Cato Op-Eds

Individual Liberty, Free Markets, and Peace
Subscribe to Cato Op-Eds feed

If someone told you that public high schools have taken people with political and social power and brought them together, to the exclusion of other people, would you celebrate those schools? Probably not. But that is essentially what a new Atlantic article does in extolling public high schools and attacking school choice.

The piece, by English professor Amy Lueck, asserts that public schools—particularly high schools—have been crucial, unifying institutions. After criticizing U.S. Secretary of Education Betsy DeVos for calling public schools a “dead end” (DeVos actually said monopolistic public schooling is a dead end for innovation) Lueck offers the following:

Far from being a “dead end,” for a long time the public school—particularly the public high school—served an important civic purpose: not only as an academic training ground, but also as a center for community and activity in American cities.

The public high school’s unifying importance, especially compared to private schooling, is very much wanting for proof. Lueck talks a lot about public high school football games, dances, yearbooks, and supporting the country in World War II to back her thesis, but says nothing about whether private schools did the same things. Of course, they did. She also says nothing about whether public high schools were especially effective in forming good citizens, while the research suggests that private schools and other schools of choice actually do better jobs than traditional public schools inculcating civic values such as voting, political tolerance, and volunteering in one’s community.  

More important than ignoring what private schools have done, though, is what Lueck concedes in a few welcome but quick admissions: public high schools have a highly discriminatory history. This is not just with egregious segregation of African Americans, which Lueck mentions, but also in some places Mexican Americans and Asian Americans. Public schools have also been demeaning places for immigrants, and from early on in the history of public schooling numerous Roman Catholics felt that they had no choice but to stay out of the often de facto Protestant—and sometimes openly hostile—public schools. Indeed, by 1970 more than 1 million students attended Catholic high schools. But Lueck somehow doesn’t mention Catholics at all, including the recent evidence that Catholic schools are powerful forces for community cohesion. And Catholics have hardly been the only religious dissenters to the coerced uniformity of public schooling.

It is easy to say that public schools are essential unifiers, and that choice threatens cohesion. But what one says, and reality, are not always the same.

Yesterday, President Trump tweeted that “unknown Middle Easterners are mixed in” with the migrant caravan approaching the U.S. border. Vice President Pence later tried to justify President Trump’s comment by arguing that, “It is inconvincible that there are not people of Middle Eastern descent in a crowd of more than 7,000 people advancing toward our border.” Todd Bensman of the Center for Immigration Studies wrote that “the president was obviously referencing … ‘special interest aliens’ … U.S.-bound migrants moving along well-established Latin America smuggling routes from [Muslim] countries.” Perhaps President Trump was referencing special interest aliens but the clear implication is that they are potential terrorists who are using the caravan to sneak into the United States and murder Americans.  

The members of the migrant caravan will either apply for asylum at the U.S. border or try to enter illegally. From 1975 through the end of 2017, 9 Americans have been murdered in attacks committed on U.S. soil by 20 foreign-born terrorists who entered illegally or as asylees. During that time, the annual chance of being murdered in a terrorist attack committed by an asylum seeker or an illegal immigrant was about 1 in 1.3 billion per year. Those estimates are based on this methodology with updated numbers. 

During that time, about 31.3 million illegal immigrants entered the U.S. illegally (most have since emigrated, legalized, or passed away) and about 732 thousand asylum seekers have been admitted. Nine of the 20 terrorists who entered did so as illegal immigrants, meaning that about 1 terrorist entered hidden amongst every 3.48 million illegal immigrants. They killed zero people in domestic terror attacks. The 11 terrorists who entered as asylum seekers murdered 9 people in terrorist attacks or about 1 murder for every 81,000 asylum seekers let in.    

Of those 9 terrorists who entered illegally, only 3 did so along the border with Mexico: Shain Duka, Britan Duka, and Eljvir Duka crossed as children with their parents in 1984. They are ethnic Albanians from Macedonia. They were 3 conspirators in the incompetently planned Fort Dix plot that the FBI foiled in 2007, long after they became adults and more than two decades after they entered illegally. There is no evidence that the Fort Dix plot was more than 23 years in the making. 

As far as we can tell, virtually all the members of the migrant caravan come from Central America while the asylum-seeker and illegal immigrant terrorists who committed or attempted to commit attacks on U.S. soil came from Cuba, Lebanon, Pakistan, Palestine, Canada, Algeria, Somalia, Macedonia, Kyrgyzstan, and Afghanistan. Not a single terrorist in any visa category came from Mexico or Central America during the 43-year period.

None of the above estimates are meant to imply that those asylum seekers or illegal immigrants who committed or attempted to commit attacks were terrorists when they entered. Some, like Ramzi Yousef, obviously did enter as terrorists but the Boston Bombers Dzhokhar Tsarnaev and Tamerlan Tsarnaev entered as children too young to be plotting a terrorist attack years later. My colleague David Bier has shown just how rare it is that a foreign-born terrorist intends to come to the United States and how infrequently the government fails to stop him or her. 

This issue is complicated by the recent statements of Guatemalan president Jimmy Morales, who announced that his government “apprehended close to 100 persons completely involved with terrorists, with ISIS and we have not only detained them within our territory, but they have been deported to their country of origin.” Morales then stated that information about these supposed terrorists (like their names or countries of origin) was classified, which should raise a red flag as governments love to brag about their anti-terrorism actions with specifics even when such bragging is unjustified.

Even if we assume that some members of the migrant caravan are Middle Easterners who might pose a higher terrorism risk, that is still no good reason to bar the Central American migrants from applying for asylum. If some Middle Easterners are in this caravan, they too will be able to apply and face the same terrorism vetting procedures that work so well. There is little evidence that there are Middle Easterners in this caravan, even less that there are actual terrorists, and the risk from terrorists crossing the border has been tiny historically. This time could be different, but there is no real evidence to suggest that it is. Whatever problems may arise due to this caravan, the actual threat of terrorism from its members is very small.

Immigrant criminality and its impact on the United States is one of the most important issues in the public debate over immigration. In order to provide new insight into this topic, my coauthor Michelangelo Landgrave and I have attempted to estimate the illegal immigrant incarceration rate. I have also written a short paper on Texas criminal conviction rates by immigration status and crime based on data provided by the state of Texas. All three papers found that illegal immigrants were less likely to be convicted or incarcerated for crimes than native-born Americans.

My paper on illegal immigrant crime rates in Texas is based on data from the Texas Department of Public Safety (DPS) that I obtained through a Public Information Act request. The Texas DPS data separately show the number of convictions and arrests of illegal immigrants, legal immigrants, and native-born Americans for 44 and 46 different crimes, respectively, in the state of Texas by year from January 1, 2011, to November 15, 2017.

One of the persistent criticisms of my paper on Texas criminal conviction rates is that the DPS data do not record the number of illegal immigrants who commit crimes but are not convicted. Given data limitations, that is probably an impossible question to answer in a satisfactory way for immigrants and for natives.  However, I try to address this criticism in my Texas paper by showing that the gap between the arrest rates and conviction rates for illegal immigrants and the gap between the arrest rates and conviction rates for native-born Americans are similar, indicating that there are few illegal immigrants who are arrested for offenses who then disappear or are deported before their convictions relative to natives who are arrested and then not convicted.

A related criticism is that illegal immigrants flee Texas and then go back to their home countries after they commit crimes, which means that the Texas state conviction data would not count them. Thus, the criminal conviction rate for illegal immigrants is so low because they commit their crimes and flee – an option that few native-born American criminals possess. This argument makes a certain amount of sense in Texas as it shares a long border with Mexico, the source of a majority of illegal immigrants in Texas.

To answer that second criticism, we decided to investigate whether police clearance rates are correlated with the number of illegal immigrants on the state level. According to the FBI’s Uniform Crime Reporting (UCR) Program, law enforcement agencies can clear offenses by one of two means. The first is called “cleared by arrest” whereby a person must be arrested, charged with an offense, and turned over to a court for prosecution.  The second is called “cleared by exceptional means,” whereby the police must identify the offender, gather enough evidence for an arrest and to charge them with a crime, identify the offender’s exact location, and have encountered a circumstance out of law enforcement’s control that prevents an arrest. The death of the offender or the lack of an extradition treaty with the country harboring a suspected criminal are common causes of clearances by “exceptional means.” Mexico and the United States have an extradition treaty. An offense is cleared when the police have taken certain actions to solve the underlying crime short of a criminal conviction.

Landgrave ran many regressions between clearance rates (logged) and the proportion of the population of each state who were illegal immigrants (logged) with state-year and region-year fixed effects. The regressions control for demographic characteristics, the number of police officers for every 100,000 residents, education, and population density. He ran regressions for clearance rates by major crime and the entire crime index. All he found is that motor vehicle theft and burglary clearance rates are positively correlated with the proportion of the population who are illegal immigrants, but only at the 10 percent level for the state-year fixed effects (Table 1, click for larger version). There were no other statistically significant results.

Table 1: Correlation between State Police Clearance Rates and Illegal Immigrant Population

As a quick exercise to test this persistent criticism, these results reveal that there is no nationwide link between clearance rates and the proportion of the population who are illegal immigrants. The only exception is that police clear more motor vehicle and burglary offenses in states with more illegal immigrants as a proportion of their population, but only in one permutation and only at the 10 percent level. Although the theory that illegal immigrants commit crimes and then flee states seems plausible, we see no evidence of that in the aggregate clearance rates.

This cover image in the New Yorker, titled – obviously – “Fat Cats,” is brought to you by Gucci, Fidelity Investments, Gemfields, Northern Trust, Big Pharma, Mastercard Black Card, First Republic Private Wealth Management, Ocean Reef Club, Swann Auction Galleries, Suntrust Private Wealth Reserve, Ike Behar, Wells Fargo, and other purveyors of goods and services to … well, fat cats.

And most especially, on the flip side of this cartoon mocking rich men in suits, as economist Lawrence H. White noted on Facebook, is a two-page spread advertising made-to-measure suits from Giorgio Armani. 

Who was it who first said, “Think left, live right”?

 

 

President Trump’s announcement that he plans to withdraw from the Intermediate-Range Nuclear Forces (INF) Treaty is worrying news for U.S.-Russian relations and for the prospect of effective arms control moving forward.

The INF Treaty was negotiated by President Ronald Reagan and Soviet leader Mikhail Gorbachev. Each party agreed to eliminate their nuclear and conventional ground-launched ballistic and cruise missiles with ranges of 500 to 5,500 km. It was a quite successful arms control agreement, at least until recently. In the last few years, Moscow has tested and deployed cruise missiles that appear to violate INF limits.  

This is the Trump administration’s rationale for terminating the agreement. And the reasoning has a powerful logic. If Russia isn’t going to fully comply with the treaty, why should the United States?

The problem is that simply withdrawing is the most extreme option available and robs us of viable diplomatic solutions while doing nothing to pressure Russia to get back into compliance. Indeed, terminating the agreement is probably the option most likely to generate a new arms race. 

It is worth noting that the Russians claim we cheated first by deploying missile defense systems in Europe that, if used offensively, would violate the terms of the INF treaty. It’s a debatable accusation, but this mutual suspicion is resolvable over the negotiating table. Unfortunately, the Trump administration has barely made an effort to discuss it with Moscow.

Instead of pressuring Moscow to bring itself back into compliance with the treaty, Trump’s planned withdrawal – along with not-so-subtle hints that the administration plans to ramp up production of just the type of missiles the INF prohibits − merely gives the greenlight to Russia to expand their own capabilities in this area.

Ironically, the United States doesn’t have much strategic use for intermediate-range missiles of the kind the INF covers. As the Arms Control Association points out, “The United States can already deploy air- and sea-launched systems that can threaten the same Russian targets that ground-launched missiles that are prohibited by INF Treaty would.”

Withdrawing from the INF could also make extending New START more difficult. New START is a treaty that sets limits on American and Russian deployed strategic nuclear warheads and delivery systems and will expire in 2021 if it is not extended. The Trump administration, and especially national security advisor John Bolton, have shown little interest in extending New START thus far. While there is still time to negotiate an extension, the death of the INF Treaty does not bode well for the future of arms control under the Trump administration.

The other potential target of American INF-range missiles is China. Since Beijing is not a party to the INF it has produced many cruise and ballistic missiles that are banned by the treaty. Supporters of leaving INF argue that adhering to it ties America’s hands in the military competition with China.

While it is true that U.S. cruise and ballistic missiles in Asia would improve operational flexibility, it wouldn’t make a significant enough impact on the military balance with China to warrant the costs of leaving the treaty. The chief military advantage of China’s INF-range missiles is their ability to strike a few large U.S. air and naval bases in the region. American missiles would likely target similar installations in China, but there are many more Chinese bases than American ones. Fielding a U.S. missile force that can threaten enough targets to significantly alter the current balance of power in Asia would be expensive and very time consuming, and China would be able to counter U.S. deployments by growing their own force.

Moreover, there is no guarantee that U.S. allies in Asia will support missile deployments on their territory. In fact, Japan has already cautioned Washington against terminating the treaty. While China is a major source of concern to U.S. allies, their threat perceptions do not neatly line up with the United States’. U.S. allies certainly want to maintain good relations with Washington, but they also want to avoid antagonizing China. 

The long and short of it is that the Trump administration is choosing to initiate a competition in nuclear and missile capabilities (i.e., an arms race) for no good reason. The diplomatic options to bring Russia back into full compliance have not been exhausted. And in any case, even under INF restrictions, the United States currently possesses the capability to hit any Russian or Chinese target. The INF Treaty is simply a low cost way to discourage an arms race and maintain a cooperative relationship on such issues with Russia. Terminating it is short-sighted and will come with serious costs. 

Although the Jones Act’s stated purpose is to ensure that the United States “shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency,” this plainly isn’t the case. But don’t take my word for it, just listen to ardent backers of the law such as Rep. John Garamendi (D-CA):

Our military relies on privately-owned sealift capacity and highly trained and credentialed merchant mariners to transport and sustain our armed forces when deployed overseas during times of conflict. But the number of ocean-going U.S.-flag vessels has dropped from 249 in the 1980s, to 106 in 2012, to at most 81 today.

The consequences of this steep decline are not just theoretical. Our military has had to turn to foreign-flagged vessels for sustainment in times of war, and experience shows that can have dangerous consequences. In the 1991 Gulf War, our armed forces relied on 192 foreign-flagged ships to carry cargo to the war zone. The foreign crews on thirteen vessels mutinied, forcing those ships to abandon their military mission. Would foreign flag carriers be any more reliable today, especially for a long-term deployment into active war zones?

But the number of ships is not the only issue: The U.S. Transportation Command and Federal Maritime Administration estimate that our country is now at least 1,800 mariners short of the minimum required for adequate military sealift, even with the Jones Act firmly in place. Without the Jones Act, our nation would be wholly unprepared to meet the labor demands of rapid, large-scale force projection for national security.

The House Coast Guard and Maritime Transportation Subcommittee’s ranking member is absolutely correct about the sad state of the U.S. merchant fleet. Some of his numbers, however, are off the mark. The drop in the number of ocean-going U.S.-flag vessels is even more dramatic than what he states, declining from 737 in 1985 to a current figure of 180. Regarding the 1991 Gulf War, meanwhile, the actual number of foreign-flagged ships used as part of the U.S. sealift was 177 rather than 192. It’s also inaccurate to say that thirteen vessels were forced to abandon their military mission, with eight of those vessels ultimately delivering their cargo after initial hesitations. 

Although an article of faith in pro-Jones Act circles, the congressman’s claim that the United States would be in even more dire straits absent the law is open to question. The Jones Act’s domestic build requirement, for example, forces U.S. carriers to purchase vessels at vastly inflated prices compared to foreign shipyards (4x is a figure used by many observers while a 2017 Congressional Research Service report placed the U.S. price at 6-8x higher). Using basic microeconomics we can intuit that higher prices mean fewer ships, and thus fewer mariners to crew them. 

Linking to a Cato Institute analysis of the Jones Act, Garamendi then turns his attention to accusations that the law is an “outdated protectionist anachronism”:

Opponents of the Jones Act routinely claim that it is an outdated protectionist anachronism that does more harm than good, but nothing could be further from the truth. A comprehensive 2018 survey of seafaring and industrial nations around the world shows that cabotage laws such as the Jones Act, which provide for domestic preference for shipping policies, are the norm, not the exception. Ninety-one U.N. member states comprising 80 percent of the world’s coastlines have cabotage laws protecting domestic maritime trade. The conclusive fact from this survey is clear: seafaring nations understand the importance of their domestic maritime industries, and have laws on the books to safeguard them.

This misses the point. While cabotage laws are indeed common, the Jones Act’s stringent requirements—and in particular its mandate that ships must be built in the United States—place it well outside the mainstream. Indeed, the World Economic Forum calls the Jones Act the world’s “most restrictive example” of cabotage laws, noting that not even China has a domestic build requirement. 

Finally, he addresses the Jones Act’s economic impact on Puerto Rico:

Just as important, a recent nonpartisan economic study found that the Jones Act does not impact consumer prices in Puerto Rico. Rather, the Jones Act has a net positive economic impact, because the certainty of the regularly scheduled coastwise trade allows shippers to invest in state of the art maritime technologies and local port investments. In fact, consumer price comparisons of common household commodities between Puerto Rico and other Caribbean islands found that consumer prices on Puerto Rico are commonly lower.

The referenced study may have been “nonpartisan” but it was hardly the product of disinterested observers, having been funded by the pro-Jones Act American Maritime Partnership. As discussed in a previous blog post the study’s methodology is dubious and its claims should be treated with a great deal of skepticism.

In addition, the logic behind the claim that the Jones Act has a net positive economic impact on Puerto Rico is unclear. State of the art maritime technologies and local port investments are certainly good for the carriers, but it is unclear how this benefits the average Puerto Rican. If the argument is that these confer efficiencies that allow Jones Act carriers to lower transport costs, then they should have little to fear from competing against foreign-flag ships. The fact that they steadily refrain from doing so and instead cling to the Jones Act’s protections, however, is telling. 

It’s also worth noting that regularly scheduled trade with Puerto Rico happens outside of the Jones Act, with Tropical Shipping (whose owner, Saltchuk, also owns Jones Act carrier TOTE Maritime), for example, offering regular service from Halifax, Canada. 

Although the Jones Act’s alleged economic benefits to Puerto Rico are fictional its costs are very real and well documented. A 2012 report from the Federal Reserve Bank of New York, for example, stated that shipping a twenty-foot container of household and commercial goods from the East Coast to Puerto Rico costs roughly twice that of shipping the same goods to nearby Jamaica or the Dominican Republic.

In addition, a 2013 GAO report points out that the high cost of shipping resulting from the Jones Act results in Puerto Rican farmers purchasing grain from Canada instead of New Jersey and jet fuel from countries such as Venezuela rather than the Gulf Coast. The report also highlighted price fixing in the Jones Act trade servicing Puerto Rico, with a federal investigation resulting in three of four Jones Act carriers pleading guilty and fined about $46 million. Six executives were sentenced to a total of more than 11 years in prison.  

All of these points and much more will be discussed during the Cato Institute’s upcoming conference on the Jones Act in December, the culmination of which will be a debate between those who favor and oppose the law.

We invite Rep. Garamendi to participate in this debate and defend the Jones Act in this public setting. 

The end of this month (31 October 2018) will mark the 10th anniversary of the online posting of the now-famous white paper by “Satoshi Nakamoto” outlining the concept of “Bitcoin: A Peer-to-Peer Electronic Cash System.” This is an opportune occasion to compare what Bitcoin has achieved with what Satoshi wanted to achieve. While Bitcoin’s rise to a market valuation of over $100 billion is certainly a remarkable accomplishment of one sort, the founder had other aims.

Three problems with the status quo

In announcing the new project in February 2009 Satoshi emphasized three institutional problems with the status quo payment system that Bitcoin would address. First, inflation from central banks that issue fiat money:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

Second, a lack of privacy and security from commercial banks:

We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Third, the high cost of bank-mediated payments:

Their massive overhead costs make micropayments impossible.

How well has Bitcoin addressed these three problems?

Inflation risk and purchasing power volatility

Satoshi wanted to create a currency with less risk of inflation and devaluation. It is of course true that the history of fiat currencies is full of breaches of trust in purchasing-power stability. Central banks issuing fiat money have chronically, and sometime acutely, diluted the value of their currencies by expanding them too rapidly. Bitcoin’s source code, which predetermines the quantity path of the stock of Bitcoins, does solve that problem. There can be no unexpectedly rapid expansion. This code provides a valuable object lesson in how to write a constitutional monetary rule that is fully automatic and free from discretion.

However, Bitcoin’s fixed quantity path creates a different problem that inhibits its widespread use as currency. With the number of Bitcoins unresponsive to demand shifts, all the burden of adjustment falls on the price (purchasing power). As a result the market price of Bitcoin is enormously volatile week-to-week and even day-to-day. This makes it very risky to hold or accept BTC as a payment medium for monthly bills that are denominated in anything other than BTC (e.g. in US dollars, other fiat currencies, or commodity index baskets).

Satoshi recognized that demand growth would cause secularly rising value, but said little about the problem of high-frequency volatility of value. He did not design Bitcoin to have an automatically demand-responsive supply, because he did not know how to do it without creating the need for a trusted authority:

[I]ndeed there is nobody to act as central bank or federal reserve to adjust the money supply as the population of users grows. That would have required a trusted party to determine the value, because I don’t know a way for software to know the real world value of things. If there was some clever way, or if we wanted to trust someone to actively manage the money supply to peg it to something, the rules could have been programmed for that.

What Satoshi didn’t know how to do is still not known. The desirability of a stable-valued cryptocurrency has, however, has stimulated dozens of “stablecoin” projects in recent years.  There are two main types: (a) coin supply managed by an “algorithmic central bank” that automatically (given a data feed) varies quantity to stabilize purchasing power, and (b) coin supply made endogenous by pegging the coin to a relatively stable fiat currency, to gold, or to a commodity basket. A recent report on “The State of Stablecoins” has identified 57 projects, of which 23 are up and running. Tether USD, imperfectly pegged to the US dollar, is by far the largest of the live projects. Of the 57, twelve use the “algorithmic central bank” approach, the remainder being “asset-backed” either by fiat currency collateral or by cryptoassets. The problem remains unsolved of feeding a program with real-world data in a tamperproof way, or of running a currency peg without any risk to customers from dishonesty or incompetence by the party holding the reserves.

Satoshi  suggested—somewhat inaccurately—that Bitcoin would behave like gold under a gold standard:

In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.

In fact, as I have noted before, the classical gold standard system provided a great deal of long-run elasticity to the quantity of money. A rising purchasing power of gold incentivized the owners of existing mines to dig deeper and increase their output, and encouraged prospectors to seek new sources of gold. The accumulation of increased gold flow over time pushed the purchasing power back to its nearly flat long-run trend. The gold standard thereby historically constrained the inflation rate to near zero in the long term.

F. A. Hayek’s vision of competing non-commodity private monies imagined that issuers would maintain purchasing power stability by actively managing supply. A new project called Initiative Q takes basically this approach: not a cryptocurrency governed by a program, but a private non-commodity money whose quantity is governed by a human board that pledges to stabilize its purchasing power. Full disclosure: I have been a paid consultant on this project.

Satoshi anticipated a feature of Bitcoin’s fixed supply path that has played an important role in its enormous appreciation, and in its high volatility:

As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.

In this way attracting speculators who want an appreciating store of value (and don’t care much about short-term volatility) is at root incompatible with attracting potential currency-users who want short-term value predictability. Having attracted speculative “hodlers,” it is harder to expand the set of Bitcoin users much beyond them.

Retail use of Bitcoin remains small, from all available indicators. The largest BTC retail payment processor, Bitpay, reported in October 2017 that its merchants are receiving “$110 M+ in bitcoin payments per month,” which multiplies out to $1.32 billion per year. For comparison, VISA reported in June 2018 an annual payment volume of $11 trillion, or $11,000 billion.

Coinmap.org lists 13,365 brick-and-mortar Bitcoin acceptance points worldwide, which is of course a tiny subset of retail establishments. Checking the map for Fairfax County, VA, I find that there are only seven sellers of goods and services listed, plus another 7 Bitcoin ATMs.

Privacy

Satoshi wanted to create a payment system with greater privacy. Bitcoin does enable users to send funds outside the financial panopticon that is the regulated banking system, where “Know Your Customer” and “Anti- Money Laundering” edicts require banks to surveil customer account use and report certain kinds of activity. This escape hatch has allowed ordinary people to protect their wealth from restrictions such as exchange controls and from confiscatory taxes. For example, Bitcoin became suddenly popular in Cyprus when the government imposed controls on international bank transfers and proposed to take 10 percent of bank balances during a banking crisis in 2013.

However, the way Bitcoin’s distributed ledger system shares addresses and size information about every transaction provides less privacy than would a design sharing less information. Bitcoin is not anonymous, only pseudonymous, and the pseudonyms can be pierced. This shortcoming has inspired a number of “privacycoin” projects. The best known live projects are Monero, Dash, and Zcash (for head-to-head contrasts of these and three others see here). Two interesting up-and-coming projects, using a newer-generation blockchain technology called MimbleWimble, are Beam and Grin.

Cheaper payments

As far as making micropayments at negligible cost, the Bitcoin blockchain has turned out to be infeasible for doing so. It becomes quickly congested as it approaches the modest volume of 7 transactions per second. This technological limitation was discussed by insiders (Hal Finney, Nick Szabo) as early as 2010, but did not come to wider attention until massive congestion arose with Bitcoin’s expansion in popularity in 2017, bringing a sharp rise in fees for moving your transaction to the front of the queue. Developers are now working on “sidechains” for small payments—most famously the Lightning Network—that will settle only periodically on the main BTC blockchain. So there may be a technical workaround retaining the Bitcoin standard. The MimbleWimble projects represent another approach: because their blockchains are designed to transmit much less information among miners, they should not only provide greater privacy, but also handle many more transactions per second.

Conclusion

Bitcoin should not be regarded as the last word in private money, but should be appreciated as a remarkable technological breakthrough. Ten years after its launch, we must recognize it as the innovation that has launched financial and non-financial blockchain industries that are still in their early days. Bitcoin has established its value as an asset, and its usefulness as a medium of exchange for a certain subset of transactions. It is the main unit of account and payment medium, preferred to fiat monies, for markets in other cryptocurrencies below the top five. Whether it will achieve common use as a medium of exchange remains doubtful. The inbuilt volatility of its purchasing power makes it unlikely to displace the incumbent fiat currencies barring an inflationary explosion. Even in that case, gold seems likely to prove more popular. Whether a credible stablecoin built on Bitcoin’s shoulders, or some completely different approach, will achieve critical mass as a private money  remains to be seen.

[Cross-posted from Alt-M.org]

University of Massachusetts toxicologist (and Cato adjunct scholar) Edward J. Calabrese has arrived.  On October 3, he testified to the Senate Subcommittee on Superfund, Waste Management, and Regulatory Oversight, a part of the larger Committee on Environment and Public Works, chaired by John Barrasso (R-WY).

Calabrese was asked for his expert opinion on a draft EPA proposal to consider alternative regulatory models, including ditching the “Linear-No Threshold” (LNT) model that it employs, as does almost every other regulatory agency on earth.  You can read about EPA’s proposal here.

The LNT model assumes that the first photon of ionizing radiation (or the first molecule of a carcinogen) is capable of inducing a genetic mutation (i.e. altered DNA) that can be then transmitted to future generations.

Many years ago, Calabrese went looking for the scientific basis for the LNT, for it ran counter to what he was finding in his toxicological research—that low doses of some toxins or ionizing radiation may actually confer benefits. That, of course, is also the basis for much of modern chemical pharmacology.

Try as he could, and he tried for years, he could not locate the seminal science that gave rise to the LNT.  But he did find its progenitor, Hermann Muller, who claimed to have induced heritable point mutations with X-rays in the fruit-fly Drosophila. But where was the data and the peer-reviewed study?  Muller did author a brief article in Science on July 22, 1927, but, as Calabrese notes in his brand new paper, “He made this gene mutation claim/interpretation in an article that discussed his findings, but failed to include any data.”  The Science article said the data would be in a subsequent publication.

In fact, the data underlying what may have been the most important claim in the history of regulatory science, were never published in a peer-reviewed journal. 

Nonetheless amidst public concern about atomic radiation, the National Academy of Sciences formed the Biological Effects of Atomic Radiation (BEAR-1) panel, which reported its findings in Science in 1956.  Muller was obviously highly influential, and the Science report clearly established the LNT:

Any radiation dose, however small, can induce some mutations. There is no minimum amount of radiation dose, that is, which must be exceeded before any harmful mutations occur.

Calabrese documents that Muller’s good friend and another Drosophila geneticist, Edgar Altenberg, confidentially challenged Muller’s interpretation that he was inducing point mutations.  Rather, the very large doses of x-rays that Muller subjected the fruit flies to was simply knocking out wholesale portions of the chromosomes. 

But Altenburg never went public with his criticism.  Perhaps, Calabrese speculates, it was because of personal loyalty and a deep relationship.  When Muller attempted suicide in 1932, rather than addressing his family, his final note was to Altenburg. Muller and Altenburg ultimately lived until 1967, dying within months of each other.

Muller’s Science publication allowed him to claim research primacy, which landed him both prestige and the eventual 1946 Nobel Prize in Physiology or Medicine.

That prize validated Muller’s hypothesis and ultimately enshrined the LNT model as gospel, and it spread beyond ionizing radiation to other carcinogens and mutagens, as well as to many toxic chemicals in which, literally, the dose makes the poison. In Calabrese’s words,

…it has been Muller’s incorrect gene mutation interpretation and its legacy that created the LNT dose response model, leading to its recommendation by the US National Academy of Sciences in 1956…and then subsequently adopted by all regulatory programs throughout the world.

As a result of his recent testimony and publication, Calabrese may be changing the regulatory world. 

Unlinked References:

Biological Effects of Atomic Radiation Panel, 1956. Genetic effects of atomic radiation.  Science 123, 1157-64.

Muller H. J, 1927.  Artificial transmutation of the gene. Science 66, 84–87

 

In America’s strange legal immigration system, every country receives the exact same quota for green cards—7 percent of the number issued—regardless of how populous it is. When immigrants—mainly Indians, Chinese, Filipinos, and Mexicans—hit these “per-country limits,” nationals of other countries may pass them in line. This creates massive wait times for some immigrants, while cutting the waits for everyone else.

In 2018, for example, employer-sponsored immigrants with bachelor’s or master’s degrees waited more than three years for a green card if they were born in China, and about a decade if they were born in India, while those from other countries waited less than a year. Going forward, the Indian wait will stretch on for decades. The system is unfair, and for that reason alone, Congress should end it.

But the per-country limits are also economically senseless. They prioritize the right birthplace over the right skills. In the employer-sponsored categories, businesses could decide to pay Indian or Chinese applicants much more than other immigrants, yet Indian or Chinese employees would still suffer the same pointless discrimination. Discriminating based on nationality, rather than skills, undercuts the productivity of the United States and lowers the average wage of new immigrants to the United States.

To see if this was happening, I reviewed the data on approved labor certifications submitted by employers in the EB2 and EB3 employer-sponsored immigrant classifications to the Department of Labor (DOL). These labor certification applications contain the wage offered to the immigrant as well as their birthplace. Employers with approved labor certifications may petition for a green card on behalf of their workers, but the worker may only apply for a green card once a visa number is available under the quota. The Department of Labor validates the information provided on the labor certification in order to deal with concerns that immigrants are taking jobs from U.S. workers.

I used the latest DOL wage data from fiscal year 2018 to produce the estimates in Figure 1. To produce the weighted average wage with the country cap, I weighted the wages for each nationality by the number of their nationals admitted under the country caps in the EB2 and EB3 employer-sponsored categories. The average wage without the country cap is the average of the approved labor certification wages in 2018.[*] The weighted average wage with the per-country limits was $95,534, while the wage without it would be $107,126. The per-country limits depress the average wage for new employer-sponsored immigrants by $11,592.

Figure 1: Average Wages of EB2-EB3 Immigrants

In other words, the per-country limits strongly discriminate against higher-paid immigrants. Figure 2 shows the average offered wage for immigrants from India, China, and the rest of the world. The wages were $118,071 for Indian immigrants, $111,172 for Chinese immigrants, and $90,422 for the rest of the world. Indian and Chinese applicants have wage offers that are $27,649 and $20,750, respectively, more than other applicants. Yet Chinese and Indian immigrants must wait much longer than immigrants from the rest of the world.

Figure 2: Average Wages of EB2-EB3 Immigrants by Country of Origin

The per-country limits strongly discriminate against higher-paid immigrants. Immigrants who are offered higher wages actually wait longer under the U.S. legal system than other immigrants. That said, all employer-sponsored immigrants command much higher wages than the average income for all Americans (about $48,000).

Indian and Chinese immigrants are also more likely to be offered positions that require more experience and skills than other employer-sponsored immigrants. The Department of Labor categorizes jobs into five different “zones,” with Zone 5 commanding the most skills and experience. The average job zone was 4.1 for a position offered to an Indian immigrant, 4.0 for China, while all other immigrants were offered jobs with an average job zone of just 3.7.

Certainly, at least some of these differences come from forcing Indians and Chinese applicants to wait longer. They certainly do obtain higher wages and more experience while they wait longer for green cards. But whatever the reason for this difference, it makes no economic sense to continue to use country of birth as a factor in determining who receives a green card first.

The United States needs immigrants of all different skill and wage levels, but this diversity should emerge naturally from the free market, not from government attempting to micromanage America’s ethnic ancestry. According to a new study, the arbitrary delays are encouraging Chinese and Indian immigrants to leave the United States and take their talents elsewhere. Congress should repeal the per-country limits, and after that, it should revise or eliminate the arbitrary quotas on employer-sponsored immigrants, which have not been updated in nearly 30 years. The market—not government bureaucrats—should determine who will benefit the United States the most economically.

Table1

[*] Notes on methodology: Approved labor certifications include expired ones because they may still have been used to obtain a green card. At the high end of the wage distribution, there were some erroneous entries where wages were listed as hourly, weekly, or monthly when they should have been listed as yearly. As a data integrity measure, I excluded all labor certifications with listed wages of more than $1 million annually as well as anyone making more than $500,000 annually with a job zone of less than 5. This excluded about 30 people of a population of nearly 110,000. The offered wage of immigrants was annualized and, if necessary, was determined by taking the midpoint in any salary or wage range provided by the employer. EB2-EB3 employer-sponsored immigrants include all EB2-EB3 immigrants except for those who receive “national interest waivers,” but these immigrants do not need a sponsoring employer. Job zones were obtained by comparing Standard Occupation Classifications in DOL data to the relevant job zones.

Reuters reports (“French lawmaker proposes bill to outlaw mockery of accents”) that lawmaker Laetitia Avia of Emmanuel Macron’s ruling party intends to introduce a bill adding discrimination based on accent or pronunciation (“glottophobia”) to the list of banned discrimination categories. This came after an exchange between leftist party leader Jean-Luc Mélenchon and journalist Véronique Gaurel, born in Toulouse, in which he appeared to make fun of Gaurel’s southwestern accent and then called for the next question to be in “comprehensible French.”

I thought of researching whether France has enacted other vaguely framed laws aimed at soothing the sensibilities of the Toulouse region. But since there is no way to search for vague laws as a category in themselves, I soon realized that might set me off on — if you will excuse the expression — a Too-Loose-Law Trek.

The Fifth Amendment’s Takings Clause provides that the government may not take private property without giving just compensation to property owners. It was woven into the thread of our founding document to ensure that the government will always be held accountable for its actions—or omissions—which result in landowners losing their property. Today, however, the government constantly attempts to circumvent its duty to compensate landowners, and too often courts let lend it a helping hand.

In the 1950s, the U.S. Army Corps of Engineers began constructing the Mississippi River Gulf Outlet (MRGO) navigational canal in Louisiana, turning a 650-foot channel into a half-mile wide waterway. To construct the canal, the Corps destroyed wetlands that were protecting the St. Bernard Polder, an expansive stretch of low-lying land, from hurricane flooding and resulting property damage. The Corps then failed to armor the banks of the canal from erosion or take any action to guard against the known risk of catastrophic damage to St. Bernard Parish (“parish” is the Louisiana name for a county).

When Hurricane Katrina struck Louisiana in 2005, a 25-foot storm surge went directly up the MRGO, destroying the levees and devastating St. Bernard Parish. Parish residents suffered unimaginable property loss, as their homes were utterly decimated by the storm. When the people of St. Bernard tried to hold the federal government responsible for its inaction, the U.S. Court of Appeals for the Federal Circuit denied their claim.

Still, the Supreme Court has established that if the government floods private property, it is a taking for which the Fifth Amendment requires just compensation. Cases such as Arkansas Game & Fish Commission v. United States (2012) consistently stand for this important principle. Numerous state courts agree on this issue and hold that when government inaction causes flooding and property loss, it constitutes a compensable taking.

The Federal Circuit, on the other hand, has tried to create a distinction between government action and inaction. The court’s opinion in this case is an attempt to rewrite takings jurisprudence, providing the government with a convenient escape route by which it can avoid the constitutional responsibility to compensate landowners for taking their property by not taking reasonable steps to prevent damage.

This loophole cannot be allowed to fester, so St. Bernard Parish has asked the Supreme Court to settle this issue definitively. Cato and ensemble cast of organizations and professors have filed an amicus brief supporting that petition. We argue that when the government, whether through action or inaction, takes private property, it has a distinct, well-established responsibility to compensate landowners.

The ongoing controversy surrounding the murder of a dissident Saudi journalist and Saudi Arabia’s brutal bombing campaign of a largely defenseless neighboring Yemen, which has come with an enormous human toll, have elicited increased scrutiny over the U.S.-Saudi alliance. The White House remains supportive of Riyadh, both diplomatically and with continued military aid. Republicans have offered mildly critical words for the Saudi regime, while an increasing number of Democrats are calling for a fundamental reassessment of the U.S.-Saudi relationship.

Such a reassessment is long overdue. Washington’s partnership with Riyadh has often been treated as sacrosanct, at least here in the nation’s capital. It should have been clear long ago that the Saudis are not good allies. In fact, they often act in ways that undermine U.S. interests. Backing one of the world’s most appallingly tyrannical regimes to the hilt has actually not been a net positive for U.S. national security or for stability in the region.

With any luck, the unfolding drama over the U.S.-Saudi partnership will extend beyond merely this troubled bilateral relationship to U.S. policy in the Middle East as a whole. The United States is deeply entangled in this region, with roughly 50,000 boots on the ground, dozens of permanent military bases and deployed assets, and a staggering sum of taxpayer dollars, essentially wasted. We are engaged in active combat operations in at least five countries across the Middle East and North Africa, bogged down in endless counter-insurgency campaigns, grisly counter-terrorism operations, and inglorious proxy wars. Washington also tasks Central Command with the responsibility of supporting, training, arming, and stabilizing various corrupt dictatorships, while we also try to put the squeeze on Iran.

A well-timed paper  by Chatham House’s Micah Zenko clarifies the failure of U.S. regional objectives, despite the gargantuan resources devoted to them. Zenko lists four primary objectives: (1) enhancing regional security and reducing political instability within Middle East governments; (2) preventing the emergence of terrorist safe havens; (3) ensuring the free flow of energy resources; and (4) enabling allies to build enough military capacity to defend themselves.

We have failed at each of these. Indeed, far from serving a stabilizing role, U.S. policy has rather plainly destabilized the region. The Iraq War upended the Middle East, empowered Iran, and fueled a new generation of jihadist terrorists. Washington bungled a series of changes in the Egyptian regime and helped (along with other external actors) fuel Syria’s civil war. The Obama administration’s Libya war created anarchy and new refugee flows. And our longstanding support for Saudi Arabia as a balance to Iran has not only failed to roll back Iran’s regional activity, but it has also emboldened Riyadh to act aggressively and pick fights with several of its neighbors.

Second, the effort to prevent terrorist safe havens is based on a false premise that territorial safe havens matter much at all. But even accepting the flawed premise, U.S. policies have multiplied the number of “ungoverned spaces” as incubators for terrorist groups. As Zenko points out, “troops maintained in foreign countries to prevent terrorism actually increase the probability that those troops’ home countries and global interests will experience terrorism.”

Third, there is good reason to believe that U.S. efforts to ensure the free flow of oil actually address a problem that largely solves itself. Each state has a strong interest in maintaining the flow of oil through the Persian Gulf, and Saudi Arabia is not the juggernaut it once was. Global energy markets have evolved over the last 40 years and are much more resilient and able to overcome supply shocks than in the past. At best, patrolling the Persian Gulf waterway deters a scenario - an attempt by Iran or some other party to close to Strait of Hormuz - that is already an extremely low probability event.

Fourth, the United States has certainly provided numerous authoritarian regimes in the Middle East with the military capability and know-how to protect themselves, but whether that has redounded as a benefit to U.S. interests and regional stability is another question entirely. Much of what we provided to Iraq ended up in the hands of ISIS. American made weapons have been used to ruthlessly suppress peaceful protesters, from Egypt to Bahrain. And U.S. military support for Saudi Arabia is currently enabling unspeakable war crimes in Yemen, in a conflict that has actually bolstered the position of Al-Qaeda in the Arabian Peninsula (AQAP).

Washington is terrible at self-evaluation. Our record in the Middle East is one of abject failure. Strangely, even when we have presidents that agree with that assessment to one degree or another, policy doesn’t change. President Obama wanted to shift U.S. focus and resources away from the Middle East to East Asia. It didn’t happen. Trump, in April 2018, said, “We’ve spent $7 trillion in the Middle East and we’ve got nothing for it. Nothing, less than nothing, as far as I’m concerned.” And yet his administration has increased overall troop levels in the region, doubled down on backing traditional allies, and revived an anti-Iran posture that harkens back to the Bush era neocons.

A real reevaluation of U.S. policy toward this region is imperative. After decades of trying, Washington has failed in its primary objectives. A new and enlightened policy framework for the region should appreciate the dearth of serious threats to core U.S. security emanating from the region and should emphasize diplomacy as a way to manage relations with regional actors, rather than apply heavy-handed military solutions to every conceivable problem in the area.

Yesterday, WBUR in Boston reported on a simple technology that could reduce the number of opioid deaths: fentanyl test strips. The strips can be used by drug users to test for the presence of fentanyl in drugs they buy on the street. A Brown University study found that,

Sixty-two percent of young adult drug users who participated in the study in Rhode Island dipped the thin, pliable strips into the cooker where they heated the powder, or into their urine sometime after injecting. Half reported a positive result — a single dark pink line emerging on the strip — signaling fentanyl.

Most changed their routine as a result in at least one of these ways: 45 percent said they used a smaller amount of the drug; 42 percent slowed down their use; 39 percent used with someone else who could help if they ODed; and 36 percent did a test amount before injecting the full syringe.

While these routine changes aren’t as effective at preventing overdose as not taking the drugs at all, they do reduce the risk of a fentanyl overdose. So why aren’t more of these potentially lifesaving strips in the hands of those who could use them? As WBUR recounts,

But few drug users have access to fentanyl test strips. They are not FDA-approved, so are not for sale in drugstores or other outlets in the U.S. A handful of harm reduction groups fund distribution through private contributions. Other groups say they’d like to order the strips from the Canadian manufacturer but can’t afford the cost: about $1 per strip.

As federal and state officials are scrambling to come up with policy responses to the opioid epidemic it seems they are ignoring one easy measure: get out of the way and let the market provide low-cost harm reduction tools to those who can benefit from them.

Written with research assistance from David Kemp.

If the Democrats take the House, they’ll impeach Justice Kavanaugh, President Trump warned at a mass rally in Iowa last week. “Impeach, for what? For what?” Trump demanded. For perjury, most likely: “If we find lies about assault against women,” says Rep. Luis Gutierrez (D.-Ill.) one of several House Judiciary Committee members calling for renewed investigation, “then we should proceed to impeach.” 

I’m not the newly-minted Justice’s biggest fan. From the start, I thought Kavanaugh was a lousy pick for the Court: weak on the Fourth Amendment and unreasonably fond of extraconstitutional privileges for the president. I’ve also argued, at great length, that we ought to impeach federal officers more frequently than we do. That goes for Supreme Court Justices as well. The Framers thought impeachment could serve as a valuable check on abuses of judicial power: that we’ve managed to impeach just one member of the “high court” in 230 years is pretty anemic. 

All that said, I find the case for impeaching Justice Kavanaugh uncompelling, for the reasons that follow.

It’s true that there’s ample precedent for impeaching federal judges for perjury. Our last five judicial impeachments were based on charges of lying under oath. 

Here’s a brief rundown of each case: in 1986, the House impeached, and the Senate removed, Judge Harry E. Claiborne (D. Nev.) for filing false tax returns under penalty of perjury (Claiborne had been convicted of those offenses earlier that year, becoming the first sitting federal judge to be incarcerated). Three years later, the Senate removed two more judges for lying under oath. One, the inauspiciously surnamed Walter L. Nixon (S.D. Miss.), was serving five years in prison for lying to a federal grand jury about his attempt to influence a drug smuggling prosecution. The other, Alcee L. Hastings (S.D. Fla.), had been prosecuted for soliciting a $150,000 bribe in exchange for reducing the sentences of two mob-connected developers who’d robbed a union pension fund. He beat the rap in court, but lost his post when the Senate voted to remove him for the bribery scheme and perjuring himself at trial. (Hastings bounced back pretty quickly, however, winning election to the U.S. House of Representatives in 1992. He currently represents Florida’s 20th congressional district.)

More recently, we have the grotesque behavior of Judge Samuel Kent (S.D. Tex.), impeached in 2009 for sexually assaulting two court employees and lying about it to federal investigators. (Kent resigned before completion of his Senate trial.) Finally, there’s Judge G. Thomas Porteous (E.D. La.), impeached and removed in 2010 for “a longstanding pattern of corrupt conduct,” including kickbacks from attorneys, perjury in his personal bankruptcy filing, and “knowingly ma[king] material false statements about his past” to the Senate Judiciary Committee “in order to obtain the office of United States District Court Judge.” 

In principle and in practice, then, perjury is an impeachable offense. That obviously includes lying under oath to gain confirmation to higher office. In Monday’s Wall Street Journal, David Rivkin and Lee Casey insist that “Justice Kavanaugh cannot be impeached for conduct before his promotion to the Supreme Court,” including “any claims that he misled the Judiciary Committee.” But that’s nonsense. Misleading the Judiciary Committee about prior conduct was precisely what was at issue in the Porteous impeachment. 

And yet, the cases outlined above differ from Brett Kavanaugh’s in at least one crucial respect: in each of them, Congress had overwhelming evidence of impeachable falsehoods. Claiborne, Nixon, and Kent were already in federal prison when the House voted to impeach. Hastings and Porteous were removed after exhaustive investigations pursuant to the Judicial Conduct and Disability Act convinced their colleagues impeachment referrals were warranted. Indeed, despite Hastings acquittal in his criminal trial, a Judicial Investigating Committee concluded there was “clear and convincing evidence” he lied and falsified documents in order to mislead the jury.

When it comes to the central charge against Kavanaugh, however, clear and convincing evidence is unlikely to emerge. I don’t know if he’s lying about whether he sexually assaulted Christine Blasey Ford in the early ‘80s, and neither do you. It’s hard to imagine that further investigation, however exhaustive, will lead to dispositive proof one way or the other. 

Members of Congress are, of course, free to adopt a less stringent burden of proof—and maybe they should. The Constitution’s impeachment provisions nowhere specify clear and convincing evidence, proof beyond a reasonable doubt, or any particular evidentiary standard. That recent judicial impeachments have mirrored criminal-law standards is a result of the post-1980 statutory regime for disciplining federal judges and the “Overcriminalization of Impeachment” more generally. Since the purpose of impeachment is less to punish bad actors than to expel unfit officers, looser standards are arguably warranted. 

But unless members of Congress are willing to proceed on something closer to reasonable suspicion, any attempt to impeach Justice Kavanaugh would have to focus elsewhere, where the evidence for false statements is stronger. Did he testify falsely “regarding what he knew about emails stolen from the Senate Dems by a Republican operative” in judicial confirmation fights in the early 2000s? Did he attempt to mislead the Senate about his high-school yearbook?

In fact, I strongly suspect Kavanaugh lied about several items on his yearbook page. Was the reference to “Renate Alumnius” really just “intended to show affection” toward a female student at a nearby school? Was “boof[ing]” meant to indicate “flatulence”? I went to high school in the mid-Atlantic in the ‘80s, several years after Kavanaugh graduated, and I remember the term being a corny euphemism for sex. That usage better fits what Kavanaugh actually wrote—“Judge—Have You Boofed Yet?”—unless we credit him with unusual concern about his drinking buddy’s intestinal discomfort. 

But just going through the “boof-sleuthing” exercise in the prior paragraph cost me several IQ points and a soupcon of self-respect. The Framers viewed impeachment as a solemn and serious affair. Hamilton described “the awful discretion which a court of impeachments must necessarily have, to doom to honor or to infamy the most confidential and the most distinguished characters of the community.” A Kavanaugh impeachment inquiry would be awful in a different way: a spectacle proving mainly that high school never ends.  

“Imagine what it would look like,” writes Stephanie Mencimer in Mother Jones:

Hours of testimony from Squi, Timmy, and PJ over whether a Devil’s Triangle is really, as Kavanaugh testified, a drinking game. Expert debates over the definition of “boofing.”…. Michael Avenatti could figure prominently. It’s the kind of stuff that could end up making former House Oversight Committee chairman and Benghazi conspiracy theorist Rep. Jason Chaffetz (R-Utah) look like an elder statesman.

Really, must we? Sure, it might be entertaining to hear Rep. Alcee Hastings (D-Fla.), impeached for lying about participation in a gangland bribery scheme—and lately dogged by his own sex scandal—justify a vote to impeach over “Renate Alumnius.” But the proceeding as a whole would hardly be edifying. 

 A much-discussed recent survey puts two-thirds of Americans into a category the authors dub “the exhausted majority”—voters who are “frustrated and fed up with tribalism.” A Kavanaugh impeachment effort seems tailor-made to exhaust them even further.  

 

Max Gulker of the American Institute for Economic Research has a great short paper out summarizing the problems with a federal jobs guarantee. It echoes many of the issues that I raised about such a program on this blog.

One thing that is often underappreciated is just the sheer scale of the programs proposed. For reasons I outlined, the true numbers could potentially be much higher than the Levy Institute and Center on Budget and Policy Priorities (CBPP) worked proposals. But even taking their numbers as given, the estimated 10.7 million participants according to CBPP and 12.7-17.5 million from Levy would make the federal program by far the world’s largest employer, if thought as a single firm or entity.

Consider the striking chart below.

At the Levy report’s upper-bound estimate, the numbers employed would exceed the world’s nine largest employers combined. Even the CBPP’s lower estimate would only be marginally below the employment level of the world’s five largest employers combined.

When is it appropriate to privatize the work of public prosecutors? And does it make things better or worse when “cause” lawyering is at issue? As Jeff Patch reports at Real Clear Investigations, a project called the State Energy & Environmental Impact Center at New York University supplies seasoned lawyers to the offices of nine state attorney general offices, plus D.C. They serve there in such roles as special assistant attorney general while being paid by the NYU project, which is funded by and closely identified with former New York City Mayor Michael Bloomberg. The catch, which explains why the program is not likely to hold appeal for AGs in some other states: “Under terms of the arrangement, the fellows work solely to advance progressive environmental policy at a time when Democratic state attorneys general have investigated and sued ExxonMobil and other energy companies over alleged damages due to climate change.” 

Private funding of lawyers inside public prosecutors’ offices is not a new idea. Iowa’s AG office, for example, told Patch that it has employed legal talent from an American Bar Association-supported program. In another variation, it is not unusual for prosecutors to accept funding from the insurance industry for efforts to combat insurance fraud. Undergirding the political viability of these schemes is the (perhaps wobbly) premise that the state office is not farming out influence over politically or ideologically sensitive policy matters to outside groups that may have their own agenda.  

The AG offices participating in the program (Illinois, Maryland, Massachusetts, New Mexico, New York, Oregon, Pennsylvania, Virginia, and Washington state, as well as the District of Columbia) might plausibly argue that the projects they’re paying the Bloomberg embeds to work on are mostly ones they’d want to pursue zealously in any case, such as suing the EPA and other federal agencies over alleged lapses. Critics point to the ideologically fraught nature of the work and say the arrangement could violate some states’ ethics rules or generate improper conflicts of interest, as through an obligation to report activities back to the Bloomberg center. 

The spotlight on backstage doings at state AG offices arises from reports by Chris Horner of the Competitive Enterprise Institute based on public records requests that were fought tooth and nail by various AGs. (Besides the CEI report on attorneys general, Horner’s written a companion report on governors.) CEI is anything but a disinterested party in all this, of course, having been hit with a AG subpoena (later beaten back in court) over its supposedly wrongful advocacy on climate issues. That was itself part of a subpoena campaign targeting more than 100 research and advocacy groups, scientists, and private figures on the putatively wrong side of climate debates, which we and others decried at the time as a flagrant attack on rights protected by the First Amendment. 

Where Brexit negotiations are concerned, we have reached (as they say in Britain) “squeaky bum time.” The triggering of Article 50 on March 29th 2017 started a 2-year countdown for the UK and EU to negotiate a withdrawal agreement for a binding international treaty. Yet just 5 months from deadline, the EU’s position on Northern Ireland and a lack of domestic support for Prime Minister Theresa May’s desired long-term trading relationship mean a no deal Brexit in March remains a real possibility (the tweet linked here quotes Britain’s trade minister Liam Fox).

True, much of the withdrawal agreement has been long agreed. A transition period through to 31 December 2020 is planned to essentially keep the UK within the EU’s economic institutions (the single market and customs union), though reports suggest both sides might be willing to extend this for an extra year. Free movement of people would continue for this period, and the UK would pay £39 billion into the EU budget. Importantly, though Article 50 states that a withdrawal agreement must take account of the longer term post-exit relationship, this is not going to be achieved in time: the agreement would merely be accompanied with a joint, loose-languaged political declaration on the future framework.

But it’s here where difficulties have arisen, and most center around the Northern Irish border. Both sides have said from the start that, post-Brexit, they want to keep the border between the Republic of Ireland (an EU state) and Northern Ireland (part of the UK) free of physical infrastructure and associated interventions at politically-sensitive crossings. But making that commitment self-evidently necessitates a trade relationship. Given long-term trade arrangements will not be agreed in the withdrawal agreement, the EU has therefore insisted that the withdrawal deal itself contain backstop provisions to ensure the border remained open should another arrangement or trade deal incorporating not be agreed.

This is what led last December to the UK and EU agreeing in principle to a fudged “backstop” position on Northern Ireland. In vintage legalese, the text stated: “In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement.”

Given the UK government has said repeatedly that the UK would be leaving the EU customs union and single market, this text raised Brexiteer eyebrows. Yes, the UK government agreed this to kick forward future trade relationship talks, and in the hope it would not be ultimately necessary. But talk of full alignment left ambiguity, and the potential for the backstop itself to keep the UK locked into Brussels’ regulatory and customs orbit. However much the UK government insisted that this language did not mean regulatory harmonization, but instead merely achieving shared regulatory goals via detailed sanitary rules, customs procedures, and the Single Energy Market, the backstop left an uncomfortable feeling that the UK had fallen into a trap.

This was not helped when the EU then rejected proposed “technological solutions” and “away from the border checks” that the UK insisted could have avoided the backstop. The unease intensified when, from February, the EU and Ireland began proposing a backstop arrangement where Northern Ireland alone would remain within the EU single market and customs union to ensure a soft border. This was something out of kilter not only with the text but with the wishes of the Northern Irish Democratic Unionist party which props up the Conservative minority government.

This is all significant because Brexiteers fear now that the Northern Irish border has become the tail wagging the dog not just on the backstop, but on the potential future long-term trade relationship between the EU and UK. They fear the UK is being hoodwinked into a Brexit-in-name-only by threats of breaking up the UK through saying that only a soft Brexit can keep the Northern Irish border without physical infrastructure.

The Prime Minister Theresa May’s proposals for a longer-term trade relationship (known as the Chequers Plan) is Exhibit A. Rather than aiming for the best trade arrangements and then seeking to minimize disruption at the Irish border, the plan seems explicitly designed to keep the border as frictionless as possible, at the cost of an extraordinary loss of policy freedom. Chequers proposes a common rulebook between the UK and the EU on goods and agri-goods trade but not services, where fears of Brussels regulating the City of London alone without a UK vote were reason enough alone for exclusion. Non-regression-like clauses on environmental and labor laws would be included.  A complex facilitated customs arrangement would see the UK collect the EU’s tariffs on its behalf.

This deal has proven anathema to most Conservative Brexiteers, binding as it does the UK to EU goods regulation without voting power over it and stripping away the bargaining chip of goods regulation in making liberalising trade deals with third parties. They see Chequers as an unnecessary loss of sovereignty, and want Theresa May to “Chuck Chequers” and instead negotiate with the aim of a whole of UK FTA and practical solutions at the border.

Incidentally, the EU doesn’t like Chequers either. They rightly see it as cherry-picking parts of the single market, are suspicious of a foreign government collecting its duties and would prefer even tighter integration of lots of regulations (including commitments for full harmonization on labor and environmental laws), such that the UK cannot secure a competitive advantage. Political commentators in the know say Chequers is dead as far as the EU is concerned.

In the EU’s eyes, the preferred long-term options have always been a Canada-style free trade agreement, or maintained UK membership of the single market and a customs union (in essence, a political Brexit but not an economic Brexit). Most Brexiteers very much prefer the former, which comes with more regulatory and trade policy freedoms.

This brings us to the crux of the current political crisis. May’s government have thus far lined up with the EU (and against Brexiteer insistence otherwise) in stating that it’s impossible to solve the border problem satisfactorily through an ordinary UK-EU free trade deal and other practical solutions. They imply that with a Canada-style FTA, Northern Ireland alone would have to remain tied to EU economic institutions to avoid a hard border, effectively creating an economic border down the Irish Sea. Conveniently, May claims that only something like her Chequers plan can avoid this.

But with Chequers seemingly without much support at home or in the EU, the future relationship talks have effectively stalled. With so much uncertainty about it, the backstop agreement has taken center-stage, because de facto that could become the default relationship. And here Brexiteer fears have heightened. Since May insists no UK government would countenance Northern Ireland having different customs arrangements from Britain, she has proposed the whole of the UK remaining in a customs union-like arrangement as a backstop.

Earlier this year she suggested this would last for an extra year beyond transition (to December 2021) and Brexiteers are still keen on this kind of time limit. But the EU says that a backstop cannot be time-limited, because otherwise it’s not a backstop. Brexiteers winced this week when the PM’s position seemingly “evolved” in the EU’s direction, with her suggesting remaining in a customs arrangement as a backstop on a “temporary” but indefinite basis. These fears heightened with news that the EU believed there was not enough time to discuss a UK-wide backstop proposal, and insisting that the withdrawal agreement incorporate a “backstop to a backstop,” with a Northern Ireland-only customs arrangement should a full UK-wide agreement fail to be agreed.

For many Brexiteers, the major economic benefit of Brexit is the ability to conduct independent trade policy, cutting deals and setting tariffs. An indefinite customs arrangement threatens this. Given the EU would seemingly prefer the whole of the UK to remain within its economic institutions, a non-time-limited customs backstop provides little incentive for the EU to agree to a future comprehensive free trade deal the Brexiteers desire.

Combined with Chequers then, Brexiteers fear a huge sell out is on the cards. The UK government’s official position has always been that the country will leave the EU single market and customs union. But now both Chequers and the backstop risk are seen to keep the UK within these arrangements to varying degrees.

The result is a political crisis. The PM this week updated the house on the negotiations but could not provide assurances any customs arrangement backstop would be time-limited. She has since floated and then rowed back on extending the transition period, something that would see UK taxpayers pay for at least another year of EU funding, without settling the backstop issue.

As a result, everyone is unhappy. There is talk of Brexiteers dethroning May as a last gasp attempt to push for the Canada FTA-type deal the EU has offered. The DUP are threatening to derail the government’s domestic legislative agenda should the PM allow Northern Ireland to be treated differently. The hardline Remainers, meanwhile, are pressing for a second referendum on any withdrawal agreement May brings back.

With the clock ticking, and stakes rising, the prospect of no deal is therefore heightening. The EU has engineered a situation where in the long-term it insists either the UK must sign up to a backstop where Northern Ireland must be effectively economically annexed, or the UK must remain locked in the EU’s regulatory and customs embrace itself.

The Brexiteers (to my mind rightly) consider this unacceptable. Ignoring whether a change of Prime Minister or strategy is perceived as bad faith negotiating by the UK, it does not seem an extreme position to say that the EU should not have the right to dictate the economic breakup of a sovereign country, nor determine its domestic economic regulations. But at such a late stage and in such a febrile political environment, who knows where this multi-actor game of chicken ends?

Management practices in firms differ widely between countries according to research summarized by economists Nicholas Bloom and John Van Reenen.  The differences between well-managed firms and those that are poorly managed are significant and could help explain differences in Total Factor Productivity (TFP) between countries.  In the field of economic history, economists Louis Putterman and David N. Weil (henceforth P&W) found that the length of time that a population of a country has lived with a centralized state and with settled agriculture (henceforth, Deep Roots) are powerful predictors of their GDP per capita today.  Perhaps there is a relationship between firm management practices by country and that country’s Deep Roots?

P&W tested their Deep Root’s hypothesis by creating a matrix of contemporary populations of each country based on their population’s ancestral origin in the year 1500.  They use a variable called state history that measures how long a country has lived under a supra-tribal government, the geographic scope of that government, and whether that government was controlled by locals or by a foreign power.  Their second variable is agricultural history and it measures the number of millennia that have passed since a country transitioned from hunting and gathering to agriculture.  P&W then combined the matrices of ancestry with the Deep Roots variables to show how long each national origin group was governed by a centralized state and how long they had settled agriculture.  The Deep Roots score varies dramatically between peoples and locations.  P&W’s findings stand in contrast to those that explain economic development and GDP per capita as the ultimate result of geography, institutions, or other conventional explanations.

Ryan Murphy and Alex Nowrasteh tested whether the Deep Roots variables can explain differing GDP per capita by U.S. state in a paper published in the Journal of Bioeconomics (working paper available here).  They found that P&W’s core result of a statistically significant and positive relationship between Deep Roots variables and GDP per capita does not hold at the subnational level in the United States.  This argument is related to immigration because new immigrants bring different state history and agricultural history scores with them, eventually affecting the Deep Roots of their new country.  Whether that matters for economic growth is up for debate.  

Since Deep Roots are correlated with GDP per capita globally and some economists think that they can explain economic development, firm management practices should probably also be correlated with Deep Roots.  To test this, we ran simple linear OLS regressions testing the relationship between firm management practices and a country’s state and agricultural history.  Our standard errors are robust to heteroskedasticity.  We controlled for the same variables that P&W did as well as the economic freedom score.  We downloaded the firm management practices dataset for 34 countries here

We found precisely nothing interesting related to the Deep Roots (Table 1).  Neither state history nor agricultural history is correlated with better management practices.  However, economic freedom and absolute latitude are positively correlated with state history and agricultural history.  On the positive side, our R-squared is 0.72, so the variables that we included can explain 72 percent of the variation.   

There are a lot of reasons why this could be.  We only had management score data for 34 countries, collinearity was rampant, cross sections are limited, or other explanations that we haven’t considered.  Regardless, there is no evidence here that there is a link between Deep Roots and firm management practices.  

 

Table 1

Firm Management Practices, State History, and Agricultural History

Millions of Americans move between states each year. These migration flows are influenced by numerous factors including job opportunities, climate, and housing costs. Interstate migration is also influenced by state and local taxes, as discussed in this recent study.

Internal Revenue Service data show that 2.8 percent of households moved to another state in 2016. The map below shows the net patterns of movement. People are leaving the red and purple states for the blue states.

The ratio of domestic gross in-migration to gross out-migration is shown for each state. In 2016, New York gained 142,722 households and lost 218,937 for a ratio of 0.65. Florida gained 307,022 households and lost 211,950 for a ratio of 1.45.

States losing population to other states have ratios of less than 1.0 and states gaining population have ratios of more than 1.0. People are generally moving out of the Northeast and Midwest to the South and West, but they are also leaving California, on net.

Here are some of the regional patterns:

  • The Northeast. New Hampshire enjoys net in-migration. It is a low-tax state with no individual income tax. Higher-tax Connecticut, Massachusetts, Rhode Island, and Vermont suffer net out-migration.
  • The Midwest. South Dakota enjoys modest net in-migration, while its higher-tax neighbors Iowa, Minnesota, and Nebraska suffer net out-migration. South Dakota is a low-tax state with no income tax. Neighbor Wyoming has net out-migration overall but has substantial net in-migration among high-earning households. Wyoming has no income tax.
  • The Southeast. Kentucky has suffered net out-migration for years, while its neighbor Tennessee has enjoyed net in-migration. Kentucky is a relatively high-tax state, while Tennessee is a low-tax state with no individual income tax.
  • The West. The largest destinations for out-migration from high-tax California are Texas, Washington, and Nevada—all low-tax states with no income taxes.

In this study, I divide the states between the 25 highest tax and 25 lowest tax, with taxes measured as state and local individual income, sales, and property taxes as a percent of personal income. In 2016, 286,431 households (with almost 600,000 people) moved, on net, from the 25 highest-tax states to the 25 lowest-tax states. Of the 25 highest-tax states, 24 of them had net out-migration in 2016. (Maine was the exception).

The 2017 federal tax reform law will likely intensify the patterns shown in the map of people moving from high-tax states to low-tax states. The law doubled standard deductions and capped state and local tax deductions. Those changes will reduce the number of households deducting state and local taxes from 42 million in 2017 to about 17 million in 2018. Those households will feel a larger bite from state and local taxes and become more sensitive to tax differences between the states.

Welcome to the Defense Download! This new round-up is intended to highlight what we at the Cato Institute are keeping tabs on in the world of defense politics every week. The three-to-five trending stories will vary depending on the news cycle, what policymakers are talking about, and will pull from all sides of the political spectrum. If you would like to recieve more frequent updates on what I’m reading, writing, and listening to—you can follow me on Twitter via @CDDorminey

  1. Trump appears to call for defense spending cut,” Aaron Mehta. This week’s Cabinet meeting went a bit differently than most. The President, apparently due to worry about the country’s rising debts and deficits, issued a call for every federal department to cut it’s spending by five percent in Fiscal Year 2019 (FY19). Reporters understandably rushed to ask President Trump if this initiative would include defense spending; while he doesn’t seem to want the full five percent, Trump commented that the budget next year would be “around $700 billion” (a 2.3 percent cut). 
  2. Air Force B-21 Raider Long Range Strike Bomber,” Jeremiah Gertler. The Congressional Research survey released an update on the still-classified B-21 program. While many details remain unavailable to the public, this report discusses  the status of the program and includes useful information on projected research and development funding. 
  3. Air and Missile Defense at a Crossroads,” Mark Gunzinger and Carl Rehburg. The Center for Strategic and Budgetary Alternative released a new report today on adapting missile defense for protecting overseas bases, and recommendations to move the portfolio in that direction. 
  4. Senior defense committee Democrat wants to stop U.S. weapon sales to Saudi Arabia,” Tony Bertuca. Senator Jack Reed, the ranking Democrat on the Senate Armed Services Committee (SASC), said publicly that all sales of offensive weapons to Saudi Arabia should be blocked until a thorough investigation into the death of journalist Jamal Khashoggi can be undertaken. 

Pages