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On Monday, President Trump told a gathering of police chiefs that cities faced with serious crime problems should return to the policing practice known as stop-and-frisk. “Stop-and-frisk works and it was meant for problems like Chicago.” This is an old theme for Trump, one he shares with former New York City Mayor Michael Bloomberg, whose rumored 2020 presidential candidacy raises the possibility of a contest between two stop-and-frisk enthusiasts. In Terry v. Ohio (1968) the Supreme Court found the tactic constitutional, but judges since then have sometimes ruled, as in a high-profile case against New York City, that the tactic was being employed in unconstitutional ways. (Despite predictions from some quarters that crime would soar in New York City following that ruling, no such thing happened.)

Cato has had a lot to say about stop-and-frisk over the years. A sampling:

  • “How did we the people of New York City allow this long-term disgrace to continue?” – the late Nat Hentoff, 2010.
  • “A ‘stop’ is an involuntary citizen-police encounter… [Stop-and-frisk] can be a degrading and humiliating event to endure.” - Tim Lynch, 2012.
  • “Statistics do not answer whether it is okay for an ostensibly free society to gratuitously stop-and-frisk its citizens.” – Trevor Burrus, 2013
  • Even after the curtailment of the New York City program, “for too many Americans, the basic liberty to move freely in society has been debased and degraded by police fighting the drug war” - Jonathan Blanks, 2018.

For another dimension, see Cato’s 2016 survey report by Emily Ekins on public attitudes toward Policing in America [attitudes toward authority / views on effectivenesswho should be searched?]  

 

Neither the government nor a private party may compel you to speak; nor may a private party masquerading as a government entity compel you to speak, even when it’s supposedly for your own good. In Delano Farms v. California Table Grape Commission, Cato, joined by the Reason Foundation, Institute for Justice, and DKT Liberty Project, is continuing to support a farm business’s challenge to a California state-established commission that compels grape growers to contribute money for government-endorsed advertisements. We had previously filed in the California Supreme Court, which was a losing battle, and are now asking the U.S. Supreme Court to take the case.

Now, governments are allowed to disseminate their own messages and can use tax revenue to do it under what’s called, simply enough, the “government-speech doctrine.” They can also tax industries specifically and earmark those funds to promote those particular industries; the Supreme Court has upheld several industry-advertising programs, including national campaigns for beef. In many of these targeted tax-and-advertise programs, the government requires taxes or “fees” from anyone doing business in the industry. One justification for these fees is that all producers benefit from such a “group advertisement.” If some were able to get the marketing benefit without paying, the system would suffer from “free riders.” For such a program to actually constitute government speech and thus avoid First Amendment problems, however, it is the government itself that must be speaking.

The California Table Grapes Commission has claimed that it is part of the government and that its speech is thus “government speech.” But the commission isn’t the government; it’s a commercial entity or trade group that uses compelled subsidies to fund speech. The commission’s generic advertisements for California grapes don’t really benefit the entire industry. Instead, they benefit some members of the industry by making it seem that all products are equally good. Furthermore the commission can’t be considered part of the government because it, unlike the actual government, can be disbanded based on a vote of the table grape producers.

Put another way, no person employed by the California government has ever written, produced, or even reviewed the speech the commission compels. In all other cases where the government programs were held constitutional, the government took direct control of the message and maintained oversight of a regulatory entity. None of that is true here. The commission here is a private entity, with the power to exact fees from members who have no choice but to pay for whatever message it ends up promoting.

In our brief, we argue that the Supreme Court should take this case and treat forced subsidies for generic advertising the same way it treats other such subsidies: as violations of the First Amendment freedoms of speech and association. The California courts relied on a decision recently overturned in the Supreme Court’s Janus holding this past June, in which compelled association and speech in union representation was deemed a violation of the First Amendment. The Court should continue with this line of reasoning here: no one should be compelled to support a non-government message. 

I’ll be a participant in an immigration conference in Michigan organized by Shikha Dalmia of the Reason Foundation later this week.  As part of the conference, Dalmia asked the participants to write essays on specific immigration subtopics that she will later assemble in a book (if I recall correctly).  Dalmia asked me to write an essay on Singapore’s immigration policy – a challenging assignment as I only had the vaguest impressions of their immigration policy from a few readings over the years and a lunch meeting with Singaporean officials from the Ministry of Manpower five years ago. 

Singapore’s immigration system has two main tiers.  The first tier is for highly paid professionals and their families who are encouraged to become permanent residents and eventually citizens.  The second tier is for skilled and semi-skilled temporary migrant workers who will eventually return to their home countries and cannot become Singaporean citizens.  I ended my essay with recommendations for marginal improvements to Singapore’s immigration system that would maintain the two-tier system while increasing the benefits to Singaporeans and foreign workers. 

Singapore is a city-state in Southeast Asia with the fourth highest GDP per capita (PPP adjusted) in the world. Singapore gained its independence in 1965 and developed rapidly since then.  From 1965 to 2017, Singapore’s average annual rate of GDP growth was 7.5 percent, averaging 9.1 percent prior to 1998.  Immigrants and temporary migrant workers have been important components of Singapore’s economic growth since the nineteenth century.  In 1965, 28 percent of the resident population of Singapore was foreign-born.  In 2017, about 47 percent of Singapore’s residents were foreign-born – a figure that dwarfs the 13.7 foreign-born percentage in the United States.  To give a comparison of how liberal Singapore’s immigration policy is, none of the top ten largest American cities had an immigrant percentage of their respective populations above 40 percent. 

The United States can learn much from Singapore’s immigration system, but I will focus on one lesson below: The United States should create a visa for domestic workers based on Singapore’s Foreign Domestic Worker (FDW) visa.

The FDW visa is Singapore’s most interesting and distinct second tier visa for workers who labor in the home providing domestic services, elderly care, childcare.  FDWs are tightly regulated under Singaporean law.  Among other requirements, they must be female, 23-50 years of age, be from an approved country of origin in South or East Asia, and have a minimum of 8 years of education.  Once in Singapore, the FDW cannot start a business or change employers.  The employers of FDWs must also meet stringent regulatory requirements.  For instance, the FDW must work at the employer’s home address, cannot be related to the employer, the employer must put up a $5,000 security bond, pay for medical exams, and cover most other costs of living – with fewer restrictions on FDWs from Malaysia.  According to government surveys, FDWs have high levels of job satisfaction and most intend to apply again for work as an FDW (Ministry of Manpower 2016, 5; Ministry of Manpower 2017).

The United States should adopt a visa like the FDW for at least three reasons.

First, the FDW likely increased the native Singaporean skilled female labor force participation rate (LFPR).  From 1990-2017, Singapore’s female LFPR rose from 48.8 to 59.8 percent while the male LFPR dropped from 77.5 to 76 percent.  Some portion of that increase in the female LFPR can be attributed to FDWs because they specialize in domestic production which allows Singaporean women to enter the workforce.  There is some evidence in the United States that additional lower-skilled immigrants slightly increased female time in the workplace but that is in the highly regulated and expensive childcare market in the United States.  Although some more research is needed to analyze how FDWs affected female LFPR in Singapore, it’s likely than an FDW visa in the United States would allow more women with children to work if they want to.

Second, an FDW visa would put downward price pressure on childcare providers by reducing demand for their services.  If an FDW visa was available in the United States, many American households would take their children out of daycares and other childcare arrangements and hire FDWs instead.  High-earning American households would especially be interested in the FDW as they are also the ones most likely to employ ­au pairs on the poorly-designed J-1 visa.  Taking many high-earning American households out of the daycare and childcare market would initially lower prices, thus allowing Americans with lower incomes to afford those services for the first time.  Americans who would continue with daycare and childcare services would also gain in the form of lower prices. 

Third, a large and robust FDW visa program could increase the fertility rate of highly-skilled native-born American women.  Over time, there is a strong negative correlation between female LFPR and fertility, but that relationship has weakened substantially in the United States.  Economists Delia Furtado and Heinrich Hock found that that weakening relationship is partly explained by low-skilled immigrants lowering the cost of childcare, resulting in an 8.6 percent increase in fertility and a 2.3 percent increase in female LFPR (for native-born skilled women in cities in prime birth years).  Although I do not support fertility subsidies in the United States, the FDW is a wise policy that would improve the livelihood of Americans and achieve the same end much cheaper than an expanded child tax creditreformicons should love it. 

Singapore’s FDW visa has many problems than an American version should avoid.  For instance, an American FDW visa should allow FDWs to live on their own if they want, move between FDW employers without legal penalty or ex ante government permission, be open to both sexes, have a wider age-range, and allow FDWs to sign longer-term labor contracts.  Such a visa would help many American households, migrants, and increase the range of choices open to American women who want to work and become mothers.   

 

The Senate appears poised to vote soon on a Congressional Review Act resolution sponsored by Sen. Tammy Baldwin (D-WI) that would rescind the Trump administration’s final rule on “short-term limited duration insurance.” Nearly every Senate Democrat has cosponsored the Baldwin resolution because they believe it would protect consumers. It would do exactly the opposite. 

The Baldwin resolution…

  • …would increase the number of uninsured. Various scholars have estimated that by making health insurance more affordable, the Trump short-term plans rule would reduce the number of uninsured Americans by up to 2 million. The Baldwin resolution would rescind that rule, thereby denying health insurance to up to 2 million Americans.
  • …would reduce protections for the sick. The Baldwin resolution would reduce consumer protections in short-term plans and expose sick patients to higher premiums, denied coverage, bankruptcy, and denied care. It would revert to the Obama administration’s 2016 short-term plans rule, which limited short-term plans to 3 months and banned renewals. As state insurance regulators noted at the time, “[There are] no data to support the premise that a three-month limit would protect consumers or markets. In fact, state regulators believe the arbitrary limit proposed in the rule could harm some consumers. For example, if an individual misses the [ACA] open-enrollment period and applies for short-term, limited duration coverage in February, a 3-month policy would not provide coverage until the next policy year (which will start on January 1). The only option would be to buy another short-term policy at the end of the three months, but since the short-term health plans nearly always exclude pre-existing conditions, if the person develops a new condition while covered under the first policy, the condition would be denied as a preexisting condition under the next short-term policy.” The Trump rule allows consumers to purchase coverage that lasts until the next ObamaCare open-enrollment period. The Baldwin resolution would result in that patient being re-underwritten and denied coverage and care for up to nine months.
  • …would not reduce ObamaCare premiums and could increase them. The Trump rule allows consumers to couple short-term plans with standalone renewal guarantees, which allow enrollees who develop expensive illnesses to keep paying healthy-person premiums. Since it gives expensive patients a lower-cost alternative to ObamaCare coverage, the Trump rule can reduce ObamaCare premiums by keeping expensive patients out of those risk pools. In contrast, the Baldwin resolution would force those expensive patients into ObamaCare plans, increasing the cost of ObamaCare coverage to both enrollees and taxpayers. In 2016, state insurance commissioners again explained the fundamental flaw of Baldwin’s approach: “If the concern is that healthy individuals will stay out of the general pool by buying short-term, limited duration coverage, there is nothing in this proposal that would stop that. If consumers are healthy they can continue buying a new policy every three months. Only those who become unhealthy will be unable to afford [short-term plans], and that is not good for the [ACA] risk pools in the long run.”
  • …would make short-term plans less comprehensive. The Baldwin resolution would not protect consumers from inadequate coverage. It would re-create the bad old days when excessive regulation blocked consumers from purchasing more-comprehensive short-term plans. The Congressional Budget Office writes that under the Trump rule only “a small percentage of [short-term] plans would resemble current STLDI plans, which do not meet CBO’s definition of health insurance coverage.” Instead, most short-term plans would “resemble[e] nongroup insurance products sold before the implementation of the Affordable Care Act” that offer “financial protection against high-cost, low-probability medical events.” In other words, the Trump rule allows the sort of health plans consumers want. The Baldwin resolution would make those products disappear again.
  • …would gut conscience protections. The Trump rule protects conscience rights by improving the market for short-term plans, which are exempt from ObamaCare’s contraceptives mandate. The Baldwin resolution would strip away those conscience protections.
  • …would not protect people with preexisting conditions. The Washington Post’s Paige Winfield Cunningham reports it “doesn’t exactly make sense” for Democrats to claim that restricting short-term plans helps patients with preexisting conditions. “Even with the expansion of these short-term plans, the marketplace plans guaranteeing preexisting protections will still be available to those who need them… So expanding the availability of short-term plans…doesn’t mean people with preexisting conditions would lose access to crucial coverage protections.”
  • …is pure symbolism. The Baldwin resolution has zero chance of becoming law. To rescind a final agency rule, Congressional Review Act resolutions must pass both chambers of Congress and receive the president’s signature. The House is unlikely to pass the Baldwin resolution. Even if it did, there is zero chance President Trump would sign a resolution nullifying a rule he himself asked his administration to produce.
  • is terrible politics. Or at least it could be, if opponents expose it as subjecting patients with expensive illnesses to higher premiums, cancelled coverage, medical bankruptcy, and denied care—all to serve supporters’ ideological goal of destroying a free-market alternative to ObamaCare.

From the beginning, there is one embarrassing and evident fact that Professor White has to cope with: that “free” Scottish banks suspended specie payment when England did, in 1797, and, like England, maintained that suspension until 1821. Free banks are not supposed to be able to, or want to, suspend specie payment, thereby violating the property rights of their depositors and noteholders, while they themselves are permitted to continue in business and force payment upon their debtors. …White correctly notes that the suspension was illegal under Scottish law, adding that it was ‘curious’ that their actions were not challenged in court. Not so curious, if we realize that the suspension obviously had the British government’s tacit consent.
–Murray Rothbard, “The Myth of Free Banking in Scotland

Back in April, while Bob Murphy and I were debating whether fractional reserve banking poses a threat to market stability, Bob asked whether it was the case that, despite not having had Parliament’s permission to do so, the Scottish banks joined the Bank of England in restricting specie payments between 1797 and 1821. The answer, I said, was that they had indeed done so. I also pointed out that, although the Scottish banks’ decision was presumably illegal, the Scottish public appeared to go along with it.

In this and a subsequent post, I plan to delve more deeply into the story of the Scottish bank suspension, so as to offer more complete and accurate answers to Bob’s questions, and to answer as well other important questions that the restriction episode raises. If the British government didn’t authorize a Scottish suspension of payments, did it otherwise alter the rights of holders of claims against the Scottish banks? If those banks refused to pay their notes in specie despite being obliged to do so, why was no Scottish bank ever taken to court? To what extent, and in what fashion, were Scottish bank creditors harmed by the Scottish bankers’ actions? Should those actions prevent us from regarding the pre-1845 Scottish banking system as an informative case study of free banking? Does the Scottish suspension suggest that fractional reserve banking is, inconsistent with genuine freedom in banking, including the consistent honoring of bank customers’ property rights?

In this post, I’ll first review the events leading to the passage of the Bank Restriction Act. Then I’ll discuss how that act altered the legal rights of Scottish bank creditors. Finally I’ll propose an explanation for the fact that no Scottish banks were sued for suspending payment. In Part 2 I’ll consider the adverse effects of the Scottish suspension on the Scottish public. The restriction’s main victims, I plan to argue, were tradespeople and others whose livelihood depended upon ready access to small change. But their plight, far from enduring throughout the full period of the restriction, was confined to its opening months. Finally, in Part 3, I’ll argue that the Scottish restriction does not, after all, warrant any major revision of claims that Larry White and I and other members of the “modern free banking school” have made regarding the implications of  unrestricted freedom in banking. On the contrary: to the extent that Scottish bankers were guilty of “violating the property rights of their depositors and note holders,” the fault lay mainly, not with freedom banking, but with provisions of the 1765 Scottish Bank Notes Act that placed unwise and unwarranted limits upon that freedom.

The Bank Restriction

The vast sums the Bank of England had been compelled to advance to the government from the outset of the Napoleonic Wars, together with persistent fears of a French invasion, had been draining it of reserves for some time when, in late February, 1797, news that a French fleet had landed in Wales threatened to carry it across the brink. Upon being so notified by the Bank’s Directors, William Pitt prevailed upon the King to hold a meeting of the Privy Council, the result of which was an Order of Council prohibiting the Bank from issuing any more specie in exchange for its notes “until the sense of Parliament could be taken and measures adopted for maintaining the means of circulation.” Parliament’s “sense” was in turn taken and eventually embodied in legislation, known as the Bank Restriction Act, passed on May 3, 1797, exempting the Bank of England from the obligation to pay its notes in specie. Shortly afterwards a similar exemption was granted to the Bank of Ireland. These initial exemptions were to be repeatedly renewed throughout the courts of the Napoleonic wars, and for several years afterwards, until the two banks were at long last compelled to fully renew specie payments in 1821.

Because the Restriction Acts applied only to the Bank of England and the Bank of Ireland, they did not expressly contravene the obligation of other banks in the United Kingdom to pay their notes in specie. Nor did either law make Bank of England notes a legal tender. It’s therefore tempting to suppose, as most commentators have done, that the Acts did not in any way relieve other banks, including those in Scotland, of their obligation to pay their own liabilities, and their circulating notes especially, in specie. But the truth isn’t quite so simple.

As Frank Fetter explains in his very good 1950 article on the subject, although in drafting the English Restriction Act Parliament recoiled at the prospect of declaring Bank of England notes legal tender, it did provide that they “shall be deemed payments in cash if made and accepted as such.” What’s more, the act declared that anyone tendering such notes in payment, bankers included, “was to be protected from arrest for debt.” Instead, “The creditor had the option of refusing to accept the notes and then taking legal action against the debtor to compel payment in legal tender.” In other words, the creditor of a bank other than the Bank of England or Bank of Ireland might insist upon payment of a note in specie, but would in that case be obliged, as Pitt explained in justifying the clause in question to Parliament, to wait for the “process of law [to] take its course to the attainment of judgement.”

No More Summary Diligence

So far as Scottish bank creditors were concerned, the effect of the Bank Restriction Act was to deprive them of the right to “summary diligence,” a procedure in Scots law “whereby certain constituted obligations can be enforced without the need to apply to a court.” Because the act also made the act of receiving Bank of England notes in lieu of specie tantamount to the extinction of the debt for which the notes were paid, it confronted anyone seeking to redeem a Scottish banknote with a relatively stark choice: either accept Bank of England notes in lieu of specie, or refuse payment and initiate a legal process that might at very least mean a considerable delay in payment. However, Parliament did not otherwise alter Scottish banks’ legal obligations. That is, it did not supply any grounds for their clients to suppose that, if a suit were brought, it would only result in a verdict in the bankers’ favor.

Because no Scottish banker was actually sued for refusing payment in specie during the course of the Bank Restriction, we don’t know what verdict a Scottish court would have reached in the event of such a suit. However, in 1801 a suit was brought, by one Mr. Grigby, against an English country bank, Oakes and Co., and that suit resulted in a verdict for the plaintiff. As it plainly illustrates the court’s refusal to bend the law in a bank’s favor, by second-guessing the preferences of the British government or otherwise, the opinion in that case, as rendered by Chief Justice Lord Alvanley, at the Court of Common Pleas, with which all the other justices concurred, is worth quoting at length — and all the more so given Alvanley’s evident lack of sympathy for the plaintiff:

Are we then to say [Alvanley asks], that the Legislature has enacted that which the provisions of the [Restriction] act do not warrant? If we were at liberty to refer to our own private knowledge of the language that was held in Parliament while this act was pending, no doubt could be entertained upon the subject. We know that it was very much canvassed by many persons at that time, whether or not the Legislature ought to go the length of declaring bank notes a good legal tender? If therefore it had been intended by the Legislature so to make them, that intention would have been expressed in such clear terms that no question could have arisen upon the subject. Indeed, it is expressly provided in the 2d section of the act, that if the Governor and Company of the Bank of England, shall be sued on any of their notes, or for any sum of money, payment of which in their notes the party suing refuses to accept, they [the Bank] may apply to the Court in which such proceedings are instituted to stay proceedings during such time as they are restricted from paying in cash. But with respect to individuals it was not intended to prevent any creditor who should be so disposed from captiously demanding a payment in money, though such a creditor is deprived of the benefit of arresting his debtor. Thank God few such creditors as the present Plaintiff have been found since the passing of the act! But yet whatever inconveniences may arise, and to whatever length they may go, Parliament, and not this Court, must be applied to for a remedy.[1]

If the British Government could not prevent England’s Court of Common Pleas from rendering such a verdict, it’s hardly likely to have held greater sway in any Scottish court. There seems to be no basis, therefore, for Rothbard’s claim that the lack of legal actions in response to Scottish banks’ suspension of specie payments was a reflection of creditors’ belief that the suspension enjoyed “the British government’s tacit consent.” On the contrary: in refusing to make Bank of England notes legal tender, while explicitly absolving only the Bank of England and the Bank of Ireland from any obligation to pay their notes in specie, Parliament knowingly left all other British banks in the lurch. Their creditors had to sue for their gold and silver; but had any bank actually been sued, it would have found itself with no clear legal grounds by which to defend itself.

Why No Lawsuits?

If a Scottish bank might have been successfully sued for failing to pay its notes in specie, why were there no such suits? William Cobbett, a virulent critic of paper money generally, and of the Scottish banking system in particular, insisted that the Scottish public simply had no choice. Although the people of Scotland may not have been “compelled by law” to accept Bank of England notes, he wrote, they were “compelled by circumstances … as powerful as if by law itself; and, in a way exactly similar as if the whole mass of paper-money had been made a legal tender ever since the year 1797.”[2]

But what, precisely, were those “circumstances”? The trouble and delays that suing involved may well have deterred many. But it can’t explain why some relatively well-heeled creditor didn’t bother to press a claim, and especially so once gold commanded a substantial premium over paper, as it did after 1808.

I believe that the explanation stems from the fact that many Scottish bank creditors were also debtors to their banks: although they held bank notes and deposit balances, they also depended on “cash credits” granted to them by their bankers — lines of credit, with interest charged only upon sums actually drawn. Most outstanding Scottish bank notes and deposit balances were the by-products of the banks’ practice of granting such credits, so that almost all Scottish bank obligations to the money-holding public had as their counterpart like obligations of that public to the Scottish banks. Perhaps owing to his penchant for confusing banks with warehouses, Rothbard, in claiming that, by suspending specie payments, Scottish bankers systematically violated their patrons’ property rights “while they themselves are permitted to continue in business and force payment upon their debtors,” overlooks the fact that those patrons were as likely to be in debt to their bankers as vice versa, as well as the fact that the Scottish banks had always allowed those patrons to settle debts with them in either Scottish or Bank of England paper rather than gold or silver.

That so many Scottish citizens, including the vast majority of ordinary merchants and traders, relied upon cash credits, and that their banks could not possibly have continued to grant such credits were they systematically called upon to pay their notes in specie, gave the Scottish public a powerful motive for refraining from insisting upon such payments, and for otherwise accepting the Scottish banks’ decision to suspend specie payments in good stride. For besides allowing the bankers to settle claims against them in Bank of England notes, it allowed them to settle their own debts to the banks with banknotes rather than gold. In short, Scotland’s decision to join other parts of Great Britain in switching to a paper (Bank of England note) standard, instead of having simply been imposed upon the Scottish public against its will, is better understood as a cooperative solution to a problem — the absolute lack of specie — facing bankers and their creditors alike.

The suspension’s cooperative nature was, indeed, made explicit shortly after the bankers announced their plans, when many of Edinburgh’s prominent citizens gathered at a meeting convened by that city’s  Lord Provost and attended by many other officials, including the Lord President of the Court of Session, the Lord Chief Baron of Exchequer, the Lord Advocate, and the Sheriff of Edinburgh. Those present “unanimously resolved to accept the notes of the Scotch banks as hitherto and to support their credit.” Notice of this resolution was afterwards “inserted in all the newspapers and circulated throughout the country.”[3]

That there was widespread support for the Scottish bank suspension did not, however, mean that the suspension left the Scottish public unscathed. Just how it harmed people, and whether its having done so constitutes a black mark either against the Scottish system or against fractional reserve banking, are questions I’ll answer in the follow-ups.

______________________

[1] See Grigby v. Oakes et al., November 19th, 1801. In Reports of Cases Argued and Determined in the Courts of Common Pleas etc., Volume 2, pp. 526ff.

[2] Cobbett, it bears noting, is hardly an entirely objective observer. He had it in for all forms of paper money. “Ever since that hellish compound word, Paper-money was understood by me,” he wrote, “I have wished for the destruction of the accursed thing; I have applauded every measure that tended to produce its destruction, and censured every measure having a tendency to preserve it.” What’s more he despised the Scottish banking system, observing that “There never was a thing under the sun to which a greater number of God’s curses directly apply,” that system having harbored “oppression, tyranny, fraud, monopoly, and every cursed art by which the avaricious take from the food and the raiment of the needy.” See Cobbett’s Political Register, June 14, 1828, p. 764.

[3] [Henry Dunning MacLeod], “History of Banking in Scotland,” The Bankers’ Magazine 37 (1) (January 1877), pp. 33-4. For further details see Sir William Forbes, Memoirs of a Banking House (London and Edinburgh: William and Robert Chambers, 1860), p. 83.

[Cross-posted from Alt-M.org]

The Economist reports on an interesting new study undertaken on differences in gender pay:

According to data for 8.7m employees worldwide gathered by Korn Ferry, a consultancy, women in Britain make just 1% less than men who have the same function and level at the same employer. In most European countries, the discrepancy is similarly small. These numbers do not show that the labour market is free of sex discrimination. However, they do suggest that the main problem today is not unequal pay for equal work, but whatever it is that leads women to be in lower-ranking jobs at lower-paying organisations.

The figures for Britain in the study break down as follows. The “raw” gender pay gap between all men and women is 28.6 percent. This falls to 9.3 percent once one controls for people being in the same level job. This falls further to 2.6 percent for the same level job at the same company, and to just 0.8 percent for the same level job at the same company with the same function. In other words, as free market economists have long explained, there is little to no evidence of overt company discrimination once one controls for observable factors (and beyond those here, things such as educational attainment, or years of continuous work experience).

Confronted with studies such as these, some commentators, and even some libertarians, pivot. They suggest that this kind of research attacks a straw man. Few people think it’s overt wage discrimination at an employer level that’s the problem, they say. The aggregate statistics though, which show women on average earn 82 percent of men’s median hourly earnings, are said to reflect other types of structural societal discrimination – in the subjects that young women are encouraged to study, hiring processes at firms, the nature of wage negotiation and much else besides.

The starting point that we would expect an aggregated pay gap of zero even in a world in which no overt or covert societal pressures exist is questionable. When free to choose, it’s unlikely gendered populations will make equal choices. And to the extent these commentators are right, it is unclear what the policy implications should be.

Nevertheless, most evidence suggests this is explicitly not what the public hear when they see talk about the gender pay gap. A recent YouGov survey in the U.K. asked the public what they thought when they heard of the term. Just 30 percent said that they thought it was about women, on aggregate, being paid less than men. A whopping 64 percent thought that it was about women being paid less than men for the same job. To be clear: the latter is not what the commonly cited aggregated statistics on the gender pay gap are about.

Politicians appear to misunderstand this too, and it leads to bad policy. After all, in developed countries one policy that they have pushed for is company-level disclosures– something that makes little sense if you are worried about society level structural problems.

It’s little surprise that the public interpret the term in this way then. Though in pure language terms both definitions might be acceptable, pay gap stories of the aggregate variety reported in the media regularly include irresponsible lines implying discrimination, such as “from this day onward, women work for free” or describe companies that have the largest gaps as “the worst offenders.”

In this environment of misinformation, it is important and worthwhile to continuously highlight what the pay gap shows, and what it doesn’t. The structuralists might have a point about broader drivers, but it’s not one helped by a raw measure that is used misleadingly and to advance policy positions which do not make sense according to the structuralist concern.

Read more on the gender pay gap here, here, and here.

There are indications now that the Saudi Arabian government may have murdered a prominent Saudi journalist who advocated domestic reforms and opposed Crown Prince Mohammed bin Salman. A Turkish investigation concluded that a 15-member “preplanned murder team” killed Jamal Khashoggi when he was visiting the Saudi consulate in Istanbul. Not surprisingly, Riyadh has flatly denied Turkey’s allegation, but that denial seems to have even less credibility than most Saudi statements. Khashoggi has contributed articles to the Washington Post and numerous other prominent Western news outlets, and he has an abundance of influential friends in such circles. They do not seem inclined to let this incident fade away.

Khashoggi’s disappearance and apparent murder—as appalling as it may be–should be overshadowed, though, by Saudi Arabia’s far more extensive human-rights abuses and outright war crimes. That is especially true regarding the way it has conducted the war in Yemen. There is abundant evidence of multiple atrocities that Riyadh and its United Arab Emirates (UAE) junior partner have committed and continue to commit. The coalition’s war strategy has created a famine as well as a cholera epidemic. Among the many deliberate attacks on innocent Yemeni civilians was an August incident in which coalition aircraft attacked a school bus, killing 40 children.

Yet, incredibly, just weeks later, Secretary of State Mike Pompeo certified that Saudi and UAE forces were making a reasonable attempt to avoid inflicting harm on civilians. Pompeo’s certification was necessary to meet the requirements of a congressional statute barring aid, especially military aid, to countries that do not take appropriate precautions. The latest certification preserves the fiction that Saudi and UAE forces are not guilty of war crimes and that the United States is not a willing accomplice in such crimes.

As I describe in a recent National Interest Online article, such brazenly false certifications are nothing new. Both the Trump administration and its predecessors have displayed that sickening cynicism with respect to numerous countries and their “friendly” dictatorial regimes, most notably Egypt and Pakistan. Indeed, similar phony certifications were routine fare in the 1980s, when Washington repeatedly whitewashed massive human rights abuses on the part of foreign allies. Some of the worst offenders were in our own hemisphere, including Guatemala, El Salvador, Honduras, and Colombia. More recently, the worst offenders are concentrated among Washington’s Middle East allies.

The pervasive dishonesty of U.S. officials should be a matter of national shame. Pompeo has carried on a long and dishonorable tradition. Congress may have intended that a requirement certifying that U.S. aid recipients are complying with human-rights standards would pressure those regimes to avoid egregious abuses. If that truly was the intent, and not just empty congressional posturing, then that strategy has failed.

If Congress intends to get serious about enforcement, the country with which to start is Saudi Arabia—especially regarding its conduct in Yemen. Congress needs to cut-off all military assistance to Riyadh and the UAE immediately. Beyond that issue, the legislative branch must insist that human-rights certifications accurately reflect reality. Even leaving aside the Saudi regime’s possible murder of a dissenting journalist, Riyadh does not come close to meeting the most basic human-rights standards for receiving U.S. aid. Americans have endured more than enough whitewash episodes from administrations over the decades regarding Saudi Arabia.   

Susana Martinez of New Mexico has gained the highest score on the “Fiscal Report Card on America’s Governors 2018.” She is the first woman to achieve the distinction since Cato began producing the reports in 1992.

Over eight years in office, Governor Martinez has restrained state spending, cut taxes, and vetoed tax hikes. She also scored well on Cato reports in 2014 and 2016.

The governors report assigns grades based on a calculated score between 0 and 100. Higher scores indicate more focus on cutting taxes and restraining spending. Cato has used the same methodology since 2008.

Martinez’s achievement stands out because men governors score slightly higher, on average, than women governors. Since 2008 the Cato reports have assigned 276 scores—6 reports and an average 46 governors per report. There were 242 men and 34 women. The average score for the men was 51 and for the women 49. Interestingly, the men’s scores tended to be more extreme low and high, while the women were more bunched toward the middle score of 50.

The chart shows that party is a more important factor in determining fiscal conservatism than gender. Both men and women Republican governors averaged substantially higher scores than Democratic governors. Martinez received a score of 73.

The Cato Institute has released its 14th biennial fiscal report card on the governors.

The report uses statistical data to grade the governors on their taxing and spending records since 2016. Governors who have cut taxes and spending the most receive the highest grades, whereas those who have increased taxes and spending the most receive the lowest grades.

Five governors were awarded an A: Susana Martinez of New Mexico, Henry McMaster of South Carolina, Doug Burgum of North Dakota, Paul LePage of Maine, and Greg Abbott of Texas.

Eight governors were awarded an F: Roy Cooper of North Carolina, John Bel Edwards of Louisiana, Tom Wolf of Pennsylvania, Jim Justice of West Virginia, Dennis Daugaard of South Dakota, David Ige of Hawaii, Kate Brown of Oregon, and Jay Inslee of Washington.

Susana Martinez received the highest score this year. She is in her eighth year in office and scored quite well on previous Cato reports. One achievement has been vetoing all tax hikes that have come to her desk. Last year, she vetoed $350 million in tax hikes.

Many Republican governors have entered office promising not to raise taxes but then capitulate to the spending lobbies. Brian Sandoval of Nevada and Charlie Baker of Massachusetts are good examples. Both governors made epic U-turns in approving major new taxes after being elected on no-tax-hike pledges.

So bravo to Governor Martinez for standing firm against tax increases and for restraining New Mexico’s budget during her two terms in office.

In addition to examining the tax and spending actions of each governor, the Cato report looks at recent changes in the state fiscal environment.

The Tax Cuts and Jobs Act of 2017 has shaken up state tax policy. The act changed the federal income tax base, which in turn changed state tax bases. The act also capped the federal tax deduction for state and local taxes. That reform increased the bite of state and local taxes for millions of households and may prompt higher out-migration from high-tax states.

Recent Supreme Court decisions regarding online sales taxes and public-sector labor unions have also affected the state fiscal environment. Lastly, the legalization of recreational marijuana has created a new source of revenue for some states.

The Fiscal Policy Report Card on America’s Governors 2018 is here.

Prior report cards are here.

The 2018 report was completed with the help of David Kemp.

The text of the new “United States-Mexico-Canada Agreement” was released last Sunday night, a few hours after I had spoken at an event in Birmingham, England about the virtues of “The Ideal U.S.-U.K. Free Trade Agreement.” To borrow from the late Sen. Lloyd Bentsen: I know the ideal free trade agreement; USCMA, you’re no ideal free trade agreement.

The ideal free trade agreement is one which accomplishes maximum market barrier reduction, enables maximum market integration, forecloses governments’ access to discriminatory protectionism, and obligates the parties to refrain from backsliding.

As explained in the paper:

The ideal free trade agreement provides for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible. It should limit the use of so-called trade remedy or trade defense measures. It should open all government procurement markets to goods and services providers from the other party. It should open all sectors of the economy to investment from businesses and individuals in the other party. It should open all services markets without exception to competition from providers of the other party. It should ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations…

…[T]he ideal FTA must also include rules governing e-commerce. Digital trade — data flows that are essential components in the provision of goods and services in the 21st century — must remain untaxed and protected from misuse and abuse. Rules that prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services should be included, and obligations should be imposed on entities to ensure data privacy, consistent with the requirement that data flow as smoothly as possible.

When border barriers come down, the potentially protectionist aspects of regulation and regulatory regimes become more evident. Certainly, when businesses have to comply with two sets of regulations to sell in two different markets, it limits their capacity to realize economies of scale and reduces their capacity to pass on cost savings in the form of lower prices or reinvestment.

If those regulations are comparable when it comes to achieving the same social outcomes — consumer safety, product reliability, worker safety, environmental friendliness — there may be scope to require businesses to comply with only one set. A regulatory cooperation mechanism to promote mutual recognition would be a useful innovation, as a means to reducing business costs (provided no deep cultural aversion or science-based reason exists for considering one regulation better than the other and worth the greater cost).

Finally, the rules of the ideal FTA must be enforceable. What’s the point of a trade agreement if its terms are just suggestions? To make sure governments keep their promises, trade agreements should have a binding and enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Here’s how the USMCA stacks up to the ideal free trade agreement, which:

  • Would provide for the elimination of tariffs as quickly as possible on as many goods as possible and to the lowest levels possible.

In USMCA, most goods trade will continue to be tariff-free (the NAFTA status quo) under the new agreement, and barriers to certain agricultural products will be reduced as well. Moreover, the value thresholds for importing goods without having to pay any duties have been raised in Mexico and Canada, which will benefit small businesses, disproportionately, as they tend to conduct a larger share of transactions online.

(Conclusion: Criterion is almost met).

  • Would limit the use of so-called trade remedy or trade defense measures.

Trade remedy laws give domestic industries recourse to trade restrictions when they can demonstrate injury caused by “dumped,” subsidized, or substantially increasing imports. These laws are prone to misuse and abuse and become loopholes through which the benefits of trade barrier reduction achieved in the agreement can be quickly rescinded.  

In USMCA, no restrictions on the use of antidumping, countervailing duty, or safeguard measures are made. Rather, the long arm of the Safeguard law extends further under the revised deal by making it more difficult for Canadian and Mexican exporters to be excused from prospective safeguard tariffs. Moreover, the failure of the United States agreeing to blanket exemptions for Canada and Mexico from prospective tariffs on imported automobiles under Section 232 of the Trade Expansion Act of 1962 and the failure of the United States to remove the existing Section 232 tariffs on Canadian and Mexican aluminum and steel—thereby enshrining the view of Canada and Mexico as threats to U.S. national security—is in extremely poor taste, violates the spirit of a trade agreement, and reflects an absence of understanding of the meaning of being a good trade partner. 

(Conclusion: Criterion worse than unmet.)

  • Would open all government procurement markets to goods and services providers from the other party.

Buy American” and “Buy Local” requirements, in general, restrict access to bidding on and performing government procurement projects to U.S. firms using U.S. goods and providing U.S. services. However, pursuant to terms of the Trade Agreements Act of 1979, free trade agreement partners, as well as signatories to the World Trade Organization’s Agreement on Government Procurement (GPA), are granted waivers from these “Buy” provisions so that their firms can compete for U.S. procurement work tendered by a defined list of agencies. 

In the USMCA, no new access to U.S. procurement markets is granted to Canadian bidders relative to the original NAFTA. In fact the chapter makes no mention of Canada, presumably because Canada is a signatory to the GPA, which provides for slightly greater access to U.S. procurement projects anyway. The chapter does include provisions for Mexico, but doesn’t appear to afford new access to Mexican bidders either, so relative to the terms of access in effect today, the USCMA provides no discernible change.

That’s a huge missed opportunity because large portions of the estimated $1.7 trillion annual U.S. federal and state government procurement markets remain off limits to competition. This, of course, drives up the cost of every government project and ensures that taxpayers get the smallest bang for their buck. Given talk that President Trump is interested in advancing a major infrastructure bill—maybe in the neighborhood of $1 trillion—in the next Congress, this is a problem that should concern us all.

(Conclusion: Criterion unmet.)

  • Would open all sectors of the economy to investment from businesses and individuals in the other party.

The U.S. market is generally pretty open to foreign investment already, but investment restrictions continue to exist in certain industries, including financial services, commercial air services, communications, and mining. It doesn’t appear that USMCA provides any significant new access for foreign investors in the United States.

(Conclusion: Criterion unmet.)

  • Would open all services markets without exception to competition from providers of the other party.

The USMCA fails pretty miserably in this area. The chapter on cross-border trade in services reaffirms bans on foreign competition in maritime shipping, dredging, commercial air services, and trucking services. The absence of foreign competition in shipping raises transportation costs, which are among the most significant supply chain costs reflected in the prices Americans pay for goods purchased on Amazon and at brick and mortar establishments.

Commercial air travel is a significant cost of doing business for companies across all industries, and it accounts for an important share of consumer spending. Rules based on dubious national security arguments that preclude foreign carriers from flying routes between U.S. cities reduce supply, lower quality, lessen accountability, and raise the cost of airfare.

Instead of opening domestic trucking services to foreign competition, the USMCA makes available, for the first time ever in the services sector, access to a “safeguard” mechanism (which could result in new restrictions) for U.S. companies deemed to be “harmed” or threatened with harm by competition in the long-haul, cross-border trucking sector.

U.S. demand for dredging services is on the rise for a variety of reasons, including the need to deepen U.S. ports. A large majority of the 44 Atlantic and Gulf Coast ports are too shallow to accommodate the larger, higher capacity, more cost-efficient, post-Panamax container ships that necessitated widening of the Panama Canal. If President Trump gets his infrastructure funding, there is likely to be a huge increase in demand for dredging services. This market should be opened fully, but USMCA ignores this looming matter, taxpayer be damned.

(Conclusion: Criterion unmet.)

  • Would ensure that the rules that determine whether products and services are originating (meaning that they come from one or more of the agreement’s parties) are not so restrictive that they limit the scope for supply chain innovations.

The so-called rules of origin in USMCA, especially concerning automobile production and assembly (but apparel and other products, too), have been among the most discussed provisions in the agreement. Rules of origin are the content and value-added terms that must be met for a product to be conferred as originating in the region (North America), entitling them to the preferential terms of access.

For both autos and apparel, the regional content threshold (minimum value of components from and labor performed in the three countries) was effectively increased in the USMCA. The reduced capacity for incorporating inputs from countries outside of North America is likely to make regional producers less competitive relative to producers in countries where there are fewer restrictions on sourcing. The changes will lead to higher regional production costs, which will encourage automakers, garment markets, and other producers to forego the more costly compliance with the qualification rules in favor of using non-qualifying inputs or producing outside the region, altogether, and paying the non-preferential tariff rates upon entry into the United States.

(Conclusion: Criterion unmet.)

  • Would include rules that prohibit digital trade — data flows that are essential components in the provision of goods and services in the 21st century — from being taxed and unprotected from misuse and abuse.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would prohibit governments from imposing localization requirements or any particular data architectures that reduce the efficacy of digital services.

The USMCA sets out reasonable rules in its Digital Trade chapter. (Conclusion: Criterion met.)

  • Would require businesses to comply with only one of the Party’s regulations if the regulations are comparable in their objectives and outcomes — consumer safety, product reliability, worker safety, environmental friendliness — in order to reduce the costs of complying with two sets of regulations to sell in two different markets, and a regulatory cooperation mechanism to promote mutual recognition of regulatory compliance.

There is growing receptivity to adopting mutual recognition and other forms of regulatory coherence that would ensure the same safety/social outcomes, while reducing regulatory compliance costs. But such provisions are not in the USMCA and remain rare in practice. However, the USMCA does include a chapter called “Good Regulatory Practices,” which establishes mechanisms and protocols for establishing broader compatibility, transparency, and predictability to regulation and regulatory processes. It is not novel but builds on a similar version established in the Trans-Pacific Partnership and operating under a separate U.S.-Canada Regulatory Cooperation Commission.

(Conclusion: Criterion almost met.)

  • Would include an enforceable dispute settlement mechanism, to ensure that the agreement is followed.

Although the agreement includes a chapter called “Dispute Settlement,” problems that afflict dispute settlement under the original NAFTA seem to remain unresolved by the language in USMCA.  While there are pretty straightforward rules for how disputes should be settled and what parameters Parties should consider if and when needing to threaten or resort to retaliation, the text remains unclear as to the protocol for naming and seating panelists to adjudicate the issues.

Disagreements over these matters essentially made state-to-state dispute settlement inutile under NAFTA, leaving the terms of the agreement almost voluntary. The fact that this problem remains isn’t too surprising, given USTR Robert Lighthizer’s distaste for binding dispute settlement—a position that contributes to the WTO Appellate Body crisis, which imperils that institution presently.

(Conclusion: Criterion unmet.)

By the 10 standards identified as essential to an ideal free trade agreement, USMCA falls way short. Four criteria are “met” or “almost met.”  Six criteria are “unmet” or “worse than unmet.” Realistically, “ideal” is probably too exacting a standard for our politically constrained trade negotiators. But then again, an agreement pursued with trade deficit reduction and supply chain repatriation as its main objectives was never going to be an exemplar of trade liberalization.

Grading on a Scale

What would be a more reasonable benchmark for assessing the USMCA? The terms of the TPP (which was President Obama’s renegotiation of NAFTA from which President Trump withdrew the United States)? The existing NAFTA? U.S. withdrawal from NAFTA without a replacement?

Relative to the TPP, the USMCA is a disaster. Yes, there’s a little more liberalization in USMCA’s Digital Trade chapter, better access for U.S. dairy farmers and wine exporters to Canadian markets, a higher threshold for the value of exports not subject to customs duties in Canada and Mexico, and other marginal improvements (such as rules for “Good Regulatory Practices” and the retirement of traditional investor-state provisions). But there are considerably more provisions that are protectionist relative to the terms of TPP. 

The far stricter rules of origin—especially concerning automobiles and clothing—give regional firms fewer options to compete with producers from outside the region and virtually guarantee higher prices for North American consumers. The USMCA includes unnecessarily stronger patent, copyright, and data protection provisions, which are—by definition—protectionism.  It includes the first-ever trade agreement chapter with rules aimed at disciplining currency manipulation, which has a subjective definition, eludes any consensus about how to measure, and has potential to cloak garden variety protectionism in a veneer of legitimacy.

NAFTA 2.0 is certainly better in some regards.  But even if its provisions could be demonstrated to be, on net, more liberalizing than the TPP’s (to be sure, they cannot!), there is still the major shortcoming that TPP offered liberalization with nearly 300 million more people in nine more countries accounting for a combined GDP of $7.5 trillion. Canada and Mexico account for an aggregate $2.8 trillion. So, yeah.

Relative to the existing NAFTA, there are also pros and cons to the USMCA. Though there is greater liberalization in goods trade, it is marginally to imperceptibly so. Taking into consideration the negative changes, especially to the rules of origin, it’s not obvious that USMCA is liberalizes much from NAFTA. But it’s possible—even probable—that some of the less directly liberalizing, technical and procedural provisions, such as those governing “Digital Trade,” “Customs and Trade Facilitation,” “State-Owned Enterprises,” and others, utilized in ways not completely apparent now, could lead to lower trade costs.

The only certainty is that the USMCA is better than a U.S. withdrawal from NAFTA without a replacement agreement. That bullet appears to have been dodged. Beyond that, the best that can be said of the USMCA is that the negotiations – especially the animating theatrics, insults, and tantrums that came with the talks – are finished and the dark clouds of uncertainty hanging over the region should begin to dissipate…only to be replaced by darker clouds over the descent of U.S. relations with China and the WTO.

Congratulations to Judge Brett Kavanaugh, whose nomination to the Supreme Court was confirmed by the Senate today by a vote of 50 to 48. This evening at the Supreme Court, Chief Justice John Roberts administered the constitutional oath and retired Justice Anthony Kennedy, for whom Judge Kavanaugh clerked, administered the judicial oath. Now-Justice Kavanaugh will take his seat when the Court sits again on Tuesday. 

Judge Kavanaugh survived one of the most acrimonious judicial confirmation processes in the Senate Judiciary Committee’s history. The reasons for that are many, as I wrote in an op-ed in TIME magazine last week. But in one way or another, the divisions that so divide us today all come down to fundamental misunderstandings of the Constitution and, accordingly, to an expectation among so many Americans that the Court will solve the many problems that today afflict the nation. The Court, now back to full strength, may make a dent in those problems, but their roots are much deeper. Still, the Senate’s vote today is a start.

Everybody’s deploring partisan polarization these days, especially this presidential term, especially this week. Including the Cato Institute’s president, Peter Goettler: “two years in Washington has taught me that tribalism is a huge factor in driving the political process and discourse.” On the other hand, as I’ve written  before, bipartisanship is typically a conspiracy against the taxpayers. Here’s the latest example, from the Wall Street Journal:

‘We Don’t All Hate Each Other’: Senate’s Bipartisanship Obscured by Kavanaugh Fight

The intense partisanship engulfing Supreme Court nominee Brett Kavanaugh has diverted attention from a raft of recent bipartisanship in the Senate during the past few weeks, drowning out issues that could appeal to voters in the midterms.

The chamber on Wednesday passed legislation to reauthorize the Federal Aviation Administration for five years by a 93-6 vote. That legislation included a measure to double funding for big infrastructure projects around the world, combining several little-known government agencies into a new body with authority to do $60 billion in development financing.

Also on Wednesday, the Senate advanced an opioid bill to President Trump’s desk by a vote of 98-1. That bill includes several changes to Medicare and state Medicaid programs, such as requiring Medicare to cover services provided by certified opioid treatment programs. 

And last week, Mr. Trump signed into law a spending bill that increases military spending for the next fiscal year.

America is a nation of immigrants, and throughout its history, it has received nearly 100 million immigrants. I almost wrote that America “welcomed” them, but the fact is that very few of those 100 million were broadly popular with the public when they arrived. They came nonetheless. They thrived, and those immigrants—at least those who stuck it out in the face of harassment and discrimination—and their descendants built the country that we have today.

The term “immigrants” refers to foreigners who come to the United States with the intention to settle permanently. They are distinct from “nonimmigrants” who make temporary visits to the country, such as tourists, students, and guest workers. Figure 1 provides the breakdown of immigrants by the last legal status that the immigrant held. An illegal immigrant who receives legal permanent residency is listed as a legal immigrant, even though he may have entered illegally or lived illegally in the United States at some point. It includes all immigrants since the end of the Revolutionary War in 1783, but does not include slaves imported involuntarily to the United States (the legal slave trade ended in 1808).

Figure 1: Immigrants to the United States

Figure 2 breaks down the number of new legal permanent residents admitted annually from 1783 to 2018. The bars show the absolute figures and the line the number as a share of the U.S. population. The government didn’t collect annual statistics prior to 1820, but a general consensus appears to have arrived at about 250,000 immigrants from 1783 to 1819. I estimated the annual figures for the period by assuming a modest jump after the French Revolution in 1789, a significant jump in 1793-94 following the Haitian Revolution, a significant decline during the Napoleonic Wars, and an almost  total elimination during the War of 1812. These assumptions produced period averages similar to those estimated in American Immigration by Maldwyn Allen Jones and which accord with other accounts of the period.

Figure 2: New Legal Permanent Residents Admitted Annually

The average number of new legal immigrants per year from 1783 to 2017 was 370,169, and the average immigration rate was 0.4 percent of the population—that’d be the equivalent of 1.3 million people in 2018. For context, the United States is on pace to admit about 1 million new immigrants in 2018 or 0.32 percent of its population.

The estimate for the number of illegal immigrants is much more tentative for obvious reasons. About 11.3 million immigrants without legal status show up in the Census Bureau’s American Community Survey in 2016. Broadly reliable estimates of the illegal population exist back to 1980. While relatively few people immigrated illegally prior to the 1980s, I estimated amounts using the available evidence. Based on estimates of the mortality and emigration rates of illegal immigrants in recent years, we can conclude that about 1.4 million immigrants died without status and 6.4 million illegal immigrants voluntarily emigrated. In addition to these, about 2.4 million were deported. It would be reasonable to increase these figures by 10 to 20 percent, but the overall picture of U.S. immigration in Figure 1 would hold.

America’s tradition of receiving people from around the world is admirable, but as Figure 2 shows, the rate of legal immigration right now is still far lower than its historic highs in the 19th and early 20th century. America can not only easily sustain a much higher rate of legal immigration than what it permits at the moment—it would benefit greatly from a much higher rate.

There’s a lot in the new NAFTA (technically, the US-Mexico-Canada Agreement, or USMCA), some of it good and some of it bad (the new name is terrible, but that’s not particularly important). In this blog post, we offer our thoughts on some of the key provisions, after which we provide an initial overall assessment of the agreement. We break it down into the good, the interesting, the whatever, the worrying, the bad, and the ugly.

The Good:

– Canadian agriculture: In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. The Office of the United States Trade Representative (USTR) has noted the opening of Canada’s dairy market as a key achievement, because it gives the U.S. additional access to what was agreed in the Trans Pacific Partnership Agreement (TPP). In addition, Canada agreed to give up a pricing system for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. On wine, the U.S. and Canada agreed in a side letter that the Canadian province of British Columbia (BC) would adjust its measures restricting the sale on non-BC wine in its grocery stores. The United States has agreed to give BC until November 2019 to make this adjustment, before advancing a complaint it already put forward at the World Trade Organization (WTO) on this issue. This is the most positive part of the new agreement. It gives U.S. producers greater access to the Canadian market, and will be good for consumers in Canada. 

– de minimis: The de minimis threshold for products that you buy online and can be imported duty free has been raised. The United States allows consumers to purchase goods up to $800 duty free, and has been pushing for Canada and Mexico to raise their limits as well. It did not persuade them to do so in the TPP. In the USMCA, however, Canada raised its de minimis threshold to CAD $150—a significant increase from the previous CAD $20 limit. In addition, sales tax cannot be collected until the value of the product reaches at least CAD $40. This is good for Canadian consumers making online purchases. Additionally, a 2016 study showed that increasing the duty free limit would be cost-saving for Canada. Mexico also increased its de minimis level, from USD $50 to USD $100, with tax free diminimis on USD $50. USTR has noted that this will be especially helpful for small businesses. 

The Interesting: 

– Investment protection/ISDS: These provisions have been significantly scaled back. We see this as a positive, and it will be interesting to see how it plays politically with left wing critics of existing investment provisions, and with the business groups who want these provisions included. 

– Regulatory issues:  One notable addition was an expansive chapter on Good Regulatory Practices, which builds upon the TPP Regulatory Coherence chapter, the Canada-EU Comprehensive and Economic Trade Agreement (CETA), and bilateral initiatives that have been in place between the U.S. and Canada, as well as with Mexico, since 2011. The key items in this chapter are provisions on increasing transparency in the regulatory process, providing a clear rationale for new regulatory actions, as well as encouraging cooperation on minimizing divergence in regulatory outcomes. The general idea is to make regulations less burdensome on trade. It will be interesting to see how this chapter functions in practice, but it appears to be the most comprehensive attempt to address this issue in any trade agreement the United States has signed. 

– Digital trade: The digital trade provisions are very similar to what was in the TPP. In theory, these provisions can help facilitiate e-commerce, although in practice they are still untested and it’s not clear what impact they will have. 

The Whatever: 

– Chapter 19: The special review mechanism for anti-dumping/countervailing duties in the famous Chapter 19 has been shifted to Chapter 10, but remains essentially the same. This provision does not have much, if any, commercial impact, but Canada insisted on keeping it nonetheless, and was able to push back on U.S. demands to eliminate it.

The Worrying:

– Currency: This is the first trade agreement with binding provisions related to exchange rates, although not all of this chapter’s provisions are enforceable. There are few concerns with Canada’s and Mexico’s practices in this area, so this provision is really just a marker to lay down for future agreements. The test of this provision will be if another country for which such concerns have been raised (e.g., Japan) agrees to it. While there may be real issues with currency intervention here and there, the problems here have been exaggerated, and have been used by politicians as an excuse to impose tariffs.

– State-state dispute settlement: In order to ensure that the obligations that have been agreed to in a trade agreement are followed, there needs to be an enforcement mechanism. Chapters 11, 19, and 20 of the original NAFTA are often bundled together as “dispute settlement” chapters, but they all do different things. Chapter 20 is the basic provision that allows one government to complain that another government is not complying with its obligations. The original NAFTA Chapter 20 did not work very well, and unfortunately the new NAFTA looks like it fails to fix its flaws.

– Labor rights: The labor rights provisions go further than past U.S. trade agreements. For some people on the left, this could offer a reason to support the agreement. If you are skeptical about including labor provisions in trade agreements, as we are, this is a negative aspect to the agreement.

– IP provisions:The intellectual property chapter strengthens IP protections, going beyond what was agreed to in the TPP. For example, the parties agreed to 10 years of data exclusivity for biologic drugs (from 5-8), copyright protection to a minimum of the life of the author plus 70 years, and 75 years for copyrights not based on the life of a person. 

– Section 232 auto tariffs: As part of the NAFTA renegotiations, Canada and Mexico had hoped to secure an exemption from the potential imposition of additional Section 232 tariffs on autos. However, instead of an outright exemption, there are two separate side letters to the USMCA for Canada and Mexico that exempt a set quota of passenger vehicle imports and auto parts, as well as all light truck imports, from 232 tariffs that may be imposed in the future. The United States also agreed not to impose 232 tariffs on Canada or Mexico for at least 60 days after the measure is imposed, allowing the U.S. to negotiate separate agreements within that timeframe. The exemption levels are high enough that all auto exports from Canada and Mexico could be exempt, which is good news. However, the principle is an awful one – applying these tariffs and then establishing export quotas is bad policy and undermines the rule of law.

The Bad:

– FTAs with China: The agreement discourages the NAFTA parties from negotiating trade deals with non-market economies, which means China and a few others. Limitations on negotiating other FTAs are a bad idea generally; it remains to be seen what actual impact it will have here (Canada and China have been talking about negotiating an FTA).

The Ugly:

– North American auto trade: The new rules of origin are extremely restrictive, raising costs for auto production in North America. This could lead to more production being done outside of North America, or higher costs for consumers. This is the most negative part of the new agreement.

– Sunset clause: The sunset clause is weakened from the original U.S. proposal – under which the agreement would expire automatically after five years unless all three countries agree to extend it – but it is still problematic. The revised provision may end up being harmless, but there are risks, and it would be better to take it out. 

**********************

Overall, the package agreed to here looks like a mixed bag. There are some good things, some bad things, and many unknowns. The biggest loss might be unseen, however. If only the Trump administration had just implemented the TPP, or had begun negotiating with countries with whom the U.S. did not already have a trade agreement, it could have achieved a great deal more trade liberalization. On the other hand, people may feel that the biggest gain was preserving most of the zero tariffs under the NAFTA. But somehow, just keeping what you already had does not seem like that big of a win to us.

In a campaign address, Donald Trump told his supporters that “if you are Syrian and you’re Christian, it’s almost impossible to come into the United States… it’s all going to change.” After his inauguration, he reiterated the promise. “They’re chopping off the heads of everyone, but more so, the Christians,” he told CBN News. “I thought it was very, very unfair, so we’re going to help them.”

But he hasn’t. Refugee resettlement has changed, but not for the better. While his administration has reduced Muslim refugee arrivals 93 percent compared to the final months of the Obama administration, it has still slashed Christian refugees 64 percent. He has also cut Syrian Christian refugee arrivals by 94 percent and those from Iraq by 99 percent. He has admitted just 20 Syrian Christians in all of Fiscal Year 2018.

Figure 1 shows the monthly average refugee arrivals by fiscal year—which starts on October 1 and ends on Sept. 30—as far back as there are statistics available for religion. During the months of FY 2017 when President Obama was still in office, Christian refugee admissions averaged 3,586 per month. Christian admissions fell to 1,411 per month during the rest of the fiscal year before plummeting to 1,334. Figure 1 also shows that, while the Obama administration oversaw a rise in Muslim refugees, it didn’t reduce Christian refugees as a result.

Figure 1: Monthly Average Refugee Arrivals by Religion

The rate of Christian refugee admissions has been 50 percent lower under President Trump’s first two years than under President Obama’s entire term, and it is 25 percent the monthly rate under President Bush. President Trump’s rate of admissions for Muslims was 72 percent lower than Obama and 47 percent lower than Bush. His rate of admitting people of other faiths was 78 percent and 64 percent lower than Obama and Bush, respectively.

Figure 2: Monthly Average Refugee Admissions by Administration and Religion

On Syrian Christians specifically, President Trump has permitted the entry of just 2 per month in 2018—which is a reduction of 94 percent compared to the last few months of Obama’s term. Among Christian refugees from Iraq—who also face persecution from ISIS—the numbers have fallen 99 percent.

Figure 3: Monthly Average Admissions of Iraqi and Syrian Christian Refugees

The unfortunate part of this story is that Trump was right: the Obama administration and the United Nations High Commissioner for Refugees did let down Syrian Christians as ISIS committed genocide against them. But President Trump has not corrected this mistake—he’s made matters worse.

Some analysts give partial credit to Christians of Middle Eastern ancestry for President Trump’s surprise 2016 upset in Michigan because they voted for him based on his promise to save Christian refugees. Yet not only has his administration cut Christian refugee resettlement, it has attempted to deport hundreds of Iraqi Christians living in the United States without legal status for many years. A federal district court even accused the Trump administration of impeding the Christians’ attempts to challenge their removals in courts and declared that they are “confronting a grisly fate… if deported to Iraq.”

The Trump administration is hostile to Christian refugees for the same reason that it opposes other legal immigrants to the United States: they could take jobs from Americans, commit crimes, and use welfare in the United States. Never mind that they commit crimes at lower rates than Americans, that even the Trump administration has found that refugees are fiscally positive for the United States, and that employed refugees create better paying jobs for existing workers.

By cutting the refugee program across the board, the Trump administration has not just violated a campaign promise to resettle more Christian refugees—it has condemned many more to desperate poverty, persecution, or death. President Trump may not even be aware that his administration has failed to uphold his wishes. If he isn’t, perhaps he can force his bureaucrats to correct course if it comes to his attention. If he is aware, then Christian refugees have another long wait before they can hope for an escape to the land of the free and the home of the brave.

For well over a decade it’s been apparent that the distinctive arrangements by which asbestos plaintiff’s lawyers acquire control of the bankrupt remains of defendant corporations they’ve sued, and then exercise control over those firms’ claims, disbursements, and general management, is fraught with self-dealing and sometimes fraud, ranging from the charging of unnaturally high fees to the concealment of double- and triple-dipping by claimants. Business interests have pursued a campaign in the states and Congress to require more transparency and better judicial oversight of asbestos bankruptcy trusts. Now they may have a powerful ally indeed in the federal government, which has weighed in with an early statement of interest in one such bankruptcy to insist on better controls against fraud and abuse. Its standing for such an intervention arises in part from its role as Medicare and Medicaid payor (entitled by law to recoup some health-related outlays) rather than merely from any interest it might have in heading off fraud generally. Daniel Fisher at Forbes:

In the Trump administration, at least, the government will no longer look the other way as asbestos lawyers negotiate lenient terms that make it easy for their current clients to get money at the expense of future claimants and federal entitlement programs….

The government’s unusually blunt statement of interest in the Kaiser Gypsum bankruptcy, long before any plan of reorganization has been approved, warns lawyers against including terms that make it hard to ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims….

The Justice Department also warned it will be looking for excessive fees and may not allow claimants to deduct those fees from reimbursement due the government for Medicare and Medicaid expenses.

[cross-posted, slightly adapted, from Overlawyered]

Cost estimates for new government programs usually vary depending on the source. For government paid leave, cost estimates depend on assumptions about benefit duration, wage replacement rate, eligibility requirements, and more.

A variety of real and hypothetical government paid leave programs are listed below, along with associated costs. 

Source Program specs Cost to average worker  Total annual cost Notes AEI-Brookings Cost Calculator Similar to the FAMILY Act:
12 weeks paid, 70% wage replacement, $1000 max weekly benefit, FMLA take-up assumptions 0.89% payroll tax = $450/annually for average annual wage of $50,620 $76 billion This seems like a middle-of-the-road estimate.
This estimate uses a benefit profile that closely resembles the FAMILY Act. American Action Forum FAMILY Act 2.1 percent payroll tax to cover the lower bound estimate = $1,063 annually for mean annual wage of $50,620
A 13.02 percent (997 bill/159 bill = 6.27 and 2.1%*6.27= 13.02%) payroll tax to cover the upper bound estimate = $6,590 annually for average annual wage of $50,620 $159 - $997.4 billion annually The lower bound estimate assumes that everyone that takes paid leave takes 12 weeks in a year. FMLA take-up rates are used.The upper bound number assumes that all workers take paid leave in a given year and is considered the “total cost exposure” of the policy. Institute for Women’s Policy Research FAMILY Act About $5/week for average wage worker in 2016 = $255/annually for average wage worker $28.3 billion annually   California – author’s calculation California policy:
6 weeks of family leave and 52 weeks of disability. 1.0 percent in California in 2018 (on wages up to the first $114,967 of earnings) = $506 annually for average worker with mean annual wage of $50,620 n/a This includes family and medical leave benefits, as well. New Jersey – author’s calculation New Jersey policy:
6 weeks of family leave and 26 weeks of disability. 0.28% combined employee payroll tax + 0.5% employer payroll tax (on up to $33,700 for 2018) = $263 annually for average worker n/a This includes family leave insurance and state disability insurance (temporary medical insurance), as well.
This calculation assumes full pass through of employer payroll taxes associated with state disability insurance. Note that New Jersey payroll taxes are reset annually, so numbers are subject to change. Rhode Island –author’s calculation Rhode Island policy:
4 weeks of family leave and 30 weeks of disability. 1.1 percent in Rhode Island in 2018 (on up to $69,300) = $557 annually for average worker with average annual wage of $50,620 n/a This includes both family and medical leave programs.

Adjusting the benefit profile of the program (for example, changing the length of benefit offering, wage replacement rate, or eligibility criteria), or changing take-up rate assumptions impacts these estimates.

For more information on the consequences of federal paid family leave, see the new Cato report Parental Leave: Is There a Case for Government Action?

Wisconsin’s Badger Institute has a new book—Federal Grant Standing—that examines the $750 billion system of federal grants to state and local governments.

The federal grant or aid system is costly and bureaucratic. It undermines political accountability and sows distrust in government. The Badger book is chock full of unique data and survey information illustrating the problems. It examines the practical failings of aid programs within Wisconsin, but the lessons are applicable to every state.

The book discusses how federal aid prompts state and local governments to make bad decisions. And it describes how aid induces cost inflation, reduces innovation, and wastes everyone’s time on paperwork.

Sadly, the governments of Wisconsin and other states have become administrative arms of the federal government. Wisconsin’s Department of Workforce Development has 1,603 employees and 73 percent of them are paid with federal funds. Wisconsin residents may think that their state government works for them, but bureaucrats and politicians in faraway Washington are pulling the strings.

Democracy, local control, community, diversity, self-determination, and transparency. Those are words that liberals like. Yet the giant federal aid-to-state system that liberals built during the 20th century has helped to destroy those values in American government.

I hope that policy wonks in other states pursue similar investigations of aid, and I hope that federal policymakers reconsider the system and start cutting.

You can read more on federal aid here and here.

Late last night, Canada, Mexico, and the United States agreed to a revision of the North American Free Trade Agreement (NAFTA). They are calling it the United States-Mexico-Canada Agreement (USMCA), which is a pointless exercise in rebranding, but not worth agonizing about. We suspect that many people will just keep calling it NAFTA.

If you are curious, the full text is here but it is a slog. We are slowly making our way through it, and ultimately will provide an assessment of whether this new deal is net liberalizing. If you are interested in some more technical details, check out the blog posts at the International Economic Law and Policy blog.

If you want to get a general sense of what’s in it, here’s a basic overview. Overall, the new agreement is kind of a mixed bag. There are some improvements, mainly the liberalization of a few Canadian agricultural sectors. However, the agreement is made worse in some ways by making it harder for autos to qualify for zero tariffs. The new agreement has also been modernized by including some recent Trans Pacific Partnership (TPP) innovations, which is good. But there are systemic provisions that are not very good. All in all, it is not a terrible deal, although U.S. government resources probably would have been better spent on liberalizing trade with countries with whom we did not already have a trade agreement. 

A common argument employed by those opposed to lesser-skilled immigrants is that they are simply out of place in America’s high-tech economy. We often hear that the only workers we need now are those with advanced degrees. Yet according to the Bureau of Labor Statistics, 115 million Americans—74 percent of the total—were employed in jobs that do not require a Bachelor’s degree in 2016. Moreover, nearly a quarter of all jobs were those without any education requirement.

Share of Employment by Education Requirement

The opponents of lesser-skilled immigrants could respond by claiming that while this is true at the moment, these jobs will quickly disappear in the future. But the Bureau of Labor Statistics disagrees on this point as well. In 2026, the BLS projects that 73 percent of all jobs—123 million—will still not require a Bachelor’s degree—an increase of 7.1 million over 2016. The number of jobs for those without any formal education will still be 24 percent of all jobs—39.6 million—an increase of 2.4 million.

Figure 2: Employment by Education Requirement

BLS projects that 62 percent of all job growth will come from jobs not requiring a college degree. Nearly half of all new jobs will require no postsecondary education at all, and 21 percent of all new jobs will not require any education at all. 

Figure 3: Employment Growth by Education Requirement

It simply isn’t true that the United States needs no lesser-skilled workers right now nor will it be true in the near future. Recent legal immigrants are already far more educated than the U.S. population, and they are as educated as their counterparts in Australia and Canada. But even if this were not the case, the data simply doesn’t support keeping less-educated immigrants out of the country based on the belief that our developed economy doesn’t need them. In any case, the market—not government bureaucrats—should determine which workers are needed.

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