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Chart of the day: Creative destruction, the Uber effect, and the slow death of the NYC taxi cartel - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 03/17/2018 - 13:58

From the article “This Chart Shows the Slow Death of the NYC Yellow Taxi” by Nick Lucchesi:

A new chart released this week shows that the New York City taxi cab is not only an endangered species but that its days are numbered. Today, there are 65 percent more ride-hailing trips than taxi trips in New York City (see chart above).

Genius employee and data-visual enthusiast Todd Schneider pulled from the reams of data released by the New York City Taxi & Limousine Commission each month that shows fares by car type — taxi or ride-hailing service. His analysis shows the tide has turned: At the end of 2017, all monthly ride-hailing pickups (Uber, Lyft, Juno, Via, Gett) numbered 15 million, while taxi pickups numbered less than 10 million. As use of yellow taxis (which primarily serve Manhattan) and green taxis (which primarily serve the other four boroughs) has been on the decline, there’s been a sharp increase in the use of ride-hailing apps.

The chart above shows the data behind one of the most dramatic changes in America’s largest city over the past five years. The way people in New York (tourists and locals alike) get around has flipped, and it doesn’t show any sign of stopping, according to Schneider’s analysis.

Related: According to the most recent monthly report from the New York City Taxi and Limousine Commission for taxi medallion sales in February, most of the medallion sales are now foreclosures (24 out of 37) and one medallion sold for only $125,000. The January report was equally as bleak — one taxi medallion sold for $120,000 and the majority (47 out of 62) were listed as either bankruptcy or foreclosure sales. As recently as August 2014, NYC taxi medallions were selling for $1 million, just as the ride-hailing revolution was beginning (see chart) and Hurricane Joseph Schumpeter started disrupting the NYC transportation market with a very large, once-in-a-century tsunami of creative destruction called “The Uber Effect.”


Trump needs to be clear about one thing in meeting with Kim Jong Un - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 03/17/2018 - 12:00

With the nomination and likely confirmation of Mike Pompeo as secretary of state, President Trump will soon have a trusted adviser who can prepare him for his upcoming summit with North Korean dictator Kim Jong Un. Pompeo’s first job is to make sure Trump understands one thing going into those talks: North Korea has no plans to give up its nuclear weapons at the negotiating table.

Kim knows what happened to Libyan dictator Moammar Gaddafi when, after the capture of Saddam Hussein in Iraq, he handed the entire Libyan nuclear weapons program — the uranium, the centrifuges, the designs to build bombs — over to the United States for secure storage. Seven years later, the Obama administration launched a military intervention in Libya during which Gaddafi was killed by rebel forces. Don’t think Kim has not seen the video of Gaddafi’s gruesome death, or concluded that it would never have happened had Gaddafi kept his weapons.

Kim is also fully aware of what happened to Ukraine after it gave up the nearly 2,000 nuclear weapons it possessed after the collapse of the Soviet Union. In December 1994, in exchange for denuclearization, Russia signed the Budapest Memorandum of Security Assurances promising to “refrain from the threat or use of force against the territorial integrity or political independence of Ukraine.” In 2014, Russia invaded a denuclearized Ukraine and annexed Crimea.

The idea that Kim is going to look at this history and decide “Third time’s a charm!” is absurd. Any promise for complete denuclearization he gives Trump will be a lie – just as his father lied in 1994 when he agreed to abandon his nuclear program. Kim is coming to the table to extort money and get the United States to withdraw forces from the Korean Peninsula so that he can pursue his ultimate goal of unconditional Korean unification under Pyongyang’s rule.

So why should Trump even bother to meet with Kim? Because a direct meeting may be the only way to convince the North Korean leader that Trump is serious about taking military action if Kim does not abandon his quest to threaten American cities with nuclear missiles. In January, I asked Pompeo in a conversation at the American Enterprise Institute whether Kim actually believes that Trump would pull the trigger on a military strike. “We’re concerned that he may not be getting really good, accurate information,” the CIA director replied. “It is not a healthy thing to be a senior leader and bring bad news to Kim Jong Un.”

A face-to-face meeting is a chance for Trump to look Kim in the eye and tell him: You will not be allowed to deploy missiles that can reach U.S. cites. I am not like my predecessors. If you continue on this path, America will have no choice but to take military action to destroy your missile and nuclear capabilities. Such strikes will be limited — unless you retaliate, in which case your regime will end. I would prefer it not come to that, but the decision is in your hands.

If Kim walks away unconvinced, and continues to pursue nuclear ICBMs, Trump can back up his message with limited actions. These could be undertaken covertly in order to avoid publicly shaming the North Korean leader. For example, Richard Ellings of the National Bureau of Asian Research recently suggested that North Korean submarines could suddenly start silently disappearing beneath the sea. No one would know except the North Korean leadership. This, along with even more painful sanctions, would send an unmistakable signal to Kim that Trump was serious.

If, despite all this, Kim continues to push forward, then the United States must be prepared to take out Kim’s nuclear and missile facilities, as well as the artillery pointed at Seoul. But preventing the need for military action — which risks escalating into all-out war if Kim miscalculates — is why it is important for Trump to meet the North Korean leader. It may be that only a threat delivered in person can finally convince Kim that Trump means it when he says all options are on the table.

Russia’s latest attacks on UK soil could spark World Cup boycott - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 03/17/2018 - 00:27

In the wake of the poisoning of the one-time Soviet intelligence officer turned British-controlled mole, Sergei Skripal, and his daughter, Yulia, Prime Minister Theresa May has bounced 23 Russian “diplomats” from Britain.

The attempted murder with a deadly nerve agent is not the first occurrence of a Russian hit job on UK soil. Although the most famous previous case was the Kremlin-ordered murder of another former Russian spy, Alexander Litvinenko, in 2006 by exposure to radioactive polonium 10, there have been a number of other suspicious deaths that have occurred in Britain in recent years that are possibly linked to Moscow. Indeed, there was another such death just this past week.

However, May’s decision to PNG nearly two-dozen diplomats, while a good first step, is just that. In response, the Russian government will expel British diplomats stationed in Moscow.  The only other reaction from May’s government has been to announce that the royal family will not be attending the World Cup this summer in Russia. It’s doubtful that Putin will lose any sleep over either of the measures May has taken.

However, Putin would lose sleep if the UK and NATO allies agreed to pull their national soccer/football teams from participating in the World Cup as long as it is held in Russia. And if Fédération Internationale de Football Association (FIFA), soccer’s international governing body, refused to change the venue, then an informal coalition of like-minded nations should put on a tournament in a country or countries that aren’t behaving like the rogue state Russia has become. Yes, contracts will have to be broken and lawsuits might follow, but can one really say that the downside is greater than the Russians using a chemical weapon on another sovereign state? Already the leaders of France, Germany, the US and the UK have condemned this “first offensive use of a nerve agent in Europe since the Second World War.” Now they have do something.

Hosting the Olympics has long been a goal of nations wanting to tout their arrival on the world stage. While the most famous case was Nazi Germany’s hosting of the summer Olympics in 1936, in more recent times we’ve seen the summer Olympics given to China in 2008 and Brazil in 2016, and the winter Olympics to Russia in 2014. Now it appears the World Cup has taken on the same legitimating role, with plans to hold the tournament this year in Moscow and, in 2022, in that “traditional” hot bed of soccer, Qatar.

One would think that the cheating done by Russian athletes in past international sporting events would be sufficient to put a halt to such gifts, but, apparently, not. Even the military invasion of Ukraine and the illegal annexation of Crimea haven’t put a hitch in FIFA’s decision to back away from a Putin-hosted World Cup.

Of course, as repeated investigations of FIFA have shown, integrity is not a singular feature of that governing body. Corruption and self-dealings in awarding Cup sites have been all too frequent. And while this past summer the release of the Garcia report, a 2014 internal report based on the investigation by a former US Attorney, found no smoking gun when it came to Moscow’s bid to host the World Cup, the report’s findings are marked by the caveat that Garcia had no subpoena power and therefore relied on the voluntary cooperation of the very individuals they were investigating. And, in fact, as the New York Times reports:

Over the course of 430 pages, the secret report provides provocative glimpses of unmistakably questionable behavior by some of world soccer’s top officials, as well as others eager to meet their every demand. Huge amounts of money ending up in strange places. High-ranking executives behaving shadily, petulantly and, at times, perhaps illegally. Rules broken, slyly circumvented or simply bent beyond their intent.

Given the amount of money that the Kremlin’s henchmen toss around in Europe and elsewhere on all kinds of fronts and for all kinds of issues, it would be remarkable indeed if somehow this World Cup bid is the exception to that behavior.

In 1980, in the wake of the Soviet Union’s invasion of Afghanistan, President Jimmy Carter pulled the US Olympic team from participating in the summer games that were to be held in Moscow—this coming from a president who only a few years before had decried Americans’ “inordinate fear of communism.” So, the precedent exists.

Given all that is on Prime Minister May’s plate these days, and her own iffy political situation, it might be a bridge too far for her to unilaterally take this step. On the other hand, if London’s allies were to support her by pulling their squads and, in turn, putting on a tournament outside of Russia, it might just be a turning point for pulling international soccer out of the muck its long been in. More importantly, it could also serve to remind the Russian people before they reelect Putin to the presidency in just a few days that there are costs to their nation to his continued rule.

Republicans are wrong about Conor Lamb - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 21:08

Before voters in Pennsylvania’s 18th congressional district cast their ballots, Republicans cast the Democratic candidate, Conor Lamb, as a liberal. A Republican PAC ran an ad calling him a “liberal sheep” who would spend his term “voting the straight liberal party line for Pelosi’s extreme agenda.”

Once the votes were cast, Republicans changed their tune. Suddenly Lamb was, in Paul Ryan’s words, someone who “ran as a pro-life, pro-gun, anti-Nancy Pelosi conservative.” Lamb “ran as a Republican,” said one of Ryan’s colleagues.

What changed? Lamb won, or at least seemed to eke out a narrow victory on election night. Even if the Republican candidate, Rick Saccone, wins the seat once all the votes are counted — something most observers consider unlikely — Lamb performed very well considering that the district went heavily for President Donald Trump in 2016.

Before the election, Republicans wanted voters to think of Lamb as too liberal to support. Afterward, they wanted to buck up Republican morale by saying that he had run to the right.

The new spin is not grounded in reality. Lamb is not a conservative, and not a Republican in the wrong party. He ran against most of the Republican economic agenda, including the recently enacted corporate tax cuts and the reforms to Social Security and Medicare that Ryan has long advocated. (Lamb objects when Ryan, like much of the press, calls these programs, to which senior citizens are entitled by law, “entitlements.”) He’s for tweaking rather than replacing Obamacare.

Many Pennsylvania Democrats, especially in Lamb’s region of the state, have opposed abortion: Former Governor Robert Casey and former U.S. Representatives Frank Mascara and John Murtha are cases in point. But all three are now deceased, and today’s Pennsylvania Democrats aren’t cut from their mold. Lamb says he “believes life begins at conception,” but also thinks abortion should be legal even after the 20th week and disavows the label “pro-life.”

It’s true that Lamb is out of step with progressives on some issues. After the Parkland, Florida, massacre, he said new gun laws weren’t needed. His first campaign ad showed him shooting an AR-15, which many liberals would like to ban. He favors drilling for natural gas and wants to raise the minimum wage to $10 an hour, rather than the $15 an hour other Democrats want. And he did, as Ryan’s post-election remark suggested, distance himself from Pelosi.

Republicans should stop portraying Lamb as a conservative for several reasons. Above all, it’s false. It could also lead congressional Republicans and their allies to underestimate their challenge this year — making it more likely that they won’t meet it. And it allows the terms of political debate to drift leftward.

If someone who wants to keep abortion even late in pregnancy counts as “pro-life” and “conservative,” or even “moderate,” everyone who holds a position to the right of his starts to look like a right-wing extremist. Usually it is Democrats who wish to define mainstream Republican positions that way. That’s because it’s in their interests, and not the interests of Republicans.

But Ryan got one important thing right about Lamb: It is fair to call him “pro-gun.” In today’s Democratic Party it seems to be more acceptable to oppose gun control than to oppose late-term abortions. The party will give candidates more leeway on guns than on abortion in socially conservative parts of the country.

The difference in the Democrats’ treatment of these issues tells you something about their passions, but probably more about how it perceives the general-election risks. Democrats think that being anti-gun is more politically perilous than being pro-choice (or at least that a candidate can more easily muddy the abortion issue by declaring personal opposition).

Liberals have ample reason to savor Lamb’s victory. If they think that the politics of guns are changing in their favor, though, they should also view it as a caution.

The Food for Peace Modernization Act: legislation to make the world a better place - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 20:27

Earlier this month, the chairmen of the Senate Foreign Relations and House Foreign Affairs Committee, Sen. Bob Corker, R-Tennessee, and Rep. Ed Royce, R-California, introduced identical versions of the Food for Peace Modernization Act in the Senate and the House, along with co-sponsors Sen. Chris Coons, D-Delaware, and Rep. Earl Blumenauer, D-Washington.

The proposed legislation directly or indirectly addresses three longstanding concerns about the largest of the three U.S. international food aid programs: the mandates to source almost all food aid from the United States, to ship at least 50 percent all such aid on U.S.-flagged ships under cargo preference law, and to sell at least 15 percent of food shipped under the main food aid program in markets in recipient countries to generate cash, a practice known as monetization.

Together, these three restrictions on the use of international food aid funds have been widely estimated to waste about 30 percent of current U.S. international food aid program funds, amounting to as much as $400 million a year. The Food for Peace Modernization Act’s reforms would expand the reach of those programs to millions more families and children in dire poverty whose lives have been devastated by extreme drought, violent conflicts and other catastrophic events.

The act would relax the U.S. sourcing mandate by requiring that not less than 25 percent of international food aid funds provided for the Food for Peace program be used to source food aid from the United States. This creates the flexibility to source up to 75 percent of food aid from local and regional markets much closer to where the populations in need actually live.

Local and regional sourcing is typically much cheaper — due to lower transport and administration costs — and, crucially, this practice speeds up delivery of the aid to the families who need it by nearly three months, on average. By reducing malnutrition and the risk of outright starvation in countries like Syria and South Sudan, increasing the speed with which food gets to the families in need is, quite simply, life saving for many children and their mothers.

Sourcing food aid from the United States is sometimes the cheapest and most efficient way of helping people. When catastrophes devastate Caribbean or Latin American countries like Haiti or Ecuador, or when highly processed products like vitamin-fortified vegetable oil are needed for nutritional reasons, the United States is often the nearest low-cost supplier; and for commodities like peas and lentils the United States may be the only viable source. So the 25 percent minimum U.S. sourcing requirement is not likely to waste scarce aid dollars.

Reduced U.S. sourcing would also effectively reduce the waste associated with cargo preference, a mandate that increases annual shipping costs 26 percent to 43 percent above rates available in the open commercial market. Contrary to shipping companies’ claims that U.S. sourcing for food aid plus cargo preference advances national defense, careful studies have consistently found those claims unfounded and emphasized the wasteful windfall profits generated by cargo preference, much of which accrues to foreign shipping lines with U.S. divisions.

Monetization gives funds to non-governmental organizations operating development programs in poor countries to buy food produced in the United States, ship that food to a distant country in which they have aid programs, and then re-sell it in local markets. Studies have shown that monetization wastes 30 percent to 50 percent of every dollar spent on unnecessary shipping and administrative costs.

In addition, selling food in local markets can and has depressed local food prices, harming local farmers and traders and ultimately undermining the food security of the country the aid is intended to help. In the few cases where monetization may be the best approach, U.S. food aid funds would remain available. But under this act, U.S. aid programs would no longer be required to waste scarce federal resources where it is not.

The Food for Peace Modernization Act proposes overdue changes that can make an immediate difference in multiple countries facing the real threat of famine. No wonder, then, that many leaders in Congress, in major farm organizations, and in humanitarian organizations are calling for U.S. international food aid program reforms. By increasing the effectiveness and timeliness of food aid programs, the United States can save more lives, stem forced migration, and generate goodwill around the globe, all without tangible cost to national security, American jobs, farmers’ incomes or taxpayers. The Senate and House agriculture committees, and the administration, would do well to embrace this long-needed bill.

Vincent H. Smith is the director of agricultural policy studies and a visiting scholar at American Enterprise Institute. He is also a professor of economics in the Department of Agricultural Economics and Economics at Montana State University. Ryan Nabil is a global macroeconomy and agricultural policy researcher at AEI. Also contributing to this are Christopher B. Barrett, a professor of economics at Cornell University; Stephanie Mercier, a principal at Agricultural Perspectives and former Senate Agricultural Committee chief economist; and Erin Lentz, an assistant professor of public affairs at the University of Texas at Austin.

The Bear Stearns bailout didn’t avert the financial crisis, it was the crisis - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 19:24

Almost exactly ten years ago, the federal government rescued Bear Stearns, a large Wall Street investment bank that was sinking under the weight of its subprime mortgage holdings. A recent article in the Wall Street Journal suggested that the Bear rescue turned out to be only a temporary measure and did not prevent the financial crisis that occurred six months later. But rather than an unsuccessful effort to avert a crisis, the Bear Stearns bailout was actually a principal cause of the disastrous panic that hit the markets six months later.

To many on Wall Street and elsewhere in 2008, the rescue of Bear established a policy that the government was going to rescue all the large financial institutions. Otherwise, the bailout made no logical sense.

Bear was the smallest of the five large Wall Street investment banks, a group that also included Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers. Lehman, the next smallest, was 50% larger than Bear. It was reasonable to believe that if the government was going to rescue the smallest of these firms, it would certainly rescue those that were larger.

So the immediate result of the Bear rescue was moral hazard—a change in the psychology and actions in the market based on an assumption about government policies. This had several effects that ultimately led to the financial crisis.

Normally, during financially troubled times, the managements of financial companies would seek to reassure creditors by shoring up the firm’s equity position. This, however, did not seem necessary after the Bear rescue. If the government was going to bail out all creditors—as it did in the case of Bear—the creditors of even larger firms would now see no reason to run. If the worst happened, they too would be bailed out.

This analysis fit well with management’s interests. The stock market had fallen by almost 50% as the number of mortgage failures multiplied in 2007 and 2008, so managements had little appetite for diluting their shareholders by selling additional equity. The smart course seemed to be riding out the storm by becoming as liquid as possible, without issuing large numbers of new shares.

Accordingly, after the rescue of Bear, the financial market settled down, even as conditions in the mortgage market grew worse.

On September 7, the Treasury Department declared that the two massive government-backed mortgage companies—Fannie Mae and Freddie Mac—were insolvent, and placed them in a government conservatorship in which they remain today.

This shocked investors. Fannie and Freddie had always been known for buying only prime mortgages. If they were insolvent, investors reasoned, the mortgage crisis was not solely a problem of subprime loans. Very few understood at the time that both companies—in complying with a regulatory system known as the affordable housing goals—had acquired more than $1.5 trillion in subprime and other risky mortgages.

The insolvency of Fannie and Freddie re-ignited fear in the financial markets. During the succeeding week, Lehman Brothers, the other investment bank—in addition to Bear Stearns—most heavily invested in mortgages, could not raise new financing to replace short term funds that were not being rolled over.

The moral hazard created by the Bear rescue now had its disastrous effect. As Lehman slid toward bankruptcy during the following week, the Treasury and Fed did nothing. In later accounts, both Fed chair Bernanke and New York Fed President Tim Geithner, said that Treasury Secretary Paulson had told them he was being called “Mr. Bailout” and would not rescue Lehman.

When the Treasury and the Fed—seemingly for no reason—failed to rescue Lehman, requiring it to file for bankruptcy on September 15, investors panicked. Not expecting a major failure, and now uncertain whether any investment was safe, they wanted cash or government securities. Liquidity for private firms—even those previously thought to be financially strong—dried up, putting many of them in jeopardy of failing. It was now clear that once the government had rescued Bear Stearns, it was a massive mistake not to rescue Lehman. The question, then, was whether the Treasury and Fed should have rescued Bear in the first place.

Some might contend that if Bear had been allowed to fail, the same panic would have occurred in March instead of the following September. Although we’ll never know for sure, this seems unlikely. Bear was a much smaller firm than Lehman, and had been on its way to failure for several months; no one would have been shocked when it went under. In addition, no large nonbank firm had ever before been rescued with a government bailout, so the market had no expectation that Bear would be rescued. Finally, even though Lehman’s collapse was a complete surprise, and fell on an unprepared market, no other large firms failed because of interconnections with Lehman. So the fear that the failure of one large firm would drag down others—the reason that Bear had been rescued—was wrong.

In other words, if Bear had been allowed to fail, there would have been losses, but not the panic that followed Lehman’s unexpected collapse; other firms, even Lehman, would at that point have rushed to shore up their equity positions. Under these circumstances, it is likely that the 2008 financial crisis would never have occurred.

Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute. His latest book is Hidden In Plain Sight: How the U.S. Government’s Housing Policies Caused the Financial Crisis and Why It Can Happen Again (Encounter Books, 2015).

Betsy DeVos is transforming her office, but she needs a messaging do-over - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 18:30

Although Secretary of Education Betsy DeVos made news last week because of her appearance on “60 Minutes,” which underwhelmed many observers, those who track education policy (and federalism) should take note of a speech she gave a week earlier.

Speaking to the association of chief state school officers (e.g. state education commissioners, superintendents, secretaries), DeVos revealed an important — and welcome — departure from her recent predecessors’ approach to the job. The secretary appears to be trying to transform her office from one of hard power to one of soft power and to significantly decentralize authority. Unfortunately, she may have inadvertently undermined her own case by seeming to question the judgment and energy of those to whom she would devolve power.

The good news for the secretary’s supporters is that the conceptual shift she’s attempting to bring to the office could, with persistence and discipline, last beyond her tenure. And she could bolster her case by showing a bit more public appreciation for the work of state and local education officials.
Over the course of the two previous administrations there was too little daylight between what federal officials wanted to happen and what they felt empowered to advance through federal policy. This was a problem for those who believe in a limited federal role in K-12 education. Just about all education leaders have a vision for how schools, districts, and states should behave. But understanding the dangers of empowering Uncle Sam in this realm separates an education secretary’s desires and dictates.

During the Bush-Obama era, federal preferences related to testing, accountability, teacher evaluation, discipline and more made their way into federal policy. The No Child Left Behind Act and its implementation forced the hands of states. President Obama’s Department of Education took it further by using administrative tools like incentives, waivers, and guidance documents to advance its agenda.

Betsy DeVos, however, is differentiating what she believes from what she is willing to compel. She seems to be bifurcating the role of secretary into a policy job (which she views as limited in scope) and an advocacy job (which she views as robust).

In last week’s speech, DeVos argued that the nation’s primary K-12 education law, the Every Student Succeeds Act (ESSA), represented a new era in education and that it “was born of a recognition that federal overreach had failed.” She reminded the crowd that her department was initially charged by Congress to “prohibit federal control of education.” Accordingly, her team reviewed states’ accountability plans (which are required by ESSA) with an eye toward whether those plans met the letter of the law and with a narrow interpretation of the secretary’s authority. For example, although she has strong views on school choice and personalized learning, she did not force states to adopt her priorities. “The Department is not the national school board,” she announced.

But then she used the bully pulpit of her office to dispense some “tough love,” prodding states to go farther than they had. Although she was limited to judging state plans based on the law’s specific requirements, “Just because a plan complies with the law doesn’t mean it does what’s best for students.” She criticized states for not fully utilizing the law’s flexibility on testing and the use of funds. She chided some plans for not being transparent enough about student performance, and she cited governors who had were unhappy with their own states’ plans.

In total, this represents an appropriate use of the secretary’s authority: implement a federal statute consistent with congressional intent, don’t inflate the power of the office in order to force your will upon states, but do use your platform to advocate for reforms you deem important. DeVos’s approach shows that a conservative’s skepticism about Uncle Sam’s meddling needn’t translate into a cabinet official’s sitting on her hands. It can, instead, mean empowering others to act and then encouraging them to do so.

The problem, however, is that the secretary seemed to imply that state education leaders are lacking the energy, vision, or courage to do what America’s schools need. It is a strange sales job for federalism that publicly questions the capacity of those to whom power would be handed.

In her speech, DeVos said, “For too long, many of you have operated — and in many cases, been forced to operate — as if your work was only accountable to folks in my office.” Here the secretary used an unfortunate and inaccurate trope about state education leaders, suggesting that they sit around waiting for direction from Washington. In truth, state superintendents and state board members are constantly dealing with a vast array of challenges, from improving funding formulas and teacher-preparation programs to reforming school-discipline policies and data systems, to managing delicate relationships with governors, legislators, local districts, advocacy groups, and more. All of this is done by state leaders who are passionate about helping students.

Elsewhere in the speech, DeVos asked, “What are you going to do to serve students in your state?” giving the impression that this wasn’t already their driving force. She also asked, “So, don’t you think it’s time to do something different? To try something new that enhances student achievement?” and argued that state leaders shouldn’t launch a “PR push” to defend their plans. Again, intentionally or not, the secretary implied unflattering things about state leaders — that they aren’t trying to do things differently and that they focus on optics.

Not only does this undermine the case for decentralizing power, it also serves to possibly alienate potential allies. State-level education leaders could be strong advocates for her push for K-12 federalism. This isn’t the first time DeVos’s comments have rankled those on the ground. Early in her tenure the secretary said teachers seemed to be “on receive mode;” and that “They’re waiting to be told what they have to do.” This charge of passivity frustrates essential players in America’s school system and can make others wonder why a decentralized approach to education would be wise.

The secretary deserves kudos for trying to redefine her office as one primarily focused on advocacy and the empowerment of others. Hopefully, in the future, her comments, while containing the “tough love” necessary, will build stronger relationships with and inspire more public confidence in those working in states and schools.

Let’s get real: It’s time to move on from the Putin-dominated UN - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 17:43

The United Nations has once again lost its power to act. Russian President Vladimir Putin has brought back Cold War-era paralysis to the Security Council.

Putin’s determination to oppose the U.S. and its allies at the U.N. on almost every issue, large or small, means that virtually no meaningful resolution can pass. When a resolution does pass – as with the Security Council-mandated ceasefire in Syria – Putin simply ignores it if he chooses.

The West must come to terms with this new reality and accept that it will now have to act directly in its own interests – without the cover or support of the U.N.

For a while, things were different. The U.N. played an important role in several conflicts over the past three decades. Its resolutions authorized action in 1991 to liberate Kuwait from Iraqi dictator Saddam Hussein’s invasion. The U.N. then imposed a strong weapons inspections regime on Iraq, backed by the authorization to use military force, throughout the 1990s.

In addition, the U.N. imposed increasingly harsh sanctions against Iran for its nuclear program, helping drive Tehran to accept the nuclear deal offered by the Obama administration in 2014. President Obama’s wisdom or folly in signing that deal does not reduce the fact that U.N. sanctions hurt Iran badly enough to help force it to the table.

Those days are gone. The U.N.’s relative effectiveness depended on the willingness of Russia to support or at least accede to Western actions against former Russian clients (such as Iraq in 1990-1992) and potential allies (like Iran in 2006-10, when the sanctions regime expanded dramatically).

Putin has now taken a position of outright opposition to the West, however, and will no longer accept such actions. He will not permit the Security Council to punish his ally, Syrian dictator Bashar Assad, for despicable war crimes against his own people. In fact, Russian air forces may well have collaborated in some of those war crimes.

Putin also will not allow the U.N. to pressure Iran to stop the expansion of its own military and proxy forces throughout the Middle East. And he will prevent the world body from taking meaningful action in Yemen, Iraq, Syria and Lebanon that Iran deems harmful.

An example of this is Russia’s recent veto of an effort to condemn obvious Iranian violations of sanctions preventing weapons transfers to Yemen’s Houthi rebel movement. This effectively removes the U.N. from a theater in which concerted international action is urgently needed. Millions are suffering as a result.

The U.N. has one tooth left with regard to Iran that Putin cannot easily remove – snap-back sanctions linked to the Iranian nuclear program. The Security Council resolution implementing the nuclear deal provides that sanctions automatically return if a signatory to the deal asserts that another party has violated it unless the Security Council passes a new resolution extending the sanctions relief.

Since the U.S. (as well as France and Britain) could veto any such resolution, Putin cannot prevent the reimposition of the full force of pre-deal international sanctions on Iran. This is a strong card the U.S. can threaten to play in addressing the nuclear deal’s many defects.

Russian aggression toward its own neighbors offers the clearest proof that the days of U.N. authority are gone. Putin invaded Georgia in 2008, has occupied and even annexed portions of it to the Russian Federation – and the U.N. took no meaningful action.

Putin invaded and annexed Crimea from Ukraine – and the U.N. took no meaningful action. Russia invaded and still supports militarily proxy forces in eastern Ukraine – and the U.N. took no meaningful action.

And Putin could invade the rest of Ukraine tomorrow, or the Baltics or any other state – and the U.N. would likely take no action because Putin would veto any effort to do otherwise.

The sooner Western leaders and elites come to terms with this reality, the better. The U.N. can no longer provide the legitimacy for action against aggression that many look for. It cannot effectively mediate disputes between permanent members of the Security Council. Its resolutions cannot be the litmus test for the legality of actions in defense of international norms or even law in most cases.

Those who oppose aggression and oppression must turn to their own interests and consciences to determine their actions. They must form their own coalitions and rely on their own strength. We can and should aspire to end the enmity that has created this situation, but we can have little hope of succeeding any time soon.

The weakening of the U.N. increases the need for strong alliances. NATO and the bilateral alliances America has with Japan, South Korea, Australia, and its other Asian partners become more vital than ever as the world order frays.

Collective action for the foreseeable future will mean alliance action, not U.N. action. The White House and leaders on both sides of the U.S. political aisle must make every effort now to strengthen and expand alliances rather than allowing economic, social or other disagreements to weaken them.

The worst possible situation for America is a world in which the U.N. is paralyzed and our allies alienated. The world does not need another impotent League of Nations and an isolated America.

Lessons from Chile’s transition to free college - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 17:41

Executive Summary

Supporters of free college proposals in the U.S. often look to Europe for case studies, but Chile may actually provide a better comparative study. Tuition-free higher education emerged in Chile as a popular idea in the wake of the massive student protests in 2011 in response to what students argued was unaffordable tuition, high student debt, and large concentration of enrollments in private higher education institutions. Chilean lawmakers ultimately adopted a tuition-free policy in 2016, or “gratuidad” in Spanish. This policy is not as sweeping as it may seem. Policymakers included a number of features to limit its cost and scope. Not all colleges and universities are eligible to participate and others opted not to; the benefit is restricted to students with low and middle incomes; and many students eligible for gratuidad already had access to generous amounts of government-issued grants and scholarships. Notably, more low-income students gained access to government aid under gratuidad because the program does not require students to meet a test-score cutoff, unlike the system of grants and loans it partially replaced. Public universities, which must offer free tuition under gratuidad, argue that government appropriations are not sufficient to make up for the lost tuition revenue and cover the costs of educating students. Empirical evidence suggests that absent a large increase in capacity at Chilean universities, gratuidad is likely to crowd out low-income students.

Read the PDF.

I’m worried about my friend Larry Kudlow - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 13:27

The cosmic writer of the Donald Trump, President of the United States show keeps coming back to the same tragic theme over and over: Characters get their hearts’ desire, but in the worst, most humiliating way possible. Just ask Rex Tillerson, Jeff Sessions, Reince Priebus, Gary Cohn, Mike Pence, and Christian evangelical leaders how that feels.

Economic analyst Lawrence “Larry” Kudlow appears on CNBC at the New York Stock Exchange, (NYSE) in New York, U.S., March 7, 2018. Reuters

So I pray the same fate won’t befall Larry Kudlow, my dear friend and career mentor whom Trump is appointing the new director of the National Economic Council. For Kudlow, this unexpected turn of events must represent both a personal triumph and a vindication for his “supply-side economics” ideology. He will now theoretically have a direct role in shaping U.S. economic policy and turning his favorite maxims such as “Free market capitalism is the best path to prosperity!” and “King Dollar!” into action.

And Americans — humans everywhere for that matter — should be greatly relieved that he accepted. Though Kudlow is best known as a CNBC commentator, he was chief economist for both Bear Stearns and Ronald Reagan’s budget office; in the grand scheme of Trump hires, that makes him the safe choice. Meanwhile, the likely runner-up for the position, economist and White House adviser Peter Navarro, is an anti-globalization zealot who would have enabled Trump’s wrong-headed instincts on trade and international relations. More than just the North American Free Trade Agreement would have been in danger. You can also toss in the World Trade Organization, the global supply chains of American companies, and really the entire edifice of the prosperity-generating postwar economic order.

Kudlow, on the other hand, could be a moderating headwind against those impulses. Certainly, in his role as an economics commentator and outside adviser to Trump, Kudlow has to his great credit persistently criticized Trump’s views on trade, beliefs which really form the core of Trumponomics. In a recent National Review article, for instance, Kudlow and fellow supply-sider Stephen Moore sharply criticized the president’s decision to impose steep tariffs on aluminum and steel. They even wrote that tariffs are “really tax hikes.”

Yeah, Kudlow and Moore went there. For a supply-sider, tax hikes — whether in the form of higher marginal tax rates or trade barriers or growth-dampening regulations — are the original sin of economics. And there is no more stinging charge they can level at a policy.

Still, sort of amazingly, Kudlow got the job. But is it really a job worth having under these circumstances?

The part of Trump’s agenda that most excited Kudlow was the tax cuts, particularly the massive cuts in business taxes. But for all of Trump’s talk about a “phase two” to tax cuts, a second round is highly unlikely to happen this year or even in the rest of Trump’s first term given the precariousness of the GOP’s congressional majorities. Moreover, passing future tax cuts will be difficult, both politically and fiscally, as trillion-dollar budget deficits become the norm. Where Trump does have power is on trade, which means Kudlow may be spending the bulk of his time trying to prevent bad policy rather than promoting good ideas. Or, even worse, Kudlow will play the good soldier and twist himself into knots trying to justify Trump’s protectionism today as somehow leading to more and freer trade tomorrow.

And that’s really the problem. Kudlow’s ascent really doesn’t mark the apotheosis of supply-side economics or even a greater GOP commitment to broadly pro-market policies. More likely it signals the last gasp of 1980s-style Reaganomics as a force in the Republican Party. Which wouldn’t be a bad thing if it was replaced by a modern application of conservative, free-market principles in an increasingly digital economy that poses both new opportunities and unique challenges. (Indeed, Kudlow has expressed considerable interest in the impact of emerging technologies like artificial intelligence, unlike his new boss.)​

Instead, however, the Trumpublican populist-nationalist turn is one that envisions a more closed economy — whether to goods, capital, or talent — where government shields workers and favored firms from dynamic change rather than preparing them to benefit from it. And in this GOP, culture war is what gets the juices flowing.

For a happy warrior like Kudlow, this late-career plot twist may lead to an unsatisfying finale.

Related reading:


Nationalism, domestic politics, and China’s global leadership role - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 13:26

The future U.S. role in the Asia-Pacific and the potential challenge of China’s rise is hotly debated in both the policy and academic communities. Whether China is willing and able to take on a global leadership role in the economic, political and security realms is of particular interest. China’s leadership role has become a proxy for evaluating Chinese intentions—is China a status quo power, willing to accept U.S. leadership or a revisionist power, trying to undermine, replace or compete with U.S. leadership? China’s approach to global leadership has also served as an indicator of Chinese grand strategy —whether China will maintain narrow national interests that only extend into its region or contribute to the global order as a ‘responsible stakeholder.’

How should we understand China’s current global role and its ambitions? On the one hand, China’s increased global activism—establishment of the Asian Infrastructure Investment Bank (AIIB), the One Belt One Road (OBOR) initiative, or Chinese base in Djibouti to support counter-piracy operations to name a few examples—has caused some to worry China hopes to unseat the United States and supplant the current international order with one better suited to Beijing’s needs.

Guests watch and take pictures as China’s People’s Liberation Army soldiers march with their weapons at Tiananmen Square during the military parade marking the 70th anniversary of the end of World War Two, in Beijing September 3, 2015. Reuters

On the other hand, prominent voices call for an even greater role for China on the global stage, implying that China is currently not taking on the mantle of global leadership.If anything, commentators criticize China for shirking its leadership responsibility, in particular on North Korea and fighting ISIS. For its part Beijing has at times viewed the call for China to shoulder more international responsibilities “as part of an international conspiracy to thwart China’s development.”

But neither argument gives adequate attention to how Chinese domestic public opinion may shape the degree and nature of China’s leadership role. There are empirical and theoretical reasons to believe this may be an important factor to consider. First, Xi Jinping uses nationalism to boost his legitimacy, and this has taken on a definitively global tone through his ‘two guidances.’ This refers to Xi’s call for Beijing to “guide the international community to jointly build a more just and reasonably new world order,” and “guide the international community to jointly maintain international security.” Second, the Chinese government increasingly surveys the Chinese public on a wide array of topics in order to respond to (or manipulate) public concerns. Even authoritarian regimes have incentives to make policy concessions in accordance with public opinion because they can more efficiently govern when the people engage in “quasivoluntary compliance.” Lastly, research shows that domestic political factors, including nationalism, increasingly impact Chinese foreign policy decisions.

Below, I briefly address some pathways through which the expectations and demands of China’s domestic public may impact China’s future approach to leadership in the economic and security realms. The bottom line is that nationalism supports a greater global role for the prestige and enhanced ability to protect Chinese interests, and also creates limitations on the nature and degree of China’s global involvement.

China’s Economic Role

China is arguably the most forward leaning in its global role in the economic realm. China has created its own institutions to lead, such as the AIIB. China has also invested $40 billion to finance its OBOR initiative to create “the world’s largest platform for economic cooperation,” by improving transportation infrastructure along China’s global land and maritime trade routes. Furthermore, while the U.S. has abandoned Trans Pacific Partnership negotiations, China has also spearheaded the Regional Comprehensive Economic Partnership (RCEP) free trade agreement that would include countries accounting for 12% of global trade and 29% of global GDP. Foreign aid programs have been much slower to develop, however, because of domestic factors. With 85 million people living in poverty in China, the view that China should be prioritizing the welfare of its people, not making aid commitments, is prominent.Because of this, foreign aid is categorized as a “state secret,” and China was slow to launch its program.

Now, even though China’s foreign aid has surpassed that of the United Kingdom, domestic political factors continue to shape the nature of that aid. Specifically, while U.S. foreign aid and trade partnerships have arguably been strategically oriented—focused on combatting communism in the Cold War and counterterrorism today (Pakistan is a major beneficiary and foreign military financing was the third largest project in 2016)—China pursues projects that directly benefit China economically. For example, Africa receives about half of Chinese concessional aid, and the vast majority of it goes to infrastructure construction and for industrial development, specifically transport and storage; energy generation and supply; and industry, mining, and construction. In other words, the aid projects are focused on industries in which Chinese companies are deeply involved and stand to profit. Additionally, China is also known for bringing in its own labor for such projects in order to elevate unemployment pressures at home. While ‘global’ in nature, OBOR’s focus is also at home—the rationale is to create markets for Chinese goods and facilitate their transportation across land and maritime routes.Propaganda posters around Beijing are clear —China pursue a larger global economic role insofar as it brings economic benefit to the Chinese people. China has no intention to take on burdens of development in ways that primarily benefit the target state.

China’s Security Role

Domestic public opinion also creates incentives for the Chinese military to play a global, albeit limited role. As I have written elsewhere in greater length, domestic public support for the development of expeditionary capabilities is coalescing as more Chinese nationals find themselves in dangerous situations due to a combination of misfortune and political instability in the host nation. In 2016, Chinese nationals recorded 122 million overseas trips and spent a total $109.8 billion on travel/ tourism abroad. By 2020, approximately 150 million Chinese citizens will be traveling and living abroad. These overseas Chinese, referred to as haiwai gongmin, (海外公民) expect their government to provide certain guarantees for their protection, known as haiwai gongmin baohu (海外公民保护). Netizens often complain that the government relies too heavily on enhancing citizen awareness of dangers and diplomatic mechanisms for citizen protection, rather than using military force. One of the reasons Wolf Warrior 2 has been such a box office success is because it depicts a situation in which a former special forces soldier puts himself at risk to save Chinese medical personnel and factory workers trapped in an unspecified war-torn country.

China’s role in international interventions is likely to be limited, even once it has more capacity to do so, because of domestic sensitivities to ‘hegemonic’ behaviors. Because of its one hundred years of humiliation at the hands of hegemonic foreign powers, China needs to believe that it would be a different type of great power than those which came before it. A popular domestic narrative is that China in a unique position to understand the priorities and needs of developing countries and create a new international order that does not infringe on countries’ ability to govern domestically as they see fit. Western nations, on the other hand, are “fundamentally rapacious, greedy, and aggressive” that “pillage to expand their territories [and] plunder wealth [to] expand their sphere of influence.”

The CCP and the Chinese people have consequently been ideologically averse to alliances and overseas bases that tend to accompany a more global military strategy. However, in recent conversations in Beijing, it was conveyed to the author through authoritative sources that China may pursue overseas ‘access points,’ but that they would be distinct from U.S. bases in that they would house only logistical and defensive equipment and personnel, and therefore not be used for hegemonic purposes of coercion, attack, and interference in the domestic affairs of other countries. This is in line with domestic public opinion on the issue. In a March 2010 newspaper poll, 80% of Chinese respondents responded positively to the question “Do you think China should strive to be the world’s strongest country militarily?” However, less than half of respondents approved of a policy to publicly announce such an objective.

With the election of Donald Trump, whose America First policies often have an isolationist and anti-globalization tone, the issue of Chinese global leadership has been pushed center stage—as one Chinese official remarked in January, while China “doesn’t want” to become a world leader, it could be “forced” to assume that role if others step back from that position. How China plans to approach leadership—where it competes, undermines, follows or leaves unchallenged the U.S. leadership position—has serious implications for the future of U.S. global leadership. If U.S. policymakers understand how expectations of the Chinese public constrain or push the CCP, they can better forecast what kind of global power China will become. Specifically, China seems poised to choose a global role that still caters to narrow domestic interests and will likely be economic, not security, focused. In other words, China is unlikely to mimic U.S. strategy in this regard, and therefore Chinese ambitions cannot be accurate calibrated against the U.S. model. Moreover, China is unlikely to attempt to overthrow the U.S.-led order, but its failure to participate fully in parts of it coupled with establishing some alternative structures that better fit its domestic economic needs may erode U.S. power and influence over time.

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40 top economists unanimously agree: Steel and aluminum tariffs will not make America great - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 03/16/2018 - 13:04

A panel of 40 economists at some of America’s top universities (MIT, Harvard, Yale, Chicago, Princeton, Stanford and UC-Berkeley) were asked in a survey conducted by the Initiative on Global Markets (Chicago Booth School of Business) if they agree or disagree that the statement “imposing new US tariffs on steel and aluminum will improve Americans’ welfare.”

When their answers were weighted by each economist’s confidence in his or her answer, 76% of the experts strongly disagreed and 24% disagreed, and none agreed or were uncertain! As I’ve mentioned several times recently on CD recently (here and here) the math of protectionism is pretty simple, and pretty ugly, in terms of its predictable negative effects on the economy. 100% of some of the top economists in the country agree.

HT: Veronique de Rugy via Cafe Hayek.

On eve of trial, reexamining DOJ’s landmark suit against AT&T/Time Warner - On eve of trial, reexamining DOJ’s landmark suit against AT&T/Time Warner

Fri, 03/16/2018 - 10:00

In the telecommunications world, all eyes are focused on the AT&T/Time Warner trial, which begins next week before Judge Richard Leon in Washington, DC. The Justice Department’s high-profile suit has drawn attention not only because of the size of the merger — $85 billion, one of the largest in history — but also because of the unusual nature of the government’s claim. Unlike most antitrust cases, which involve mergers between competitors, this is a vertical merger, which the government rarely challenges in court. The trial will determine whether this represents merely a minor gale in antitrust case law or more significant winds of change.

United States Attorney General Jeff Sessions speaks at the Department of Justice in Washington. Via REUTERS

I discussed the case in broad strokes in a blog post last November, shortly after the Justice Department filed suit. This post will discuss the significant developments in the case since then, and specifically how discovery has sharpened the issues.

Pretrial developments

One significant development since November has been a subtle shift in the government’s theory of the case. In the initial complaint, the government argued that a post-merger AT&T would have the power to raise consumer prices. By threatening to withhold Time Warner content from rival pay television distributors, the company could increase the price those rivals pay. These increased costs would be passed along to consumers in the form of higher rates, which would then create an opportunity for AT&T to increase its own prices. But the government has seemingly abandoned this theory of consumer harm, focusing instead on the more limited claim that the merger will increase the costs of AT&T’s rivals — because, according to AT&T’s pretrial brief, the government’s own expert found that merger efficiencies are likely to reduce AT&T’s consumer prices. This narrower claim may be easier for the government to prove, although it may also reduce the stakes of the case.

On the defense side, AT&T abandoned its selective prosecution claim. In court and in the press, the company argued that its merger was being singled out by government officials because of President Trump’s animosity toward CNN, a Time Warner property. As I noted earlier, this was unlikely to be true, and this argument was always aimed more at the court of public opinion than the court of Judge Leon. The court signaled its skepticism in a series of pretrial evidentiary motions, after which AT&T dropped the claim and focused instead on the merits.

What to watch for at the trial

For the government, much rides on the credibility of its expert, whose model allegedly shows that the merger will raise rivals’ costs by 45 cents per subscriber monthly. This “Nash bargaining model” assumes each party has an anchor price, based on its next-best alternative, and that by bargaining, they will split the difference equally. Under this theory, the merger will increase the bargained-for price by increasing Time Warner’s anchor price. If a post-merger Time Warner withholds programming from a rival operator, at least some of the rival’s customers will defect to AT&T, thus making withholding a more lucrative strategy than in a premerger world — and therefore increasing the value of a post-merger Time Warner’s next-best alternative. But the model is only as good as its assumptions — such as that Time Warner can credibly threaten to withhold programming, that this would lead to defections, and that the parties will always meet in the middle — assumptions that AT&T plans to attack. Moreover, even if the model survives cross-examination, the government must show that a 45-cent increase per customer — which may or may not be passed along to consumers — is significant enough to constitute harm to competition.

Related to this will be the weight the judge puts on AT&T’s recent arbitration offers. To blunt the government’s argument that a post-merger Time Warner will threaten to withhold programming from rivals, AT&T unilaterally extended an irrevocable arbitration/no blackout offer to all Time Warner distributors. In the event of a dispute over carriage terms, the company agreed to binding baseball-style arbitration and to continue service during the arbitration, which are similar to procedures the Federal Communications Commission has used to prevent anticompetitive conduct similar to that alleged by Justice Department. The government sought to block this agreement from being offered into evidence, arguing it was “irrelevant,” but Judge Leon denied that motion.

Finally, the government will face pressure to prove its alternative theory, that a post-merger AT&T will have incentive and ability to conspire with Comcast to hobble over-the-top competition. In other contexts, courts have been skeptical of conjectured conspiracies without proof that such conduct is likely to occur.

Handicapping the merger, redux

The discovery process and pretrial briefs have sharpened the issues to be presented to the court. But they do not significantly change the legal standard. Ultimately, the government must prove that it the merger is “likely” to “substantially lessen competition.” These are standards, not rules, which allows some margin for judicial discretion. And Judge Leon presided over the settlement approving the 2011 Comcast/NBCUniversal merger, which raised similar anticompetitive concerns, meaning he is well-versed in both the government’s theory of the case and the competitive dynamics of the cable television industry.

This suggests the government may have a path to victory — but it remains an uphill battle. Any anticompetitive harm the government proves must be balanced against the procompetitive effects of the merger — including potential price reductions by AT&T, which the government appears to acknowledge. And the merger must be placed in context: Over the last half-decade, internet-based alternatives have significantly disrupted the traditional cable bundle. These competitors, which include such behemoths as Google and Netflix, have significant access to viewers’ demographics and habits, which allows them to better tailor video offerings and offer superior services to advertisers. AT&T argues that to compete against them, Time Warner (a traditional wholesaler of video content) needs similar information about its viewers, which the merger may provide. The same impulse is driving Disney’s decision to go directly to consumers later this year. Legacy companies must innovate to remain competitive in dynamic markets — which is a strong argument in favor of allowing this merger to proceed.

Learn more:

Restore Americans’ freedom to buy health insurance independent of Obamacare - On eve of trial, reexamining DOJ’s landmark suit against AT&T/Time Warner

Thu, 03/15/2018 - 22:37
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The tax-reform provision repealing the penalty on those who refuse to participate in ObamaCare has freed millions of Americans to escape a system that exploits them. But while Americans can escape ObamaCare, they still can’t buy insurance in the individual market independent of ObamaCare because private insurers are prohibited from selling it. If this prohibition can be removed through the granting of state waivers by the Department of Health and Human Services, or by the passage of a new federal statute, ObamaCare will collapse into a high-risk insurance pool for the seriously ill rather than become a stepping stone to socialized medicine.

The politics of the ObamaCare debate changed dramatically when the Congressional Budget Office determined that repealing the coverage mandate would save an astonishing $338 billion over 10 years. The saving would come from undisbursed subsidies, as lifting the tax penalty would induce an estimated 4.6 million people to flee from the exchanges. The number of Americans enrolled in ObamaCare plans is projected to plummet to 7.4 million by 2021, a mere 2.2% of the population.

The repeal of the tax penalty will progressively worsen ObamaCare’s risk pool as healthy enrollees who currently pay more into the system than the expected value of their coverage exit the exchanges. Premiums will rise at an accelerating rate for those who stay in the exchanges, forcing Democrats to find new funding or watch the program implode.

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The repeal of the tax penalty will progressively worsen ObamaCare’s risk pool as healthy enrollees who currently pay more into the system than the expected value of their coverage exit the exchanges. Premiums will rise at an accelerating rate for those who stay in the exchanges, forcing Democrats to find new funding or watch the program implode.

From the archives: Russian politics and Russian elections explained - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 19:33

As the Russian election approaches, there is no better guide to the Russian enigma and its current president than the writings and research of American Enterprise Institute resident scholar and director of the Institute’s Russian studies, Leon Aron. For more than a quarter century at AEI, Aron has written about the country of his birth. His most recent collection of essays on this topic, “To Have and to Hold: Putin’s Quest for Control in the Former Soviet Empire,” takes a look at the political and military threat Russia poses to seven of its neighbors. This week, Aron invited a panel of experts to AEI in order to discuss this monograph and lay out possible US foreign policy responses.

In early 2000, he authored the first full length biography of Putin’s predecessor, Boris Yeltsin, which earned a glowing review on the front page of The New York Times’ Sunday book review for its deep understanding of a complicated individual who led a great nation at a fateful point in history. In this review, Bill Keller writes:

[Aron] understands in his bones the weird operational milieu of Soviet Communism. He understands how it got that way, how it functioned during the few decades when it functioned, how and why it failed and how on its deathbed it produced such anomalous Communists as Mikhail Gorbachev and Boris Yeltsin. He understands that the end of the Soviet empire was not primarily the work of a romantic popular uprising (although, unlike some scholars, he gives the Russian public its due), nor was it especially a triumph of cold-war containment; it was the result of the inevitable collapse of an exhausted economy propped up by a cynical ideology.

It is this same understanding that provides such potency to Aron’s work here at AEI. Just as Aron documented the changes Boris Yeltsin set in motion — the flowering of green shoots of freedom — he now seeks to bring clarity to this enigma as it unfolds under the reign of Putin. An interesting tidbit Aron noticed, “First, by the end of his term Putin will have been in power as president or de facto leader for 24 years — longer than any Russian ruler since Nicholas I (1825-1855) except for Stalin.”

Winston Churchill once uttered a famous phrase about the Russian enigma, ending with this: “Russia . . . is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.”

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Aron’s deep historical knowledge undergirds his understanding of Russia’s past, present, and future. His writings help us understand how Putin, soon to be in his fourth term, sees the Russian national interest and his own.

If you are interested in learning more about Leon Aron’s work at AEI, check out his scholar page for a complete collection of his work spanning more than 25 years. To stay up-to-date with AEI’s Foreign & Defense Policy team, subscribe to their weekly newsletter using the form below.

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Employment Requirements in Benefit Programs Needed to Reduce Poverty - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 19:18

Chairman Guthrie, Ranking Member Davis, and members of the committee: Thank you for the opportunity to testify today on how to best encourage work and increase earnings for beneficiaries of our nation’s safety net programs.

My testimony today is informed by more than 18 years of working in state and local social services agencies in New York state and New York City. It is also informed by the evidence base associated with our safety net programs, the populations that participate in them, and the current condition of our labor market. My remarks reflect three key points:

(1) Our country’s social safety net reduces poverty, but it is most effective when families combine earnings with support
(2) Too many families receiving government benefits are not working at all, and
(3) An expectation of work across safety net programs needs more emphasis, which includes but is not limited to, implementing work requirements in our safety net programs.

As I mentioned, much of my career has been spent working to provide benefits directly to low-income residents. The most important lesson I learned is that our system is designed to help people escape poverty by combining income from earnings with assistance from government. When earnings are leveraged with public benefits, even a low-wage job offers a path out of poverty for families in which the adults are not disabled. A single parent with two children who works full-time for $8 per hour can receive $25,000 per year in government benefits when you consider SNAP, tax credits, child support and Medicaid, bringing their total income above the poverty line.

Work is important from an income perspective, but it also contributes to a sense of self-worth and confidence, as well as having the effect of strengthening social and communal ties. But for too many, work is absent and no earnings exist.

For these reasons, I believe that our public policies need to prioritize families who are receiving aid but not working. I am not referring to the elderly or the disabled. I am referring to working-age people receiving benefits who are not working but likely could be. And contrary to what some believe, the problem of limited or no work among recipients is real and large and needs to be addressed.

Read the PDF.

Humanitarian aid should never be used to justify war in conflict zones - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 19:06

For years, aid groups have been trying to draw international attention to the dire humanitarian crisis in Syria. Now, the Trump administration is using the crisis in the rebel-held enclave of Eastern Ghouta to justify potential military action. This approach is deeply problematic because it challenges the very foundation of the international humanitarian system.

People walk with their belongings as they flee the rebel-held town of Hammouriyeh, in the village of Beit Sawa, eastern Ghouta, Syria March 15, 2018. Reuters

Politicizing humanitarian aid to justify a strike on Syria would forever undermine the perception of humanitarian organizations as neutral, risking the lives of aid workers and limiting the future access of aid organizations to conflicts around the world.

In February, the U.N. Security Council unanimously approved a resolution calling for a 30-day ceasefire to allow for deliveries of humanitarian aid and medical evacuations in Syria. The United Nations estimates that 13.1 million Syrians require assistance and of these, 5.3 million are children.

When that resolution was predictably ignored, an aid convoy heroically endured continued shelling, finally reaching the besieged suburb of Damascus on March 5. However, the Assad regime’s attacks continued so intensely that the convoy was forced to turn around and leave Eastern Ghouta nine hours later without delivering all of its aid.

Understandably frustrated by this abysmal outcome, U.S. Ambassador Nikki Haley this week blamed the convoy’s failure on the cruelty of the Syrian and Russian governments. Invoking U.S. airstrikes ordered by President Trump last April following one of the Assad regime’s chemical weapons attacks on civilians, Haley’s message was clear: “The United States remains prepared to act if we must.”

But Haley and the rest of the Trump administration should think very carefully about how they are setting up potential military strikes on the Assad regime. The only reason that any aid organizations are currently able to operate in Syria is because Bashar Assad does not see them as a threat to his power.

Organizations like the Red Cross or Doctors without Borders were founded around a core set of values, often referred to as “dunantist” after Henry Dunant, who played a key role in the creation of the International Committee of the Red Cross. Neutrality, impartiality and independence were seen as essential to the alleviation of human suffering.

Organizations that hold these values do not take sides in a conflict, treating both civilians and belligerents regardless of their political allegiance. They operate impartially, offering aid to those who need it the most, not just those who share their skin color or religion. As a result, they are seen by both governments and aid recipients as independent of the broader political processes associated with a conflict.

If the Trump administration appropriates the actions of these groups to justify military intervention, it will no doubt give other dictators and human rights abusers pause when considering whether to allow humanitarian aid to come into conflict zones. The resulting contraction of humanitarian space would cost countless lives.

This shift in justification would also have serious implications for the U.S. position on Yemen, a country faced with what the United Nations has declared the worst humanitarian crisis in the world. Saudi Arabia repeatedly restricted humanitarian access in Yemen through its control of the country’s ports, before offering a $1.5 billion pledge of humanitarian assistance in January. The United States is clearly not prepared to act militarily to protect humanitarian assistance in Yemen, nor in the many other conflicts around the world where innocent civilians are suffering.

The Trump administration should not use humanitarianism to justify military action in Syria, and it does not have to. The Syrian regime has already provided more than enough reasons to act, including the continuing use of chemical weapons against the civilian population. Until Haley’s statement this week, the administration remained focused on Assad’s chemical weapons use. That message is compelling enough without jeopardizing the future of humanitarian aid.

Jessica Trisko Darden, Ph.D., is a Jeane Kirkpatrick fellow at the American Enterprise Institute and an assistant professor of international affairs at American University. You can follow her on Twitter @TriskoDarden.

SNAP shouldn’t subsidize poor health - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 17:39

Earlier this week, the Bipartisan Policy Council’s (BPC) SNAP Task Force released its report to promote better health through good nutrition using the Supplemental Nutrition Assistance Program (SNAP). As a member of the task force, our primary focus was addressing the contradiction now present in the country’s two largest safety net programs, SNAP and Medicaid. Both programs provide resources to low-income households so that they can afford a healthy lifestyle, yet when it comes to diet quality, SNAP falls short on its goals.

Medicaid and SNAP both provide resources to low-income households to support healthy lifestyles. But the latter actively undermines the former. Via Twenty20

Our task force developed 15 recommendations aimed at better promoting good nutrition through SNAP. Recommendations focused on prioritizing nutrition in SNAP, strengthening nutrition education in SNAP, better aligning Medicaid and SNAP, and better coordinating state and federal nutrition efforts.

One recommendation in particular — to eliminate sugary beverage purchases using SNAP — was expectedly controversial. SNAP provides $63 billion each year to low-income households to purchase food, much of which directly benefits retailers and beverage companies. It’s unsurprising that groups like the Food Marketing Institute, the National Grocer’s Association, and the American Beverage Association are opposed. Sugary beverages make up the second largest food group purchased in SNAP households, accounting for 9.3% of expenditures on food. Eliminating them from SNAP could mean billions of fewer dollars for beverage companies, as well as the grocers and marketers connected to them.

But the task force’s main concern was not the profitability of grocers and beverage companies. Instead, we focused on the purpose of SNAP, which is “to provide for improved levels of nutrition among low-income households.” We took seriously the concerns about industry disruption that might result from restricting sugary beverages, as well as concerns that they limit choice for SNAP participants. But in the end we believed that supporting the health and well-being of SNAP participants outweighed these concerns.

Sugary beverage consumption is harmful, and allowing it in the country’s main nutrition assistance program not only hurts poor people but costs the government billions in related health care costs through Medicaid.

The medical community is unequivocal on this point. As we highlighted in the report:

It is appropriate to target SSBs specifically because, while added sugars are rarely if ever conducive to good health, a growing body of research finds that SSBs have particularly pernicious effects: Unlike almost all other foods or beverages, they have no nutritional value and only cause harm to health without benefits. Per serving, SSBs are associated with greater long-term weight gain than nearly any other dietary component. Independent of weight gain, SSB consumption is also linked to diabetes and coronary heart disease. For every one to two daily servings of SSBs consumed, an individual’s lifetime risk of developing diabetes increases by 30 percent. This is concerning considering that the average number of servings of SSBs consumed by low-income adults (both SNAP participants and income-eligible nonparticipants) is almost three per day.

Restricting sugary beverages from SNAP is also needed to counteract the substantial marketing of sugary beverages that exists today. A 2012 survey of adolescents found that almost half of teens reported exposure to sugary beverage advertisements on a daily basis. Additionally, from our report:

In the United States in 2016, the food industry spent over $13.5 billion on advertising, including advertising for unhealthy items and SSBs. At least $1.8 billion of this total was spent on marketing that specifically targets children. According to a 2012 Federal Trade Commission report, fast food, carbonated beverages, and breakfast cereals account for 72 percent ($1.29 billion) of all youth-directed marketing expenditures. In addition, a high volume of often industry-supported conflicting messages about nutrition and food means that much of the public is confused about what to eat and has difficulty evaluating many of the terms commonly used to market foods, such as “natural” or “healthy.”

Direct marketing efforts that prop up sugary beverages and other high-sugar foods substantially overshadow SNAP’s nutrition education efforts. Eliminating sugary beverages from SNAP would complement nutrition education efforts and send perhaps the strongest possible message about proper nutrition and good health.

Almost eight years ago, as a Deputy Commissioner, I helped draft a request to restrict sugary beverages from SNAP in New York City, which was ultimately denied by the federal government. Since that time, the problem of obesity, especially among children, has gotten worse. In 2015–2016, 35.1% of all children were overweight or obese compared to 32% in 2010. To make matters worse, two out of every five 16–19 year olds fit this category in 2015–2016. Sugary beverages are a main contributor with daily calories attributed to them still 30% higher compared to 1990 among children.

Now is the time to put the health of low-income families above all other interests. SNAP may not be the entire solution, but it shouldn’t be contributing to the problem. As Congress starts to debate the Farm Bill, an honest discussion is needed about who benefits from sugary beverages in SNAP and who is harmed. Because allowing sugary beverages in SNAP does nothing to make low-income families healthier.

Learn more:

The coming end of the Arthur Brooks era - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 17:04

Yesterday afternoon, at AEI — my other home, as it were — Arthur Brooks delivered his annual State of the Institute address. After running through all of the (very good) numbers and laying out his visions for various programs and the institution itself, he brought up the fact that he’s argued for years that leaders of think tanks and similar “social enterprises” should leave while things are going good. I let out a slightly too audible groan, because I knew where he was heading. He told all of us that he asked the board to start a search for the next president of AEI. Also, he added, an op-ed by him will be up at the Wall Street Journal in a few minutes making the decision public.

Within minutes my phone lit up with text messages and emails asking, “What’s the real story?” It’s an understandable reaction these days given how so many cover stories quickly evaporate when the slightest light is shed on them. Moreover, the presidency of AEI is one of the greatest jobs in the world (for the right person), so giving it up voluntarily seemed too implausible in this cynical age. But as I spent a chunk of the afternoon telling people yesterday, the cover story is the actual story. As far as I can tell, Arthur is overwhelmingly popular at AEI from the interns to the Board of Trustees. Do some people have disagreements with him? Sure. But Arthur has been explicit from the beginning that he wants AEI to be full of disagreements. He is not merely tolerant of dissent, he encourages it.

Arthur Brooks is a strange creature by Washington standards. Heck he’s a strange creature by bipedal standards. A former French horn player who decided to be an egghead late in life, he is a unique mix of Catholic piety, data obsession, sartorial connoisseurism, physical fitness, old-soul wisdom and basic decency. He reminds me of William F. Buckley in several ways. But at the top of the list: He shares Bill’s commitment to good manners, and, for a guy who seemingly knows everything, he is remarkably interested in the opinions of others. (The Arthur you hear in this podcast I did with him is the Arthur I know).

I don’t want to sound like I’m writing a eulogy. Arthur’s not dying. But a little bit of what has made AEI so special for the last decade surely is. I’m sure the next president of AEI will be great. But he will be no Arthur Brooks because there is simply no one quite like Arthur Brooks and, if I may offer my two cents early in the search process, it would be folly to try to find “another Arthur.” An Arthur Brooks impersonator would be a pale imitation because no one could fake Arthur’s gifts. They can only come naturally, and they only come along once in a generation, if that frequently.

Related reading:

‘The gender gage rap is real!’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 03/15/2018 - 16:09

When I arrived at Lewis & Clark Law School to give a talk, a security officer asked if I had a gun. She’d heard rumors on social media. I didn’t, but my friend Andy Ngo, a Portland State grad student, was armed with an iPhone.

Christina Hoff Sommers enable to continue lecture at Lewis and Clark Law School after protesters shout over her. Still image from YouTube video posted by Andy Ngo on March 6, 2018

A letter from several leftist student groups had demanded the Federalist Society disinvite me. It described me as a “known fascist” whose speech would constitute “violence” against victims of “gendered oppression.” I didn’t take the letter too seriously, nor did my hosts. Law-school students are usually older and more sensible than undergrads, and they’re supposedly learning how to argue for a living. Most Lewis & Clark students—progressives and conservatives—are easygoing and committed to free expression. But that didn’t stop the bullying minority from turning up the volume.

As we approached the lecture hall, we saw protesters blocking the entrance, so we walked in through an adjacent door. When I reached the podium, several sign-wielding students dashed to the front of the room. The ringleader, a blond woman in a “Stay Woke” jacket, read chants from her phone: “Microaggressions are real!” “Black lives matter!” “The gender gage rap is real!” I think she meant “wage gap.”

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