In an editorial today, the Wall Street Journal discusses Democratic complaints linking Ebola with supposedly falling spending on the Centers for Disease Control (CDC). Let’s take a look at the data with the Downsizing Government chart tool. Click open Health and Human Services, then click on CDC. Hold your mouse over the line to see the data.
Between 2000 and 2014, CDC outlays almost doubled in 2014 constant dollars, from $3.5 billion to $6.8 billion. Outlays have dipped the last few years, but that’s after a Bush-Obama spending boom. CDC outlays have quadrupled in constant dollars since the late 1980s.
The chart below shows CDC spending since 1970 in constant, or inflation-adjusted, dollars. The data is sourced from the Office of Management and Budget public database, available here.
State budgets face numerous long-term pressures, including overpromised and underfunded pensions. Another challenge is Medicaid, the health insurance program for low-income individuals, which is growing rapidly in cost and enrollment.
Medicaid is the single largest component of state budgets representing 25 percent of total state expenditures. Since 2003, state spending on Medicaid has increased 75 percent, growing faster than the federal budget. State spending decreased in 2010, but not because of any reforms. The federal stimulus bill temporarily increased the federal government’s share of Medicaid spending, so expenditures were simply shifted to the federal budget. But the stimulus has now expired so state spending is rising once again.
The below chart shows the growth in state Medicaid spending over the last ten years:
The higher levels of Medicaid spending are crowding out spending in other state budget areas, such as transportation and education, while also creating pressure to increase taxes.
In the newest edition of the “Fiscal Policy Report Card on America’s Governors: 2014,” Chris Edwards and I discuss how the president’s health care law is poised to make this situation even worse for state budgets:
Medicaid has grown rapidly for years, and the Affordable Care Act of 2010 (ACA) expanded it even more. Individual states can decide whether or not to implement the ACA’s expanded Medicaid coverage, but Congress created strong incentives to do so. The federal government is paying 100 percent of the costs of expansion through 2016, and then a declining share after that, reaching 90 percent by 2020. The Congressional Budget Office (CBO) estimates that Medicaid expansion under the ACA will cost the federal government $792 billion and state governments $46 billion over the next 10 years.
Even with the federal government paying most of the initial costs, the ACA will put a large strain on state budgets down the road. State policymakers are concerned that Congress will reduce the federal cost share in coming years because federal deficits will create pressure to cut spending. Without reforms, CBO estimates that federal Medicaid spending will almost double from $299 billion in 2014 to $576 billion by 2024. The growth is projected to be so rapid that even President Obama has suggested that Congress decrease the federal cost share.
The expansion of Medicaid under the ACA is bad policy for numerous reasons, and many governors are refusing to go along. Currently, at least 21 states have decided not to go along with the expansion. Those states may lose “free” federal money in the short-run, but leaders in those states may be saving their states from huge fiscal burdens later on.
Refusing to expand Medicaid under the ACA is a good first-step in controlling the growth in state and federal expenditures. But it is not enough. State and federal leaders should pass major structural reforms to Medicaid to halt the growth in this large entitlement program.
In the feudal era, rulers funded their households by taking a share of the crops farmers in their territory produced. The lords called this tribute and the peasants would’ve called it extortion.
We like to think that we’ve come quite a ways since then. After all, taxes are now paid withmoney—or even a digital abstraction of money—and forms, not cartloads of grain. We can even feel good (well, sanguine) about paying taxes, because we know that we’re funding the government of our own choosing—a democratically elected leadership restrained by the Constitution—not just feeding the avarice of a local warlord.
Except if you’re a raisin farmer in California, a state responsible for 40% of the world’s and 99% of America’s raisins. If you’re a California serf raisin farmer, you’re required by federal law to hand over up to 47% of each year’s crop to the U.S. government so the government can control the supply and price of raisins under a New Deal-era regulatory scheme.
The Fifth Amendment says that “private property [shall not] be taken for public use, without just compensation,” however, so it’s hard to see how it would be constitutional for the government to take nearly half a farmer’s harvest without any payment—let alone “just compensation.” (To be clear, if you grow grapes for use in wine or juice, you’re fine. It’s only if you dry out those grapes that you have to watch your property rights evaporate.)
Yet the U.S. Court of Appeals for the Ninth Circuit has done just that, repeatedly. In 2012, the en banc court held that nobody could challenge this taking in federal court. The Supreme Court unanimously disagreed. (For more background and to read Cato’s merits brief in that case go here.)
Failing to take the hint, the Ninth Circuit has now held that the Fifth Amendment’s protection against state expropriation simply doesn’t apply to personal property (as opposed to real estate). To put it bluntly, that’s an arbitrary, unprecedented, and ahistorical distinction, so raisin farmers are once again forced to ask the Supreme Court to correct lower court’s failure to protect their rights.
Joined by the five other organizations, Cato has filed a brief urging the Court to take this case, thus insuring that the farmers’ constitutional rights aren’t left to wither on the vine. We argue that the Ninth Circuit’s distinction between real and personal property has no basis in the text and history of the Constitution, Supreme Court precedent, or a reasonable understanding of the English language.
The Fifth Amendment embodies the notion that property rights are central to a free people and a just government. It could not be more clear that property can’t be taken without “due process,” and that when it is taken, the government must pay “just compensation.” These guarantees reflect the many values inherent in private property, such as individual achievement, privacy, and autonomy from government intrusion.
By devaluing property rights of all sorts, the Ninth Circuit weakens the values of autonomy and reliance that undergird the Takings Clause and conflicts with the very foundations of our constitutional order.
Raisin farming ain’t easy; five pounds of grapes yield only one pound of raisins. Raisin farmers shouldn’t have to hand over half of that pound to the federal government.
The Supreme Court will decide whether to take Horne v. U.S. Dept. of Agriculture later this fall.
Cato legal associate Gabriel Latner co-authored this blogpost.
National Review Online is in the midst of its “education week” – including offerings by yours truly and Jason Bedrick – and today brings us a piece by AEI’s Andrew Kelly on how to fix our higher ed system. Unfortunately, while he largely nails the problems, he stumbles on the solution.
Kelly is absolutely right when he criticizes the Obama administration for demonizing for-profit colleges – see my piece for the evidence that for-profits are not the problem – while simultaneously observing how odd it is for conservatives to decry as some great violation of free-market ideals attacks on institutions that get the vast majority of their funds through Washington. He is also right that the entire ivory tower is awash in waste and failure, and all institutions – for-profit or putatively not-for-profit – are self-interested money-grubbers. Finally, he correctly notes that it is a big problem that by far the largest student lender is the Bank of Uncle Sam, who basically gives to anyone who can breathe.
Where Kelly starts to get into trouble is in suggesting that a lot of these troubles could be meaningfully mitigated if we just had the right data readily available to consumers. He writes, “Basic pieces of information needed to make a sound investment — out-of-pocket costs, the proportion of students who graduate on time, the share who earn enough to pay back their loans after graduation — are either incomplete or nonexistent.”
As I’ve written before, there is actually a huge amount of information available on jobs and schools, and many students appear to simply ignore it. For instance, according to federal data, bachelor’s degrees awarded in journalism ballooned from 59,000 in 2000-01 to 88,752 in 2011-12, despite the very well publicized busting of the industry. Indeed, the BLS reports that as of 2012 there were only 57,600 Americans employed as “reporters, correspondents, and broadcast news analysts,” and 115,300 as editors. And it’s not like those with these job are striking it rich: the median annual pay for reporters in 2012 was $37,090, and for editors, $53,880. And yes, those jobs are expected to contract in the next ten years.
How about psychology majors? This is a regular resident on worst-employment lists put out by major news outlets, but it continues to draw big enrollment. In 2000-01 there were 73,645 psychology bachelor’s degrees awarded, and by 2011-12 there were almost 109,000. Meanwhile, according to the BLS, there were only 160,200 people employed as psychologists in 2012, and to be a practicing psychologist one typically needs a doctorate.
But we couldn’t possibly find out if a school has a poor six-year graduation rate, right? Wrong. If you’re willing to pay the $30 fee to access it – a microscopic investment compared to the overall price of college – you can get all sorts of useful data for schools from the hated U.S. News and World Report “Best Colleges” site. For instance, you can see that Lycoming College – a fairly middling school – has a four-year graduation rate of 54 percent, a 59 percent six-year grad rate for Pell Grant recipients, and a 64 percent grad rate for students receiving neither Pell nor Stafford Loans. You can also find financial aid information and cohort loan default rates for the school.
How about Cleveland State University? You can see that it has a puny four-year graduation rate of 8 percent, a six-year grad rate for Pell recipients of only 28 percent, and a six-year grad rate for non-Pell or Stafford students of just 34 percent. You can also discover that it nonetheless had enrollment of over 12,000 undergrads.
Now, is the data so exhaustive that any question anyone might have is answered? No, but while calling for federal data collection and publication, Kelly acknowledges that inherently “college is hard to evaluate until it is actually experienced.” So federal data collection and publication is also likely to leave a lot of unanswered questions. Of course, that doesn’t matter if the information is going to be ignored anyway, as present experience indicates it almost certainly would be.
In addition to getting out more info, Kelly calls for making colleges have “skin in the game” by holding them responsible for paying a part of their students’ defaulted loans. This certainly makes some sense: The big winners in American higher ed are the colleges that get paid no matter what, and the politicians who come off as caring when they furnish taxpayer-funded aid to almost anyone who wants it.
Still, it is uber-optimistic thinking to believe that skin-in-the-game efforts would be applied equally – or meaningfully – to most schools. For-profits would no doubt get hammered, state-subsidized public schools would have a huge advantage over tuition-dependent private institutions, and loveable but woefully ineffectual community colleges would almost certainly be protected. Indeed, Kelly reports that already:
Democratic senators Jack Reed, Dick Durbin, and Elizabeth Warren have introduced legislation that would force colleges with high default rates to pay back a share of defaulted loans. But here again, Democrats would rather play favorites than hold all colleges to account. The bill includes exemptions for historically black colleges and universities and for community colleges, schools that have default rates higher than the national average. And the proposal would cover only campuses where more than 25 percent of students take out loans. In other words, Democrats believe that only a subset of colleges should have skin in the game.
More important, perhaps, is that while many institutions are happy to take money from students who exhibit little if any evidence they can handle the programs for which they are signing up, it is Washington that gives those students much of the money in the first place. And if we should have learned anything from the housing-induced Great Recession, it is that were schools to start turning woefully prepared low-income people away, the Feds would employ both carrot and stick to get them to enroll those students.
Unfortunately, Kelly dismisses the only solution that would do more than skim the edges of the monstrous waste in higher education: phasing out federal student aid, which as Kelly notes, is now at about $170 billion. Quite simply, it is largely aid that encourages people to sign up for programs that huge numbers will not complete. It is aid that enables individuals to enroll in studies that even if they complete them, will not result in a job requiring their credential. It is aid that has fueled credential inflation such that even many of those jobs requiring degrees don’t really require degrees. And on top of it all, it is aid that has fueled huge price inflation and growing student debt.
Calls for phasing out massive aid, Kelly says, has “ceded…ground to Democrats,” and would perpetuate “the under-provision problem we started with: Many low-income students who would benefit from post-high-school education could not afford it.”
Alas, Kelly offers no evidence for this latter proposition, and logic suggests he is largely wrong. While there is huge waste in higher education, it is still true that an average person with a degree – especially in an in-demand field – stands to make big profits from going to college. That means a low-income student would likely be able to find private-sector aid, both charitable and from professional lenders, were they to meaningfully demonstrate the ability and desire to handle college-level work in a needed field. Both lender and borrower would stand to profit. And yes, there would often be little or no collateral for the loan, but lenders always consider risk, and the benefits would almost certainly outweigh it in most cases.
It’s also important to put the claim of an “under-provision” problem under the microscope. Need-based federal aid started in earnest in the 1960s. How many people went to college back then? In 1960, only 7.7 percent of Americans 25 years and older had a bachelor’s degree. In other words, relatively few people – low, middle, or upper-income – had degrees, making it hard to say we had a big problem of under-provision to low-income students when major federal aid started. And, as has been pretty firmly established, the educational challenges facing low-income people have much more to do with factors outside of the education system – especially the higher education system – than the system itself. If any generalization should apply, it is that low-income students are underrepresented because they are, for numerous reasons, too often underprepared.
Folks like Kelly who advocate for more data, skin in the game, etc., are trying to make any improvements they can. But reasons to believe their proposals will do much good are few, while the root problem is clear: Aid fuels massive price inflation and incredible waste. It has to go.
Excellent article by Jon Campbell for the Village Voice about New York City’s zeal for arresting people on charges of possessing so-called “gravity knives” – knives whose blade can be opened without the assistance of a second hand, and then be secured in place for use. Used in countless trades and occupations, knives fitting this description are sold at hardware, sporting, and work-gear stores from coast to coast. But New York City routinely prosecutes persons in possession of them even in the absence of any indication that the holder was up to no good or knew they violated local law. Excerpt:
For years, New York’s gravity-knife law has been formally opposed by a broad swath of the legal community. Elected officials call the statute “flawed” and “unfair.” Defense attorneys call it “outrageous” and “ridiculous” – or worse. Labor unions, which have seen a parade of members arrested for tools they use on the job, say the law is woefully outdated. Even the Office of Court Administration – the official body of the New York State judiciary – says the law is unjustly enforced and needs to change. They’ve petitioned the legislature to do just that.
A move in Albany to revamp New York’s law to cover possession of such a knife only when accompanied by “unlawful intent” failed, due in part to opposition from some quarters in the law enforcement community, where collaring some poor guy walking home from the subway for a “GK” (gravity knife) is known as an easy way to boost arrest numbers:
A poster on Officer.com, a verified online message board for law enforcement officers, put it bluntly in 2013 when he advised a rookie to be on the lookout for “GKs”: “make sure they have a prior conviction so you can bump it up to that felony!!!”
New York’s controversial stop-and-frisk policies are one reason it has such a high number of knife charges:
a Village Voice analysis of data from several sources suggests there have been as many as 60,000 gravity-knife prosecutions over the past decade, and that the rate has more than doubled in that time. If those estimates are correct, it’s enough to place gravity-knife offenses among the top 10 most prosecuted crimes in New York City.
More recently, Manhattan District Attorney Cyrus Vance in 2010 deployed the law as a municipal money-maker by charging Home Depot and other hardware and sports chains for selling what many of them had assumed were lawful knives, and extracting large “restitution” payments as part of the ensuing settlements.
In much of the rest of the country, fortunately, the law is on a sounder path as Arizona, New Hampshire, and other states revamp outdated laws to respect the peaceful ownership and carrying of knives. (The national group Knife Rights monitors and advances this progress.) Read the whole Voice piece here.
Yesterday, San Francisco’s board of supervisors voted 7-4 to legalize and regulate the online rental marketplace Airbnb.
The legislation, which is expected be be implemented in February, was welcomed by Airbnb. Nick Papas, one of Airbnb’s communications staffers, wrote on the Airbnb public policy blog that the vote was “a great victory for San Franciscans who want to share their home and the city they love.”
Airbnb might be praising the legislation, but it contains a number of restrictions on Airbnb hosts. Under the new legislation non-hosted entire-home rentals are limited to 90 days a year, and it will be up to hosts, not Airbnb, to provide the documentation to prove that they are not in violation of this regulation. Airbnb hosts will have to pay a $50 fee to be part of a public registry, pay a hotel tax (which Airbnb will reportedly remit), register with the city planning department, and not charge more than they are paying their landlord. Hosts must also have liability insurance or offer their listing through a platform that provides coverage.
The legislation will also prohibit buildings that have had Ellis Act evictions from being used for short-term Airbnb rentals, as TechCrunch’s Kim-Mai Cutler explains:
What’s the Ellis Act? Well, San Francisco city and California state rental laws have some strange overlaps. The city has incredibly strong rent control laws, that cover 172,000 of the city’s 376,000 housing units. As long as the tenant handles their basic obligations like paying rent on time, they can’t really be evicted and there’s a culture of lifetime tenancy in the city that’s fairly unique. But the state of California passed a law in the mid-1980s that allows landlords to “go out of business” and take their rental units off the market. The concern in red hot San Francisco housing market is that this law is abused and landlords will take their units off the market to convert them into tenancies-in-common or permanent Airbnb rentals. This change is supposed to clamp down on that.
The board of supervisors rejected an amendment put forward by member David Campos, which would have required Airbnb to pay an estimated $25 million in back taxes. Airbnb announced in September that it would begin collecting 14 percent occupancy tax in San Francisco from the beginning of this month.
Although the new legislation contains some restrictive provisions it is understandable that Airbnb is accepting these new regulations. Airbnb, which was valued at around $10 billion earlier this year, wants to grow, and accepting regulations like those passed by the San Francisco board of supervisors allows for Airbnb to operate legally in San Francisco while refuting accusations that it evades taxes and operates in a grey market.
Daniel J. Ikenson
Last week the U.S. government settled a long-running trade dispute with Brazil, winning taxpayers the privilege of continuing to subsidize America’s wealthy cotton farmers in exchange for our commitment to subsidize Brazilian cotton farmers, as well. That’s right! We get to pay U.S. cotton farming businesses to overproduce, export, and suppress global prices to the detriment of Brazilian (and other countries’) cotton farmers provided that we compensate the Brazilians to the tune of $300 million.
Some background. Ten years ago, in a case brought by Brazil, the WTO Dispute Settlement Body ruled that the United States was exceeding its subsidy allowances for domestic cotton farmers and that it should bring its practices into compliance with the relevant WTO agreements. After delays and half-baked U.S. efforts to comply, Brazil sought and received permission from the WTO to retaliate (or, in WTO parlance, to “withdraw concessions” because opening one’s own market in a world of mercantilist reciprocity is, perversely, considered a cost or concession). Under the threat of such retaliation, instead of bringing its cotton subsidies into WTO compliance, the U.S. government agreed to pay $147 million per year to Brazilian farmers so that it could continue subsidizing U.S. farmers beyond agreed limits. That arrangement prevailed for a few years until the funds were cut during the budget sequester earlier this year – an event that triggered a renewed threat of retaliation from Brazil, which now has been averted on account of last week’s $300 million settlement.
The Peterson Institute’s Gary Hufbauer characterized the agreement as a “good deal” because it ends the specter of soured bilateral relations, which $800 million of targeted retaliation against U.S. exporters and intellectual property holders would likely produce, for a reasonable price of $300 million “spread widely across the US population, around 90 cents a person.” In Hufbauer’s opinion:
Money damages, paid in this way, are much fairer, and do not destroy the benefits of international commerce, unlike concentrated retaliation against firms that had nothing to do with the original dispute. The WTO system is only designed to authorize such retaliation, but the US-Brazil settlement points the way towards a better way of satisfying breaches of WTO obligations.
While I share Hufbauer’s desire to avoid retaliation and soured relations, his rationale for endorsing the settlement seems a bit strained. If the settlement is justifiable because the costs are spread across 300-plus million Americans, then Hufbauer can probably lend his support to most subsidies, tariffs, and other forms of protectionism, which endure because the concentrated benefits accruing to the favor-seekers are paid through costs imposed, often imperceptibly, on a diffuse base of unorganized consumers or taxpayers. Does the smallness or the imperceptibility of the costs make it right? No, but it makes it easy to get away with, which is why I think it’s pennywise and pound foolish to endorse such outcomes. There are all sorts of federal subsidies to industries and tariffs on goods that may be small or imperceptible as a cost on a standalone basis at the individual level. But when aggregated across programs, the costs to individuals become more significant. It’s death by 10,000 cuts.
Hufbauer implies that $0.90 per American is not an unreasonable amount. Does he have a threshold per-person cost above which he would consider the burden unjustified? As it stands now, the cost to taxpayers is well in excess of the $0.90 – a figure that accounts only for the subsidies to the Brazilians. We know that the U.S. subsidies are approximately $800 million in excess of allowance, which means that the violating portion of taxpayer subsidies to cotton producers amounts to $2.40 per American. For the “right” to spend that $2.40 per American, each American must spend $0.90 for a total of $3.30 each. So, instead of saving $2.40 per American by bringing subsidies into compliance, taxpayers are in the red by $3.30 each – a $5.70 reversal. But, of course, the real cost to Americans is not the excess subsidies plus the cost of subsidizing Brazilians, but the overall cost of cotton subsidies, which were close to $2 billion per year for the period 1995-2012, or over $6.00 per American per year during that period. But why should Americans be forced to support wealthy U.S. cotton farmers in the first place?
Hufbauer’s point is that money damages spread over a broad base of payers is more fair than targeted retaliation, which would impose those costs on a few innocent U.S. industries and IP holders, and he writes that “the WTO system is only designed to authorize” such retaliation. But I think Hufbauer is selling the system short. Compliance with the rules is preferable to both targeted retaliation and damages spread across a broad base, and the WTO system is designed to encourage such compliance without imposing on national sovereignty.
First of all, retaliatory trade measures are something most governments prefer to avoid because trade restrictions hurt businesses and consumers in the country imposing them. But the purpose of permitting a WTO member to withdraw concessions in response to another Member’s violations and persistent non-compliance is, ultimately, to encourage compliance by bringing otherwise dormant domestic pressures to bear on the offending government. The threat of retaliation along with publication of a target list essentially broadens the dispute by creating more stakeholders – specifically, domestic stakeholders with an interest in compliance. In 2002, when the United States imposed restrictions on steel imports from most countries, which were found to violate the WTO Safeguards Agreement, the EU’s retaliation list included products known to be important to organized lobbies or states with particular relevance to congressional and presidential electoral outcomes – products such as citrus, textiles, and motorcycles. The credible threat of retaliation against these and other industries created a powerful political constituency encouraging compliance with the WTO ruling by ending the steel restrictions, which also brought U.S. producers and consumers the benefits of lower steel prices.
In the cotton case, instead of achieving compliance and reducing burdens on U.S. taxpayers, the targets of Brazilian retaliation managed to get themselves out of harm’s way, but at the expense of U.S. taxpayers. Any leverage to compel the U.S. government to do the right thing and rein in the cotton subsidies has been spent. Hufbauer’s outlook differs:
Brazil’s agreement to drop its WTO case against US cotton subsidies (specifically an export credit program known as GSM-102) and not to launch a new case expires at the same time that the US Agricultural Act of 2014 expires in 2018. What this means is that the US Congress in 2018 will face pressure not to renew a subsidy program that enriches a few already rich American farmers.
The problem with that logic is that the same “pressure” existed this year, before Congress passed the farm bill. Yet, the Agricultural Act of 2014 includes the same offensive provisions for cotton. Moreover, what incentives exist for Congress “not to renew a subsidy program that enriches a few already rich American farmers” if the price of buying four more years of peace is a comparably reasonable $0.90 per person?”
Settlements like these may appease the primary governments involved in the dispute, but they leave unresolved the original sins, which impose a lot of collateral damage on a variety of interests. In that regard, settlements are failures.
Finally, if the cotton settlement and the tobacco settlement (the latter is described by Bill Watson here today) – which both, essentially, release the United States from its WTO commitments in exchange for some form of payment to the complainant – are portrayed as trade policy successes, it will be just a matter of time before WTO adjudication devolves into a claims court before descending into irrelevance.
K. William Watson
The World Trade Organization’s judicial body determined over two years ago that a U.S. law banning clove cigarettes while leaving domestically produced menthols on the shelf was protectionist discrimination. Now the U.S. and Indonesian governments have reached a “settlement” in which Indonesia agrees to drop the case in exchange for nothing.
Technically, the settlement, as reported, includes a few promises from the United States, but these are so weak as to be practically meaningless. For example, the United States agrees to refrain from “arbitrary discrimination” against Indonesian cigars (which is already not allowed) and to “postpone” filing its own case against Indonesian export restrictions (which no longer impact U.S. companies).
American refusal to comply with global trade rules against regulatory protectionism is both unfortunate and, in this case, unsurprising. There were two basic ways that the U.S. government could have come into compliance: 1) by dropping the ban on cloves, or 2) by extending the ban to menthols. Neither of those options was politically feasible, so the United States did nothing.
Normally, the WTO dispute settlement process can be very helpful in overcoming political barriers to trade liberalization. When one country loses a case at the WTO and fails to comply, the complaining country has the right to retaliate by raising tariffs on goods from the losing country. This creates concentrated losses that have much greater political impact than the generally diffuse costs of protectionist policies. The ultimate goal is to “induce compliance”—the losing country discontinues its offending practice so that the retaliation will stop.
But the United States is very big and powerful, so that for most countries cutting off imports from the United States is not only ineffective at swaying Washington policymakers but also very harmful to their own economy. Indonesia appears to have decided that dropping the case and walking away makes more sense than continuing to press forward with costly, futile retaliation.
Unfortunately, the clove cigarette settlement joins a growing list of similar cases in which the United States has taken advantage of its economic and political power to avoid complying with WTO rules. These include a successful challenge by the tiny island nation of Antigua against U.S. restrictions on cross-border online gambling that Antigua has no way to enforce.
Perhaps the most embarrassing example of noncompliance is the deal between the United States and Brazil reached after Brazil won a case against U.S. cotton subsidies. The United States managed to avoid retaliation and keep the subsidies by agreeing to send Brazilian cotton farmers a check for $147 million every year. That arrangement appears to be coming to an end with the United States providing one final payment of $300 million and keeping the cotton subsidies indefinitely.
The United States doesn’t always refuse to comply with WTO decisions. The threat of retaliation from Canada and Mexico may very well make a difference in the ongoing fight over protectionist U.S. regulations related to origin labels for meat. A big difference between that case and clove cigarettes is that Canada and Mexico are the two largest export markets for U.S. products.
There’s reason for optimism, but the reputation of the WTO dispute settlement process is being put at serious risk by this administration’s lack of commitment to the rules of the international trading system.
Hong Kong is part of China. But administered separately from the rest of the People’s Republic of China, the territory respects civil liberties while hosting the world’s freest economy.
Demonstrators are pressing Beijing to make good on its promise of democratic rule and free elections. But the PRC will not, indeed, cannot, give residents of Hong Kong what it refuses to give the rest of its citizens. The city’s future depends on finding a compromise that preserves Hong Kong’s freedom and peace.
The British colony grew out of imperial China’s weakness. London seized Hong Kong Island, then the Kowloon Peninsula, and later “leased” the New Territories. In 1997 the latter’s 99-year term ran out. At which point Beijing was legally entitled to take back the New Territories.
Dividing Hong Kong would have been a practical nightmare. And Beijing might not have continued to honor territorial cessions forced more than a century before. So in 1984 London agreed to the full territory’s return.
One wonders: What if Prime Minister Margaret Thatcher had scheduled a referendum in which the territory’s residents could freely express their decision?
At the time a still weak and isolated Beijing probably would have felt little choice but to accept an adverse vote. However, the PRC might have chosen to bide its time, as it has done with Taiwan, and now would be demanding the territory’s return.
Returning Hong Kong meant transferring millions of people to communist China. The PRC committed to respect Hong Kong’s uniqueness for a half century.
However, Beijing never promised to hold fully free elections. Rather, it stated: “The chief executive will be appointed by the Central People’s Government on the basis of the results of elections or consultations to be held locally.”
The Basic Law (essentially the territory’s constitution), approved six years later by Beijing, provided for “nomination by a broadly representative nominating committee in accordance with democratic procedures.” The PRC claims that is what it is implementing.
As of 2017 residents will be able to elect their ruler, but only from candidates vetted by Beijing. It won’t be real democracy, but then, there never was much chance that the Chinese Communist Party would institute real democracy in any area under its control.
That’s not fair to Hong Kong’s residents. So it’s impossible not to admire the protestors. However, their very passion threatens their objective. They have divided over tactics and sparked criticism from some other residents.
The greatest risk is that the Chinese leadership might believe it must choose between repression and either chaos or democracy. In 1989 the CCP sent in tanks to clear democracy-minded demonstrators out of Tiananmen Square.
Beijing would pay an even higher price for cracking down in Hong Kong. Still, the Chinese regime places self-preservation above everything else.
Moreover, if China violently dispersed the protestors, it would not likely stop there. Media freedom and judicial independence also would be at risk.
This week tensions eased as demonstrators and government officials agreed to talks. Democracy advocates should temper their idealism with an acute sense of pragmatism.
Beijing might sacrifice the territory’s chief executive, Leung Chun-ying, and make other concessions, such as broadening the nomination process. But the PRC will insist that Chinese officials, not Hong Kong residents, be in charge.
Unfortunately, as I write in Forbes online, “Nothing the U.S. does can bring democracy to the territory. To the contrary, the more Washington attempts to intervene, the more likely China is to perceive the demonstrators to be threats.”
Democracy advocates have moral right on their side. Still, raw power is likely to prevail in any showdown. The protestors must temper idealism with prudence. They must not allow the perfect to become the enemy of the good for their own sake—and ultimately that of Hong Kong and China as well.
Steve H. Hanke
Recent reportage in the New York Times reminded me of my 95 Percent Rule: “95 percent of what you read about economics and finance is either wrong or irrelevant.” In her piece on the Bulgarian elections, Mariana Ionova wrote:
“[Bulgaria’s] economy is growing at an annual rate of about 1.6 percent, but that is the slowest pace in the union, and about half the European average.”
These alleged facts aren’t even in the ballpark (see the accompanying chart). Bulgaria is neither the slowest growing economy in the European Union, nor is it growing at half the European average. In fact, Bulgaria is growing slightly faster than the European average.
Once again, the 95 Percent Rule rules.
Steve H. Hanke
The leading political lights in Europe – Messrs. Hollande, Valls and Macron in France and Mr. Renzi in Italy – are raising a big stink about fiscal austerity. They don’t like it. And now Greece has jumped on the anti-austerity bandwagon. The pols have plenty of company, too. Yes, they can trot out a host of economists – from Nobelist Krugman on down – to carry their water.
But, with Greece’s public expenditures at 58.5% of GDP, and Italy’s and France’s at 50.6% and 57.1% of GDP, respectively – one can only wonder where all the austerity is (see the accompanying table). Government expenditures cut to the bone? You must be kidding. Even in the Unites States, where most agree that there is plenty of government largess, the government (federal, plus state and local) only accounts for a whopping 38.1% of GDP.
As Europe sinks under the weight of the State, it’s austerity, not anti-austerity, that should be on the menu.
Tim LynchMan to serve 20 years in prison due to mandatory minimum sentencing
Ted Galen Carpenter
Vice President Joe Biden has reportedly apologized to the leaders of Turkey, the United Arab Emirates, and other Middle East countries for his previous comments that they had, perhaps inadvertently, supported Sunni extremists in the Syrian civil war. The uproar occurred because Biden had stated that Turkey, Qatar, and the UAE had given “billions of dollars and tens of thousands of tons of weapons” to Syrian Sunni fighters seeking to overthrow Bashar al-Assad’s regime. Those governments, he charged, had been willing to give aid to “anyone who would fight Assad. Except that the people who were being supplied were al-Nusra and al-Qaeda and the extremist elements of jihadis coming from other parts of the world.”
It is unfortunate that Biden felt the need to retract those comments, because his criticism was quite accurate. As I point out in a recent article on Aspenia Online, the rise of ISIS is the latest phase of a regional struggle for power between Sunnis and Shiites. The primary arena is Syria, where a fight rages between largely Sunni insurgents and Assad’s governing coalition of Alawites (a Shiite offshoot), Christians, and other religious minorities who are petrified about possible Sunni domination. Saudi Arabia, Qatar, Turkey, and the UAE enthusiastically backed the insurgents, and although the Obama administration might prefer to forget its role in the rise of ISIS, the United States provided aid to them as well.
The other, closely related, arena is Iraq with its continuing sectarian animosity. Eliminating Saddam Hussein’s rule ended decades of Sunni domination of that country’s politics and economy. The new Shiite-led government was in no mood for conciliating the displaced elite that had stifled their faction for so long. Instead, the regime seemed to go out of its way to marginalize and humiliate the Sunni minority. Iraq has seethed for years because of sectarian hatred, drifting to the brink of civil war in 2006 and 2007, and finally exploding into a full-blown internecine conflict this year. Some Iraqi Sunnis may harbor worries about the extremist nature of ISIS, but they also see the group as the one entity capable of mounting a serious armed challenge to the Baghdad government.
Although the Saudi, Turkish and Gulf governments now refuse to admit their role, they did heavily back Sunni forces in both Syria and Iraq that subsequently went rogue and formed the core of ISIS. Saudi Arabia’s involvement was especially malignant, since Saudi aid to Syrian and Iraqi factions was channeled primarily to the most radical elements. That development was hardly accidental or surprising, given the Saudi government’s long-standing promotion of the extremist Wahhabi strain of Islam. Saudi leaders may now realize that they helped create a Frankenstein’s monster, but Washington’s belief that Riyadh, as a member of the anti-ISIS coalition, will work to strengthen “moderates” in Syria and elsewhere is extraordinarily naïve. The Saudi government will more likely try to back other hard-line Sunni elements that, perhaps for sufficient financial inducements, might be willing to break with ISIS and take guidance from Saudi patrons.
Biden was undoubtedly under pressure not to antagonize members of the ramshackle international coalition that President Obama has assembled to combat ISIS. But truth is truth. And the vice president’s original comments about the deleterious role that Riyadh, Ankara, and other capitals have played were the truth.
The United States is the 12th freest economy in the world according to the new Economic Freedom of the World report. Co-published today by Cato and the Fraser Institute, it finds a strong relationship between economic freedom and human well-being.
The U.S. ranking is part of a worrisome decline in economic freedom that began more than a decade ago. For decades, the United States ranked in second or third place on the index. In 2000 it was #2, yet by 2005 it ranked 8 and it continued its precipitous fall until recently. On a 0-10 scale, the U.S. rating is now 7.81 compared to 7.74 last year, a slight improvement. The level of economic freedom in the United States is lower today than it was in 1980. Since 2005, Canada has ranked higher than the United States.
The authors of the report note that the United States has fallen in all five areas that they measure: size of government; legal system and property rights; sound money; freedom to trade; and regulation. But the rule-of-law indicator (legal system and property rights) has seen the biggest decline and, as the graph shows, it has been enormous.
The U.S. Decline
The measured deterioration in the rule of law is consistent with scholarship in that field and, according to the report, is a result of “increased use of eminent domain to transfer property to powerful political interests, the ramifications of the wars on terrorism and drugs,” and other property rights violations. Because the rule of law is of course a cornerstone not just of economic freedom but of all freedoms, and because there is a strong relationship between economic freedom and other liberties (civil and political), all Americans should be concerned with the findings of the report.
A deterioration in the rule of law should also be of special concern to Hong Kong, the top ranked territory in the index, where recent protests highlight the danger that Beijing’s interference in its legal system, including the perception of such, poses to the overall freedoms and economic success of Hong Kong.
Charles Krauthammer, in his Oct. 3 op-ed column, “Why winning the Senate matters,” wrote proudly about the “power of no,” which he advanced as key to blocking President Obama’s ideological agenda since 2010. “And Republicans should not apologize for it,” he said. “With an ideologically ambitious president committed instead to expanding entitlements, regulation and government itself, principle alone would compel the conservative party to say stop.” Whoa, Nellie. Let’s go to the tape.
Rewind to 2006, when Republicans controlled both houses of Congress. Here is the same sentence modified to reflect the 2006 reality: With an ideologically ambitious president (George W. Bush) committed instead to expanding entitlements (Medicare Part D, the largest expansion of the welfare state since the creation of Medicare and an unfunded program), regulation (under Mr. Bush, regulatory budget and staffing levels increased while the total regulatory burden continued to increase in absolute terms) and government itself (total government employment and total obligation authority both rose significantly under Mr. Bush), principle alone didn’t compel the conservative party to say stop at all. In fact, conservatives were behind the expansion in all three areas.
I am not sure what principle means to conservatives. Perhaps Mr. Krauthammer can define it for us in a later column.
John Allison, Williamsburg
Mr. Allison has a point about conservatives at the time, but my libertarian colleagues and I did point out President Bush’s offenses against the Constitution and the Republican Party’s professed principles a few times.
In a recent opinion piece, Washington Post columnist Harold Meyerson criticized something called the “investor-state dispute settlement” (ISDS) mechanism, which is included in some trade agreements. My colleague Dan Ikenson responded here; I wrote a letter to the Post, which said:
Harold Meyerson made valid points about the Investor-State Dispute Settlement (ISDS) clause in trade agreements in his Oct. 2 op-ed column, “A flawed trade clause.” However, with all the misinformation that exists on this issue, it is important to be precise. Foreign investors cannot sue “over any rules, regulations or changes in policy that they say harm their financial interests.”
Rather, they can sue if the host government has discriminated against an investor because it is foreign; if an investment has been expropriated, either directly or indirectly; or if the investor has experienced bad treatment of a more general sort (this controversial standard is known as “fair and equitable” treatment).
In a sense, the ISDS provision creates international judicial review of national laws and regulations, with such review available only to foreign investors. That is certainly a controversial proposition, but it is important to keep the debate focused on the facts, rather than on myths that have been put forward.
You only get so much space for these letters, so I thought I’d elaborate here.
ISDS allows foreign investors to challenge any and all domestic government actions before an international tribunal. That includes local, state, and national measures, by legislators, regulators, or courts. In terms of the substance of the claims that can be made, they look a lot like certain constitutional doctrines: Equal Protection, Takings, and Due Process. What you end up with, in effect, is a special international “constitutional” court (of sorts), available only to foreign investors. (It can’t strike down the domestic laws, of course, but it can award damages for violations.)
I’ve been very skeptical of this. I don’t want to go through all the arguments, but let me raise three three critical points about ISDS:
- If we’re going to have this kind of international judicial review, why give it only to foreign investors? Why not oppressed minorities? It doesn’t look very good when you protect the rights of only the rich.
- If we’re going to have international judicial review, shouldn’t we debate it more explicitly? It’s kind of a big deal. But when Congress and the Administration talk about issues related to these foreign investment rules, they don’t mention this aspect of it.
- Some libertarian-ish people I’ve talked to see this procedure as another valuable check on excessive government actions. I’m not convinced. Sure, ISDS could be used to argue that the government has over-reached. But it could also be used to get the government to reach further. The “fair and equitable” treatment clause in particular offers the scope to argue that the government should do more. For example, companies who receive renewable energy subsidies have [$] sued or threatened to sue when governments try to cut back on those subsidies. Thus, it can also be used to get in the way of sensible, more limited government.
Confounding the expectations of most commentators, the Supreme Court this morning denied petitions for review in all seven same-sex marriage cases pending before it. I wasn’t so bullish on the petitions’ chances – the justices are increasingly reluctant to entertain controversial subjects except when they absolutely must – but see a sort of practical wisdom in this noteworthy inaction. Although it’s unusual for the Court to deny review in those rare cases where all parties urge it, there’s no current “circuit split” – all appellate courts have struck down the challenges to various states’ marriage laws – so the justices’ demurral signals a desire to let public opinion shift even further in favor of allowing same-sex marriage before the Court wades in with a definitive constitutional ruling. By doing so, and thereby postponing any eventual ruling (perhaps until a circuit court goes the other way, if one does), the Court is lessening the chance that its involvement will warp American legal and political discourse the way Roe v. Wade did.
In the meantime, once today’s “decision not to decide” works its way through the lower courts, same-sex couples will be able to marry in 30 states and the District of Columbia. That’s a good thing.
Juan Carlos Hidalgo
The first chapter of Brazil’s presidential election was a roller-coaster: It kicked off with the country’s demoralizing exit from the World Cup, then its economy entered into a recession and widespread corruption charges engulfed the ruling Workers Party (PT). In August, Eduardo Campos, the candidate of the Socialist Party and a rising star in Brazilian politics, suddenly died in a plane crash. His VP candidate, Marina Silva, also a charismatic figure, ran in his stead and experienced a meteoric rise in the polls to the point that two weeks ago she looked certain to defeat President Dilma Rousseff in a runoff. But Silva’s support steadily eroded in the last week, and yesterday it was Aécio Neves, from the Social Democratic Party (PSDB), who finished a strong second and will challenge the president in a runoff three weeks from now.
With so many things going on, it’s difficult to pinpoint the precise factors behind the electoral result or predict what will happen next. But here are some of my impressions:
- Dilma’s performance: The president received 42% of the vote, which at first looks like a poor showing for an incumbent seeking reelection. However, it doesn’t look that bad when taking into account Dilma’s lack of charisma, the bad shape of the economy, and the pervasive corruption charges surrounding her Workers Party. She still finished first, 7 percentage points ahead of Neves. Undoubtedly, the Workers Party has built a strong constituency around the millions of Brazilians who receive subsidies and handouts from the government. It’s been the tone of the latest presidential campaigns that the PT candidate accuses his/her rivals of trying to dismantle popular programs such as Bolsa Familia. Moreover, 12 years of incumbency have helped the PT to create a formidable electoral machine. She is still the favorite to win on October 26.
- Neves’ comeback: In the last week polls indicated that Aécio Neves could actually finish second. But his strong showing —13 percentage points ahead of Marina Silva— took everyone by surprise. Neves did pretty well in the last debates, and most of the attacks from the PT in past weeks focused on Silva. So it seems that Neves’ surge came at the expense of Silva’s downfall. Can he count on most of Marina’s votes for the runoff? Not necessarily. A lot of her support came from voters tired of traditional politicians, such as Neves. Moreover, the PSDB candidate is a far easier target for PT attacks than Marina, whose humble background made it difficult to portray her as a heartless neoliberal. Neves belongs to the party responsible for the reforms of the mid 1990s that, although successful in bringing macroeconomic stability to Brazil, are not fondly remembered by many Brazilians.
- Marina’s rise and fall: It could’ve been the stuff of Hollywood —or a Brazilian telenovela: the daughter of poor Amazonian rubber tappers who grew up illiterate, taught herself how to read while being a maid, became engaged in environmental activism that eventually led her to politics – first as a senator, then as a minister. She received 19% of the vote in the last presidential election in 2010. This year she joined the ticket of Eduardo Campos, the candidate of the Socialist Party, but found herself on top after his tragic death in a plane crash in August. She immediately skyrocketed in the polls, which showed her comfortably defeating President Rousseff in a runoff. But Brazilians began having second thoughts: she lacked an experienced team —or even a party of her own— to govern. The PT accused her of planning to cut social programs. Her past as a political maverick took a toll on Brazilians who want a competent manager. And even though she presented herself as the candidate of diversity, her evangelical faith led her to adopt conservative positions on gay marriage, abortion and drugs that alienated some of her potential voters. Still, her presence in the campaign was positive, particularly because she represented a segment of the electorate tired of corruption and cronyism while also espousing some free market ideas. She could still tip the election if she endorses Neves for the runoff.
- It’s going to be ideological: An external observer would perceive a lack of center-right electoral options in Brazil: A Workers’ Party, Social Democrat Party and Socialist Party. However, Aécio Neves’ platform openly calls for reducing the scope of government intervention in the economy: cutting spending and taxes, pursuing bilateral trade agreements irrespective of Mercosur, giving more independence to the Central Bank, etc. These are some of the reforms that Brazil badly needs to reignite its stagnant economy. But they will also provide ammunition for President Rousseff, who will demagogically try to portray Neves as the enemy of the poor. It will depend on Neves’ well-honed political skills to confront those charges.
The campaign for the runoff on October 26 starts with Aécio Neves riding the momentum of his strong second finish, but as we have seen during this election, three weeks are an eternity in Brazilian politics.
Is Egypt’s economy taking a turn for the better? The government is hosting an economic summit in February next year, aiming to attract foreign investment, with the participation of not just private investors but also of the International Monetary Fund.
[Christine] Lagarde said Egyptian authorities’ “recent reform efforts” were “encouraging” and expressed her hope that participants in the upcoming summit will see how these reforms can “help restore durable economic stability and sustainable growth to Egypt.”
On the surface, it appears that Egypt’s government is making tangible progress addressing the country’s fiscal problem. The planned energy subsidies cuts are under way, although these are also accompanied by tax increases, mainly through a planned introduction of a value-added tax, hikes to tobacco and alcohol taxes and a new tax on capital earnings.
Experience from other countries, most notably from Europe in the aftermath of the global financial crisis, shows that fiscal consolidations that rely on revenue increases lead to worse outcomes than consolidations that consist of permanent reductions to government spending.
But, whatever one thinks about this particular question, there are two additional reasons to be skeptical. First, putting aside the fuel price hikes that have already occurred, much of the praise directed at the Egyptian government presupposes that it will deliver on its promise to slash subsidies by one third in the fiscal year 2014/2015. That would be welcome news but it is worth remembering that similar reform targets were set in the past and were systematically missed:
According to the budget for the past fiscal year, 2013–2014, the subsidies to oil materials were already supposed to be close to EGP100bn ($14bn). Yet, the actual spending was drastically higher, perhaps by as much as an additional EGP70bn ($10bn)
Second, it is deceptive to look at the fiscal question in isolation, as a technocratic problem that can be solved by clever tweaks to existing policies. Egypt’s economic problem is political in nature, and will continue to plague the country as long it is governed by a kleptocratic, unaccountable elite.
The government – more specifically its military forces – own and run a large part of the economy, shielded from competition, and generating rents. The military coup last year led to the strengthening of the opaque network of cronyism that has long characterized military-run enterprises. Some estimates suggest that as much as half of last year’s stimulus, worth around $4bn and funded predominantly by funds from the United Arab Emirates, has been directed at military-controlled enterprises that became involved in road construction and other forms of infrastructure works, displacing the traditional construction companies.
Just as it was a mistake to see Vladimir Putin as a market reformer in the early 2000s, notwithstanding some of the real policy shifts (such as the introduction of a flat tax), it would be a mistake to see President Abdel Fattah el-Sisi as somebody aiming to open Egypt’s economy to competition and raise the living standards of Egyptians through increased economic freedom. If economic reforms occur, they will occur with the narrow goal of strengthening his hold on power and satisfying the material needs of the generals backing him.
In Egypt, as in other countries of the region, economic and political oppression go hand in hand and are mutually reinforcing. Nothing is a bigger threat to a military dictatorship than an economically empowered citizenry. For this reason, we should not expect genuine reforms to be very high on Mr. el-Sisi’s list of priorities.
Over at Cato’s Police Misconduct website we have identified the worst case for the month of September.
The worst case goes to the still-unnamed police officer who shot John Geer in a Northern Virginia incident last year, and the police and federal investigators who have refused to release any information on the case a year after the shooting.
Fairfax County police officers responded to a call from Geer’s longtime girlfriend who called 911 because Geer had been drinking and throwing her possessions out onto the lawn after she told him she was moving out. When officers arrived, they trained their weapons at Geer as they spoke with him in the doorway of his home for almost 50 minutes. Friends and family gathered to watch the situation. One of Geer’s daughters shouted from a neighbor’s home “Don’t you hurt my daddy!”
Geer had been speaking calmly and holding his arms above his head, resting them on the doorframe from within, but when he moved his hands down the doorframe to about face-level, one of the officers abruptly fired a shot directly into Geer’s chest, as his best friend, father, and neighbors watched. Geer spun and closed the door before collapsing. The officers then waited an hour while Geer bled to death before sending in assistance. Over four hours later, Geer’s body was still left lying on the floor of his home.
Police handling of the incident and its aftermath haven’t improved in the year since the shooting. Geer’s family and friends still don’t know the name of the shooting officer—who has been on paid desk duty ever since—whether the shooting was declared justified or not, or why trained negotiators were not called. State and federal investigators have taken no substantial public action on the case, and the family, which exhibited incredible patience for the better part of a year, has finally had to resort to a lawsuit.
The refusal of the police to disclose even the name of the officer who shot and killed an unarmed man is just another example of the same troubling lack of transparency that we saw in the shooting of Michael Brown in Ferguson. Police officers are human, and yes they make mistakes, but what possible excuse is there for circling the wagons and denying the public—and worse, the victims’ family and friends—the right to know what their public servants have done and which of them needs to be to held accountable? The resulting feeling among those affected, as Geer’s father described it, is “Frustrating to say the least—not knowing anything and having a feeling of helplessness, sadness, anger. Just wondering what’s going on and why nobody would tell us anything.”
This is a case of one man shooting another unarmed man in the chest in front of dozens of witnesses. No complication can justify forcing that feeling of helplessness and anger on John Geer’s friends and family for over a year.