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Washington Capitals fans (including this writer) were overjoyed last Thursday night when the team defeated the Tampa Bay Lightning to move onto the National Hockey League’s Stanley Cup Final. But for some Caps fans, that joy soured a bit the next morning when they discovered that Las Vegas oddsmakers have made Washington the underdog in the championship series against the Vegas Golden Knights (VGK).

The VGK have odds of 10/13 to win the series, meaning gamblers would have to bet $13 on the Knights to win $10 (plus the return of their original wager) if the Knights win the series. The Caps are $11/10, meaning a $10 bet would yield $11 if Washington captain Alex Ovechkin hoists Lord Stanley’s Cup. The numbers against the Capitals aren’t lopsided, but they’re a decided nod to the VGK.

Caps fans are a notoriously gloomy, self-afflicted lot given the team’s playoff history, so it’s not surprising they quickly found the cloud surrounding Thursday’s silver lining. Betting odds—basically, futures—are commonly thought to represent the collective intelligence of the marketplace and that wisdom apparently says the Caps’ history of playoff heartbreak will continue.

Or maybe not.

In an article in the forthcoming summer issue of my journal Regulation, economist Ike Brannon discusses bookmaking (the art of setting betting lines)—both legal and illegal—in light of the recent Supreme Court decision striking down a federal law prohibiting most states from legalizing sports gambling. (The article will be available at www.cato.org/regulation in a few weeks.) Borrowing from the work of Wake Forest University economist Koleman Strumpf, who has studied illegal sports gambling extensively, Brannon points out some features of bookmaking that should encourage Caps fans—and should interest anyone who is intrigued by this market-driven process.

One thing that observers should immediately notice is that if the Caps and VGK odds are converted to a standard probability scale between 0 and 1, the sum of those probabilities is greater than 1: 0.65 + 0.45 = 1.10. Part of that amount over 1 is the “vigorish” (also known as the “juice”), the cut that bookies take for providing their services. Stumpf’s research indicates the vig from illegal sports books is about 10% of the bet, while legal books’ is much lower—sometimes as little as 2%.

If we factor in a vig of 5%, the odds-equivalent that the VGK will win the Cup decreases to 0.62. Of course, the Caps’ odd-equivalent probability also decreases to 0.43. So, Caps fans still seem to be right to be gloomy.

But if we add up these two new probabilities, we still get a sum greater than 1. This is where things get very interesting—and possibly in a very important way for legal sports gambling. And, I might add, a bit more encouraging for Caps fans.

Brannon, again borrowing from Strumpf, explains that backroom bookies have long practiced “price discrimination” for hometown teams. That is, they tweak their odds to take advantage of passionate local sports fans who will bet on “their” team at odds or point spreads that are worse than a fair estimate of the probability that the team will win. I suspect bookies sometimes do the opposite for opponents of the hometown team, in an effort to attract some opposing-team money even at generous odds. As a result, bookies often have significantly different odds for a local game than Las Vegas does. These odds aren’t the pure wisdom of the local market, but also its passion for the hometown team.

Up till now, legal Las Vegas bookmakers have had no opportunity to borrow this practice from their black market brethren—at least, not at the major-league level because no major league teams operated in the city. Legal gambling in Las Vegas has been dominated by out-of-towners. But this is the inaugural season of the VGK and local residents have embraced the team—and are betting on them to win. So the VGK line likely reflects in part the Las Vegas bookmakers price-discriminating against their friends and neighbors.

There’s a bit of early evidence that this is happening. Offshore oddsmakers don’t have this opportunity to price discriminate on North American sports (unless they adjust their odds in light of location indicators of their online customers), so the offshore odds may be more “accurate” than the Vegas odds. I haven’t found a good online summary of offshore odds for the Caps-VGK series, but the documented odds for Game 1 are closer on the offshore books than the Las Vegas books (though they still favor the VGK, who will be the home team in that game).

This could have some interesting ramifications in the next few years. For instance, the National Football League’s Raiders franchise has announced that it plans to move from Oakland to Las Vegas as early as 2019. When that happens, Las Vegas will have to weigh the pros and cons of price-discriminating on games in one of the most gambled-upon sports.

The more important ramification involves the the expected legalization of sports gambling in locations across the United States. Will those locations likewise price-discriminate against their local teams? If so, it could create some profitable arbitrage opportunities.

Shrewd sports gamblers might try a strategy where they bet against a team in that team’s home market, AND bet against the opposing team in its home market. That way, the gamblers would be on the “good” side of the price-discriminated odds regardless of a game’s outcome, thus reducing their losses and increasing their winnings. In theory, this should be a money-making strategy.

Gamblers don’t use this strategy currently because the sizeable vig from black market bookies syphons off the arbitrage profits. But the much lower vig offered by legal sports books would seemingly make this strategy a winner. Of course, bookies—legal and illegal—are careful to avoid giving customers opportunities to regularly “beat the house”—so it will be interesting to see what they’ll do to block this strategy.

Returning to Capitals fans, here’s the good news: if we interpret the Las Vegas odds in light of Brannon and Strumpf, then it would seem the market actually has a much better appraisal of Washington’s chances of raising the Cup sometime in the next few week. So, Washington sports fans, buck up, and Let’s Go Caps!

The Stimson Center’s new study group report found that the federal government spent about $2.8 trillion on counterterrorism (CT) activities since 9/11.  The report seeks to account for all federal government spending on CT efforts divided into the four broad categories of defense emergency and overseas contingency operations, war-related state/USAID, other foreign aid, and government-wide Homeland Security.  The defense emergency and overseas contingency operations spending category accounts for about $1.7 trillion or over 60 percent of the $2.8 trillion spent.  War-related state/USAID and other foreign aid account for a relatively small $138 billion and $12 billion, respectively.  Government-wide Homeland Security spending makes up the rest at $978.5 billion since 9/11.

The big question the report does not attempt to answer is: Was all that spending worth it?  Did that spending result in fewer people killed by terrorists on U.S. soil?  One of the distinguished study group members is my Cato Institute colleague John Mueller who has spilled much ink trying to estimate the effectiveness of CT spending.  Mueller provides some back of the envelope estimates to answer the question of whether this CT spending was worth it in his recent panel discussion on the Stimson Center’s report.  After talking with Mueller, I decided to add some more analysis to show that an unreasonably large number of American lives would have to have been saved for the costs of CT spending to be justified.

For the costs of CT spending to equal the benefits in terms of the value of lives saved, it would have to have saved 188,740 lives, or 11,796 lives per year, since 9/11.  Narrowing down to just domestic CT spending on government-wide Homeland Security projects shows that spending on just that set of subprograms would have to have prevented the murder of 65,233 people, or 4,077 per year, to break even.  From 2002 through 2017, my latest estimate is that 172 total people were murdered on U.S. soil by all terrorists (Islamic, non-Islamic, domestic, U.S.-born, foreign-born, white supremacists, etc.).  Thus, all CT spending would have to have saved 1,097 times as many lives as were actually taken by terrorists in attacks on U.S. soil for the costs of CT spending to equal the benefits in terms of lives saved.  Focusing on just government-wide Homeland Security CT spending shows that it would have to have saved 379 times as many lives as were actually killed in terrorist attacks on U.S. soil to break even.  It is difficult to estimate a counterfactual but it would take a very creative imagination to honestly believe that post-9/11 CT spending actually saved that many lives by preventing terrorist attacks.

Methodology

The first step is estimating the value of a statistical human life to compare with the cost of CT spending.  This is an emotional and fraught way to measure human life.  As a father and a husband, I understand this emotional reaction very well but the fact remains that if the government spends more than the statistical value of life to save a life through enhanced CT, then that means that other people died because of neglected safety in other areas.  As a hypothetical example, suppose the value of a statistical life is $15 million.  If the government spends $30 million to save one life by spending on X then that means that one person, at least, died who did not have to if that money was spent where it would save more lives.  Thus, spending that amount of money on reducing the risk of X results in more deaths than otherwise would have occurred.  Although emotional and hard to calculate, estimating the statistical value of life can help policymakers save more lives.  The death of human beings is the largest and most significant cost of terrorism but not the only one as other forms of destruction are also costly but relatively minor compared to death.  For the purposes of simplicity, I will focus on the cost in terms of human life.   

As I wrote in 2016, the Department of Homeland Security (DHS) produced an initial estimate that valued each life saved from an act of terrorism at $6.5 million, then doubled that value (for unclear reasons) to $13 million per life saved.  Adjusting for inflation raises that estimate to about $7.5 million.  Hahn, Lutter, and Viscusi use data from everyday risk-reduction choices made by the American public to estimate that the value of a statistical life is $15 million.  I use $15 million in this blog post as it is the largest number.

The second step is dividing the value of CT spending by the statistical value of life estimate to see how many lives would have to have been saved for that spending to equal the benefits.  I copy this method directly from Chasing Ghosts by John Mueller and Mark Stewart and their other important work on this topic

The third step is comparing the above results to the number of people who were actually murdered on U.S. soil in terrorist attacks.  Using the same methods as this policy analysis and including native-born attackers reveals that there were 172 people murdered in terrorist attacks on U.S. soil from 2002 through 2017.  That includes people murdered by terrorists of every ideology including Islamists, white supremacists, environmental extremists, and others regardless of where they were born.  

Results

The first column in Table 1 shows that 188,740 lives would have to have been saved by all CT spending for the value of that spending to save an equivalent value in terms of human life.  The second column of Table 1 focuses on domestic Homeland Security CT spending, a subset of all CT spending, as it is most directly related to saving lives on U.S. soil.  To break even, domestic CT spending on Homeland Security would have to have saved 65,233 lives from 2002 through 2017 to break even (Table 1).    

 

Table 1

Number of Lives Saved for Counterterrorism Spending to Break Even

 

All CT Spending

Homeland Security CT Spending

Spending $2,831,100,000,000 $978,500,000,000 Statistical Value of Human Life $15,000,000 $15,000,000 Lives Saved to Break Even 188,740 65,233 Actual Terrorist Murders 172 172

Source: Author’s calculations.

If you assume that the value of statistical lives saved is equal to the cost of all CT spending, then you must also assume that all CT spending prevented at least 99.9 percent of all deaths that would have occurred in terrorist attacks on U.S. soil after 9/11 that were prevented.  If you just focus on domestic Homeland Security spending during that time and assume that the value of statistical lives saved is equal to the cost of CT spending, then you must assume that it prevented at least 99.7 percent of all deaths that would have occurred as a result of terrorist attacks on U.S. soil that were prevented. 

To put those numbers in context, about 250,000 Americans were murdered in non-terror homicides during that time.  There would have to have been about 1.4 murders in non-terror homicides for each person killed in a terrorist attack on U.S. soil for the cost of all CT spending to equal the value of human life saved in prevented attacks.  For only Homeland Security spending, there would have to have been about 2.9 murders in non-terror homicides for each person killed in a terrorist attack on U.S. soil for the cost to break even.  Does anyone believe that CT spending saved that many lives? 

Other Costs

The new Stimson Center study group report is a marvelous attempt to measure the nearly impossible-to-gauge extent of federal CT spending after 9/11.  Although the report is a good estimate of the direct amount of federal spending on CT, it does not represent the full cost.  Here are just a few additional costs that would have to be included to estimate such a number: 

  • State and local government CT spending.
  • The lost economic activity that would have occurred without expensive CT regulations.
  • The opportunity cost of this spending, including tax cuts or deficit reduction (the report hints at this as it mentions the death toll from opioids).
  • The trade and immigration restrictions promulgated after 9/11. 
  • The American military casualties in the War on Terrorism.
  • The foreign casualties in the War on Terrorism.
  • The increased numbers of deaths from consumers choosing riskier forms of travel rather than submit to the expensive, burdensome, and annoying demands of the TSA at airports.
  • Deaths that could have been prevented by redirecting CT spending toward other safety-enhancing policies.

Conclusion

The new Stimson Center study group report found that the cost of CT spending is gargantuan.  The cost of a government program is only one metric necessary to gauge whether it should exist as we must also consider the benefits it produces.  The number of lives that would have to have been saved for the cost of CT spending to equal the benefits, whether overall or just on Homeland Security, would have to be outrageously and unreasonably high for this expenditure to make sense.  By diverting government resources from other areas that would have boosted safety, even under the most negative conditions where the marginal cost saved is equal to the statistical value of life, assumes that hundreds of thousands of Americans died because of this increased CT spending who otherwise would have lived due to improved safety elsewhere.   

 

 

 

 

 

 

 

 

 

Herman Gundy stands convicted of violating a law that, for all intents and purposes, doesn’t exist. You may recall from high school civics that the Constitution separates the powers of the federal government among three coordinate branches. You may also recall from “Schoolhouse Rock” that a bill becomes a law after it’s passed by the two houses of the legislative branch and signed by the president. Unfortunately for Gundy, things are no longer so straightforward.

The Sex Offender Registration and Notification Act (SORNA) set up a national system of sex offender registration and made it a crime for sex offenders to fail to register with local authorities when they moved to a new state. While serving time on a federal drug charge, Gundy was transferred from prison in Pennsylvania to a halfway house in Brooklyn. According to the government, that counted as interstate travel sufficient to trigger reporting obligations of which he was never advised.

Gundy’s appeal of the conviction, to be heard by the Supreme Court this fall, addresses an odd facet of SORNA: while Congress laid out in detail those persons who would be required to register in the future, it did not determine who would have to register if the conviction occurred before SORNA was passed in 2006. Congress delegated that question to the Attorney General, and gave no guidance on how the determination should be made. Gundy’s sex offense is among those that predate SORNA, and therefore he was convicted of failing to register not based on anything Congress wrote in any law, but based on an administrative regulation written by the Attorney General.

Assigning such a determination to the executive branch raises a long-dormant canon of constitutional interpretation, the nondelegation doctrine. The basic idea is simple: the Constitution vests legislative power in the legislative branch and the legislature can’t delegate the power to write laws to a different branch. It’s a principle recognized by Chief Justice John Marshall in the first decades of the republic—indeed, its roots can be found in enlightenment thinkers such as Locke and Montesquieu—and reaffirmed in many Supreme Court opinions. The separation of powers means, at the very least, that the powers must remain separate.

But despite the Court often affirming the importance of the nondelegation doctrine in the abstract, the justices have disapproved of delegations in only two cases, both decided in 1935. While the doctrine is purportedly alive, many now treat it as the Black Knight of constitutional law, forever asserting “I’m not dead, yet.”

Perhaps this time is different. The Court’s cases say that delegations can be approved as long as Congress provides an “intelligible principle” to guide the delegated discretion, but here there is no principle, intelligible or otherwise. The statute empowers the executive branch to do as it likes, with no standards to follow. This case, therefore, presents an excellent opportunity for the Court to protect the separation of powers in an area where it has otherwise been skittish.

The doctrine of separation of powers is not some mere appeal to procedural formality, but a guarantee of our rights as citizens. The English jurist William Blackstone defined tyranny as the vesting in a single body of “the right both of making and of enforcing the laws…wherever these two powers are united together, there can be no public liberty.” It is this tyranny the Constitution was partially designed to prevent. The Cato Institute, joined by the Cause of Action Institute, has filed a brief supporting Gundy, arguing the Court should overturn his conviction and ensure that, as John Adams put it in his draft of the Massachusetts Constitution, “[t]he executive shall never exercise the legislative and judicial powers…to the end it may be a government of laws and not of men.”

Drawing attention to rising gas prices this week, Senate Minority Leader Charles Schumer (D-New York) called for President Trump to ease pain at the pump by leveraging his relationships with key OPEC leaders as well as the presidential bully pulpit to exert pressure on oil companies. “These higher oil prices are translating directly to soaring gas prices, something we know disproportionately hurts middle- and lower-income people,” the senator added.

While his apparent belief that gas prices are determined more by the whims of corporate leaders than market forces is severely misguided, Sen. Schumer’s stated concern for the welfare of American consumers is welcome. Rather than rely upon President Trump’s ability to cajole foreign and corporate leaders into lowering the cost of gas, however, Sen. Schumer should introduce legislation to repeal the Jones Act.

Passed in 1920, the Jones Act mandates that ships which transport goods between domestic ports be U.S.-built, U.S.-flagged, and at least 75 percent U.S.-owned and crewed. Such strictures, in turn, raise transportation prices by eliminating access to cheaper options which do not meet these requirements. This cost increase reverberates throughout the economy, with few parts harder hit than the energy sector. Although the total cost of the distortions imposed upon this key industry is unknown, anecdotal evidence suggests that it is significant. Consider:

  • A 2014 Congressional Research Service report found that the purchase price of U.S.-built tankers is “about four times the price of foreign-built tankers, and U.S. crewing costs are several times those of foreign-flag ships.” Given such a cost structure it’s no surprise the report also found that shipping crude oil from the Gulf Coast to the Northeast on Jones Act-compliant tankers costs roughly three times greater than shipping the oil a longer distance to Canada on foreign-flagged ships ($5 to $6 per barrel versus $2 per barrel). Professor James Coleman of Southern Methodist University, meanwhile, points out that refineries in this part of the country “pay more than three times as much to ship oil from Texas rather than from West Africa or Saudi Arabia.” 
  • 1999 Government Accountability Report (GAO) report stated that, incredibly, the cost to ship oil from Alaska’s North Slope aboard foreign-crewed and built ships to the U.S. Virgin Islands—which is exempt from the Jones Act—was approximately three times less than to the Gulf Coast on Jones Act vessels ($2.35 per barrel versus $7.15 per barrel).
  • A 2013 GAO report noted that “representatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries.” This occurs, the report added, “because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”
  • According to the CEO of the Overseas Shipping Group, a provider of energy transportation services, the cost of hiring a Jones Act ship for crude service is about three to four times higher than using a foreign-flagged vessel. 

This is but a sample of the costs imposed by the Jones Act, which drives up the price of gas and all manner of goods purchased by Americans. If Sen. Schumer and his fellow Democrats are serious about their desire to ease the financial burden placed on Americans by the rising cost of oil, scrapping or deeply reforming this nearly 100-year-old law would be an excellent place to start.

Alexandria, Virginia’s city council successfully increased the meals tax on restaurants in its jurisdiction on May 10th. The Council’s plan is to dedicate the meals tax revenue to building affordable housing.

There are a variety of issues with the city council’s plan to increase taxes and provide affordable housing.

First, the tax is supposed to help low and moderate income Alexandria residents, but restaurant taxes are regressive: the shares of after-tax income spent on meals away from home by households in the lowest, second-lowest, second-highest, and highest income deciles are 20.4 percent, 7.9 percent, 4.4 percent, and 3.8 percent, respectively.

That means the meals tax would likely collect five times the share of after-tax income from low-income households as high-income families, as Michael F. Cannon points out in a recent Alexandria Times letter to the editor. In short, the meals tax is a regressive tax parading as a progressive measure.

Furthermore, the meals tax signals Alexandria believes it can tax and spend its way out of housing affordability problems. With as high as Alexandria housing prices are, Alexandria has no practical hope of doing that.

The median Alexandria, Virginia sale price in 2017 was over half a million dollars, and in certain neighborhoods like Potomac Yard / Potomac Greens, the median sale price is greater than three-quarters of a million dollars. The meals tax raises less than $5 million annually, which could provide 10 median Alexandria homes annually.

But Alexandria has more serious housing affordability problems than limited tax revenue. Like other cities, the cost of housing is driven by restrictive regulation. If residents wonder why the supply of affordable housing in Alexandria is dwindling, they need look no further than the city zoning map and the associated zoning ordinance.

Figure I: City of Alexandria Zoning Map

 

A substantial portion of Alexandria property is zoned for single family residential, shown in pale yellow above. In a high demand place like Alexandria, just outside restrictively zoned Washington, D.C. this land would likely voluntarily be put to a higher use (e.g. multi-family residential) in the absence of the regulation.

It is true that portions of Old Town are zoned for townhomes, shown in dark yellow. But most of Old Town falls within a historic district, which means that substantial change is nearly impossible and redevelopment is subject to extensive regulation and oversight from city boards and commissions. In fact, the city has a 200 page design guideline guidebook on the special considerations associated with development in this historic downtown area alone.

The review process isn’t only heavy-handed in the historic district. In Alexandria, there are around 25 citizen boards managing architectural, archaeological, environmental, historical, urban design and related planning considerations for proposed development. This number excludes task forces with other specific planning functions, like determining parking standards for new development.

In general, multi-family residential is only allowed on Alexandria’s fringe, shown in orange. These implicit limits on housing supply and affordable housing design contained in Alexandria’s zoning code matter more than a meals tax garnering around $5 million annually ever will.

That’s because density limits, design guidelines, and historic districts substantially inflate housing costs. Academic research estimates zoning increases the cost of housing by 30-50% in some restrictively regulated coastal cities.

Developers will build new housing units if given the opportunity. And when housing supply meets the demand for housing, housing affordability will improve as outlined in detail in Zoning, Land-Use Planning, and Housing Affordability, a recent Cato policy analysis paper.

Alexandria’s city council doesn’t understand housing affordability. This feature makes them similar to other local and state governments in the U.S.  But if Alexandria genuinely wants to solve the affordability problem it will need a new strategy that prioritizes relaxing regulation and streamlines the development process.

A modified version of the article was originally published in the Alexandria Times

“Is the Phillips Curve Dead?” asked Princeton economist Alan Blinder in a May 3 Wall Street Journal article. The former Vice-Chairman of the Fed noted that “the correlation between unemployment and changes in inflation is nearly zero… Inflation has barely moved as unemployment rose and fell.”

For a veteran Ivy League Keynesian like Blinder to doubt the Phillips Curve was doctrinal heresy, comparable to a monetarist asking if money matters or a supply-sider wondering aloud if a 91% tax rate is better than a 28% rate.

Wall Street Journal columnist Greg Ip later explained the dilemma and expanded it: “Standard models of the economy are built on a simple relationship: When unemployment goes down, inflation eventually goes up. That relationship, dubbed the Phillips Curve, has looked sickly for years. In Japan, it may be dead.”  Unemployment is 2.5% in Japan, yet inflation is 1.1% and only 0.4% if we leave out energy and food (“core” inflation).  For that matter, the unemployment rate is 2.0% in Singapore yet inflation is 0.2%.

Paul Samuelson and Robert Solow first fabricated a “Phillips Schedule” in 1960 using a wage-push notion of inflation and U.S. data from 1934 to 1958.  Leaving aside the Great Depression and WWII price controls, they concluded “it would take more like 8 per cent unemployment to keep money wages from rising. And they would rise at 2 to 3 per cent per year with 5 or 6 per cent of the labor force unemployed.”  Despite caveats that this relationship might shift, American economists soon began speaking of a trade-off between lower unemployment and higher inflation, notably the alleged necessity to tolerate 4% inflation in order to get unemployment down to 4%.  Those statistical goals were replaced with others (the curve was said to have shifted), but such Phillips Curve trade-off never went away.

“Pushing the Economy Up the Phillips Curve” in Brad DeLong’s 2002 Macroeconomics textbook, for example, says because of “the Federal Reserve’s expansionary monetary policy… unemployment fell from 7 percent in 1986 to 5.4 percent in 1989.  As unemployment fell inflation rose from 2.6 percent in 1986 to 4.4 percent in 1989.”   Although that 3-year span is described as a short-term relationship, any student could be forgiven for thinking that if you want 2.6% inflation you’ll have to settle for 7% unemployment, but if you prefer 5.4% unemployment you’re likely to end up with higher (4.4%) inflation.  [In reality, no Phillips Curve could explain why PCE inflation briefly fell from 3.5% in 1985 to 2.2% in 1986, or why it recovered to 4.3% in 1989].

As Blinder and Ip observe, however, the Phillips Curve is embarrassingly out of touch with international and domestic evidence.  Yet the Federal Reserve’s “standard models of the economy,” like those of the Congressional Budget Office, remain critically dependent on it. They have no other inflation theory.

Rather than basing monetary policy on actual inflation data, diehard Phillips Curve loyalists assume that low unemployment is such a fool-proof indicator of invisible inflation that the Federal Reserve must now raise interest rates repeatedly and preemptively – with the unspoken goal of pushing unemployment up above the CBO’s current 4.73% estimate of the non-accelerating rate (NAIRU).

The late Bill Niskanen and I wrote an obituary for the Phillips Curve sixteen years ago.  Instead of the presumed negative relationship whereby a low unemployment rate supposedly causes to accelerate, we found “a strong positive relationship between the inflation rate and the unemployment rate two years later.”

Don’t take our word for it.  Look at the graph.

The blue line is the monthly adult unemployment rate, excluding teens.  The red line is a smoothed year-to-year trend in “core” PCE inflation, leaving out energy in particular to reveal that the 1970s inflations were definitely not just oil shocks.  

On any given month, the year-to-year trend of inflation would be mostly composed of old 11-months of old news, unlike the current jobless rate.  That makes it even more obvious that core inflation was rising well before the big spikes in unemployment in 1974-75 and 1980-82, and that inflation rose alongside high and rising unemployment (i.e., “stagflation”).  Inflation causes high unemployment, which does not mean low unemployment causes inflation.

As Blinder noted, there has been no significant change in overall inflation since 2000, regardless of the oil price spike in 2008.   On the contrary, with the exception of three recessions (one very bad), the period since 1983 mainly shows a long decline in inflation that was usually matched by long periods of falling unemployment. 

The Phillips Curve has finally been revealed as a stubborn old 1958-60 theory that cannot predict inflation but does predict that high inflation will end in high unemployment.

In justifying President Trump’s travel ban to the Supreme Court last month, his attorneys repeatedly referenced a confidential report. They told the Court that this “extensive” analysis of “every country in the world” resulted from a “worldwide multi-agency review” and proves that the president did not act with religious animus. Yet they refuse to release it, and the information that they have released about it refutes their claim that it was extensive. In fact, it was far from rigorous.

In response to a lawsuit by the Brennan Center for Justice in New York, the government disclosed that its final secret report filed in September was just 16 pages with a one-page attachment. Yet the president claims it reviewed “more than 200 countries,” meaning it covered each country in less than a tenth of a page. On a typical 600-word page, that’s fewer than 60 words—significantly shorter than this paragraph—to review the identity systems, information practices, and security situation in every country in the world.

We now know that this 60-word average is actually too generous for most countries because the government has said that the report included the information on the eight targeted countries and the explanation for the ban contained in the president’s 12-page travel ban order. If it dedicated the other five pages solely to the non-travel ban countries, this would leave just 16 words for each. “The Democratic Republic of the Congo” would use a third of its word allotment on its name alone.

Such a bizarre result raises the distinct possibility that the entire review of the non-travel ban countries may have been included in the one-page attachment to the report intriguingly entitled “assessment of countries’ information-sharing capabilities and vetting procedures.”

In any case, to fully appreciate how absurd it is to claim that this 17-page report was exhaustive, consider that the State Department issues an annual report on terrorism including details of the policies and situation in most countries in the world. Last year’s report was 447 pages. The travel ban has nine such factors that the government claims to have extensively studied, yet its entire 17-page report is 4 percent as long.

Beyond its length, contradictions in the known contents of the report further raises the suspicion that the government might be misstating its conclusions. The president’s order tells us that the report laid out nine criteria against which it assessed every country, and it then summarizes the report’s findings for each of the banned countries. Yet in several cases, its findings show that countries on the list were assessed against stricter criteria.

For instance, the being-a-terrorist-safe-haven criterion was increased to having any terrorists active in the area for Chad, or being a source of terrorist threats for Iran—neither of which are terrorist safe havens, according to the State Department. Not having an electronic passport was increased to not having one that is recognized internationally for Somalia, while regularly refusing deportees—little cooperation—was increased to anything less than full cooperation with deportees for Libya.

These subtle raisings of the bar occurred even while nine actual terrorist safe havens got a pass, along with a dozen countries that regularly refuse deportees and dozens more that have no electronic passport at all. It appears that the government’s secret report arbitrarily raised the bar for travel ban countries.

The point is not whether these criteria are legitimate. What matters is whether the Supreme Court can believe the government’s claims about its report.

During oral arguments, Solicitor General Noel Francisco told Justice Sonya Sotomayor that the president’s animus against Muslims couldn’t have affected the process because the agencies were able “to construct and apply this neutral standard to every country in the world.” Sotomayor challenged him, asking why the report was not available for them to review. Francisco only responded that the justices “owe” the president “a very strong presumption that what is being set out there is the truth.”

Yet the length of the report by itself gives the justices a very good reason to conclude that the government’s report did not actually assess every country in the world in 16 words or less. At the same time, the inconsistency between the stated criteria and the criteria actually applied to the travel ban countries casts doubt on the claim that the report’s standard was, in fact, neutral.

Maybe the president could rebut this impression, but any presumption that he had in his favor at the outset should be forfeited based on what we know now. The best evidence indicates that his “extensive” review simply never happened.

Jason Richwine recently published a short criticism of a new brief that Robert Orr and I wrote about immigrant and native benefit levels and use rates for means-tested welfare and entitlement programs.  This is another in a long series of blog post responses between those who support different methods for measuring native and immigrant welfare consumption so the response is wonky and does not revolve around a central question.  The title of Richwine’s criticism is “Obfuscating the Immigrant-Welfare Debate.”  Below, Richwine’s comments will be in quotes and my responses will follow.

“A few years ago I noted that ‘the amnesty movement has turned the political numbers game into an art form, systematically obscuring the trade-offs inherent in immigration policy.’ The movement has reached new heights of obfuscation with Alex Nowrasteh and Robert Orr’s Cato Institute study, ‘Immigration and the Welfare State.’”

Richwine hid half of our title: “Immigration and the Welfare State: Immigrant and Native Use Rates and Benefit Levels for Means-Tested Welfare and Entitlement Programs.”  Our entire title is important to defusing many of Richwine’s other complaints later in his piece.  The charge of obfuscation is serious but cutting off three-quarters of the words in our title does not enhance clarity.

“The Nowrasteh-Orr study says that’s all wrong. In fact, immigrants receive 39 percent less in welfare benefits than natives on a per capita basis. How is this possible? By including Social Security and Medicare as ‘welfare,’ for starters.”

As the title of our brief states, we included entitlement programs as part of the welfare state.  As we further explained in the first two sentences in our brief, we included them because they accounted for about 65 percent of all federal benefits outlays in 2016.  It is impossible to discuss the welfare state or the impact that immigrants have on it without including entitlement programs because they comprise its largest share.

It is normal to count entitlement programs like Social Security or Medicare as part of the welfare state.  Proponents of a larger welfare state like Jonathan Chait and Matt Bruenig consider Social Security to be part of the welfare state.  Even welfare-state skeptics like Robert Samuelson and others include it under the umbrella of the welfare state.

Many people use the term “welfare” to describe programs that they dislike while they use other terms to describe programs that they approve of.  Means-tested welfare programs fall into the former category, especially for conservatives, while entitlement programs fall into the latter.  Some may find that rhetorical distinction interesting, but it is not relevant in an analysis of how immigrants impact the welfare state and the myriad benefits it pays out.

“Lumping contributory entitlements with means-tested benefits is incredibly misleading in a group comparison. If I told you that Group A receives more food stamps than Group B, you could infer that a larger proportion of Group A is struggling economically and has turned to the taxpayer for support. By contrast, if I told you that Group X receives bigger Social Security checks than Group Y, then Group X probably earned higher wages, worked longer, contributed more to Social Security, and received a lower return on those contributions. Notice the difference there?”

There are several reasons to write the type of brief that Orr and I did.  One is to provide some evidence for one variable in a larger estimate of how immigrants affect the budget deficit.  The entire welfare state, including entitlement programs, is an important component of the cost side of immigration.  However, the consumption of means-tested welfare and entitlement programs is necessary but not sufficient to understand their fiscal impact as the taxes paid by them and by others because of a larger economy must also be counted and compared to alternative policies.

Richwine doesn’t seem concerned with the fiscal effects of immigration in his criticism but that question does concern him elsewhere.  Richwine’s flawed 2013 report for the Heritage Foundation on the estimated net-fiscal cost of amnesty finds that retirement programs (overwhelmingly Social Security and Medicare) account for 61 percent of the total increase in benefit outlays for amnestied illegal immigrants over a 50 year period.  Legitimate estimates of the fiscal impact of immigrants also reveal how important Social Security and Medicare are over any length of time when estimating the net fiscal impact of immigration.  If we care about how immigrants affect the national debt and immigrant consumption of retirement programs are a major source of outlays, then our analysis should include programs like Social Security and Medicare. That is just one good reason to include entitlement programs in analyses like these.

“Under the Nowrasteh-Orr model, an immigrant could be cashing a TANF check, shopping at the grocery store with food stamps, paying for doctors’ visits through Medicaid, living in a subsidized rental unit, heating it with energy assistance — and all the while be counted as receiving ‘less welfare’ than a native retiree who contributed to Social Security and Medicare his whole career and never once used a means-tested program. This is sophistry.”

Richwine writes as if Social Security and Medicare are like 401(k) programs where workers contribute and then draw down their own accounts in retirement. In reality, Social Security taxes the currently-working and then redistributes that revenue toward the currently-retired, which is why Social Security is running a deficit that is set to balloon over the next decade and continue to do so for the foreseeable future.  As a net present value, Social Security currently has about $34.2 trillion in unfunded liabilities over the infinite horizon and $12.5 trillion over the next 75 years.  Individual beneficiaries have to work a certain number of years to get benefits but the taxes they individually pay come nowhere close to covering the benefits they receive – just like other welfare state programs.

Orr and I also think that the dollar value of benefits received matters.  If immigrants use a wide number of cheap welfare programs then the cost can still be below that of natives who use only the more expensive entitlement programs.  Since entitlement programs are such an overwhelming portion of the American welfare state and they are facing a catastrophic funding shortfall, excluding them produces an incomplete welfare-state cost estimate.

“Social Security favors immigrants, as they have somewhat shorter careers, lower average incomes, longer lifespans, and appear to benefit more from spousal coverage. One study from the Social Security Administration calculated that late-Baby Boomers born in the U.S. will lose money to the system. Their Social Security contributions are greater than their benefits, such that participation ultimately results in a 0.4 percent tax on their lifetime earnings. Foreign-born participants, by contrast, receive a 1.2 percent subsidy from the system. (Illegal immigrants are actually pushing down the overall subsidy by paying into the system without being eligible to collect benefits. For legal immigrants, the subsidy is greater than 1.2 percent.) And that’s just Social Security. Medicare is even more progressive in its funding and payout structure, so it confers even greater net benefits on people with shorter careers and lower wages.”

Richwine omitted half the major findings in that paper.  According to that paper, immigrants are less likely to qualify for Social Security than natives are but, when they do, they receive a greater subsidy from the program.  The paper is limited entirely to those immigrants who receive benefits and excludes the tax contributions of those who do not receive benefits.  Richwine’s own wording here obfuscates far more than it clarifies. His statement could easily be interpreted as claiming that immigrants as a group harm the fiscal solvency of entitlement programs.  Let us be clear: Taxes paid by immigrants subsidize natives’ retirement benefits on net.

Furthermore, the paper that Richwine cites explains that Social Security is a welfare program that transfers tax revenue to poorer retirees.  As the authors write, “because of Social Security’s progressive benefit structure, more recent immigrants would be expected to have higher relative returns.”  Richwine cannot have it both ways.  He cannot claim that Social Security is a retirement system unlike welfare and that it is a progressive wealth redistribution program that favors poor immigrants.

“Entitlements aside, why do immigrants and natives appear to use about the same amount of means-tested benefits in the chart above? Because U.S.-born children of immigrants are counted in the native category. So if an impoverished immigrant signs up her U.S.-born child for Medicaid (or any other means-tested benefit), this would be considered native use of the welfare system. Treating parents as economic units separate from their dependent children is simply incorrect, as any program for children benefits the parents who are otherwise responsible for them.”

Eligibility for Medicaid benefits is determined by the individual characteristics of the beneficiary just as they are for most means-tested welfare and entitlement programs.  But including U.S.-born children of immigrants in the same household headed by an immigrant is not good enough to achieve Richwine’s goal.  All of the U.S.-born children of immigrants, including multiple generations of adult citizens living in independent households, must also be considered for his preferred accounting of benefit consumption to be accurate.  That is a considerably more difficult statistical task, but one that Orr and I are currently working on.  We do not know how that will turn out, but we will report the findings when (if) we arrive at a result derived by defensible methods.

Regardless, if you want to count the U.S.-born children of immigrants as a welfare cost of immigration then there is no good reason not to also count their grandchildren, great-grandchildren, and successive generations.  After all, very few Americans would be here today without any immigrants since the 1500s.  Any method that includes nearly all Americans as immigrants is transparently absurd.  We make the easiest and most defensible choice here: counting consumption by the immigrants.

“More broadly, it illustrates the unwillingness of advocates to give a single inch on any talking point.”

A criticism of previous Cato research on immigrant welfare use is that we limited it to the poor by comparing poor immigrant use rates and benefit levels to those of poor native-born Americans.  We did this to compare the actual populations that are eligible for means-tested welfare programs.  Because of that criticism, our primary model in this brief was to compare all immigrants to all natives without adjusting for age or poverty.  Under that adjusted method, we found that immigrants individually consume 39 percent less in welfare and entitlement benefits than natives.  Our second model adjusts for age and poverty.  It produced a smaller estimated difference in benefit-use between natives and immigrants.  However you feel about the conclusions reached in our brief, it is unfair to say that we have not given a single inch as we took previous criticisms to heart and adjusted our research accordingly. 

Our brief is transparent, we clearly explain our methods, and the entitlement programs fit neatly under the welfare state umbrella.  It is up to the readers to make their own judgment as to the quality of our research.  All we ask is that they read the entire piece with an open mind – including all of the title.

Trade headlines are getting more and more absurd. The Commerce Department apparently will investigate whether car imports impair national security and thus require a 25% tariff, which one trade lawyer said would prompt “pant-wetting laughter — followed by retaliation” among U.S. trading partners. Although maybe, as the linked article suggests, this is all just to put pressure on Mexico during the NAFTA talks, so who knows if it means anything. It’s very hard to say what is going on or where any of this is going. Perhaps, then, this would be a good time to take a break from the headlines and consider some more general trade issues.

I was reading a recent New Yorker article entitled “Is Capitalism a Threat to Democracy?” and, not surprisingly, I came across a lot of points that irritated me. In crafting a letter to the editor, it occurred to me that if I wanted it published, it would be better to focus on just one issue rather than send them a long list of complaints. Here’s the letter I sent, as published:

In Caleb Crain’s essay about whether capitalism poses a threat to democracy, he discusses Robert Kuttner’s views on the impact of free trade but leaves out a key consideration (Books, May 14th). Beyond the impact that free trade has on Americans, its benefits for the developing world should not be ignored. Hundreds of millions of people have been helped out of poverty by an American-led system of trade liberalization. Perhaps this will not convince American voters, but it should count for something.

That was the version as edited by the New Yorker. The letter I sent was a little different, in that I had a parenthetical as follows: “Perhaps this will not convince American voters (although if it were ever pointed out to them, they might approve), … “

One of the things Donald Trump has shown us is that you can say unorthodox things and change the debate, as it turns out people believe things we were not aware of. This can be a bad thing, but I can imagine that it might also be a good thing. What if we had a politician who explained how Americans benefited from free trade, and then also noted that free trade had helped bring hundreds of millions of people in other countries out of poverty. Isn’t it likely that many people would think that was pretty good? Couldn’t that actually generate support for free trade?

Of course, there may be a group of people that doesn’t care about things that happen outside of the United States, and are suspicious that helping non-Americans must mean hurting Americans. But don’t most people care a little about what happens elsewhere? I hope so, but I suppose we’ll never know, because the issue of helping others through free trade is almost never mentioned. It’s just not a significant part of the public debate. As a result, we really have no idea if Americans care about this, and whether it could generate more support for free trade. It would be nice if someone gave this a try, though. Trump has shown us that unorthodox strategies can work. If someone tried out a positive unorthodox message, we might be pleasantly surprised by the results.

The reviews of HBO’s “Fahrenheit 451” haven’t been so good, but at least the publicity should lead more people to read a great dystopian novel. Talking about the book many years later, Bradbury said, “I wasn’t worried about freedom, I was worried about people being turned into morons by TV…the moronic influence of popular culture through local TV news and the proliferation of giant screens and the bombardment of factoids.” If only he could see our current culture, where TV news agitates viewers into warring tribes.

But he certainly portrayed a society in which an authoritarian government burns books, and most people have seen it as a powerful warning about censorship. Which makes it particularly ironic, and more significant every day, that Fahrenheit 451 itself was censored – trimmed, expurgated, bowdlerized – by people who no doubt thought they had the best of intentions.

When Bradbury discovered what had been done, he wrote this Coda to the 1979 Del Rey edition. It’s worth reading today. What he said then is still true: “There is more than one way to burn a book. And the world is full of people run­ning about with lit matches.” Read the Coda, then read the book:

About two years ago, a letter arrived from a solemn young Vassar lady telling me how much she enjoyed reading my experiment in space mythology, The Martian Chronicles.

But, she added, wouldn’t it be a good idea, this late in time, to rewrite the book inserting more women’s characters and roles?

A few years before that I got a certain amount of mail concerning the same Martian book complaining that the blacks in the book were Uncle Toms and why didn’t I “do them over”?

Along about then came a note from a Southern white suggesting that I was prejudiced in favor of the blacks and the entire story should be dropped.

Two weeks ago my mountain of mail delivered forth a pipsqueak mouse of a letter from a well-known publishing house that wanted to reprint my story “The Fog Horn” in a high school reader.

In my story, I had described a lighthouse as hav­ing, late at night, an illumination coming from it that was a “God-Light.” Looking up at it from the view-point of any sea-creature one would have felt that one was in “the Presence.”

The editors had deleted “God-Light” and “in the Presence.”

Some five years back, the editors of yet another anthology for school readers put together a volume with some 400 (count ‘em) short stories in it. How do you cram 400 short stories by Twain, Irving, Poe, Maupassant and Bierce into one book?

Simplicity itself. Skin, debone, demarrow, scarify, melt, render down and destroy. Every adjective that counted, every verb that moved, every metaphor that weighed more than a mosquito—out! Every simile that would have made a sub-moron’s mouth twitch—gone! Any aside that explained the two-bit philosophy of a first-rate writer—lost!

Every story, slenderized, starved, bluepenciled, leeched and bled white, resembled every other story. Twain read like Poe read like Shakespeare read like Dostoevsky read like—in the finale—Edgar Guest. Every word of more than three syllables had been ra­zored. Every image that demanded so much as one instant’s attention—shot dead.

Do you begin to get the damned and incredible picture?

How did I react to all of the above?

By “firing” the whole lot.

By sending rejection slips to each and every one. By ticketing the assembly of idiots to the far reaches of hell.

The point is obvious. There is more than one way to burn a book. And the world is full of people run­ning about with lit matches. Every minority, be it Baptist / Unitarian, Irish / Italian / Octogenarian / Zen Buddhist, Zionist/Seventh-day Adventist, Women’s Lib/ Republican, Mattachine/ Four Square Gospel feels it has the will, the right, the duty to douse the kerosene, light the fuse. Every dimwit editor who sees himself as the source of all dreary blanc-mange plain porridge unleavened literature, licks his guillotine and eyes the neck of any author who dares to speak above a whisper or write above a nursery rhyme.

Fire-Captain Beatty, in my novel Fahrenheit 451, described how the books were burned first by minori­ties, each ripping a page or a paragraph from this book, then that, until the day came when the books were empty and the minds shut and the libraries closed forever.

“Shut the door, they’re coming through the win­dow, shut the window, they’re coming through the door,” are the words to an old song. They fit my life-style with newly arriving butcher/censors every month. Only six weeks ago, I discovered that, over the years, some cubby-hole editors at Ballantine Books, fearful of contaminating the young, had, bit by bit, censored some 75 separate sections from the novel. Students, reading the novel which, after all, deals with censorship and book-burning in the fu­ture, wrote to tell me of this exquisite irony. Judy-Lynn Del Rey, one of the new Ballantine editors, is having the entire book reset and republished this summer with all the damns and hells back in place.

A final test for old Job II here: I sent a play, Leviathan 99, off to a university theater a month ago. My play is based on the “Moby Dick” mythology, dedi­cated to Melville, and concerns a rocket crew and a blind space captain who venture forth to encounter a Great White Comet and destroy the destroyer. My drama premieres as an opera in Paris this autumn.

But, for now, the university wrote back that they hardly dared do my play—it had no women in it! And the ERA ladies on campus would descend with ball-bats if the drama department even tried!

Grinding my bicuspids into powder, I suggested that would mean, from now on, no more productions of Boys in the Band (no women), or The Women (no men). Or, counting heads, male and female, a good lot of Shakespeare that would never be seen again, especially if you count lines and find that all the good stuff went to the males!

I wrote back maybe they should do my play one week, and The Women the next. They probably thought I was joking, and I’m not sure that I wasn’t.

For it is a mad world and it will get madder if we allow the minorities, be they dwarf or giant, orangu­tan or dolphin, nuclear-head or water-conversation­ist, pro-computerologist or Neo-Luddite, simpleton or sage, to interfere with aesthetics. The real world is the playing ground for each and every group, to make or unmake laws. But the tip of the nose of my book or stories or poems is where their rights end and my territorial imperatives begin, run and rule. If Mor­mons do not like my plays, let them write their own. If the Irish hate my Dublin stories, let them rent type-writers. If teachers and grammar school editors find my jawbreaker sentences shatter their mushmilk teeth, let them eat stale cake dunked in weak tea of their own ungodly manufacture. If the Chicano intel­lectuals wish to re-cut my “Wonderful Ice Cream Suit” so it shapes “Zoot,” may the belt unravel and the pants fall.

For, let’s face it, digression is the soul of wit. Take philosophic asides away from Dante, Milton or Hamlet’s father’s ghost and what stays is dry bones. Laur­ence Sterne said it once: Digressions, incontestably, are the sunshine, the life, the soul of reading! Take them out and one cold eternal winter would reign in every page. Restore them to the writer—he steps forth like a bridegroom, bids them all-hail, brings in variety and forbids the appetite to fail.

In sum, do not insult me with the beheadings, finger-choppings or the lung-defiations you plan for my works. I need my head to shake or nod, my hand to wave or make into a fist, my lungs to shout or whis­per with. I will not go gently onto a shelf, degutted, to become a non-book.

All you umpires, back to the bleachers. Referees, hit the showers. It’s my game. I pitch, I hit, I catch. I run the bases. At sunset I’ve won or lost. At sunrise, I’m out again, giving it the old try.

And no one can help me. Not even you.

Testifying before Congress this week with the heads of the other two immigration agencies, Immigration and Customs Enforcement head Thomas Homan asserted that “no one on this panel is anti-immigrant,” claiming that while he “feels bad for some of these people,” they are just “enforcing the law that Congress enacted.”

Yet he and his copanelists spent much of the hearing arguing for not enforcing the law, but rather changing it to make it more anti-immigrant than it already is. His testimony repeatedly bemoaned “Congressional inaction” that requires him to enforce laws that allow, in his view, too many asylum seekers to apply for asylum in the United States.

Homan also doesn’t want to enforce the law that prohibits him from jailing women and children pending their asylum hearings and wants more money and authority to jail other immigrants as well. These are not the comments of a disinterested, passive “enforcer of the law,” but of a policy advocate who believes that current laws are too friendly to immigrants.

His copanelists were just as exuberant in their desire for nonenforcement. Customs and Border Protection chief Ronald Vitiello’s testimony told Congress that he doesn’t want to enforce the law that gives hearings to little children who arrive at the border by themselves from Central America. He said that he “remains committed to working with Congress to address these issues in support of the priorities of this Administration”—in other words, his priorities differ from current law.

No member of the administration was more hostile to enforcing current law than U.S. Citizenship and Immigration Services Director Francis Cissna. He was outraged that he cannot refer for criminal prosecution asylum seekers who have their applications denied. It’s not enough, in his view, for them to be denied safe haven and kicked out of the country. They should face jail time for filing what he believes are—but current law does not consider to be—“frivolous” applications.

Cissna came ready with a laundry list of complaints against current law. He commanded Congress to “immediately pass legislation” to fast-track deportations of women and children seeking asylum, to make it more difficult for people to be able to even apply for asylum in the first place, and then to revoke asylum to anyone who visits their home countries.

He complained that current law prohibits deporting “victims of gang violence,” which is just too “generous” in his view. “Someone only has to show that there is a ‘reasonable possibility’ of suffering persecution on account of a protected ground in order to qualify for asylum,” he lamented. All of these laws need to be changed, not enforced, he believes.

At one point, Cissna even endorsed legislation by Rep. Bob Goodlatte (R-VA) that would slash legal immigration to the United States by nearly 40 percent and kick out of line millions of legal immigrants who have been waiting, sometimes for decades, for the ability to come legally to the United States. He doesn’t want to enforce the law if it leads to more immigrants coming in.

This swath of policies are impossible to describe as anything other than anti-immigrant, and they have nothing to do with anything Congress has passed. They are a wish list of the most extreme version of the anti-immigrant agenda, targeting not only those in the United States without legal status, but also those who have it or wish to have it.

In a moment of eloquent incoherence, Cissna told the panel, “There is only so much we can do as a Department to enforce the rule of law when serious loopholes exist within current law.” In other words, we don’t want to enforce the law as it is right now, so change it. But he doesn’t want to change it in a way that makes it easier for people to follow the law, but rather makes it more difficult.

“Just enforce the law” is a mantra in favor of inaction, of making the status quo sacrosanct, but no one believes the status quo is perfect. Homan and his colleagues admitted as much. But they refuse to own up to the fact that their desire to not enforce current law is uniformly hostile to immigrants—legal or not. If that’s not “anti-immigrant,” what is?

Long-Term, National: Money and Employees Have Poured In

Now that we’ve looked at scads of data—on spending, staffing, salaries—what can we conclude about the state of resources in public schools?

First, we need to recognize that the period since the Great Recession has been an anomaly in nearly a century of education spending. Whether in total or on a per-pupil basis, until the Great Recession we rarely saw spending decrease, especially after 1943. In the 1919-20 school year, adjusted for inflation, we spent $13.2 billion on public elementary and secondary education. In 08-09 we spent almost $690 billion, or about 52 times as much. Of course enrollment also grew—we only spent about 23 times as much per pupil!

What was the magnitude of the retrenchment between the peak spending year of 08-09 and the recession spending trough, 12-13? Total spending fell from about $690 billion to $636 billion, or 7.8 percent. The average per-pupil expenditure dropped from $13,816 to $12,621, an 8.6 percent decrease. Those dips aren’t nothing, but they are hardly catastrophic. And as of 14-15—the most recent year with federal data—total spending was back up to nearly $668 billion, and per-pupil spending to $13,119.

Teaching staff has also increased long-term. In previous posts we went back to 69-70 for data, but could have gone back to 1955 for national-level figures. Between that year and 2008, public schools went from about 3.7 teachers for every 100 students to 6.5, or about a 76 percent increase. That dropped just slightly—to 6.3 teachers per 100 students—in 2012.  

Teaching staff grew notably over the decades, but non-teaching staff growth has been far more remarkable. Going back to 1949-50, administrative staff per pupil has more than doubled, though still with only one administrator per 325 students. Support staff has grown more than three times larger, from 1 staffer per every 81 kids to about 1 per 26 students. Principals and assistant principals have more than doubled per-pupil.

Even with massive increases in resources, we haven’t seen inflation-adjusted teacher salaries increase all that much. Since 69-70—the farthest back federal data go—salaries have only risen about 6.4 percent. Total per-pupil expenditures, in contrast, grew by around 130 percent. What gives?

All that hiring, especially of non-teachers, for one thing. We’ve hired more teachers relative to enrollment, while teachers as a share of all public schooling staff dropped from over 70 percent in 1949-50 to just below 50 percent in fall 2015. Overall, in 1949-50 there were 19.3 students per staff member of all types—teachers, administrators, guidance counselors. In 2015 there were only 7.9. That’s a lot more salaries over which to spread money. We have also seen benefits’ share of compensation grow (see below). In 00-01 benefits accounted for 17 percent of total, current per-pupil expenditures in public schools, and salaries 64 percent. In 14-15 benefits had moved up to 23 percent and salaries 57 percent.

Short-Term & In Some States: A Historically Rare Case of (Some) Cuts

The Great Recession precipitated real cuts, something seldom seen in public schooling since the early 20th Century. But the cuts were limited, varied greatly by state, and did not occur in all areas of spending.

Between 99-00 and 14-15—the time period for which we could put together consistent, total state-level spending—outlays per-pupil nationally rose from $11,510 to $13,119, though they dropped from a peak of $13,816 in 08-09. Various services, meanwhile, saw increasing outlays not just through the whole period, but also after the recession. This is consistent with a very long-term trend: hiring more and more non-instructional staff, perhaps to deal with ever-increasing bureaucratic demands on schools, as well as assigning to schools increasing non-academic missions. The area where we saw the most significant drop in spending was capital outlays—buying land and erecting buildings.

How about specifically in the restive states? Spending cuts were not necessarily the name of the game. Arizona—which has seen huge increases in enrollment since 1969-70—increased overall spending between 99-00 and 14-15, with a big increase between 99-00 and 07-08. But that could not keep up with enrollment; on a per-pupil basis spending dropped over the period. Colorado also saw overall spending rise, but it just barely fell short of keeping per-pupil funding equal from the beginning to the end of the period. North Carolina increased overall spending slightly, but saw a decline per-pupil. Kentucky, Oklahoma, and West Virginia, in contrast, saw both overall and per-pupil spending increase.

In terms of what’s been trimmed, some buffeted states saw significant cuts in capital outlays, but that category of spending tended to be very volatile. Generally, states seemed to largely protect or even increase instructional spending, while all saw increases in spending for various types of services, a finding consistent with the increased administrative spending and staffing we have seen nationally. All except Kentucky and Oklahoma have had decreasing teacher salaries since 99-00, and every one of the hot-spot states has seen long-term stagnation in teacher salaries, which is roughly the national trend.

Conclusion

If someone tells you that public school spending has been “gutted” or “cut to the bone,” or any other body-destroying description, the first thing to note is that for many decades prior to the Great Recession we shoved so much food into the public schooling system that it would more accurately have been seen as threatened with obesity than “gutting.” Even since the recession, we haven’t typically gutted anything—significant funding has still flowed—and that includes in most embattled states. That said, at least based on salaries, teachers have seen their compensation stagnate. However, a lack of overall public schooling resources is not to blame for this. It is other things: huge increases in hiring of non-teachers, and compensation moving more toward benefits than salaries.

Last week, the House voted down passage of the 2018 farm bill. The bill would have reauthorized farm programs and food stamps at a 10-year cost of $867 billion. Democrats voted in a block against the bill because they opposed expanded work requirements for food stamps. A group of Republicans voted against it because they were frustrated by a lack of action on unrelated immigration legislation.

Few members objected that the bill was a budget buster, and would not have trimmed bloated spending on either farm or food subsidies. Federal deficits will soon top $1 trillion a year, and the projected growth in debt in coming years is unprecedented in American history. Subsidies of all sorts need to be cut.

We have two parties, and their members tend to fall on opposite sides of many issues, such as taxes, gun control, and abortion. Likewise, we would expect to have one pro-subsidy party and one anti-subsidy party. But we do not.

The alleged conservative party now in control of the government should be the anti-subsidy party, but big spenders dominate the Republican caucus. Politically, I think that is bad positioning for the GOP, as it leaves millions of fiscally conservative voters with nowhere to go. But we will see what happens in November.

Meanwhile, policymakers need to figure out next steps for the farm bill. I make suggestions in this new op-ed at The Hill.

For background on federal farm policies, see here.

A May 22 story in Bloomberg News describes with painstaking detail the underground pipeline through which the powerful synthetic opioid fentanyl floods the US market. According to the Drug Enforcement Administration, while the Mexican cartel plays a role by using its well-established heroin and methamphetamine distribution networks, most of the fentanyl comes in to the US from China. 

The raw materials to make the synthetic opioids are cheap and they can be manufactured rather quickly in small laboratories. The laboratories are constantly creating new variations so as to skirt restrictions the Chinese government places on existing fentanyl analogs. Online distributors throughout China sell these products, making their transactions over the “dark web,” often paid with cryptocurrency, and frequently ship the products to the US via the US Postal Service or United Parcel Service. 

Many dealers purchase and use pill presses to make counterfeit OxyContin or Vicodin pills and trick non-medical users into thinking they are buying the real thing. That’s how Prince died. He preferred to abuse Vicodin (hydrocodone). Records show he never got prescriptions from doctors. He died from ingesting counterfeit Vicodin pills he obtained on the black market that turned out to be fentanyl.

The DEA reports this is the way most fentanyl makes its way to the street. As we doctors know, most pharmaceutical-grade fentanyl made for medical use does not get diverted on to the streets. In fact, the forms usually prescribed to outpatients—skin patches, lozenges, buccal films—are not very suitable for non-medical use.

The Centers for Disease Control and Prevention reports that fentanyl was responsible for 26,000 overdose deaths in 2017. But already in 2016 fentanyl accounted for more than 20,000 of the roughly 64,000 total overdose deaths (which include cocaine, methamphetamine, and benzodiazepines). Heroin came in second with more than 15,000. In fact, for a few years now, fentanyl and heroin have accounted for the majority of overdose deaths. And a great majority of those deaths had multiple other drugs on board. In New York City in 2016, three-quarters of overdose deaths were from fentanyl and heroin, and 97 percent of overdoses had multiple other drugs on board—46 percent of the time it was cocaine.

Fentanyl overdoses in the US have been rising at a rate of 88 percent per year since 2013. Heroin overdoses have been increasing at a rate of 19 percent per year since 2014 after climbing 33 percent per year from 2010-2014. Meanwhile, overdose deaths from prescription-type opioids have been increasing at a stable rate of 3 percent per year since 2009.

The National Survey on Drug Use and Health reports non-medical use of prescription opioids peaked in 2012, and total prescription opioid use in 2014 was lower than in 2012. And the survey repeatedly reports less than 25 percent of non-medical users see a doctor in order to get a prescription. Three-quarters obtain their drugs through a friend or family member or a drug dealer.

Meanwhile, while all this is going on, policymakers in Washington and in state capitals seem intent on getting the opioid prescription rate down further. State-based prescription drug monitoring programs have succeeded in reducing the prescription of high-dose opioids by over 41 percent since 2010, the peak year of opioid prescribing. And opioid production quotas, set by the DEA, were reduced 25 percent last year and another 20 percent this year, generating acute shortages of injectables in hospitals across the nation that is harming patients.

With all the evidence that the majority of non-medical users are not patients—with all the evidence that prescription rates have come down while overdose rates keep going up—with all the evidence of fentanyl and heroin flooding the black market and causing those deaths, it is time for policymakers to disabuse themselves of the false narrative to which they’ve been stubbornly clinging. This narrative blames the overdose problem on doctors prescribing pain relievers to their patients. The overdose problem has always been primarily caused by non-medical users accessing drugs in the dangerous black market created by drug prohibition. And our current restrictive policy is only driving up the death rate by pushing these users to more dangerous drugs while making patients suffer in the process.

What’s the definition of insanity?

Nancy Berryhill, an Acting Commissioner of Social Security, recently testified in front of the House Subcommittee on Social Security on the widespread use of Social Security Numbers (SSNs) beyond their intended function.  Most of her testimony concerned the history of SSNs, past security procedures, and proposed future ones.  In a bizarre sentence that contradicts much of the rest of her testimony, Berryhill stated that, “Mandatory use of E-Verify by employers would help reduce the incidence of fraudulent use of SSNs.”  That is exactly backward.  Mandatory E-Verify will greatly expand the fraudulent use of SSNs.

E-Verify is an electronic employment eligibility verification system run by the federal government that is supposed to check the identity information of new hires against government databases to verify that they are legally eligible to work.  Congress created E-Verify to deny employment to illegal immigrants and reduce the incentive for them to come and remain in the United States.  E-Verify is not yet mandated nationwide but several states have mandated its use, to various degrees, and many large employers currently use it.

E-Verify builds on the current rudimentary employment verification known as the I-9 form that every new employee must fill out thanks to the 1986 Immigration Reform and Control Act (IRCA).  An E-Verify mandate would add another layer on top of the I-9 whereby employers, after collecting I-9 forms, would enter the information on them into a government website.  The E-Verify system then compares that I-9 information with information held in the Social Security Administration (SSA) and Department of Homeland Security (DHS) databases.  The employee is work authorized if the databases decide that the information is valid.  A flag raised by either database returns a “tentative non-confirmation,” requiring the employee and employer to sort out whatever error has been flagged.  If the employee and employer cannot sort out the errors then the employer must terminate the new employee through a “final non-confirmation.”  The I-9 form and E-Verify have serious problems, including the encouragement of rampant identity theft, but those problems would only grow with an E-Verify mandate.

When the government mandated that new hires prove that they are eligible to work in the United States through IRCA, they made the SSN an identifier that can prove legal work authorization.  That move immediately increased the value of having an SSN, even if it was fraudulent.  The result, after 1986, was a massive boom in the creation and sale of black market SSNs, identity theft, and voluntary identity loans that allow employers to obey the letter of the law when collecting I-9 forms and for illegal immigrants to continue to work.  If the government mandates E-Verify then it would mandate a government computer check of the SSNs and other identity documents used to get a job that would increase the value of having a valid SSN even above what the I-9 currently promotes.

Berryhill acknowledges the above point when she testified that, “As long as the SSN remains key to accessing things of value—credit, loans, and financial accounts, and thus numerous common goods and services—the SSN itself will have commercial value, and it will continue to be targeted for misuse.”  She also stated that:

While not intended, the SSN has become the personal identifier most broadly used by both government and the private sector to establish and maintain information about individuals. Before the widespread use of the SSN outside of Social Security programs (for purposes such as establishing credit), there were few incentives to obtain fraudulent SSNs or counterfeit cards. However, as the use of the SSN expanded, so too did incentives to obtain fraudulent SSNs, giving rise to concerns about the integrity of the number and card.

Berryhill does not attempt to reconcile her above statements with her support for mandatory E-Verify.  Presumably, the reason Berryhill states that mandatory E-Verify will reduce fraud is that it will allow the government to check their use more frequently and identify fraudulent use.  This is static thinking that ignores the dynamic real world in several ways. 

First, only a bare majority of new hires are even run through E-Verify in states where the system is mandatory for all new hires.  There’s little reason to think that this would improve under a nationwide mandate without heavy and consistently levied punishments.  Such a low rate of E-Verify compliance significantly weakens the case that a mandate can help weed out fraudulent users. 

Second, an E-Verify mandate will increase the value of fraudulently obtained SSNs beyond the extra cost that a mandate would place on the fraudsters.  The net effect is almost guaranteed to be more identity theft. 

Third, an E-Verify mandate would divert some of the vastly expanded identity fraud black market into identity loans that are much harder for the government to identify and stop.  Retired workers, relatives, and legal immigrants who return to their home countries already sell or give their identities to illegal immigrants so they can work legally and this would expand under a nationwide E-Verify mandate.  Since the legitimate identity owners do not complain about the use of their identities for employment purposes, it is much harder for the government to catch the illegal immigrants using them.  This portion of the black market would just increase.

The expanded use of SSNs has made them more valuable and, thus, the object of much fraud for employment, credit, and other purposes.  The lesson is not that the government should increase the value of SSNs further through an E-Verify mandate but that it should seek to decrease their value by limiting their use for employment or other activities.  An E-Verify mandate would do the opposite and greatly increase the fraudulent use of SSNs. 

 

Yesterday’s 5-4 Supreme Court decision upholding agreements to individually arbitrate wage-and-hour claims was neither surprising nor novel as a legal matter. Nor – notwithstanding the variously breathless, furious, and apocalyptic reactions it has drawn from stage Left – is it objectionable as a matter of policy, or “anti-worker.” It is pro-liberty, pro-contract, and pro-respect for private ordering.

On a practical level, the decision in Epic Systems v. Lewis and two companion cases leaves in place (rather than changing) a by now familiar business practice. Not until 2012 did the National Labor Relations Board embrace the notion that the National Labor Relations Act bans arbitration agreements requiring individual rather than class-action pursuit of wage claims, and that Obama-era position has not been able to maintain the assent even of the full federal government (the current Department of Justice disagrees, and filed against the agency’s position). 

At the level of legal precedent, this is by one count the seventh major Court decision since 1983 confirming (in each case over liberal dissents) that the Arbitration Act’s broad federal policy favoring arbitration agreements is compatible with, rather than ousted by, some other federal law. In fact, in one of those decisions, 1991’s Gilmer v. Interstate/Johnson Lane Corp., the Court had already confirmed that the federal statute directly governing wage and hour suits, the Fair Labor Standards Act (FLSA), does not ban this kind of arbitration agreement.  That foray having yielded nought, advocates came back with a “bank shot” (Justice Neil Gorsuch’s phrase) theory that even if the FLSA doesn’t forestall individualized arbitration of FLSA claims, the National Labor Relations Act does, under a miscellaneous clause that extends federal legal protection to some “concerted” activity by employees that does not consist of union action. But although some labor movement advocates have hoped to use this catchall language as the future engine by which the NLRB would gain power to impose major new regulatory requirements at non-union workplaces – all sorts of on- and off-job interactions between colleagues might be interpreted as concerted activity if you squint at them the right way – it was always doubtful that the current Court would go along with a very broad reading on that. 

The reception of yesterday’s decision in many progressive quarters has been unedifying. NPR, which really should know better, misreported on Twitter that “The Supreme Court in a 5-4 vote has delivered a major blow to workers, ruling for the first time that workers may not band together to challenge violations of federal labor laws,” of which the first eight words count as accurate reporting, the next half-dozen as erroneous opinion, and the remainder as merely false in fact.  

At a popular level on social media, an oft-heard argument is that a contract presented as a take-it-or-leave-it matter, as is typical of employer handbook policies, credit card terms and the like, doesn’t count as a “real” contract and is entitled to no respect as a matter or law or, presumably, from libertarians. Since contracts of this sort typify most of the modern economy, the implication, usually not spelled out, is that modern consumer and workplace relationships have no moral basis in autonomy and should be second-guessed and have their terms freely substituted by one or another entity of the State. Properly evaluating that claim is a task for another occasion, but my colleague Andrew Grossman is surely right when he points out that every hour of the day workers choose to accept overall employment packages including some terms they welcome (health insurance coverage, paid vacations) along with others they may not (some weekend hours required, don’t take staplers home) and that the lack of dickering over individual terms does not mean that they are not voluntary or have somehow been imposed by force. 

Because the legal issues directly at stake in Epic Systems are statutory rather than Constitutional, it is to be expected that battles lie ahead over whether Congress should change the law. When that happens, there should be no doubt that liberty to specify dispute resolution mechanisms including arbitration is vital as a practical and, yes, moral element of contractual liberty. 

Chicago Mayor Rahm Emanuel is backing legislation that passed the state Senate earlier this month that would allow Illinois police to use drones to monitor “large scale events,” including protests. This legislation would be worrying enough if the drones were merely outfitted with video and audio capability. However, these drones could one day be equipped with facial recognition tools, amplifying the privacy risks associated with drones buzzing over citizens engaging in First Amendment-protected activities.

Supporters of drone surveillance such as State Senator Martin Sandoval (D-11th District) cite public safety concerns as justification for this bill. But public safety can and is cited for any new piece of surveillance equipment. When considering the deployment of surveillance technology we should consider how the technology is likely to be used, not how its proponents say it will.

The proposal, backed by two of Emanuel’s General Assembly allies, is an amendment to Illinois’ Freedom from Drone Surveillance Act, which includes some admirable provisions, such as a warrant requirement. If passed, police would be permitted to use drones to surveil any event with at least one hundred people in attendance. Protests and demonstrations are only a few of the events that could fall into this category – football games, parades, music performances, and conventions would also be fair game for drone surveillance. 

Chicago police are already technology pioneers, taking advantage of what University of the District of Columbia law professor Andrew Guthrie Ferguson calls “Big Data Policing.” In Chicago, police use a secret algorithm that assigns a police risk score to hundreds of thousands of residents. Tens of thousands of these residents are classified as “high risk” of being involved in a shooting despite having never been arrested or shot. 

The Chicago Police Department has been criticized for conducting social media surveillance, and a few years ago it acknowledged that it had been using cell-site simulators – powerful snooping tools originally designed for military use. Given the CPD’s propensity for new surveillance gadgets we should expect its officers to fly drones over protests and similar gatherings if provided the opportunity.

While the legislation limits warrantless drone surveillance to numerous “large-scale” events, protests will undoubtedly be among the most common events under eyes in the sky if the bill becomes law. After all, protests can sometimes be violent. However, Chicago police have a history of conducting surveillance on peaceful protesters. The department’s Red Squad, which operated at its height in the 1960s and 1970s, targeted protesters demonstrating against the Vietnam War and for civil rights.

Warrantless surveillance merged with facial recognition tools would be an even more intrusive tool for the CPD. One of the most comprehensive studies on law enforcement facial recognition noted that the CPD already used facial recognition tools, although CPD itself has hardly been forthcoming. This is especially worrying given what little we do know: CPD has spent hundreds of thousands of dollars on computing infrastructure and in 2012 requested $2 million to develop real-time facial recognition capability.

We should expect the merger of police drone and facial recognition technology to dampen enthusiasm for peaceful protest. It may well be the case that the Illinois law enforcement community has no desire to track or monitor protesters or to compile dossiers of residents who organize demonstrations. However, recent history provides activists and others who may want to protest with ample reasons to be concerned about warrantless drone surveillance.

Illinois’ Freedom from Drone Surveillance Act already allows police to use drones to search for missing persons and to counter a terrorist attack. Under the act, police can also use drones during disasters and public health emergencies. These provisions allow for valuable drone deployments while also limiting surveillance. Rather than expand the use of police drones, lawmakers should limit their deployment to narrow and well-defined circumstances. Police using drones to indiscriminately snoop on large groups of law-abiding people would pose an unnecessary threat to privacy, which shouldn’t be an option.  

The standard view of the opioid epidemic blames pharmaceutical companies and doctors for excessive prescribing. An alternate view blames government for outlawing or restricting access to opioids.  In this view, users overdose not from medical use but from consuming diverted or black market opioids of unpredictable quality and potency.

Current restrictions also causes overdoses by enforcing abstinence on people, who then lose their tolerance to opioids.  Some such people nevertheless return to their pre-abstinence dose, with disastrous consequences, when no longer forced to abstain.  A key illustration is released prisoners.

A study by Harding-Pink and Frye (1988) examined 102 sudden deaths of prisoners that occurred within 17 years of their release. The study found that of the 102 deaths, 42 were drug related. Further, while 41 percent of the total deaths were drug-related, 66 percent of the deaths within one year of release were drug-related. The study also found that 60 percent of all of the drug-related deaths occurred within the first year, and the first year had twice as many drug-related deaths as the next three combined.

Binswanger et. al. (2007) examined the deaths of all inmates released from Washington State Department of Corrections from 1999-2003. Overdoses caused a quarter of all deaths, with a yearly mortality rate of 181 per 100,000, 13 times the rate of an average Washington state resident. Further, over a quarter of the total post-release overdose deaths occurred within the first two weeks of release. A yearly mortality rate of 1840 per 100,000 is 129 times the rate of the average Washington state resident.

Maryland’s Department of Health released a similar study in 2014. Between 2007 and 2013 the department monitored the opioid overdose rate of individuals who had been released from jail or prisoner for one year after release. Prisoners were 8.8 times more likely to die of an overdose in their first 7 days of release compared to 91-365 days after release. The opioid-related mortality rate of inmates within their first year of release was 70 per 100,000, 6 times greater than Maryland’s opioid-related death rate in 2012 of 11 per 100,000. In the first week of release, where 58 percent of the opioid-related deaths occurred, the yearly mortality rate was 2080 deaths per 100,000, 190 times the Maryland mortality rate!

All these studies suggest the alternative explanation for the opioid epidemic – more restrictions, more deaths – rather than the standard view – more prescribing, more deaths.

 

Theseus Schulze contributed to this blog post.

Reactions in the United States to the Trump administration’s announcement on Saturday that it would refrain from imposing new tariffs on imports from China for the time being have been decidedly negative. One would expect criticism from the unions, the steel producers, and old economy manufacturing trade associations. After all, many seemed not the least bit concerned about burdening the economy with 25 percent duties on $50-$150 billion of Chinese imports and retaliation of similar scale against U.S. exports, as long as they secured for themselves a small bag of booty in the process. Trump’s “America-First” brand of economic nationalism was everything they had ever hoped for—and now it may be in retreat.

Likewise, one can understand why the administration’s decision to reconsider its approach to Chinese technology companies and Chinese technology transgressions makes the security hawks unhappy. Many of them have been peddling a self-perpetuating narrative that is one part fact to three parts innuendo, hearsay, and speculation that war (and not just the trade kind) between the United States and China is inevitable, and that there is very little scope for further cooperation. Why, they wonder, would Trump squander the leverage to compel real Chinese reform that was afforded by the results of the Section 301 investigation and ZTE’s existential predicament?

But I am most disappointed by those who present themselves as pro-trade, internationalist, cosmopolitan, and informed, but who seem strangely disappointed that the administration stepped back from the abyss. There was a point when these folks warned about the perils of Trump’s protectionist path, and screamed from the hilltops about how Trump’s unilateralism would kill the World Trade Organization. On Twitter, they goad Trump: “Trump blinked.” “Xi schooled Trump.” “U.S. credibility has been squandered” (as if it was somehow squandered THAT moment). For some of these people, disdain for Trump or the desire to be perceived as the most offended by his behavior is more important than supporting one of his rare decisions to do the right thing.

This weekend’s announcement, arguably, was the first piece of good trade policy news the Trump administration has delivered during its tumultuous 16-month reign. Yes, the administration’s trade policy has been a comedy of errors from the outset. Trump’s America First policies have betrayed his administration’s utter ignorance of the interdependence of the global economy, divided the country, and strained long-standing relationships with governments, businesses, and people on every continent. Had the president been remotely informed about international trade before taking office—instead of taking his primer courses on our time and on our dime—we might have been spared 16 months of wrenching policy mistakes.

The big takeaway from this weekend’s stand down is that the United States got taken by the Chinese, who’ve offered mere promises to purchase all sorts of U.S. exports and that the Trump administration has made fools of themselves in this process. Well, the Trump administration was always going to look foolish in this process. After all, who doesn’t look foolish pursuing nonsensical objectives, such as achieving bilateral trade balance, while breaking rules and strong-arming trade partners to get there? All Americans should be embarrassed by U.S. trade policy nowadays, but with respect to developments with China there is a better headline. Lost in an environment that is heavy on snark and light on measured analysis is that the worst of all outcomes—a deleterious trade war—has been avoided for now. Postponing a trade war is far superior to waging one, so as we spend the present lamenting the precarious near future, let’s also consider how we might make enduring trade peace more likely.

There is plenty of blame to go around for the deteriorating state of affairs, but let’s not forget that it is nearly a $750 billion relationship. It can’t be all bad. But despite that interdependence—or perhaps because of it—there are numerous sources of friction. The U.S. list of gripes famously includes subsidization of industry, the continued prominence of state-owned enterprises, currency manipulation, dumping, discrimination against U.S. companies, limited investment opportunities, closed services markets, relatively high tariffs, unfair labor practices, intellectual property theft, indigenous innovation policies, joint venture requirements, forced technology transfers, and many other allegations. These have been characterized as the vestiges of China’s incomplete transition to a market economy and there is definitely truth to it.

Chinese gripes are less familiar to Americans’ ears, but include the adverse treatment of China as a non-market economy in antidumping cases, an allegedly over-inclusive list of products subject to U.S. export controls, a crackdown on Chinese investment in the United States, U.S. blacklisting of Chinese information and communications technology firms, and other market access restrictions. 

Surely—and especially if the alternative is a ruinous trade war—many of these issues can be resolved. Washington and Beijing should go to the negotiating table, exchange wish lists, identify priorities, and put in writing an agreement that more fully opens both markets to trade in goods, services, and cross-border investment, and weeds out discriminatory innovation policies. Meanwhile, both governments should commit in that agreement to adopt less invasive, yet far more comprehensive, statistically valid approaches to screening technology products for cyber risks without compelling the sharing of source code or trade secrets (as described in this paper about cybersecurity and protectionism).

Some prefer to achieve their livelihood by being traditional employees, while others prefer to go the individual route and become proprietors and independent contractors. For centuries, the common law has distinguished between those two categories of individuals in order to ensure that independent contractors enjoy both the benefits and burdens of going into business for themselves. To that end, federal and state law has always understood the terms “employee” and “independent contractor” to mean two different things.

Enter the First Circuit Court of Appeals. Section 1 of the Federal Arbitration Act excludes from the Act’s provisions enforcing arbitration clauses those contained in “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Interpreting that language, the First Circuit rejected the view that the term “contracts of employment” includes only (literally) “contracts of employment”—that is, contracts establishing traditional employer-employee relationships. Instead, it said, that FAA excludes any and all “agreements to perform work,” including “agreements of independent contractors to perform work.” That decision is now on appeal to the U.S. Supreme Court in a case called New Prime v. Oliviera.

Cato’s brief shows where the First Circuit went wrong. The Congress that enacted the FAA in 1925 would never have thought it excluded independent contractors. At that time, as today, statutory terms such as “employment” were universally understood to refer to agreements establishing traditional employer-employee relationships according to the principles of common law that evolved over the centuries. Congress knew that because it enacted (and would go on to enact) a series of statutes relying on the common law understanding of terms such as “employment.” Congress also knew and expected that the federal courts would interpret its handiwork in that manner because that is what the courts had repeatedly said that they would do, thereby providing Congress a foundational principle upon which to legislate.

That words such as “employment” referred specifically to traditional employer-employee relationships was not an obscure principle. To the contrary, it was reflected in practically every state workmen’s compensation scheme enacted in early decades of the Twentieth Century. Legislators knew that general provisions addressing traditional employees would never be understood to reach independent contractors. The common understanding of what these terms meant was that clear.

That Congress meant what it said in the FAA is not just a matter of presumption, but of fact. As a historical matter, Congress crafted the Section 1 exemption to avoid unsettling “established or developing statutory dispute resolution schemes covering specific workers.” Those schemes applied only to employees, not to independent contractors. Language and history both confirm that Congress used the term “contracts of employment” for a reason and that it meant what it said, targeting employees, not anyone else.

Because the right to earn a living by structuring one’s economic relations through contract is one of the basic rights that our Constitution was formed to protect, Cato has filed an amicus brief supporting the petitioners in New Prime, Inc. v. Oliveira. Cato seeks to have the Court reverse the erroneous decision below making a hash of Congress’s careful choice of meaningful words and to clarify, as it has many times before, that independent contractors are not employees and statutory terms such as “employee” means precisely what they say.

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