Policy Institutes

Brink Lindsey

Here are the final five essays in the Cato Institute’s online forum on reviving growth:

1. Reihan Salam wants to end the bias in favor of corporate debt – and expand school choice.

2. Peter Howitt calls for flat taxes on consumption and wealth.

3. Ben Wildavsky thinks we are subsidizing the wrong college students.

4. Philip Auerswald targets barriers to home healthcare delivery.

5. George Selgin explores alternatives to the monetary policy status quo.

 

 

 

 

Chelsea German

According to a recent Gallup survey, the majority of Americans think that crime is on the rise. This misperception persists year after year. Only 21 percent of Americans realize that crime is actually falling. Consider murder and rape alone:

Murder and rape are not the only crimes that are falling. The downward trend in U.S. crime rates also holds for simple and aggravated assaults as well as robberies. Crime, in other words, is falling across the board.

 

 Furthermore, the fall in crime is not limited to the United States. Globally, crime is down. For example, consider the homicide rate in Europe over the last century:

 

Why do most people perceive the world as increasingly crime-ridden despite statistical evidence to the contrary?

Harvard professor and HumanProgress.org advisory board member Steven Pinker provided a number of reasons for our deeply ingrained pessimism during a recent Cato event, “If Everything is Getting Better, Why Do We Remain So Pessimistic?” which can be viewed here. His book, The Better Angels of Our Nature, offers a more in-depth look at the decline of violence.

Daniel J. Mitchell

Let’s look at some fiscal data that must be very depressing for President Obama and other advocates of big government.

Which means, of course, that this information must be very good news for American taxpayers!

Here’s a chart looking at annual federal spending since 2000. You’ll notice that spending skyrocketed from 2000-2009 (a time when libertarians were justifiably glum), but look at how the growth of government came to a screeching halt after 2009.

Here are some specific numbers culled from the OMB data and CBO data. In fiscal year 2009, the federal government spent about $3.52 trillion. In fiscal year 2014 (which ended on September 30), the federal government spent about $3.50 trillion.

In other words, there’s been no growth in nominal government spending over the past five years. It hasn’t received nearly as much attention as it deserves, but there’s been a spending freeze in Washington.

Now let’s look at what happens when government is put on a diet.

I’ve periodically discussed my Golden Rule, which says that good fiscal policy takes place when government spending grows slower than the private sector.

And even though we haven’t had impressive growth during the Obama years, there have been modest increases in both nominal GDP as well as inflation-adjusted (real) GDP.

In other words, the Golden Rule has been in effect since 2009. As a result, the burden of government spending, relative to the economy’s productive sector, has been declining.

Here’s another chart that will be very depressing for the President and other statists.

What’s really remarkable is that we’ve seen the biggest drop in the burden of government spending since the end of World War II.

Heck, the fiscal restraint over the past five years has resulted in a bigger drop in the relative size of government in America than what Switzerland achieved over the past ten years thanks to the “debt brake.”

At this point, some readers may be wondering who or what deserves credit for this positive development. I’ll offer a couple of explanations.

The first two points are about why we shouldn’t overstate what’s actually happened.

1. The good news is somewhat exaggerated because we had a huge spike in federal spending in 2009. To use an analogy, it’s easy to lose some weight if you first go on a big eating binge for a couple of years.

2. Some of the fiscal discipline is illusory because certain revenues that flow to the Treasury, such as TARP repayments from banks, actually count as negative spending. I explained this phenomenon when measuring which Presidents have been the biggest spenders.

But there also are some real reasons why we’ve seen genuine spending restraint.

3. The “Tea Party” election of 2010 resulted in a GOP-controlled House that was somewhat sincere about controlling federal outlays.

4. The spending caps adopted as part of the debt limit fight in 2011 have curtailed spending increases as part of the appropriations process.

5. In the biggest fiscal loss President Obama has suffered, we got a sequester that reduced the growth of federal spending.

6. Many states have refused to expand Medicaid, notwithstanding the lure of temporary free money from Uncle Sam.

7. Government shutdown fights may be messy, but they tend to produce a greater amount of fiscal restraint.

And there are surely other reasons to list, including the long-overdue end of seemingly permanent unemployment benefits and falling defense outlays as forces are withdrawn from Iraq and Afghanistan.

The bottom line is that the past five years have been a victory for advocates of limited government.

But now for the bad news. All this progress will be wiped out very quickly if there’s not genuine entitlement reform.

The long-run fiscal forecasts, whether from the Congressional Budget Office or from international bureaucracies such as the IMFBIS, and OECD, show that America will become a European-style welfare state over the next couple of decades in the absence of significant changes to programs such as Social Security, Medicare, Medicaid, and Obamacare.

So let’s enjoy our temporary victory but work even harder to avert a future fiscal crisis.

Matthew Feeney

Some of the appeal of the so-called “sharing economy” is that it allows providers to earn money with assets that would otherwise not be used. Thanks to Uber, Lyft, and Airbnb, a car that would normally sit in the driveway and a spare bedroom can both be used to make some extra money with relative ease. According to Uber, the May median annual income for its full-time New York City rideshare drivers is $90,766 (although this figure has been contested), well above the New York City median income of $46,540. This figure may appeal to those who might want to be an Uber rideshare driver, even if only part-time. However, data released by Uber shows that in order to make a predictable income as an UberX driver in New York City you will have to work long hours.

Yesterday, Uber released the following graph: 

 

The graph is based on data gathered from what Uber described as “a randomly selected sample” of New York City UberX drivers during the week of November 3rd. The y-axis shows the drivers’ average hourly post-deduction wage and the x-axis shows the number of hours worked per week. 

Uber’s post highlights that the average hourly wage for New York City UberX drivers for the November 3rd week remained relatively constant regardless of the number of hours worked. According to Uber, “the average earnings per hour for a driver who’s online for 5 hours is roughly the same as the average for a driver who’s online for 65 hours.”

However, Uber’s data suggests that if UberX drivers want a reliable income they will have to work more hours. The second graph released by Uber shows how much the drivers shown in the first graph would earn in a year if they worked the same number of hours for 50 weeks. 

As Slate’s Alison Griswold has pointed out, this graph shows that the more hours you work as an UberX driver in New York City the more reliable your average hourly income becomes. For instance, New York City UberX drivers working more than 70 hours a week for 50 weeks can expect to earn between $70,000 and $90,000 per year. Yet, the graph also shows that if you are working as an UberX driver in New York City part-time (less than 40 hours a week), your income is much less predictable.

UberX is understandably an attractive option for those who want to earn some money in their spare time. But what Uber’s own data reveals is that part-time UberX drivers should not expect a more predictable income than those who rideshare on a full-time basis.

Walter Olson

President Obama’s newly announced police-reform package lives up to one’s worst expectations. He flatly refuses to curtail the federal police militarization program, instead calling for a big hike in federal spending on aid to local departments with the usual micromanaging strings attached. These strings will predictably make departments more responsive to Washington, and lobbies with clout there, as distinct from their local communities. As USA Today notes, one powerful interest group has been especially active behind the scenes: “The Fraternal Order of Police, the nation’s largest police union, has waged an intense lobbying campaign to keep the surplus equipment flowing,” with its executive director specifically speaking up in favor of the transfer of armored vehicles and personnel carriers.  A Washington Post editorial notes that while the administration has now released some useful information on the Pentagon’s 1033 surplus-gear program, it still apparently has no plans to improve data gathering on police use of lethal force. 

In a related story that shouldn’t be missed, Conor Friedersdorf assembles excessive-force and misconduct horror stories of cops reinstated in union arbitration proceedings from Oakland, Philadelphia, Pittsburgh, Miami, Sarasota, and elsewhere around the country. He concludes:

I’d rather see 10 wrongful terminations than one person wrongfully shot and killed. Because good police officers and bad police officers pay the same union dues and are equally entitled to labor representation, police unions have pushed for arbitration procedures that skew in the opposite direction. Why have we let them? If at-will employment, the standard that would best protect the public, is not currently possible, arbitration proceedings should at a minimum be transparent and fully reviewable so that miscarriages of justice are known when they happen. With full facts, the public would favor at-will employment eventually.

You can’t tackle the excessive force problem credibly unless you tackle the power of the police unions. Period. 

[adapted from a post at Overlawyered]

Nicole Kaeding

Inspectors General (IGs) serve an important purpose within the federal bureaucracy. They are supposed to be independent, internal watchdogs that guard against fraud, corruption, waste, and other failures. But based on the recent actions of some Inspectors General, their independence is being questioned.

Congress created the system of Inspectors General in 1978 with support from both parties and President Carter. The 72 IGs monitor agency activities and report on agency malfeasance.  Many IGs are appointed by the president to shield them from agency interference.

In theory, IGs are supposed to crack down on waste, but IGs are often too soft on their agencies. Complaints have increased over the last several years. The Washington Examiner discusses the issue:

In the past two years, IGs at a half-dozen Cabinet-level agencies have been accused of retaliating against whistleblowers or softening their findings to protect top department executives or the White House.

Damning information about high-level misconduct has been scrubbed from recent IG reports at the Departments of State, Defense, Homeland Security, Interior and a slew of independent agencies, according to congressional reports and outside watchdog groups.

The Commerce IG has been rebuked for retaliating against his own people by the U.S. Office of Special Counsel and two congressional committees.

At the Department of Veterans Affairs, the acting inspector general is under fire for downplaying whistleblower claims and absolving the agency of blame for patient deaths in a high-profile report, even though the report confirmed that the VA used phony scheduling practices that led to delays in care.

Whistleblowers who have turned to Congress or the media routinely say inspectors general failed to investigate their charges of wrongdoing and then idly watched as their bosses subjected them to brutal retaliation for exposing agency secrets.

Even investigators within IG offices have faced retaliation for reporting internal wrongdoing or attempts to withhold embarrassing findings, according to congressional reports.

IGs are supposed to be guardians of the public interest, but sometimes they are the opposite. Congress has even had to use its subpoena power to force IGs to release documents and reports in some cases.

IGs serve an essential function ensuring that taxpayer funds are spent wisely, but many IGs are falling short on their oversight responsibilities. If they refuse, who will watch the watchdogs? As James Madison wrote in Federalist 51, “”In framing a government which is to be administered by men over men…, you must first enable the government to control the governed; and in the next place oblige it to control itself.”

Brink Lindsey

Here are today’s new essays in the Cato Institute’s online forum on reviving growth:

1. Edward Glaeser targets land use restrictions – and five other barriers to growth.

2. Susan Dudley wants to reform the regulatory process.

3. James Pethokoukis takes aim at the crony capitalist alliance.

4. Andrew Kelly calls for better integration of school and work.

5. Bowman Cutter looks for a path to the “good economy.”

Simon Lester

Last week, while we Americans were “unbundling” the various parts of our turkeys, the European Parliament was talking about unbundling Google’s various features:

Members of the European parliament voted overwhelmingly on a measure aimed at keeping companies, such as Google, from dominating the search engine market.

The motion “calls on the [European] Commission to consider proposals with the aim of unbundling search engines from other commercial services as one potential long-term solution” to ensure fair competition.

While the vote was largely symbolic, its outcome could put EU anti-trust commissioner Margrethe Vestager under pressure to pursue complaints against Google, which critics say squeezes out its competitors using unfair advantages.

The Economist weighed in with a bit of criticism:

The European Parliament’s Googlephobia looks a mask for two concerns, one worthier than the other. The lamentable one, which American politicians pointed out this week, is a desire to protect European companies. Among the loudest voices lobbying against Google are Axel Springer and Hubert Burda Media, two German media giants. Instead of attacking successful American companies, Europe’s leaders should ask themselves why their continent has not produced a Google or a Facebook. Opening up the EU’s digital services market would do more to create one than protecting local incumbents.

The good reason for worrying about the internet giants is privacy. It is right to limit the ability of Google and Facebook to use personal data: their services should, for instance, come with default settings guarding privacy, so companies gathering personal information have to ask consumers to opt in. Europe’s politicians have shown more interest in this than American ones. But to address these concerns, they should regulate companies’ behaviour, not their market power. Some clearer thinking by European politicians would benefit the continent’s citizens.

Building on these points, I’d go even further.  It seems to me there is pretty clear demand for a privacy-focused internet company.  But I don’t see why governments need to get involved here.  Instead, companies – European ones, and others, too – just need to recognize this demand, and jump into the market with some competing products.  There are fewer barriers to entry in this market than most other markets; someone just needs to be willing to take a risk.

Craig D. Idso

In our all-too-politically-correct world, carbon dioxide (CO2) frequently gets a bad rap, demonized for its potential and unverified effects on climate. However, if the truth be told, carbon dioxide is a magnificent molecule, essential to nearly all life on Earth. It is the primary raw material from which plants construct their tissues and grow during the process of photosynthesis. Perhaps it should come as no surprise, therefore, that plants perform this essential function ever better as atmospheric CO2 levels climb ever higher, a fact demonstrated in literally thousands of laboratory and field studies (see, for example, the Plant Growth Database of the Center for the Study of Carbon Dioxide and Global Change). And because plants are the ultimate food source for animals and humans, we are all indebted to CO2 for its role in sustaining and promoting the growth of plants everywhere.

But there are other benefits to atmospheric CO2 enrichment beyond enhancing plant growth, as illustrated in the recent study of Xi et al. (2014). Publishing in the professional journal Food Chemistry, the six-member team of Chinese horticultural and food scientists “investigated the effectiveness of CO2 enrichment for improving fruit flavor and customer acceptance of greenhouse-grown peaches.” 

The rationale for their study stems from the fact that peaches are widely cultivated in greenhouses throughout northern China. Under such controlled conditions, the trees are afforded protection from the natural environment, including damaging low temperatures and high winds. But this protection does not come without a price—plant photosynthesis can cause CO2 levels inside closed greenhouses to decrease during daylight hours to values below 200 parts per million, which values are half or less than half the CO2 concentration of normal outside air. As a result, Xi et al. state these “low CO2 levels may be a limiting factor for the productivity of fruit trees cultivated in greenhouses,” and they may negatively impact the “development of fruit flavor quality” and aroma, which is not good for those in the peach growing business! Thus, the six scientists set out to explore how enriching greenhouse air with CO2 might mitigate these potential problems.

For their experimental design, Xi et al. (2014) divided a greenhouse into two parts using a hermetic barrier wall, supplying one side with CO2-enriched air and the other with ambient air to be used as the control. The enriched side of the greenhouse was maintained at an atmospheric CO2 value of 360 ppm (approximately twice that of the control) from 12:00 to 16:00 each day during the main CO2 shortage period, while “fruit sugar, organic acids, volatile contents and consumer acceptability were investigated, focusing on the period of postharvest ripening.”

With respect to their findings, the Chinese researchers report that net photosynthesis was significantly increased in the trees growing in the CO2-enchanced portion of the greenhouse despite their receiving only a mere 4 hours of CO2 enrichment per day above those growing in the ambient or control portion of the structure. Elevated CO2 also improved fruit flavor and aroma, significantly increasing dominant sugar levels (sucrose and fructose), fruity aroma compounds (lactones), and floral scent compounds (norisoprenoids), while decreasing compounds that contribute to fruit sourness and undesirable aroma volatiles (Table 1). 

Table1. Percent difference of various peach fruit compounds from trees grown in CO2 enriched air, relative to trees grown in ambient air, as measured in fruit picked on the day of harvest and five days after harvest.  Data derived from Table 1 of Xi et al. (2014).

As a result of their findings, the authors conclude that “CO2 enrichment can significantly improve the flavor quality of ‘Zaolupantao’ peach fruits grown in greenhouse and their consumer acceptance.” And if it can do that from a mere four hours of CO2 enrichment per day in a greenhouse, imagine what 24 hours of enrichment might promise for other fruiting plants growing out-of-doors, in natural environments, under present-day global atmospheric CO2 concentrations of 400 ppm and above? Hinting at the possibilities, Xi et al. cite the work of researchers studying other fruits, where similar CO2 benefits have been reported for tomato (Shahidul Islam et al., 1996; Zhang et al., 2014), strawberry (Wang and Bunce, 2004; Sun et al., 2012), and grapes (Bindi et al., 2001).

Yes, truth be told, atmospheric CO2 is a magnificent molecule, and those who continue to demonize it based on potential and unproven climatic effects, should wake up and smell the peaches—or they should at least eat one and taste how sweet its biological benefits can be!

References

Bindi, M., Fibbi, L. and Miglietta, F. 2001. Free air CO2 enrichment (FACE) of grapevine (Vitis vinifera L.): II. Growth and quality of grape and wine in response to elevated CO2 concentrations. European Journal of Agronomy 14: 145–155.

Shahidul Islam, M., Matsui, T. and Yoshida, Y. 1996. Effect of carbon dioxide enrichment on physico-chemical and enzymatic changes in tomato fruits at various stages of maturity. Scientia Horticulturae 65: 137–149.

Sun, P., Mantri, N., Lou, H., Hu, Y., Sun, D., Zhu, Y., Dong, T. and Lu, H. 2012. Effects of elevated CO2 and temperature on yield and fruit quality of strawberry (Fragaria x ananassa Duch.) at two levels of nitrogen application. PLoS ONE e41000.

Wang, S. Y. and Bunce, J. A. 2004. Elevated carbon dioxide affects fruit flavor in field-grown

strawberries (Fragaria x ananassa Duch). Journal of the Science of Food and Agriculture 84: 1464–1468.

Xi, W., Zhang, Q., Lu, X., Wei, C., Yu, S. and Zhou, Z. 2014. Improvement of flavor quality and consumer acceptance during postharvest ripening in greenhouse peaches by carbon dioxide enrichment. Food Chemistry 164: 219-227.

Zhang, Z.M., Liu, L.H., Zhang, M., Zhang, Y.S. and Wang, Q.M. 2014. Effect of carbon dioxide enrichment on health-promoting compounds and organoleptic properties of tomato fruits grown in greenhouse. Food Chemistry 153: 157-163.

Walter Olson

Economic sanctions, when they have an effect at all, tend to inflict misery on a targeted region’s civilian populace and often drive it further into dependence on violent overlords. That truism will surprise few libertarians, but apparently it still comes as news to many in Washington, to judge from the reaction to this morning’s front-page Washington Post account of the humanitarian fiasco brought about by the 2010 Dodd-Frank law’s “conflict minerals” provisions. According to reporter Sudarsan Raghavan, these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to their regular incomes, some of these miners have even enlisted with the warlord militias that were the law’s targets. 

Congress added the provisions to Dodd-Frank in a fit of moral self-congratulation over making sure Americans had the chance to be ethical and thoughtful consumers of such products as jewelry and cellphones (as well as thousands of other products, as it turned out, from auto parts to the foil in food packaging). Publicly held companies would be required to report on their supply connections to “conflict minerals” such as tin, tungsten, and gold mined in war-torn areas of the Democratic Republic of the Congo. Lawmakers assigned enforcement of the law to the Securities and Exchange Commission – a body with scant discernible expertise in either African geopolitics or metallurgy – and barbed it with stringent penalties for disclosure violations, to which are added possible liability in class-action shareholder lawsuits.

Reactions to this morning’s Post account frequently employ words like “unintended” or “tragic” to describe the effect on miners of the law, which people in the Congo soon came to call “Loi Obama” – “Obama’s law”.  Unintended and tragic? Maybe. But not unforeseen, because the signs that the law would backfire this way have been in plain sight for years now – as in this 2011 account by Prof. Laura Seay (via) of how “electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” Or this 2011 account by David Aronson in the New York Times of the “unintended and devastating consequences” that he “saw firsthand on a trip to eastern Congo.” Or this more recent paper by law professor Marcia Narine.

But although the evidence has been there for years, the will to believe in the law was too strong – a will fueled by anti-corporate campaigners who take it on faith that when brutalities in the underdeveloped world occur within two or three degrees of separation of the activities of multinational businesses, the right answer must be to blame and shame the businesses.

You might call it an expensive lesson for Americans too, if you assume that anything has been learned. A recent Tulane calculation found that the costs in business compliance have already topped $700 million, with billions more ahead should nothing change. Just this September, the U.S. government conceded that it “does not have the ability to distinguish” which refiners and smelters around the globe are tainted by a connection to militia groups. That is to say, the government has demanded of business a degree of certainty that it cannot achieve itself.  Courtesy of UCLA corporate law professor Stephen Bainbridge, here’s a flowchart of what complying might involve for a given business. 

If the new Republican Congress wants to be taken seriously about fixing counterproductive regulation, it should make the repeal of this law an early priority.

Jim Harper

Upshot (New York Times) writer Derek Willis tweeted this morning, “We need to stop doing stories (and maps) with meaningless data.” At the link, a story on Vox charts the poorest members of Congress. It’s based on a Roll Call story published in September.

His main point, I think, is the failure of the data to reliably reflect what it’s supposed to. The disclosures on which these stories rely don’t include the value of homes members own, for example, and information is reported in broad bands, so it’s probably not very accurate and may be wildly inaccurate.

The data is meaningless in another, more important way. Neither story suggests any correlation between wealth (or its absence) and legislators’ behavior or fitness for office. It’s just a look at who has money and who doesn’t—uninformative infotainment. Maybe some readers stack up inferences to draw conclusions about Congress or its members, but this is probably an exercise in confirming one’s biases.

This illustrates a real problem for computer-aided journalism. When the only data available depicts a certain slice of the world, that will skew editorial judgments toward that slice of the world, overweighting its importance in news reporting and commentary.

In my opinion, reporting on public policy suffers just such a skew. There is relatively good data about campaign financing and campaign spending, which makes it easy to report about. The relatively high level of reporting on this area makes it appear more important while the actual behavior of public officials in office—the bills they sponsor, the contents of bills, amendments, votes, and the results for society—goes relatively unreported.

It won’t be the fix for all that ails reporting on public policy, but our Deepbills project makes essential content of legislation available as data. It vastly expands the territory around U.S. federal public policy that computer-aided jounalists can cover. Deepbills data has been picked up various places, but we need more adoption before it will provide all the value it can to a better-informed public.

Update: On Wednesday, the House Government Reform and Oversight Committee will have a hearing on implementation of the DATA Act, which could yet further expand the data available to journalists, and all of us.

Daniel J. Ikenson

Most economists agree that free trade works better than restricted trade to increase the size of the economic pie. By enlarging markets to span national borders, free trade increases the pool of potential producers, consumers, partners, and investors, which permits greater specialization and economies of scale – both essential ingredients of per capita economic growth.

But, in practice, free trade remains elusive. It is the exception, not the rule. Sure, many tariffs and other border barriers have been reduced in the United States (and elsewhere) over the years, but protectionism persists in various guises. There are “Buy American” rules limiting government procurement spending to local firms and US-made products; heavily protected services industries; seemingly endless incarnations of agriculture subsidies; import quotas on sugar; green-energy and other industrial subsidies; shipbuilding and shipping restrictions; the Export-Import bank; antidumping duties; and, regulatory protectionism masquerading as public health and safety regulations, to list some. Ironically, protectionism is baked into our so-called free trade agreements. It takes the form of rules of origin requirements, local content mandates, intellectual property and investor protections, enforceable labor and environmental standards, and special carve-outs that shield entire products and industries from international competition.

Trade agreements may be the primary vehicle through which U.S. trade barriers are reduced, but they are predicated on the fallacy that protectionism is an asset to be dispensed with only if reciprocated, in roughly equal measure, by negotiators on the other side of the table. If the free trade consensus were meaningful outside of economics circles, trade negotiations would be unnecessary. They would have no purpose. If free trade were the rule, trade policy would have a purely domestic orientation and U.S. barriers would be removed without any need for negotiation because they would be recognized for what they are: taxes on domestic consumers and businesses.

Arguably, opening foreign markets should be an aim of trade policy, but real free trade requires liberalization at home. The real benefits of trade are measured by the value of imports that can be purchased with a unit of exports – the so-called terms of trade. Trade barriers at home raise the costs and reduce the amount of imports that can be purchased with a unit of exports, yet holding firm to those domestic barriers while insisting that foreign markets open wider is the U.S. trade negotiating strategy. Indeed, that’s almost every government’s negotiating strategy. It is the crux of reciprocity-based trade negotiations, which, at its core, is a rejection of free trade.

That the case for free trade – even acceptance of the fact that trade makes us better off – is not second nature speaks to the endurance of several fallacies that inform popular opinions about trade. One such fallacy, which is continuously reinforced by media and stumping politicians, is that trade is a competition between “Us” and “Them.” Exports constitute Team America’s points. Imports are the foreign team’s points. The trade account is the scoreboard. That scoreboard shows a deficit, which means the United States is losing at trade. And it’s losing because the foreign team cheats – often with impunity. That many Americans accept this narrative explains why protection-seeking industries couch their objectives in this “Us” versus “Them” context. By nurturing the false notion that the interests of U.S. consumers and taxpayers are inseparable from those of U.S. producers, it becomes that much easier for industry to obtain the protection that reduces competition, raises prices, eliminates choices, and slows innovation.

Why should the average American care about trade agreements if the spoils accrue to businesses in the form of export revenues? After all, the once-strong relationship between business performance and job creation has grown weaker. The better selling point is that import competition brings greater variety, better prices, best business practices, and inspires domestic companies to be more accountable and responsive to consumer demands. Import competition breeds innovation. Presumably, Americans would care more about having international competition in the domestic commercial aviation sector – where foreign carriers are currently prohibited from serving – than they wish to see pharmaceutical patents extended to 12 years in some trade agreement. But commercial air competition – on the wish list of the European Union in the Transatlantic Trade and Investment Partnership negotiations – is something U.S. negotiators do not want to discuss. Likewise, the 94 year-old Jones Act, which (among other anti-consumer features) prohibits foreign-built, -staffed, or -flagged shipping vessels from transporting goods between U.S. ports, forces Americans to subsidize less competitive U.S. shippers and their unions through the higher prices they pay for delivered goods. Again, shipping reform is on the European negotiators’ agenda but – despite the U.S economic and environmental benefits reform would bring – remains a subject that U.S. negotiators wish to avoid. The EU’s desire to open more U.S states’ procurement processes to competition is another example of where American consumer interests – in this case state taxpayers – are better served by the offensive negotiating agenda of the other government.

The takeaway is that reciprocity-based negotiations force negotiators to go to bat for their exporting interests, while they ignore the interests of those who benefit from greater import competition. There is no national team to support in these talks. Generally, producer interests are better represented by their own government, and consumer interests are, residually, better represented by the other government going to bat for its own producers.

The myth that trade is a competition between “Us” and “Them” is one of many misconceptions that serve to obscure the truth about free trade and its benefits. Following is a list of what we at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies believe to be the ten most persistent fallacies about trade.

  • Trade is a competition between “Us” and “Them”
  • The trade deficit means the United States is losing at trade
  • Trade only benefits big business and the rich
  • Foreign “outsourcing” hurts the U.S. economy
  • Trade and globalization caused U.S. manufacturing decline
  • Trade and globalization have spurred a “race to the bottom” in labor, environmental and product safety standards.
  • The WTO is an anti-American institution that undermines U.S. sovereignty.
  • Free trade is not fair trade
  • Free Trade Agreements equal Free Trade
  • Unilateral trade liberalization is akin to unilateral disarmament

Certainly, there are other myths invoked to advance protectionist aims and to impede broader acceptance of the benefits of free trade. In 2014, we launched Cato Trade on Campus, which is an interactive, on-campus program intended to identify, discuss, and ultimately expose these fallacies. We will be visiting the Monterey Institute for International Studies this week and will kick off 2015 with a program at North Carolina State University in late January. Over the course of the year, we will be visiting other campuses and producing additional commentaries, analyses, and videos aimed at dispelling these various myths.

Doug Bandow

MOSCOW—The Kremlin was its forbidding worst when I recently visited a dreary, stormy Moscow. Russia is not the Soviet Union, but hopes for the former to develop into a genuinely liberal society have been stillborn.

However, the fact that President Vladimir Putin is an unpleasant autocrat doesn’t change the necessity of Washington and Moscow working together.

Moscow is not threatening any core U.S. interest. Putin’s Ukrainian aggression does not impair fundamental American national interests. There is no indication that Moscow has any ill plans for Europe.

Unfortunately, Washington contributed to the Ukraine imbroglio by foolishly joining Europe in treating Kiev as a geopolitical competition. This allied blunder doesn’t justify Russia’s response, of course, but it precipitated Moscow’s intervention.

Putin demonstrates that even paranoids have enemies. Allied behavior post-Cold War—expanding NATO up to Russia’s border, dismantling Serbia, treating Georgia as a military ally, holding open the possibility of NATO membership for Kiev, and trying to pull Ukraine into Europe’s economic orbit—has consistently ignored or threatened Moscow’s interests.

The result is an economic and political impasse with a risk of military confrontation. Russia’s control in Ukraine will not change unless Moscow suffers decisive military, economic, or political loss.

However, Ukraine’s military is markedly inferior to that of Russia. The U.S. and Europe won’t go to war with nuclear-armed Russia over Ukraine.

While the Kremlin’s unjustified use of force warrants sanctions as temporary punishment, they are counterproductive as permanent policy. The restrictions have hurt the Russian economy, but so far less than the unrelated drop in oil prices.

The Europeans have even less political leverage over Moscow. Russia has moved closer to China, expanding the former’s options. So far Putin’s policy remains popular at home.

Washington and Brussels have no plausible strategy to reverse Moscow’s approach. Even the Obama administration rejects crackpot schemes for military intervention—such as putting American troops into a war zone and daring Moscow to attack.

Non-lethal aid to Kiev wastes scarce American resources. Military assistance would strengthen the Ukrainian armed forces, but the conflict matters far more to Moscow than to the allies, so the former always will spend and risk more to achieve its ends.

Tightening sanctions is another possibility, though historically they have proved to be better at inflicting economic harm than forcing political change. Russia’s economy is likely to withstand, though at potentially high cost, whatever Europe is willing to impose. At the same time the West, too, will suffer economically.

Worst is the economic condition of Ukraine, the epicenter of conflict. The longer the crisis persists, the greater the financial drain Kiev will be for America and Europe.

Unfortunately, Washington and Brussels have no political path to victory. The problem is not just a “frozen conflict” involving Ukraine and separatists, with Kiev broken and bankrupt. The bigger risk is a frozen conflict—essentially a Cold War lite—between Russia and America/Europe.

Which means everyone needs to look for an exit from the current impasse.

Compromise might be unsatisfying, but that would be better than the current situation. As I point out in Forbes online: “Any concessions will leave Ukrainians unsatisfied, but their nation faces economic ruin and territorial dismemberment.“

The outlines of a compromise are obvious. Ukraine remains independent. Russia stops military intervention in Ukraine. Kiev pledges to eschew military relations, especially NATO membership, with the Western powers.

Ukrainians trade both east and west. The central government devolves wide-ranging power on the provinces, especially the rebellious Russian-speaking areas. Both sides drop economic sanctions. Outside peacekeepers/observers monitor the accord.

It brings to mind the status of Finland during the Cold War. Helsinki maintained free domestic political institutions while avoiding involvement in any anti-Soviet military activities. “Finlandization” was the best alternative at the time.

Ukraine is an ongoing tragedy. That nation is being ravaged by conflict. Everyone involved underestimated the cost of their actions. The result is an expensive impasse for all. It is imperative to find a way out.

Dalibor Rohac

Sometimes a person’s genuine significance can be assessed only after their passing. That seems to be the case of Kakha Bendukidze, Georgian entrepreneur, reformer, and philanthropist, who died unexpectedly early last month. While he was very well-known among libertarians in Eastern Europe and the former USSR, the reactions of some of the world’s leading media outlets suggest that his influence extended far beyond narrow ideological lines, making him one of the most important voices on public policy in the region.

Kakha was a close intellectual ally of Cato and did more than his fair share to promote free-market ideas in countries of the former USSR. In the early 2000s, he pressed for the adoption of a flat tax in Russia. Earlier than others, he understood Vladimir Putin’s true motives, sold his Russian businesses and moved to his native Georgia. It was there that he spearheaded, as Minister for Economy, the ambitious program of fighting corruption and liberalizing the economy, which led to extraordinarily high growth rates for Georgia’s economy. In 2007 alone, the economy expanded by 12.3 percent. After leaving public office, Kakha helped establish the Free University of Tbilisi, a private university offering Western-style undergraduate and graduate education, and the Knowledge Fund, a charity providing funding for teaching and research, including scholarships for Georgian students from poorer backgrounds.

Impressive as this account is, few would have guessed that his passing would prompt a wave of tributes and appreciations coming from sometimes unexpected places. On Foreign Policy’s Democracy Lab, Anna Nemtsova called Kakha one of Georgia’s “most progressive reformers and corruption fighters.” The New York Times published a lengthy obituary, which highlighted Kakha’s involvement with the new leadership of Ukraine. The Independent, in turn, called Kakha a “businessman and statesman who fell foul of Vladimir Putin but rescued Georgia’s post-Soviet economy.”

Finally, the New Yorker magazine offers a carefully written appreciation, offering a lot of details on Kakha’s life and activities in Ukraine prior to his untimely death, as well as the directness with which he communicated his ideas:

Even though he was unsure whether Ukrainians would accept the changes that he wanted to carry out, he agreed to work with [Ukrainian President] Poroshenko, friends say, because he saw Ukraine as the frontline of the battle for liberal reforms in the former Soviet states. With the same tough love that he had inflicted on Georgians, Bendukidze urged Ukrainians to stop blaming others for their problems. “You have broken every world record in idiocy,” he told an audience at the Kyiv School of Economics, in July. “You keep electing populists, people who promise you more. This means you are electing the worst.” He advocated cutting government spending, reducing retirement benefits for public servants, and radically deregulating the economy. Ukraine, he said, in one of his last interviews, had too many ministries and agencies. “Who needs them when the government’s sole function these days is to take money from the International Monetary Fund and pass it on in payment for Russian gas?” he asked.

Charles Hughes

The administration is considering a rule change that would allow the government to automatically change some people’s exchange plans to a cheaper alternative.

HHS recently proposed regulations that would let exchanges offer alternative default options for enrollees. Under current law, most enrollees who did not revisit the exchange website are automatically re-enrolled in their plans (a few states do not allow automatic renewal). The new proposed rules would let exchange enrollees choose whether their default option would be to automatically renew the same plan or to let the government switch them into a cheaper similar plan if theirs becomes more expensive. Under the proposed rules, state exchanges would be given the option to offer these alternatives in 2016, with the federally run exchange offering it in 2017.

For people that chose this option, the government would be effectively choosing their insurance plan, a far cry from the “if you like your plan you can keep it” pledge.

In one sense, it is not surprising that HHS is at least exploring this option. Automatic renewal presents a host of potential problems.

Due to the way the law designed the exchange subsidies, many of these people will end up paying significantly more if they automatically renew. An analysis by the New York Times found that people in the most popular plans would face an average premium increase of 9.5 percent. This could end up affecting millions of people, as a recent Gallup poll found that 68 percent of respondents said they planned to renew their current plan.

To some extent, the proposed rules could help alleviate the initial problem of unforeseen premium increases, but it creates other issues at the same time.  Enrollees might not understand the downsides of letting the government automatically switch them to a cheaper plan. People who chose this option fearing premium increases could find that they have lost their doctor, or a prescription they need is no longer covered by their plan. For even the most sophisticated exchange customers, there is a measure of uncertainty.  When they choose a default option, enrollees won’t know how much their premiums will increase next year or how the provider networks of cheaper alternatives compare.  Each customer’s priorities will be different, as will the variables affecting their decision. Obamacare has inadvertently created a very complex situation for the government to try to navigate.

The problems associated with automatic renewal are serious and could affect millions of people, but they might not have a clear solution. In one sense, the proposed default option could help people avoid unforeseen premium increases. This could be the most important factor for many enrollees, but comes at the risk of losing access to provider networks they might like. At the same time, the proposed rules would significantly increase government authority and decision-making power. No longer would the individual mandate, the controversial requirement to obtain health insurance, be enough. For many people, the government would actually choose and enroll them in a specific health insurance plan. The new rules would extend government reach into health care even farther. This is the same government that oversaw the disastrous rollout of the exchange website and inflated enrollment numbers. Given its performance so far, we should be wary of giving the government an even bigger role.

Brink Lindsey

Here are today’s new essays in the Cato Institute’s special online forum on reviving growth:

1. Richard Florida says that cities are our future.

2. Megan McArdle takes aim at regulatory complexity.

3. Dane Stangler wants more immigration and better teachers.

4. Scott Winship focuses on expanding opportunity for the disadvantaged.

5. Michael Mandel calls for hacking the regulatory state.

6. Brad DeLong waves his magic wand three times.

Roger Pilon

In his op-ed at the New York Times yesterday, Yascha Mounk, a fellow at New America, asked “Is Harvard Unfair to Asian-Americans?” A century ago, Harvard had a problem, he writes: “Too many Jews.” Today it’s Asian-Americans. Euphemistic admissions criteria like “character and fitness” solved Harvard’s problem back then. Today, numbers do the job. To get into the top schools, Mounk writes, Asian-Americans “need SAT scores that are about 140 points higher than those of their white peers.” And that’s brought on a suit by a group called Students for Fair Admissions.

If this case is decided eventually under current law, as is likely, the result will be less than clear or satisfying in several respects. To see why, just follow Mounk’s argument. One reason this “new discrimination” is tolerated, he notes, is that “many academics assume that higher rates of admission for Asian-Americans would come at the price of lower rates of admission for African-Americans.” But the two issues are unrelated, he continues:

As recognized by the Supreme Court, schools have an interest in recruiting a “critical mass” of minority students to obtain “the educational benefits that flow from a diverse student body.” This justifies, in my view, admissions standards that look favorably on underrepresented groups, like African-Americans and Latinos. But it can neither explain nor justify why a student of Chinese, Korean or Indian descent is so much less likely to be admitted than a white one.

Then what does explain why an Asian-American student is so much less likely to be admitted than a white one? Mounk continues:

Conservatives point to Harvard’s emphasis on enrolling African-Americans (currently 12 percent of freshmen) and Hispanics (13 percent) but overlook preferences for children of alumni (about 12 percent of students) and recruited athletes (around 13 percent). The real problem is that, in a meritocratic system, whites would be a minority—and Harvard just isn’t comfortable with that.

Ah! There we have it, Mounk believes. But notice that this “explanation” mentions, almost in passing, “a meritocratic system,” as if that were what we had. If we did—at least one based heavily on SAT scores—the aforementioned academics would be right: Harvard would admit far more Asian-Americans and far fewer African-Americans and Hispanics—and perhaps fewer legacy and athletic applicants as well.

But under current law, what we have instead is a system in which discrimination based on academic merit varies. As Mounk correctly notes, universities may discriminate to achieve “diversity”—and, in particular, a “critical mass” of minority students. What that means, of course, is that the distinction between “majority” (read “white”) and “minority” (“non-white”) looms large in admissions decisions. What it means in practice, however, is that academic merit weighs more heavily in white than in non-white decisions—except in the case of Asian-Americans, where it weighs more heavily even than with whites. For Mounk, there’s the rub. Indeed, it gives new meaning to “reverse discrimination”—not against the majority, as we usually think of it, but against a minority.

So what’s to be done? Mounk grants, of course, that there are inescapable trade-offs among admissions criteria and that there is no one right answer to the question of which are to weighed more heavily than others. But he never goes to the principled solution—perhaps because our modern antidiscrimination law precludes that solution. For that, we’ll need to notice that Harvard is, after all, a private institution. As such, its board and administration should be free to shape its incoming classes however they wish, much as religiously affiliated institutions are mostly free to do today—and of course the rest of us would be free as well to judge Harvard’s policies as we wished. That would solve a host of problems, if our law permitted it. Unfortunately, it does not.

The issue is more difficult, however, in the case of public institutions, which belong to all of us. In fact, Students for Fair Admissions also has the University of North Carolina at Chapel Hill in its sights. But the problem there is that equal protection comes into play, which means that the university, like all public institutions, is forbidden to discriminate except on grounds that are narrowly tailored to serve its function. But what does that mean in practice? Does it mean that academic merit should be the dominant or perhaps the only admissions criterion? Or does it mean instead that the university should be open to all? Indeed, don’t the parents of less gifted children pay taxes to support the University of North Carolina too?

Reflections on the implications of our vexed antidiscrimination law bring us, then, to a more basic question: Given that these admissions decisions are so freighted with controversial and incommensurable value judgments, why do we even have public institutions of higher education (or of any level of education, for that matter)? Couldn’t these insoluble questions be avoided if all education, like religion, were private? Now there’s a modest proposal. See here for a fuller discussion.

Matthew Feeney

Uber has not had a good month. In the wake of an Uber executive’s worrying remarks regarding a possible smear campaign against critical journalists, the company has been on the receiving end of unflattering reporting related to its privacy policy and what one commentator has referred to as its “[something stronger than “jerk”] problem.” While it is certainly the case that Uber does have legitimate privacy issues to address, it should not be forgotten that existing regulations could hamper some of the privacy reforms many Uber passengers would like to see implemented.

For many, Uber is more convenient than taxis because of its ease of use. Once a passenger creates an account a ride that is paid for automatically is only a push of a button away. Drivers and passengers are rated by each other, providing an incentive for both parties to behave well. However, while the Uber platform’s simplicity is a major attraction, there have been disturbing reports of Uber drivers accessing passengers’ information.

In March of this year, Olivia Nuzzi, a reporter for The Daily Beast, wrote about two creepy interactions with Uber drivers in New York City. In her writing about the first incident, Nuzzi describes her driver showing her a photo he had taken of her before the ride began. Nuzzi was understandably upset and rated the driver poorly. Uber deactivated the driver, who later emailed Nuzzi, The Daily Beast, and a journalist who had written about Nuzzi. After this incident Nuzzi was told by an Uber employee there was no way the Uber driver could have accessed her full name and that he must have recognized her. 

Yet the second incident reveals that Uber drivers can discover the full names of their passengers, thereby making them easier targets for stalking. Months after Nuzzi’s first disturbing incident, one of her friends was contacted by an Uber driver over Facebook. The driver asked whether Nuzzi was single. When Nuzzi asked an Uber spokeswoman for comment regarding this incident she was informed that Uber drivers could in fact access the full names of their passengers. The Uber spokeswoman went on to explain that this data collection is possible because:

The New York City and Limousine commission, along with the vast majority of jurisdictions across the country, do require first and last names on what is commonly called a waybill or trip record. It’s intended to prevent gypsy cabbing in the taxi and livery industry… So Uber does provide trip sheets to drivers so that they can comply with those regulations that exist in most cities. 

Some readers might be wondering why Uber cannot simply anonymize passenger information in order to prevent the sort of stalking Nuzzi endured. The reason that passenger names are not made anonymous is that New York City Taxi and Limousine Commission (TLC) regulations prevent such information from being hidden, as Polly Mosendz explained this month in Newsweek:

While a user’s Uber profile only shows the first name and a small picture, the driver does have access to the full name as soon as the ride is ordered. Showing the full name opens up a number of issues, such as drivers Facebook messaging their riders or finding their homes, but Uber is unable to anonymize this unless the TLC changes its regulations.

In New York City, it seems that Uber must find a way to tackle TLC regulations in order to prevent the sort of awful behavior Nuzzi reported.

Of course, there are other complaints related to Uber and privacy, such as the tracking of journalists and “known people.” Uber is investigating the improper use of its so-called “God View” tool, which allows corporate employees to view the current location of Uber cars and users looking for rides. According to Uber, a New York executive’s use of “God View” to track a journalist on her way to Uber’s New York headquarters was in violation of the company’s privacy policy.

Perhaps unsurprisingly, Uber announced last week that it was working with the law firm Hogan Lovells in order to strengthen its privacy policy. It is welcome news that Uber is addressing the legitimate privacy concerns that have been raised by some passengers, but those watching Uber’s attempts to reform its privacy policy should keep in mind that there are some changes Uber cannot make under existing regulations make that task considerably more difficult. 

Patrick J. Michaels

The shameful Obama Administration practice of proposing dreadful environmental regulations on or near national holidays continues. Last year they were on global warming, and this year it’s low-level ozone. Neither regulation will have a detectable “benefit,” but both impose enormous costs. Perhaps President Obama’s placing this announcement in the news cycle just before Thanksgiving and Black Friday is indicative of how popular he thinks these regulations will be.

So it goes. The lessons of November 4 remain unlearned, with the administration doubling down in the service of all of its green friends that didn’t vote. The fact is that the ground zero of the thermonuclear electoral explosion three weeks ago was in the coal mining areas of Kentucky and West Virginia. In Kentucky, Mitch McConnell was supposedly in a close race with Alison Grimes and instead won by a whopping 18 points. Nick Rahall, a 19-term (!) Democratic congressman from West Virginia saw a similar swing: he won his seat by eight points in 2012 and lost by 10 in 2014, with the net change in two years totaling 18. 

The proposed ozone rules are yet another example of what happens when good ideas go bad. Pretty much everyone agrees that EPA, along with the states, have done a remarkable job in cleaning up our air. The eye-stinging smogs of Los Angeles are history. Pittsburgh was once so dirty that masonry turned black, causing people to wonder what was happening in their lungs. We have done great things and enjoy air that is cleaner than that of any economic superpower in the history of this planet.

Environmental protection is what systems engineers call a “heuristic device,” defined as “a solution which is not guaranteed to be optimal, but is good enough for a given set of goals.” The problem, of course, is that heuristic devices don’t tell you when to stop. Instead they keep being applied, in this case by the bureaucracy-for-life known as the Environmental Protection Agency, producing massively diminishing returns for massively increased costs. And, at President Obama’s urging, it will never hear the word “stop.”

Millions of people are increasingly disenchanted with the administration’s high-handed approach to command-and-control regulations imposed when we aren’t supposed to be looking.  If enough people remain grumpy about this, Barack Obama may yet again stand in the way of a Hillary Clinton presidency.

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