millions of Americans and the tourism and recreation industries are being affected by National Park Service furloughs. “National parks face years of damage from the government shutdown,” a National Geographic writer said. The national parks have long suffered from deterioration and mismanagement even under normal operations.

The solution is to restructure the parks as nonprofit organizations self-funded by fees and contributions, or to transfer them to state control. Today, while the government’s Frederick Douglass National Historic Site in Washington, D.C. is closed, the well-run and private Mount Vernon in Virginia-home of George Washington-is open for business.

As federal deficits soar in coming years, budget battles will worsen. That will cause more shutdowns, and it will mean that the national parks, air traffic control system and other assets will be starved for investment.

Our ATC system needs billions of dollars to upgrade to new technologies such as satellite navigation, but it is not clear where the money will come from under current federal control. As for the NPS, it faces at least $11 billion in deferred maintenance because appropriations must be spread over a bloated system of more than 400 parks and sites.

Amtrak and the U.S. Postal Service are not affected by the shutdown, but they are losing billions of dollars on their inefficient operations and can’t make needed reforms because of Washington’s dysfunction. They should also be cut loose from federal control.

Privatization of such businesses may seem radical, but a privatization revolution has swept the world since the 1980s as more than 100 countries have moved more than $3 trillion of state-owned businesses to the private sector. Air traffic control systems, postal services, passenger rail and other activities have been successfully privatized abroad.

The federal government’s budget management is a total mess and getting worse. To limit the damage, it’s time to untether the government from as much of the economy as possible.

Chris Edwards is editor of www.DownsizingGovernment.org at the Cato Institute, a Washington, DC.,-based think tank focused on limited government.

Mitt Romney, Commander of the Fake Internationalists

Thu, 01/10/2019 - 09:45

Doug Bandow

No surprise: Senator Mitt Romney does not like President Donald Trump, as he recently explained in The Washington Post. But what, one wonders, was the former GOP presidential candidate thinking two years ago when he supped with the man he now claims to deplore while seeking an appointment as secretary of state?

Much of Romney’s complaint is over manners. Yes, the president is a boor. Most people, including many of Trump’s supporters, recognize that. Trump won not because of his etiquette but because of what he stood for—and against.

Romney also defended The Blob, Washington’s bipartisan foreign policy establishment. In his article attacking the president, he offered the usual vacuous bromides that characterize the interventionist consensus, which poses as internationalism but with plenty of bombing raids, illegal occupations, and nation-building. Most importantly, this perspective presumes permanent American domination, irrespective of cost.

The newly-inaugurated Senator has been promoted to standard-bearer for the bipartisan War Party, filling in for John McCain.

Romney wrote: “America has long been looked to for leadership. Our economic and military strength was part of that, of course, but our enduring commitment to principled conduct in foreign relations, and to the rights of all people to freedom and equal justice, was even more esteemed.” Indeed, “The world needs American leadership, and it is in America’s interest to provide it. A world led by authoritarian regimes is a world—and an America—with less prosperity, less freedom, less peace.”

In fact, Romney appears more committed to dependence on allies than American leadership. For him, these are two sides of the same coin. The only alternative he sees to Washington in control is the bad guys leading.

Related is Romney’s apparent belief that foreign policy is fixed, irrespective of circumstance: the very same U.S.-dominated alliances created in 1950 are needed today. Although America’s friends have raced ahead economically, politically, even militarily, Washington must forever treat them as helpless derelicts. For instance, Russia, a weakened declining power, faces the U.S. and Europe—which together have more than 20 times its GDP. Yet Romney sees Moscow as the greatest threat facing America. It is 1945 all over again.

Romney’s most important omission is Iraq. After the war there turned bad, he remained silent about his support for it. The Iraq disaster is an important reason why Trump won and other Republicans, including Romney, lost. In 2008, Americans rejected John McCain, the very symbol of promiscuous war-making. Four years later, Romney criticized President Barack Obama for leaving Iraq too soon, by which the Republican nominee probably meant leaving at any time. In saying he would keep more troops in Iraq, he ignored the fact that the Iraqis had refused to negotiate a status of forces agreement with the Bush administration.

Romney also failed to mention Afghanistan, both as a presidential candidate in 2012 and senator in 2019. After all, what good can be said for entering the 18th year of nation-building in a region of little strategic interest? As for Syria, last November, Romney predictably denounced as “recklessness in the extreme” exiting a multi-sided civil war in a country never important to America.

Now Romney is being touted as the new standard-bearer for the bipartisan War Party, filling in for John McCain. Bloomberg columnist Hal Brands theorized that Romney was attempting to “position himself as heir to John McCain as the congressional conscience of U.S. diplomacy” (defined as advocating policies designed to prolifically kill and destroy).

Towards this effort, Romney is articulating “a renewed Republican internationalism based on opposition to aggressive authoritarian regimes.” Brands celebrates Romney’s Russophobia, saying he “deserves credit for being anti-Russia before being anti-Russia was cool.” No hint that the U.S. might have contributed to Moscow’s hostility through the aggressive “internationalism” of Presidents Bill Clinton, George W. Bush, and Barack Obama—violating commitments not to expand NATO, dismantling Moscow’s Slavic friend Serbia, and encouraging violent regime change against an elected government that neighbored Russia. After all, equivalent Russian intervention in Mexico would have triggered an extremely hostile reaction in Washington.

Neoconservative Max Boot lauded Romney for throwing “down the gauntlet to President Trump.” Indeed, argued Boot, “it now falls upon Romney to champion the cause of principled conservatism in Washington.” Boot hoped the freshman senator would lead a general opposition and seemed especially pleased at Romney’s support for the interventionist status quo.

Yet the passion-less Romney is a poor substitute for the perennially angry McCain. It is difficult to imagine Romney leading Lindsey Graham and Joseph Lieberman on another apocalyptic ride, demanding that death and destruction be visited upon an enemy du jour. Indeed, Romney admitted as much, complained The New York Times, which noted that he said he “would only speak out against Mr. Trump on issues of ‘great significance,’ which means not much.”

Worse, Romney is a typical denizen of Washington and lacks any connection to the disastrous consequences of his policies. Give McCain credit: he and his sons served in the military. Not Romney. He received four deferments during the Vietnam War, explaining that he “had other plans.” This sounds eerily like Dick Cheney, who said his five deferments reflected “other priorities.”

Moreover, none of Romney’s five sons served. That is, of course, their prerogative. But their decision further insulated Romney from any consequences of his policies. His response to questions about their lack of service: “One of the ways my sons are showing support for our nation is helping me get elected because they think I’d be a great president.” Did Romney believe working for him was as dangerous as fighting Iraqi insurgents in Fallujah? Or that his personal interest in winning the election was as important as the nation winning a war?

My friend William Smith at the Center for the Study of Statesmanship at Catholic University argued that Romney’s article “is another clear sign that the bipartisan political establishment is largely oblivious to the terrible tragedy of wartime casualties disproportionately inflicted on certain communities.” Candidate Trump did particularly well in states that so suffered. Complained Smith: “What is astonishing is that, after all this tragedy, Romney offers only cliched neoconservative bromides to the many heartbroken communities across the nation.”

However, The Blob, which dominates foreign policy under both parties, poses an even larger problem. These policymakers consider permanent war to be America’s natural condition. They seek to suppress dissident views to ensure united support for permanent war. Anyone who hesitates to back every proposed new intervention is demonized and marginalized.

The favorite technique, recently employed by Frederick Kagan in The Hill, is to call opponents, irrespective of their actual positions, “isolationists.” Thus did Kagan urge left and right “internationalists”—meaning military interventionists—to work together to defend “the principle that the United States must remain actively engaged in the world,” by which he meant warring without end on multiple countries.

Exclaimed Kagan: “The isolationists who have condemned the United States involvement in the Middle East and the rest of the world for decades are about to get their wish. We will witness what the world looks like when left to its own devices.”

Egads. Imagine what might have happened had the U.S. not intervened in the Lebanese Civil War, armed Turkey to kill tens of thousands of Kurds and destroy thousands of Kurdish villages, invaded Iraq and triggered sectarian conflict, fostered civil war in Libya and the chaos that followed, supported decades of violent occupation over millions of Palestinians by Israel, backed murderous Saudi Arabia in Bahrain and Yemen, supported a coup against Iran’s democratically elected government and a brutal invasion backed by chemical weapons against Iran’s Islamist regime, actively underwritten tyranny across the Middle East, and tried to sort out the Syrian Civil War. Something bad might have happened.

Yeah.

In Syria, Kagan views as “isolationist” the withdrawal of an illegal military deployment that risks violent confrontation with Syria, Turkey, Iran, and Russia over minor stakes. In contrast, “internationalism” means war everywhere all the time, especially in a country like Syria.

Trump, complained Kagan, is leaving “Afghanistan for no clear reason whatsoever.” No reason other than Washington long ago having achieved its objective of degrading and displacing al-Qaeda and punishing the Taliban for hosting al-Qaeda. And eventually having recognized, after more than 17 years passed, trillions of dollars were spent, and thousands of lives were lost, that using force to create a liberal democracy in Central Asia is a fool’s errand. Why leave, indeed?

It has oft been recognized that Donald Trump is a flawed vehicle to achieve almost any foreign policy end. However, he still possesses far more common sense than Mitt Romney. It is time to rescue “internationalism” from those who love humanity so much that they would destroy the world in order to save it.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is author of Foreign Follies: America’s New Global Empire.

Trump Just Doesn't Understand the Border: Here Are the Facts

Thu, 01/10/2019 - 09:11

David Bier

President Trump took to television on Tuesday to make his case that the lack of a border wall has caused a “crisis.” Drugs, terrorism, crime and the illegal immigration of children all featured prominently as supposed justifications for spending billions of U.S. taxpayer dollars on the project. Yet upon close examination, the President’s justifications fall flat. The border has problems, but the President doesn’t understand them, and some of them he has caused himself.

The President cited stopping drug smuggling as a primary goal of his border barrier. Far from a crisis, however, the value of drug seizures by the average Border Patrol agent actually declined 70% since 2013. That’s because marijuana is the primary drug smuggled between ports of entry, where a border wall would go, and marijuana has been legalized in so many states that demand is being filled domestically.

While Trump acted as if the absence of a border wall were the primary cause of the opioid crisis, the average inspector at ports of entry in 2018 seized eight times more cocaine, 17 times more fentanyl, 23 times more methamphetamine and 36 times more heroin than the average Border Patrol agent seized at the physical border in early 2018. The hard drugs that Trump claims to care about aren’t coming where Trump thinks they are.

Trump’s policies have created a real problem, but his border wall is not the fix the system needs. America needs to overhaul its outdated immigration system.

As importantly, building hundreds of miles of border fence from 2005 to 2009 did nothing to deter smuggling between ports of entry anyway. The average Border Patrol agent was seizing the same quantity of marijuana after the current fences went up as before. When marijuana was legalized in several states starting in 2014, marijuana seizures suddenly dropped 78% — legalization, not the wall, stopped the narcotraffickers.

The President could not help but raise the specter of terrorists crossing illegally. The fact is that a foreign terrorist has not carried out a single terrorist attack in more than four decades after crossing the border illegally. Trump officials have cited a number of “special interest aliens” whom Border Patrol apprehended, but those aren’t terrorists - they are just people who come from “countries of interest.” They could be a family fleeing terrorists, like the Syrian Christians who showed up at the border in 2015.

It would not be a “security crisis” without numerous “criminals and gangs.” Yet Border Patrol figures show that the agency arrested less than 1,000 border crossers who had convictions for violent crimes. That’s just 0.2% of total apprehensions. A majority of the “criminals” in 2018 were people convicted of, not surprisingly, crossing illegally. Trump claimed thousands of suspected gang members were caught crossing illegally, but again, the real number in 2018 was just 728.

The fact is that the vast majority of immigrants crossing the borders of the United States legally or otherwise are simply peaceful people seeking the American dream. That’s why, based on figures from the Census Bureau, immigrants — legal and illegal - are half as likely as natural-born Americans to be behind bars in America.

Trump struck a compassionate tone when he spoke about children who make the dangerous journey to this country. But his policies — and the current border fence — have only hurt them. As Border Patrol and the border fences pushed more and more immigrants to cross in remote areas of the border — in deserts, mountains and rivers — the journeys grew more perilous and more people died.

In 1998, Border Patrol found one dead migrant for every 5,767 apprehensions, but after building the fences and doubling its force, it found one dead migrant for every 1,034 apprehensions in 2017. That’s a sign that the journey is now about 5 times more dangerous. In addition, the remoteness of the locations where they were apprehended contributed to the deaths of both children who died in Border Patrol custody in recent weeks, as it was more difficult for them to get help.

Trump is making matters worse. His administration has institutionalized a practice of capping the number of people who can apply for asylum at legal ports of entry. This forces them to either live homeless and starving in dangerous cities in Mexico for months, or enter illegally. This choice is what is driving women and children into the hands of smugglers and leading them to cross illegally.

The administration says it doesn’t have the resources to process families at ports, but somehow Border Patrol has the resources to process five times as many families that it apprehends between ports. At a minimum, the port inspectors could turn the families over to Border Patrol, maintaining a safe and orderly flow.

The problem is that the Trump administration doesn’t want any flow, even a legal one. As Trump has said, “I don’t want them in our country.” But that’s not a solution. Trump’s policies have created a real problem, but his border wall is not the fix the system needs. America needs to overhaul its outdated immigration system.

David Bier is an immigration policy analyst at the Cato Institue.

No, Economists Don't Agree a 70 Percent Top Marginal Tax Rate Is a Good Idea

Wed, 01/09/2019 - 13:17

Ryan Bourne

Economic commentators Matt Yglesias, Paul Krugman, and Noah Smith believe Rep. Alexandria Ocasio-Cortez’s (D-N.Y.) call for a 60 to 70 percent top marginal income tax rate is uncontroversial. According to all three, the New York Democrat’s proposal simply reflects the consensus of mainstream economics.

Their argument rests on two historical factoids. The first is that the rich paid higher taxes in the 1950s, and the economy grew just fine. The second “fact” is that an array of economists, from Nobel Prize winner Peter Diamond, to Thomas Piketty and Emmanuel Saez, have produced peer-reviewed research showing combined marginal rates as high as 70 to 80 percent are “optimal.”

But dig into these three papers, and you’ll find the results reflect philosophy as much as economics. These economists think they can plan the distribution of income to maximize “social welfare.” But they arrive at the decision to impose extremely high top marginal tax rates because they uniformly decide to put almost zero weight on the welfare of the rich.

That means the sole aim of this cluster of economists is to maximize revenue collected from high earners in order to transfer to others. Presuming we could design a tax system from scratch that eliminates the possibility of people avoiding taxes or hiding or reclassifying income, they estimate the single combined marginal tax rate that would generate maximum revenue to “soak the rich.” Incorporating other wishful thinking about how the rich respond to taxes, these economists wind up calculating that the “optimal” top tax rate is about 70 percent, if you are also willing to imagine closing off special treatment for capital gains and the possibility of incorporation.

The astute reader can probably see some problems with extrapolating from this theoretical calculation.

First, what if one thinks the welfare of the rich is actually an important policy consideration? According to a paper by Jonathan Gruber and Emmanuel Saez, if we instead pursued a “compassionate conservative” agenda—caring about the very poor a bit more than others in society, but everyone else equally, the optimal top rate might be as low as 30 percent. If we were philosophically opposed to redistribution altogether, the optimal rate tumbles to 3 percent. What counts as optimal varies tremendously based on the philosophical assumptions the economist starts with.

Second, what if we were not able to redesign the tax code to eliminate avoidance? A 73 percent rate, the optimal rate calculated by Diamond and Saez in 2011, is a combined rate (not just a marginal federal income tax rate, as Ocasio-Cortez seems to be proposing) that assumes we eliminate all deductions and exemptions. If we presume instead that the current deductions and exemptions continue, and high earners were as responsive to tax rates today as they were in the ’80s, then the supposed optimal combined tax rate falls to 54 percent. After state, local, sales, and other taxes are taken into account, this translates to a top federal income tax rate of 48 percent—much higher than today’s rate of 37 percent, but nowhere near the 60 to 70 percent rate advocated by Ocasio-Cortez. (Also notable: Phil Magness and Nick Gillespie have shown, very few people actually paid the highest rates in the 1950s, precisely because deductions and exemptions existed that these economists assume we’d be able to abolish.)

Third, these sorts of analyses tend to focus on (a) the very short-term, and (b) what to do with income after it’s been produced. They do not ask why we receive income in a market economy. (Answer: because we produce something someone else wants or needs, generating consumer surplus.) The idea that the value of rich people to the rest of society solely rests on their tax contributions, as Krugman implies, is bizarre. In fact, the risk that higher tax rates might deter entrepreneurial activity by reducing the future payoff to innovation should worry us greatly. The economist Charles Jones thinks that incorporating this effect into the model might lower the optimal tax rate to 28 percent, simply because innovations—think Uber, Amazon—deliver huge gains to everyone.

This all might seem technical and theoretical, but it matters. Most of the venerated papers that seem to support super high tax rates for top earners assume we share progressive preferences, that we can implement a new wholly combined tax system (or hike other taxes) to eliminate the possibility of any form of tax planning, and that these huge tax hikes won’t have longer term effects on growth or human capital accumulation.

Given all this, Krugman, Yglesias, and Smith could easily have said, “There’s a progressive case, grounded in economics, for major tax reform, eliminating all deductions, and having one single progressive tax with very high rates, especially on top earners.” But they could instead have said, “There’s a progressive case, grounded in economics, for modestly higher top tax rates within the current code.” But they cannot claim simultaneously that Ocasio-Cortez’s big idea merely echoes the 1950s and that her recommendation is backed up by these economists.

Ryan Bourne is the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.

Syndicate

Syndicate content