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New Farm Bill Much Larger Than Last One

Mon, 01/27/2014 - 12:11

Chris Edwards

Congress is gearing up to pass the first big farm bill since 2008. The logrolling between farm interests is nearing completion, the Republicans have given up on making substantial food stamp cuts, and the Treasury stands ready to borrow another $1 trillion. We are all set to go.

It looks like the final farm bill will be expected to cost about $950 billion over 10 years. CRS has details on bill versions from the Fall, but I adjusted those numbers based on the reported GOP cave-in on food stamps.

If the final number is $950 billion, the 2014 farm bill will cost 48 percent more than the $640 billion farm bill passed in 2008. Farm bill supporters claim that the new bill includes “savings” and “cuts,” but that is a myth created by the rising CBO baseline. The reality is that Congress is set to impose a huge, damaging, and unaffordable burden on taxpayers and the economy.

Categories: Policy Institutes

Live Blog of the 2014 State of the Union

Mon, 01/27/2014 - 12:03

Cato Editors

Tomorrow night, President Obama will lay out his plans for the upcoming year in his fifth annual State of the Union (SOTU) address. And, after a year dominated by budget battles, the NSA spying scandal, and the meltdown of Obamacare, the libertarian message is more relevant than ever.

Please join us at 9:00pm Eastern on Tuesday, January 28, 2014 for live commentary during President Obama’s State of the Union address and the Republican response. Cato scholars will live-blog their reactions to what the president says—and what he leaves out.

You may also follow the conversation on Twitter – and add your two cents – using #CatoSOTU. Follow @CatoInstitute for updates.

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Categories: Policy Institutes

Another Cost Overrun on Government Infrastructure

Mon, 01/27/2014 - 09:12

Chris Edwards

From the Wall Street Journal, here’s the latest evidence on quality and efficiency in government infrastructure spending:

New questions were raised about the construction quality of one of the nation’s most vital commuter links when engineers who worked on a Bay-area bridge that replaced one damaged in a 1989 earthquake said Friday that bridge officials routinely brushed aside their concerns.

The engineers’ testimony came at a hearing in Sacramento, where lawmakers also grilled bridge officials about the $6.4 billion eastern span of the San Francisco-Oakland Bay Bridge, which ran into long delays and cost overruns before opening last fall.

The project was beset by political wrangling, delays, construction issues, and cost overruns. The original estimate for the bridge was $1.4 billion, according to the report.

James Merrill, an engineer hired for quality assurance, testified that his firm raised concerns about cracked welds on steel deck pieces being built in China. But he said bridge officials discounted the reports and instructed him “multiple times” that “you’re not to put it in writing.” Mr. Merrill said the request was made so that the concerns would not become public.

See here for more on infrastructure investment. And see here for more on government cost overruns.

Categories: Policy Institutes

Tax Reform: The First Step Is Simple

Mon, 01/27/2014 - 09:10

Chris Edwards

New leadership is coming to the congressional tax-writing committees. Ron Wyden will be taking the helm of Senate Finance and Paul Ryan will be likely taking the helm of Ways and Means. This is good news, as both gentlemen are serious legislators and very interested in major tax reform.

One thing they should tackle is the personal income tax, which is a complex and high-rate mess. It should be restructured into a simple flat tax.

However, the most urgent needed reform is to slash the corporate income tax rate. Policymakers should put aside changes to deductions, credits, and loopholes for now. Those tax base issues are a diversion and policy quagmire, as the R&D credit illustrates. It is far more important to just cut the statutory corporate rate, which would automatically reduce the effects of tax-base distortions and make it politically easier to reform the tax base later on.

Our current high-rate policy is harming the U.S. economy, reducing job growth, and stifling wages—for no good reason. Abolition is a good long-term goal for corporate income tax reform, but we can start with at least chopping our federal-state rate of 40 percent down to the global average of 24 percent.

The charts show KPMG data for top statutory corporate income tax rates in 2013. KPMG shows UAE with the highest rate in the world at 55 percent. However, that rate just applies to foreign banks and foreign oil companies. So I don’t show UAE since the reported rate is not the general corporate rate.

That leaves the United States with the highest general corporate tax rate in the world, and that makes no sense in today’s competitive global economy.

Categories: Policy Institutes

The Drug War vs. the Constitution: 1928 Edition

Fri, 01/24/2014 - 18:21

Walter Olson

Prof. Gerard Magliocca of Indiana University has been doing historical work on the Supreme Court’s “Four Horsemen”—the Justices who dug in to resist FDR’s constitutional revolution in the 1930s—and is coming up with many noteworthy tidbits. Among them is a dissenting opinion by arch-conservative James McReynolds in a 1928 case called Casey v. U.S. At issue was a man’s conviction under a federal statute providing that if an individual was found to possess morphine derivatives without official stamps, it would be prima facie evidence of having obtained them from unlawful sources. Five Justices, led by Holmes, upheld Casey’s conviction, while four (McReynolds, Brandeis, Butler, and Sanford) dissented on various grounds. Here’s McReynolds:

The suggested rational connection between the fact proved and the ultimate fact presumed is imaginary.

Once the thumbscrew and the following confession made conviction easy; but that method was crude and, I suppose, now would be declared unlawful upon some ground. Hereafter, the presumption is to lighten the burden of the prosecutor. The victim will be spared the trouble of confessing and will go to his cell without mutilation or disquieting outcry.

Probably most of those accelerated to prison under the present act will be unfortunate addicts and their abettors; but even they live under the Constitution. And where will the next step take us?

When the Harrison Anti-Narcotic Law became effective, probably some drug containing opium could have been found in a million or more households within the Union. Paregoric, laudanum, Dover’s Powders, were common remedies. Did every man and woman who possessed one of these instantly become a presumptive criminal and liable to imprisonment unless he could explain to the satisfaction of a jury when and where he got the stuff? Certainly, I cannot assent to any such notion, and it seems worthwhile to say so.

Ironic, or maybe not so, that cane-waving mossbacks like McReynolds often showed a stronger commitment to principles of civil liberty than much-hailed progressives like Holmes. 

Categories: Policy Institutes

Nightmare on K Street: Lobbying Revenue Drops a Bit

Fri, 01/24/2014 - 15:25

David Boaz

The Hill, a newspaper covering Capitol Hill, published this scary headline this week:

What’s the nightmare? Lobbying revenues are down! How much? Well, The Hill doesn’t say. But the Washington Post reports:

The District’s 10 largest lobbying firms reported a collective 1 percent drop in lobbying revenue in 2013 compared with 2012, slipping to $226.3 million from $228.9 million.

Oh, the horror.

To be sure, the Post also notes that the revenue of the top 10 firms dropped 10 percent last year. So that’s a real cut. Still, these drops come after total lobbying expenditures doubled in a decade, peaking in those heady days of 2009 and 2010 when federal dollars were being handed out with wild abandon.

Why the slowdown since then? The Hill’s Kevin Bogardus and Megan Wilson note that “most lobby shops couldn’t escape the downward pull of a historically unproductive Congress.” Ah yes, that “least productive Congress” we keep hearing about. Well, this is what you get from an unproductive Congress: a tiny drop in expenditures on lobbying. Keep on being unproductive—of laws, regulations, taxes, grants, subsidies, loans, and bailouts—and maybe lobbying will keep on declining.

Of course, the lobbyists won’t take this lying down. Inside the same issue of The Hill, Wilson reports:

K Street lobbyists are racking up frequent flyer miles with regular trips to Silicon Valley in search of clients.

They are trading power suits for California casual to cash in on the explosive growth of technology lobbying, which has more than doubled over the past decade and shows no signs of slowing down.

Can’t keep a lobbyist down for long. As I’ve written before, Washington keeps telling tech executives, “Nice little company ya got there. Shame if anything happened to it.”

The most important factor in America’s economic future—in raising everyone’s standard of living—is not land, or money, or computers; it’s human talent. And every time some part of the human talent at another of America’s most dynamic companies is diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own, it slows our economy down a bit. The parasite economy sucks in another productive enterprise, and we’ll all be poorer for it.

Meanwhile, a real “Nightmare on K Street” would be a blessing for the rest of us. 

Categories: Policy Institutes

Food Stamp Growth Continues, Despite Economic Recovery

Fri, 01/24/2014 - 14:14

Michael D. Tanner

As food stamp utilization escalated over the last several years, the program’s advocates assured us that there was nothing to worry about. Yes, more people than ever before were on food stamps, but that was just because of the recession. Once the recovery began and the unemployment rate declined, fewer people would need food stamps.

Yet, newly released data from the U.S. Department of Agriculture now tells us that in 2013, years after the recession officially ended, 20 percent of U.S. households were on food stamps, an all-time high. According to the USDA, 23.05 million households received food stamps in FY2013. While no doubt some increase in food stamps was a countercyclical response to the recession, this cannot adequately explain why the number of households in the program has increased by 4.43 million since 2010—a period of consistent, albeit low, job growth and a decreasing unemployment rate.

This continued increase in food stamp participation runs counter to the projections put out by the Congressional Budget Office, which in 2011 projected that SNAP participation would decline from 2012 levels to 45.9 million individual participants in 2013. Instead, average monthly enrollment for 2013 was 47.6 million. The continued growth in food stamp participation raises the question of when, if ever, the program will return to pre-recession levels as promised.

In fact, as I pointed out in this policy analysis last year, much of the growth in the program was not due to the recession, but rather to deliberate policy choices that loosened eligibility and work requirements.

Categories: Policy Institutes

Meet the Kronies!

Fri, 01/24/2014 - 13:18

Caleb O. Brown

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Get Konnected with The Kronies Action Figures

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s DownsizingGovernment.org. Learn more from our video series on how to downsize specific departments (all videos will play below):

Downsize the Department of Agriculture
Categories: Policy Institutes

Thought For The Day

Fri, 01/24/2014 - 10:44

Walter Olson

“Maybe we should email one another the Constitution so the government would read it.” – @Ruth_A_Buzzi (yes, of Laugh-In fame).

Ed. note: To read the Constitution and other Founding documents online (and order a copy of Cato’s famed “Pocket Constitution”), click here.

Categories: Policy Institutes

The Voting Rights Amendment Act Is a Bad Idea

Fri, 01/24/2014 - 09:12

Ilya Shapiro

One of the responses to the Supreme Court’s eminently sensible ruling last year that deactivated part of the Voting Rights Act was to call for a new, updated law to subject particularly bad actors to enhanced federal oversight. We now see the product of that motivation, introduced by the motley bipartisan crew of Reps. Jim Sensenbrenner (R-WI) and Jim Clyburn (D-SC) and Sen. Pat Leahy (D-VT). As I write in my new Forbes.com column:

Last week, a group of lawmakers introduced the Voting Rights Amendment Act of 2014. The timing was no coincidence: The bill was announced on Martin Luther King’s birthday, right before the holiday designated to commemorate the civil rights giant (for which Congress took the week off). This is the long-expected legislation responding to the Supreme Court’s decision in Shelby County v. Holder last June that disabled one part of the Voting Rights Act. But it’s both unnecessary to protect the right to vote and goes far beyond the provision it replaces to rework the machinery of American democracy on racial lines.

Based on the reaction of certain elected officials to Shelby County you could be forgiven for thinking that a congressional fix is badly needed to prevent racial minorities from being disenfranchised. But all the Supreme Court did was strike down the “coverage formula” used to apply Section 5 of the Voting Rights Act, which required certain jurisdictions to “preclear” with the federal government any changes in election regulations—even those as small as moving a polling station from a schoolhouse to a firehouse. The Court found the formula to be unconstitutional because it was based on 40-year-old data, such that the states and localities subject to preclearance no longer corresponded to the incidence of racial discrimination in voting. Indeed, black voter registration and turnout is consistently higher in the formerly covered jurisdictions than in the rest of the country.

Nevertheless, the proposed legislation draws a new coverage formula, resurrecting Section 5’s requirements for states with five violations of federal voting law over a rolling 15-year period. (That formula would currently apply to four states: Georgia, Louisiana, Mississippi, and Texas.) It also sweeps in sub-state jurisdictions that have had one violation and “persistent, extremely low minority turnout”—which can mean simply an average racial-minority turnout rate lower than that nationwide for either minorities or non-minorities.

All that sounds reasonable—Congress is finally updating its coverage formula—until you realize that this reimposition of Section 5 comes without any proof that other laws are inadequate to address existing problems (which is what the Constitution demands to justify the suspension of the normal federalism in this area). After all, Section 5 was an emergency provision enacted in 1965 to provide temporary federal receivership of morally bankrupt state elections, not to enable a constitutional revolution based on arbitrary statistical triggers.

Read the whole thing, and download this longer piece on why the Shelby County ruling actually vindicates Martin Luther King’s dream.

Categories: Policy Institutes

Appropriate Appropriations? Transparency and Spending Control

Thu, 01/23/2014 - 17:26

Jim Harper

Luke Rosiak at the Washington Examiner is not just a journalist who rolls his sleeves up to root out corruption. He’s also a capable computer programmer. Rosiak has produced a new feature on the Examiner web site called “Appropriate Appropriations?” that is worth checking out.

The page lists the many bills in Congress that spend taxpayer money—bills that either authorize appropriations or appropriate your money. You can sort spending bills by size, by date of last activity, and by state—look and see if your member of Congress or senator is a spender.

Rather than complaining about spending in the aggregate—“waste, fraud, and abuse” are horses that have escaped the barn—people who want spending control can now rein it in by contacting their members of Congress and senators to talk about specific spending bills.

The “Appropriate Appropriations?” page is powered by data that we produce at Cato. Cato’s “Deepbills” data is in use a lot of other ways, too. We use it to build informative infoboxes for Wikipedia articles about bills in Congress. The New York Times’ “Inside Congress” web pages use Cato data to show what executive branch agencies are topics of the bills in Congress. (See the “Mentions” section of the page for H.R. 1104, for example.) My own WashingtonWatch.com uses the data to show relationships among agencies, bills, and representatives. You’ll also find Cato data used by GovTrack.us, the largest private government transparency web site, to make searches out of references to existing law in the bills in Congress.

There are many more things that can be done with this data. Luke’s code is available to help others get started.

It’s a long game, trying to undo federal government growth that has been underway for at least 80 years. I started talking about how transparency could undercut rational ignorance and rational inaction more than seven years ago here on the blog. The serious work began with the election of President Obama, who promised transparent government. We’ve written about how the government should publish data to make itself transparent, and we’ve graded the quality of the government’s data publication. Now we’re putting out data that the government should, and it’s bearing fruit.

You can now investigate what Congress is doing in terms of spending and ask yourself: Are these “Appropriate Appropriations?

Categories: Policy Institutes

Constitutional Legerdemain – Recess Appointments Branch

Thu, 01/23/2014 - 17:13

Roger Pilon

Constitutional restoration this far down the road will almost certainly come in small steps, one decision at a time, as in a case the Supreme Court heard last week, National Labor Relations Board v. Noel Canning. By most accounts, the justices were skeptical of the government’s claim that the president could make recess appointments when the Senate was arguably not in recess. That’s got friends of the modern executive state worried. Witness an op-ed in yesterday’s New York Times by AEI’s Norman Ornstein, than whom modern expansive government has few greater friends. Ordinarily a strong congressionalist, Ornstein here, in “Disarming the White House,” is alarmed that the case “represents the biggest threat to presidential power in decades.”

Given that President Obama, nearly every day, is making good on Nancy Pelosi’s counsel that we needed to pass Obamacare to find out what’s in it, we’ll be forgiven for thinking that the power of the president to make law as he goes along could use some threatening. But here it’s not some imagined presidential lawmaking power that’s at issue. It’s a real power, grounded in the Constitution, “to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.”

The problem as Ornstein sees it is that the D.C. Circuit Court below, and the justices last week, actually read that constitutional language for what it says. Rather than focus on the narrow question of “whether a president or the Senate gets to decide when the legislative body is in recess,” about which the Constitution is also clear, the judges below “ruled that virtually all recess appointments violated the direct language of the Constitution: Only those vacancies occurring during the recess between the two sessions of Congress, and only those filled during that recess, would be allowed.”

Shocking, for sure, that constitutional text should count this late in the day. But there it is. Unfortunately for his argument, what Ornstein has left out is the larger constitutional framework – and the principle underlying it. As Georgetown Law’s (and Cato’s own) Nick Rosenkranz made clear in a forum here just before the High Court heard the case, the president’s recess appointments power is subsidiary to his main power in the matter of appointments – the power to nominate, and by and with the Advice and Consent of the Senate, to appoint such officers as the Constitution and the Congress provide for. As was the case for a good part of our history, should the Senate not be in session when a vacancy occurred and therefore not be able to give its advice and consent to a nomination, the president has the power to make temporary appointments. But that is the exception, not the rule. And the underlying principle, rooted in the separation of powers, is that the Senate should have a role in determining who will fill important executive branch offices.

In the modern era, Ornstein laments, Senate recesses are very brief, which means that “the odds of a significant vacancy opening up during them are near zero.” Is that a problem? It means simply that the president will have to follow the normal course for filling vacancies. He’ll have to do so “by and with the Advice and Consent of the Senate.” Presidents from both parties have found a way around that requirement, of course, especially when the Senate opposes a nominee. They make “recess appointments” for vacancies that happen when the Senate is in session and therefore can consent, but they do so when the Senate is in recess, even briefly. To prevent that, the Senate more recently has held “pro-forma” sessions. But Obama went one further: Not only did the vacancies he filled happen when the Senate was in session, but he filled them when it was in a pro-forma session, and that brought the matter to a head.

Ornstein is unconcerned with such constitutional niceties. Instead, he offers a policy critique of what he fears the Court will do, namely, apply the Constitution as written. He contends that the Senate’s advice and consent power was meant originally only to vet nominees for qualifications, not to veto them over political differences. Yet he writes that “for most of American history, recess appointments were a safety valve for presidents when there were individual disputes over nominees, a modest weapon of the executive in the continuing struggle between the political branches” – constitutional limits on presidential power apparently notwithstanding.

Surely, the Framers were not unaware of the possibility of a struggle between the political branches. In fact, the Constitution is one big rule book for the conduct of that struggle. But in Ornstein’s view, recess appointments – not as they were written to be employed, but as they have come to be made – “are a limited tool, a modest safety valve to ameliorate the worst abuses of Senate power.” He sees the Senate’s refusal to confirm, based on other than narrow grounds, as an abuse of power – when the Constitution is silent on that point. He does not see the president’s exercise of a power he does not have as an abuse. There before you is the kind of argument that has brought us the modern executive state.

Categories: Policy Institutes

The Violence in Iraq: What Can Be Done?

Thu, 01/23/2014 - 16:32

Christopher A. Preble

Just over two years after the last U.S. combat troops were withdrawn from Iraq, an insurgency is raging throughout the country. The black flags of ISIS – the Islamic State of Iraq and al-Sham – now fly over Fallujah, the site of some of the bloodiest battles of the U.S war in Iraq. These recent gains by extremists, and the apparent inability of the Iraqi government to exercise control over its territory, have many in U.S. foreign policy circles worried.

Many blame Iraqi Prime Minister Nuri al-Maliki for the uptick in violence, arguing that his heavy-handed policies toward the Sunni minority laid the groundwork for the current insurgency. (e.g. here) Others blame the Obama administration for failing to successfully negotiate a Status of Forces Agreement (SOFA), which would have allowed a small residual U.S. force to remain in the country to help train the Iraqi army and conduct counterterrorist operations. The claim that such forces would have been able to exert great leverage over the Iraqi political class, and that Obama himself bears some blame for the violence because he withdrew U.S. troops rather than leave them in Iraq without a SOFA, ignores that our forces were unable to fix Iraq’s shattered political system even when they were in Iraq in large numbers. (More on this here.)

Iraqi politics, Iranian influence, and a spillover of violence from the Syrian civil war make the situation far more complex than most want to admit. It’s one thing to assign blame, it’s quite another to find solutions.

At an upcoming Cato policy forum, “Understanding the Continuing Violence in Iraq,” experts will provide context for the current situation, outline obstacles facing the Iraqi government, and debate what role, if any, the United States should play. Speakers include Douglas Ollivant of the New American Foundation, who wrote on this subject earlier this month, and Harith Hasan who, with Emma Skye, commented on Iraqi politics here last year, and has also written a book on the subject.

The event begins at Noon, on Tuesday, February 12th. To learn more, and to register, click here.

Categories: Policy Institutes

Wall Street Journal on Jury Nullification

Thu, 01/23/2014 - 15:40

Tim Lynch

Today, the Wall Street Journal has an article about recent developments to revive the doctrine of jury nullification.

Here’s an excerpt:

Juries in criminal cases in the U.S. have long had the power to acquit using the nullification principle. But New Hampshire is the only state in recent years to take steps to ensure juries in the state are aware of the concept.

The New Hampshire bill is a follow-up to one the state legislature passed in 2012 that explicitly says lawyers are allowed to tell jurors about nullification. That law has led to more defense lawyers urging juries to disregard the law if they find it unfair or overly harsh, say several New Hampshire lawyers.

The action that New Hampshire has taken on nullification has raised hopes of a revival of the idea among some constitutional scholars, defense lawyers and legislators in other states who view it as a way to boost civic engagement and cut down on what they see as overly aggressive prosecutions.

“What New Hampshire is doing represents the most significant development with jury nullification in a long, long time,” said Tim Lynch, the director of the libertarian Cato Institute’s criminal-justice project. “We’re hopeful that this marks the start of a resurgence.”

Not everyone shares his enthusiasm. Nullification is an “extremely dangerous notion,” said Scott Burns, executive director of the National District Attorneys Association.

I understand ‘disagree with’ and ‘have reservations about,’ but ‘extremely dangerous’? Please. 

Remember all the discretion that resides with the government. The police officer who can opt to tell the drunk: “quiet down and go home to sleep,” instead of taking him in for disorderly conduct. The prosecutor who can opt to dismiss charges–even if another, less busy prosecutor might files those charges. Jury nullification is about allowing the jury some discretion.

Cato has the most comprehensive book on the subject. Related items here and here.

Categories: Policy Institutes

Costa Rica’s Growth Paradox

Thu, 01/23/2014 - 14:02

Juan Carlos Hidalgo

Can a country enjoy a relatively high growth rate for a quarter of a century and still be unable to reduce its poverty rate? That’s the case of my homeland, Costa Rica, which happens to have a critical presidential election on February 2.

For over 25 years Costa Rica’s growth rate has averaged 4.7 percent a year – one of the highest in Latin America – and yet the country’s poverty rate has been stuck at around 20 percent since 1994. Even worse, Costa Rica is one out of only three Latin American countries where inequality has risen since 2000.

Today, I’ve published a study looking at some of the causes. Even though Costa Rica has undergone a substantial liberalization process since the mid-eighties, the country’s economic model is still in significant ways based on a mercantilist system that is biased in favor of certain sectors of the economy at the expense of the poor. You can read the paper here.

Categories: Policy Institutes

Should Free Traders Support Free Trade Agreements?

Thu, 01/23/2014 - 11:44

Daniel J. Ikenson

With the Trans-Pacific Partnership negotiations allegedly near completion, the transatlantic talks kicking into higher gear, and debate in Congress over U.S. trade policy objectives about to intensify, 2014 is shaping up to be the most consequential year for the trade agenda in a long time. Whether real free traders should rejoice over these developments depends on the emerging details, as well as the ability to avoid making the perfect the enemy of the good.

Real free traders abhor domestic trade barriers and want them removed regardless of whether other governments remove their own barriers. The benefits of trade are the imports we obtain, not the exports we give up. The immediate benefits are measured by the value of imports that can be purchased for a given unit of exports – the more, the better – and domestic barriers reduce those terms of trade. Of course, there are also the secondary benefits of imports, which include greater variety, lower prices, more competition, better quality, and the innovation spawned by those and other factors.

The process of U.S. trade policy formulation has never been particularly accommodating of free traders’ perspectives. Free trade views have been marginalized by their being subsumed within a broader category of views labelled “pro-trade,” which is dominated by business lobbies and other “pro-export” mercantilists. As the definition of free trade has been expanded to mean pro-trade, the definition of protectionism has been narrowed to exclude views, such as: “I’m not a protectionist; I just want a level playing field,” or; “I’m for free trade, as long as it’s fair trade.” Those are the clichés of protectionists, who are now popularly grouped under the pro-trade umbrella.

So, today’s trade debate (framed as it is by media, lobbyists, and politicians) does not feature free-traders on one side and protectionists on the other. Instead, one is either pro-trade or anti-trade, supports corporations or their workers, and believes free trade agreements are either good or evil. In a world with these binary choices, nuance gets squeezed out. Where do you fit if you support the tariff reductions in a trade agreement, but are unhappy with the corporate welfare it bestows on particular industries? What if you know that trade liberalization is good for both corporations and their workers alike? What if you’re pro-market, but not pro-business?

Given these and other ambiguities, should free traders support free trade agreements? Let me lay down a marker for free trade – “real” free trade, that is.

Free markets are essential to our prosperity, and free trade is the extension of free markets across political borders. Making markets freer and expanding them to integrate more buyers, sellers, investors, and workers deepens and broadens that prosperity. When goods, services, capital, and labor flow freely across borders, Americans can take full advantage of the opportunities of the international marketplace. Free trade provides benefits to consumers and taxpayers in the form of lower prices, greater variety, and better quality. And, it enables businesses and workers to reap the benefits of innovation, specialization, and economies of scale that larger markets afford. Countless studies have shown that economies that are more open grow faster and achieve higher incomes than those that are relatively closed.

The mission of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies is to increase the public’s understanding of the benefits of free trade and the costs of protectionism. The focus of most of our work over the years has been on U.S. trade barriers, which we have identified and criticized as costly forms of corporate (and other special-interest) welfare that can never be justified by the existence of trade barriers abroad. U.S. trade barriers hurt U.S. citizens, as consumers, taxpayers, workers, producers, and investors. Removing U.S. barriers to trade is a purely domestic decision, which answers the question of whether policymakers think U.S. citizens are worthy of the freedom to make their own economic choices. It is a reform to which all free people are entitled, and can be achieved without need of any foreign government’s consent.

Since the founding of Cato’s trade center, our scholars have argued consistently that Americans would be better off if we simply undertook our own reforms – on tariffs, regulations, and other artificial impediments to commerce – without regard for what other government’s do. Free trade is about the freedom of people to transact as they wish, when they wish, with whom they wish, and without politicians and bureaucrats as gatekeepers.

There is generally broad agreement among economists and think tank scholars that free trade is a good thing. Many even call themselves “free traders.” But in too many cases, what these self-identified free traders mean is that they support free trade over there, in other countries, but not really over here in the United States. In other words, they are not free traders at all. They are mercantilists. They see increasing “trade” and increasing “exports” as synonymous. They are the trade establishment, routinely reinforcing the myth that imports are a drag on the U.S. economy and that existing U.S. barriers are not impediments but, rather, excellent leverage for securing better market access abroad through negotiations. Regrettably, this view remains fairly strongly entrenched in Washington.

Despite what we call them, free trade agreements are not really about free trade at all. Rather, they are institutions of managed trade, premised on assumptions that are anathema to real free traders. At the most fundamental level, free trade agreement negotiators see imports as the price we pay for exports, while free traders consider exports the price we pay for imports. Negotiators treat production as an end in itself (maximize exports over imports), while free traders see consumption as the sole purpose of production (maximize imports over exports). Managed trade is about the proliferation of often labyrinthine rules intended to benefit chosen producers, labor unions, and other NGOs, while free trade is about removing impediments that benefit some at the expense of others so that each of us individually has the fullest battery of choices to decide how best to use our own resources.

In many respects, free trade agreements give free trade a bad name. But does that mean free traders should oppose them?

Despite their flaws, free trade agreements have helped reduce domestic impediments to trade, expand our economic freedoms, and lock in positive reforms, even if only as the residual byproduct of an ill-premised mercantilist process. Ultimately, free trade agreements have delivered freer trade. Is that not good enough?

The question of whether free traders should support free trade agreements, then, hinges upon whether they can see past these shortcomings and inconsistencies to the end result. If one’s fealty is to the logic of free trade and its underlying assumptions, then those characteristics of trade agreements are not shortcomings, but fatal flaws. But if one is more concerned with the end result – the expanded economic liberties and the bounty of its promise – then that free trader might be more inclined to forgive the indiscretions and support an imperfect trade agreement.

Over the years, the default position of Cato’s trade scholars – more or less – has been the latter view. We have identified the flaws in the assumptions underlying mercantilist reciprocity, assailed the corporate welfare it bestows, and advocated for unilateral free trade, while still finding our way to supporting free trade agreements because, warts and all, they still increased economic liberty. That said, not all free trade agreements are the same. Ideally, the texts would be short, sweet, and unequivocal: “There shall be free trade among the parties.” But, regrettably, it’s more complex than that. So the devil is in the details.

What were once primarily rules addressing border issues, trade agreements nowadays penetrate much more deeply into traditionally domestic policy areas. The demand for trade rules in these areas has followed the proliferation of cross-border investment, global production and supply chains, and intermediate goods trade. (Ironically, these manifestations of globalization weaken the links between companies and their original home countries, yet trade agreements are negotiated by governments on behalf of these companies, as though it were a national imperative to guard their interests.) But as trade governance bumps up against issues of domestic sovereignty, the potential downside risks of trade agreements increase.

Consider the Trans-Pacific Partnership. The TPP is the largest free trade agreement to date – in terms of the volume of trade and share of global output represented by the 12 countries involved. Though the agreement has not been concluded, nor has any “official” draft text been released, the public has a decent idea of the deal’s coverage, if not its specifics.

The agreement (should one be had) will likely include 29 chapters dealing with traditional issues, such as: market access for goods, services, and agricultural products; rules of origin, and; other customs-related issues. It is also expected to include rules that discipline competition policy, government procurement, regulatory coherence, intellectual property, investment policy, labor policy, environmental policy, and others. It is this second grouping of negotiating areas that is fertile ground for potentially objectionable provisions – rules that might undermine the exercise of domestic sovereignty.

There has been a great deal of opposition expressed by certain civil society groups over various aspects of the TPP. Much of it is hyperventilation, stoked by interest groups like the AFL-CIO and Friends of the Earth, who oppose the agreement for other reasons and have no qualms about scaring people to their cause. Nevertheless, there is legitimate concern about potentially overreaching provisions on labor and environment, as well as on intellectual property and investment, which could threaten the exercise of domestic sovereignty in the United States and in the other member countries. And that would be something to weigh against the likely benefits of liberalization in the agreement.

Where there are provisions that undermine economic freedom or domestic sovereignty, expect Cato’s trade scholars to criticize and recommend changes, as we have. But an agreement that is clearly a net positive on all of the relevant factors is likely to have our support.

Categories: Policy Institutes

Can Litigation Save American Education?

Wed, 01/22/2014 - 17:20

Andrew J. Coulson

Next week, the case of Vergara v. California goes to trial. The question being litigated is whether or not the state’s laws on teacher tenure (“permanent employment”), dismissals, and last-in-first-out layoffs disproportionately harm poor minority kids, thereby violating California’s constitution.

Plaintiffs in the case feel they have the evidence to prove this point (see the links above), and so far the courts have acknowledged that their view is at least plausible. Certainly these laws are incompatible with efforts to maximize the quality of the teaching workforce. And it does seem as though they do the most damage in districts and schools serving the most disadvantaged kids. But will a victory by the plaintiffs in this lawsuit do substantial and lasting good?

That’s less obvious. For one thing, these employment practices can be found in many places where they are not codified in state statutes.They are employment guarantees and benefits of the sort that are often sought and obtained by teachers’ unions in collective bargaining with districts. So getting rid of the laws won’t necessarily get rid of the practices.

More broadly, over a dozen states have explicit constitutional provisions demanding that they create “uniform” education systems—a more stringent equality requirement than is contained in California’s constitution—and it’s not at all obvious that this seemingly strict legal guarantee has made any difference in the quality of educational opportunity in those states.

It’s easy to empathize with the desire to see state legal precedents enforced, and bad laws overturned. But neither state constitutions nor legal precedents have been able to secure either the uniformity or the quality of American education systems, and there is no reason to expect that to change no matter how the Vergara case is decided. More than half a century after the victory in Brown v. Board of Education, poor African-American kids are  still disproportionately likely to be assigned to lousy schools. I wrote about this 11 years ago, and little has changed since then. Lawsuits can redress specific legal wrongs, like compelled segregation, but they can’t produce educational outcomes that require the coordination and relentless dedication of thousands or even millions of people, year after year.

For those who really want to maximize the quality of education offered to disadvantaged and minority students—indeed to all students—the best hope is to study the different sorts of education systems that have been tried around the world and across history, and then ensure universal access to the best among them: a free educational marketplace.

 

Categories: Policy Institutes

Political Inequality: Residents of Washington are Different from the Rest of Us

Wed, 01/22/2014 - 13:35

Doug Bandow

America is a class-based society. Based on politics, not economics. An elite political class runs the state to their benefit. The rest of us pay the bill.

The differences between the assumptions and values of people within and without Washington’s 68 square miles of fantasy long have been on ostentatious display. The Democrats’ health care “reform” has become the latest example, offering tender treatment for those in the capital who approved the measure despite opposition from those outside the capital.

Critics of ObamaCare successfully pushed an amendment requiring congressmen and congressional staffers to purchase their health insurance through the new government exchanges. Being tossed from their special plans meant the end of federal subsidies, which run $5000 annually for individuals and $11,000 for families.

The new rule was meant to diffuse the anger of tens of millions of Americans who were forced to change plans and pay more for health care coverage. No surprise, residents of Capitol Hill were not happy. Alas, it wouldn’t look good to voters if Congress now enacted a special exemption. So without any legal authority, President Barack Obama maintained existing federal contributions.

Rep. Chris Stewart (R-Utah) observed:  “There’s no question it was the right thing to do. Not just for me, but for my staff. Heavens, I have staff who don’t make much money. This would be a really big bite for them.”

Too bad the president didn’t similarly step in to ensure that the rest of us won’t have to suffer “a really big bite” from ObamaCare.

It is no surprise that Democrats who supported the legislation backed this sub rosa subsidy. However, Republicans, who unanimously opposed the bill, also supported the illegal “fix.”

The GOP would win political points pushing a repeal amendment. But more important is getting a big federal “contribution.”  Noted my Cato Institute colleague Michael Cannon: “it appears the National Republican Senatorial Committee and the Democratic Senatorial Campaign Committee have negotiated a truce on this issue.” 

A similar difference in perspective afflicts foreign policy. Elites long have believed in sending average people off in constant wars, invasions, and occupations. Average people always are less enthused about being sent off to do endless battle.

Syria is the latest example. Secretary of State John Kerry, a veteran who opposed the Vietnam War, has turned global crusader. He has been joined by Nobel Peace Prize winner Barack Obama. The incessantly bombastic Republican uber-hawks, John McCain and Lindsey Graham, are even more insistent.

Normally the public is simply ignored. However, this time the president tossed the decision to Congress, causing opposition to erupt. Most legislators quickly arrayed themselves against the administration. 

Yet, as I pointed out in my American Spectator online article:

some elites, such as Sen. McCain, perhaps the Senate’s most hawkish member, then said that the president should go ahead and bomb even without congressional authorization.  Why should the Constitution, people’s elected representatives, or general public opinion matter? Some people, like those who populate Washington, are to rule.

Finally, thank America’s bipartisan paternalistic elite for killing the common incandescent light bulb, which disappeared into history on January 1. 

Light-emitting diodes, or LEDs, are more efficient than incandescents, but average people are less interested in spending $20 or $30 on a bulb that is slow to light, gives off a dull glow, and creates a mercury-laced toxic waste dump if broken. So George W. Bush and the Democratic Congress joined to ban the time-tested favorite.

Rather than thanking Washington, many people stocked up on the disappearing incandescent bulbs as January 1st loomed. Indeed, my basement is filled with a lifetime supply.

The wide gap between the political and working classes is not an argument for a populist democracy, but a constitutional republic in which government’s power is limited and individual liberties are protected. Elites always will enjoy disproportionate influence. However, restraining government will limit their ability to rule over the rest of us.

Categories: Policy Institutes

Mr. President, Increasing the Minimum Wage Is Wrong Medicine for Ailing Economy

Wed, 01/22/2014 - 09:44

James A. Dorn

When President Obama advocates a higher minimum wage in his State of the Union Address, he will no doubt argue that by increasing the minimum to $10.10, workers will have fatter pay checks and spend more, thus stimulating the economy and creating more jobs.  In fact, economic logic tells a different story. 

The law of demand is more powerful than the minimum wage law: when the price of anything, including labor, goes up, the quantity demanded goes down, other things constant.  No one has ever disproven this economic law—and neither the President nor Congress can overturn it.

The idea that raising the minimum wage will increase income confuses the price of labor (the wage rate) with labor income (wage rate x hours worked).  If a worker losers her job or can’t find a job at the higher minimum wage, her income is zero.  

Proponents of the minimum wage argue that those workers who do retain their jobs will consume more, which will increase aggregate demand and increase GDP.  But that line of argument is a case of upside-down economics.  Consumption is not a determinant of economic growth; it is the result of a prior increase in production.  Workers cannot be paid what they haven’t first produced.

A higher minimum wage—without a corresponding increase in the demand for labor caused by an increase in labor productivity (due to more capital per worker, better technology, or more education)—will mean fewer jobs, slower job growth, and higher unemployment for lower-skilled workers.  Higher-skilled workers and union workers will benefit, but only at the expense of lower-skilled workers, especially the young and minorities.  There is no free lunch.

Small business owners will see their profits cut, which will either drive them out of business or slow their expansion.  If prices are increased to offset the higher minimum wage—something that is difficult in globally competitive markets—consumers will have less money to spend on other things. Thus, there will be no net increase in employment. Moreover, an increase in the minimum wage cannot lead to an increase in aggregate demand unless the Federal Reserve accommodates the higher minimum by pumping up the money supply, which would lead to inflation and a loss of purchasing power. 

Mr. President, there is no magical way to stimulate the economy by increasing the minimum wage. The only sure way to increase jobs and wages for lower-skilled workers, and thus to increase their standard of living, is to increase economic growth.  The minimum wage is neither necessary nor sufficient for economic growth.  Hong Kong grew rich without a minimum wage because it undertook the reforms that fuel growth: free trade, low tax rates, limited government, a stable rule of law that safeguards private property, sound money, and low costs of doing business.  The United States should do likewise. 

Increasing the minimum wage is the wrong medicine for an ailing economy.  Further government intervention in free markets is the path toward socialism, not market liberalism.  Letting free markets determine wage rates is consistent with a free society and also with economic logic.  It is the surest the path toward greater income mobility as younger, low-skilled workers get experience and move up the income ladder.  Cutting that ladder off by mandating a higher minimum wage is a recipe for poverty not progress.   

Categories: Policy Institutes

Scalia the Unlikely Swing Vote in Big Workers Rights Case

Tue, 01/21/2014 - 18:37

Ilya Shapiro

Today the Supreme Court heard oral argument in Harris v. Quinn, the case regarding the forced unionization of home healthcare workers in Illinois (and by extension the 10 other states with similar laws). To me this is a pretty easy case: just because the state is paying these workers through its Medicaid program doesn’t mean it employs them – just like my doctor isn’t employed by my health-insurance company – which means that it can’t force them to pay dues to a union that negotiates Medicaid reimbursement rates. 

Like most of the labor cases in recent years, however, this one is likely to go 5-4. The so-called “liberal” justices were all openly hostile to the workers’ position, so the challengers will have to sweep the rest of the bench of to win. Fortunately, such an outcome is more than possible – though much will depend on the thinking of Justice Scalia, who was hostile to everyone.

The argument began in a frustrating manner, with a focus on the right to petition the government for redress of grievances, and whether a union asking for a pay increase was different from an individual public-sector employee (a policeman, say) asking for the same raise. Justice Scalia correctly pointed out that this wasn’t really the right at issue here, but he further confused the matter in distinguishing the right to petition from the First Amendment (when in fact that right is found in that amendment). He meant to invoke the First Amendment right to the freedoms of speech and association, but also indicated that he was prepared to give the government plenty of leeway when it was acting as an employer.

Justice Alito was the most skeptical of the union/government position, pointing out that unions don’t necessarily act in all workers’ interest, even when they succeed in negotiating certain “gains.” For example, a productive young worker might prefer merit pay to tenure provisions or a defined-benefit pension plan. Chief Justice Roberts was similarly concerned about administering the line between those union expenses that could be “charged” even to nonmembers (because related to collective bargaining) versus those that can’t because they involve political activity. Justice Kennedy, meanwhile, noted that in this era of growing government, increasing the size and cost of the public workforce is more than simple bargaining over wages and benefits; it’s “a fundamental issue of political belief.” In no other context could a government seek to compel its citizens to subsidize such speech. A worker who disagrees with the union view on these political questions is still made to subsidize it. 

It was also heartening to see that the continuing vitality of Abood v. Detroit Board of Education (1977) was in play. That case established that, in the interest of “labor peace,” a state could mandate its employees’ association with a union, forcing them to subsidize that union’s speech and submit to it as their exclusive representative for negotiating with the government regarding their employment. (Abood simply assumed, without further analysis, that the Supreme Court had recognized labor peace as a compelling interest.)

Justices Breyer and Kagan were particularly concerned that so many employers and unions had relied on the Abood doctrine over the years, so touching it would implicate significant reliance interests. But overruling or severely limiting Abood would only be one more step in the Court’s trend of protecting individual workers from having to support political activities. More workers could thus opt out of supporting a labor union – but if unions truly provide valuable services for their members, few workers would do so.

Of course, the Court could shy away from touching Abood and simply rule that being paid by state funds alone isn’t sufficient to make someone a state employee. Such a position might more easily attract Justice Scalia’s vote – and that of Chief Justice Roberts, who goes out of his way to rule narrowly – even if it leaves unresolved some of the contradictions at the heart of the jurisprudence in this area, such as the duty of courts to police the murky line between “chargeable” and “nonchargeable” union expenses.

For more on the case, see George Will’s recent op-ed and the Wall Street Journal’s editorial.

Categories: Policy Institutes

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