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The World Trade Organization is facing an existential crisis because of bullying by President Trump. That crisis can only be resolved if the United States and the 163 other members of the World Trade Organization negotiate a solution to what is most motivating these actions: American angst over the global rules for imposing anti-dumping and other trade remedies against unfair trade practices.

Central to Trump’s assault on the longstanding liberal international order in trade is his threat to grind the settlement of international trade disputes to a halt in the WTO. He is doing this by blocking the appointment and reappointment of the WTO judges whose rulings help resolve the trade disputes. U.S. intransigence may soon reduce the WTO Appellate Body from its full roster of seven judges down to the minimum of three needed to decide an appeal.

If the U.S. continues this strategy, the appellate court will be left with only three judges in September, and only one judge by December 2019—not enough to hear an appeal. Already slowed by the current shortage of judges, the rule-based dispute settlement system that has resolved more than 500 international trade disputes since its creation in 1995, and that has prevented an untold number of additional disputes, could come then to a standstill. 

The impasse over judicial appointments in the WTO is ostensibly about what U.S. officials see as the supposed straying of WTO appellate judges from the strict bounds of their instructions into forbidden legal terrain in some of their rulings. Overlooked in the U.S. is the inconvenient fact that there are 163 other WTO members that have not professed to observe a pattern of judicial “over-reaching.”

Actually, the blockade is driven by the decades-long frustration of some within the U.S. with their failure to negotiate WTO rules that would assure the U.S. virtually unlimited latitude in imposing anti-dumping duties and other trade remedies on imported goods, and that would mandate that WTO judges largely defer in their rulings on such remedies to U.S. decisionmakers.  

Trump and his trade collaborators see America as possessing the sovereign right to impose anti-dumping tariffs and other remedies to alleged unfair trade practices with a domestic discretion akin to international legal impunity. This is not a new view—American industries challenged by foreign competitors and American protectionists representing those industries in the trade bar have long abused U.S. trade remedies to keep foreign competition out of the domestic market. Now they also hold power in the Trump Administration.

But other countries hold a different view. For decades, other countries, like American consumers and many American producers reliant on imports, have been repeatedly victimized by U.S. administrative agencies under the sway of protectionist interests. These agencies tend to rig U.S. domestic trade rules against foreign producers and then apply those rules in ways that discriminate against foreign goods under the legal pretense of fighting trade unfairness. This has happened for decades already with steel imports.

These protectionists forget that there is just one set of WTO trade remedy rules for all WTO members – not one set of rules for Americans and another set of rules for everyone else. Given this, do we want other countries to be able to use their own trade remedies laws to treat our exports the same way we treat theirs? And why should other countries eliminate their own trade abuses if we refuse to eliminate ours?

Since the establishment of the WTO in 1995, the main constraint on the unchecked use by the U.S. of trade remedies has been the WTO rules the U.S. helped negotiate and place in the WTO treaty – rules that have been consistently upheld by the Appellate Body. While the U.S. has (despite what Trump tells us) won about 86 percent of the cases it has brought against other countries before the WTO, it has lost about 75 percent of the cases other countries have brought against the U.S. (which is better than the global average of 84 percent).

Most of these losses have been in politically sensitive disputes over U.S. anti-dumping and other trade remedies. And many of them have been over repeated challenges to the same US trade actions because the U.S. has either refused to comply fully with adverse WTO rulings or has only pretended to comply.

In dumping in particular, the U.S. prefers to retain practices that find dumping where it does not exist and magnify the extent of dumping – and thus maximize the amount of anti-dumping duties – where dumping does exist. (In trade jargon, this is called “zeroing.” The U.S. has lost a long series of “zeroing” disputes.)

Fueling the U.S. foot-dragging is the belief that it has not gotten the extent of legal deference from WTO judges it thought it had secured in the WTO rules for applying anti-dumping duties. Americans who favor the unfettered use of anti-dumping measures feel they have been cheated.

Their legal problem is this:

A sentence the U.S. succeeded in putting in the WTO anti-dumping rules provides that if one of those rules “admits of more than one permissible interpretation,” then WTO judges must defer to the domestic decision “if it rests upon one of those permissible interpretations.” But the previous sentence, on which the U.S. also agreed, instructs the WTO judges to interpret the anti-dumping rules “in accordance with customary rules of interpretation of public international law.” And the use of those interpretative rules always results in a judicial finding of one ordinary meaning for international rules – never two.

Thus, the Appellate Body, in doing its job by following the rules of treaty interpretation it has been instructed by the WTO members to use in the WTO treaty, has never found that an anti-dumping rule “admits of more than one permissible interpretation,” and so it has never given the U.S. the extent of deference that it desires and still believes—wrongly—it negotiated.

Other WTO members are uncertain about how best to react to President Trump’s bullying on judicial appointments. In response, they must not yield to his intimidation by curtailing the jurisdiction of WTO judges by, in effect, allowing the U.S. to be the judge and the jury in its own cases. Instead, they should embrace a proposal that has already been made by the European Union. In exchange for an end to the U.S. blockade of WTO judicial appointments and U.S. agreement to WTO reforms that reinforce the indispensable independence and impartiality of WTO judges while also strengthening the whole WTO dispute settlement system, the 163 other WTO members should agree to negotiate anew on the true core of U.S. concern – the rules on dumping.

This does not mean acquiescing to the arrogant American ambition of having the international legal discretion to do whatever it chooses in applying trade remedies, while expecting other countries to do exactly as the U.S. wishes. It does mean resuming anti-dumping negotiations on the degree of deference owed to domestic authorities – and this time reaching an agreed solution in more precise wording of the anti-dumping rules in the WTO treaty – wording that has consistency and clarity.  

In the wake of the recent “trade agreement” between President Trump and EU Commission President Jean Claude Juncker, we have seen a surfeit of commentary heaping praise on the U.S. president for his strategic trade policy vision and tactical brilliance. Much of that praise has come from people who share the president’s flat-earth view that trade is a zero-sum game played by national governments where the objective is to promote exports, block imports, and secure a trade surplus. Trump throwing U.S. weight around to assert the rule of power over the rule of law is music to this crowd’s ears.

But then there are the apologists who know better; the enablers. They are the bigger problem. In their obsequious tones, they explain how our brilliant president is blazing his own path toward free trade and that the evidence of his success is all around us. If we just disregarded Trump’s nationalist rhetoric, ignored his belief that the trade deficit means the United States is getting ripped off, shoveled away his mounting pile of destructive, protectionist actions, and stopped believing our own lying eyes, we too would rejoice in the greatness of a man who is committed—above all else and above all others—to free trade. 

Engaging in such extreme mental contortions is no easy task, but that’s exactly what an op-ed by tax reform luminaries Steve Moore, Art Laffer, and Steve Forbes in the New York Times last week expects readers to do.

Moore, Laffer, and Forbes (MLF) portray Trump’s “gunboat diplomacy” (you open your markets fully or I’ll close ours!) as strategic genius, akin to Reagan’s nuclear arms race, which broke the Soviets’ backs.  They conclude: “Just as no one ever thought Mr. Reagan would stem nuclear proliferation, if Mr. Trump aggressively pursues this policy, he could build a legacy as the president who expanded world commerce and economic freedom by ending trade barriers rather than erecting them.” Well, yeah, maybe he could.  But so far Trump has only increased trade barriers, more are coming, and there are no negotiations underway—with anyone—aimed at lowering tariffs or other barriers to trade.  But just close your eyes and imagine.

MLF make the following claim:

President Trump won a victory for freer trade last week when he and the president of the European Commission, Jean-Claude Juncker, agreed to find ways to lower tariffs and other barriers to each other’s exports. The outlines of the deal are still sketchy, but it calls for the Europeans to buy more American petroleum, soybeans and manufactured goods and for Mr. Trump to reduce his auto and steel tariffs. We were particularly heartened that Mr. Trump and the Europeans now have a handshake agreement to aim for zero tariffs on both sides of the Atlantic.

The only accurate part of this paragraph is that “the outlines of the deal are still sketchy.” As I described last week, nothing was agreed at that meeting except that new tariffs would not be imposed for the time being. In his Rose Garden statement after meeting with Juncker, Trump said they had agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods (my emphasis).” But there is no timetable and if there were, those discussions would exclude agricultural products, natural resources, services, and—well—automobiles and parts, which together constitute a big chunk of transatlantic trade.

Instead of moving us in the direction of lower tariffs and broader trade liberalization, a more accurate interpretation of the meeting is that Trump made clear that he is digging in for a trade war of attrition with China and that he fully expects Juncker to have his back.  The plan includes such banana republic tactics as buying the quiet of Trump’s trade war casualties ($12 billion for farmers and likely more to come for manufacturers) and compelling the EU (and other trade partners) to purchase more U.S. soy, natural gas, and other products previously destined for China, lest the steel and aluminum tariffs remain in place, and auto tariffs follow—perhaps as early as October.  Considering that the EU will have a tough time absorbing much of the U.S. supply rendered “excess” by Trump’s tariffs and the retaliation they incited, it is only a matter of time before Trump loses patience and transatlantic discord starts boiling again.

MLF:

This was Mr. Trump’s idea. The night before the agreement, he proposed in a tweet that “Both the U.S. and the E.U. drop all Tariffs, Barriers and Subsidies! That would finally be called Free Market and Fair Trade!” Amen.

Of course, zero trade barriers would be great. But Trump’s idea? Hardly. In 2002, in the Doha Round, the Bush administration put forward a far more ambitious proposal for zero tariffs on industrial goods for all countries by 2015. More recently, the Transatlantic Trade and Investment Partnership (TTIP) negotiations included proposals to eliminate tariffs, non-tariff barriers, and subsidies. Neither of those efforts was successful, but the idea has been in play since well before Trump came to town and is not especially radical.

MLF:

This is a winning strategy that we’ve long endorsed with our friends at the White House because it is fully consistent with what Mr. Trump has often told us: his threat of tariffs is a negotiating tactic to get to lower trade barriers and a “level playing field.”

I’m not sure where MLF have been lately, but they seem to have overlooked the fact that the president is not only “threatening” tariffs. He has already imposed them on $100 billion of imports from Europe, Canada, Mexico, Japan, China, and most of the rest of the world. In the next week or so, another $16 billion of imports from China are likely to be hit, and another $200 billion could be subject to 25 percent duties by as early as September.

Last week, Commerce Secretary Wilbur Ross wondered why there was so much handwringing over the matter of assessing 25 percent tariffs on another $200 billion of Chinese goods: “Fifty billion dollars a year on an $18 trillion or so economy is three-tenths of one percent. It’s not something that’s going to be cataclysmic.” Well, it might not be immediately cataclysmic, but a more relevant comparison is that the total value of all duties collected by U.S. Customs in 2017 was just $33 billion. Only in a George Orwell novel could this beefing up of duty collection be called free trade.

MLF:

The next step should be to extend this zero tariff offer to other key allies, including Britain, Canada, Mexico and South Korea.

Again, this is willful ignorance, right?  Anyone who writes about trade in the New York Times has to know that nearly all tariffs between the United States and Canada and between the United States and Mexico are already zero today under the NAFTA, and that the Korea-U.S. free trade agreement includes a roadmap to get us almost all the way there in a decade. One major exception is Trump’s insistence on preserving the 25 percent U.S. tariff on pick-up trucks until the year 2041.

MLF:

If Mr. Trump’s goal is‎ more jobs and higher wages, America comes out the big winner under the zero tariff scenario. Most of our major trading partners have higher tariffs than we do. A study by the president’s Council of Economic Advisers calculates that the average American tariff is 3.5 percent, while the average European Union rate is 5 percent, China’s is nearly 10 percent and the world average is around 10 percent. On a level playing field, American companies can compete with anyone, and our exporters will gain advantage if trade barriers are abolished.

Actually, what this tells us is that the U.S. government has been better to American businesses and households than the governments of China and the EU have been to their own domestic entities. Trump’s tack amounts to his threatening to reduce the freedoms of Americans unless and until the other governments allow their citizens to be freer. So much for America first.

Moreover, jobs and wages are linked to the performance of businesses. American workers benefit, generally, when their employers are profitable. Profits are maximized by maximizing revenues and minimizing costs.

Generally speaking, U.S. export revenues could be higher if U.S. exporters faced lower barriers abroad. But import tariffs don’t compensate for those foreign barriers. They exacerbate the problem because half of the value of U.S. imports are inputs to U.S. production and tariffs raise their costs. Threatening to raise the cost of production on U.S. businesses (and the cost of living for U.S. households) unless foreign governments reduce their own tariffs makes no economic or business sense. Higher tariffs abroad and higher tariffs at home conspire to squeeze profits from both ends, and that’s not good for U.S. employment or compensation. This back of the envelope analysis shows how Trump’s tariffs imperil the expected benefits to U.S. manufacturers from the tax reforms, which MLF were instrumental in advancing.

The optimal response to higher foreign tariffs, which work to reduce U.S. business revenues, is to lower our own tariffs, which would reduce U.S. production costs. So not only is the economics wrong, but the strategy hasn’t produced the results that MLF are celebrating. So far China and nearly every country hit with steel and aluminum tariffs has refused to negotiate under duress. What if these governments continue to remain unwilling to submit to Trump’s gunboat diplomacy?  Even if they were inclined to, why would they have any reason to believe that Trump wouldn’t use the same tactics to get more concessions next time? This is a dubious and very dangerous “strategy.”

In any case, the fact that the United States has lower average tariffs than most countries helps explain the relative success of the U.S. economy over the years. The United States remains the world’s top destination for foreign direct investment, and lower tariffs give us an advantage in the competition to attract and retain that investment. One of the arguments for corporate tax reform with which MLF presumably agree is that lower rates would free up profits to be reinvested in the U.S. economy. Lower taxes on imports have the same effect. We didn’t need agreement from Beijing or Brussels to reduce U.S. corporate rates and we certainly don’t need their consent to do the same for tariffs.

MLF:

The alternative is higher tariffs on steel, aluminum, autos and hundreds of products imported from other countries, particularly China. Those actions have led to retaliatory tariffs imposed on products grown or manufactured in America. This has hurt farmers, the stock market and economic growth.

It’s difficult to fathom that MLF consider higher U.S. tariffs on these inputs and consumer goods to be leverage. Those U.S. tariffs are hurting the economy and threatening to negate the benefits of the tax reform they helped achieve. Those enduring costs, as well as the retaliation impacting U.S. farmers and others are what Trump’s trade policies have wrought.

MLF:

A no-tariffs trade strategy would also allow the United States to seize the moral high ground in the debate. Mr. Trump would be transformed from the evil disrupter of international commerce to a potential savior — just as 30 years ago Mr. Reagan’s international image changed from superhawk to peacemaker almost overnight.

After insulting and bullying U.S. trade partners, imposing enormous costs on the global economy, fomenting profound business uncertainty and diplomatic angst, and snuffing out any remaining fumes of good will toward his administration, it is unlikely that President Trump would ever be considered anything more sparing than an evil disrupter. But in the final analysis, it is apparent that the intended audience for the MLF op-ed is none other than President Trump himself. 

The last few paragraphs make clear that the authors—all Trump advisors—are trying to encourage the president to end up on the right side of history. For that they deserve some credit. But they still lose more points for excusing the president’s numerous transgressions, giving intellectual cover to mercantilists and nationalists who believe the United States shouldn’t be constrained by the trade rules, and for supposing that Trump would ever read the New York Times.

The federal government dispenses unequal treatment to Americans through subsidies, regulations, and narrow tax breaks. The unequal treatment generates lobbying and corruption as the government-determined winners dig in to defend their lucre and the losers agitate for a share.

Washington is a universe of thousands of separate special-interest galaxies, each with spiraling masses of lobbyists orbiting politicians and bureaucrats whose power is a gravitational force. Scientists say that the universe is mainly filled with dark energy, and the same is true of the nation’s capital.

The Tax Cuts and Jobs Act of 2017 created a new special-interest galaxy called “Opportunity Zones.” O Zones are tax structures that infuse governors and U.S. Treasury officials with the power to divide every state in the nation into winner and loser areas. Projects in the winner areas receive capital gains tax breaks, while projects in the loser areas get the shaft.

O Zones are already generating dark energy, as a recent Washington Post story illustrates:

The Treasury Department last week reversed itself after lobbying by Nevada Republicans and agreed to let a previously ineligible county reap huge benefits from the new tax law.

The effort was led by Nevada’s governor, Brian Sandoval (R), and Sen. Dean Heller (R-Nev.), who separately spoke with Treasury Secretary Steven Mnuchin and pushed for Storey County to win designation as an “Opportunity Zone,” which was established in the law to help distressed areas attract money.

Working behind the scenes to help the effort was a Storey County brothel owner and real estate investor, Lance Gilman, who told local officials that the designation could lead to a surge of investments within the next few years. Gilman is also a major GOP donor and made a $5,000 campaign contribution to Heller in the midst of the process, the biggest contribution he had ever given to a candidate for federal office.

Treasury officials had initially deemed that Storey County’s income levels were too high to qualify, based on the metrics they had used to judge every other nomination for the special tax status. But after weeks of prodding from Nevada officials, Treasury relented and gave the designation to Storey County using new data.

The successful campaign to win this lucrative designation illustrates how political pressure can redirect billions of dollars in federal benefits, which are supposed to be distributed in a non-arbitrary manner.

It shows how the new tax law, meant to simplify the tax code when it passed in December, is creating opportunities for gamesmanship — in this case by public officials and business executives seeking to exploit the Trump administration’s discretion in interpreting the law.

…several other Nevada business owners are furious at the designation. To push Storey County for the Opportunity Zone designation, Sandoval had to withdraw the April 20 nomination of Dayton, Nev., an economically depressed neighboring community that lacks Storey County’s huge industrial center.

This has led to accusations of unfairness, and several executives said they haven’t gotten the straight story about why their nomination was pulled without their knowledge.

Unequal treatment generates bad feelings and divisions, negative forces in the universe. The dark energy of O Zone corruption was entirely predictable, and there will probably be lots more of it.

Corruption has similarly swirled around the federal LIHTC tax break, which empowers officials to make winner and loser decisions in local communities, as Vanessa Brown Calder and I discuss here and here.

Vanessa and I have further thoughts on O Zones here, here, and here.

In the summer of 1982, after the Cato Institute’s week-long seminar at Dartmouth, I drove to Boston with one of the other attendees. Touring the city, we encountered a protest rally on Boston Common. I don’t remember just what the rally was about – probably the “nuclear freeze” or a general protest against nuclear weapons, which was a strong movement then. As we watched, a young woman approached and handed us flyers calling for socialism. “Like in Russia and China?” I asked her. Unwilling to defend those disastrous results, she responded “We’re more interested in the experiments currently going on in Zimbabwe and Nicaragua.” I knew very little about those “experiments” and had nothing much to say.

Now, though, 36 years later, we know a great deal about those experiments in socialism. The photograph at right appears on the front page of Friday’s Washington Post with the caption “Paramilitary members stand guard on July 17 at a dismantled barricade after police and pro-government forces stormed the Monimbo neighborhood of Masaya, Nicaragua, which had become a center of resistance.”

I was reminded of something very candid that the socialist economist Robert Heilbroner wrote: that socialism depends on central planning and a collective moral commitment and thus on command and obedience to the plan. And that means that “The rights of individuals to their Millian liberties [are] directly opposed to the basic social commitment to a deliberately embraced collective moral goal… Under socialism, every dissenting voice raises a threat similar to that raised under a democracy by those who preach antidemocracy.” Democratic liberties like free speech and free press are an inherent threat to the planners’ control.

And of course Zimbabwe suffered for some 37 years under the increasingly authoritarian rule of Robert Mugabe, which may or may not have changed with Mugabe’s replacement by his vice president. 

Consider not just democracy but standard of living. In the 36 years since I had that conversation, Nicaragua has been under the rule of socialist Daniel Ortega for about half that time, and Zimbabwe under Mugabe for the entire period. Nicaragua’s GDP per capita is the lowest in Central America – far below market-liberal Costa Rica and 50 percent below war-torn Honduras. Zimbabwe is even poorer. These aren’t just numbers. They indicate how people live. They tell us that in 2018, in a world growing rapidly richer, where poverty is plummeting, people in these countries remain desperately in need of businesses, jobs, food, and medicine. 

I wonder if my socialist interlocutor from 1982 is still interested in the socialist experiments in Nicaragua and Zimbabwe. 

Footnote: Kristian Niemetz of IEA wrote about how socialist “experiments” always become embarrassing after a few years. Except for “very short-lived experiments, such as the Paris Commune…. Those are the Jim Morrisons of socialism. They ended before they could turn into embarrassments.”

The Treasury Department is said to be studying the idea of providing some sort of inflation-protection (indexing) for the taxation of capital gains.  Rep. Devin Nunes (R-CA) has introduced a bill  (H.R. 6444) to do just that.   Predictably, Washington Post writer Matt O’Brien instantly dismissed the idea as “Trump’s new plan to cut taxes for the rich.” 

O’Brien relies on a two-page memo from John Ricco which yanks mysterious estimates out of a black box – the closed-economy Penn-Wharton Budget Model.   The “microsimulation model” predicts that the Top 1 Percent’s share of federal income taxes paid could fall from 28.6% to 28.4% as result of taxing only real capital gains.  “That’s real money,” exclaims Matt Obrien.

No model can estimate how much revenue might be lost by indexing (if any) because that depends on such unknowable things as future asset values, future tax laws and future inflation.   Yet Mr. Rico magically “projects” future realizations to “estimate that such a policy would reduce individual tax revenues by $102 billion during the next decade [sic] from 2018-2027.”   Does that imaginary $102 billion still look like “real money” when spread over Rico’s extended 20-year “decade?”   It would be a microscopic fraction of CBO’s projected individual income taxes of $21.1 trillion over that period. 

One problem with the notion that indexing capital gains could only benefit the top 5 percent (over $225,251 in 2016) is that it wrongly assumes the capital gains tax only applies to stock market gains. Another Washington Post article said, “Researchers have estimated that the top 5 percent of households in terms of income hold about two-thirds of all stock and mutual fund investments, putting wealthier Americans in the position of benefiting much more than others from any changes to capital gains rules.”  But the capital gains most likely to be seriously exaggerated by decades of inflation are not gains from selling financial assets, but from selling real assets.  After many years of even moderate inflation, an unindexed tax may be imposed on purely illusory “gains” from the sale of real property that actually involve a loss of real purchasing power.  A 2016 report from the Congressional Budget Office and Joint Committee on Taxation, “The Distribution of Asset Holdings and Capital Gains” reports that Americans held $7.5 trillion in stocks and mutual funds in 2010, but $12.2 trillion in private businesses and $8.5 trillion in nonresidential real estate.  

A related problem with conventional distribution tables is that they add realized capital gains to income in the year in which a farm, building or business is sold, which makes it true by definition that unusually large one-time gains are received by those with “high incomes” (including those gains).

A much bigger problem is, as the first graph demonstrates, that the capital gains tax is voluntary: If you don’t sell, you pay no tax.  When the top tax rate on realized gains was 28-40%, very few gains were realized – particularly among top-bracket taxpayers. When the top tax rate fell to 20% in 1982-96 and 1997-2000, and to 15% in 2003-2007, inflation-adjusted real revenue from the capital gains tax soared for several years (market crashes in 2001 and 2009 overwhelmed taxes, of course). This is just one reason static estimates of the alleged revenue loss from indexing are not credible: The elasticity of realizations is extremely sensitive to the tax rate and indexing is one way to reduce that tax rate (and raise realizations) for assets held for a long time. 

  

If anyone wanted to cut taxes paid by the Top 1%, then raising the capital gains tax rate is the surest way to accomplish that.  The second graph shows the Top 1%’s share of individual income reported to the IRS (in data from Thomas Piketty and Emmanuel Saez) went way up whenever the tax rate on capital gains went down.  By contrast, top 1% income from realized gains remained depressed whenever the tax was 28% (1987-1996) or higher (1969-77).  The rush to sell before an increase in the capital gains tax in 1987 meant a third of all “income” reported by Top 1% taxpayers in 1986 was from bunching the realization of capital gains.  

The inverted idea that a higher tax on capital gains is an effective way to “soak the rich” has not even been politically successful, because it is not so much an assault on investing as it is an assault on aging.   

It is certainly true that people who have not yet accumulated much capital – which means most young people regardless of their current income – have also not yet accumulated capital gains.  It takes time to accumulate capital, so vulnerability to capital gains taxes rises with age.  And the U.S. has a rapidly-aging population.

When it comes to political arguments for high capital gains taxes on capital gains, the redistributionist left has never grasped that the people who are most fearful of high capital gains taxes are not “the rich” but seniors.  The table, from the CBO/JCT study, shows that net capital gains accounted for only 1% of income among those age 35-44, 3% at age 55-64, and 6% for taxpayers 75 or older.  This little-known fact makes the politics of advocating a high tax on capital gains more suicidal as a campaign issue than many politicians have supposed.

George McGovern’s seemingly clever 1972 campaign slogan that “money earned by money should be taxed as much as money earned by men” meant he favored a minimum tax of 75% on large capital gains (e.g., from selling the family farm or firm before retirement).  That frightened seniors who counted on selling-off accumulated savings to finance retirement.  Senator McGovern won only 36% of the vote of those age 50 or more.   A high tax on realizing capital gains turned out to be bad politics as well as bad economics.

Politicians have long known that how you frame a policy issue can determine its fate.

Consider how the term “weaponizing the First Amendment” frames the issue of speech on social media. Kara Swisher, a reporter and opinion writer at the New York Times, wrote yesterday that “Facebook, as well as Twitter and Google’s YouTube, have become the digital arms dealers of the modern age.” She continues,

They have weaponized social media. They have weaponized the First Amendment. They have weaponized civic discourse. And they have weaponized, most of all, politics.

Supreme Court Justice Elena Kagan also recently accused a majority of colleagues of “weaponizing the First Amendment.”

Let’s trace the implications of the term “weaponize” for free speech. The American Heritage Dictionary offers several definitions of “weaponize”:

To supply with weapons or deploy weapons in…

To equip (a missile or other delivery system) with an explosive or other weapon.

To place or mount (an explosive or nuclear device, for example) on a missile or other delivery system.

To produce or refine (a substance or biological agent, for example) for use as a weapon.

To deploy missiles or other delivery systems equipped with weapons.

Notice the connotation of violence? That’s important because in the United States speech is free of the government censor up to direct incitements to violence. The verb “weaponize” invites readers to see some speech on the internet as something like violence. Once that connection is made, censoring the speech becomes more acceptable, perhaps even required.

Kara Swisher’s column seeks to persuade Mark Zuckerberg, not justices on the Supreme Court. Facebook is not covered by the First Amendment. Swisher is inviting Zuckerberg to see some speech on Facebook as a kind of violence. Framed that way, such speech has no place on Facebook or anywhere, really. Zuckerberg can certainly remove it from Facebook; Congress could act if he does not. After all, Congress has the power to punish violence.

So next time you see the term “weaponize” think about the implications of the word for other people’s speech (it’s always other people’s speech). For those people whose speech is being equated with violence, the implications could be dire.

On August 2, the Department of Transportation and Environmental Protection Agency made a joint proposal to reform the corporate average fuel economy (CAFE) standards. Originally adopted in 1978, when new cars were required to average all of 18 miles per gallon, the standards were increased by the Obama administration to a target of 54.5 mpg by 2025. (This 54.5 is actually an idealized number; as a practical matter, the real target for 2025 is about 47 mpg.)

The new rule proposes to maintain the existing fuel economy standard, which rises to 37 mpg by 2020, and then freeze it at that level after that. By 2025, new automobiles meeting the Obama standard would be about 25 percent more fuel-efficient than under the Trump standard – though if fuel prices rise, consumers could end up buying more fuel-efficient cars than the standard anyway.

Another change, as pointed out in a Wall Street Journal article earlier this week by DOT secretary Elaine Chao and acting EPA administrator Andrew Wheeler, is that the administration wants “to create one national standard.” This means that California won’t be able to impose its own, stronger standards.

As the Competitive Enterprise Institute’s Marlo Lewis observes, when Congress created the CAFE program in 1975, it specially forbade states from adopting their own stronger rules because this would greatly increase the costs of compliance to manufacturers. Despite that, the Obama administration decided to exempt California from the one-national-standard rule. The Trump administration is going back to the actual law.

Obama’s adoption of the stricter standards was supported by many carmakers, including Ford, GM, and Chrysler (the latter two of which were under the government’s thumb due to corporate bailouts). However, Volkswagen strongly objected, saying that the standards were unfair to cars while overly generous to light trucks (pick ups, SUVs, and full-sized vans). This may be one reason why Ford has announced it is getting almost completely out of the car business, planning to make only light trucks plus the Mustang and a new China-made small car called the Focus Active.

The Obama standards assumed that two thirds of vehicles sold would be cars, and only a third light trucks. In fact, it has been about half and half. For that reason alone, the EPA in 2016 (when Obama was still president) concluded that standards would have to be changed no matter who was in the White House. Changing them now gives Democrats one more tool to use to bash Trump, but another president would have had to make some changes anyway.

Chao and Wheeler argue that rolling back the standards will reduce the cost of new cars by several thousand dollars and reduce total costs to consumers by $500 billion over the next 50 years. However, Americans currently spend about $1.1 trillion a year buying, operating, and insuring cars, so $500 billion over 50 years is less than a 1 percent savings on their driving bills.

However, that 1 percent isn’t equitably distributed. To meet the Obama standard, automakers would have to build electric vehicles, sell them at a loss, and then sell their other vehicles for higher prices to make up the difference. Since electric vehicles are mostly purchased by high-end buyers, this imposes a regressive tax on lower-end auto buyers.

Another important issue is that the CAFE program has suffered mission creep. When Congress created the program in 1975, the nation was suffering from politically induced energy shortages. But the standards weren’t needed to save energy; people responded to higher gas prices by buying more fuel-efficient cars without the government standards.

Today, we have an abundance of energy: after adjusting for inflation, gas prices today are much lower than they were in 1975 and much less volatile. So there’s no need to keep the standards to save energy.

Instead, environmentalists defend strict CAFE standards in order to reduce greenhouse gases. But there’s little reason to believe that the standards will have much of an effect on climate change, especially with the emphasis on electric vehicles. This is because most electricity in this country is still generated by burning fossil fuels. Due to losses in generation and transmission, it takes the combustion of three British thermal units (BTUs) of coal, gas, or other fuel to deliver one BTU of electricity to someone’s auto battery. Thus, the savings in greenhouse gas emissions will be far smaller than suggested by the differences in miles per gallon of the Obama and Trump standards.

Even if you believe that we can increase the amount of electricity generated using means that don’t produce greenhouse gas, CAFE standards aren’t the best way to reduce carbon dioxide emissions. The McKinsey Report on greenhouse gases concluded that there are many ways of reducing emissions that are far more cost effective than trying to force cars to become more fuel efficient, most of them having to do with making existing and new buildings more energy efficient.

Only Congress can repeal the law requiring the standards. In the meantime, rolling back the standards is worthwhile because it lets consumers choose how they are going to save money, save energy, and save the environment.

San Diego, CA – Over the course of my research into the conversion of former military bases, more than one person has suggested that I take a look at Liberty Station, the former Naval Training Center located in the Point Loma district of San Diego, that is now a thriving mixed-use community.

Operated for over 70 years as a Navy training base, NTC San Diego was included in the 1993 BRAC. It officially closed in April 1997. The city designated a master developer, Corky McMillan Cos. in 1999 to execute the reuse plan, and the site now hosts shops and businesses, schools, a megachurch, private homes, open spaces, and a vibrant arts district.

I visited there for the first time this week, and now I understand why the Pentagon’s Office of Economic Adjustment calls Liberty Station “one of the most successful base reuse projects in the country.”

Several people who have lived in San Diego for decades, and who have special understanding of Liberty Station’s history, were able to explain to me why that’s been the case.

“San Diego is a Navy town,” explained Jerry Selby, a program manager for the City of San Diego, and “San Diegans wanted [Liberty Station] to succeed.” There was extensive community input, and considerable planning. With some other closed bases, the local communities couldn’t come together on what they should become. “By contrast, Liberty Station was a defined piece of land. You could get your head around what it could – and should – be.”

I met Alan Ziter at The Lot, a movie theater complex in the historic Luce Auditorium, with an adjoining restaurant and bar that offers terrific views of the former base. As executive director for the NTC Foundation, the non-profit organization established in 2000 that’s responsible for the renovation and reuse of 26 historic properties in ARTS DISTRICT Liberty Station, Ziter has a unique perspective on what has been accomplished, and what remains to be done.

“This place was always about education and training,” Ziter explained as we walked among the galleries and past dance studios, “and I like to think that’s what it still does – except now for the arts.”

They do other educating, too, at Liberty Station. What started with High Tech High in the early 2000s is now the High Tech Village, a campus that also includes High Tech Middle and High Tech Elementary, all part of the San Diego Unified School District.

San Diego is home to Balboa Park, one of the finest urban parks in the country. But the flat open spaces of NTC Park on Liberty Station’s east side, along the San Diego Bay, have become popular with soccer players, picnickers, and 5K racers.

In one section of NTC Park are sets of black granite markers and trees along a paved walkway. Each set memorializes a submarine lost in World War II, 52 in all, and includes the story of how the boat was lost, and the names of those now “on eternal patrol.” It’s a simple but powerful memorial

I was tempted to read them all, but I wanted to make my way to Liberty Public Market, a throng of eateries and boutique shops reminiscent of Boston’s Faneuil Hall or Philadelphia’s Reading Terminal Market, though on a smaller scale.

 

One of the other big attractions in the retail area is Stone Brewing, a sprawling restaurant and brew-pub that features more than 40 beers on tap. Business was steady but not crowded on a Wednesday evening. Maggie helped me navigate the extensive menu. She came to San Diego nine years ago from Chicago, and she’s been working at Stone for five. 

She explained that it was a pretty typical weekday evening, but that it’s very busy on the weekends. People come with kids and big groups. They just say, “let’s meet at Stone,” knowing they’ll be able to seat them. You generally don’t need to reserve a room or big table, she explained, although they also have numerous rooms and meeting spaces suitable for private events. 

My favorite part of the story? When I pointed out what a really terrific space it was, and all the more remarkable for having once been a former Navy mess hall, she chuckled. “I know! My grandfather trained here during the Korean War.” 

Liberty Station has managed to preserve the historic charm of this place that hosted hundreds of thousands of sailors on their way to war. It honors the memory of those who didn’t return. And it is now one of the coolest places that I’ve ever visited, in one of my favorite American cities. You should definitely check it out.

 

 

 

This post follows my post yesterday about Facebook taking down fake accounts that “helped promote more than three dozen events in the last 15 months, most of them protesting the policies of President Donald Trump or promoting left-leaning causes.” The posts, thought to be supported by Russian operatives, “sought to work alongside legitimate groups organizing rallies and protests in the U.S.” 

So this is not just about the Russians. Americans also associated with the pages for political reasons. One page drew 84,000 likes. Other similar groups, supported by Americans, associated with, and spoke with the pages. (Their queries were not answered). 

As I wrote yesterday, Facebook was well within their rights to take down the pages. They did so because the accounts were fake and thus violated their community standards. Facebook would have had the right to take the pages down because of the Russian support or for “protesting the policies of Donald Trump or promoting left-leaning causes.” But to have the right is not the same as exercising it. Facebook wisely stayed away from the Russian issue and of course, did not remove the pages because of their content. 

But a fact remains: Facebook deprived Americans of their ability to associate with or speak with others for political purposes. It’s not a good look even though the neutral application of community standards does justify the takedown. 

Set Russia aside for a moment and consider the American part of the story. The deleted pages said things some Americans wanted to hear and supported. Members of Congress might find such speech “divisive” or “disinformation.” Apparently some Americans disagreed: they presumably saw the speech as informative and helpful.

In the United States, by culture and by law, we have free speech so people can learn about and evaluate politics and much else. The people who saw the deleted pages seemed to have engaged and assessed the material. “It was the truth about our people,” Victor Perez, a construction worker in Salt Lake City said of a deleted page that, the Wall Street Journal reports, “used divisive memes to promote Native American and Hispanic culture.” 

Yet the same article quotes experts who say allowing such pages will push the Victor Perezs of the world toward extremism while undercutting trust in “legitimate political activists.” In other words, speech online needs to be managed or really bad things will happen. 

But we have such a management system already. 

Individuals have the right and responsibility to inform themselves critically about politics and much else. They have the right to associate with one another to discuss ideas and to persuade others. They can reject bad ideas. Indeed, we trust that they will. Do people actually believe in these ideals? 

The Constitution prevents the government from improving social outcomes by preventing speech and association. Facebook has a right to govern its platform, but we might expect they will only remove users who violate neutral rules. After all, Mark Zuckerberg endorses the American view of free speech

The rest of us should stop expecting internet intermediaries like Facebook to be guardians of truth and wholesome speech.

As I reported last week, a new lawsuit seeks to stop the government’s illegal practice of counting spouses and minor children of EB-5 investors against the green card limits. I submitted an expert affidavit in the case explaining how the policy has affected the backlog for EB-5 investors, but as Ira Kurzban, the lead attorney on the case, noted in his interview with Stuart Anderson today, the lawsuit could set a precedent that would lead to the exemption of spouses and minor children of other legal immigrants because the same statute governing the policy toward dependents also applies to other legal immigration categories.

For this reason, if EB-5 investors can secure an exemption for their spouses and children, the others will be able to do so as well. The counting policy is relevant for spouses and minor children of employment-based immigrants, diversity lottery winners, and family-sponsored “preferences”—family members who aren’t the spouses, minor children, or parents of U.S. citizens (who have no limits at all). Employment-based categories include EB-5 investors and employer-sponsored immigrants (EB-1, EB-2, and EB-3). The law explicitly requires the counting of the family of EB-4 “special immigrants,” so this change would not affect them.

Table 1 compares current policy using 2016 figures—the most recent year with relevant information available—to the numbers available if the policy changes to correctly reflect the statute (not counting most spouses and children of immigrants). As it shows, current practices permitted almost 1.2 million immigrants in 2016. Of these, the family-sponsored, employment-based, and diversity categories admitted 425,845 immigrants, but of them, 179,772, 42 percent of the total, were the spouses and minor children (dependents) of the primary applicants (the unmarried adult children of citizens, investors, lottery winners, etc.).

Because not counting the dependents would allow 179,772 more primary applicants who then could bring in their spouses and minor children without them being counted, not counting them would increase legal immigration by 322,339, or 27 percent overall in its first year. Total legal immigration would reach 1.5 million annually under this new policy. Total employment-based immigration, including dependents, would increase 140,871, family-sponsored 134,192, and diversity 47,276.

Legal Immigration by Category Under Current Policy

This policy would dramatically decrease wait times for legal immigration and could even eliminate them entirely on the employer-sponsored categories. Total immigration under the policy would further rise in future years because the immediate relatives of U.S. citizens category—for spouses, minor children, and parents of U.S. citizens—is uncapped. After five years, all the new immigrants let in under this policy would be eligible to naturalize and then able to sponsor their parents and, if they hadn’t married already, spouses and their minor children.

Increasing legal immigration would have strongly positive effects on the U.S. economy, especially at a time when U.S. unemployment nears the lowest rate in decades and population growth has dropped to the slowest pace since the Great Depression. With Americans having fewer children than ever, the United States needs new workers, and the evidence indicates that immigrants of all types work at higher rates than the U.S.-born population. While President Trump wants to end the diversity lottery and “chain migration” (i.e. the family-sponsored preferences), these categories provide needed workers at all skill levels. Indeed, they are on average much better educated than the average American today.

Ultimately, the outcome of the lawsuit should be decided on the merits of the law, not its effects on legal immigration or the economy. Nonetheless, should the lawsuit succeed, Americans will be freer to associate, contract, and trade with people born in other countries, and that will be a benefit for both sides.

I am saddened to report that my dear friend Andrea Millen Rich died this morning at her home in Philadelphia at the age of 79 after a 19-year battle with lung cancer. She was, among many other things, the proprietor of Laissez Faire Books and the wife for 41 years of Howard Rich, the Cato Institute’s longest-serving Board member.

For more than 40 years Andrea was at the center of the libertarian movement, a mentor, counselor, friend, supporter, facilitator, networker, and gracious hostess to hundreds of freedom lovers – young, old, well-known, obscure, successful, down-on-their-luck, didn’t matter. 

She was the first chair of the New York Libertarian Party in 1973-74. The vice chair was Howard S. Rich, whom she soon married. From 1974 to 1977 she was vice chair of the national Libertarian Party, and in 1980 she played a key role in developing television advertising for the campaign of Ed Clark, the Libertarian presidential nominee.

From 1982 to 2005 she was the president of Laissez-Faire Books, which billed itself as “the world’s largest collection of books on liberty.” It had a retail location on Mercer Street in Greenwich Village, described in Radicals for Capitalism by Brian Doherty as “an important social center for the movement in America’s biggest city, a place for any traveling libertarian to stop for company and succor.” But in those pre-Amazon days, it was far better known for its monthly catalog that reached libertarians around the world. Through its Fox & Wilkes publishing imprint it brought many classic libertarian books back into print. (Brian Doherty’s own reflections, along with those of Nick Gillespie, can be found at Reason.)

Andrea often negotiated with publishers to make books more affordable, and some books only found publishers because Laissez-Faire could guarantee an audience beyond the small academic market. She even taught me how to negotiate with publishers. Through her work with Laissez-Faire she became friendly with leading libertarian writers including Milton and Rose Friedman, Robert Nozick, Thomas Sowell, Nathaniel Branden, Thomas Szasz, Charles Murray, Richard Epstein, David Kelley, and Margit von Mises, widow of economist Ludwig von Mises.

As president of the Center for Independent Thought, the parent organization of Laissez-Faire Books, she also launched and managed the Thomas S. Szasz Award for Outstanding Contributions to the Cause of Civil Liberties and the Roy A. Childs Fund for Independent Scholars. CIT’s biggest project was Stossel in the Classroom, which repackaged ABC News and Fox Business videos on economics and public policy by John Stossel for classroom use. The videos have been viewed by tens of millions of high school students – according to Stossel, reaching more people than ABC News and Fox News.

Along the way she also helped to found the Center for Libertarian Studies in 1976 and served on the boards of the Foundation for Economic Education, the oldest free-market think tank, and the Atlas Network, an international association of think tanks. She traveled as far as Russia and Kenya to meet libertarians and spread the ideas of freedom.

Andrea Millen was born February 8, 1939, to the late Louis and Vera Millen of Johnson City, Tennessee. She graduated from Science Hill High School and attended the University of Alabama. After she got a summer job at CBS answering fan mail for Mighty Mouse and Heckle and Jeckle (“my handwriting was perfect for it, they said”), she never went back to school. For 18 years, she worked in television, including for Sid Caesar, Joe Pyne, and the NBC News election unit.

She lived most of her life in Manhattan and Orangeburg, NY, but moved to Philadelphia in 2009.

She is survived by her husband of 41 years, Howard Rich, her sister Elaine Millen of Charlotte, NC, stepsons Joseph Rich and Dan Rich, Dan’s wife Maureen, and granddaughters Cati and Samantha.

Today, the Federal Reserve’s policy setting body decided to hold interest rates steady—a policy move that was predicted with near certainty by financial markets. Because this Federal Open Market Committee (FOMC) meeting was not a “live” one, that is Fed Chairman Powell did not follow it with a press conference, the only news comes from the press release. And the news there is basically no news at all—except for calling economic growth “strong” instead of “solid.” 

But this slightly more bullish tone on economic growth is not license to ignore other potential issues in the economy.

One concern is escalating trade tensions. The increasing levels of protectionism emanating from the U.S. and reverberating across the globe could dampen the economic outlook. Powell, fortunately, is aware of the risks of higher trade barriers—but it remains debatable what precisely the Fed can or should do in light of mounting protectionism.

Another concern is the flattening yield curve, where yields on short-term Treasury bonds have been inching higher and closer to yields on long-term Treasury bonds. If short-term yields exceed long-term yields, we end up with a yield curve inversion. Yield curve inversions often portend a recession, as they indicate market uncertainty about short-term prospects. While the flattening has abated this month—and while some Fed watchers rightly point out that if the curve stays relatively flat without inverting, there is less reason to worry—the Fed should continue to monitor important feedback from the bond market.

But the real issue the FOMC ought to be focused on is the Fed’s operating framework. I discussed the FOMC’s tinkering with the mechanics of monetary policy last month, highlighting that the current operating system was an experiment that grew out of the financial crisis and that it remains a framework with which the Fed has little experience. Of course, my colleague George Selgin has been the leader on this issue, bringing much needed attention to the myriad problems the “leaky floor” system poses. When the minutes from this FOMC meeting are released in three weeks, we can only hope they reveal the members giving this topic its rightful due.

It’s all well and good for the FOMC to adjust its language in the wake of positive GDP figures, but the Fed still has a very large question to address. It’s past time that they begin to do so in earnest.  

Today was a busy day for financial regulatory policy. In the morning, the Department of the Treasury released its long-awaited report on nonbank financials, fintech, and innovation. A few hours later, the Office of the Comptroller of the Currency announced that it will start taking applications for a special purpose charter for “fintech companies engaged in the business of banking.”

Over the eighteen months since President Trump signed an executive order outlining the core principles for financial regulation under his watch, the fintech sector has been gripped by policy uncertainty and the looming threat of regulation by enforcement. Today’s events bring much-needed clarity on the Trump administration’s outlook for financial innovation, and the likely way forward.

At 222 pages, the Treasury report is a mammoth document. However, in grappling with the chief ailments of the U.S. financial regulatory framework, the report starts a discussion that will hopefully lead to major revision of existing rules and regulatory approaches.

Three problems afflict the current edifice of the financial regulatory system. Firstly, it was largely designed at a time when most of the technologies that are changing financial services provision did not exist. Secondly, there is a great deal of fragmentation, both horizontal—with rulemaking, supervisory, and enforcement power dispersed across many federal agencies—and vertical—with competences distributed between states and the federal government. Thirdly, it is by design a precautionary system, focused on protecting consumers at all costs, often at the expense of beneficial innovation.

Comprehensively addressing these three problem areas will take more than a sympathetic attitude from the executive. However, the report helpfully points the way forward in seven areas.

1. Clarity about how financial providers talk to consumers

The rules governing communications between financial providers and their customers stem from the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA), passed respectively in 1977 and 1991. Unsurprisingly, both laws fail to take account of the increasing reliance on text and email communication via smartphones—and the Federal Communications Commission has given a wide interpretation to statutory provisions, constraining providers’ ability to reach their customers using new media. The Treasury report finds that the reach of current regulations is overly broad, an assessment vindicated by recent court rulings. It recommends changes to the FDCPA and TCPA to make it easier for consumers to revoke consent to be contacted. It also calls for greater clarity about the ways in which providers can reach consumers and the information they can disclose over email and voicemail services.

2. Data access and use by fintech firms

More people are making use of technology platforms for budgeting, saving, investment, and debt management. Enabling fintech applications to gain access to one’s financial data can improve consumer welfare by making it easier and cheaper to refinance loans, manage bank accounts, and learn about suitable new financial products. But banks and other established financial firms are reluctant to give access to customer data to third parties—partly because it is a competitive threat but also because it can compromise the confidentiality of those data, for which banks could be found liable. The Treasury report calls for increased efforts to improve data aggregation. It favors private-sector action and standardization of applications to make data-sharing easier and more secure but doesn’t rule out federal standards.

3. Credit scoring

One of the key ways that financial innovation is improving consumer welfare is by helping to model risk and predict default in more accurate ways. This lowers the cost of credit and expands access to marginal borrowers. For instance, a recent Federal Reserve paper finds fintech credit scoring to lead to better default estimates and lower interest spreads than FICO scores. The Treasury recognizes the value of alternative data use for better credit scoring, but it is wary of potential discrimination. Growing empirical evidence, on the other hand, suggests that better outcomes can be achieved without undermining equal treatment laws.

4. Harmonizing or federalizing money transmitter and nonbank lender licensing

As Brian Knight from the Mercatus Center has discussed at length, a key weakness of existing financial regulation is its fragmentation across states. The Treasury is aware of the onerous licensing and compliance costs that such fragmentation imposes on providers, and its report encourages voluntary harmonization by states, via passporting rules. If states cannot achieve the requisite degree of equivalence, the Treasury advocates federal action. Given New York’s fierce opposition to any perceived dilution of its financial rules, it looks like federal preemption will come sooner or later. Federalization would foreclose healthy regulatory competition, but in light of the operating costs imposed by fragmentation, the trade-off may redound to the benefit of consumers.

5. Codifying valid-when-made for banks and nonbank lenders

Legal precedent for two hundred years has established that, if a loan extended by a national bank did not violate usury laws at the time or location of its issue, then it is valid at a subsequent time and location within the United States. More recent judicial decisions have expanded the application of this doctrine to nonbanks, but a recent case involving defaulted credit card debt questioned the principle, throwing interstate marketplace lending into disarray. The Treasury rightly calls on Congress to codify the valid-when-made doctrine. In fact, the House already passed a bill that does exactly that.

6. Rescind the BCFP’s payday rule

Nobody likes high-cost short-term credit, but the accumulated evidence—contrary to popular wisdom—shows that payday loans serve many customers much of the time—especially those with urgent need for funds and no access to alternatives. Despite this evidence, the Bureau of Consumer Financial Protection (BCFP) under its previous director sought to apply new rules on payday lenders that would have required them to verify the borrower’s ability repay. These checks would be inappropriate precisely because payday loans are a last-resort emergency product, meaning that some non-negligible proportion of borrowers will indeed end up not paying them back. That makes payday loans costly to extend, but it does not mean they do not help the typical borrower. The Treasury recommends that this draconian BCFP rule be rescinded. Instead, the emphasis should be on removing regulation to encourage a broader spectrum of lower-cost small-dollar products provided by banks and nonbanks alike.

7. Adopt regulatory sandboxes as a spur to innovation

Existing rules aiming to protect consumers may not pose a threat to established institutions, but they do raise barriers to entry for challenger firms, reducing competition. A pragmatic way to maintain existing protections—even though the case to do so is often dubious—while encouraging innovation is to allow for regulatory sandboxes: in which new firms can begin operations under regulatory supervision, but without being subject to the full corpus of regulation. Leading financial jurisdictions such as Britain and Singapore have implemented sandbox programs. The Treasury report calls for similar policies from U.S. regulators, and, if needed, congressional action to facilitate innovation and preempt state barriers. While the sandbox approach eschews the broader question of whether existing rules are appropriate, it almost surely will improve the environment for innovators.

The above is not a comprehensive discussion of the report, but a summary of its key proposals. The tenor of the Treasury’s recommendations is laudable and many of the specific reforms much-needed. However, perhaps the thorniest of issues goes unmentioned, namely, whether the sheer number of regulators and regulatory restrictions placed on financial services firms is making the financial services industry less dynamic and innovative than it could be. That is the question underlying present efforts, however modest, at regulatory relief for banks, nonbank lenders and new players such as cryptocurrency issuers and exchanges.

The tone of the Treasury’s report suggests an answer, but it remains to be seen whether executive and legislative action will measure up to the challenge.

[Cross-posted from Alt-M.org.]

Since the 2016 election Facebook has faced several problems, some related to the election, some not. In 2016 Russian agents bought ads on Facebook and posted messages related to the election. Facebook has been blamed for not preventing the Russians from doing this. Many people may believe the Russian efforts led to Donald Trump’s election. That view remains unproven and highly implausible.

Beset by other problems, Facebook seeks to avoid a replay of 2016 after the 2018 elections. Yesterday Facebook tried to take the offensive by removing 32 false pages and profiles from its platform; the pages had 16,000 to 18,000 followers, all connected to an upcoming event “No Unite the Right 2 – DC”.  

Facebook stated the pages engaged in “coordinated inauthentic behavior [which] is not allowed on Facebook because we don’t want people or organizations creating networks of accounts to mislead others about who they are, or what they’re doing.” Facebook does not allow anonymity on its platform at least in the United States. They appear to be enforcing their community standards.

Most people might not worry too much about what Facebook did. The speech at issue was said to be divisive disinformation supported by a traditional adversary of the United States. Who worries about the speech of hostile foreigners? Still a reasonable person might be concerned for other reasons.

The source of the Facebook pages, not the company’s policies, seemed of most interest in Washington. Sen. Mark Warner said that “the Kremlin” had exploited Facebook “to sow division and spread disinformation.” Warner’s confidence seems unwarranted. The Washington Post reported that Facebook “couldn’t tie the activity to Russia.” Facebook’s chief security officer called the Russian link “interesting but not determinant.” The company did say “the profiles shared a pattern of behavior with the [2016] Russian disinformation campaign.”

The takedown also affected some Americans. Ars Technica said the event on the removed page “attracted a lot of organic support, including the recruitment of legitimate Page admins to join and advertise the effort.” Perhaps Russian operatives have no protections for their speech. But the Americans affected by the takedown do or at least would have had such protections if the government had ordered Facebook to take down the page in question.

But the source of the speech was not the only problem. As noted earlier, Sen. Warner thought two kinds of speech deserved suppression: divisive speech and disinformation. But, as a member of Congress, he cannot act on that belief. Courts almost always prevent public officials from discriminating against speech based on its content. For example, the First Amendment protects “abusive invective” related to “race, color, creed, religion or gender.” The Supreme Court has also said false statements are not an exception to the First Amendment.

In contrast, Facebook can remove speech from their private forum. The First Amendment does not govern their actions. But Facebook’s freedom in this regard might one day threaten everyone else’s.

Here’s how. Facebook might have removed the page for purely business reasons. Or they have acted more or less as agents of the federal government. The New York Times reported that Sen. Warner “has exerted intense pressure on the social media companies.” His colleague Sen. Diane Feinstein told social media companies last year “You’ve created these platforms, and now they are being misused, and you have to be the ones to do something about it. Or we will.” Free speech would fare poorly if social media were both free of constitutional constraints and effectively under the thumb of public officials.

Facebook officials may see business reasons to resist Russian efforts on their platform, a goal served by enforcing existing rules. At the same time Facebook wishes to be seen by Congress as responsive to congressional bullying. But being too responsive would only encourage more threats later, and in general, giving elected officials even partial control over your business is not a good idea. So Facebook is both careful about Russian influence and responsive to congressional concerns, a good citizen rather than an enthusiastic conscript in defense of the nation.

Facebook’s efforts may yet keep Congress at a safe distance. But members of Congress may be learning they can get they want from the tech companies. In the future federal officials free of constitutional constraints may indirectly but effectively decide the meaning of “divisive speech” and “disinformation” on Facebook and elsewhere. Their definitions would be unlikely to affect only the speech of America’s adversaries.

This is getting old. I find myself correcting false claims regarding the scientific evidence on private school choice all too often. For example, using only one correlational study that did not detect any statistically significant effects, Valerie Strauss recently concluded that “private schools aren’t better at educating kids than public schools” in the Washington Post. As I have pointed out many times before, the preponderance of the causal evidence indicates that school voucher programs in the U.S. improve student test scores and more important outcomes such as high school graduation, college enrollment, and tolerance of others.

But science shouldn’t determine whether families are allowed to pick the schools they want for their kids.

Just imagine if we used the scientific evidence to decide whether people should be residentially assigned to their nearest government grocery store. What if we randomly assigned thousands of families to government-run grocery stores and found that, on average, those families consumed fewer calories than the families with the freedom to shop for groceries on their own? Such an empirical finding certainly wouldn’t mean that the government should compel all individual families to accept the grocery basket deemed ideal by the experts. After all, a crude metric such as caloric intake can only tell us so much about how well an individual’s nutritional needs are being met. And, of course, some people may simply value eating appetizing foods more than the benefits of having a lower BMI. It would be a disgraceful limitation of freedom to compel people to consume—and pay for—a basket of groceries they did not want.

Yet this is precisely the type argument often used against freedom in education—that parents are somehow unfit to choose schools for their own kids.

But it’s worse than that with education because most of the random-assignment evaluations find that students are better off when their parents are allowed to choose their schools. And even though the most rigorous scientific evidence available says families should have school choice, less than one percent of the school-aged population in the U.S. uses a private school choice program.

But why shouldn’t society use science to force other people to do the “right” things?

Of course, science can tell us a lot about the world around us. And random assignment (the “gold standard” of scientific research) is the best thing we have available to determine how certain treatments (or policies) affect groups of people. However, even the best methodology has important flaws that do not allow researchers to give central planners enough information to make good decisions for individual families.

For example, since the internal validity of experimental design relies on something called the law of large numbers, the methodology only allows researchers to determine the average effects of policies for large groups of people. In other words, even the best scientific methodology that exists cannot determine the effect of policies on specific individuals. And then there is the external validity problem—even if a school choice program is found to have large positive (or negative) effects on one group of students, on average, it is unlikely that the effects will be exactly the same for the other cohorts of students or in different settings. Similarly, the effectiveness of school choice programs—and the supply of private schools—can change over time.

And education technocrats frequently use faulty measures of success—standardized test scores—because it is extremely difficult for researchers to get their hands on more important long-term outcomes such as earnings, crime, and character skills. The main problem is that effects on math and reading test scores often do not predict effects on more important long-term outcomes. For instance, a recent American Enterprise Institute review of the evidence found that 61 percent of school choice programs’ effects on math test scores—and 50 percent of effects on reading test scores—did not predict effects on high school graduation. And at least 11 other studies have found divergences between private schools’ effects on test scores and their effects on more important long-term outcomes. For example, a peer-reviewed evaluation found that private school vouchers in Ohio had no effect on test scores but increased students’ charitable donations by 23 percent. In other words, focusing too much on standardized test scores could compromise the character skills necessary for true lifelong success.

And that’s just the tip of the iceberg. Many evaluations do not use random assignment—and the problems only get much worse when weaker empirical methods are used. Put simply, central planners face a severe knowledge problem with education today—just as central planners faced severe knowledge problems with five-year plans in the Soviet Union.

The fact is that families have more information about what their individual children need than education bureaucrats and scientists sitting in offices—hundreds of miles away. Families are also more interested in their own children’s lifelong success than anyone else.

The strongest scientific evidence we have on the subject suggests that private school choice works. But that really shouldn’t even matter. Just as people have the right to pick their own groceries, people should have the right to pick the schools that they believe will work best for their own kids. And just as government officials cannot force families to eat at particular restaurants, government officials shouldn’t be able to force families to send their kids to failing government schools.

Late yesterday, U.S. District Court Judge Robert Lasnik issued a temporary restraining order (TRO) blocking the release of design files for 3D-printed guns. The order comes in response to a lawsuit filed by a number of state attorneys general who claim that the Trump administration acted unlawfully in reaching a settlement in a lawsuit brought by Defense Distributed, a company that produces digital blueprints for 3D-printed guns, and the Second Amendment Foundation. Judge Lasnik found that states were likely to suffer irreparable harm—the standard for a TRO—if the digital blueprints became distributable via a website, and he felt that the situation was such an emergency that the order was issued within a day of when the suit was filed.

This is a deeply silly order. People have been making guns out of various objects for centuries. Watch this video of someone making a shotgun out of two pieces of commonly available tubing.

Zip guns like those have been used for centuries. They’re easy to make and easy to learn how to make. And, as long as you follow certain guidelines (such as not making a machine gun), such guns are perfectly legal to make. As the ATF website says: “No, a license is not required to make a firearm solely for personal use.”

Moreover, distributing plans for zip guns is a form of speech protected by the First Amendment, as it should be. Here’s a website telling you how to make one, and here’s a YouTube video telling you how to make one in less than two minutes. Judge Lasnik’s TRO is the equivalent of shutting down those websites and videos because telling people how to make zip guns creates an “irreparable harm.”

3D-printed guns are little better than those zip guns. The Libertor is a one-shot pistol that, if it works, fires a low-powered bullet with an effective range of maybe 20 feet. More often, it might just explode in your hand. As one commentator writes,

The Liberator’s bullet emerges going very slowly and wobbling or tumbling due to lack of spin. It might go almost anywhere, though not very far, and is unlikely to do much damage to anything it manages to hit. It’s a bit better than holding up a cartridge in a pair of pliers and banging the cap with a centrepunch or similar, but not much.

The Songbird is another design that works slightly better, but still wouldn’t be your first choice for doing anything except demonstrating to your friends that you built a gun that doesn’t blow up in your hand.

These guns are little better than a musket or a muzzle-loading flintlock pistol, which anyone can purchase without a background check. Yes, that’s right, criminals all over the country can purchase something like this replica English Civil War cavalry pistol and wreak havoc. Sure, they’ll need to get some black powder, some wadding, and some musket balls, but those are widely available, especially in the internet age. Or, if they want more than one shot, they can purchase this 1860 model Colt revolver replica, also without a background check, which would certainly be good enough to rob a store. So why aren’t people constantly robbing stores with the guns of Jesse James or Captain Jack Sparrow? Because it would be stupid and more expensive than purchasing this professionally manufactured Hi-Point 916 for $149.00. And if someone is prohibited from purchasing a gun from a licensed dealer, perhaps because they’re a convicted felon, they can acquire a gun in the myriad ways criminals acquire guns. No street-level gun dealer is waiting for the TRO to be lifted so he can start flooding the streets with in-demand single-shot plastic pistols. The concept is too silly to contemplate.

The idea that allowing websites to distribute digital blueprints for 3D-printed guns creates “irreparable harm” to the states is as silly as saying allowing people to distribute plans for zip guns does “irreparable harm.” The fear created by the phrase “3D-printed guns” should not be allowed to override common sense.

The usual narrative is that Democrats support consumer protections and Republicans oppose them. Today’s short-term plans final rule flips that narrative: Republicans are expanding consumer protections, and Democrats are opposing them.

Today’s rule reverses a 2016 Obama rule. The Obama rule reduced consumer protections in short-term plans by exposing sick patients to medical underwriting. Before that rule, consumers could purchase short-term plans that lasted 12 months. If they developed a serious illness, their plan could cover them until the next ObamaCare open enrollment period, when they could purchase coverage without medical underwriting. The Obama rule restricted short-term plans to 3 months. It prohibited “renewal guarantees” that protect enrollees who fall ill from medical underwriting when they purchased a new short-term plan. As a result, the Obama rule left short-term plan enrollees who got sick with no coverage for up to 9 months: those who purchased a plan in January, and developed a serious illness in February, would lose their coverage at the end of March, and have no coverage until the following January. (Source: NAIC) This was by design: the Obama administration wanted to expose sick people in short-term plans to medical underwriting and lost coverage as a way of forcing consumers to buy ObamaCare coverage instead. That’s at least a little messed up.

Today’s rule allows short-term plans to last 12 months and offer renewal guarantees. It therefore allows short-term plans to protect the sick from medical underwriting for an additional 9 months—indeed, “issuers may offer coverage under a short-term, limited-duration insurance policy for up to a total of 36 months, without any medical underwriting or experience rating beyond that completed upon the initial sale of the policy”—and allows renewal guarantees to protect them from medical underwriting indefinitely. Protecting the sick from medical underwriting has long been a goal of Congress.

So, to recap, Republicans are expanding consumer protections, and Democrats are opposing an expansion of consumer protections.

Weird, isn’t it?

President Trump tweeted this morning that, “One of the reasons we need Great Border Security is that Mexico’s murder rate in 2017 increased by 27% to 31,174 people killed, a record! The Democrats want Open Borders. I want Maximum Border Security and respect for ICE and our great Law Enforcement Professionals!”  He tweeted this because he’s spent the last few days stating that he would shut down the government if Congress did not adopt his immigration proposed reforms in the upcoming budget debate, especially the funding for the construction of a border wall.

Besides the political motivation for his tweet, President Trump seems to have assumed that crime in Mexico bleeds north into the United States, so more border security is required to prevent that from happening as murder rates begin to rise again in Mexico.  Although illegal immigrant incarceration rates are lower than they are for natives, illegal immigrant conviction rates in the border state of Texas are lower for almost every crime including homicide, and the vast majority of evidence indicates that illegal and legal immigrants are less crime-prone than natives, the President’s specific claim that murder rates spread from Mexico to the United States is different from most of the existing peer-reviewed literature. 

My colleague Andrew Forrester and I ran some simple regressions to test whether higher homicide rates in Mexican states that border the United States spread northward to U.S. states on the other side of the border.  It doesn’t make much sense to compare Mexican crime in the Yucatan Peninsula with that in Maine but, if President Trump’s theory is correct, then we should expect to see it cross from Baja California to California, for instance.  Homicide data for the Mexican border states come from the Mexican National Institute of Statistics and Geography.  American homicide data come from the Uniform Crime Reporting statistics at the FBI (files here).  Homicide rates in states in both countries are per 100,000 state residents which allows an apples-to-apples comparison.  We used data from 1997 through 2016 but were not able to include 2017 as U.S. crime data is unavailable for the American states although it is available for the Mexican states.  We decided to look exclusively at U.S. and Mexican border states because those are where we would expect crime to bleed over if such a thing happened. 

Figure 1 shows a negative relationship between homicide rates in U.S. border states and Mexican border states with a negative correlation coefficient of -0.46.  The coefficient is nearly identical when Mexican homicide rates in the previous year are compared to American homicide rates in the following year.  Although we did not include other controls, there is a negative relationship between homicides on the American side and the Mexican side.  In other words, when Mexican homicide rates go up then American rates tend to go down and vice versa.     

Figure 1

Homicide Rates in U.S. and Mexican Border States, 1997-2016

Homicide Rates in U.S. and Mexican Border States

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 2 shows the same data but with years on the X-axis.  Mexican border state homicide rates vary considerably over time, especially when that government decided to try to crack down on drug cartels, but U.S. border state homicide rates trended slowly downward over the entire time.  There is a negative relationship between Mexican homicide rates and homicide rates in U.S. border states. 

Figure 2

Homicide Rates in U.S. and Mexican Border States, 1997-2016

Homicide Rates in U.S. and Mexican Border States

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Our figures and regressions above might not be capturing the whole picture.  Perhaps crime travels from Mexican border states and goes directly into the U.S. state that it is bordering.  That could be the source of President Trump’s worry.  We tested that in Figures 3-6 where we looked at how homicide rates in Mexican states contiguous to U.S. states are correlated with homicide rates there. 

Figure 3 shows homicide rates in the Mexican state of Baja California and in the American state of California.  There is a negative correlation coefficient of -0.66 between homicide rates in Baja California and in California, meaning that homicide rates move in the opposite directions in these two states.    

Figure 3

Homicide Rates in California and Baja California, 1997-2016

Homicide Rates in California and Baja California

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 4 compares homicide rates in Arizona with those in Baja California and Sonora.  Homicide rates between Baja California and Arizona have a correlation coefficient of -0.69, meaning that homicide rates in Baja California and Arizona generally move in opposite directions.  Homicide rates in Arizona and Sonora have a correlation coefficient of +0.20, which means that they somewhat move in the same direction. 

It’s important to point out that the Sonoran homicide rate moves in roughly the same direction as Arizona’s homicide rate because Sonora’s rate mostly declines over the entire period and varies little by year just as Arizona’s rate does.  The Sonoran homicide rate will most closely track homicide rates in other American states for that reason but that does not show that Mexican murderers are crossing the border because Sonora is not as affected by the violent homicide swings that seem to dominate homicide rates in other Mexican states.  The Sonoran homicide rate comoves with Arizona’s homicide rate since they are both less volatile over time.    

Figure 4

Homicide Rates in Arizona, Baja California, and Sonora, 1997-2016

Homicide Rates in California and Baja California

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Figure 5 shows that homicide rates in New Mexico are positively correlated with those in Sonora at Chihuahua with coefficients of +0.40 and +0.05, respectively.  New Mexico’s homicide rate is more erratic and has a higher standard deviation than the other American states. 

 

Figure 5

Homicide Rates in New Mexico, Chihuahua, and Sonora, 1997-2016

Homicide Rates in New Mexico, Chihuahua, and Sonora

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Homicide rates in Texas are negatively correlated with homicide rates in the Mexican states of Coahuila, Nuevo Leon, and Tamaulipas with correlation coefficients of -0.79, -0.79, and -0.36, respectively.     

Figure 6

Homicide Rates in Texas, Coahuila, Nuevo Leon, and Tamaulipas, 1997-2016

Homicide Rates in Texas, Coahuila, Nuevo Leon, and Tamaulipas

Sources: UCR and NISG.

Note: Rates are per 100,000 residents in each state.

Correlation is not causation, especially in these simple regressions, but it would be very difficult to show that Mexican homicide rates are driving or at least influencing those in U.S. border states without at least finding a positive correlation.  The p-values in all of the above figures are all so high that the correlations are statistically insignificant in every case.  Researchers should dig into this data further to tease out more precise estimates or effects, but they are not significant or interesting enough for us to spend more time on them.  There are, of course, individual circumstances of Mexican criminals committing crimes in American states but that does not tell us how common those events are or whether President Trump’s proposed solutions would have any impact.  If the past events are any indication of the future, our work above allows us to confidently say that there is little reason to worry that homicide rates in Mexican border states will influence homicide rates in U.S. border states.  Whatever potential justifications there are for an expensive border wall, preventing the spread of homicide northward shouldn’t be one of them.      

Special thanks to Andrew Forrester for his help in writing this piece.      

Although many hailed last week’s “trade agreement” between President Trump and European Commission President Jean-Claude Juncker as an important achievement, it included no firm commitments to reduce tariffs, non-tariff barriers, or subsidies—or to do anything for that matter. The only agreement of substance was that new tariffs would not be imposed, while Washington and Brussels negotiated longer-term solutions to problems both real and imagined.

Those hungering for some good trade news might call that progress, but the only new tariffs that were under consideration (outside the exclusive domain of the president’s head) were those related to the Commerce Department’s investigation into the national security implications of automobile and auto parts imports. Of course, that investigation is still proceeding and there’s no reason to think Trump won’t leverage the threat of imposing auto tariffs to bend the outcome of those EU negotiations in his favor.

So what does Trump want? Trump seems committed to prosecuting a trade war with China and he expects the EU to have his back in that fight. Trump’s tariffs on $34 billion of Chinese products are scheduled to expand to $50 billion in early August and potentially to $250 billion in September. In a recent CNBC interview, Trump even threatened to subject all Chinese goods—more than $500 billion worth of imports in 2017—to additional tariffs.

For the first $34 billion, China has retaliated in kind, targeting mostly agricultural, aquaculture, and meat products. Beijing has pledged to go tit-for-tat throughout, even though its retaliation would have to take other forms—such as penalizing U.S. multinationals operating in China—because annual U.S. exports to China are in the neighborhood of only $130 billion.

The only real factor constraining Trump’s trade war is the potential that workers in red states will abandon the cause and turn on him. But so far, even as domestic production and employment are threatened as a consequence of the tariffs and the retaliation, Trump’s base still seems to be supporting his unorthodox, zero-sum approach to trade. Last month, a worker at Wisconsin’s Harley-Davidson facility, which will be downsizing as the company shifts production to Europe as a result of the EU’s retaliatory tariffs, said of Trump: “He wouldn’t do it unless it needed to be done, he’s a very smart businessman.” That worker and many others agree that the United States should be throwing its weight around to obtain a larger slice of the pie—even if that process ends up reducing the overall size of the pie.

In a effort to fortify that support, last week the administration authorized $12 billion of emergency relief for U.S. farmers caught in China’s retaliatory fire. Plans for financial relief for other industries similarly imperiled by retaliation are likely in the works and Trump expects the EU to do its part by picking up the slack and purchasing more U.S. soya, natural gas, and other commodities and manufactures previously destined for China. 

That may seem presumptuous, given that Trump has hit Europe with steel and aluminum tariffs, threatens her with auto tariffs, and called Europe a foe on the eve of his Helsinki meeting with Putin. Why would the EU oblige? That would seem to only encourage more of Trump’s passive-aggressive behavior.

Well, first, the EU wants to avoid the auto tariffs, which threaten the global auto market and, second, it shares many of the same concerns about China’s trade practices. But there’s only so much Europe can do to absorb excess U.S. supply. Will Trump insist that Germany cancel its gas contracts with Russia?  That would be an interesting twist. Will it be enough? Or will Trump deem the EU ungrateful and kill the auto trade?

The best we can hope for, I think, is that Trump comes to realize that if he wants to apply effective pressure on Beijing to abandon its most objectionable policies and to open its markets without onerous conditions, he will need the support—not the ire—of the governments of the EU, Japan, Korea, Canada, and Mexico to compel China to play by the rules. That means ditching the steel and aluminum tariffs and making nice. Then, maybe Trump will recommit the United States to abiding by those rules, too.

 

 

Concerned with how trade is commonly discussed, Greg Mankiw recently issued a plea to journalists to halt the use of subjective terms to describe trade flows. Rather than words such as “deteriorated” or “improved,” the Harvard economics professor (and noted textbook author) proposes that writers employ more objective language such as “the trade balance moved towards surplus.”

Mankiw’s plea is fine as far as it goes, but it probably doesn’t go far enough. The problem in the way trade is discussed lies not only in the descriptions applied, but the nouns themselves.

To speak of trade surpluses or deficits is utterly nonsensical, or at the very least a corruption of the term “trade” that incorrectly uses it as a synonym for “exports.” Trade, however, comprises both selling and buying, both exports and imports. The amount of trade between two countries (or any other group of entities) is the sum of their exports and imports. Given that both sides engage in the same amount of bilateral trade—that is to say, the same total of exporting and importing—a trade deficit is a mythical beast and logical impossibility. Perhaps we can speak of net exports or net imports, or export deficits and import surpluses as well as their reverse, but “trade deficit” should be regarded as a term devoid of real meaning.

Talk of a trade balance either being in surplus or deficit is problematic for similar reasons. Occasionally, one may encounter the descriptor “positive” applied to the trade balance if exports exceed imports and “negative” if the opposite occurs. But—as with trade deficits and surpluses—this is completely arbitrary. It makes no more sense to say this than to characterize a surplus of imports as positive or exports exceeding imports as negative.

This is no exercise in pedanticism. Precision of language is important. Terms matter, and the way in which trade is discussed influences how it is perceived. One can’t help but wonder how many people have an irrational fear of imports because they are said to contribute to a “trade deficit” or a “negative trade balance”—terms laden with unfavorable connotations. It’s not difficult to imagine that U.S. trade policy would be on a very different trajectory if President Trump spent his formative years in a world that did not speak of trade deficits and instead used more exact language and terms.

It may be too late for Trump, but a change in terminology could go a long way toward improving the conversation around trade and clearing the path for better policy.

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