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It’s been a tough week for President Trump – and it’s only Tuesday. Just when Trump nearly had the country acknowledging his omnipotence, the stock market took a record one-day plunge on Monday and then, this morning, we learned that the president’s first year in office coincided with the largest U.S. trade deficit in nine years. Lest Mr. Trump concludes that he hasn’t been protectionist enough, there is another way for him to explain (without need of contrition or humility, of course) how he presided over a bigger trade deficit in his first year than was experienced in any of President Obama’s eight.

Trade deficits are pro-cyclical and have nothing to do with trade policy. Imports rise when the economy grows. When the economy grows—and it has been growing relatively strongly this past year—households, businesses, and governments consume more. They purchase more domestic and imported goods and services. Stronger growth tends toward larger trade deficits. Maybe Trump can try that slogan on for size.

But as sure as the sun rises in the east, business writers at most of the major newspapers, magazines, and online news venues will conclude that the trade deficit is a drag on growth.  Here’s Bloomberg Markets (randomly selected): 

The [December deficit of $52.1 billion] add[s] to details for the fourth quarter, when trade was a substantial drag on the economy, and show[s] how a widening deficit may mitigate any gains in the pace of expansion in 2018. Net exports subtracted 1.13 percentage points from gross domestic product growth…

These writers rely on—and then misinterpret the meaning of—the so-called National Income Identify.  The identity tells us how we dispose of our national income. It is not a “growth formula,” as some of the president’s advisers suggest. In an op-ed last year, Commerce Secretary Wilbur Ross and trade adviser Peter Navarro wrote:

When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth… The structural problems driving the slow growth in the US economy over the last 15 years have primarily been the investment and net exports drivers in the GDP growth equation.

The reference was to the national income identity, Y = C + I + G + X - M, which says that national output is either (C)onsumed by households; consumed by businesses as (I)nvestment; consumed by (G)overnment as public expenditures; or e(X)ported. Those are the only four channels through which national output is disposed.

But the identity is not a GDP growth equation. Imports have nothing to do with GDP—except that they tend to increase when the economy is growing and decrease when the economy is contracting. But we subtract M in the identity because i(M)ports comprise a portion of C, I, and G. They are part of the aggregate spending of households, businesses, and governments. If we didn’t subtract M, then GDP would be overstated by the value of imports. But there is no inverse relationship between imports and GDP. In fact, there is a strong positive relationship between changes in the trade deficit and changes in GDP.

Although trade deficits are not meaningless, the meaning of trade deficits is aggrandized and misappropriated. It is aggrandized because we tend to look at it in isolation. By looking at the trade account (or the slightly broader current account), which is in deficit (and has been for 42 straight years), while ignoring the capital account, which is in surplus (and has been for the same period), we focus minds on the word “deficit” instead of “balance.” 

The U.S. trade deficit means only that Americans buy more goods and services from foreigners than foreigners buy goods and services from Americans. But why should that be especially relevant when that formulation excludes a third, and very important, set of transactions between Americans and foreigners: the purchases and sales of assets? Instead of saying that the United States runs a trade deficit because Americans purchase more goods and services from foreigners than foreigners purchase from Americans, we should be saying that U.S. transactions with the world are in balance because the value of Americans’ purchases of foreign goods, services, and assets equals (almost to the dollar) the value of foreigners’ purchases of U.S. goods, services, and assets.

It’s misappropriated because too many commentators tend to describe the trade account as a function of trade policy—a scoreboard to indicate whether we are winning or losing at trade. Exports are Team America’s points; imports are the foreign team’s points; the trade account is the scoreboard; the deficit means we’re losing; and we’re losing because the foreign team cheats. But that’s just not right. The trade account is a function of disparate macroeconomic policies channeled through disparate patterns of savings and consumption among countries.

Some people who understand that the term deficit is loaded, and that our transactions (goods, services, assets) with foreigners are in balance still worry that selling assets to foreigners (“selling off assets” as it’s often put) to finance current consumption is shortsighted. They worry that we are chipping away at our principle or slowly killing the golden goose. That’s a reasonable concern, but I suspect more a theoretical problem than a real one because U.S. assets are not finite and their values are not constant. Their values rise and fall according to supply and demand and the factors affecting supply and demand. New assets are created all of the time, through ingenuity and the combining of factors of production that creates value.

When foreigners buy U.S.-owned assets, such as physical factories, research centers, land, patents, etc., they do so with the intention of increasing the value of those assets and/or the returns to those assets. A U.S. owned factory that was operating at 60 percent capacity that is purchased by a foreign company, which injects new capital and fresh ideas and uses more capacity to generate more production, revenue, and profits is improving that asset to create more value-added, more jobs, a bigger tax base, and demand for locally produced parts and local services. 

In other words, just because a U.S. asset is purchased by a company that may have a foreign headquarters or just because some of the profits are repatriated to that foreign country doesn’t mean Americans are selling off the principle or are otherwise worse off.  If the operation has promise in the United States, profits will be reinvested in that operation, which will continue to provide benefits for Americans. 

Moreover, a lot of foreign investment in the United States is so-called “greenfield” investment—turning undeveloped land into factories, service centers, and other working assets. American owners sell their land to a foreign interest, which turns that land into a productive asset with tons of local benefits. Why should it matter whether the company is headquartered abroad, as long as it’s creating value in the United States?

However, it does seem important to draw distinctions among foreign purchases of debt, equities, and property and other physical assets. When we say a $500 billion current account deficit is balanced by a $500 billion capital account surplus, we haven’t yet focused on the types of assets foreigners are buying. Foreign purchases of government debt, while contributing in a more circuitous way to U.S. value added, do represent debt that has to be repaid. So, when people say running trade deficits represents a burden on future generations, it is this portion of the trade deficit that they are considering. Corporate debt must be paid back, as well, but it is not a public burden. It is a burden on the executives, employees, and shareholders of those corporations. Purchases of factories, property, equipment, patents and other real assets are not debt. They don’t have to be paid back.

In these two pieces (1 and 2), I go into greater depth about how the meaning of trade deficit has been aggrandized and misappropriated. Meanwhile, with a year of experience under his belt, maybe President Trump can begin to realize that a rising trade deficit reflects a growing economy and that government profligacy (really, the unwillingness of politicians to tax now for what they spend now or to reduce spending) is the basis for any legitimate concerns about the trade deficit.

John R. Lott Jr. responded to my criticism of his working paper where he claims to have found that illegal immigrants are more likely to be admitted to Arizona state adult correctional facilities than other Arizona residents.  Lott did not respond to my main criticism directly, which is that the Arizona Department of Corrections (ADC) data do not allow him to identify illegal immigrants with nearly as much precision as he claimed in his paper. 

Praising the supposedly precise ADC data, Lott claimed that the “huge advantage of using the data that will be presented here from the Arizona Department of Corrections is that over our 32.5-year period we know each prisoner who entered the prison system, their criminal convictions history, and whether he is a documented or undocumented immigrant [emphasis added].” 

Lott was so confident in his data’s ability to identify illegal immigrants that he wrote: “It is the entire universe of cases, not a sample, and thus there are no issues of statistical significance.”      

The rest of his paper depends upon the immigrants in the “non-US citizen and deportable” variable in his dataset being illegal immigrants.  We showed that that variable does not exclusively contain illegal immigrants.  Thus, Lott’s characterization of the utility of his data is false.  This is the only point in my criticism of his paper that counts and Lott did not challenge me on it in his rebuttal, except to point out that the description of the variable in question has a comma in the codebook rather than a conjunction.  I dispute that, but it is irrelevant.  I’ll take his non-response to my main point as an admission that he misinterpreted the variable and that his paper does not accurately describe illegal immigrant admissions to ADC facilities. 

Lott then spends a lot of time attempting to rebut my back-of-the-envelope (BOE) calculation for 2017, which is what I called it in my blog.  It’s hard to take any BOE calculation seriously and I even included a note at the end of the blog about how my BOE calculation is probably wrong. 

Lott’s focus on my BOE calculation is a sort of tacit admission of my main criticism that he misidentified the “non-US citizen and deportable” variable.  As part of his criticism of my BOE, he then tried to show that most of the people in the “non-US citizen and deportable” category are actually illegal immigrants in order to argue that his data allows a pretty good estimate of illegal immigrant crime rates.  That is an admission that the “non-US citizen and deportable” variable does not exclusively record illegal immigrants, that it includes some legal immigrant, and that he cannot reliably separate the two.  I will take this section of his rebuttal as an additional admission that the data, on which he rested his entire paper, does not identify illegal immigrants in a separate variable. 

Furthermore, it’s telling that this section of Lott’s response sounds awfully like he’s making the assumptions that he so criticized in the “primitive” studies that he claimed were inferior to his own because he had the real data:

Before we proceed, there are a couple of numbers to put together.  The percentage of Arizonans that are lawful permanent residents and non-immigrants on other visas is lower than the national average — about 12% lower. If lawful permanent residents in Arizona are deported in proportion to their share of the state population, they would account for less than 8.8% of deportations.  Also note that temporary foreign workers are not very numerous, accounting for only about 12.6% of the estimated number of undocumented immigrants in the United States (=1.42 million/11.3 million).  Assuming that they are deported at the same rate as illegal aliens, lawful permanent residents and temporary foreign workers would together account for 10.5% of all deportations.

Lott’s criticism of my BOE calculation (which I even criticized in my Cato blog in a note acknowledging comments by Dara Lind) notwithstanding, the 219 times that he uses the phrase “undocumented” in his working paper to describe certain admitted prisoners, needs to be amended to read “a mix of undocumented and legal immigrants in unknowable proportions” to be accurate.  That he did not challenge me on this point is a tacit admission that my criticism regarding his misidentification of the “non-US and deportable” variable stands and that the findings in his paper should be significantly discounted.    

CNAS Senior Fellow Mira Rapp-Hooper has authored a first-rate take-down of the illogic of supposedly limited strikes (aka the “bloody nose” option) against North Korea at The Atlantic. Here are a few choice passages:

it makes little sense for American war planners to assume a “limited” strike like this would stay limited. A U.S. operation may not achieve its objectives, and even if it does, it would still leave the decision of whether or not to retaliate up to Kim. The North Korean leader would make that decision based on his own beliefs about the strike once it took place, not based on American wishes for his response. If he did decide to hit back, the result could be the most calamitous U.S. conflict since World War II.

[…]

If Kim is irrational on matters concerning his nuclear weapons and missiles, it’s reasonable to assume he’d be similarly irrational across the board. If he cannot be stopped from trying to reunify the two Koreas, further U.S. or UN sanctions are also unlikely to alter his cost calculations. Why would a first strike by America restrain him? Irrational actors are irrational in all domains—Washington does not have the luxury of picking and choosing where deterrence prevails.

The belief that Kim can’t be deterred from conquest but can be deterred once the United States has brought force against him demonstrates a highly selective strategic understanding. What form retaliation would take, again, is up to Kim. Yet [Trump national security advisor H.R.] McMaster seems to hold an erratic view of strategic dynamics that conveniently supports a use of force by the United States against North Korea, and privileges this path over all other options.

Under normal circumstances, these sorts of arguments against preventive war should rule the day. The case against the United States initiating force against any country, especially a nuclear-armed North Korea, is strong. Indeed, Korea expert Victor Cha made a similar case last week. Cha, no dove, concluded:

the United States must continue to prepare military options. Force will be necessary to deal with North Korea if it attacks first, but not through a preventive strike that could start a nuclear war.

And, while we’re on the subject of preventive war (i.e. premeditated aggression), former Colin Powell advisor Lawrence Wilkerson weighed in on the 15th anniversary of Powell’s speech to the United Nations regarding Iraq’s supposed WMD program. Wilkerson, a retired army colonel, noted the similarities between the Bush administration’s shoddy case for that war, and the Trump administration’s attempts to create a casus belli against Iran. These steps include, Wilkerson writes:

the president’s decertification ultimatum in January that Congress must “fix” the Iran nuclear deal, despite the reality of Iran’s compliance; the White House’s pressure on the intelligence community to cook up evidence of Iran’s noncompliance; and the administration’s choosing to view the recent protests in Iran as the beginning of regime change. Like the Bush administration before, these seemingly disconnected events serve to create a narrative in which war with Iran is the only viable policy.

These claims are false, these policies are flawed, and the implications are dangerous. The case for the JCPOA is strong, and the case against war with Iran is even stronger. 

Most Americans have learned from our unhappy post-9/11 wars. They are skeptical about starting new ones (and cool to expanding the existing ones). Once bitten, twice shy.

Alas, in the case of senior U.S. national security officials, it seems they are many times bitten, still not shy.

The effort to form a coalition government in Germany may finally be coming to an end. Chancellor Angela Merkel’s original plan after last September’s election fell apart when the liberal Free Democrats (FDP) decided to not join a coalition due to the fiscally irresponsible demands if other parties. It’s unfortunate that major American media regularly refer to the FDP as “pro-business” (or occasionally “business-friendly”). See, for instance, the New York Times, the Wall Street Journal, the Washington Post, the Associated Press, and Reuters. It’s not exactly wrong, but it’s incomplete and misleading. The party would be better described as pro-market rather than pro-business, and it’s also liberal on such issues as gay marriage, marijuana legalization, the dangers of surveillance. It pushed its coalition partners, Merkel’s Christian Democratic Union and the allied Christian Social Union, to end conscription in 2011. 

In the United States such a party would be called libertarian, or maybe “fiscally conservative and socially liberal.” In the rest of the world it’s called liberal. A helpful description for American readers might be “the free-market liberal FDP.”

In this case Wikipedia does a better job than the journalists: “The FDP strongly supports human rights, civil liberties, and internationalism. The party is traditionally considered centre-right. Since the 1980s, the party has firmly pushed economic liberalism, and has aligned itself closely to the promotion of free markets and privatisation.”

A merely pro-business party might join the European People’s Party (along with most Christian Democratic parties) or the Alliance of Conservatives and Reformists in Europe (along with the Conservative Party of the United Kingdom) in the European Parliament. Instead it’s part of the Alliance of Liberals and Democrats for Europe, as well as the broader Liberal International.

The FDP has been part of a governing coalition for most of Germany’s post-1945 history, usually in coalition with the CDU/CSU but during the 1970s with the Social Democratic Party. It is the most pro-trade party in Germany, strongly endorsing projects such as the Comprehensive Economic and Trade Agreement between Canada and the European Union, and the Transatlantic Trade and Investment Partnership agreement between the United States and the EU (on hold since President Trump’s inauguration). It supports the EU but wants to demand more fiscal responsibility among EU member states. It rejects federal minimum wage laws, advocates more competition in heavily regulated industries and professions, and promotes a smaller and more efficient welfare state, perhaps with a negative income tax and individually funded health and retirement systems.  Because of its liberal social policies and support for entrepreneurship and globalization, the FDP did better among 18-to-24-year-old voters in last fall’s election than any other age group.

Unfortunately, the United States lacks a (classical) liberal party, one committed to freer markets and more personal freedom. Germany has one, and “pro-business” doesn’t capture its ideology or its appeal.

Fred Roeder is an economist from Berlin and chief strategy officer of Students For Liberty.

The Fourth Amendment guards against unreasonable searches and seizures by requiring (with limited exceptions) that government agents first obtain a warrant before they go snooping around or confiscating someone’s property. But what exactly does this mean in the modern world of smartphones, wi-fi, and extended Socratic dialogues with Siri? If the New York-based U.S. Court of Appeals for the Second Circuit is to be believed, it means that the government can monitor and collect your internet traffic if this information is merely “likely” to be “relevant” to an ongoing criminal investigation.

That is exactly what happened to Ross Ulbricht, the creator of a website known as “Silk Road,” which enabled users to anonymously buy and sell goods and services. In the course of an investigation into illegal activities associated with the website, the government obtained five “pen/trap” orders authorizing law enforcement to collect IP (internet protocol) addresses for any internet traffic going to or from Ulbricht’s wireless router and other electronic devices. These orders were obtained in lieu of a warrant under a statutory “relevance” standard that falls well short of the Fourth Amendment’s requirement for probable cause.

How could this standard possibly not be constitutionally insufficient? The Second Circuit relied on the “third party doctrine,” ruling that there was no Fourth Amendment issue because users voluntarily conveyed their information to ISPs (internet service providers) and third-party servers, and thus assumed the risk that it would later be turned over without their permission or knowledge. This doctrine, which was developed in the days of pay phones and file cabinets, cannot be fairly extended to online activity given that internet access is—for all intents and purposes—a necessity of modern life for any functioning member of society. Recognizing this simple fact undermines any claim that users have somehow assumed the risk of disclosure to the government, which would have assumed that these users had any real choice in the matter to begin with.

The court also reasoned that because pen/trap devices only reveal IP addresses associated with the user’s online browsing, the collected information doesn’t count as “content” worthy of protection—despite the direct correlation between individual IP addresses and websites, along with the ample information that can be gleaned from knowledge of an individual’s browsing history. The court seemed to conclude that there was no content revealed because an IP address only uncovers the website visited rather than any individual webpage within that site. This superficial approach utterly ignores digital reality.

Finally, the court failed to recognize that the statute authorizing pen/trap data seizure imposes virtually no limits on government attorneys’ discretion. These orders are exceedingly broad in scope and available to nearly any government agency conducting a criminal investigation. Worse still, the court’s role in approving the orders is merely ministerial, with the statute mandating that “the court shall enter an ex parte order authorizing the installation” of these devices.

Because the Second Circuit has stretched both the third-party doctrine and the content/non-content distinction far beyond their logical limitations, Cato—along with the Reason Foundation, Competitive Enterprise Institute, and R Street Institute—has filed an amicus brief asking the Supreme Court to take this case and firmly establish that the internet doesn’t constitute some sort of Constitution-free zone.

The case is Ullbricht v. United States.

“Trump’s tax cuts are rocketing us into the debt ceiling,” wrote Catherine Rampell in The Washington Post on February 1, because “withholding from employee paychecks will drop starting no later than mid-February. Individual income tax revenue will therefore be about $10 billion to $15 billion less per month than the CBO previously estimated.” The suggestion that the debt crisis could be blamed on a mere $10-15 billion cut in monthly withholding got a Twitter shout-out from budget hawk Stan Collender, who must know that errors in monthly budget estimates are commonly larger than that.

This was followed two days later by Heather Long’s extremely misleading Washington Post story, “The U.S. Government Is Set To Borrow Nearly $1 Trillion This Year, an 84 Percent Jump from Last Year.” The article goes on to say, “Treasury mainly attributed the [$436 billion debt] increase to the ‘fiscal outlook.’ The Congressional Budget Office was blunter. In a report this week, the CBO said tax receipts are going to be lower because of the new tax law.” According to that link to another Post story, “CBO said that the tax law is expected to lower tax receipts by $10 billion to $15 billion per month. Even though the tax cut law went into effect January 1, the large drop in tax receipts didn’t kick in yet because companies won’t start using new withholding tables until sometime in February.” Fiscal 2018 began last October, so lower withholding tax can affect no more than 8 of the remaining months. Contrary to the Rampell-Long theory, the CBO’s revenue loss of $80-120 billion can’t explain her alleged $436 billion increase in Treasury borrowing.”

Where did all that added debt come from? What Ms. Long initially called “the exact” figure of $955 billion is later explained as “determined from a survey of bond market participants.” Asking about 23 bond dealers to guess Treasury “net marketable borrowing” is far from an official estimate, and it isn’t a measure of the deficit.

The first Table shows that OMB and CBO estimates show the FY 2018 deficit falling by 11-34% from the $66 billion in FY 2017. The median guesstimate in the last New York Fed’s email Survey of Primary Dealers, by contrast, is a FY2018 deficit of $750 billion. It’s a very small sample of non-expert opinion, and we don’t know the range and variance of forecasts or the Survey’s forecasting record.

Note well, however, that the Washington Post writer’s unexplained $955 billion private estimate of net borrowing is much larger than the 23 Primary Dealers’ wildcard estimate of a $750 billion deficit. Why? The reason is explained in the Table’s Footnote 5: “For FY2018, the restoration of extraordinary measures used during the 2017 debt limit impasse artificially adds to the ‘other means of financing’ which shows a larger net borrowing assumption.” Extraordinary measures include such things such as suspending debt issuance for civil service and USPS retirement benefits and redeeming certain securities instead of issuing new ones.

In case anyone missed the connection Rampell and Long were insinuating–that tax cuts nearly doubled FY2018 borrowing–an Axios summary of Long’s report was headlined: “After Tax Cuts, U.S. Borrowing To Spike 84% This Year to Nearly $1 Trillion.”

Aside from the mathematical implausibility of blaming an alleged $436 billion increase in borrowing on a JCT-estimated $103.5 billion tax cut (see the second Table), it was inexcusable for the Washington Post to publish the bizarre $955 billion net borrowing estimate without divulging that (1) it was a median estimate from an email survey of 23 bond dealers, and that (2) that dubious unofficial FY2018 estimate was also artificially inflated by “extraordinary measures” taken during debt limit impasse.

Neatly defining President Trump’s foreign policy has never been easy, characterized as it is by contradictory impulses, fragmentary ideas, and strains of paradox. However, on the two most arresting national security issues at the top of Trump’s agenda—Iran and North Korea—his approach is plain: aggressive confrontation is good; diplomacy is bad.

The problem is that, even if Trump himself is not determined to go to war with either of these countries, he is making it far more likely.

Last month, Trump once again waived nuclear-related sanctions on Iran, consistent with our obligations under the Joint Comprehensive Plan of Action (JCPOA), the 2015 agreement that provided economic sanctions relief in exchange for Iran significantly rolling back its nuclear program and subjecting it to an intrusive international inspections regime. However, Trump vowed it would be the last time he acts to uphold the deal.

The president’s antipathy toward the JCPOA is not rational. Indeed, there is a virtual consensus—including the International Atomic Energy Agency (IAEA), our European allies, China, Russia, and the U.S. military and intelligence community—that Iran is complying with the terms of the deal and that it is working as designed. If Trump’s effort to upend the JCPOA leads to its collapse, it would unburden Iran from the deal’s restrictions and rob the international community of unprecedented visibility into Iran’s program.

In a New York Times op-ed marking 15 years since Colin Powell’s United Nations speech making the case for war with Iraq, retired Army Colonel Lawrence Wilkerson, who helped draft the speech as Powell’s chief of staff, warns, “the Trump administration is using much the same playbook [as the Bush administration did with Iraq] to create a false choice that war is the only way to address the challenges presented by Iran.”

Though Wilkerson uses the phrase “Trump administration,” it is important to note that most of the president’s own cabinet is not with him on this. Indeed, Secretary of Defense James Mattis, Secretary of State Rex Tillerson, National Security Adviser H.R. McMaster, Chairman of the Joint Chiefs Gen. Joseph Dunford, and Commander of U.S. Strategic Command Gen. John Hyten, among others, all believe that staying in the deal is in the U.S. national interest, while undermining it presents unnecessary risks. Indeed, these voices have successfully dissuaded Trump from withdrawing from the deal thus far.

Still, the president has other allies, including UN Ambassador Nikki Haley and CIA Director Mike Pompeo—and Wilkerson is right that they are employing familiar tactics. The Guardian reported in August that “U.S. intelligence officials are under pressure from the White House to produce a justification to declare Iran in violation of a 2015 nuclear agreement, in an echo of the politicization of intelligence that led up to the Iraq invasion.” In November, Pompeo selectively released documents from the Bin Laden raid meant to suggest an operational connection between Iran and al-Qaeda, not unlike the efforts of some Bush administration officials in the lead up to Iraq. Haley’s theatrical speech in December, complete with a Hollywood-worthy backdrop of Iranian missiles, was short on evidence, didn’t stand up to scrutiny, and was reminiscent of Powell’s dramatic UN presentation, with vials of anthrax as visual aids.

To a certain extent, the real value of the JCPOA is not the technical limitations it imposes on Iran’s nuclear program. Rather, the real value of the deal is that it erects a psychological barrier to the United States going to war with Iran for utterly deficient reasons. This barrier seems to frustrate Trump, who despises limitations on his authority.

Whether the president has such designs or not, there should be no doubt that he is making war more likely—a war that Wilkerson rightly points out, “would be 10 to 15 times worse than the Iraq war in terms of casualties and costs.”

The approach to North Korea is perhaps even more troubling. Last week, President Trump decided to revoke his planned nomination of Victor Cha as Ambassador to South Korea. Why? Because Cha voiced concerns about the prospect of a limited U.S. military strike against Pyongyang on the grounds that it would escalate uncontrollably to full-scale war in Northeast Asia, likely featuring tit-for-tat nuclear strikes, killing millions in short order.

These objections, which Cha later spelled out in a Washington Post op-ed, were enough to banish him from the Trump administration. Until this incident, most observers assessed the administration’s loose talk of war with North Korea was merely a bluff intended to frighten Pyongyang into capitulation or pressure China to do more to rein in its churlish client. But the dismissal of Cha suggested otherwise.

Adding to the concern, “the White House has grown frustrated,” the New York Times reported Thursday, over “the Pentagon’s reluctance to provide President Trump with options for a military strike against North Korea.” The Pentagon “is worried that the White House is moving too hastily toward military action on the Korean Peninsula that could escalate catastrophically,” the Times added. “Giving the president too many options, the officials said, could increase the odds that he will act.”

Congress, too, is beginning to try to check the president on this: a group of Democratic senators sent a letter to Trump reminding him that he lacks legal authority to attack North Korea (though this hasn’t deterred the president in the past).

It is deeply worrisome that both Congress and the executive branch feel the need to actively contain Trump’s aggressive inclinations on these fronts. Unfortunately, the president is as much a product as he is a driver of America’s political and media zeitgeist, which has inflated the threat from Iran and North Korea to pathological proportions. In reality, neither regime poses a clear and present danger to the security of the United States, certainly not one requiring military action. The fever pitch surrounding each is more of our own making than anything else and Trump’s hawkish approach is by no means imposed on him by circumstances.

The question is whether the president can be convinced of this before his bombast begets a war nobody wants to fight.

In his State of the Union speech, President Trump said, “Since the election, we have created 2.4 million new jobs, including 200,000 new jobs in manufacturing alone.” Is the latter good news?

Politicians seem to have a fetish for manufacturing. But economists tend to be unconcerned about the composition of employment across sectors.

Proponents of the virtues of manufacturing believe governments should actively seek to encourage it, as manufacturing has historically enjoyed fast productivity growth. They bemoan the large fall in manufacturing employment since 1979, arguing that if more resources and employment had been directed to the sector, faster growth and higher living standards would have resulted.

A new paper by Robert Lawrence suggests this reasoning is precisely backward. His evidence suggests there is a direct tradeoff between manufacturing employment and productivity growth.

Suppose a new innovation trickles through the manufacturing sector, raising the productivity of workers. This increases supply. The extent to which these feeds through to higher output or lower prices depends on the elasticity of demand – i.e. the slope of the demand curve.

Lawrence suggests that for the manufacturing sector as a whole, demand is not very responsive to price changes. As prices fall in part due to fewer workers being needed to produce the same output, demand does not really change. Consumers pocket the savings and spend more on services. This is compounded by workers spending relatively more on services from higher incomes resulting from the productivity improvements.

As a result, between 1947 and 2017, the share of consumer spending going to goods has fallen from 62 to 33 percent. Similar declines in manufacturing employment have been seen across developed economies. And this is robust to trade patterns. Lawrence outlines “985,000 US manufacturing jobs estimated to have been lost due to Chinese imports between 1999 and 2011 represents less than a fifth of the total loss of over 5 million US manufacturing jobs over the same period.”

Why does this matter for Trump’s tweet? Well, because the uptick in manufacturing employment since 2010 actually has come during a period of slow manufacturing productivity growth. Between 2010 and 2016, output per full-time employee in manufacturing fell by 2.2 percent vs. growth of 4.3 percent between 2000 and 2010. Manufacturing prices actually rose relative to a general GDP deflator during this period. Given manufacturing demand is largely fixed and unresponsive, worse productivity means the need to employ more workers to keep a steady output.

This implies two things. First, that apparent manufacturing employment success may merely be a signal of a less innovative sector with weakened productivity. Second, even if government initiatives were successful in improving manufacturing productivity, this would not generate significant blue-collar employment.

Economist John R. Lott Jr. of the Crime Prevention Research Center released a working paper in which he purports to find that illegal immigrants in Arizona from 1985 through 2017 have a far higher prison admissions rate than U.S. citizens. Media from Fox News to the Washington Times and the Arizona Republic have reported on Lott’s claims while Attorney General Jeff Sessions and Representative Paul Gosar (R-AZ) have echoed them from their positions of authority. However, Lott made a small but fatal error that undermines his finding. 

Lott wrote his paper based on a dataset he obtained from the Arizona Department of Corrections (ADC) that lists all admitted prisoners in the state of Arizona from 1985 to 2017. According to Lott, the data allowed him to identify “whether they [the prisoners] are illegal or legal residents.” This is where Lott made his small error: The dataset does not allow him or anybody else to identify illegal immigrants.[i] 

The variable that Lott focused on is “CITIZEN.” That variable is broken down into seven categories. Lott erroneously assumed that the third category, called “non-US citizen and deportable,” only counted illegal immigrants. That is not true, non-US citizen and deportable immigrants are not all illegal immigrants. A significant proportion of non-U.S. citizens who are deported every year are legal immigrants who violate the terms of their visas in one way or the other, frequently by committing crimes. According to the American Immigration Council, about 10 percent of people deported annually are Lawful Permanent Residents or green card holders—and that doesn’t include the non-immigrants on other visas who were lawfully present in the United States and then deported. I will write more about this below. 

Lott mistakenly chose a variable that combines an unknown number of legal immigrants with an unknown number of illegal immigrants. Lott correctly observed that “[l]umping together documented and undocumented immigrants (and often naturalized citizens) may mean combining very different groups of people.” Unfortunately, the variable he chose also lumped together legal immigrants and illegal immigrants.

The criminologist who sent me the ADC data also sent along a more detailed dataset for the stock of prisoners in Arizona for June 2017. This newer dataset’s CITIZEN variable is just as unusable as the same variable in the 1985 to 2017 dataset but it has an additional variable that allowed us to somewhat better identify incarcerated illegal immigrants: whether the prisoner has an Immigration and Customs Enforcement (ICE) detainer. 

ICE sends detainers to correctional facilities to request that particular prisoners be released into ICE’s custody for deportation at the end of their sentences. ICE detainers are based on the strong suspicion that the prisoner is an illegal immigrant or a legal immigrant who violated the terms of his visa and is deportable. ICE detainers are far from perfect as ICE even occasionally deports American citizens. Although the ICE detainers in Arizona prisons overstate the number of illegal immigrants by including some folks who are legal immigrants, perhaps by quite a substantial amount, they are a somewhat narrower identifier than the variable that Lott used for the 1985-2017 ADC dataset.

In June 2017, 1,823 prisoners had ICE detainers out of 49,848 total prisoners in Arizona adult correctional facilities.[ii] According to this measure, the maximum percentage of illegal immigrants in Arizona prisons is about 3.7 percent of all prisoners. However, the ADC data is probably off. The public ADC website records only 42,200 prisoners, quite a bit fewer than the 49,848 in our dataset. We hypothesize that some prisoners were admitted to prison but never deleted from the database when the ADC released them. For instance, Arizona records one prisoner who was born on January 29, 1900. If not a typo, the oldest man in the world would be in the Arizona state prison system but it is more likely that his record was never deleted after his release.

Even if we assume that 100 percent of the prisoner overcount in the June 2017 ADC database were U.S. citizens, subtract them from the denominator, and leave the numerator that assumes that all prisoners with an ICE detainer were illegal immigrants, those illegal immigrants would still be a maximum of only 4.3 percent of all prisoners. In 2014, the last year for which Pew published its estimates of the illegal immigrant population by state, there were about 325,000 illegal immigrants in Arizona who comprised 4.9 percent of the state’s population. Since the population of illegal immigrants has held steady since then, the illegal immigrant incarceration rate was likely lower than their percent of the Arizona state population in 2017 (Figure 1). It is important to repeat that those with ICE detainers are not all illegal immigrants so the percentages in Figure 1 are the maximum possible shares of illegal immigrants in Arizona prisons in June 2017, depending on the two different estimates of the total size of the incarcerated population.

Figure 1

Illegal Immigrant Incarceration Rate and their Percent of the Arizona Population

Sources: Arizona Department of Correction, American Community Survey, and Pew Research Center.

The equivalent of the “non-U.S. citizens and deportable” variable in the June 2017 ADC database is called “criminal aliens,” another category that is not synonymous with illegal immigrants. In Arizona’s ADC regulations, the government first determines whether a prisoner is a criminal alien and then investigates whether he or she is an illegal immigrant. In June 2017, only 38.3 percent of criminal aliens had ICE detainers on them and, thus, were more likely to be illegal immigrants. As a back-of-the-envelope estimation, I assumed that 38.3 percent of “non-U.S citizens and deportable” are actually illegal immigrants in the ADC’s larger 1985-2017 dataset. This back-of-the-envelope calculation turns Lott’s finding on its head. Whereas he found that 11.1 percent of the admissions to Arizona prisons in 2014 were illegal immigrants, the real percentage is a maximum of 4.3 percent, below the 4.9 percent estimated illegal immigrant share of the state’s population. 

Lott’s controversial empirical findings regarding the high admission rate of illegal immigrants to Arizona prisons, a finding that contradicts virtually the entire body of research on the topic, stems from his simple misreading of a variable in the 1985-2017 ADC dataset. Lott thought that “non-U.S. citizens and deportable” describes only illegal immigrants but it does not. There is no way to identify illegal immigrants with precision in the 1985-2017 ADC dataset and their population can only be estimated through the residual statistical methods that Lott derides as “primitive.” Using another variable in the June 2017 ADC dataset that Lott did not analyze reveals that, at worst, illegal immigrants in Arizona likely have an incarceration rate lower than their percentage of that state’s population.

Special thanks to Andrew Forrester for his help with this blog post. 

[i] There is no reliable way to identify native-born Americans in the ADC datasets. 

[ii] There were detainers on 17 U.S. citizens and 33 legal immigrants who are non-deportable. Including them raises the number of prisoners with ICE detainers to 1,873 or 3.76 percent of all ADC prisoners in June 2017.

As we near the release of President Trump’s new budget, some of his proposals are leaking to the press. The Washington Post reports that the president will propose cutting renewable energy and energy efficiency subsidies by 72 percent. That would be a good start, although 100 percent would be better.

Spending for the Energy Department’s Office of Energy Efficiency and Renewable Energy (EERE) is set at $2.04 billion for the current fiscal year, which ends Oct. 1. Last year, the administration asked for $636.1 million, a decline of more than two-thirds, although Congress did not implement the request. For 2019, the administration’s draft proposal would lower that request even further, to $575.5 million.

We will see whether Congress goes along, but the story does show that, so far, Trump is siding with his conservative budget director, Mick Mulvaney:

The Energy Department had asked the White House for more modest spending reductions to the renewable and efficiency programs, but people familiar with the process, who spoke on the condition of anonymity to share unfinished budget information, said the Office of Management and Budget had insisted on the deeper cuts. …“It shows that we’ve made no inroads in terms of convincing the administration of our value, and if anything, our value based on these numbers has dropped,” said one EERE employee…”

Apparently, the White House budget office has concluded, as I have, that energy subsidies are a waste of money.

There is more good news from the Post:

The draft document says the administration will once again ask Congress to abolish the weatherization program … The budget proposal would also eliminate state energy grants. The budget would ax research in fuel efficient vehicles by 82 percent, bioenergy technologies by 82 percent, advanced manufacturing by 75 percent and solar energy technology by 78 percent.

The proposal would cut funds for electric car technologies and fuel-efficient vehicles—at $307 million currently the biggest of the program areas—to $56 million in 2019.

… The plan would also chop spending on more efficient building technologies and research into geothermal, hydro and wind power.

These cuts would be splendid, and straight from the DownsizingGovernment.org playbook.

Nonetheless, there has been some bad news on energy policy. Energy Secretary Rick Perry has tried to aid coal and nuclear at the expense of electricity consumers. Also, the administration supports the ethanol boondoggle, and it just imposed special taxes on solar panels. As for the president, he has been talking nonsense about “beautiful clean coal.”

Still, I’m looking forward to the spending cut proposals in the budget to be released February 12.

Meanwhile, you can read about energy subsidies here and proposals for federal spending cuts here.

Last week, Bartlesville, Oklahoma, police released video from a nighttime SWAT raid on the home of a man suspected of selling marijuana—yes, marijuana—during which officers fatally shot his mother, 72-year-old Geraldine Townsend, after she fired a BB gun at the officers. As he is being cuffed and dragged from the house, Mike Townsend can be heard pleading with the officers to let him see his dying mother, but they refuse.

In December, Wichita, Kansas, police received what turned out to be a prank call regarding a non-existent hostage situation at the home of Andrew Finch. When the 28-year-old father of two went outside to investigate the flashing emergency lights, SWAT officers yelled at him to “Show your hands” and “Walk this way.” Seconds later, one of the officers shot and killed him. Andrew Finch was unarmed.

That same month, a six-year-old San Antonio boy was killed by deputies who were shooting at a suspected car thief, also unarmed, on the front porch of the boy’s mobile home. Two weeks before that, former Mesa County, Arizona, officer Philip Brailsford was acquitted of murder for shooting an unarmed man, Daniel Shaver, as he begged for his life in the hallway of a motel. And back in July, Justine Damond was shot and killed by a Minneapolis police officer after she called 911 to report a possible sexual assault in the alley behind her house. Damond too was unarmed.

Lack of systematic record-keeping makes it difficult to quantify the scope of the problem with precision, but according to The Washington Post, of the roughly 1000 people shot and killed by police last year, at least seven percent were unarmed. A study by Vice News of all shootings by police, including non-fatal ones, suggests the numbers are even worse: 20 percent of people shot by police were unarmed.

No one denies that police have a difficult, dangerous, and sometimes scary job, nor should we forget the heroism of officers like those who threw themselves between citizens and mass shooter Micah Johnson during a Black Lives Matter rally in Dallas in July 2016. But the time has come for a national conversation about the risks we expect officers to take in order to avoid shooting innocent people like Andrew Finch, Daniel Shaver, and Justine Damond—and also to ensure that they avoid creating unnecessarily dangerous situations by staging gratuitous nighttime SWAT raids to serve low-level drug warrants.

More specifically, it is time to reconsider a legal rule called “qualified immunity” that holds police to a much lower standard of care than ordinary citizens.

We expect homeowners not to leave firearms where children can get at them, and we expect permit holders to exercise great care in deciding when to carry a gun and when to use it. One of the ways we send that message is through tort law, which enables people to sue for injuries caused by the negligence or intentional misconduct of others. Importantly, tort law creates positive incentives by holding professionals to a higher standard than others when acting in their field of expertise. Thus, the standard of care for doctors in medical malpractice cases is not that of a layperson, but of a reasonably prudent professional with the same training and experience.

Incredibly, the opposite rule applies to police officers, who, notwithstanding their greater training and experience, are held to a much lower standard than ordinary citizens in the use of force. That’s because the Supreme Court has effectively rewritten a federal law that makes police officers liable for violating “any right” so that they are instead only liable for violating rights that are “clearly established” in light of existing case law. While that may seem like a relatively minor tweak, it is anything but—indeed, the Supreme Court has emphasized that the practical effect of this so-called qualified immunity doctrine is to protect “all but the plainly incompetent or those who knowingly violate the law.” That is a breathtakingly low standard, and patients would flee from a hospital that expected no more from its doctors.

Going back to the shooting of Andrew Finch, we can see how better incentives might have prevented that tragedy. First, “swatting” is a well-known practice whereby someone calls in a fake emergency in the hopes of unleashing heavily armed police on an unsuspecting victim. Properly trained officers would take this into account in responding to calls like the one that led to Mr. Finch’s death. Second, officers would recognize that the many advantages they possess over laypersons, in this case more training, powerful weapons, and strength in numbers, translates into a duty of greater care, not less. An ordinary citizen who shot Mr. Finch under similar circumstances would not only be facing a ruinous civil suit but would almost certainly be charged with criminally negligent homicide. Finally, proper financial incentives would better motivate police departments to weed out officers who are not suited to their duties. For example, Philip Brailsford, the Arizona officer who shot and killed Daniel Shaver, had the words “You’re f*cked” etched onto his police-issued rifle. That should have been a red flag that he lacked the temperament for a job requiring good judgment and self-restraint under pressure.

There is no magic solution to the problem of police shooting unarmed citizens or creating needlessly hazardous situations by invading people’s homes in the middle of the night. But a good start would be for the Supreme Court to reverse its ill-advised foray into policymaking by abandoning qualified immunity and ensuring that police officers are held to the same standard of care as other professionals. In doing so, the court would embrace a key precept of the medical profession: First, do no harm.

 

 

As a general matter, governments are poorly managed compared to businesses in competitive markets. They tend to spend money on low-value activities, put up with sloth and waste, and follow failed policies for years without a course correction. I have examined the structural causes of federal waste and mismanagement in studies on Congress and the executive branch.

Many of the federal government’s structural problems also bedevil state governments. Yesterday, a Washington Post editor, Gene Park, described some of the dysfunction in Hawaii’s government that led to the false missile alert last month.

I could not figure out whether Park was mainly blaming institutional problems—such as union job protections—for government failures, or whether he was blaming the general culture of Hawaii and its government.

Certainly, the two factors are related. Flawed institutions such as labor unions create bad incentives and spawn a culture of waste. I would guess that people are similar everywhere, but different institutions across societies have shaped differing cultures or general behaviors. Of course, within societies people have many different personality traits, and governments likely attract workers seeking an environment of high job security and low performance expectations.

Is Hawaii’s government more mismanaged than other state governments? If so, is it because high unionization and other features of its government have created bad incentives, or is it because people in the state hold attitudes that undermine government efficiency?

Anyway, see what you think about Park’s article. Here are some excerpts:

This past week, we learned that the man responsible for the bogus Hawaii missile alert last month had kept his job for a decade, even though he had a history of performance problems and had been “a source of concern,” according to a Federal Communications Commission report. His fellow employees had expressed discomfort about his work, and the FCC said that he was “unable to comprehend the situation at hand and has confused real life events and drills on at least two separate occasions.” Although the emergency management worker, who remains unnamed, was a union member, he could’ve been fired at will. “Why, then,” Gizmodo understandably wondered, “was the employee in a position to send a false missile alarm to a couple of million people?”

As we say in the islands, e komo mai (welcome) to Hawaii.

I worked as a Hawaii state employee for a short time, serving as spokesman for a division of the Hawaii Department of Commerce and Consumer Affairs, and then spent more than seven years dealing with the government as a journalist. Anyone who knows how Honolulu functions can’t have been surprised by the FCC’s revelations. The sad part is that the worker’s ineptitude and the chaos he caused have exposed to the world old, ugly tropes about Hawaiian accountability and competence that residents would love nothing more than to shake off. “How many more non effective employees are on the job here in Hawaii?” asked a local on Hawaii News Now’s Facebook page.

There’s a strong assumption in the islands that once you enter the state government system, you’re set for life. … The prevailing notion is: You don’t have to work that hard.

And there is often no cost for screwing up. Vern Miyagi, the emergency management chief who resigned in the wake of the FCC report Tuesday, had made his reluctance to fire the alert author clear: “You’ve got to know this guy feels bad, right? I mean, he’s not doing this on purpose.” …

Culturally, Hawaii tends to reward seniority, not competence. Careers often advance only when incumbent workers resign or die. …

That’s a sentiment young people (and apparently 54-year-old members of Congress) hear often in Hawaii. The author of that 2006 newspaper column rued how “local values” insist on deference and conformity. …

I often heard residents of my old state parrot a Japanese saying: The nail that sticks out gets hammered down. And people who want reform, or just want to try something new, hear a common refrain in Hawaii’s private and public sectors: “That’s not how things have been done before.” Play your role, and you’ll be rewarded when you’re good and old.

That attitude has consequences. The FCC report shows it was no secret that the missile alert’s author was inept. Yet he somehow landed the critical job of telling an entire state whether its people could die in a nuclear blast. While 10 years passed, his supervisors did nothing to remove him from a job they knew he was unqualified for, nor did they implement procedures for what to do if someone accidentally sent a missile alert. It took a national embarrassment to dislodge him from his job.

More on the causes of government failure here and here.

After much publicly acrimony and week-long speculation about its contents, the “Nunes Memo” (named for GOP House Permanent Select Committee on Intelligence (HPSCI) chairman Devin Nunes of California) was finally made public today. In reality, the document was authored by thus-far unidentified GOP HPSCI staffers and does not represent a genuine, bipartisan committee product. It is thus, by definition, a purely partisan document.

But what of its substance, if any? Is there anything truly new or genuinely important in the document that is worthy of follow up by Special Counsel Robert Mueller? Unlikely. Should the memo serve as an opportunity for Congress to revisit its anemic surveillance oversight and reform record? Absolutely. First, let’s deal with the memo.

The memo itself is concerned with FBI Foreign Intelligence Surveillance Act (FISA) surveillance requests targeting then-former Trump campaign aide Carter Page in 2016. The core Nunes Memo allegation is that material that would’ve cast doubt on the credibility of the so-called “Steele Dossier“–a piece of campaign opposition research on the Trump campaign compiled by former British intelligence operative Christopher Steele, portions of which were allegedly used in the October 2016 FISA application on Page submitted to the FISA Court (FISC) by the FBI. In essence, the Nunes Memo alleges that a piece of political campaign material was used in an effort to target Trump and his campaign staff, and that the FBI failed to disclose Steele’s political connection to the DNC and Clinton campaigns to the FISC. 

What the Nunes Memo fails to note is that Page was clearly a “person of interest” to the FBI as early as 2013 in connection with a counterintelligence investigation involving Russian spies–agents who were apparently attempting to recruit Page as a source. As a former intelligence officer myself, its very easy for me to see why the Bureau would be interested in Page and his ongoing contacts with Russians. That Nunes and his staff apparently don’t see the problem presented by Page’s Russian contacts should be of concern to anyone who cares about preventing hostile intelligence services from gaining access to Americans with potential political influence and access to sensitive government information via their friends in government.

The Nunes Memo also implies that the FBI deliberately lied to the FISC about what it knew about Steele’s opposition research target and clients. From p. 2 of the Nunes Memo:

Neither the initial application in October 2016, nor any of the renewals, disclose or reference the role of the DNC, Clinton campaign, or any party/campaign in funding Steele’s efforts, even though the political origins of the Steele dossier were then known to senior DoJ and FBI officials.

Did the FBI have a statutory requirement to disclose that information? The specifc legal requirements for an application for electronic surveillance do not mandate that explicitly political/campaign-related conflicts of interest or similar politically sensitive information be included in the application. Should it? Absolutely. But in releasing the memo, neither Nunes, House Speaker Paul Ryan, or President Trump have called upon Congress to address this loophole. Neither have their Democratic Party counterparts.

What House Democratic Whip Steny Hoyer of Maryland has called for is Nunes’ head. Speaker Ryan is unlikely to accomodate the request, though one could make a very credible argument that he should.

Nunes’ tenure as HPSCI chairman has been a poltical and oversight disaster. Nunes and his GOP colleagues have made much about alleged surveillance violations against white businessmen while ignoring far more credible allegations of surveillance abuse against politically active people of color. The memo on alleged violations of Page’s rights rings quite hollow when you consider that the House GOP-controlled HPSCI conducted no investigation into documents released by Edward Snowden showing clear evidence that Arab- and Muslim-American leaders had been the target of unjustified–and likely unconstitutional–surveillance. The targets included a then-Republican Muslim-American Virginia House of Delegates candidate, Faisal Gill.

Nor has the House GOP-controlled HPSCI shown the slightest interest in investigating the near-complete breakdown of internal Intelligence Community (IC) watchdog. Indeed, I have heard credible reports about whistleblower retaliation problems at multiple IGs across the IC. But instead of investigating these and other genuine IC oversight challenges, the House GOP leadership–and their Democratic counterparts–have spent their time and energy arguing over a political “nothingburger” for weeks…ensuring that the FISA Follies continue.

All this week, the Cato Daily Podcast (subscribe!) has tackled the myths, errors, and underappreciated elements of immigration policy. President Donald Trump has made a massive reduction in legal immigration a centerpiece of his second year in office, and the sales pitch he’s made on behalf of that plan hinges on a number of false or misleading claims about the costs and benefits of immigration. In case you missed them, here are my discussions with Alex Nowrasteh, David Bier, and Matthew Feeney:

And, not to be left out, Jim Harper discussed his recent paper on new national ID systems including E-Verify, the deeply flawed employment verification system aimed at keeping undocumented immigrants from working in the United States.

Here’s more of Cato’s work on immigration.

An appeals court in Pennsylvania has ruled that the state police force must rehire a trooper whom it let go after a female officer obtained a protective order against him which barred him from having a gun. A dissenting judge argued in vain that the dismissal was justified since under the circumstances the man “cannot perform the basic and essential duties for which he was hired as a trooper.” Union grievance arbitration awards, however, get deferential treatment in court afterward, and so it was in this case, in which the arbitrator found it significant that the state had listed other reasons (unbecoming conduct, conformance to laws) for its action. 

Now, there’s nothing to physically prevent the state from complying with this set of marching orders: it is free to go on shelling out a trooper’s salary and benefits at taxpayer expense even while it cannot ask him to perform the duties of his job. Still, it’s close enough to a “sued if you do, sued if you don’t” situation that I filed the story in that department at Overlawyered, a department that also compiles many other curious stories: 

Sometimes courts succeed (expensively, and after the fact) in untangling these conflicts. But wouldn’t it be nice if the law didn’t create so many of them in the first place by trying to reach into so many areas of life?

The Washington Post does not do much investigating of waste, fraud, and abuse in federal agencies anymore, but it has done a great job with the Fat Leonard Navy corruption scandal. I discussed prior WaPo stories on the scandal here and here.

The newspaper has another pair of stories today (here and here) describing how Leonard Glenn Francis cozied up to Navy leaders in the Pacific to win lucrative deals for resupplying ships. He cashed in on overpriced contracts and fraudulent invoices, and he had numerous moles inside the Navy to steer business and profits his way. He wined and dined Navy officers, providing them with gifts, prostitutes, and other favors to get their help and protection.

The upshot: If so many Navy leaders were easily seduced by an old-fashioned con artist, does it mean that America’s other military and intelligence services are just as vulnerable to low-tech bribery and infiltration?

Here are excerpts from the WaPo story:

In a case that ranks as the worst corruption scandal in Navy history, the Justice Department has charged 15 officers and one enlisted sailor who served on the Blue Ridge with taking bribes from or lying about their ties to Leonard Glenn Francis, a Singapore-based tycoon who held lucrative contracts to service Navy ships and submarines in Asian ports.

For the better part of a decade, as part of a massive scam to defraud the Navy, Francis systematically infiltrated the Blue Ridge to a degree that is only now coming into focus, more than four years after the defense contractor’s arrest, according to the documents from federal court and the Navy, as well as interviews with Navy officials and associates of Francis.

Prosecutors say nine sailors from the 7th Fleet flagship leaked classified information about ship movements and other secrets to Francis, a Malaysian citizen, making the Blue Ridge perhaps the most widely compromised U.S. military headquarters of the modern era.

The Navy is investigating dozens of others who served on the ship, which is based in Japan, for possible violations of military law or ethics rules, according to documents and interviews.

Between 2006 and 2013, Francis doled out illicit gifts, hosted epicurean feasts and sponsored sex parties for Blue Ridge personnel on at least 45 occasions, according to federal court records and Navy documents obtained by The Washington Post under the Freedom of Information Act.

Officers from the Blue Ridge consumed or pocketed about $1 million in gourmet meals, liquor, cash, vacations, airline tickets, tailored suits, Cuban cigars, luxury watches, cases of beef, designer handbags, antique furniture and concert tickets — and reveled in the attention of an armada of prostitutes, records show.

That’s your government folks.

Some of the systematic reasons for bureaucratic failure in the government are discussed here.

Economic growth is a poorly understood phenomenon by economists.  There are many schools of thought and models that try to understand it but we are far away from understanding it as well as how micro markets function.  We may never do so.  But there seem to be two non-mutually exclusive ways that growth increases.  The first is called intensive growth whereby our economy becomes more efficient and produces the same amount of output for equal or lesser inputs.  The second is called extensive growth whereby economic output increases because more factors of production are added such as capital, land, entrepreneurship, or laborers. 

Based mainly on extensive growth, many economic models try to predict how changes in the U.S. population affect gross domestic product (GDP), itself an imperfect measure.  Immigration is the primary contributor to population growth in the United States both through their movement here and their subsequent birth of children.  More people in the United States, at a minimum, increase the quantity of two factors of production: labor and entrepreneurship.  Land is relatively fixed and capital adjusts based on population.  The National Academies of Sciences (NAS) report on immigration and economic growth concluded that (page 317):

Immigration also contributes to the nation’s economic growth. Most obviously, immigration supplies workers, which increases GDP and has helped the United States avoid the fate of stagnant economies created by purely demographic forces—in particular, an aging (and, in the case of Japan, a shrinking) workforce.  Perhaps even more important than the contribution to labor supply is the infusion by high-skilled immigration of human capital that has boosted the nation’s capacity for innovation and technological change. The contribution of immigrants to human and physical capital formation, entrepreneurship, and innovation are essential to long-run sustained economic growth. Innovation carried out by immigrants also has the potential to increase the productivity of natives, very likely raising economic growth per capita. In short, the prospects for longrun economic growth in the United States would be considerably dimmed without the contributions of high-skilled immigrants.

The NAS report argues that there are substantial technological spillovers that boost economic growth but those are impossible to predict.  Thus, I use a simple back of the envelope calculations to show how GDP growth through 2060 would alter under the Trump plan.  This includes Census population projections under the current policy.  I then subtract legal immigration and adjust births and deaths accordingly.  I assume annual GDP growth of 2 percent under the current policy but 1.75 percent under the Trump plan to take account of the Wharton Model’s findings concerning the Trump-inspired RAISE Act and the research of economist Joel Prakken.

GDP would be 15.5 percent lower in 2060 under the Trump plan than under the status quo according to this calculation (Figure 1).  U.S. GDP would grow from about $19 trillion today to $49 trillion under the Trump plan but it would have grown to $58 trillion under the continuation of the current immigration policy (2017 dollars).  According to this rough estimate, American GDP would be about 15.5 percent lower in 2060 under the Trump plan than it otherwise would be under the status quo.  My estimate is very similar to that of Prakken’s whose model says U.S. GDP would be 12.5 percent lower than baseline by 2045 under the Trump-inspired RAISE Act. 

Figure 1

GDP Under Trump’s Immigration Plan Versus the Status Quo 

Source: U.S. Census, Author’s Calculations, Cato Institute, Joel Prakken.

The loss in GDP comes from a lower population which the Census expects to grow to 409 million under the current policy but would only be 383 million under the Trump plan (Figure 2).     

Figure 2

American Population Under Trump’s Immigration Plan Versus the Status Quo 

 

Source: U.S. Census, Author’s Calculations, Cato Institute.

Most commentators and policymakers are interested in the minuscule and mostly positive effect that immigration has on wages.  In contrast, the impact of immigration policy on economic growth is far larger and more important.  The size of the economy is a great measurement of national wealth and material abundance that should be the focus of any debate over the economic merits of immigration policy.

The U.S. Chamber of Commerce is urging policymakers to pass an infrastructure package. Some of the Chamber’s proposals make economic sense and have bipartisan appeal, such as speeding the permitting process for construction projects.

But one Chamber proposal makes no sense and has little political appeal: raising the federal gas tax by 25 cents per gallon, which would more than double it from the current 18 cents. The Chamber’s case for a federal increase in infrastructure funding—as opposed to state-level increases—seems to include little more than polls purporting to show Americans are not against a federal “user fee” increase.

The Chamber undercuts its argument for a federal increase in this advocacy piece:

To rebuild and expand our roads, bridges, and transit systems, it is time for a modest increase in the federal motor vehicle user fee. The user fee was last raised in 1993. Since then, inflation has eroded nearly 40% of its value … Since 1993, 39 states have raised their own state motor vehicle fuel user fees. It is past time for the federal government to do the same. Specifically, we call on Congress to raise the user fee by 5 cents per year for five years for a total of 25 cents and adjust the fee to inflation thereafter.

If 39 states have proactively raised their own gas taxes, why does the federal government need to? Apparently, states are quite capable of balancing the costs and benefits of highway investment, and of making infrastructure decisions based on their own needs. As I discuss here, the average state gas tax rate increased from 21 cents per gallon in 1994 to 33 cents today.

Florida’s population has grown 47 percent since 1994, which has presumably increased the demand for highways. The state responded by raising its gas tax by 26 cents over the period, according to API data. Meanwhile, the population of Kansas has grown just 13 percent, presumably creating just a modest increase in highway demand. Kansas raised its gas tax 5 cents over the period.

Federalism works! States are making different choices based on their own needs. If Chamber of Commerce members in Florida favor higher gas taxes for better roads, wouldn’t they rather their tax money stay within the state, rather than going to D.C. and being re-routed to, say, Kansas?

Advocates of increased federal taxing and spending for infrastructure never seem to tell us the advantages of a centralized approach over a decentralized approach. Indeed, there are many disadvantages of centralizing the financing of, and control over, the nation’s infrastructure.

Some Americans may be surprised to learn that agriculture in their country is in large part based on a five-year plan. Most commonly referred to as the farm bill, it is up for renewal this year and—just like in years past—is likely to produce a legislative morass in which the primary beneficiaries are lobbyists and the business interests they serve. The following excerpt from a recent article in The New Yorker helps to illustrate the madness:

When milk prices bottomed out in the summer of 2016, Robin and David Fitch didn’t know how they could continue. Their four-hundred-and-seventy-acre dairy farm, in West Winfield, New York—a four-hour drive north of Manhattan—supported about a hundred and seventy milk cows. Sixteen years earlier, when they had married and started farming together, a herd that size would have been more than enough to keep them afloat. But milk prices kept falling that summer, eventually hitting fourteen dollars per hundredweight, down from twenty-five in 2014. The Fitches’ income took a nearly fifty-per-cent hit, while the debt they incurred from fuel costs, rising interest rates, and other expenses grew. The day came when they had to tell their two children that they might be forced to sell the farm. “My fourteen-year-old was in tears,” Robin recalled. “For the farmer, it means losing everything they have worked for their entire life—their land, their home, everything. It’s gone.”

The Fitches were not alone in their struggles. The U.S. Department of Agriculture estimates that, between 2013 and 2016, net farm income fell by half, the largest three-year drop since the Great Depression. Some forty-two thousand farms folded during the downturn, and small and medium-sized operations, such as the Fitches’, proved particularly vulnerable. Now, with commodity prices still low and farm debt predicted to reach record highs, the nonprofit organization Farm Aid has warned that, if the market doesn’t recover soon, the country could see its highest rate of farm closures since the nineteen-eighties. Newsweek estimates that, at the peak of that crisis, two hundred and fifty farms closed every hour.

Many American farmers are looking to Donald Trump for relief. He was, after all, their preferred candidate for President, winning sixty-two per cent of the rural vote in 2016. “Farmers built this country, and I was hopeful that he was going to see that and step up to the plate for us,” Robin Fitch told me. The President will soon have the chance to do just that, as Congress readies the next version of the farm bill, the single most important piece of legislation for the nation’s food growers. First conceived during the Depression, the bill has since become a fixture of American policy-making, updated and renewed and haggled over every five years or so. The 2018 bill, which is due in the coming months and is expected to cost around nine hundred billion dollars over a decade, promises to be one of the most consequential ever. This year, even more than in the past, farmers such as the Fitches face an existential question: Will Washington come to their rescue, or will it let them disappear?

The farm bill’s unassuming name fails to capture its effect on American life. Besides providing crop subsidies, establishing pricing structures, and regulating farming practices, it allocates funds for disaster relief, school-lunch programs, and wildlife conservation. Some eighty per cent of the bill’s budget goes to the Supplemental Nutrition Assistance Program (snap), formerly known as food stamps. “At one point, I started to catalogue the number of programs that were covered in the farm bill, and I gave up after a hundred,” Marion Nestle, a professor of nutrition, food studies, and public health at New York University, told me recently. “And every single one of those programs has a lobbying force behind it or it wouldn’t be there. And that’s just the farm programs!”

As the Fitches’ experience suggests, past farm bills have tended to benefit large operations over small and medium-size ones, which still account for ninety-seven per cent of all working farms in the United States. According to the Environmental Working Group, a D.C.-based nonprofit, the top ten per cent of wealthiest farms received seventy-seven per cent of commodity subsidies between 1995 and 2016. Roughly the same is true of crop insurance, currently the largest component of the farm bill behind snap. That’s where the real money is, Nestle told me. “What the insurance programs do is provide an incentive to grow as much food as you possibly can, because you know that the price is going to be guaranteed,” she said. The certainty of payment, backed by U.S. taxpayers, encourages big farms to get bigger, take risks, and then claim the insurance payouts if the crops fail to yield.

Each one of these paragraphs helps highlight at least one flaw with the farm bill or perceptions of the agriculture sector.

Among them:

Low prices of milk or any other agricultural commodity are not a problem to be ameliorated by public policy. Food is essential for human survival and we would all be better served if its price was, like sunlight and air, zero. The benefits of cheaper food and reduced hunger easily outweigh any losses borne by the farm sector.

The financial state of the agricultural sector is less than dire. While it is true that net farm income has dipped in recent years, this was preceded by a notable increase and currently is not particularly low by recent historical standards:

Similarly, the observation that farm debt is projected to reach record highs is presented without needed context. Left unsaid is that the sector’s assets are projected to reach $3 trillion, resulting in solvency ratios that are near historical lows:

It isn’t the job of politicians in Washington to save farmers—or members of any other industry. The task of lawmakers is not to dispense favors to particular constituencies but rather to create a policy environment in which market participants thrive or fail based on their own merits. Instead of pressing their thumbs on the economic scales, members of Congress should get out of the way and let the market—that is to say the collective judgment of consumers—render its verdict on which businesses continue and which ones cease. Smaller, more inefficient farms that cannot compete with larger agricultural concerns should be allowed to go out of business. Indeed, the replacement of less efficient farms with more efficient ones has been the story of agriculture for decades, with the resulting productivity surge leading to cheaper food and freeing up labor to participate in other sectors of the economy

The farm bill is an unfocused mess. Legislation which covers everything from subsidies to food stamps to wildlife conservation and contains so many programs that even experts cannot keep track is, by any measure, an unwieldy mess. Such legislative stuffing is best explained as an exercise in log-rolling, in which politicians from agricultural states and districts obtain support for farm subsidies by incorporating unrelated measures such as food stamps that have broader legislative appeal. This is no way to conduct business.

Ultimately the lobbyists win. As the article accurately notes, the legislation’s big winners are not family farms but rather large agricultural concerns who don’t need the help. While the federal government should not be handing out largesse to smaller farms, neither should it be funding their larger competitors. Losers from the farm bill, meanwhile, are not merely small and medium-sized farms, but the taxpayers who are forced to pay for this agricultural extravagance.

The article goes on to note that while it is “difficult to say what a small farmer’s ideal version of the bill would look like” that “there is no doubt that it would require radical revamping.” Such language implies that legislation meant to direct government assistance to particular actors within a large sector of the economy can become something other than what it is: an overgrown monstrosity written by lobbyists and ridden with corporate welfare. The only true reform of such a bill is to end the thicket of subsidies and price supports, and to break the legislation into smaller parts where its non-agricultural aspects such as food stamps can be addressed separately.

This is not to say that the government is without options should it seek to assist the agricultural sector. Rather than dispensing taxpayer-funded goodies, however, the Trump administration—assisted by pro-trade forces in Congress—should press ahead with efforts to open foreign agricultural markets. One of the richest and most protected such markets is Japan, and access by U.S. farmers to the country would have been notably expanded had President Trump not opted to withdraw from the Trans-Pacific Partnership. Fortunately, there is every indication the United States would be welcomed back should it seek to rejoin.

Similarly, European agricultural markets are shot through with subsidies and barriers to imports. An existing trade negotiation between the U.S. and European Union, the Transatlantic Trade and Investment Partnership, could yield positive results for the agriculture sector should this dormant initiative be reinvigorated. Let us also hope that administration rhetoric expressing a willingness to withdraw from the North American Free Trade Agreement, which would be particularly harmful to the agricultural sector, is simply a misguided negotiating tactic and not the expression of heartfelt sentiment.

Rather than conjuring up new economic distortions or tinkering with existing ones, Washington should seek ways to tear down barriers which prevent market forces from working their magic. The best farm bill is none at all.

At Reason’s “Hit & Run” blog today, Damon Root discusses “a major split [that] seems to be developing between conservative justices Neil Gorsuch and Samuel Alito over the issue of property rights and the Fourth Amendment.” I write simply to add a point to Damon’s important post. But first, a very brief summary of the issue.

Bryd v. United States, argued on January 9, is an automobile search case. Setting aside the more peripheral issues, the core question nominally before the Court was whether police may conduct suspicionless searches of places and effects in which those in possession have a reasonable expectation of privacy.

But Justice Gorsuch took not an “expectation of privacy” approach to the question but a property rights approach. Under common law, he said, “possession is good title against everybody except for people with superior title.” Absent probable cause, a trespass action would be available against anyone searching the car. Thus, “by virtue of his possession,” Byrd would have a right to resist a carjacker or throw out an overstaying hitchhiker. “So why not the government?”

Taking the more recent expectation of privacy approach to reading the Fourth Amendment, Justice Alito complained that “the problem with going down this property route is that we go off in search of a type of case that almost never arose…at common law, where [a person in possession] brings an action for trespass to chattel against a law enforcement officer.” He added that the word “property” doesn’t appear in the Fourth Amendment: “It talks about ‘effects’.” He then asked Byrd’s lawyer whether his argument is “that any property interest whatsoever falls within the definition of effects if we are going to go back to an originalist interpretation of the Fourth Amendment?”

Set aside whether Alito is resisting an originalist interpretation, it’s hard to know just what his theory of the case is. Is precedent his main concern, including the more recent expectation of privacy precedents and the alleged paucity of property precedents, especially involving law enforcement officers? Is it that with “effects” there’s a lesser expectation of privacy?

By contrast—and here’s the point I want to add—Gorsuch appears to be going back to First Principles. By implication, he’s doing the kind of state-of-nature analysis, reflected largely in the common law, that underpins the Constitution’s theory of legitimacy. From the Preamble to the document’s first sentence to the Ninth, Tenth, and Fourteenth Amendments, the idea is that legitimate governments have only those powers that the people have given them—but only those that they first have to give them. In the state of nature, there’s no right to trespass on another’s person or property—real or chattel—without probable cause. So once we leave the state of nature, where would a law enforcement officer get such a right. We have here, in short, a justice who studied these issues at Oxford, and we are the better for it.

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