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To Edit or Not to Edit ... Wikipedia

Wed, 08/06/2014 - 10:12

Jim Harper

On Wikipedia’s list of Wikipedia controversies, you can read up on U.S. congressional staff edits to Wikipedia, which drew attention in mid-2006 because edits coming from Capitol Hill often sought to whitewash the pages of members of Congress. Most Hill staff know better than to do that now, but attention to Wikipedia editing in Congress has spiked again thanks to a new Twitter feed: @congressedits.

(How does it work? Congress has fixed, known IP addresses, and Wikipedia displays the IPs of users who are not logged in. Scan Wikipedia for edits coming from those IP addresses and you know which edits are being done by non-logged-in, Capitol Hill Wikipedians.)

So, is congressional Wikipedia editing bad? Not necessarily.

In a recent 90-day period, there were almost 400,000 hits on Wikipedia articles about bills pending in Congress. This makes Wikipedia a major source of information about congressional activity for average Americans. Getting content on Wikipedia from some of the most knowledgeable potential editors — congressional staff — could help Wikipedia deliver government transparency on a grand scale, positioning the public to demand better outcomes.

For this to happen, though, Wikipedians on the Hill must navigate Wikipedia rules around notability, neutrality, and conflicts of interest. Perhaps more challenging, Capitol Hill’s consensus on Wikipedia editing must shift from aversion to embrace.

We’ll be discussing congressional Wikipedia editing and the sea change to government transparency it might produce at a noon-time session on the Hill August 18th. The event is open to all, but Hill staff interested in improving congressional and government transparency are particularly welcome to join the discussion.

Categories: Policy Institutes

Fact-Checking the Teachers Union: A Follow Up

Wed, 08/06/2014 - 09:01

Jason Bedrick

Yesterday, I noted that American Federation of Teachers (AFT) president Randi Weingarten cited an imaginary statistic on MSNBC’s “Morning Joe.” Weingarten claimed that “most teachers right now in America have less than two years of experience.” That’s clearly false because the most recent NCES data shows that 91 percent of government school teachers had more than three years of classroom experience in 2011-12.

As I noted in an update to my post, some claimed that Weingarten had probably intended to refer to the mode, not “most.” Weingarten herself later admitted that she misspoke and meant to refer to the mode, but even then, the data she meant to cite was out of date. What she said was technically true for 2007-08 (though misleading, as I will show), but she claimed that this was the case “right now,” which is false. In fact, the most recent data (see page 12) show that the mode for teacher experience was five years in 2011-12.

Nevertheless, she still claims that the statistic she meant to cite buttresses her point. Actually though, her use of that statistic is misleading.

Let’s say the AFT threw a party that eight adults and two children attended. Their ages were 45, 41, 39, 38, 37, 35, 34, 32, 1, and 1. When asked about the ages of the attendees, Weingarten reports, “the mode of the partygoers’ ages was less than two years old.”

That’s technically true, but also terribly misleading. Using the mode to answer that question without further context obscures the fact that only 20 percent of the partygoers were under age two and that the median age was 36. 

Indeed, Weingarten’s (intended) use of the mode to describe the level of government school teacher experience was even worse than the above hypothetical, since only 9 percent of teachers had less than three years of experience (and it’s not clear from the NCES data how many of those teachers have less than two years experience, as Weingarten claimed). The average years of experience is 13.8 (page 10). 

Weingarten intended to use the mode to support her claim that “you don’t have a lot of the people who are senior teachers any more.” It’s hard to know what she meant by “a lot” or “senior” but more than 57 percent of teachers have 10+ years of experience and more than 21 percent have 20+ years of experience. A third have been teaching for between three and nine years.

There is some truth to the broader point that the teacher workforce is “greening,” though not nearly to the extent that Weingarten implies. A Consortium for Policy Research in Education report notes that about 37 percent of teachers had less than 10 years of experience in 1987-88 and that number has climbed about five points to 42.3 percent in 2011-12 (according to NCES).

Teachers today may be slightly less experienced on average than 25 years ago, but with nearly six in ten teachers having more than a decade’s worth of experience under their belts, Weingarten’s use of statistics is misleading at best.

How concerned should we be about this greening? At this point, probably not very. As the Urban Institute reported in 2010, teachers show the largest productivity gains in the first few years in the classroom, “after which their performance tends to level off. At some point, it even declines:

This and other research shows that, on average, teachers with more than 20 years of experience are more effective than teachers with no experience, but are not much more effective than those with 5 years of experience (Ladd 2008). Studies have also documented some evidence that effectiveness declines after some point, particularly among high school teachers. In fact, evidence suggests that the most experienced (greater than 25 years) high school mathematics teachers may be less effective than their less experienced counterparts (Ladd 2008) and even their inexperienced colleagues (Harris and Sass 2007). [Emphasis in the original.]

In summary, the teaching workforce is only slightly “greener” than a quarter-century ago, but the vast majority (91 percent) have more than three years of teaching experience, which is around when productivity gains begin to level out. Presenting the mode for years of teacher experience without that context greatly distorts the reality of the teaching workforce.

Categories: Policy Institutes

U.S.-China Relations: Setting Priorities, Making Choices

Tue, 08/05/2014 - 17:00

Doug Bandow

The United States confronts increasingly urgent challenges around the globe.  Washington’s policies are widely seen as failing

The Obama administration has been doing a little better, but not good enough, with China.  There is no open conflict between the two, but tensions are high. 

Territorial disputes throughout the South China Sea and Sea of Japan could flare into violence.  North Korea is more disruptive than ever.  Other important issues lurk in the background.

While there should be no surprise when important powers like the U.S. and People’s Republic of China (PRC) disagree, the two must work through such issues.  Unfortunately, the U.S. is far better at making demands than negotiating solutions.  In particular, Washington seems to ignore the interdependence of issues, the fact that positions taken in one area may affect responses in others.

For instance, the U.S. famously initiated a “pivot” to Asia, or “rebalancing” of U.S. resources to the region.  The U.S. implausibly claimed that the shift had nothing to do with China. 

But the residents of Zhongnanhai are not stupid.  For what other reason would America reaffirm military alliances and augment military forces in Beijing’s backyard?

Yet at the same time the Obama administration was pressing the PRC to apply greater pressure on North Korea to end the latter’s nuclear program and constant provocations.  Step on Pyongyang’s windpipe and force North Korea to yield, said Washington.

The U.S. acted as if it was asking for a small favor.  In fact, no one knows how the Democratic People’s Republic of Korea would react.  Worst geopolitically for China would be eventual Korean reunification, which would leave an expanded U.S. ally hosting American troops on the Yalu.

The latter would be unpleasant for Beijing even without the “pivot.”  A unified Korea could play a significant role in any campaign to contain the PRC.

The Obama administration’s attempt to moderate territorial disputes in the region runs into the same problem.  America is committed to one side, maintaining defense relationships, deployments, and treaties with several interested parties including Japan.  Washington’s endorsement of the status quo favors America’s friends and allies.

The PRC likely would be skeptical even if it saw the U.S.-led bloc as benign.  However, America’s senior ally is Japan, still remembered for its World War II depredations in China. 

The U.S. has sought Beijing’s aid in overthrowing the government of Syrian President Bashar al-Assad and forcing Iran to abandon any nuclear weapons ambitions.  The PRC’s acquiescence would expand American influence and even perhaps create a new U.S. client state.  That is not obviously in the PRC’s interest, especially when America is seen as attempting to maintain its dominance in East Asia.

Other issues also cannot be considered in isolation.  While human rights are not a security question, American pressure on Beijing to respect political activities hostile to the Communist Party’s monopoly of power may be seen to be no less threatening than Washington’s military moves. 

Moreover, U.S. attempts to convince Beijing to combat climate change by limiting energy use—which would inevitably slow China’s economic growth—look more sinister when Washington is working to constrain the PRC’s influence. 

There inevitably will be disagreements and misunderstandings between America and China.  The two nations must manage such controversies.  As I point out in a new article on China-U.S. Focus, “the world’s superpower and incipient superpower must strive to develop a sustained cooperative relationship, as did imperial Great Britain and rising America.”

Doing so will require recognizing that issues are interrelated.  In particular, the U.S. cannot be seen as leading a coalition against Beijing if it hopes to convince the PRC to adopt policies seemingly against its own geopolitical interests.  Washington will have to relearn the art of diplomacy as it better sets priorities.

Categories: Policy Institutes

America’s Korea Problem: The North Is Angry and the South is Dependent

Tue, 08/05/2014 - 16:32

Doug Bandow

The Democratic People’s Republic of Korea is angry with the U.S., citing all manner of crimes and misdemeanors.  Worse, Washington has turned the Republic of Korea into an international welfare queen, apparently forever stuck on the U.S. defense dole.

It’s time for the ROK to graduate and America to allow the Koreans solve their own problems.

Last week North Korea’s deputy UN ambassador, Ri Tong-il, denounced Washington:   U.S. behavior “is reminding us of the historical lasting symptoms of a mentally retarded patient.”  The DPRK’s list of grievances was long. 

Although it’s tempting to dismiss Ambassador Ri’s dyspeptic remarks, he made a legitimate point when justifying his nation’s nuclear program:  “No country in the world has been living like the DPRK, under serious threats to its existence, sovereignty, survival.”  Even paranoids have enemies.

In any war the North would face South Korea, which has vastly outstripped Pyongyang, and the U.S., the globe’s superpower.  East Asia is filled with additional American allies, while the North’s Cold War partners, Moscow and Beijing, have drifted away.  Impoverished, bankrupt, and alone in a world in which Washington bombs and invades small countries at will, the DPRK would be foolish to entrust its survival to U.S. self-restraint.

Which raises the question:  just what is America doing with troops on the Korean peninsula? 

The region never was a vital interest for Washington.  At the end of World War II the U.S. and Soviet Union divided the peninsula.  The North’s invasion of the ROK in June 1950 drew America back in militarily.  Washington later initiated a “Mutual” Defense Treaty with the South and retained a sizable military garrison, since whittled down to 28,500.

However, South Korea began its economic take off in the 1960s.  Democracy came to the South in the late 1980s. About the same time Beijing was reforming and the Cold War was ending, highlighted by the collapse of the Soviet Union.

Today the ROK has 40 times the GDP, twice the population, all the new technologies, the most important allies, access to international markets, and a system legitimized by elections and popular consent.  Yet Seoul remains seemingly helpless, dependent on America.

Why should Washington defend the South 61 years after the Korean War ended?

The ROK is well able to construct whatever military forces are necessary for its own protection.  The idea that Seoul cannot match a bankrupt, starving, and isolated nation with a fraction of South Korea’s resources is nonsense.

The DPRK’s nuclear capabilities are unclear, but American conventional forces on the peninsula play no role in preventing a nuclear strike.  To the contrary, U.S. conventional deployments put Americans in harm’s way, creating nuclear hostages.

 Some Americans envision U.S. bases in South Korea as “dual use,” part of a regional network to contain Beijing.  However, with South Korean President Park Geun-hye and Chinese President Xi Jinping exchanging state visits, it would be foolish to expect the ROK to commit national suicide by joining an American war against China.

Unfortunately, the defense promise is expensive for Washington, which must not only risk war but also create a larger military to back the commitment.  Moreover, the U.S. military presence inevitably makes America the focal point of North Korea’s antagonisms.

South Korea has achieved much internationally.  But that only sets Seoul’s military dependence in starker relief.  As I point out on Forbes online:  “a serious nation in every other regard, the ROK is a defense welfare queen, abusing the generosity of the American people.”

U.S. troops should return home and Washington’s security guarantee should end.  South Korea then would be freed of its embarrassing reliance on others for its defense.

Categories: Policy Institutes

Fifth Circuit Disobeyed Supreme Court in Allowing Racial Preferences at UT-Austin

Tue, 08/05/2014 - 16:27

Ilya Shapiro

Last year, in Fisher v. University of Texas at Austin, the Supreme Court delivered a blow to the use of racial preferences in university admissions by reversing a Fifth Circuit panel opinion that had allows the use of race in UT-Austin’s admissions policy. That wasn’t the end of the story, however; after holding that the university bears the burden of proving that its use of racial preferences is necessary and narrowly tailored—a point on which university administrators are due no deference—the Court remanded the case back to the Fifth Circuit to determine whether UT had offered evidence sufficient to prove that its use of race was “narrowly tailored to achieving the educational benefits” of diversity. 

Recall that UT-Austin’s admissions program fills most of its spots through a race-neutral Top Ten Percent Plan—which offers admission to high school graduates in the top ten percent of their class—then fills the remaining seats with a “holistic” rating that takes into account various factors typical to admissions programs (including race for certain preferred minorities).

Well, on remand, the Fifth Circuit panel split 2-1 but once again sided with the university, holding that even if the Top Ten Percent Plan already provided a “critical mass” of minority students, the use of racial preferences was necessary to achieve some other special kind of diversity.  The dissenting opinion by Judge Emilio Garza points out how the majority has deferred, once again, to the university’s hand-waving claim that its use of racial preferences is narrowly tailored to an actual, appropriate interest, without having actually proven anything approaching what is constitutionally required. 

Abigail Fisher, the white former applicant suing UT-Austin, has asked the full Fifth Circuit to rehear the case. Cato has filed a brief supporting that petition. 

In our brief, we argue that the Fifth Circuit panel failed to apply actual, deference-free strict scrutiny, failed to require the university to define the “critical mass” its race-based policy is intended to achieve, and failed to require the university to explain with particularity why race-blind measures wouldn’t be able to achieve its interests.  The constitutional laziness and deference the panel majority showed is striking.  The Fifth Circuit should hear this case en banc and correct the errors made by the panel majority, which contradict circuit precedent in various ways.

Further background and Cato’s previous filings in the case are available here.

Categories: Policy Institutes

Fact-Checking the Teachers Union

Tue, 08/05/2014 - 15:20

Jason Bedrick

In a conversation about teacher tenure reform on MSNBC’s “Morning Joe” today, Randi Weingarten of the American Federation of Teachers (AFT) claimed that “most teachers right now in America have less than two years of experience.” 

Randi Weingarten on Morning Joe

Studies show that teachers are more effective after a few years of classroom experience, so this new development would be quite disturbing… if it were remotely true.

According to the most recent data from the National Center for Education Statistics, only 9% of government school teachers had less than three years of classroom experience in 2011-12. Even charitably assuming that by “most” Weingarten meant only 50.1%, there would have had to have been massive layoffs and unprecedented hiring in the last two years. Since the number of teachers has not changed significantly in that time, Weingarten’s claim assumes that about 1.4 million experienced teachers were replaced by new recruits since 2012. The latest NCES data showed only 8% of government school teachers leaving the profession after the 2008-09 school year, which is fewer than 275,000.

In other words, Weingarten would like us to believe that the number of teachers leaving the profession has increased five-fold in five years. Even half that number would have resulted in screaming headlines across the nation. It simply did not happen.

These figures are especially hard to believe when government school teacher “accountability” systems routinely rate nearly all teachers as “effective”—even when those same systems categorize schools as low-performing. Here’s an example from Michigan reported this morning, where school performance is somehow declining as teacher “effectiveness” supposedly improves:

For the last two years, every high school student in the Lansing School District received a letter from the district stating that all three high schools are on the state’s low-performing watch list.

The letters are mandated after a school is designated as one of the worst performing in the state by finishing in the bottom 5 percent academically.

Yet, according to the district, the effectiveness of its teachers is increasing significantly while it has had more schools put on the state’s low-performing watch list.

In 2009-10, the district had one school on the persistently lowest achieving list. That number increased to two in 2010-11 and then eight in 2011-12 and six in 2012-13. The 2013-14 list of low performing schools will be released later this month by the Michigan Department of Education.

In 2011-12, the Lansing School District rated all 887 of its teachers as “effective” — the second highest of four ratings available. In 2012-13, 337 teachers received “highly effective,” 456 received “effective,” 20 received “minimally effective” and 1 received “ineffective.”

In 2013-14, 363 teachers received “highly effective,” 301 received “effective,” 16 received “minimally effective” and 1 received “ineffective.”

In three years, only two out of 2,382 teacher evaluations (or 0.08%) rated teachers as “ineffective” in the failing schools. Would they have us believe that there was just an influx of rotten kids?

This problem is not only rampant across Michigan, but across the nation. Nearly all of New York’s teachers were rated “effective” while two-third of students were failing reading and math tests. In Indiana, fewer than 0.5% of teachers were rated “ineffective” last year, though 320 of 2,114 schools received a “D” or “F” grade. In 2013, only 4% of Louisiana teachers were rated “ineffective” though about 28% of schools received a “D” or “F” grade.

Government teacher evaluation systems too often fail to identify ineffective teachers and union rules often make it almost impossible to fire incompetent teachers, yet the AFT’s president would have us believe that there has been an unprecedented number of government school teachers replaced in the last two years. If you believe that, she also has a magic new diet pill to sell you.

Of course, this isn’t the first time the AFT has muddied national discourse about education policy with dubious “data.”


[Hat tip to Bob Bowden of Choice Media and Dave Dorsey of the Kansas Policy Institute.]

Categories: Policy Institutes

The Malaysian Air Shoot Down Changes Nothing: America Cannot Save Ukraine

Tue, 08/05/2014 - 11:52

Doug Bandow

The agony of the families of the 298 people who died on flight MH17 lives on.  Fighting has prevented Dutch personnel from reaching the crash site.  However, despite calls for stronger action against Russia and its separatist clients in Ukraine, the tragic shoot down changed nothing in practice. 

American intelligence reportedly concluded that Russian separatists misjudged the flight for a Ukrainian military plane, which seems most likely.  If so, then what to do?

The bodies were still warm in Ukraine when America’s hawks began stiring the war machine.  Said Sen. John McCain:  involvement of Russia or Russian separatists in the plane shoot down “would open the gates for us assisting, finally, giving the Ukrainians some defensive weapons [and] sanctions that would be imposed as a result of that.  That would be the beginning.” 

The better answer, however, remains to do largely nothing.  The MH17 incident, while outrageous, actually is no trigger for anything.  Errant attacks on civilians, while always tragic, are not unusual.

However, in none of the earlier cases did an accidental or erroneous shoot down act as a casus belli.  Not once did much of anything happen.  Even during the Cold War such incidents were resolved peacefully.  The U.S. has no more cause than before for extensive involvement in the Ukraine imbroglio. 

Of course, Moscow’s geopolitical machinations are to be deplored.  But Russia is no Soviet Union and Vladimir Putin is no Joseph Stalin.  Unlike the U.S.S.R., Russia represents no ideological or military threat to America.

In fact, Putin’s Russia appears to have reverted to a traditional great power, concerned about international respect and border security.  Its ambitions are fierce, but bounded. 

Moscow’s intervention in Ukraine, like the former’s war against Georgia, is consistent if unfortunate.   But such action isn’t likely to lead much further.  Indeed, Moscow apparently has no interest in swallowing Ukraine, with a majority of non-Russians (in contrast to Crimea), just like it did not absorb Georgia.  Aggression further west is even less likely.

President Barack Obama correctly dismissed the threat posed by Moscow:  “Russia is a regional power that is threatening some of its immediate neighbors, not out of strength but out of weakness.” 

The situation facing Ukraine is tragic, but not one of strategic significance to America.  The U.S. never viewed Kiev’s independence as important, let alone vital, when facing the Russian Empire or the Soviet Union. 

Kiev’s situation is even less so today.  As I point out in National Interest:  “Washington has no security reason to confront Russia militarily, or to risk escalation to military action, over Moscow’s treatment of Ukraine.” 

The Ukrainians deserve sympathy, of course.  Moreover, diplomatic as well as economic pressure to constrain Russian misbehavior is warranted.  However, such efforts should be have a purpose other than punishment.  It would be a mistake to rupture relations with a country that could do much to impede or advance more substantial American objectives elsewhere—Iran, Afghanistan, Iraq, Syria, North Korea, and more. 

More broadly, it is time for Europe to take over responsibility for its own defense.  Russia’s economic and military strength is dwarfed by Europe, which possesses an economy eight times the size of Russia’s and a population three times as great.  The Ukraine crisis is primarily a problem for Brussels, not Washington.

The conflict in the Ukraine is a human tragedy.  However, the U.S. has little cause for leading an international campaign against Moscow.  Instead, let Europe take the lead in putting its security and prosperity on the line.

Categories: Policy Institutes

Corporate Inversions, Tax Rates, and Tax Revenues

Tue, 08/05/2014 - 09:30

Chris Edwards

News outlets are running stories about the rise in corporate tax inversions. Inversions are financial reorganizations that place U.S. firms under foreign parent corporations. They are one of the many ways that companies are responding to America’s uniquely high corporate tax rate.

Liberal policymakers and pundits are outraged by inversions because they fear that the government will be starved of revenues. Treasury Secretary Jacob Lew has demanded new rules to stop inversions because “allowing these transactions to continue, we run the risk of eroding our corporate tax base and undoing the progress we have made to reduce our budget deficits.”

However, it is our high 40 percent tax rate that is eroding our corporate tax base. If we chopped the rate substantially, tax avoidance would fall and U.S. investment would rise. Over time, more income would be reported to the government, with the result that the government would probably not lose any money, and it could even gain some. Governments, businesses, and workers would all win from a corporate tax rate cut.

Here is some evidence that the government would win. For 19 OECD countries for which there is good data back to the 1960s, I plotted the average corporate tax rates and average corporate tax revenues. The chart illustrates the Laffer effect of cutting high statutory tax rates on a very mobile tax base.

Between the mid-1960s and mid-1980s, many countries had corporate tax rates of 40 percent or more. Governments in the 19 countries collected an average 2.5 percent of GDP from corporate taxes during those years.

Then came the Thatcher-Reagan tax-cutting revolution, and corporate tax rates began falling everywhere. Between 1985 and 2012, the average rate for the sample of 19 countries fell from 45 percent to 25 percent.

Did governments in these countries collect less revenue after that huge rate cut? The opposite occurred: corporate tax revenues soared during the 1990s and 2000s. Revenues did fall during the recent recession, but they are now starting to climb again. Even in the depths of the recession, average corporate tax revenues were still higher than they were prior to the beginning of the rate-cutting revolution in the 1980s.

For more on inversions, see my recent NYT article. For more on the mobility of corporate profits in the global economy, see Global Tax Revolution.

Data Notes:

  • OECD corporate tax revenue data is here. For three countries with missing 2012 data, I proxied the values with the 2011 figures.
  • OECD corporate tax rate data is available back to 1981. I have used the central government rates only because I have not found a good source for subnational (state/provincial) rates for years prior to the OECD data.
  • For this reason, the revenues (which include subnational governments) and the rates (which do not) are not an exact match, but that is not a big problem for the purpose of showing the rate/revenue trends over time.
  • The 19 countries included in chart calculations are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Spain, Sweden, United Kingdom, and the United States.
Categories: Policy Institutes

US-Africa Summit Will Not Solve Africa’s Problems

Mon, 08/04/2014 - 10:07

Dalibor Rohac and Marian L. Tupy

As the U.S. President Barack Obama prepares to meet 50 African leaders on Wednesday, August 6, it is worth reflecting on the factors behind the recent progress occurring in countries of Sub-Saharan Africa. As we write in our new paper,

The real gross domestic product [in Sub-Saharan Africa] rose at an average annual rate of 4.9 percent between 2000 and 2008 — twice as fast as that in the 1990s. […] As a result, between 1990 and 2010, the share of Africans living at $1.25 per day or less fell from 56 percent to 48 percent, while the continent’s population almost doubled in size. If the current trends continue, Africa’s poverty rate will fall to 24 percent by 2030.4 Since 1990 the per-capita caloric intake in Africa increased from 2,150 kcal to 2,430 kcal in 2013.5 Between 1990 and 2012, the proportion of the population of African countries with access to clean drinking water increased from 48 percent to 64 percent.

Although Sub-Saharan Africa is also becoming more democratic and better governed, a large gap between the quality of its institutions and those in the West persists. The continent remains, for example, economically unfree and heavily protectionist, not just vis-à-vis the outside world but also within the continent. For 25 African countries, the tariff costs of exporting or importing manufactured goods are higher within Africa than with the rest of world.

While international summits cannot not solve Africa’s internal problems, our paper argues that the upcoming meeting is a good opportunity for the U.S. administration to eliminate the existing trade barriers facing African exporters – regardless of whether they come in the form of explicit tariff barriers or implicit ones, such as agricultural subsidies:

[T]he elimination of the existing barriers to trade should be at the forefront of the efforts to help. Such barriers include tariffs, particularly on agricultural exports, which make it difficult for African economies to fully exploit their comparative advantage. As Brookings Institution researchers Emmanuel Asmah and Brandon Routman note, the structure of the tariff protection in the United States — but also in the European Union — is a significant part of the problem. The tariffs imposed up to a certain amount of imports may be low, yet the tariffs imposed for imports above the permitted quota might be very steep, in some cases up to 350 percent. Furthermore, agricultural subsidies in rich countries cause surplus production, which is often dumped on the world markets, depressing prices and undermining the livelihood of farmers in poor countries.

Categories: Policy Institutes

Undercurrents of Liberty in China

Mon, 08/04/2014 - 09:16

Doug Bandow

BEIJING, CHINA—Everything in China is big.  Including the battle over its future.

I recently returned from the People’s Republic of China.  It’s always a fascinating place with a future as yet unresolved. 

The country is growing economically, but no one really believes the government’s statistics.  The “one child” policy has created a birth dearth that may leave the PRC old before it grows rich. 

The PRC’s future is not yet determined.  Politics remains authoritarian, and it isn’t obvious that democracy would yield a meek Beijing. Nationalism could become an even more dangerous force without the current government’s power to close off discussion. 

Nevertheless, the young are restless.  Those I met had little patience with the Chinese Communist Party. 

Many hoped to go to America for school, for both its educational opportunities and personal freedoms.  Moreover, they weren’t afraid to speak out in front of others.

I was talking with some students about economic policy and how politics works (and fails!) in America.  One young man blurted out:  “I prefer elections, like in America for Congress.” 

No one spoke up for government control over what people could read or study.  I travel the world and normally have no trouble visiting any website, no matter how controversial, wherever I am. 

So I wasn’t thinking about the Great Firewall of China when I initially logged on after arriving.  But I couldn’t get onto Twitter—so much for tweeting about my experiences in the PRC. 

I mentioned my experience to a student heading off to the U.S. to attend university.  He snorted in disbelief:  “didn’t you know the PRC censored the internet?”  I said yes, but had forgotten.  After all, I’d been to Turkey, Egypt, Nigeria, and Kyrgyzstan, among other nations this year, and had enjoyed unimpeded access everywhere else. 

Another student offered me a program that disguised one’s browsing and allowed full access, even to nominally forbidden sites.  No passive acceptance of authority there!

I was talking with a group of Chinese university students and one of the women lamented government information controls and asked me what I thought.  While I said it wasn’t my place to tell the Chinese authorities what to do—I presumed the walls had ears and didn’t want to cause problems for those who got us together—I opined that most Americans believed openness to information and debate was the best strategy for economic, political, and social development.  I suggested that she should make her views known to her government. 

One young man asked where he could find my articles.  I gave him a couple of websites.  He then asked if he could actually view them in China and was relieved when I said yes. 

Perhaps the most dramatic moment was when a student asked me—in front of others during an economic discussion—about “the events of 1989.”  Why had the protestors gathered, he asked?  I kept my answer short and explained that they wanted political liberalization.  “Wow,” he exclaimed, and then seemed lost in thought. 

The PRC is a complicated civilization with a venerable heritage in rapid transition to somewhere, but no one is quite sure where.  China has shown how market liberalization creates growth and empowers the poor.

Alas, it is evident that market liberalization is not enough to create a free society.  But as I write in my new American Spectator article:  “the CCP seems to be losing the younger generation.  Those who make up the future of China want to decide their own futures.”

What this means for the PRC, its neighbors, and the rest of us remains to be seen.  “May you live in interesting times,” runs the famous Chinese curse.  We all are living in those times today.

Categories: Policy Institutes


Fri, 08/01/2014 - 14:35

Jim Harper

In response to my “Twitter fight!” blog post from Wednesday, Harvard Law Professor Lawrence Lessig charges me (in a post entitled “#Escapethe1990s”) with living in the campaign finance debates of the 1990s and urges me to escape them. There’s a better knock on me: I live in the 1790s, when the Bill of Rights was adopted, like some kinda freak!

Lessig really wants me to rely on modern Supreme Court precedents to argue that public funding of electioneering is unconstitutional: “And I challenge Harper to offer one bit of actual authority to counter that statement beyond his ‘this is the way I wish the Constitution were interpreted’ mode of argument,” he says, in “I-really-mean-it” bold.

I’ve had similar challenges to my starry-eyed and—I’ll confess—ideologically driven view of the Constitution. (I’m biased in favor of liberty.) For about a year, supporters of NSA spying bandied Smith v. Maryland “Supreme Court law,” saying that a person has no Fourth Amendment interest in phone calling data—until Judge Leon undercut them. Needless to say, the Court got its rationale wrong in Smith. Applying Smith to NSA spying is wrong. To the extent precedents might allow public funding of electioneering, they are wrong, too.

Professor Lessig devotes a good deal of time to the compromise he and others have made with conservative opponents since the ’90s. Perhaps because I’m not a conservative, but a libertarian, I don’t feel as though I owe it to them to come their way. To Lessig’s credit, he is not doubling-down on a bad idea, as others are, by seeking a constitutional amendment to allow government regulation of political speech. (The bill at the link was introduced Tuesday.)

What is most interesting is his utter certainty that an intricate scheme to mask government subsidy for political speech is good enough to slide over the First Amendment’s bar on “abridging the freedom of speech.” I thought I did a pretty good job on the subsidy question the first time, but I’ll do it again: Under Lessig’s plan, if you give money to a politician, you pay less in taxes. If you don’t give money to a politician, you pay more in taxes. Government tax policy would funnel money to politicians for their campaigns. That’s subsidy.

Lessig is right that his proposal doesn’t “abridg[e]” “speech.” But the First Amendment bars something more: “abridging the freedom of speech.”

As used in the phrase, “speech” is a mass, or non-count, noun. Modifying “freedom” from its prepositional perch, it makes “freedom of speech” non-count as well. “The freedom of speech” is a mass of freedoms—”this mass of freedoms right here,” the Framers said by putting a definite article (“the”) ahead of it. This should incline us to look at freedom of speech as practiced at the time of the Framing. Political campaigns were not government subsidized. (Incidentally? Sure. But Lessig says, “The whole purpose of the Post Office, originally, was to subsidize political speech.” Come now. Political speech follows commerce and communications, of course.)

Freedom of speech isn’t simply freedom to speak, which would be fulfilled when the greatest number of words were uttered. Freedom of speech gathers together the rights to speak, to record, to write, to type, to think, to sell books, to buy books, to pay for others’ speech, to operate a press or blog, to edit, to copy, to leaflet, to not leaflet, to refrain from speaking, and more. The right to refrain from speaking includes a right against being required to pay for others’ speech.

Chances are not good that Professor Lessig and I will convince one another on these issues. The effort is to entertain and persuade others, and for me to draw his audience to my side. I encourage readers—even those Lessigites whose starting point is to be really angry at me—to make their own decisions about what the Constitution and our traditions mean.

Given access to sufficient data, which many people are working on, I’m confident that the Internet—meaning all of us—can oversee the government much better than we do and produce better results. This makes transprency a more important, and speech friendly, reform than government management of political speech.

A final point, of utmost importance! (Facetiousness, ICYMI.) Professor Lessig came to Cato advocating for public funding, and splashing the phrase across Professor Richard Epstein’s face, in 2010.

Categories: Policy Institutes

Would We Start the Ex-Im Bank Today?

Fri, 08/01/2014 - 10:51

Simon Lester

One point that I think gets overlooked in the Ex-Im Bank debate is whether we would create the bank today, if it did not already exist. If there were no export credit agencies out there already, what would the discussion over whether to start one look like? I have a difficult time believing that, based on current understandings of finance markets, a proposal to start using government-run export credit banks would gain any traction today.

So what we really have is a program that was created many years ago, vested interests have emerged to fight its repeal, and the practice has spread around the world. It’s basically just status quo bias that is keeping Ex-Im around, as I argue in this HuffPo piece:

It is difficult to imagine that we would create an Ex-Im Bank today if none existed. Yet we cannot seem to get rid of it.

The Ex-Im Bank was created in 1934, at a time when finance markets were undeveloped and international trade was filled with uncertainty. This was also a time of growing economic intervention in the economy, centered around the New Deal. As the Ex-Im Bank itself explains, “The Export-Import Bank was established by President Franklin D. Roosevelt, in 1934, as a New Deal program and to support his foreign policy.”

In the ensuing decades, economic thinking has changed radically, as our understanding of markets has grown. While it is possible that financing was simply not available for certain transactions at the time of Ex-Im’s creation, it is difficult to believe this is the case today. Finance is a sophisticated field with numerous options. If financing is not available for a particular transaction, it is almost certainly because the sale is not commercially viable. As The Economist recently put it, “The scarcity of private financing for certain exports reflects genuine risks that taxpayers are forced to assume.”

Of course, this problem of overcoming the status quo occurs in other policy areas as well. No doubt this blog’s readers can think of many examples where programs exist and linger on, even though they could never generate the support to start them today.

Categories: Policy Institutes

Should the U.S. Take the Lead on Climate Change Policies?

Fri, 08/01/2014 - 09:38

Paul C. "Chip" Knappenberger and Patrick J. Michaels

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”


With its 2007 ruling in Massachusetts vs. EPA, the U.S. Supreme Court opened the door for the U.S. Environmental Protection Agency to regulate carbon dioxide emissions under the 1990 Clean Air Act Amendments. But to meet the Supremes’ criteria for regulation, EPA first had to find that the emissions of carbon dioxide and other greenhouse gases were an “endangerment” to public health and welfare. While the sitting Bush administration was reluctant to do this, President Obama’s EPA made the “preliminary” finding of endangerment a mere 94 days after his inauguration.

The “final” Endangerment Finding came on December 7, 2009, just in time to provide the United States credibility at the then-starting Copenhagen Conference, a United Nations affair at which a replacement to the failed Kyoto Protocol was to be enshrined. The meeting was the most disastrous yet for global warming hawks, but President Obama quickly declared victory and rushed off on Air Force-1, in order to beat what was to be the first of three bona fide blizzards in Washington that winter. He lost that race, too.

A torrent of regulations followed, “culminating” in EPA’s recent proposal to regulate greenhouse gas emissions from existing electric power plants. That controversial proposal, announced in early June, followed on the heels of EPA’s January proposal of regulations limiting greenhouse gas emissions from new power plants.

If adopted (and they will be), these proposed regulations will be the biggest diktats yet originating from Obama’s Climate Action Plan. Administration officials are already celebrating the salvation of mankind, even before the regulations are finalized.

The administration is holding “hearings” around the country so it can take your input to improve these already near-perfect rules. To help guide us, the White House just released a new report describing how the costs of climate change will skyrocket the longer we delay taking action to stop it.

According to EPA Administrator Gina McCarthy, the collection of administration actions on climate change is “changing the tone” in talks with foreign nations. No doubt encouraged by this “changing tone,” President Obama is scheduled to attend a UN climate “summit” in New York this September.

To what end? What benefit will “taking the lead” on climate change actually provide the United States?

It turns out to be very little. In fact, it will probably cost us.

The United States is not at great risk from climate change. The Obama administration’s Interagency Working Group tasked with establishing the social cost of carbon (SCC) determined that the SCC for the United States was only a few dollars per ton of carbon dioxide emitted—and that was calculated using overheated climate models. Taking into account new research that finds that the earth’s climate is less sensitive to greenhouse gas emissions, and the humongous body of literature demonstrating that enhanced carbon dioxide levels raise crop yields, the “social cost of carbon” in the United States becomes close to zero (or perhaps even negative, i.e., carbon emissions may actually provide a net benefit to the economy).

But that information is carefully concealed in Obama administration reports, such as the one that the Council of Economic Advisers (CEA) issued this week. Instead of focusing on the domestic cost of climate change—those affecting the United States—the reports discuss the global cost for carbon emissions (using a rather squirrely technique that is readily manipulated to provide any answer you want—so it’s ironic that EPA’s model to estimate temperature impacts is acronymed MAGICC).

It is a head scratcher as why U.S. policy to restrict carbon emissions (i.e., fossil fuel use)—which the administration’s own Federal Energy Regulatory Commission (FERC) says will result in higher energy costs to U.S. consumers—is justified by benefits that it says will largely accrue outside our borders.

The new CEA report clarifies:

Climate change is a global problem, and it will require strong international leadership to secure cooperation among both developed and developing countries to solve it. America must help forge a truly global solution to this global challenge by galvanizing international action to significantly reduce emissions.

Hence McCarthy’s enthusiasm.

If McCarthy is to be believed and administration actions have led to a change in the “tone” of communications, then it probably sounds a lot like lip service.

Two big reasons for this stand out:

The first is that, in the developed world, putting in mandatory emissions caps and carbon taxes are good ways to lose your next election.

Analyses show that Congress’s 2009 vote for cap-and-trade cost the Democrats control of the House of Representatives in the succeeding 2010 election. Less than two months after it passed, the Liberal Party in Australia voted out its leader, Malcolm Turnbull, for his support of a similar scheme. The next year, Australian Labour Party Prime Minister Kevin Rudd resigned his portfolio over the scheme. Then, exactly four years after our House passed cap-and trade, Rudd’s successor, Julia Gillard, was voted out over her carbon tax. (The Australian Parliament repealed the tax on July 17 of this year.)

The second reason is that current-generation renewable energy technologies are simply incapable of meeting the enormous energy needs of developing countries like China and India. If “climate change” ranks low among priorities in the United States, imagine how popular carbon reduction policies will be in countries with large populations with little to no access to electricity at all.

So, even if there is sincerity behind the changed “tone” in international discourse, any resulting agreements to mitigate climate will undoubtedly be unsuccessful, both politically and technologically.

That leaves us “leading” on an issue that science says is overblown, and one that the big, developing nations surely will not adopt (or, at least, achieve).

To this, we say “no thanks.”

Categories: Policy Institutes

Most U.S. Manufacturers Victimized by Ex-Im's Hidden Costs

Thu, 07/31/2014 - 17:14

Daniel J. Ikenson

In an earlier post today, I described a reasonable methodology for estimating the hidden costs imposed on companies whose suppliers receive export subsidies from the Export-Import Bank. Ex-Im officials like to talk about how they “grow the economy” and create jobs by enticing foreign customers with low-rate financing to buy U.S. exports. As I described in that earlier post, when the cost to business of exporting is mitigated by subsidies, companies will likely export more. That may be good for them, but it’s not so good for their U.S. customers, whose foreign competition is now enjoying lower costs (courtesy of U.S. taxpayers). Delta Airlines’ complaint about subsidized Boeing sales to Air India having an adverse impact on Delta, who competes for passengers with Air India, is a fairly clear example of the problem.

As an approximation of the cost imposed on Downstream Industy A, (let’s call it the Delta Effect), I used the subsidies received by every industry whose output is used in Downstream Industy A’s production process, adjusted those subsidies by the importance of the input relative to the total of all intermediate goods inputs, and summed up the values.  I did this for every 6-digit NAICS manfuacturing code and presented tables of results in descending order from biggest victim to biggest beneficiary.  There were 236 industries – perhaps too much information, particularly for a blog post.

So for greater clarity, this table compiles the data at the broader, 3-digit NAIC industry level.  

As you can see, most aggregated 3-digit industries are victims of Ex-Im subsidies.  And most of the 6-digit industries within each broader 3-digit industry are victims, too. U.S. manufacturers of electrical equipment, appliances, furniture, food products, non-metallic metals, chemicals, computers, plastics, rubber, paper, primary metals, and many other goods should give Delta a call and get really busy during Congress’s August recess.

Categories: Policy Institutes

Florida Parents Fight for Educational Choice

Thu, 07/31/2014 - 13:17

Jason Bedrick

On what would have been the 102nd birthday of Milton Friedman—the godfather of educational choice—six families with children that have special needs are fighting back against Florida’s largest teachers union, which is seeking to kill the Sunshine State’s newest educational choice program.

The Florida Education Association is suing the state of Florida to eliminate the new Personal Learning Scholarship Account (PLSA) program, among other recent education reforms, including an expansion of the state’s scholarship tax credit law. Modeled after Arizona’s popular education savings account (ESA), the PLSA would provide ESAs to families of students with special needs, which they could use to pay for a wide variety of educational expenses, such as tuition, tutoring, textbooks, online learning, and educational therapy. Six families with special-needs children who would have qualified for the program are seeking to intervene as defendants in the lawsuit, represented by the Goldwater Institute’s Clint Bolick.

The union’s lawsuit argues that the legislation creating the PLSA, Florida’s Senate Bill 850, violated the state constitution’s “one subject rule” because it contained a variety of education reforms.

“FEA felt that somebody needed to say, ‘Wait a minute. You can’t do it this way. There’s a constitutional requirement that legislation be of a single subject and matters related to this subject,’” [FEA attorney Ron] Meyer said. “This is so far over the line, somebody needs to say, ‘You can’t do that.’ Otherwise this is going to become the norm.”

The question the court must decide is procedural: how closely must a bill’s provisions be related to avoid running afoul of the constitution’s “one subject” rule? The legislature held that a topic as broad as “education” sufficed. If the court disagrees, it could affect legislation far beyond the bill in question. The plaintiffs’ complaint notes that the challenged bill’s title extends over several pages, but it’s not unique in that regard. Several other recently-enacted bills also have lengthy titles, including Senate Bill 856 on “ethics” (four pages), Senate Bill 1012 on “financial services” (six pages), Senate Bill 1194 on “citizen support and direct-support organizations” (four pages), and Senate Bill 1238 on “family trust companies” (five pages).

The union’s lawyer referred to the PLSA as “a collateral casualty” of its lawsuit, as the union was most concerned with the expansion of the scholarship tax credit program that the union believes has “lost its focus” because it supposedly “was not intended to become a major enterprise.” In a press release from the Goldwater Institute, parents of special needs students took umbrage:

“All I can say is wow, I don’t feel like collateral damage, I don’t feel like my son is collateral damage,” said Ashli McCall, a certified teacher in Florida who’s son Emmil is autistic. “I feel like we’re people. And we’re precious and we matter. Is that wrong? That’s really hurtful and really infuriating…If we’re not convenient to their cause then we just don’t matter. We matter.” […]

“These children deserve high-quality educational opportunities that are customized to suit their unique needs, and we will stand up with their families and defend these scholarships from the very people who have failed these students in the public schools,” said Goldwater’s Vice President for Litigation Clint Bolick. “We will not allow these children to simply be left behind as the ‘collateral casualties’ in the aftermath of ends-justifies-the-means legal action.”

Categories: Policy Institutes

Suing the President: Maybe Legal, Likely Unwise

Thu, 07/31/2014 - 10:20

Roger Pilon

“So sue me,” said the president. Late yesterday, in a mostly party-line vote, the House authorized Speaker Boehner to do just that—to call President Obama over his repeated acts of constitutional dereliction. This is a close call, legally. But as I argued recently, I believe it would be unwise for Boehner to actually bring such a suit, much less to initiate impeachment proceedings, as some Republicans are urging him to do. With mid-term elections less than 100 days ahead, the nation’s attention should be focused on Obama’s sorry record, not on the legal merits of a partisan suit, as inevitably would happen given the legal problems surrounding such a suit.

Those problems are not insignificant. Under the Constitution’s Case or Controversy Clause, a plaintiff must have “standing” to bring a suit. In this case, the House must show some injury in fact that is fairly traceable to the president’s conduct and is redressable by the court. The theory the House is relying on here is novel: the idea is that Congress as an institution is injured when the president refuses to perform his constitutional duty to execute the law, as when he postponed Obamacare’s employer mandate, thus nullifying Congress’s act and leaving it no remedy—it’s power to withhold funds from the executive branch in this regard would have no effect on his failure to act, as it would had he acted contrary to the law.

That may get Congress over the standing hurdle. But again, if it doesn’t, and even if it does, attention will still be focused on the suit, not on Obama’s record. As for impeachment, that would be an even greater distraction, as we saw in the case of President Clinton, and would be a fool’s errand as well, given the Democratic Senate. Frustration over this lawless president is palpable, as the polls show. But at the end of the day, the remedy is likely to be political, not legal. Put plainly, there is a constitutional remedy for these constitutional wrongs: it’s in the voting booth.

Categories: Policy Institutes

House Lawsuit against Obama Has Legal Merit

Thu, 07/31/2014 - 10:08

Ilya Shapiro

When the president violates the Constitution, there has to be a remedy short of impeachment, which is a blunt political tool that does nothing to reverse the illegal actions at issue. Speaker Boehner’s proposed lawsuit seems measured to challenge what is perhaps President Obama’s most egregious extra-constitutional action, rewriting the Affordable Care Act to suit his political needs. 

When Congress passes a law, it is the president’s duty to enforce it. The president has discretion in how to enforce it, to be sure, but he can’t suspend, waive, ignore, or change it. The House of Representatives is thus well-placed to sue over the institutional injury that the executive branch has foisted on the legislative branch. 

For more, see this week’s op-eds by David Rivkin and Elizabeth Price Foley in the Wall Street Journal and Washington Post.

Categories: Policy Institutes

The Export-Import Bank and Its Victims: Which Industries Bear the Brunt

Thu, 07/31/2014 - 09:54

Daniel J. Ikenson

The Export-Import Bank of the United States is a government-run export credit agency, which provides access to favorable financing for the foreign customers of some U.S. companies.  For several months, Washington has been embroiled in a debate over whether to reauthorize the Bank’s charter, which will otherwise expire on September 30.  While Republican House leadership remains publicly committed to shutting down the Bank, a bipartisan group of eight senators introduced reauthorization legislation last night, setting the stage for a post-August recess showdown.

Reauthorization buffs contend that Ex-Im fills a void left by private sector lenders unwilling to provide financing for certain transactions and, by doing so, contributes importantly to U.S. export and job growth.  Rather than burdening taxpayers, the Bank generates profits for the U.S. Treasury, helps small businesses succeed abroad, encourages exports of green goods, contributes to development in sub-Saharan Africa, and helps “level the playing field” for U.S. companies competing in export markets with foreign companies benefitting from their own governments’ generous export financing programs.  Accordingly, failure to reauthorize the Bank’s charter would be akin to unilateral disarmament.

But those justifications – two rationalizations, really, and a few token appeals to liberal sensibilities intended to create the illusion of a bipartisan imperative for reauthorization – are unpersuasive or non-responsive to Ex-Im’s critics.  By effectively superseding the risk-based decision-making processes of legions of private-sector, profit-maximizing financial firms with the choices of a handful of bureaucrats using non-market benchmarks and pursuing often opaque, political objectives, Ex-Im risks taxpayer dollars.  That Ex-Im is currently self-sustaining and generating revenues is entirely beside the point and is no more reassuring than a drunk driver rationalizing that he made it home safely last night so there’s no danger in drunk driving tonight.

The truth is that Ex-Im’s revenue stream is a function of fluid global circumstances and given its inadequately diversified portfolio (heavily concentrated in aircraft loans), the Bank is exposed to a decline in demand for air travel, which could prompt a slew of defaults on aircraft loans.  Recall that Fannie Mae and Freddie Mac also showed book profits for years until the housing market suddenly crashed and taxpayers were left holding the bag.

The second pillar of reauthroization rationalization – that Beijing, Brasilia, and Brussels subsidize their exporters so Washington must, too – sweeps under the rug the fact that there are dozens of criteria that feed into the ultimate purchasing decision, including product quality, price, producer’s reputation, local investment and employment opportunities created by the sale, warranties, after-market servicing, and the extent to which the transaction contributes toward building a long-term relationship between buyer and seller.  To say that U.S. exporters need assistance with financing to “level the playing field” suggests that U.S. exporters do not already have inherent advantages among the multitude of factors that inform the purchasing decision.  Moreover, by “leveling the playing field” – to continue with that euphemism – Ex-Im “unlevels” the playing field for many more U.S. companies competing at home and abroad. This adverse effect has been ignored, downplayed, or mischaracterized, but the collateral damage is substantial and should be a central part of the story.

When U.S. taxpayers provide foreign firms with low-rate financing to purchase U.S. exports, we are subsidizing the foreign competitors of downstream U.S. companies.  While Ex-Im helps some U.S. companies by reducing their costs of doing business, it hurts other U.S. companies by increasing their costs relative to their lucky foreign competitors’ costs. On that point, Delta Airlines has been vocal in its objection to Ex-Im-facilitated sales of Boeing jetliners to foreign carriers, such as Air India.  Delta rightly complains that the U.S. government, as a matter of policy, is subsidizing its foreign competition by reducing Air India’s cost of capital.  Money is fungible and that cost reduction enables Air India to offer lower prices in its bid to compete for passengers, which has a direct impact on Delta’s bottom line.  This is a legitimate concern and it is not limited to this example.

Consider the generic case.  A U.S. supplier sells to both U.S. and foreign customers.  Those customers compete in the same downstream industry in U.S. and foreign markets. The U.S. supplier is thrilled that Ex-Im is providing his foreign customer with cheap credit to make the purchase – so thrilled, in fact, that he might even extrapolate from his experience in a testimonial about how essential the Ex-Im Bank is to the U.S. economy.  Meanwhile, the foreign customer is happy to accept the advantageous financing terms for a variety of reasons, among which is the fact that his capital costs are now lower relative to what they would have been and relative to the costs of his U.S. competitors (aka the U.S. customers of the same U.S. supplier). Moreover, by subsidizing export sales, Ex-Im is diverting domestic supply and making U.S. customers less important to their U.S. suppliers. Especially in industries where there are few producers, numerous customers, and limited substitute products, Ex-Im changes the relationships between U.S. buyers and U.S. sellers by providing the latter with greater market power and leverage.  Ex-Im helps some companies (in the short run), but hurts others – very many others.

Delta was able to make the connection.  Others have connected the dots.  But most of the time, the downstream U.S. companies are unwitting victims of this cost-shifting.  These costly externalities are endemic features of Ex-Im’s model. 

Based on a review of Ex-Im Bank transaction data for the period 2007 through 2013:

  • Ex-Im authorized $167.8 billion in transactions over the 7-year period;
  • Manufactured exports accounted for $107.1 billion of those subsidies;
  • Aircraft and aircraft parts accounted for $57 billion of the manufacturing total;
  • Producers in all 21 broad manufacturing industries (3-digit NAICS) received subsidies;
  • Producers in 225 of 237 manufacturing sub-industries (6-digit NAICS) received subsidies.

Although subsidies like these have been shown to weaken firms over time by reducing their incentives to be efficient and competitive, assume for now that the subsidy amounts authorized are approximations of the “benefits” of Ex-Im.  In other words, start with the assumptions made by Ex-Im supporters. Over seven years, the U.S. manufacturing sector received $107 billion of benefits from Ex-Im in the form of export subsidies.  While most of the largesse went to aircraft and aircraft parts manufacturers (Boeing), subsidies were provided across the spectrum of industries. About $50 billion in authorizations was spread over exports of products in all 21 broad U.S. manufacturing industries – as defined by the 3-digit North American Industry Classification System – from food, textiles, and wood products to machinery, computers, and transportation equipment.

At the 6-digit level of specificity, manufacturers in 225 of 236 industries benefitted from that $50 billion in non-aircraft manufacturing authorizations.  Plotting the subsidies received by firms in each of the 236 industries on a horizontal axis, the range spans from $0 (for 11 industries receiving no benefits) to $5,213,669,271 (for “turbine and turbine generator set units”). The median value of benefits for the 236 industries was $39,926,778 and the mean (skewed far to the right by billion dollar-plus subsidies to 11 industries) was $213,853,857.

Now consider the costs.

While stimulating export growth has long been a fetish of policymakers, the consequences for downstream industries (industries that rely on other industries’ output as production inputs) in terms of domestic supply and price can be adverse.  If you receive an export subsidy, you benefit by exporting. If your supplier receives an export subsidy, he benefits by exporting, but you likely incur a cost. If that supplier accounts for 90 percent of your inputs, the cost to you is likely more significant than if he accounts for only 10 percent of your inputs.

With those basics in mind, the costs of Ex-Im’s subsidies can be estimated from input-output tables and Ex-Im authorization data.  On its website, the Bureau of Economic Analysis maintains a set of input-output tables, which map the relationships between U.S. industries throughout the economy. Among the information that can be discerned from those tables is the disposition of output from any and all industries and the input use requirements of any and all industries.

One quick takeaway from the BEA 2007 I-O Use Table is that fully two-thirds of the value of output of U.S. manufacturing industries is incorporated as intermediate inputs in the production of other industries. With that picture of industrial interdependence in mind, it is easier to see how artificial incentives aimed at changing the behavior of particular industries can have ripple effects throughout the economy.

The benefit of Ex-Im to Industry A was calculated simply as the aggregate of Ex-Im authorizations for Industry A.  The cost of Ex-Im to Industry A is approximated to be the aggregated benefits accruing to Industry A’s upstream industries, weighted by the relative importance of each upstream industry to Industry A’s output.  Deriving the cost required the following steps:

  1. Industry A’s upstream industries were identified.
  2. Ex-Im authorizations were aggregated for each of those upstream industries.
  3. Each industry’s aggregate was weighted by the ratio of its use by Industry A over Industry A’s use of all intermediate inputs.
  4. All of Industry A’s upstream, adjusted benefits were aggregated to represent the costs of Ex-Im to Industry A.
  5. The costs for all other industries (Industry B, C, D, etc.) were calculated the same way.

Those adjusted, aggregated costs ranged from $8,024,418 for “Primary smelting and refining of copper” (331411) to $2,557,512,806 for “Broadcast and wireless communications equipment” manufacturing (334220) with a median value of $132,164,800.  Plotting these costs on the vertical axis and combining with the benefits on the horizontal axis, the following scatterplot tells the first part of the story.

First note that the axes are in logarithmic scales because otherwise the wide range of values for both metrics would have obscured the details.  That means that the distance between each point on each axis is larger than it appears as you move away from the origin horizontally or vertically.  Values on the X-axis represent benefits (dollar authorizations from Ex-Im) to each industry and values of the Y-axis represent costs (adjusted, aggregated benefits to each industry’s upstream supplier industries). The quadrants are formed by the intersection of the lines drawn at the median values of each metric.

With all that in mind, the 36 industries represented by dots in the bottom right quadrant are those industries that received above-median benefits and incurred below-median costs.  One might expect to find the “winners” of Ex-Im’s policies concentrated in this most desirable quadrant.  The 82 industries in the top right quadrant are those that received above-median benefits and incurred above-median costs. The 82 industries in the bottom left received below-median benefits and incurred below-median costs.  And the 36 industries in the top left received below-median benefits and incurred above-median costs, which by most definitions would constitute the “victims” of Ex-Im’s policies.

Indeed, each of the 36 industries in the top left quadrant is an Ex-Im victim because its “net benefit” (Benefit minus Cost) is negative. But the other quadrants are also heavily populated by industries with negative “net benefit.”  Twenty-four of 36 industries in the bottom right quadrant incurred costs in excess of benefits; 48 of 82 in the top right quadrant had negative net benefits; and 81 of 82 in the bottom left quadrant had larger costs than benefits.  All told, 189 of 236 U.S manufacturing industries can be characterized as Ex-Im’s victims, when a reasonable method to account for the unseen, unspoken costs of Ex-Im subsidies are taken into account.

Following is a table presented in ascending order of “net benefit,” which means that the biggest industrial victims appear at the top (click the table segments for larger, more readable versions).

It turns out that for nearly every Ex-Im financing authorization that might advance the fortunes of a single U.S. company, there is at least one U.S. industry – and often dozens or scores of industries – whose firms are put at a competitive disadvantage because supply is being diverted, market power is being shifted, and the cost of capital is being lowered for their foreign competition.

Among the biggest victims of Ex-Im’s policies are U.S. manufacturers of dog and cat food; coffee and tea; leather and allied products; synthetic dyes and pigments; synthetic rubber; paints and coatings; pesticides and other agricultural chemicals; plastic bottles; polystyrene foam products; ferrous metals; heavy gauge metal tanks; cutlery and hand tools; ball and roller bearings; fabricated pipes and pipe fittings; plastics and rubber industry machinery; photographic and photocopying equipment; heating equipment; mechanical power transmission equipment; office machinery; telephone apparatus; other communications equipment; printed circuit assemblies; computer storage devices;  batteries; carbon and graphite products; household refrigerators and home freezers; other major household appliances; motor homes; motor vehicle metal stampings; motor vehicle electrical and electronic equipment; motor vehicle bodies; motor vehicle steering, suspension component, and brake systems; motor vehicle gasoline engine and engine parts; wood kitchen cabinets and countertops; office furniture; institutional furniture; ophthalmic goods; dolls, toys, and games; office supplies; and, surgical appliance and supplies.

That list of manufacturing industries (defined at the NAICS 6-digit level of specificity) includes only 40 of the 189 manufacturing industry victims of Ex-Im identified according to the methodology described below.  Only 48 industries (out of a total of 237) do not qualify as victims.

There are hundreds and probably thousands of U.S. companies scattered over 189 industries that produce in the United States, employ American workers, pay federal, state, and local taxes, and contribute to the social fabric of the communities in which they operate, but are competitively disadvantaged by Ex-Im’s provision of low-rate financing to their foreign competitors. These are the unseen consequences – the collateral damage – of Ex-Im’s mission.

Categories: Policy Institutes

House Border Bill Would Treat Children Worse than Adults

Wed, 07/30/2014 - 17:34

Alex Nowrasteh

After much debate, the House finally rolled out its version of a supplemental appropriations bill to deal with the surge of unaccompanied children (UAC) entering the United States.  The bill would treat Mexican and Central American UAC equally under the law - meaning they all would have fewer due process protections than many adults.  

1.       Interviews: The bill would treat Central Americans the same as how Mexican children are already treated. But Mexican children are subject to fewer due process protections than adults in two ways. First, apprehended adults are interviewed by asylum officers who are trained in country-conditions and asylum law.  Under current law, Mexican children are interviewed by Border Patrol agents who are untrained in this area.  In one case, a United Nations report found that a Border Patrol agent believed that a child who had expressed a fear of being trafficked had to be returned “because the paperwork was already filled out.”  Children are also expected to describe their fears of persecution and descriptions of traumatic and violent experiences to a gun-carrying law enforcement agent, which in many cases is an unreasonable request. In fact, a 2011 study by the Appleseed Foundation concluded that “no meaningful screening is being conducted” by Border Patrol.

2.       Appeals: Second, under current law, adult asylum seekers can appeal a determination by an asylum officer that they lack a “credible” asylum claim to an immigration judge (IJ).  The IJ can reverse the decision.  Mexican children cannot appeal the decision of a border agent – they are simply summarily removed from the United States.  This bill would treat Central American children in the same way, denying them an appeal.  The importance of these provisions was recently highlighted by the case of a Honduran girl who was accidentally deported to Mexico.  The United Nations found that border agents are requiring children to “prove they are being persecuted or trafficked” on the spot despite the fact that they are supposed to simply screen out those without any claim at all.  IJs mitigate that problem. 

3.       Expedited Hearings: The bill would require a hearing on the case within seven days.  There is virtually no way to conduct an asylum hearing within seven days.  The applicant must find an attorney, compile the evidence, locate witnesses, and fulfill other requirements.   “Accelerated and truncated hearings force children to navigate the hurdles and the complexities of our immigration system in an unreasonably short timeframe,” concludes the American Immigration Lawyers Association. “Children cannot be expected to present a claim in mere days.”  A mere declaration that a hearing must be held in seven days will not make it so.

4.       Determinations: After this hearing, the IJ would have to determine within three days whether it is “likely” that the child will be granted admission to the United States.  There’s just one problem: most benefits under immigration law are not adjudicated by IJs, but by officers at U.S. Citizenship and Immigration Services (USCIS).  Currently, if an adult claims eligibility for a visa during a removal proceeding, the IJ determines if they have shown prima facie eligibility and will be given a stay of removal to allow for them to apply to USCIS.  This bill requires the IJ to make a determination that they are simply incapable of making.

Strangely, the bill includes procedures for screening by an asylum officer after the IJ concludes that the child is unlikely to be admitted.   If the asylum officer concludes that the child lacks a credible asylum claim, he or she can appeal to an IJ (possibly the same IJ that rejected them, which is confusing).  But these additional processes only occur after the limited process described above.

The problems this bill is attempting to fix could be rectified in other ways.  No matter what one thinks of the bill’s intent, it could be maintained without giving children fewer due process protections than adults.  The asylum system needs reform but it should not disregard the important processes intended to protect migrants from being returned to violent conditions that could threaten their lives.  

Categories: Policy Institutes

Ukraine Crisis Reminds Americans Why NATO Should Not Expand

Wed, 07/30/2014 - 14:24

Doug Bandow

The bitter conflict in Ukraine drags on.  Russia continues to destabilize Kiev and NATO remains divided on how to respond.

Washington has taken the lead against Moscow even though America has little at stake in Russia’s misbehavior.  In fact, the crisis has generated a spate of U.S. proposals to take military action and expand NATO.

For instance, Sen. John McCain urged adding Ukraine to the “transatlantic” alliance.  Former UN ambassador John Bolton suggested including Georgia and Ukraine.  Other proposed candidates for the alliance include Armenia, Bosnia-Herzegovina, Finland, Kosovo, Macedonia, Moldova, Montenegro, and Sweden. 

Efforts to expand NATO are strikingly misguided.  The end of the Cold War eliminated the reason for creating the alliance. 

However, alliance advocates acted like nothing had changed and proposed new justifications for the old organization.  Member governments eventually turned NATO into a mechanism to integrate Central and Eastern European states.   

NATO has turned into a dole for indolent rich countries.  After Moscow’s collapse the Europeans steadily reduced their military outlays. 

Now the Ukraine crisis has reminded everyone that the alliance might be called upon to confront nuclear-armed Russia.  Several of the newest members are screaming for America to “reassure” them by establishing bases and deploying troops.

This ludicrous situation demonstrates the folly of NATO expansion.  The U.S. should not compound its earlier mistake by bringing in additional members with even less strategic value. 

The list of potential members suggests strategic madness in Washington.  For instance, tiny Balkan states Bosnia-Herzegovina, Macedonia, and Montenegro never have mattered for U.S. security. 

Kosovo is the product of NATO’s first aggressive war, the 1989 campaign to dismember Serbia, which had threatened no member of the alliance.  Finland and Sweden followed independent, neutralist policies during the Cold War and face no significant threats today. 

It’s impossible to concoct even a vaguely plausible argument that Armenia, locked in a bitter territorial dispute with neighboring Azerbaijan, has the slightest relevance to the security of America.  Why should Washington protect any of them?

Then there are Moldova, Georgia, and Ukraine.  As I point out in my latest Forbes online column, “attempting to defend them would dramatically degrade U.S. defense since all three have territorial disputes with nuclear-armed Russia that have triggered or could trigger war.” 

Moldova is a small nation nestled between Romania and Ukraine.  A piece of Moldova, Transnistria, broke away with Moscow’s support.  Chisinau’s difficult circumstances do not warrant American military involvement. 

Georgia long has wanted to join NATO.  In fact, Tbilisi sacrificed its soldiers in America’s Afghan and Iraqi misadventures hoping that providing cannon fodder for Washington would convince U.S. politicians to back Georgia in any war against Russia.

Tbilisi recklessly provoked Moscow to arms and attempted to drag Washington into war back in 2008.  Whatever America’s modest interests in the region do not warrant confronting Russia on its border, a region treated as a vital interest by Moscow. 

The only less appropriate NATO member would be Ukraine.  While Ukraine’s status is largely of theoretical interest to America, Russia views its connection to the former Soviet republic to be of critical security importance.  After preserving the peace with the Soviet Union throughout the entire Cold War, Washington should not risk conflict with Russia today over far lesser stakes.

Washington should turn Europe’s security back to Europe.  There’s no reason for Americans to threaten war over such tiny irrelevancies as Montenegro and Kosovo, distant obscurities as Armenia, and conflict magnets as Georgia and Ukraine.

The ongoing strife in Ukraine is a crime by Moscow and tragedy for Kiev.  It’s also a warning for America.  NATO is a military alliance, not a social club. 

Expanding NATO would make the U.S. less safe.  Instead, America should be shrinking its alliance commitments.

Categories: Policy Institutes